Anatomy of a Silver Legend: Hecla's Dominance in Idaho's Silver Valley
In the first installment of this in-depth look at Hecla Mining (NYS: HL) , we examined the strategic role of Hecla's Greens Creek mine as "the underlying cash-flow engine of the company," and pondered the alluring potential for meaningful new discoveries within the company's district-scale, 27-square-mile land package in Alaska. In the present discussion, we'll undertake a similarly comprehensive examination of Hecla's Lucky Friday mine and its own corresponding potential to serve as the nucleus for game-changing silver discoveries within the legendary Coeur d'Alene mining district of Idaho's aptly named Silver Valley.
In this ongoing series featuring memorable excerpts from my recent conversation with Hecla CEO Phillips Baker Jr., I present the anatomy of a silver company that I consider just as poised to profitably mine silver for the next 120 years as it has been to date. To read each of these installments, click back to the series introduction for a list of links. You can also get a wealth of exclusive coverage from the recent resource investment conference in Vancouver by following me on Twitter or bookmarking my article list here.
Safer silver exposure within North America's proven bonanzas
When it comes to mining for reliable investment gains among the crowded ranks of gold and silver producers, a targeted emphasis upon assets associated with the world's most legendary past-producing mines or districts can offer a significant means of reducing risk. Primero Mining's (NYS: PPP) San Dimas mine in Mexico has been yielding high-grade gold and silver for 250 years, and so ongoing exploration there to further extend the mine's life holds an elevated likelihood of success. Accordingly, Primero remains my top pick among primary gold miners. After acquiring Northgate Minerals in one of the most exciting gold transactions of 2011, AuRico Gold (NYS: AUQ) added the new flagship of the historical Timmins gold camp in Ontario to its growing stable of high-quality assets.
Applying that path of least resistance to find low-risk silver exposure, my own Foolish attention falls on some of the world's truly elite silver districts. For example, I have heaped well-deserved attention onto Mexico's Guanajuato district, where production beginning in the 16th century has yielded more than 1 billion ounces of silver and 4 million ounces of gold. Endeavour Silver's (NYS: EXK) growth story there has been a portrait of perfection, and the company now projects a further 19% increase in silver-equivalent output for 2012. After a relatively rough ride in 2011, neighbor Great Panther Silver (ASE: GPL) is back on track with targeted production growth of between 14% and 25%.
But even Mexico's ancient Guanajuato mining district fails to match the 1.2 billion ounces of historical silver production culled from Idaho's Coeur d'Alene silver district. And this is where the long-term productive potential of Hecla Mining really shines through, since roughly 25% of that massive haul emerged from assets that presently fall within Hecla's strategic 25-square-mile land package. And 142 million ounces have come from Hecla's existing Lucky Friday mine alone!
Just as we discussed with respect to Greens Creek, investors must understand Hecla's powerful potential for meaningful exploration success in the Silver Valley on two separate fronts. We begin below with the nucleus of the district -- Hecla's temporarily sidelined Lucky Friday mine -- and then we'll zoom out to consider the elevated likelihood that further bonanzas await within the company's district-scale landholding that includes multiple historical mines. I'll let Hecla CEO Phillips Baker explain the strategic nature of the assets himself.
Lucky Friday as the nucleus of an epic silver bonanza
Phillips Baker Jr.: The thing that's happened since the acquisition of Greens Creek is that we've moved forward with development of the No. 4 shaft at Lucky Friday. And so we've positioned Lucky Friday to be as strategic to our future as Greens Creek presently is, but we haven't gotten there until that No. 4 shaft gets developed. So, the interesting thing with the shutdown of the main shaft is that -- while it's very painful in the short term -- the ounces are still there, and the strategic position that Lucky Friday will take within Hecla will still happen. It's just been delayed by a year.
We're also working to assess how we can utilize this period at Lucky Friday to make investments from which we will reap benefits over the 20-plus years that this mine is going to be operating. We're going to look at whether there's an opportunity to enhance the productive capacity of the shaft itself, and we'll be studying every aspect of the operation from the surface all the way down to the face. It is a rare opportunity to make the best of a bad situation.
