The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
Hecla will produce 35 percent of U.S. silver, while lowering political risk with Alaska mine purchase and Venezuelan assets sale
Hecla Mining Co.'s purchase of the remaining 70.3 percent interest in Greens Creek Mine from its partner Rio Tinto earlier this year resulted in both cash losses and increased silver production for the second-quarter of 2008. The Idaho-based silver producer said the purchase of the Southeast Alaska silver mine, along with unloading its Venezuelan assets, will increase silver production while lowering political risk.
Second-quarter 2008 silver production increased 60 percent compared to a year ago. However, Hecla recorded a loss for the quarter of $44.4 million on revenue of $64 million, due mainly to a combined charge of $39.3 million from the sale of Venezuelan operations and the sale of Great Basin Gold stock, along with several items related to the purchase of Greens Creek.
Silver production at five-year high
During the second quarter, Hecla hit record zinc production and the highest quarterly silver production in nearly five years. For the quarter, the company produced about 2.4 million ounces of silver, 15,257 ounces of gold, 16,000 tons of zinc, and 9,000 tons of lead at an average cash cost of $3.43 per ounce of silver, after by-product credits.
Hecla said it anticipates producing a total of 9 million ounces of silver in 2008 at an average cost of about $3.25 per ounce, given current metals prices.
Due to Hecla's increased ownership of the Greens Creek Mine from 29.7 percent to 100 percent in April, the company realized 1.7 million ounces of silver from second quarter production, up from 500,000 ounces during the first quarter.
Higher production and costs
Increased costs in diesel, steel, smelter treatment and freight charges contributed to higher production costs at Greens Creek during the quarter. The cost to produce an ounce of silver at the mine was $2.10. Even with increased costs, Hecla said it expects to maintain its position as a low-cost silver producer relative to its peers and continues to benefit from a wide margin between costs and current metals prices.
Decreases in gross profit at Greens Creek during the second quarter and first six months of 2008 compared with the same 2007 periods were primarily the result of a one-time, noncash increase to cost of sales and other direct production costs of about $17 million to reflect the sale of concentrate inventory in the second quarter that was valued at market price on the date of the acquisition of the remaining 70.3 percent ownership completed on April 16.
Greens Creek's production average was about 1,950 tons per day for the first half of 2008. At 2,369 tons per day, June's performance was the best of the year. Capital expenditures during the second quarter at Greens Creek totaled $10.2 million and were targeted primarily at tailings facility expansion, purchase of underground mining equipment, underground mine development, and definition drilling.
"The second half of the year will see an increase in production as a result of the acquisition of the remaining 70.3 percent of the Greens Creek Joint Venture and improvements in the production profile over the remainder of 2008," predicted Phillips S. Baker, Jr., Hecla's president and CEO. "With the opening of the Northwest long hole stopes in June, second half 2008 silver production is expected to be more than double Hecla's share of the first six months' production.
"At Greens Creek, variability in quarterly and even half-yearly production happens periodically, but will be more noticeable now that Hecla owns 100 percent of the mine," Baker said. "On the cost side, we are impacted by increases that are affecting the whole industry, but we can see dramatic containment of costs when we go to hydropower in the next few years."
Drilling increases resource
Hecla has increased its 2008 annual exploration budget to a range of $23 million to $27 million as it incorporates 100 percent of the Greens Creek exploration program and commences activities at the San Juan Silver Joint Venture project in southern Colorado. In the first six months of the year, about $12.9 million was spent on exploration, including $1.1 million at Greens Creek.
Underground drilling during the second quarter at Greens Creek focused on the Gallagher zone where drilling pinpointed the location and extent of the resource that dips to the west and plunges to the south.
The mineralization is now better defined for over 200 feet and transitions from two bands of mineralization with widths totaling 63 feet to one thick band of mineralization with a 105-foot width.
This adds 200 feet to the Gallagher zone that earlier was 700 feet in strike length, potentially adding 20 percent to the existing resource.
Targets in the SW and East zones are the focus for the remaining 2008 exploration program at Greens Creek.
Exploration drilling will focus on historic underground higher-grade intercepts in the SW zone and on results from recent surface drilling in the vicinity of the East zone.
Surface drilling at Greens Creek began May 17 with two drill rigs. Drilling targeted a prospective area known as the 'Northeast Contact', which represents an extension of the mine contact rocks into an area northeast of the current mine workings. The drilling shows that these newly defined mine contacts are relatively flat-lying, can be correlated for over 800 feet and are still open in both directions. Assays are pending on all of these holes, but additional targets along this trend will be evaluated by drilling during the summer.
"Greens Creek's underground exploration program is exciting because we expect it to continue to add to the resource base, just as it has done over the past 20 years. The surface program has defined new mine 'contact' rocks to the northeast of the current workings. This new area has the potential to host new ore zones, which could result in a dramatic increase in resources in the future," Baker said.
Long-term impacts
The company explained that a transaction the size of the Greens Creek acquisition causes some additional long-term impacts. Costs associated with the purchase will initially amortize and depreciate about $334 million of the purchase price over Greens Creek's current proven and probable reserves.
To purchase the Alaska silver mine, Hecla put a $220 million bridge loan in place. The company is currently examining a number of options to retire the loan.
Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.
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