Hecla Reports Year End 2004 Results; Updates Reserves and Resources; For the Period Ended December 31, 2004
COEUR D'ALENE, Idaho--(BUSINESS WIRE)--Feb. 22, 2005--Hecla Mining Company (NYSE:HL) today reported increased sales and gross profit in 2004 compared to 2003. A decrease in silver and gold production was offset by increased precious metals prices during the year. In 2004, Hecla's net loss was $6.1 million, compared to a net loss of $6 million in 2003. Hecla's income for 2004 was $23.3 million, before accounting for exploration and pre-development expenses and a noncash environmental accrual for closed operations. This compares to income before environmental accruals and exploration and pre-development expenses of $28.1 million in 2003.
Hecla's President and Chief Executive Officer Phillips S. Baker, Jr., said, "Today we hold property in five world-class mining districts. To maximize our opportunities on these excellent exploration properties, we increased our exploration spending in 2004 to $16 million, and spent $4 million in pre-development expense -- more than we've ever spent in our history. Our robust operating cash flow and promising exploration targets give us the opportunity to make a concerted effort over the next three to four years on exploration, growing our resource base and leading to increased production in the future. We were successful in 2004 and have created a platform for continued success in 2005 and beyond."
Hecla maintained its position in 2004 as the lowest-cost primary silver miner and one of the lowest-cost gold miners in the business. The company produced nearly 7 million ounces of silver in 2004, at an average total cash cost of $2.02 per ounce, and about 190,000 ounces of gold, at an average total cash cost of $180 per ounce, a strong performance relative to the rest of the industry. Production for the fourth quarter and year was lower than expected, as a strike by workers at the Velardena mill during virtually the entire fourth quarter of 2004 reduced planned production from the San Sebastian mine in Mexico. The mine at San Sebastian continued to operate and stockpile ore in preparation for processing when the strike is concluded. Company-wide 2005 production is estimated in the same range as 2004, at about 6.5 million ounces of silver at an average total cost of less than $2.50 per ounce and approximately 190,000 ounces of gold at an average total cash cost of $180 per ounce, assuming the strike is resolved. Hecla's estimate of cash cost per ounce of gold is based on an effective Venezuelan currency exchange rate of 2,500 bolivares to US$1. The company is currently evaluating several significant changes to the exchange control rules applicable to exports of goods, services or technology scheduled to go into effect in Venezuela in mid-March, which could cause total cash costs per ounce of gold to be 10% to 20% higher.
Hecla's reported ounces of silver produced in the fourth quarter of 2004 was 1.3 million, compared to 2.3 million in the same period last year, and 35,736 ounces of gold in the fourth quarter of 2004, compared to 51,724 ounces of gold in the fourth quarter 2003, with lower production in 2004 due to lack of milling facilities at San Sebastian. The net loss in the fourth quarter of 2004, which included $7.2 million in exploration and pre-development expenses, was $3.8 million, compared to net income in the fourth quarter of 2003 of $2.2 million, which included just $2.7 million in exploration and pre-development expenses.
Hecla's balance sheet is extremely healthy. The company is debt-free, and cash, cash equivalents and short-term investments totaled $80.8 million at the end of 2004.
2004 HIGHLIGHTS
-- Began development of Mina Isidora gold mine in Venezuela, with
commercial production as part of the La Camorra unit scheduled
for 2006
-- Expansion commenced at the Lucky Friday silver mine in
northern Idaho to double production to 4 million ounces
annually in 2006; increased the strike length on the Lucky
Friday deposit
-- Feasibility work initiated at the Noche Buena gold property in
Mexico
-- A new significant mineralized structure discovered on the
Block B property in Venezuela (Twin Conductora)
-- Began excavation of the underground exploration ramp at the
Hollister gold project in Nevada
-- Replaced reserves mined during 2004 at all properties except
San Sebastian
-- Produced approximately 7 million ounces of silver at an
average total cash cost of $2.02/oz, and 189,860 ounces of
gold at an average cash cost of $180/oz
-- Noncash environmental accruals of $8.4 million in the third
quarter
-- Successful exchange of preferred stock for common stock, with
accompanying $10.9 million noncash dividend charge on the
income statement
-- Debt-free, with $80.8 million in cash and short-term
investments at the end of 2004
OPERATIONS
SILVER
Hecla produced 6,960,580 ounces of silver in 2004 at an average total cash cost per ounce of $2.02. Fourth quarter production was 1,310,178 ounces at an average total cash cost of $2.92. Higher fuel, steel and transportation costs impacted costs per ounce across the board for Hecla, as well as the rest of the mining industry, in the latter part of 2004.
