What a difference a few years can make.


Phillips S. Baker Jr. says he had some hesitation before becoming chief financial officer for then-struggling Hecla Mining Co. in the spring of 2001 because, There were certain questions in my mind as to whether this company was viable.


Now, as president and CEO of the 114-year-old, Coeur dAlene-based precious-metals producer, he says, without pause, The outlook looks the best that it has in the history of the company.


Hecla mines and processes silver, gold, lead, and zinc in the U.S., Mexico, and Venezuela. Buoyed by an upturn in metals prices, improved financial performance, and a debt-free balance sheet, it plans to make unprecedented investments in exploration and development this year.


Moreover, it will be spending that moneyupwards of $20 millionlargely at or near its current mining properties, where estimates of reserves are strong, rather than on riskier projects at more speculative sites.


Theres a lot of things we want to drill that weve never had the resources to drill, he says. We are having more of an exploration focus than we ever have before. Theres only a few guys spending more on exploration than we are.


Meanwhile, the company also is expanding its work force and seeing its stock price begin to ratchet upward again. It now employs about 2,500 people, counting long-term contractors, which is up about 500 since Baker came on board. It plans to add more workers this year, including some in Coeur dAlene; at its Lucky Friday Mine, near Mullan, Idaho; and in Venezuela, where it has become that countrys largest gold producer.


We want to grow. Having said that, were not going to grow for the sake of growth, says Baker, recalling the companys painful job cuts and the sale of its building a few years ago to trim costs.


Heclas stock price closed last week at $5.37 a share, up sharply from around $1 a share when Baker joined the company as CFO, though off some from a high of about $9 a year ago.


The company hasnt released fourth-quarter earnings figures yet, but reported a third-quarter net loss of $11.1 million, or 10 cents a share, compared with a loss of $17.5 million, or 16 cents a share, in the year-earlier quarter. Despite that loss, due partly to rising exploration costs, it showed strong growth in revenues and gross profit through the first nine months of 2004.


Baker says the exploration expenditures, although cutting into Heclas current earnings, are providing the investment needed to grow the companys reserves and resources in the future.


The big challengeno surprise for usis finding more, he says. He adds, though, that the company is in excellent financial and operational shape.


One of the things that Baker says led him to join Hecla is that he saw the ability to grow the business without the massive capital infusionoften into the hundreds of millions of dollarsthat most precious-metals companies require.


Though the company then was in the midst of a liquidity crisis, triggered by the collapse of an agreement to sell its industrial minerals subsidiary for $68 million, he says, I was shocked at how good its assets were.


Leaner operation


Hecla trimmed its headquarters staff by about 30 percent. Certainly the total focus of everybody in this company became how do we raise production and how do we lower costs, Baker says.


That effort has paid off for Hecla, which now touts itself as the lowest-cost primary silver producer in North America and one of the lower-cost gold producers. Through the first nine months of last year, it produced 5.7 million ounces of silver at an average cash cost of $1.81 an ounce and slightly over 154,000 ounces of gold at an average cash cost of $165 an ounce.


Silver was selling this week at about $6.51 a troy ounce and gold was trading at about $413 a troy ounce, up about $2.30 an ounce and $80 an ounce, respectively, from two years ago.


Due partly to the depletion of above-ground silver stockpiles, and an expectation of continued strong demand, Baker says, I think the outlook for the silver price is spectacular over the rest of this decade.


Gold prices, tied more closely to investors responses to world economic and political factors, are harder to call, he says, and have weakened somewhat recently. Nevertheless, based on what hes seeing, Baker says, Its hard to envision the gold price going down significantly.


Hecla expects to produce about 7.1 million ounces of silver and 200,000 to 235,000 ounces of gold this year, or roughly the same as last year, but expects those figures to ramp upward in coming years.


In Venezuela, where much of Heclas energies are focused, the company recently agreed to acquire the Guariche gold project, which would more than double its land position in that country to more than 150 square miles in three gold districts.


It also plans to begin production this year at its high-grade Mina Isidora gold property, and should reach full production there next year, Baker says.


Noting that Hecla discovered the Isidora ore body only a couple of years ago, Baker says, That sort of speed is unheard of in the mining industry. It normally can take seven years from the time of ore-body discovery until full-fledged mining begins, he says.


The gold concentration at Mina Isidora is estimated at more than two-thirds of an ounce per ton, which compares with a typical grade of 0.03 of an ounce per ton in a large open-pit mining operation, so the company has high hopes for that property, Baker says. Hecla has estimated that production at Isidora could range from 70,000 to 120,000 ounces of gold per year when its operating fully.


Of the companys present status as the largest gold producer in Venezuela, he says, Were trying to be as prudent, but as aggressive, as we can in pressing that advantage.


Bullish plans for Lucky Friday


At the Lucky Friday mine in North Idaho, Hecla is spending about $7 million to develop another level in that underground silver operation, which produced more than 1.5 million ounces of silver in the first nine months of 2004. The company hired about 60 people at that mine last year, and expects to add more this year, boosting the mine to 150 to 160 workers in all.


Youre going to see the Lucky Friday double its production. It will be at that rate by the end of next year, Baker says. We think the future of Lucky Friday could go on for decades. Geologically, the outlook for it to continue to operate is spectacular, he says.


Hecla also operates the San Sebastian silver and gold mine in Mexico and has a 30 percent interest in the Greens Creek silver and gold mine in Alaska.


During the first nine months of 2004, the San Sebastian mine produced nearly 2 million ounces of silver and 31,850 ounces of gold, with an average total cash cost per ounce of silver of just 22 cents. Baker says, We think it will continue to be this 3 million-ounce producer for some time to come.


Also in Mexico, in the state of Sonora, Hecla is doing a feasibility study at a gold property called Noche Buena, and Baker says, The outlook for that looks very good at this point. A decision on whether to mine the deposit could be made as early as this summer, he says.


The Greens Creek mine in Alaska produced 2.2 million ounces of silver for Heclas account in the first three quarters of last year. Exploration work is continuing in an effort to identify other possible ore bodies there.


Despite the companys upbeat outlook, based on favorable market conditions and the substantial untapped resources it now controls, its not resting on its laurels, Baker says.


Things arent given to you. You have to go out and earn it, he says. Still, he says, I think the best for Hecla is yet to come.