Hecla buys La Camorra from Monarch

Hecla Mining (HL-N) has signed a letter-of-agreement to pay US$15 million in cash and US$13 million in shares for the La Camorra gold mine in southeastern Venezuela and all remaining assets held by Monarch Resources (MRE-T).

Hecla expects to issue 4-5 million shares based on the current share price; currently, it has 55 million shares outstanding. The company says it has arranged a tentative commitment from a bank to finance the cash portion of the transaction based on a positive due diligence.

Monarch retains a royalty payment on future production above current reserves; the percentage will be determined at closing.

Monarch intends to use the proceeds from the sale to retire US$20 million in debt. Most of the debt will be retired upon closing, says Vice-President Lester Knight, and the remainder will be closed out within a year. The company will have US$8 million left over.

Hecla has already completed a preliminary due diligence review, and expects to finish a full review and close the transaction in early May.

The high-grade underground La Camorra mine is Monarch’s chief asset. Situated in the El Dorado district of Bolivar state, 180 miles south of Puerto Ordaz, the mine produced 51,000 oz. in 1998 from ore grading 0.44 oz. per ton.

In 1998, Monarch added new equipment at the mine and slashed its workforce in at attempt to reduce cash costs. In the first quarter of 1998, cash costs were US$317 per oz.; they fell to US$253 in the second and US$243 in the third. For the full year, costs averaged US$260 per oz.

Cash costs for the 1999 are projected to fall below US$220, with first-quarter production pegged at 15,000 oz. gold, increasing to 80,000 oz. annually by 2001.

Mineralization consists of two high-angle veins hosted in a Proterozic greenstone sequence of intermediate volcanic rocks. Proven and probable reserves of 629,000 oz. gold within 1.4 million tons grading 0.44 oz. per ton have been outlined over a vertical extent of 1,300 ft.

Monarch says the mine contains considerable upside potential. The company has intercepted ore-grade mineralization to a depth of 2,900 ft. below the top of the reserves.

The Bermuda-based junior also controls the Saladillo gold-silver property, 70 miles northeast of Durango, Mexico. Epithermal mineralization within the Francine vein contains a drill-indicated resource of 75,000 oz. gold and 8 million oz. silver (in 550,000 tons grading 0.13 oz. gold and 14.6 oz. silver). It also owns 10 concessions around La Camorra, and several other grassroots properties in Mexico.