Hecla Mining Reported Third Quarter Net Income Of $55.8 Million
COEUR D’ALENE, ID- "Hecla Mining Company’s financial position and asset base is the strongest its been in its history after a unique third quarter generating the highest net income and cash position, establishing a dividend, approving the #4 Shaft, initiating work to reopen three mines, and settling the Basin litigation," said Hecla's President and Chief Executive Officer, Phillips S. Baker, Jr. "From this quarter, we are poised to grow production 50% over the next five years."
Slver production at the Lucky Friday Mine in Shoshone County, Idaho was 0.9 million ounces in the third quarter of 2011 and 2.5 million ounces in the first nine months of 2011, which is substantially equal to the silver production for the respective periods in 2010. Mining and milling costs per ton were up by 7% and 11%, respectively, for the third quarter and up by 9% and 10%, respectively, for the first nine months of 2011, driven primarily by increased cost of fuel, consumable underground materials, reagents, electric power, and maintenance supplies.
Total cash cost per ounce of silver produced at Lucky Friday was $5.94 and $5.82, net of by-product credits, for the third quarter and first nine months of 2011, respectively, compared to $3.38 and $3.67, for the same periods in 2010. The increase in total cash cost per ounce quarter-over-quarter was primarily due to higher employee profit sharing, higher treatment costs, and lower lead and zinc by-product credits by $1.82, $0.72, and $1.06 per ounce, respectively, which were partially offset by lower production costs of $1.12 per ounce. Higher profit sharing and treatment costs were due to higher metals prices and lower by-product credits as the result of lower lead and zinc production.
Construction at the Lucky Friday #4 Shaft continued to advance in the third quarter. With set-up activities for the #4 Shaft largely complete, work will now be primarily focused on shaft sinking activities until project completion. The total project is now 41% complete, and 80% of major procurements have been ordered or installed. The #4 Shaft construction remains on time and on budget with an expected completion by year-end 2014.
Capital expenditures for the #4 Shaft in the third quarter and year to date were $9.9 million and $32.3 million, respectively, for a total of approximately $81 million invested to date on the project. Total project capital is expected to be approximately $200 million. In addition, an optimization study is underway at the Lucky Friday to evaluate throughput increases at the mine. Production is limited by mill capacity; therefore, this study will determine the mine's capacity and the economics of increasing mill capacity. This study is expected to be complete by year-end.
At the Lucky Friday, definition drilling focused on two areas: the western extent of the resource up to the Silver Fault between 6050 and 6600 levels, and the center of the resource between 6400 and 6900 levels. In both areas, drilling identified, refined, and upgraded the resource on the 30 vein and a number of intermediate veins. Exploration drilling focused on the multiple fault blocks of the Silver Fault where high-grade vein intersections that appear to be equivalent to the 30 Vein and some intermediate veins have been identified for over 700 vertical feet starting at the 6100 level. An impressive intersection in the first block within the Silver Fault is 10.3 foot horizontal
thickness of 18.4 ounces per ton silver, 15.3% lead and 4.5% zinc at the 7700 level.
Hecla reported on the progress of its pre-development initiatives for the Star (Silver Valley - Idaho), San Juan Silver JV (Creede - Colorado) and San Sebastian (Durango - Mexico) projects, and third quarter exploration results.
Progress on our pre-development initiatives has exceeded our expectations," said Baker. "In the past five months, the Star and Bulldog mines, and Equity ramp have advanced from strictly surface work to significant underground pre-development and drilling. And the exploration advances on the Andrea vein combined with the Hugh Zone are positioning us for a re-opening of the San Sebastian mine in Mexico. We expect our work on these properties to result in one or more mine re-openings helping us reach our annual silver production goal of 15 million ounces by 2016."
The San Juan Silver Joint Venture (SJSJV) completed a conceptual study of the Bulldog based on the current resource of 37 million silver ounces, received agency approval to proceed with a decline, and has begun construction of the decline portal. SJSJV also completed the Equity ramp rehabilitation and underground drilling will begin later this month. San Sebastian's Andrea vein drilling program continued to increase its strike length, grades and continuity.
Hecla's Star mine re-opening study on mining the Upper Country, which are those mineral resources above the water table at Star 2500, is expected to be completed in the first quarter of 2012. This study will evaluate the mineability of the Noonday resource and other Upper Country veins, including the mining method, capital costs, operating costs and processing options. A second study to re-open the mine below the current water level is expected in the third quarter of 2012. The dewatering study will evaluate shaft rehabilitation, hoist refurbishment or replacement, electrical work, and dewatering rates.
The Star 2000 rehabilitation, which provides mine access, has been successfully completed to allow preparation of two underground drill stations which will be operational this quarter.
“Pre-development expenditures totaled $1.8 million in the third quarter 2011. This is the first quarter we have incurred expenditures under our pre-development initiatives. Pre-development expenditures in the fourth quarter are expected to be approximately $4.5 million, with $3.7 million at the SJSJV and $0.8 million at the Star,”said Baker.
Exploration expenditures for the third quarter and nine-month period ended September 30, 2011 were $9.9 million and $19.0 million, respectively. The majority of the exploration expenditures during the third quarter included Greens Creek with $2.8 million, SJSJV with $2.4 million, San Sebastian with $1.9 million, and Lucky Friday/Silver Valley with $1.9 million. Exploration expenditures in the fourth quarter are expected to be approximately $8.0 million and total expenditures in 2011 are expected to be $27.0 million.
SJSJV received agency ap-proval to amend the existing Exploration Plan of Operations allowing development of an anticipated 2,000 foot decline at the Bulldog mine. Pre-development expenditures of $2.5 million are expected before year-end to begin the portal construction and complete the surface infrastructure.
A conceptual study was completed evaluating a 500 ton per day operation in this historic silver mining district. Additional third quarter activities also in-cluded the construction and completion of the water management ponds, work on surface infrastructure, and building refurbishments.
SJSJV re-opened the Equity (North Amethyst) portal providing access to numerous drill platforms that will follow-up on surface drilling discoveries and high-grade ore shoots identified in the 1980s.
Two drills have been operating on surface during the quarter and have focused on extending mineralization along the Bulldog, Amethyst, and Equity veins. A drill hole targeting the northern trend of the "A Vein," on the Bulldog vein system, over 1,000 feet north of the current resource, intersected a 14.8 foot vein that graded 6.3 ounces per ton silver, 0.5% lead, and 2.9% zinc.
A series of drill holes on a recently defined strand of the Amethyst vein has confirmed widths of the veins ranging from 5 to 17-foot wide with a strike length of 3,000 feet. At the Equity structure, the first hole intersected an 11-foot mineralized breccia within strong epithermal vein alterations. Complete assays on the Amethyst and Equity drilling programs are pending.
Greens Creek exploration continues to expand the Gallag-her and 200 South mineralization trends.
At the Greens Creek Mine, third quarter underground definition and exploration drilling focused on three areas: Gallag-her, 200 South, and Northeast Contact. The drilling designed to test the down plunge extent of the main Gallagher mineralization to the west and south has defined a broad zone of mineralization over approximately 150 feet of strike and 400 feet down dip containing narrower 2.3 to 7.4 feet high-grade intervals.
Hecla Mining reported third quarter net income of $55.8 million and earnings after adjustments applicable to common shareholders of $35.4 million. Third quarter silver production was 2.3 million ounces at a cash cost of $0.67 per ounce, net of by-products.