SE output soars

Thanks to higher grades and improved recoveries, Greens Creek and Kensington, the two producing mines located in the Alaska Panhandle, reported strong output in 2014 and outstanding results for the fourth quarter.

Record output at Greens Creek

At Greens Creek which is owned and operated by Idaho-based Hecla Mining Co., about 360 full-time workers carved some 7.83 million ounces of silver and 58,753 oz gold, as well as lead and zinc concentrates from the volcanogenic massive sulphide mine in 2014, milling ore at an average rate of 2,236 tons per day. The output exceeded the company's 2014 anticipated silver production of 6.5 to 7.0 million ounces and the mine's 2013 output of 7.45 million oz silver by 5 percent; 57,457 oz gold by 2 percent; zinc by 11 percent and lead by 33 percent.

In the fourth-quarter, Greens Creek produced 2.5 million ounces of silver and 15,289 ounces of gold, outpacing the mine's comparable 2013 production of 1.8 million ounces of silver and 14,722 ounces of gold by 34 percent and 4 percent, respectively.

The underground mine, which has operated for more than 22 years on Admiralty Island about 18 miles southwest of Juneau, is one of the world's largest primary silver producers. It contributed a substantial share of Hecla's overall production of precious metals in 2014, which totaled 11.1 million oz silver and 186,994 oz gold, up 24 percent and 56 percent, respectively, from comparable output in 2013. The company, which also operates the Lucky Friday mine in Idaho and Casa Berardi mine in Quebec, produced 34.44 million pounds zinc and 19.57 million lbs. lead, primarily at Greens Creek.

Hecla's silver-equivalent production for 2014 totaled 34.5 million oz, up 50 percent from 2013 and 142 percent from 2012.

"Hecla's silver-equivalent production is the most in Hecla's history and higher than our guidance as all three mines are running well," said Phillips S. Baker, Jr., Hecla's President and CEO. "The fourth-quarter performance of Greens Creek and Casa Berardi exceeded our normal production expectations as a result of higher grades and in addition, increased recoveries at Casa Berardi over the third quarter.

Cash balances are essentially unchanged from the end of last year, despite the lower price environment and the completion of Hecla's second largest annual capital program that was designed to increase production, extend mine life and reduce operating risk.

These results are testament to the strength of Hecla's assets and the capability of our operating teams."

Hecla reported capital spending in 2014 of about $132 million (excluding capitalized interest), $18 million less than guidance, and cash and cash equivalents of roughly $209 million at year's end, $3 million less than the amount on hand a year earlier.

Improvements at Kensington

Production at the 318-employee Kensington gold mine located 45 miles north-northwest of Juneau also exceeded expectations in 2014, totaling 117,823 oz gold.

"Operating consistency has improved at Kensington in the past two years, which has allowed us to increase our effort on exploration and long-term planning," said Frank Hanagarne, Coeur Mining's senior vice president and chief operating officer.

Chicago-based Coeur had posted guidance for the mine's anticipated output of 107,000 - 112,000 oz in 2014.

In the fourth quarter, Kensington produced 33,533 oz gold, down 8 percent from 36,469 oz for the comparable quarter of 2013. Coeur milled 167,417 tons of ore grading 0.21 grams per metric ton gold at an average recovery rate of 94.2 percent during the fourth quarter.

Full-year 2014 production at Coeur totaled 17.2 million oz silver and 249,384 oz gold, down from full-year 2013 production of 16.9 million oz silver and 259,980 oz gold. Full-year 2014 silver-equivalent production totaled 32.2 million ounces.

The performance was in-line with Coeur's guidance of 17.0 million to 18.0 million oz for silver, above guidance of 229,000 to 244,000 oz for gold, and at the high end of guidance of 30.0 million to 32.7 million oz for silver-equivalent.

In 2014, Coeur encountered high-grade gold in drilling Kensington South (zones 10 and 20) immediately beneath current production areas, 100 to 200 feet away from current mine development. Several holes returned grades greater than 1.0 oz/ton gold, and grade and thickness of mineralization improves at depth and to the southern portion of the ore body. The zones are open in all directions

In the Jualin area, drilling activity in Jualin veins 4 and 5 encountered several multi-ounce gold intercepts; underground development at Jualin is planned for 2015 and production from Vein 4 is expected to begin in 2017. Vein 4 is open in all directions.

"The renewed focus of our drilling program at Kensington has discovered high-grade mineralization to enhance the economics of the mine, resulting in a considerable number of drill holes containing multi-ounce gold intercepts," said Hans Rasmussen, Coeur's vice president, exploration, when the drill results were reported in October.

Hanagarne said the discovery of high-grade gold at Jualin has the potential to significantly boost production grades, reduce unit costs, and increase free cash flow at the Kensington mine.

In 2015, Coeur said it expects to produce 14.8 - 16.0 million oz silver and 284,000 - 313,000 oz gold, or 31.8 - 34.8 million silver-equivalent oz, up to an 8 percent increase over 2014 silver-equivalent production.

Coeur's 2015 total silver and gold production guidance includes pro-rata production from its recent acquisition of the Wharf gold mine in South Dakota from Goldcorp Inc. based on an assumed transaction closing date of March 31, 2015. Wharf is expected to produce 85,000 - 90,000 ounces of gold in 2015 based on guidance provided by Goldcorp on Jan. 12.

For Kensington, the company posted 2015 production guidance of 110,000 to 115,000 oz gold and 6,600 to 6,900 oz silver-equivalent.

Coeur also said it anticipates releasing a new mine plan at Kensington in early 2015, which is expected to incorporate a new resource estimate it was to complete by the end of 2014 and reflect higher-grade, higher-margin production over the life of the mine.

Analysts impressed

With metals production, especially silver and gold, exceeding the expectations of the mines' owners, industry analysts and investors hailed the performances of the silver and gold producers as good news.

Industry analysts praised the 2014 results from both Southeast Alaska mines, noting the operating improvements at Kensington and the impressive silver output at Greens Creek.

It is Coeur's acquisition of the Wharf mine from Goldcorp. for $105 million in cash, however, that is really exciting industry watchers, who anticipate the company enjoying a substantial boost in net cash flow and after-tax earnings from the South Dakota operation.

Coeur said Wharf will increase the company's EBITDA by more than 30 percent and contribute to free cash flow from the start. The primary gold mine has operated for 30 years and has a current mine life of seven years. It is providing Coeur a 24 percent increase in the company's total gold reserves.

Overall, the Wharf acquisition will result in gold production accounting for about 60 percent of Coeur's revenues. Up from the current share of around 50 percent -perhaps changing the company's status in the eyes of investors from a silver miner to a gold miner, analysts say.

By adding Wharf, Coeur is expected to increase its 2015 gold production to 260,000 oz, or in terms of silver-equivalent (if Coeur continues to be seen as a silver miner) to 34.14 million oz.

Wharf's low-cost operation relative to Kensington also will lower Coeur's gold-related cash costs to below $1,000/oz, according to analysis by Cowen & Co.

At Greens Creek, Hecla is systematically adding new resources and continually converting them into reserves to further cope with lower metal prices, analysts say. This will extend Greens Creek's mine life despite lower metal prices.

Moreover, Hecla is delivering high-grade drill intersections at Green Creek, which is expected to add more resources along the South West bench. In the upcoming quarter, the company is expected to complete more exploration and definition drilling in these areas. This will not only boost production but also add meaningfully to the company's top line in the the upcoming quarters, analysts observe.