Hecla Mining grabs rest of Greens Creek

Hecla Mining Co., longtime minority share owner of the Greens Creek Mine, Feb. 12 said it agreed to purchase for $750 million the remaining 70.3 percent interest in the Southeast Alaska operation that is owned by Rio Tinto subsidiary Kennecott.

The cash deal will give Hecla of Coeur d'Alene, Idaho, 100 percent control of the world's fifth largest silver mine and will nearly double the company's silver output to about 11 million ounces annually. Greens Creek also produces commercial quantities of gold, zinc and lead.

The transaction, which is subject to U.S. antitrust regulations, is expected to take several months to complete, though Rio Tinto has agreed to Hecla receiving cash flow and earnings from all of 2008 production at Greens Creek.

To help finance the transaction, Hecla said it borrowed $400 million.

Greens Creek produced a total of about 8.6 million ounces of silver, 68,000 ounces of gold, 63,000 tons of zinc and 21,000 tons of lead in 2007. Because the mine's by-product metals more than pay for its silver production, the total average cash cost of silver was negative $5.27 per ounce. Even at metals prices significantly lower than current levels, Hecla estimates a 10-year average cash cost of $1.88 per ounce of silver at Greens Creek.

The company said acquisition of the mine also will boost its silver reserves by 150 percent and its gold reserves by 140 percent.

The right offer at the right time

Hecla President and CEO Phillip S. Baker, Jr., told analysts Feb. 13 that the 117-year-old company has sought 100 percent ownership of Greens Creek for two decades and took steps in 2007, including selling some assets, to prepare a purchase offer.

"In some respects, it took 20 years," Baker said. "Once Rio Tinto did the Alcan transaction, we went into high gear to be able to pick (Greens Creek) up."

The buyout opportunity finally materialized in late 2007 when Rio Tinto CEO Tom Albanese put Greens Creek on the block, along with other assets, in response to an unwanted merger proposal from BHP Billiton.

"Rio invited us to make a proposal. They recognized us as the logical buyer," said Baker. "We know the (Greens Creek) operation intimately and believe the operational risks are low. The cash cost per ounce of silver produced at Greens Creek, including by-product credits, is among the lowest in North America."

Hecla, based on last year's metals prices, expects to recoup the $750 million purchase price in the next five to six years, and could potentially do so sooner, if prices continue to trend upward, he said.

Greens Creek will be a very large cash generating asset, especially in the next few years, spewing out $150 million to $200 million annually, after taxes, Baker predicted.

Praising the performance of the mine's current operation and work force as being "high quality," Baker said Hecla will make few changes in day-to-day operations. The 17-year-old mine is currently projected to continue production for another 10 years.

Hecla officials estimate that capital expenditures will total $160 million over the remaining life of the mine.

Focus on growing resource

Hecla, meanwhile, is planning aggressive exploration drilling in other areas of the rugged 12-square-mile Greens Creek property on Admiralty Island near Juneau in hopes of finding additional ore bodies. The shift in exploration focus from reserves will increase the likelihood of growing the mine's resource base, Baker said.

Hecla's top managers say Greens Creek conceivably could boost daily production from its current 2,100 tpd, if new resources are identified.

"The Greens Creek mine has continuously replaced reserves and has excellent exploration potential, not only within the current mining area, but perhaps even more importantly, has the potential for discovery within the highly-prospective 12-square-mile land position in this great mining district," Baker said.

The critical mine horizon can be found throughout the Greens Creek property, Hecla officials say. They also note that exploration teams at Greens Creek already "have been on the road to discovery for two to three years."

Added one Hecla executive: "We're going to start being more aggressive with the drill."