first majestic silver

Hecla Mining Company (Ny:Hl): Follow-Up No 4

May 10, 2003


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 111 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 Reports $6.7 Million in Net Income for First Quarter:

Lower Production Costs and Increases in Silver Production, Sales, Gross Profit and Cash Position

Hecla Mining Company has reported net income of $6.7 million, or 6 cents per share, for the first quarter of 2003, compared to $0.5 million, or 1 cent per share, in the first quarter of 2002. Improved gold and silver prices, increased silver production and lower silver costs improved the first quarter performance in 2003 compared to the same period last year. Also contributing to the improvement were a one-time $4 million litigation settlement and a $1.1 million positive cumulative effect of change in accounting principle. Excluding the benefits of the one-time items, Hecla earned $1.7 million in net income for the quarter, a significant improvement over last year's first quarter.

Sales in the first quarter of 2003 were $26.4 million, compared to $23.4 million in the first quarter of 2002. Gross profit nearly doubled from $3.7 million in the first quarter of 2002 to $7 million in the first quarter of this year. Cash flow provided by operating activities improved more than nine-fold in the same period, from $0.5 million to $4.8 million, including the litigation settlement described above. As planned, exploration activities increased to $2.1 million during the first quarter of 2003, compared to $0.5 million during the first quarter of 2002.

  • Hecla's Chairman and Chief Executive Officer Arthur Brown said, "Things continue to go very well for our company. Our performance over the past 18 months has put us solidly in the mid-tier level of gold companies, while remaining a major primary silver producer. Our cash costs are among the lowest in the industry for both gold and silver, and our prospects for the future look good. In addition, we are in strong financial shape with the cash on our balance sheet from the underwritten public offering in January."

First Quarter 2003 Highlights

  • Net income of $6.7 million, gross profit of 2.4 million ounces of silver produced at a record low cash cost of $1.67 per ounce $7 million
  • Outstanding performance at San Sebastian, including a successful transition from contractor to owner mining
  • More than 53,000 ounces of gold produced, with 35,000 ounces produced at a cash cost of $137 per ounce
  • 21% increase in the price of gold compared to the first quarter of 2002
  • Cash and cash equivalents increased to almost $114 million
  • $4 million in settlement proceeds from Zemex Corporation
  • $1.1 million positive cumulative effect of change in accounting principle operations


Baker said, "We are focusing closely on several excellent exploration targets this year, particularly in Venezuela and Mexico. Results to date have been so encouraging that we expect to begin development ramps on two or more projects before the end of the year. This is part of our effort to double Hecla's gold production within the next five years."


Hecla is experiencing outstanding results from its drilling program on Block B in Venezuela. With the first 50-hole drilling program 80% complete, more than 60% of the assays have returned ore grade results, some up to 3+ ounces of gold per ton. A feasibility study and mine development planning are underway, and assuming a favorable outcome of the study, Hecla could begin underground ramp development before the end of the year. Last year, Hecla signed a 20-year lease with the Venezuelan government-run mining company to explore and develop the area.

At the Canaima gold property, just seven kilometers northeast of the La Camorra mine in Venezuela, a resource of 550,000 tons grading 0.38 ounce of gold per ton has been identified. Geologists and engineers are studying the complexities of the hydrology and rock mechanics at the property, which lies adjacent to and under the Cuyuni River. A feasibility study for a development ramp is in progress. Mine exploration on the Main and Betzy veins at the La Camorra mine continues. The goal of this underground mine exploration is to continue to replace ore reserves that have been mined out, which Hecla has successfully accomplished since acquiring the mine in 1999. Results have been encouraging enough to begin work on the development of a shaft. A decision to begin construction is expected before the end of the year.


Through an exploration program last year and early this year, a resource of nearly 150,000 tons grading 0.43 ounce of gold per ton has been identified on the Don Sergio vein, just south of Hecla's San Sebastian mine. Pending a positive outcome of a feasibility study, preliminary plans are being made to start ramp development on the deposit in the third quarter.

Hecla is currently conducting exploration drilling on three other targets on the sizeable and very prospective land position it holds surrounding the San Sebastian mine in the state of Durango, Mexico. Baker said, "We're now taking a look at the North, Cerro Pedernalillo and La Esperanza veins. These are very early stage drilling programs, but are just the beginning of an extensive exploration program we plan to conduct on numerous targets in the area."


A plan of operations has been submitted on schedule for the Hollister Development Block gold exploration project in Nevada, a joint venture with Great Basin Gold. The company is working with state and federal officials to shepherd the plan through the U.S. permitting process.

Fundamental Considerations

Rising gold and silver prices will make these deposits more valuable.

While gold remains in an exemplary up-trend, silver has still to overcome the resistance zone at $ 5.

Technical Considerations

The down-trend of the Hecla share ended in 2000. 2001 saw a powerful rally that pushed the share price to a multi-year high of $5.90.

The consolidation that followed is a normal correction of a stock that has been a star performer. Once the resistance zone around $ 5 is overcome, a move towards $10 will be the likely consequence.

A lot of opposition will have to be overcome between $10 to $15.

A sheet of gold can be made thin enough to be transparent
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