The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
With Lucky Friday down, silver miner leans on SE Alaska mine to capitalize initiative to boost annual production to 15M ounces
Plagued with a series of accidents that ultimately resulted in a year-long hiatus of operations at its Lucky Friday Mine in Idaho, Hecla Mining Co. is leaning on Greens Creek Mine in Southeast Alaska to sustain its strong financial position and fund a series of growth initiatives aimed at catapulting the 120-year-old mining company to a 15-million-ounce-per-year silver producer by 2017.
"Hecla faced significant challenges in 2011; however, what is different today than at any other time in our history is that our financial position, asset base, and growth opportunities are the strongest they have ever been," Hecla President and CEO Phillips S. Baker, Jr. said in rolling out the company's 2011 year-end results.
After getting credited for gold, zinc and lead production, Hecla's Greens Creek and Lucky Friday mines produced 9.5 million ounces of silver in 2011 at a cost of US$1.15 cents per ounce. All told, the Idaho-based miner brought in a record US$477.6 million in revenue last year.
"In 2011, we had many significant accomplishments: we achieved record revenues and profits; settled the long-standing Coeur d'Alene Basin litigation thereby removing a significant and unquantifiable liability; achieved our silver production guidance; executed a US$102 million capital expenditure program; expanded growth opportunities with significant advancement in our three pre-development programs; increased silver reserves and resources for the sixth consecutive year in a row; introduced a new common stock dividend; and we acquired the minority interest in the San Juan Silver property.
In addition, we finished the year with $266.5 million of cash and no debt.
We did all of these things while dealing with a series of unprecedented and unfortunate, yet unrelated, events at our Lucky Friday mine," Baker summarized.
The Hecla executive told participants in the 2012 BMO Capital Markets Metals and Mining Conference that the company plans to continue to aggressively pursue its growth initiatives in 2012.
"We will spend US$140 million in capital, US$28 million in exploration, US$11 million in predevelopment - and we think we can do all of those things plus some other expenditures that we have within the cash-flow we generate in 2012," he told the audience Feb. 27.
That cash flow will primarily come from the some 7 million ounces of silver expected to be recovered from Greens Creek.
"While we have the difficulty of having the Lucky Friday shut down for the year, it is not slowing us down in any way in respect to Greens Creek and the other projects that we have in front of us," Baker told the crowd assembled in Hollywood, Fla.
Greens Creek upgrades
The Greens Creek Mine produced 6.5 million ounces of silver in 2011 at an average cost of US$1.29 per ounce, net of by-product credits. Hecla foresees silver production at the Southeast Alaska mine increasing to around 7 million ounces this year at about the same per-ounce cost once the company gets credit for the gold, zinc and lead recovered at the underground operation.
Hecla has budgeted some US$90 million of capital to be spent on Greens Creek in 2012, the largest investment in the history of the Southeast Alaska mine.
Some of the key capital expenditures include Deep 200 South access development (US$18 million), mining fleet replacement and additions (US$14 million), tailings dam expansion (US$10 million), East Ore access and ventilation rehabilitation (US$6 million), definition drilling (US$5 million), and the construction of expanded and upgraded camp facilities (US$5 million).
Reserves at the Greens Creek mine decreased slightly from 2010 mainly due to depletions from mining activities. In 2011, Greens Creek mined 772,100 tons of ore containing 8.9 million ounces of silver, and added 519,900 tons to reserves containing 7.5 million ounces of silver.
Despite a slight depletion, Greens Creek still has about 98 million ounces of silver in reserves. This is enough to keep the Southeast Alaska mine in production for about another 10 years, and Hecla sees plenty of potential to continue replenishing these stores of silver in the foreseeable future.
"We have another 100 million ounces of reserves on the books, and we have an exploration program that we think will extend the mine life by about four years," Baker said. "The real focus of this exploration program is in three places: the Gallagher, where we have discovered high-grade components to the Gallagher that is making this much more economic, I think you will see this move into our mine-plan in the not-too-distant future; and then you have the 200 South, where we are in the process of doing the development work so that we can drill and access the 200 South; and then of course you have the Northeast Contact."
Lucky Friday closed
Due to safety concerns, the Mine Safety and Health Administration ordered the Silver Shaft at Lucky Friday closed in January for removal of material that has built up in the shaft over the course of years. This order has effectively shut down all production at the Idaho mine for 2012.
"Despite the fact that they have inspected this shaft every quarter for the past 30 years, they thought there was more and different work that needed to be done on the shaft," Baker said. "Suffice it to say that we went back and forth with MSHA, and ultimately, we concluded we will just do what they want us to do on the shaft."
