SILVER, GOLD, LEAD AND ZINC IN THE UNITED STATES, MEXICO AND VENEZUELA
Business Summary
Established in 1891 in northern Idaho's Silver Valley, Hecla Mining Company's rich history of mining has distinguished it as a respected precious metals producer. Now headquartered in Coeur d'Alene, Idaho, this international, publicly traded company is 112 years old.
Hecla Mining Company mines and processes silver, gold, lead and zinc in the United States, Mexico and Venezuela. Hecla currently produces silver from three silver mines, Greens Creek, San Sebastian and Lucky Friday, and mines gold as well at the La Camorra mine.
The company's gold and silver operations are low cost, with total cash costs during 2001 at $133 per ounce of gold and $3.52 per ounce of silver. The Greens Creek Unit, in which Hecla holds a 29.73% interest, is on Admiralty Island near Juneau, Alaska, and produced over 3 million ounces of silver for Hecla's account in 2001. Hecla's share of Greens Creek includes over 37.6 million ounces of silver in proven and probable reserves. The San Sebastian mine, an underground mine and exploration project, is located in central Mexico's historically silver-rich Durango district. It produced over 950,000 ounces of silver and nearly 16,000 ounces of gold in 2001, after only six months of operation. San Sebastian has 8.6 million ounces of proven and probable silver reserves and more than 91,000 ounces of proven and probable gold reserves. The Lucky Friday Unit, located in Mullan, Idaho, produced over 3.2 million ounces of silver in 2001 and has over 17 million ounces of silver in proven and probable reserves.
Hecla's gold operation, the La Camorra Unit, is located in El Callao, Venezuela. The mine produced over 152,000 ounces of gold in 2001 and has nearly 700,000 ounces of proven and probable gold reserves and other resources. Hecla is well known in the United States as a major primary silver producer, and the name "Hecla" is commonly associated with silver by many investors. Over the past two decades, Hecla has also produced a significant amount of gold.
Recent Developments: Hecla Estimates Record Low-Cost 2003 Silver Production
Hecla Mining Company has announced it is lowering its 2003 silver total cash cost estimate to below $2 per ounce, a new record low cost for the 112-year-old company.
An estimated 2003 production of 9 million ounces of silver at an average total cash cost of less than $2 per ounce maintains Hecla's position as the lowest-cost primary public silver producer in North America. In 2002, Hecla produced a record 8.7 million ounces of silver, at an average total cost per ounce of $2.16. Hecla's silver production has been increasing as production costs have been going down.
Hecla also estimates it will produce approximately 215,000 ounces of gold in 2003, at an estimated average total cash cost of $150 per ounce.
During the first half of 2003, Hecla produced a total of 4.8 million ounces of silver and more than 105,000 ounces of gold. Silver production came from Hecla's San Sebastian mine in Mexico, which produced approximately 2 million ounces; the Greens Creek mine in Alaska, at 1.6 million ounces of silver; and the Lucky Friday mine in northern Idaho, producing more than 1.2 million ounces. The La Camorra mine in Venezuela was responsible for the majority of Hecla's gold production during the first six months of the year, producing about 67,000 ounces of gold. Also contributing to gold production were the San Sebastian and Greens Creek mines, at approximately 23,000 ounces and 15,000 ounces of gold, respectively.
Hecla's President and Chief Executive Officer Phillips S. Baker, Jr., said, "We continue to achieve our goal of an increasing production profile while maintaining very low costs and high returns on invested capital. Both our silver and gold properties are performing well and we have high expectations for the future. We have earmarked a good portion of our cash for development projects and exploration programs aimed at increasing our production of both gold and silver in the future, and our current plan is to double our gold production within the next five years. That goal is backed up with a stable of excellent development and exploration properties already in our pipeline." Several significant projects related to growing Hecla's gold production are close to implementation in Venezuela, including continued exploration on the Block B gold property in the El Callao district. Exploration at Block B has been extremely encouraging, and Hecla continues to update and upgrade the final resource estimate, but has not yet finalized it. Assuming a favorable outcome of the exploration program and a final feasibility study, Hecla could begin underground ramp development at Block B before the end of the year.
The company is also working on final feasibility for the development of the Canaima resource, near Hecla's La Camorra mine in Venezuela. Hecla is also looking into sinking a shaft to mine the deeper resources at Hecla's La Camorra gold mine and development of a custom gold milling business. In addition, Hecla has begun a development ramp on the Don Sergio vein at the San Sebastian mine in Mexico, with both silver and gold production expected from that area in 2004.
Fundamental Considerations
Rising production and a massively lower cash cost on silver, as well as continued exploration success are already reflected in the share price: we think that the trend will continue.
Technical Considerations
The rising trend in gold and silver has declared itself to those who are taking note.
From the low of 50 cents in November 2000, to the high of $5.90 reached in June 2002, the share price of Hecla went up 1,000%. This sharp advance has been consolidating ever since.
Once the share price overcomes resistance at $6, we shall likely have a quick move towards the $10 plus area.
Our recommendation: BUY!
Peter Zihlmann, www.pzim.com, or email to forex@pzim.com
July 21, 2003
Disclosure: The author has not been paid to write this article, nor has he received any other inducement to do so. The author is a shareholder in the company and will benefit from any increase in the company's share price. Disclaimer: The author's objective in writing this article is to invoke an interest on the part of potential investors in this stock to the point where they are encouraged to conduct their own further diligent research. Neither the information, nor the opinions expressed should be construed as a solicitation to buy or sell this stock. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions in the stock.