The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
Strong silver production at Greens Creek helps fund investments in silver-rich B.C. projects, merger with Quebec gold producer
The 6.4 million ounces of low-cost silver recovered from the Greens Creek Mine in Southeast Alaska during 2012 is funding growth aspirations at Hecla Mining Co., including a foray into Canada's mining sector.
"This past year, with the Lucky Friday down, Greens Creek generated strong silver production and cash flow to allow record capital investments that are expected to generate not only higher silver production in 2013, but expected organic growth well into the future," said Hecla President and CEO Phillips S. Baker, Jr.
This growth starts with the first silver production from the Lucky Friday Mine since the Idaho operation was put out of commission for safety and operational upgrades at the end of 2011.
With Lucky Friday on track to contribute some two million ozs of silver in 2013 and Greens Creek output to remain on par with 2012, Hecla is looking at producing between eight million and nine million oz of the white metal in 2013 and 10 million ozs in 2014. This growth is expected to continue as Hecla brings online its growth projects in Colorado and Mexico.
"We are on a path to produce 15 million oz of silver (per year), and we expect to do that by 2017," Baker said during the BMO Global Metals & Mining Conference held Feb. 27.
As Hecla's exploration- and development-stage projects advance toward production, the company is eyeing candidates to deepen its pipeline of precious metals assets.
"We have a focus on looking at things that are in North America - U.S. and Canada in particular," Baker explained.
Keeping to this strategy, Hecla has invested in two juniors with silver-rich projects in northern British Columbia and looks to have made a successful bid to buy out a third company with an producing gold mine in Quebec.
Golden Aurizon
A week after informing investors attending the BMO conference of Hecla's intention to focus on U.S. and Canada projects, the Idaho miner said it made a C$796 million bid for Aurizon Mines Ltd., a 130,000-ounce-per-year gold producer focused on the Abitibi region of northwestern Quebec.
"Hecla and Aurizon together create a unique precious metals company with three long-life, high-grade, low-cost mines in some of the best mining jurisdictions in the world," Baker explained.
Hecla, though, was not the only suitor hoping to buy out Aurizon. Alamos Gold Inc., a Toronto-based miner that holds a 16 percent stake in Aurizon, already had an unsolicited offer on the table to buy out the Quebec gold producer.
Aurizon's board of directors, which preferred the offer made by Hecla, adopted a poison pill and steep break-fee payable to Hecla that ultimately dissuaded Alamos from pursuing its hostile bid; clearing the way for the Hecla-Aurizon merger.
"Alamos firmly believes that shares in the company resulting from the combination of Alamos and Aurizon would be far more valuable than shares in the heavily indebted company resulting from the combination of Hecla and Aurizon," Alamos said upon pulling its offer. "Unfortunately, however, the unusual break-fee that the Aurizon board has agreed to give Hecla means that, for Alamos, the cost of acquiring Aurizon is now simply too high."
Under terms of the offer made by Hecla, the Idaho-based miner will acquire all of the outstanding common shares of Aurizon at C$4.75 each. Each Aurizon shareholder will have the option to take C$4.75 in cash or 0.9953 of a Hecla share for each Aurizon share held, subject in each case to pro-ration based on a maximum cash consideration of C$513,631,193 and a maximum number of Hecla shares issued of 57 million. Aurizon has 164.55 million shares outstanding.
Hecla, which had US$191 million in cash at the end of 2012, plus an undrawn revolving credit of US$150 million, will need to borrow funds to complete the buyout. Hecla said it received a US$500 million commitment from The Bank of Nova Scotia that includes a US$200 million amortizing term loan with a three-year maturity, US$200 million revolving line of credit and a US$100 million loan that would mature shortly after the close of the transaction.
Aurizon ended 2012 with C$204.2 million in cash and cash equivalents. In its 2012 year-end report, the company forecast gold production at Casa Berardi, its operation in Quebec, will produce roughly 125,000-130,000 ozs of gold in 2013 at an average cash of US$810 per ounce.
The merger will shift Hecla's metals profile from predominately silver to generating as much revenue from gold as it does silver. Based on Bloomberg's estimated average metal prices for 2013, 39 percent of this year's pro-forma revenues of the merged company would come from gold, 38 percent from silver and 23 percent from zinc-lead.
Though silver has been Hecla's primary metal, Greens Creek produces roughly 50,000 ozs of gold per year as a by-product, including 55,496 oz of gold recovered from the volcanogenic massive sulfide deposit in 2012.
This gold, along with the 64,249 tons of zinc and 21,074 tons of lead recovered at Greens Creek, helped keep the mine's silver production costs low.
"For the full year, the company produced 6.4 million ozs of silver at a cash cost of US$2.70 per ounce, still among the lowest costs and highest margins of the major primary silver producers," Baker said.
The C$1.8 billion precious metal company resulting from the Hecla-Aurizon merger would have three operating mines with reserves of 150 million ozs of silver and 2.2 million ozs of gold in reserves.
"These three properties have in common strong exploration potential on very large and contiguous land positions as well as locations near communities that are supportive to mining. In addition, all three utilize similar mining methods enabling Hecla to leverage the knowledge and experience from each mine across the organization," Baker explains.
