Hecla Mining Sales Increase 27% Over The Prior Year
COEUR D'ALENE, ID - All three of our mines performed strongly in the third quarter, leading to higher production over the entire suite of metals we produce, said Phillips S. Baker Jr., Hecla’s President and CEO. Our significant lead and zinc production is a competitive advantage, as the diversification helps cushion revenues against weaker gold and silver prices.
In the first three quarters of 2014, we have done what we said we would do, operating our business within adjusted EBITDA and maintaining a solid cash position on the balance sheet. Excluding the impact of the settlement payment, we had operating cash flow of $114 million in the first nine months of 2014, up from $5.1 million in the prior year period. Over the first nine months of 2014 we increased our cash balances by $10 million, and expect to end the year with about $200 million in cash available, Baker continued.
We believe San Sebastian, in Mexico is a district that may ultimately have more than 100 million silver equivalent ounces. Our exploration success, particularly in the last six months, has extended veins and discovered the faulted offset of the Francine Vein, increasing the opportunity for further growth. Most of the newly discovered mineralization appears to be accessible from surface or a shallow ramping system and is expected to have excellent returns. Engineering will incorporate the new information in the coming months to complete the development studies, Baker added.
Silver production at Greens Creek in Alaska was 1.9 million ounces in the third quarter of 2014 at a cash cost, after by-product credits, per silver ounce of $3.75 compared to 1.8 million ounces at a cash cost, after by-product credits, per silver ounce $5.00 in the third quarter of 2013. The mill operated at an average of 2,221 tons per day (tpd) during the third quarter of 2014.
The per ounce cost was beneficially impacted by lower energy costs, higher silver production levels, and higher prices for zinc and lead, which are by-products of silver production at Greens Creek, compared to the prior year period. Energy costs were lower due to the availability of hydroelectric power, which is expected to continue through the end of the year. Mining costs per ton increased by 3% due to higher labor costs, and milling costs per ton decreased 2% due to lower energy costs in the third quarter compared to the same period in 2013.
In the third quarter, Lucky Friday in Idaho produced 972,994 ounces of silver at a cash cost, after by-product credits, per silver ounce of $8.71,1 compared to 479,188 ounces at $16.50 per ounce in the third quarter of 2013. The reduction in cash cost, after by-product credits, per silver ounce was principally due to higher production resulting from both higher silver ore grade and increased throughput, and higher base metals prices. The mill operated at an average of 858 tpd for the quarter.
#4 Shaft, a key growth project, has been excavated approximately 2,600 feet to the 7500 level. The project is 73% complete and is expected to be finished in the third quarter of 2016. The total estimated completion cost of #4 Shaft is expected to be approximately $215 million, with $157 million already spent through the third quarter of 2014.
The Casa Berardi mine in Quebec, acquired on June 1, 2013, produced 28,977 ounces of gold in the third quarter at a cash cost, after by-product credits, per gold ounce of $898.1 For the 16-month period ending September 30, 2014 under Hecla ownership, the mine produced 151,391 ounces of gold at a cash cost, after by-product credits, per gold ounce of 927.1 Mill throughput averaged 2,242 tpd during the third quarter of 2014.
During the quarter, the West Mine Shaft deepening project reached functional completion with the removal of the bulkhead dividing the operating shaft and the deepened section. This changeover required the shaft to be intermittently closed over a 22-day period, which impacted production for the quarter. Production in the fourth quarter is expected to increase as the shaft resumes normal operations, and the mine is expected to produce about 125,000 ounces of gold this year. In 2015, the Company expects to drive a drift from the newly constructed 1010 station to the 118 and 123 ore zones, facilitating materials handling, ventilation, and exploration.
Exploration and pre-development expenses were $5.8 million and $0.4 million, respectively, in the third quarter of 2014. Due to additional funding at San Sebastian in Mexico, Casa Berardi and at Greens Creek, exploration expense was equal to its level in the third quarter of 2013, while pre-development expense decreased by about $3.1 million as a result of reduced discretionary spending in response to lower metals prices. Full year exploration and pre-development expenses are expected to be about $21 million.
The shallow in-fill and exploration drilling program on the North, Middle and Francine Veins at the San Sebastian property in Durango, Mexico continues to be successful. The Francine, Andrea, Middle and North Veins now define nearly 8 kilometers (4.9 miles) of mineralized strike length, and the recently discovered North and East Francine Veins are open along strike and at depth. The silver equivalent indicated resource of 25.9 million ounces and inferred resource of 29.5 million ounces is expected to increase in the coming months, as these resources do not include the North and East Francine Veins. Engineering studies are underway to investigate potentially mining these veins both as open pits and underground, similar to the approach that Hecla used when mining the Francine Vein from 2001 to 2005.
