Hecla Mining Company, Largest USA Silver Producer: Mining, Exploring, Developing
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By Allen Alper Jr. and Jeff Senior
on 12/11/2010
Attending the recent Silver Summit conference in Spokane, Washington, Hecla Mining’s President and CEO Phillips Baker gave us his views on the conference: “The first thing is to be happy to have it here in our backyard. When I look at the conference, the thing that strikes me is the new companies that are now starting to do exploration in silver. That’s a great thing because, basically for 25 years, there was no exploration done for silver. Unlike gold, which has had this continuous investment in exploration, there has been, to all intents and purposes, zero in the silver industry.”
President and CEO Phillips Baker
“Seeing these companies, you realize that new money is coming in and, hopefully, like the gold industry over time, we’ll have new discoveries that will be meaningful and will have great quality assets. My impression is that the attendance was quite strong and we certainly saw a number of investors who are extraordinarily knowledgeable about the silver mining industry and the silver market. They came here and they expect to get real information.”
Oldest CompanyHecla Mining, established in 1891 in Idaho’s Silver Valley, is the oldest US-based precious metals company in North America and the lowest cost silver producer. It has two producing silver mines, Lucky Friday in northern Idaho and Greens Creek in Alaska, one of the largest silver mines in the world.
Despite its long history, the company isn’t standing still, with recent growth and high ambitions. Phillips says: “We have grown the company substantially and we are bigger today than at any time in our history. We’re roughly twice as large as we were three years ago in terms of silver production and we have tripled our cashflow generation. We’re probably almost 2.5 times bigger because what we added three years ago was of such high quality that we’re generating more revenue, more cashflow than at any time in our history.
“This has significantly strengthened our balance sheet. We had roughly $217 million cash in our balance sheet at the end of the third quarter and this will only increase with current silver prices. With that cashflow generation, it really creates the opportunity for us to grow even further. There’s internal growth with the extension that we’re engineering for the Lucky Friday. That extension will increase production by about 50% and there’s exploration growth for reserves and resources with the exploration that we’re doing on our four properties.”
The Lucky Friday mine has been in existence for almost 70 years and the extension will see output grow by two million ounces a year from the current base of just over three million ounces. “Here we have an asset that is getting bigger,” comments Phillips. “Its economics are improving and it’s going to operate for another generation. We’re looking at twenty plus years of operation from where we are today. It’s almost like a long-term call on silver and it becomes a huge annuity. And that funds, along with Greens Creek, the large exploration effort that we’re making. We can see our reserve and resource base increasing in very short order with the sort of targets that we’re going after.”
Acquisition OpportunitiesBesides the internal growth, Hecla is looking elsewhere and is interested in any opportunities in the Americas for silver and North America for gold properties. However, it is after properties that will be in production in 3-5 years and are therefore at late stage, meaning acquisitions are more likely than joint ventures or other arrangements. Phillips remarks: “There’s the opportunity to acquire additional assets and put our balance sheet and our expertise to work on new assets. That’s really the message for Hecla. It’s not something the company has been able to do because it’s not had the finance capabilities and hasn’t had the size to take on things like we can today.”
A big benefit for Hecla’s cashflow has been the strong silver price that, as Phillips explains, has boosted its revenue: “We generate over $22 of margin for every ounce of silver we produce. With this silver price, we’ll produce roughly 10 million ounces of silver in 2010. So the cash coming out of our mines is somewhere north of $200 million annually. There are not many of our peers, even larger peers that produce more silver, that have these sorts of numbers.”
The company’s two mines generate around a third of all the silver produced in the US, which means Hecla has a much lower risk profile than other silver companies. Added to this, it has over 340 million ounces of silver reserves and resources that are high quality. Nevertheless, Phillips believes the company is somewhat undervalued: “We’re trading at 10-15 times cashflow. If you look at our peers, that’s quite low relative to them so there’s a lot of potential value.”
Investor InterestThis potential is just one of the reasons that investors are likely to be interested in Hecla as the “Go To” silver company. The five key reasons why an investor would be interested in the company, says Phillips are: “The rich history where Hecla was the best performing stock on the NYSE in 1979 when the silver price rallied with access to enhanced trading liquidity; U.S. based assets that are going to perform extraordinarily well in this price environment and if prices go higher because the US Dollar has weakened, we’re not subject to the currency exposure like other silver companies; Low cash-cost with exposure to a silver margin above $22 per ounce in the third quarter and expected to increase in the coming quarter with the current silver price; Strong balance sheet with over $217 million in cash and no debt; and Growth opportunities both internally with Hecla’s strong exploration potential with 4 large districts where the size of each district could make-up a junior exploration company and externally seeking mergers and acquisition opportunities in the Americas for silver assets and North America for gold assets.”
The company does, of course, face challenges and the biggest of these is probably identifying the next set of assets that will create value for Hecla. Phillips says: “There’s a dearth of high quality exploration assets because there just hasn’t been enough money that’s gone into the sector to create those opportunities. As a result, there’s scarcity and sometimes we don’t like how they’re valued. So the biggest challenge is probably to find the opportunity to which we can add value. In terms of our mining operations, we have problems every day but they are all manageable issues that we’ve got great operators to deal with.”
For more information:
http://www.hecla-mining.com/
Tel: 1-800-HECLA(43252)-91
Hecla Mining Company
6500 N. Mineral Drive, Suite 200
Coeur d’Alene, Idaho 83815
Tel: 208.769.4100
hmc-info@hecla-mining.com
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