Hecla ups 2002 production targets

Continued operating success at the La Camorra gold mine in Venezuela and the San Sebastian silver mine in Mexico’s Durango state is allowing Hecla Mining (HL-N) to revise its production estimates for 2002.

Hecla now expects to mine about 215,000 oz. gold and 8 million oz. silver this year, with total cash costs ringing in at about US$145 per oz. gold and below $2.60 per oz. silver.

The company had previously estimated its 2002 production at 195,000 oz. gold and 7.5 million oz. silver at slightly higher cash costs.

Hecla attributes the production boost and the resulting drop in cash costs to higher output and productivity during the first half of the year, as well as impressive ore grades.

In 2002, Hecla expects to produce: 150,000 oz. gold from its wholly owned La Camorra mine; 3.2 million oz. silver and 37,000 oz. gold from its wholly owned San Sebastian mine; 3.1 million oz. silver and 28,000 oz. gold from its 29.7%-owned Greens Creek mine in Alaska’s panhandle (Kennecott, a subsidiary of Rio Tinto [RTP-N], owns the remainder and serves as operator); and 1.7 million oz. silver from the company’s weakest performer, the wholly owned Lucky Friday mine in northern Idaho.

During the first half of the year, Hecla produced 120,000 oz. gold, up almost 40% from the 86,152 oz. produced during the corresponding period in 2001. Gold production was derived from La Camorra (about 85,000 oz.), San Sebastian (19,000 oz.) and Greens Creek (15,000 oz.).

Silver production during the first half amounted to 4.3 million oz., up about 200,000 oz. from the year-earlier period. New production from San Sebastian, which began commercial production in May 2001, helped to offset a planned reduction in output from the aging, high-cost Lucky Friday operation.

During the first half of 2002, Hecla’s share of silver output from Greens Creek was nearly 1.7 million oz., while San Sebastian contributed more than 1.6 million oz., and Lucky Friday, 1 million oz.

Headquartered in Coeur d’Alene, Idaho, Hecla has been one of the great turnaround stories of the past year. Once heavily in debt and seen as a high-cost producer, Hecla acquired Monarch Resources in 1999 and just as the latter’s underperforming La Camorra mine was turning into a profitable, low-cost operation with an expanding reserve base.

The San Sebastian asset, acquired almost as an afterthought in the Monarch deal, has proved to be a true blessing for Hecla, owing to the discovery of significantly higher-than-expected tonnages and grades. Hecla brought San Sebastian swiftly into production, and the mine has quickly taken its place as one of the company’s core assets.

At the exploration level, Hecla recently teamed with Great Basin Gold (GBG-V) to advance the Ivanhoe property, in Nevada’s Carlin trend, between Barrick Gold’s Goldstrike property and Newmont Mining’s Ken Snyder mine.

Hecla can earn a half-interest in Ivanhoe by spending US$22 million on a 2-stage development program.

In the first three months of the year, Hecla generated revenue of US$24 million and earnings of US$486,000, before a US$2-million charge for undeclared dividends on its Series B convertible preferred stock.

In February, to conserve this annual cash outflow of US$8 million, Hecla announced it would not pay its April 1 preferred dividend. Then, in early June, the company offered its preferred stockholders seven shares of common stock in exchange for each preferred share. The offer amounted to a fairly rich 35% premium over the June 12 preferred close, or more than twice what the preferred shareholders would have received had they exercised their conversion rights.

If every preferred shareholder accepts the tender offer, preferred shareholders would hold about 17.5% of Hecla.

After announcing the offer, Hecla common stock immediately plummeted 53 to US$4.07. However, with resurgent gold and silver prices, the common stock has gradually recovered to trade at US$4.82 at presstime.