Christopher Barker: The deposit is still open to depth, right? So nobody really knows how deep this could go?
Baker: Right. We're going to take that [No. 4] shaft to 8,800 [feet below surface]. The deepest holes we have are to 8,200. And so the resource base is going to be on that order of magnitude. So there's another not-quite-1,000 feet where, if we have success exploration-wise, we'll have the platform to go after it. We made that determination to go ahead and go deeper than that because, when you look at the exploration results at that 8,200 level...
Barker: ...There's no sign of it dropping off?
Baker: There's no sign. [Repeats] No sign.
If you think about what we're doing at the Lucky Friday expansion area, we've started at the 4,050 level, and this orebody we know goes to the 8,200. So that's 4,000 feet of continuous mineralization. Now, we actually know that it goes 4,000 feet above as well, although we don't know as much about the grades there. But you have -- and this was true in the Star-Morning mine -- you have this 8,000 feet of continuous mineralization. It might not all be ore...
Barker: ...But it may be the districtwide pattern with respect to potential scale...
Baker: That's exactly right. So the idea that you've got a mile, or it could be two miles of continuous mineralization is shocking. It is a unique feature of the district that you don't see very often. You also have strike lengths that are -- in the case of the Lucky Friday expansion area -- a half a mile. So you're now starting to talk about orebodies that are a mile or two vertically, and a half a mile or more horizontally. And now the question becomes, what is the width of these orebodies? And that's where the Silver Valley gets challenged, is that these will sometimes be wide, but sometimes quite narrow. To the extent the grade is high enough, a 6-to-9-foot-wide orebody will cover the costs of operating and in many cases the costs of infrastructure required to go after them.
Barker: Could you continue to zoom out and discuss Hecla's districtwide prospects for meaningful silver discoveries in the Silver Valley?
Baker: Around the Lucky Friday site in the Silver Valley, we have a 25-square-mile land package. This land package was consolidated in 1984 for the most-part because there was a dispute over where the silver shaft was. Another company called Day Mines was going to make a claim and try to take the silver shaft, so Hecla's solution was to buy the company out in a hostile takeover between two NYSE companies in Wallace, Idaho. So the deal was put together not primarily to build the land package, but we are the beneficiary of that having occurred. Consolidated within the deal was a land package that had produced some 300 million ounces of silver historically, including the Star-Morning mine. And no one has attempted to do a comprehensive exploration program on this larger land package until today (over the last three to four years).
So we have a team of geologists that has taken all of this detailed data we have at the Lucky Friday; both on the old Lucky Friday vein and the expansion area where we're mining today. And the Star-Morning, which was a mine that operated for 90 years. Plus the Hercules, which was the highest-grade silver mine in the U.S., bar none (I think even higher than the Comstock Lode)! Plus the original Hecla mine, the Gem mine, the Frisco mine... you can go on and on. These are all part of that land package. It was owned by different people for the most part. But even the parts that were consolidated, there wasn't an exploration bent to the companies. The focus of the companies was on mining, and the way you found ore was you drifted to where you had indications of vein systems. But there was almost no drilling. I want to say the total number of drill holes from surface in that district you can fit on almost two hands. So, we have in the course of the last three to five years, drilled probably 15 holes from surface. So, we're in the early stages of this exploration program.
We've started the program looking from the Lucky Friday out. We've now done our first holes in the program that are not Lucky-Friday-focused, and we will do more of those. And we have focused our attention on the Star mine, this mine that operated for 90 years. When we talk about Noonday, that sits within the Star-Morning package.
Lucky Friday has produced 142 million ounces already, and we have 40 million ounces of reserves in front of us plus another 100 million ounces in resources. That's the most the mine has ever had. So it is a unique, unique district that we have.
Stay tuned throughout this series on Hecla Mining for memorable excerpts from my interview with CEO Baker. Click back to the series intro for links to the entire series.
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At the time this article was published Fool contributorChristopher Barkercan be foundblogging activelyand acting Foolishly within the CAPS community under the usernameTMFSinchiruna. Hetweets. He owns shares of AuRico Gold, Endeavour Silver, Great Panther Silver, Hecla Mining, and Primero Mining. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.
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