Historic Dolly Varden
At the western end of Canada and on the far side of Hecla's growth pipeline, the Idaho miner has invested in two junior companies exploring silver-rich deposits in northwestern British Columbia.
In September, Hecla spent C$3.2 million to buy 20 million shares, or a 19.9 percent stake, of Dolly Varden, a junior explorer focused on the development of the historic Dolly Varden Silver Mines property located about 30 kilometers (19 miles) southeast of Stewart, B.C.
"Hecla is pleased to be able to make a strategic investment in Dolly Varden to participate in the re-emergence of a historic silver district with outstanding exploration and development potential," Baker said.
Dolly Varden's land package is in a geologic setting with world-class projects such as the past-producing Eskay Creek Mine, which is a similar deposit type to Hecla's Greens Creek Mine.
The Dolly Varden property hosts two historical mines - Dolly Varden, which produced 1.5 million oz at an average grade of 35.7 ozs per ton in the early 1920s and the Torbrit mine which produced 18.5 million ozs of silver at an average recovered grade of 13.58 oz per ton during the 1950s. Two other deposits, North Star and Wolf, have been defined and have development but have not seen any production. All told, these four deposits have a historic resource of 14.5 million oz.
Dolly Varden is working towards upgrading these resources to NI 43-101 compliance and expanding them to a targeted 40 million to 50 million oz.
In order to maintain its ownership, Hecla has agreed to participate in a C$15 million financing (83,333,333 shares at C18 cents per share) offered by Dolly Varden in February.
Dolly Varden, which plans to carry out the financing in multiple closings, completed an initial C$1.65 million tranche on March 20. The 10.31 million shares sold do not include the shares Hecla has agreed to purchase to retain its 19.9 percent stake in Dolly Varden.
Immediately following the closing of the first tranche, Dolly Varden announced it has cut a deal to acquire Musketeer, a group of claims surrounded by the Dolly Varden property. Torbrit, Wolf, North Star and Dolly Varden abut the northern and southern boundaries of the Musketeer and are priority targets for exploration in 2013.
Pending the successful completion of the entire financing, the Vancouver, B.C.-based junior plans to spend up to C$12-million at the Dolly Varden silver project in 2013.
In addition to continued exploration and definition drilling, repairing the road to Dolly Varden and establishing year-round operations at the historical silver mining property are on the docket for 2013.
A stake in Thorn
In late February, Hecla also forked over C$2.6 million to purchase a 19.8 percent ownership interest in Brixton Metals Corp., a junior focused on exploring the precious metals-enriched Thorn project located 50 kilometers (31 miles) northwest of the past-producing Golden Bear Mine within the Sutlahine River area of the Atlin Mining District.
Like its deal with Dolly Varden, Hecla has the right to maintain its nearly 20 percent interest in Brixton by participating in future financing of the junior. In addition, Hecla has the right to appoint one representative to the board of directors of Brixton, and will be providing technical assistance to the exploration company.
"Hecla's endorsement through this strategic investment is a huge vote of confidence for Brixton and speaks volumes to the potential of the Thorn project," said Brixton Metals Chairman and CEO Gary Thompson.
Brixton applied a portion of the proceeds from the financing to completing the acquisition of 100 percent interest in the Thorn project from Kiska Metals Corp., the balance of the funds are earmarked for continued exploration at Thorn during the upcoming field season.
Brixton has found substantial near-surface, high-grade mineralization at the largely untested Oban Breccia Zone, which is located in the heart of a six-kilometer (3.8 miles) mineralized corridor on the Thorn property.
A 26-hole drill program carried out by Brixton in 2012 focused on the Oban breccia zone, where hole THN11-60, which cut 95 meters averaging 628.3 grams per metric ton silver, 1.71 g/t gold, 3.31 percent lead and 2.39 percent zinc and 0.12 percent copper. Surface samples have returned grades as high as 6,149 g/t silver.
The best intercept of the 2012 program came in hole THN12-84, which cut 123 meters averaging 190.7 g/t silver, 1.19 g/t gold, 3.25 percent zinc and 1.74 percent lead.
"Exploration results at the Thorn property show several different styles of precious metal mineralization that highlight the potential for a substantive discovery," said Baker. "We're excited to be an integral part of their plans with our investment and believe Brixton has a strong management team in place to build shareholder value. Hecla also brings a wealth of knowledge gained from more than 120 years of mining and exploration experience, and this expertise will benefit the Brixton team."
As part of its investment, Hecla will have a representative on the Brixton board of directors.
In addition to gaining a sizable stake in Dolly Varden and Brixton, Hecla paid C$2.52 million earlier in 2012 to buy a 15 percent interest in Canamex Resource Corp., a junior exploring the Bruner property, a high-grade gold project in central Nevada.
Hecla said its equity position in the trio of Vancouver-based companies is for investment purposes, and the Idaho-based miner currently does not have any present intention to acquire ownership of the explorers.
"Clearly at some point, we hope that it is something we would want to own. In the meantime we will be supportive and help these guys move these things along," Baker expounded.
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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