Based in northern Idaho, Hecla Mining Company (HL) is the biggest U.S. based silver producer, with estimated 2011 production of around 9.5 million ounces of the white metal. It currently owns and operates two mines: the Green Creek mine on Admiralty Island, near Juneau, Alaska, and the Lucky Friday mine in the “Silver Valley” of the Idaho panhandle. Last year, its silver output was about 10.3 million ounces, around two-thirds from Greens Creek, but 2011 production is slated to fall about 8%, due largely to planned mining in lower-grade parts of the mines. As of the end of 2010, Hecla had proved and probably silver reserves of 142 million ounces and a further 104 million of “measured” and “indicated” resources. While the latter two categories are somewhat speculative, their presence suggests considerable potential. Beyond the measured and indicated resources, Hecla has another 140 million of “inferred” resources, based on minimal exploration, that could also yield silver.
Hecla produces silver and gold in both dore (unrefined) bars and refined form. It also mines lead and zinc, which it sells in bulk concentrates to custom smelters. On a by-product basis, in which revenues from by-products are subtracted from silver production costs, Hecla is one of the lowest-cost silver miners. In 2010, Hecla’s cash cost of silver was a negative $1.46 per ounce. Cash costs are expected to rise to around $1.00 an ounce in 2011. That’s because Hecla pays refiners a portion of the silver processed as refining fees, and the price of silver has risen over 50% from early last year. Nonetheless, earnings should more than double in 2011, to around $0.50 a share.
Although silver production is slated to remain around 10 million ounces per year through 2014, Hecla will probably lift its output by 50% - 60% by 2016 from presently owned assets. At Lucky Friday, the #4 shaft is being drilled now. This shaft should lead to a large output increase in 2015 as the ore grade rises from 10.4 ounces of silver per ton to around 14 ounces. About 35% of the project’s estimated $200 million cost has been spent to date. Extension projects at Greens Creek should also lift output there a bit.
Exploration and development in northern Idaho, Colorado, and Mexico should also help boost total silver production over the next few years. Hecla is working on reopening the Star mine in northern Idaho, the Bulldog mine in Colorado, and the San Sebastian mine in Mexico. Reopening other mines in northern Idaho’s Silver Valley that were closed when the price of silver plunged to below $10 an ounce, could be financially feasible, as well, if silver prices remain elevated.
Hecla’s financial position is strong, with virtually no debt and $200 million in cash. Counting future reclamation obligations as debt, the company’s debt-to-capital ratio is still a low 16%, giving it ample borrowing power for exploration and development, should the price of silver drop, and acquisitions. Moreover, the company has just instituted a cash dividend: it will pay one cent a share per quarter if the price of silver averages $30, rising by one cent a share per quarter for each $5 increment. Thus, if silver is $40 to $44.99 an ounce in some future quarter, Hecla’s payout will be three cents a share for that time frame.
The price of silver has risen around 40% in the last year, and the gold-to-silver price ratio is about 52. Both gold and silver prices have been boosted by higher demand for precious metals as stores of value in these parlous times as investors fear depreciation of currencies. But the gold-to-silver price ratio is near the past thirty-year average, so silver seems appropriately priced. Too, demand for silver is benefiting from increased industrial use in electronics, so it could hold its value if gold retreats. For further information on silver, see “Is It Silver’s Time To Shine?”, March 2, 2011.
Hecla Mining offers investors the likelihood of much greater output in a few years and a dividend if the price of silver at least maintains its present level. Investors seeking protection from financial markets might well consider taking a position at HL’s recent price.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.