After more than a year of pondering its next move while waiting for higher silver prices, Hecla has decided to drive a 5,500-ft. (1.7-km) drift on the 5900 level to gain access to an orebody hosting 28 million oz. silver, situated about a mile north of the Lucky Friday shaft. The program is budgeted at US$8 million.
Lucky Friday is Hecla’s oldest operating asset. Over a period of 45 years, it has produced more than 127 million oz. silver.
However, operating costs have been high in recent years, and the company severely curtailed production levels to 30% capacity in 2001 and to 50% capacity last year.
In 2000, Hecla took a US$32-million writedown on Lucky Friday and kept the net book value of the asset at around US$1 million as of year-end 2002.
Hecla reckons the new development will allow the mine to double its annual production rate to around 4 million oz. and give the company a better platform from which it can explore for additional silver reserves.
It should take about two years to complete the drift, with production from the new level expected to begin in late 2005. Cash costs are expected to be less than US$4.50 per oz. silver.
Preproduction development will begin in January, and will include two ventilation raises connecting the new level to the raises on the 4900 level. The work will also involve excavation of ore passes and chutes, electrical cutouts, a maintenance shop, and a chiller station.
“It’s because our people at Lucky Friday have done a great job of decreasing costs and creating an economic plan that we are able to proceed with development of the new level,” says Hecla President Phillips Baker.
Hecla has already produced 20 million oz. silver from this general area of the mine since 1997, and the company says it already has a “good understanding of the vein character.”
At Dec. 31, 2002, Lucky Friday contained a resource of 1.08 million tons grading 13.2 oz. silver per ton, 8.5% lead and 1.7% zinc, but Hecla did not include these figures in its official global resource tally.
The mine currently employs 94 people and, when the new development drift is completed and full production is reached, Hecla expects to boost employment there by up to 50%. The Lucky Friday union (United Steelworkers local 5114) recently approved a five-and-a-half-year labour contract.
Lucky Friday’s vein material is typically mined by cut-and-fill methods. Ore is processed on-site at a 1,100-ton-per-day (at full capacity) conventional flotation mill that produces two concentrates, silver-lead and zinc, which are shipped to
For the first nine months of 2003, Lucky Friday milled 116,000 tons of ore (compared with 115,000 tons in the corresponding period of 2002) at a mining cost of US$48.20 per ton (US$40.04 a year earlier) and a milling cost of US$6.58 per ton (US$6.80). The head grade averaged 15.85 oz. silver per ton (13.27 oz.), resulting in the production of 1.73 million oz. silver (1.43 million oz.), 9,865 tons lead (7,100 tons) and 1,835 tons zinc (1,673 tons).
The total production cost dropped to US$4.77 per oz. silver in the first three quarters of 2003, down from an uneconomic US$5.62 per oz. a year earlier.
Hecla’s recent third quarter was highlighted by a US$7.2-million gross profit in its silver segment, up from US$724,000 a year earlier.
The windfall was powered by a 27% increase in silver production to 2.6 million oz. and a 45% decrease in the average total cash cost of silver to a new record low of US$1.33 per oz., thanks in part to higher prices for byproduct gold.
Overall though, Hecla lost US$17.4 million (US16 per share) in the third quarter, compared with a profit of US$1.5 million (US20 loss per share) a year earlier. The hefty loss stems from a non-cash, US$23.1-million accrual for environmental liabilities.
Hecla common stock has been on fire this year, rising from around US$3 in March to above US$8 at presstime, for a market capitalization of US$885 million.
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