The resurgence of Hecla Mining Co.s venerable Lucky Friday mine near Mullan, Idaho, might seem remarkable enough, given recent strong production gains, plummeting cash costs, and a surge in hiring there. That rebirth, however, would pale in comparison to the growth the silver, lead, and zinc mine would see if current studies of the property find what the Coeur dAlene mining companys executives hope is true.


We could end up doubling employment there, says Phillips S. Baker Jr., Heclas president and CEO.


Just six years ago, when Baker joined Hecla as chief financial officer, There were voices in the company that wanted to shut down the Lucky Friday, he says. Thats when silver prices were south of $5 a troy ounce and it cost Hecla more than that to produce it. Hecla decided that year to downsize the operation to 30 percent of full production, leaving it with about 60 employees.


Today, silver is selling for roughly $12 an ounce, and with prices for lead and zincthe two secondary metals the Lucky Friday producesat historical highs, the mine produced silver for a cash cost of negative 72 cents an ounce last quarter. Hecla has hired about 40 workers at the mine this year, and now employs 260 people there. The workers are well paid; hard-rock miners at the Lucky Friday will make between $80,000 and $100,000 each this year.


The Lucky Friday, which currently has an estimated 120 million ounces of silver resources and produced about 2.9 million ounces of silver last year, is conducting a feasibility study that could lead to construction of a new shaft that would enable miners to reach deeper into the mine. Baker says its too early to know how much the mind-shaft project would cost, but says its conceivable that it could cost in excess of $35 million. The study is expected to be completed in mid-2008. Hecla also expects to complete by mid next year a pre-feasibility study to determine whether the company should embark on a full-scale expansion of the mine, Baker says.


Exploration in and around the Lucky Friday has suggested that the property might hold far more mineralization than currently is identified.


We could add 70 million to 150 million ounces of silver resources there, Baker says.


Hecla already is expanding its mill there, which it has several times before, and if a large mine expansion were done, the mill would have to be expanded again, or perhaps a new mill would have to be built, he says.


Baker also is intrigued with the 25 square miles of land on which Hecla controls mining rights to the north of the Lucky Friday, where such historical mines as the Morning, Hecla, Star, Gold Hunter, and Hercules helped to give the Silver Valley its name. Since the late 1800s, more than two dozen mines on that land together have produced nearly 330 million ounces of silver and millions of tons of lead and zinc, Hecla says. Based on todays metals prices, that overall production would be worth roughly $25 billion, it says.


The company currently is digitizing a centurys worth of geologic and mining information about that property and is creating 3-D computer-generated images that might help it determine how the various veins relate and where untapped resources might exist. Baker says Hecla is beginning the first significant exploration thats been done on much of that property in 50 years.


Other operations


In addition to the Lucky Friday, Hecla currently has two other operating properties, one located near Juneau, Alaska, where it owns an about 30 percent stake in the Greens Creek silver mine, and the other in Venezuela, where its La Camorra Unit includes the Mina Isidora gold deposit.


Hecla is a partner in Greens Creek with Kennecott Juneau Mining Co., a subsidiary of London-based giant Rio Tinto plc. The underground mine produced about 2.6 million ounces of silver for Heclas account last year, plus about 17,700 tons of zinc, 6,200 tons of lead, and a small amount of gold. Due to rising prices of the byproduct metals, the mines cash cost to produce silver last year was a negative $3.47 an ounce.


Baker says Greens Creek is the fifth largest silver mine in the world, and has long-term reserves and an active exploration program. The mine, located on Admiralty Island, is operated by its joint-venture partner.


In eastern Venezuela, the La Camorra Unit includes the La Camorra and Mina Isidora deposits. In the past year, ore grades at the La Camorra deposit have diminished, and Hecla has shifted production there entirely to the Mina Isidora. Hecla also operates a mill there where, in addition to the ore mined at Mina Isidora, it processes ore it buys from smaller mining operations in the region.


Last year, the unit produced about 160,600 ounces of gold at an average cash cost of $345 an ounce. This year, production is expected to total about 120,000 ounces, due to lower ore grades in the waning days at the La Camorra deposit and to a community uprising that temporarily suspended operations at the Mina Isidora.


Baker says Hecla recognizes the risks of doing business in politically unstable Venezuela, but says the company has taken measures to minimize the impacts those risks could have on its bottom line, and weighs them against the potential gains the company can realize due to the areas promising geology.


If we can, and it doesnt hurt our valuation, we want to stay there, he says.


In addition to exploration work in and around its current operating mines, Hecla is exploring properties it controls in Mexico, both at its former San Sebastian silver mine near Durango, in central Mexico, and at its Rio Grande property, located about 30 miles to the south of there.


Overall, Hecla expects to spend $23 million this year on exploration, compared with $20 million last year.


Strong performance


The sun is shining these days on mining companies, and Hecla is making hay while the making is good. Sustained high metals prices helped fuel record net income of $68.6 million last year, the companys first net income attributable to common shareholders since 1990. Hecla described its 2006 financial results as the best in the companys 116-year history.


The company produced 5.5 million ounces of silver last year, down slightly from the year earlier, and about 180,000 ounces of gold, up markedly from 2005. Meanwhile, silver prices averaged $11.57 last year. Gold prices averaged $604 an ounce in 2006, the highest in history, Hecla says.


A big part of the financial picture for mining companies these days is the prices they get for the byproducts their mines producein Heclas case, lead and zinc. In 2006, prices for both of those metals hit record levels, enabling Hecla to post an average, companywide silver cash cost of just 24 cents an ounce.


Heclas metal sales have continued to climb this year, totaling $113.2 million as of June 30, compared with $96.7 million in the year-earlier period. Gross profit from silver operations shot up to nearly $40 million in the first half of this year, compared with about $22 million a year earlier, though gold operations posted a $5 million loss for the first half, due to the problems in Venezuela.


Baker says he sees no near-term softening in todays strong metals prices, based on increased world demand thats being fueled by the fast-growing economies of countries such as China and India. Still, he says, metals prices tend to be a cyclical thing, and adds, I know it wont last forever.


With metals prices high, the biggest challenge Hecla and other mining companies face right now is labor.


There is a dearth of skilled mining engineers, geologists, and financial people who know the industry, Baker says.


He says that because metals prices are high across the board and the oil and gas industry is strong, the labor market for highly qualified people in those natural resource industries is tight, including for hard-rock miners. It didnt help, he says, that some people left the industry when it contracted last decade, and that mining schools are producing fewer graduates. Hecla currently employs about 930 people.


Looking for acquisitions


With cash and short-term investments totaling about $180.6 million as of June 30, and no debt, Hecla is positioned to expand its operations and seek new assets, either operating mines or exploration properties, Baker says.


The company improved its cash position this spring, when it completed the sale of its share of the Hollister Development Block gold project in Nevada to its partner there, Great Basin Gold Inc., for $45 million in cash and $15 million in Great Basin stock.


Baker says the company has three primary strategies for growth in its holdings.


One focus is geographic. Hecla is looking for new discoveries or acquisitions specifically in either North Idaho or Mexico. Another is to acquire gold properties, specifically underground mines in North America and Australia. Baker believes Hecla has a competitive advantage in its expertise in smaller underground mines.


The third focus is to acquire silver properties anywhere in the world that have at least 100 million ounces of silver reserves.


Contact Paul Read at (509) 344-1262 or via e-mail at paulr@spokanejournal.com.