Hecla Mining Reports Increased Income And Gross Profit

COEUR D'ALENE, ID - Hecla Mining Company reported net income before dividend payments was $15.5 million, compared to $8.1 million in the first quarter of 2007.
First quarter production was approximately 1.3 million ounces of silver and 21,940 ounces of gold, compared to 1.6 million ounces of silver and 36,330 ounces of gold in the first quarter of 2007. Hecla's average silver cash cost per ounce remains among the lowest in the industry, with the first quarter total cash cost averaging negative $1.42 per ounce of silver after by-product credits, a 27% decrease from the first quarter of last year. The total cash cost per ounce of gold averaged $642 per ounce compared to $475 per ounce in the same period last year, due to reduced gold production, escalating labor costs and increasing transportation costs at the La Camorra unit. Hecla's gross profit (nearly all of which comes from its silver operations) was $21.8 million, an increase of $3.9 million compared to the same period a year ago.
The decrease in first quarter revenues compared to the same period last year was caused primarily by lower gold production and the timing of concentrate shipments. Greens Creek recorded no concentrate sales during March because of port congestion in Asia where the smelters are located, which impacted the shipping schedule. As a result, revenue from 81,000 ounces of silver, 1,900 tons of zinc, and 189 tons of lead have been deferred to subsequent quarters. In addition, gold inventory in Venezuela increased during the quarter by 8,300 ounces as the company worked to maximize local sales in order to obtain the most favorable economic benefits. Positively impacting first quarter 2008 results was a tax benefit of $4.9 million to record the expected benefit related to the utilization of accumulated net operating losses from prior years.
As a result of Hecla's recent acquisition of the remainder of the Greens Creek joint venture, the company estimates annual silver production of 9 million ounces in 2008, a 50% increase over the previous estimate. The annual average cash cost of silver is estimated to be less than $2.50 per ounce. The reason for an increased cash cost per ounce estimate (from $1.00 per ounce previously) is a result of elevated energy costs and significantly increased smelting and refining terms worldwide as metals prices go higher, which increases the silver refining costs and reduces the revenue from by-product credits at both Lucky Friday and Greens Creek. Annual gold production is now anticipated at approximately 115,000 ounces, with more than half of that production coming from the La Camorra unit, where average total cash costs for gold are expected to be in the range of the first quarter performance of $637 per ounce until the operating environment improves. The remainder of Hecla's gold production is mined as a by-product from the Greens Creek silver operation.
On February 13, 2008, Hecla announced an agreement to acquire substantially all of the assets of Independence Lead Mines Company, located in northern Idaho's Silver Valley, for 6,936,884 shares of our common stock. Acquiring the assets simplifies the ownership structure by removing a long-term royalty on future Lucky Friday production and builds on Hecla's Silver Valley land package. The transaction is subject to approval by the shareholders of Independence, and completion of the transaction is expected to take place either by the end of the second quarter or early in the third quarter of 2008.
On February 21, 2008, Hecla acquired the right to earn a 70% interest in the San Juan Silver Joint Venture, which holds an approximately 25-square-mile consolidated land package in the Creede Mining District of Colorado. The agreement consists of a three-year earn-in with a total value of $23.2 million, consisting of exploration work and cash. Hecla Mining Company President Phillip S. Baker Jr. said, "We think this exploration project, located in an historically silver-rich mining district, has the potential to add 100 million or more ounces of silver to our resource base." A drilling program is expected to begin this summer on the Colorado property.
The Lucky Friday underground silver mine in northern Idaho produced 759,303 ounces of silver during the first quarter of 2008, at an average total cash cost of 98 cents per ounce after by-product credits, compared to 852,113 ounces of silver during the first quarter of 2007, at an average total cash cost of $1.77 per ounce. The 45% improvement in total cash costs per silver ounce is primarily attributable to more zinc production from higher recoveries and the mining of more zinc veins. Higher zinc production results in an economic benefit, but temporarily lowers the silver grade below life-of-mine reserve levels, and delays some silver production to later periods. Consequently, the Lucky Friday unit increased its gross profit nearly 60%, or $4.5 million, compared to the same period a year ago. The mine is on track to produce approximately 3 million ounces of silver in 2008.