The Silver Shaft is a one-mile deep shaft from the surface and the primary access to the Lucky Friday mine. The sand and concrete material to be removed from the shaft has built up over a number of years and is expected to be removed primarily by power washing.
The Hecla executive said the company has developed a work plan that not only improves the safety of the underground workers at Lucky Friday but will also improve the efficiency of future operations at the mine.
"Basically we are going to put ourselves in the position to add another hoist and be able to move men and materials separate from the rock," Baker said.
MSHA has signed off on Hecla's plan to improve the safety and efficiency of Lucky Friday.
In addition to removing the loose materials that has caused safety issues at the underground mine, Hecla's rehabilitation plan includes removal of unused utilities, construction of a water ring to prevent ice from forming in the winter, the installation of a metal brattice between the east and west half of the shaft providing a physical barrier between the two halves, repair shaft steel, and installation of a new power cable - all of which should improve the shaft's functionality and possibly its hoisting capacity.
Once the shaft cleanup has been completed down to the 4900 level, work on the previously announced 5900 haulage way bypass is expected to commence. In addition to work on the Silver Shaft, other significant surface and underground capital programs are being planned.
"In 2012 we will actually have the largest capital program in the history of the Lucky Friday - we will spend US$50 million in capital," Baker said.
In addition to the underground improvements, the company is embarking on advancing the tailings facility and putting in new surface facilities that will allow Lucky Friday to operate for the next 30 years.
"The Lucky Friday mine is a world-class mine that we see producing silver for decades to come. Hecla and the Lucky Friday mine have faced challenges in the past and we will once again overcome them," Baker said.
The silver pipeline
In addition to making major upgrades at its two existing mines, Hecla is investing some US$11 million on early-stage development and some US$15 million on exploration at its three other silver assets.
The past-producing Star Mine about two miles (3.2 kilometers) northwest of Lucky Friday is one of the pipeline projects expected to help boost Hecla's silver production in the next five years.
"Star was a mine that operated for more than 90 years; we are focused in the 'Upper Country' at the Star at this point," explained Baker.
The now idle Star Mine is flooded below the 2,500 foot level. The Upper Country, a resource expansion area that remains dry, has been the focus of recent resource expansion drilling at the historical operation.
In 2010, Hecla outlined an inferred resource at the Noonday vein system of Upper Country. Following up on this work, the company's 2011 surface exploration program targeted extensions of the Noonday and other veins identified in the upper Star Mine area. The 16 holes on the Noonday veins have extended the resource outline more than 500 feet (150 meters) along strike to the east and 1,500 feet (460 meters) down dip.
In order to further evaluate the high-grade veins Hecla has reopened the Star 2000-level drift. The exploration program in 2012 for the Silver Valley will include expanding the Noonday resources along strike; evaluating at least five other vein structures with underground drilling in the Star mine.
Hecla said the current understanding of the vein structures suggests potential to define in excess of 25 million ounces of silver with significant zinc and lead above the water table at Star.
Hecla is studying dewatering the mine below the 2500 level and connecting the Star to the workings at the nearby Lucky Friday.
In 2012, the pre-development budget is expected to be some US$3 million and will involve underground rehabilitation, scoping work and the dewatering study.
At the San Juan Silver project in Colorado, the company has budgeted some US$6 million to be spent on predevelopment during the first half of 2012.
This initial work will encompass additional underground rehabilitation and drill support at the Equity site and initial development of the portal and decline at the Bulldog mine. Further expenditures are expected to be budgeted following progress on studies.
At the Bulldog mine, construction crews completed the excavation of the access road to the 9400 portal pad, as well as most surface facilities to support the planned development program. Personnel and contractors are in place to begin development of a new portal access. A preliminary study on the re-opening of the Bulldog mine is expected in the fourth quarter of 2012. The study will evaluate mining methods, capital and operating costs, processing methods, and permitting requirements.
"What we are focused on in 2012 is developing the portal that will give us access again to the Bulldog. The Bulldog has 37 million ounces of resources and we are on a path to moving those resources into proven and probable reserves, and into production," Baker said.
Hecla plans to spend an additional US$8.5 million on exploration at the San Juan Silver project this year.
The company's San Sebastian project in Mexico will see around US$3 million of exploration in 2012.
"As a result of these projects moving forward we expect to see our annual (silver) production by 2017 to be about 15 million ounces," Baker predicted.
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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