In recent weeks the southeastern extension of the high-grade, past-producing Francine Vein was discovered east of the San Ricardo fault and is referred to as the East Francine Vein. This vein system ranges from 12.0 to 21.6 feet wide and recent intersections include 1.05 oz/ton gold and 204 oz/ton silver over 18.1 feet, as well as 1.4 oz/ton gold and 382 oz/ton silver over 11.9 feet.
As previously announced on September 11, 2014, with the success of this drilling program, the San Sebastian exploration budget has been increased by $750,000 to $3.1 million, and a total of three drills are now operating with the goal of expanding the North Vein near-surface resource further to the northwest and southeast and evaluating what is now interpreted to be the southeast extension of the Francine Vein. An inaugural resource for each of the North and East Francine Veins, as well as an updated resource for the Middle Vein, by incorporating new exploration, in-fill drilling and surface trenching, is expected in the coming months. Hecla has expanded its exploration program to focus on additional mineral occurrences known to exist in the area that could add to the resource.
At Greens Creek, definition drilling continues to upgrade the lower NWW, West Wall and Deep 200 South resources. Exploration drilling tested the upper limits of both folds of the NWW zone and confirmed the fold limbs to the north beyond the current resource. Drill intercepts of the West Wall suggest thicker and more consistent mineralization than currently modeled and intercepts, including 34.7 oz/ton silver, 0.17 oz/ton gold, 18.5% zinc and 5.6% lead over 9.6 feet, are 100 feet further down dip then the current model. Exploration drilling on the southern extension to the Deep 200 South continues to extend the high-grade, upper bench mineralization another 300 feet to the south and recent intersections include 63.6 oz/ton silver, 0.15oz/ton gold, 5.6% zinc, and 2.6% lead over 6.6 feet, and 34.4 oz/ton silver, 0.14 oz/ton gold, 5.5% zinc, and 2.8% lead over 16.3 feet.
At Casa Berardi, four drills operating underground and one drill on surface have refined and expanded the 113, 118, 123, 124 and 140 Zones. Drilling on the upper 113 Zone from the 350 level confirmed and expanded previous resources upward past the 310 level and assay results include an impressive 1.62oz/ton gold over 9.7 feet, and 0.88 oz/ton gold over 8.2 feet. Definition drill programs from the 800meter level of the 118 Zone intersected 0.42 oz/ton gold over 42.3 feet and on the lower 123 Zone from the 810 meter level confirmed the expected ore trend with an intersection of 1.01 oz/ton gold over 21.0 feet.
The definition drilling program on the 124 Zone Principal from the 290 meter level continue to intersect multiple zones of sheared quartz veins and include the intersection of 0.32 oz/ton over 35.8 feet. Underground exploration drilling to the east of the 124 Zone Principal along the Casa Berardi break from the 300 level intersected strong mineralization that includes intersections of 0.46 oz/ton gold over 8.5 feet, and 0.24 oz/ton gold over 6.6 feet. Surface drilling deeper on the 140 Zone returned 0.13 oz/ton gold over 5.6 feet. There is still robust down-plunge potential extending from the high-grade areas, and a surface drill is in place to evaluate the down-plunge extensions.
Exploration drilling of the 140 Zone on the 300 meter level was following up mineralized intercepts located to the south of the Casa Berardi Break. Recent results include 0.25 oz/ton gold over 12.3 feet and 0.05 oz/ton gold over 39.4 feet. The surface drill program has resumed and one hole has been drilled south of the Casa fault on the South fault (134 Zone) and intersected a 50-foot wide corridor of quartz veining with sulfides.
At Lucky Friday, definition drilling below the planned advance of 15 and 16 stopes between the 7000 and 7500 levels continued to confirm resources for conversion to reserves. Intersections of the 30 Vein include 16.4 oz/ton silver, 7.7% zinc, and 11.3% lead over 7.6 feet, and 15.1 oz/ton silver, 8.3% zinc, and 10.3% lead over 9.1 feet.
At San Juan Silver in Colorado, work continues on water discharge permits, environmental protection plans, storm water management and an amendment to the 5-year Plan of Operations (POO) for surface exploration drilling and operations. Subject to receipt of the permits and the amended POO, and improved market conditions, the Company is positioned to commence underground rehabilitation in order to establish drill platforms.