Hecla Mining (NYSE:HL) is a North American based silver mining company established in 1891. HL's corporate headquarters are located in Vancouver, BC. Their major operations are in Idaho and Alaska with Alaska's Greens Creek mine being the most productive. In Colorado and Mexico HL has pre-development sites. 2011 produced record earnings and an incredible 9.5 million ounces of silver.
In this article i will describe HL's two major mines and how each might impact shareholders in the future.
Lucky Friday Mine
HL has had ownership of the Lucky Friday mine since 1958. It is located in Mullan, Idaho. HL now currently owns 100% of the property. The major ore body at Lucky Friday extends from the 1200 foot level to the 6020 foot level and produces both silver and lead. Its current proven reserves are 29,573,000 ounces of silver, 70,000 tones of zinc and 183,000 tones of lead. The total cash cost per ounce is about on average $1.15.
A number of accidents at the Lucky Friday mine forced the mine to close January 11, 2012. 200 miners and operators were put out of work. The stock tumbled 21% leaving it at an all time low of about $4.61 on January 11. Because of the mine closure, Lucky Friday has not been able to produce any ore. As a result, the cash cost per ounce doubled. Cash costs for 2009-2011 had remained under two dollars but in the first quarter of 2012 cash costs increased to $2.24. All of 2011 production was from the Greens Creek mine. HL plans to reopen the mine in the first quarter of 2013. Unfortunately, they only plan to produce about 2 million ounces in that location. That is 1 million ounces short of previous years.
Federal mine inspectors, who are investigating accidents at the Mullan, Idaho, mine, closed down Lucky Friday's main shaft last week as a result of hazards associated with sand and gravel buildup in the shaft. The vertical shaft is the underground silver mine's main entrance and exit, and hauls both workers and materials.
(source: the spokesman)
The #4 shaft that HL is operating at Lucky Friday is currently going through extensive building and expansion which began in 2010. This will increase the mine's production rate from 3 million ounces to 5 million ounces, and extend the mine's life past 2030. The project requires 200 million dollars and so far 90 million has been used, all in the fourth quarter of 2011. The project end is estimated around 2015 with its full potential being realized around 2017. The project is 45% complete. If silver prices stay where they are at now, the project will pay for itself in about two years after completion.
The Greens Creek mine is located in southeast Alaska. It produces silver, zinc, gold, and lead. The probable reserves in the ore body contain almost 100,000,000 ounces of silver. Yes, that's not a typo. The mine also contains 742,400 ounces of gold, 733,000 tones of zinc, and 281,000 tones of lead. It is currently the only gold producing location HL operates. The mine itself produces more silver than all the production locations of Endeavour Silver (NYSE:EXK). Unlike Lucky Friday, Greens Creek has had almost zero accidents lately. The company continues exploration in the land package and hopes to find another ore body similar to Greens Creek. The east ore zone of Greens Creek is going to go under development to help increase the mine's life.
Currently, reserves in the East Ore Zone are 683,000 tons at 13 ounces per ton silver and 7.89% zinc. East Ore Zone resources consist of 1.2 million tons at 12.6 ounces per ton silver and 7.14% zinc. Exploration potential remains along strike to the southeast.
(source: Hecla Mining)
Another resource at Greens Creek is the Deep 200 South resource. More drilling is required to bring this resource to a reserve status.
Total Proven and Probable Reserves
- 147,700,000 ounces of silver
- 742,000 ounces of gold
- 846,000 tones of zinc
- 589,000 tones of lead
This chart shows HL's performance since the close of Lucky Friday. The gigantic spike in volume in the middle of the chart is the day the mine was closed. The stock price has increased, but not to full pre-closure levels.
HL is a well established silver/gold producer in North America. Since the Lucky Friday mine closure, the stock price has risen about 80 cents. When the mine reopens in the first quarter of 2013 it may improve the stock price even though Lucky Friday is only expected to produce 2 million ounces. The #4 shaft project may also make those numbers better but that is years ahead. The Greens Creek mine is massive and is still expanding. HL has massive reserves and growth potential and a dividend payment of 1.7%. However, this year and next year will see little growth in actual production until the major projects are complete. Once Lucky Friday is open, the stock price may rise and lack of production might be made up for in future expansion.