Hecla Updates Guidance Increasing Silver Production and Lowering Cash Costs Per Ounce
COEUR D’ALENE, Idaho--(BUSINESS WIRE)--Sep. 9, 2009-- Hecla Mining Company (NYSE:HL) is pleased to announce improved operating performance, increased exploration spending and an update on the development plans for the Lucky Friday mine.
Hecla’s operations continue to show marked improvement as a result of previously implemented plans which focused on lowering cash costs through cost-cutting and optimization programs. Increased production volumes, improved grade control measures and greater availability of hydroelectric power at the Green Creek mine have led to lower operating costs in 2009 compared with 2008. Prices for by-product base metals have also rebounded sharply since early June which helps to reduce operating costs at both the Greens Creek and Lucky Friday mines.
As a result of these programs and improved business conditions, Hecla is revising anticipated full year 2009 silver production to 10.5 to 11 million ounces from 10 to 11 million ounces. The estimate of cash cost per ounce of silver has been reduced by a third to less than $3.00 per ounce of silver from the previously announced estimate of $4.50 per ounce.
Hecla Mining Company President and Chief Executive Officer Phillips S. Baker, Jr., said, “If prices for metals remain at their current levels we should generate substantially more operating cash flow this year than anytime in Hecla’s hundred year history. Second quarter cash flow was $20 million and, importantly, compares favorably with our competitors who produced more silver but at higher operating costs thereby providing less operating margin.”
Baker continued, “Our people have done an excellent job of managing the operations. At Greens Creek we lowered operating costs by increasing throughput while the ore grade at the Lucky Friday mine has improved approximately 10% as a result of grade control measures. In addition, we have also benefited from higher by-product metal prices. I am excited that we have announced a second reduction in our cost guidance and I am confident that we should have full-year cash costs below $3.00 per ounce. These are important achievements and I believe that the location of our mines in the U.S., Hecla’s leverage to a rising silver price and the cash flow generation that we are seeing today makes Hecla an attractive investment.”
EXPLORATION
As part of Hecla’s commitment to grow its production and reserves in its four district-controlling land packages, Hecla has expanded planned exploration expenditures almost 40% to $9.5 million for the year with $7 million being spent in the second half of 2009.
Surface drilling is already underway on the Northeast Contact target at the Greens Creek mine, on the Vindicator property east of the Lucky Friday mine and on the Bulldog vein which is part of the San Juan joint venture in Colorado where Hecla owns a 70% interest. The remaining 30% of the joint venture is held by Emerald Mining and Leasing, LLC and Golden 8 Mining, LLC. Surface drilling should commence at the San Sebastian property in Mexico in the fourth quarter. By early October, nine drill rigs are expected to test our projects in Alaska, Colorado, Idaho and Mexico.
LUCKY FRIDAY MINE
Preliminary work on studies underway at the Lucky Friday mine in Idaho indicates that mine-life can be materially extended under several alternatives. The studies are examining deep development options to mine beyond 2015 under different capital and development schedules. The lower capital alternative could extend mine-life at Lucky Friday by four years for an estimated investment of less than $10 million. The capital required would be deployed to increase the cooling capacity of the ventilation system and for mine development using existing infrastructure.
A second scenario, requiring a greater capital investment is currently the subject of a feasibility study that will detail long-term infrastructure development of the mine that could extend mine-life by several decades. The feasibility study started earlier in the year... Continued here.
Hecla's Home Page can be accessed on the Internet at www.hecla-mining.com.
Source: Hecla Mining Company
DV is revisiting a Hecla post from May 20. Hecla is up with silver due to inflation expectations and a weak dollar¹. There is still business risk involved with this company, they recently deferred preferred dividend payments to conserve cash and to not violate a bank credit agreement. Earlier this year they had to amend credit agreements and raise equity to pay down debt. Since April look at the HL vs. SLV, UUP (Silver ETF, US Dollar ETF) chart.
Back in May Dvol thought the size open in Hecla's back-month calls was interesting. If you revisit the post on May 20 there were 67,000 January 2010 calls open at the $2.50 strike for a $1.05 and 19,000 calls open at the $5.00 strike for $0.36. Fast forward to today, with spikes and corrections along the way, Silver and Hecla both broke out and Hecla's stock is up 31%, the January 2010 $2.50 call is up 71% and the $5.00 call is up 39% (the $5.00 call could have been sold in a spread not sure). Also different time frames tell a different story, HL spiked at the end of May but corrected in the 2s in June/July. It closed at $4.20 today and if silver tanks here, watch out!
Hecla Mining January Calls (Courtesy of Yahoo Finance)
No recommendation going forward. These small caps are high risk. DV occasionally tries to find valuation and/or turnaround plays in small to mid cap stocks. Here are previous posts on Thinkorswim Group before the TD Ameritrade buyout, Skyworks Solutions 1, 2 in February, Arbinet Corp in April and Hecla in May.