Work continues on the detailed engineering report for construction of the #4 Shaft at Lucky Friday, which is an underground winze that would allow access to deeper ore after the year 2012, as well as on a prefeasibility study focused on determining the economic viability of significantly expanding production. Continued ventilation improvements also were made during the first quarter at the Lucky Friday mine, including completion of a new ventilation shaft between the 4050 and 4900 levels, which improves ventilation in the lower part of the mine.
Despite lower gold production, the La Camorra unit in Venezuela showed increased gross profit during the first quarter of 2008 compared to the same period a year ago, primarily because of the higher average gold price and a 48% improvement in gold ore grade. The ore grade has increased because production has transitioned from the La Camorra mine to the higher-grade Mina Isidora. Although once a large contributor to Hecla, the La Camorra unit is now a small proportion of Hecla's value. In 2007, La Camorra contributed just 3% of Hecla's gross profit. Although the contribution was higher than that in the first quarter of 2008, the gross profit percentage from La Camorra is expected to decrease even further as Hecla incorporates 100% of the Greens Creek mine into its operations.
During the first quarter, $6.1 million was spent on exploration programs company-wide. In addition, Hecla added a new major exploration project, the San Juan Silver Joint Venture in Colorado. Baker said, "We are making progress on all our exploration projects, with an increasing proportion of the programs directed towards drilling and potential resource definition. We are optimistic about several of our projects at this time, and continue to gather additional information for a more complete picture, rather than releasing one assay result at a time. Meanwhile, we are continuously evaluating new projects to add to the pipeline."
Hecla holds a 25-square-mile land position surrounding the Lucky Friday mine in the historic silver mining district in northern Idaho; and although the area is known as a prolific producing area, almost all of it is untouched by modern exploration methods.
Exploration at the Lucky Friday mine continues to delineate areas where additional resource may be added and upgraded. Drilling to the east of the currently identified resource and below the 5900 level (where mining is currently taking place) is intersecting significant grades and widths that could potentially lead to resource extensions to the east. In addition, definition drilling as much as 800 feet below the 5900 level is intersecting significant grades and widths, confirming and possibly upgrading and extending the existing resource estimates. Additions to the resource to the west also continue to look promising, as two short holes were drilled from the west end on the 5900 level that intersected significant grades and widths.
During the first quarter, concessions totaling about 270 square kilometers (166 square miles) were added to the San Sebastian exploration project in central Mexico, increasing Hecla's land position to more than 800 square kilometers (500 square miles). The additional concessions were added after the discovery of a prospective, northwest trending zone of quartz veins and extensions of the Cerro Blanco and El Abuelo vein systems into the area.
In the first quarter, 3,294 meters (10,807 feet) of drilling in five drill holes occurred in the La Roca target area, which is in the northeastern part of the San Sebastian property. Drilling has focused on veins and breccias identified in two regional structures, which extend for many kilometers. The graben-bounding faults show locally high grades of silver, and assays results from drilling in the fourth quarter of 2007 show that the precious metal grades are also improving with depth in those structures.
The Rio Grande project, which is 50 kilometers (31 miles) south of San Sebastian, consists of a series of high-grade, Fresnillo-style epithermal veins and breccias that extend for over nine miles. Deeper drilling on the San Martin Vein is designed to follow-up high-grade silver intersected last year and add to the strike length of the silver mineralization. Drilling on the silver and gold-rich Concepci—n vein was designed to test the vein 150 meters below one high-grade intercept, and it appears that three veins interpreted to be part of the Concepci—n vein system have been intersected. Assays on all the veins are pending. Drilling will continue into the second quarter and include evaluations of the San Martin, Concepci—n and El Leon veins.
With all the exploration activity underway in Mexico, assay results for all projects have been very slow. Consequently, no assays results from the exploration activities in Mexico during the first quarter have been received.
The company's address is 6500 N. Mineral Drive, Suite 200, Coeur d'Alene, Idaho 83815, 208.769.4100, fax: 208.769.7612, email: [email protected].