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Author has a degree in Engineering and is an avid investor in the market. Experience in industrial materials and structures. In college studied atomic & nuclear physics as well as material engineering. Eastern European
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  • Hecla mines its Silver for FREE when you compute the sale of by-products 0 comments
    Nov 23, 2010 9:56 AM | about stocks: HL, SLV, SIL, SIVR, MVG, SVM, SSRI, SLW, PAAS, GLD, SGOL, AUY, EGO, NG, GFI, ABX, AEM, AU, GG, NEM, FCX, SCCO, BHP, RIO, ACH, AA, X, AKS, RS, TCK, ANR, BTU, WLT
    which are extracted with the silver mining operations.

    President and chief executive officer Phillips S. Baker Jr. figures each of Hecla Mining Co.’s four properties has the potential to yield a major discovery that could significantly boost the company’s silver reserves.

    Furthermore, the company’s profitable operations in recent years also have put Hecla in a position where it could grow through acquisitions, if it so chooses, he said.

    Baker outlined the company’s operations and exploration efforts Tuesday, during an interview with Kitco News, from Hecla’s headquarters in Coeur d’Alene, Idaho. It’s located a short drive east of Spokane, Wash., which happens to be the site of the Silver Summit Thursday and Friday. Hecla is the oldest precious-metals mining company in North America, founded in 1891 in northern Idaho’s Silver Valley.

    The company is also the largest U.S. producer of silver, with Baker estimating that Hecla currently mines around one-third of the U.S. supply. Hecla’s two current operating mines, Lucky Friday in northern Idaho and Greens Creek in southeastern Alaska, make Hecla one of the lowest-cost primary silver producers in North America.

    Greens Creek has produced some 200 million ounces of silver and roughly 1 million ounces of gold since it opened in 1989. The company puts remaining reserves at roughly 100 million ounces of silver and 800,000 ounces of gold.

    Exploration for more metal reserves is underway in a 27-square-mile land package, with the company spending $6 million on exploration during the current year and likely at least that much again next year, Baker said. “Because of the nature of this geology, we expect to find other Greens Creeks on the property,” he said.

    Meanwhile, the Lucky Friday Mine has produced some 140 million ounces in its history of more than six decades, and reserves and resources are in excess of 100 million. The company is studying extending operations farther underground toward areas of higher-grade ore. “We see this mine—should we develop the shaft—continuing to operate for decades,” Baker said. Meanwhile, exploration efforts continue both in the mine and on the surface.

    Drilling is occurring in three different veins in the San Juan Silver Mining Joint Venture in Colorado in the vicinity of former mines. Drilling results are slated for released early in 2011 when the company issues its fourth-quarter earnings report. “We are encouraged by what we see in the ore,” Baker said. Hecla is also exploring in the 300-square-mile San Sebastian project in Mexico.

    Hecla’s total exploration budget for 2010 was $20 million, nearly double from 2009.

    “Those four properties have the distinct possibility of each finding 100-million-ounce or so targets,” Baker said. “When you consider the amount of resources that we currently have on the books—about 350 million ounces—a 100-million-ounce discovery is very meaningful to our valuation. That’s one of the key ways we see ourselves growing.”

    Hecla is also considering potential acquisitions due to the strength of its balance sheet, Baker said. Currently, he said, the company has roughly $200 million cash on hand. Hecla posted net income of $54.2 million in 2009, the third-highest in company history. Hecla also reported record revenue, gross profit and cash flow from operating activities in 2009.

    Hecla Posting Negative Cash Costs So Far in 2010

    Hecla produced a company record of 10.9 million ounces of silver in 2009 at a cash cost of $1.91 per ounce, after credits for the gold, lead and zinc that was mined as a by-product. The company projects output of 10 million to 11 million ounces of silver in 2010. Furthermore, Hecla’s second-quarter earnings statement showed the company posted a negative cash cost of $2.41 per ounce of silver for the first half of the year.

    Some variability occurs in Hecla’s low cash cost due to the price received for metal sold as by-products. Still, Baker said, the company has maintained its status as a low-cost producer of silver even when prices of other metals have tended to soften, due to the company’s workforce and its high-value mines. The cost of each ton of ore mined has remained fairly consistent over the last three years at around $100 per ton, he related.

    He described Greens Creek as “historically one of the lowest-cost producers in the world,” particularly for its size. The mine produced some 7.5 million ounces of silver in 2009, along with 67,278 ounces of gold. In large part due to Greens Creek, Hecla is the second-largest zinc and third-largest lead producer in the U.S.

    Meanwhile, Baker said, the company anticipates that its cost per ounce of silver from the Lucky Friday Mine could decline in future years as Hecla moves farther underground into areas of higher-grade ore. “The grade is going up, so we’ll produce more ounces with the same fixed costs,” he said.

    The company is considering construction of a shaft that will take mining operations at Lucky Friday from 4,900 feet below the surface to 8,800 feet below, he said. The grade of ore is projected to increase by 25% to 30%.

    Still, Baker envisions some rising costs throughout the industry. “And we will not be immune to that,” he said. For instance, the price of key commodities such as steel may rise as the dollar continues to weaken, Baker said.

    By Allen Sykora of Kitco News on October 21,2010 ; asykora@kitco.com
    Stocks: HL, SLV, SIL, SIVR, MVG, SVM, SSRI, SLW, PAAS, GLD, SGOL, AUY, EGO, NG, GFI, ABX, AEM, AU, GG, NEM, FCX, SCCO, BHP, RIO, ACH, AA, X, AKS, RS, TCK, ANR, BTU, WLT
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