Increased costs and decreased production of silver compared to 2003 were also affected by a strike during the fourth quarter at the mill in Velardena, Mexico, which processes the ore from Hecla's San Sebastian mine. The strike at the mill occurred because the national union wants to unionize the mine. Mine workers have informed the company, the union and the Ministry of Labor they do not want to unionize. The company is meeting regularly with government and union officials to resolve the issue. The mine continued to operate at a normal rate during the fourth quarter, stockpiling ore in preparation for future processing. The mill can process the ore at a much faster rate than it is mined once the strike is resolved, although the company is also looking for contract custom milling facilities that can process the ore. At the end of the year, 30,000 tons of ore-grade material had been stockpiled, containing an estimated 350,000 ounces of silver and 12,000 ounces of gold. The Francine and Don Sergio veins at the San Sebastian mine will be exhausted by mid-2005 and the mine will cease production. Work is continuing on the deeper part of the Francine vein, known as the Hugh zone, but is not far enough along to allow uninterrupted production. As expected, the ore grades are decreasing as the mine life winds down. Baker said, "San Sebastian has been a tremendously profitable mine for Hecla. Given the prospects on our 200-square-mile property, I expect we will soon discover the next deposit, develop the Hugh zone, or both. We expect to be exploring and mining in Mexico for a long time to come."
The Lucky Friday silver mine in northern Idaho produced 2 million ounces of silver during 2004, at an average total cash cost of $5.12 per ounce. As expected, cash costs were higher than in 2003, as mining gets deeper and more costly until the new access is completed on the 5900 level. Lucky Friday personnel did a good job of controlling costs in 2004, considering price increases for fuel and steel, and increased manpower as the Lucky Friday gears up for higher production levels at the end of 2005. When complete, the new 5900-level drift will bring lower costs and higher production. About $3.8 million was spent on this expansion during 2004. By the third quarter of 2005, miners should be drifting on the new vein. Some production will come out of the new area before the end of 2005, with full production by early 2006. Cash costs are expected to decrease by as much as $1 per ounce with full production from the 5900 level. During 2004, Lucky Friday was able to more than replace the reserves it mined during the year and added almost a year to proven and probable reserves. Lucky Friday's estimated 2005 production is approximately 3 million ounces of silver.
In Alaska, Hecla's Greens Creek silver mine produced 2.9 million ounces of silver and 25,624 ounces of gold, at an average total cash cost of $1.13 per ounce of silver for Hecla's account. Hecla holds about 30% of the project, partnering with Kennecott Greens Creek Mining Company, a subsidiary of Rio Tinto. Production at the mine was down slightly compared to the previous year due to lower ore grade, but cash costs per ounce for the year decreased, in part due to increased by-product metals prices. In the fourth quarter alone, costs increased compared to the fourth quarter of 2003 because of a lower ore grade and higher dilution from pillar extraction. Anticipated production in 2005 at Greens Creek is 2.8 million ounces of silver and 23,000 ounces of gold. During 2004, the Greens Creek tailings facility was expanded and some mill improvements were implemented. Greens Creek obtained ISO (International Organization for Standardization) 14001 certification on its first attempt in 2004, which is a major environmental achievement. ISO is a global organization and the certification recognizes that Greens Creek comprehensively addresses environmental protection and pollution prevention.
GOLD
Hecla produced 189,860 ounces of primary and by-product gold in 2004. Of the total, 130,437 ounces were mined in Venezuela at an average total cash cost of $180 per ounce.
At the La Camorra mine in eastern Venezuela, the ore grade was more than two-thirds of an ounce of gold per ton. La Camorra is an underground gold mine, accessed through a decline ramp. At the mine, haulage times continue to increase as the mine's ramp goes deeper. Increased haul distances affected costs at the mine, as did increased maintenance issues during the year. To offset higher costs experienced over the last few quarters and expected through midyear that are associated with the deepening of the mine, Hecla started construction of a 2,000-foot production and ventilation shaft in 2004. The new shaft, scheduled to go into service in the second quarter of 2005, will help maintain lower costs at the mine. Between La Camorra, a small number of ounces from Mina Isidora and custom milling for small miners in the area, Hecla expects to produce 140,000 ounces of gold out of Venezuela in 2005. Costs were expected to be about the same as 2004, but may increase due to changes in Venezuela's currency exchange controls.
Mina Isidora, a new gold mine that Hecla is developing in the El Callao gold district about 70 miles north of the La Camorra gold mine, is on schedule to begin full production in 2006. Some production from the area accessed by the Pozo de Agua incline shaft is expected before the end of 2005. The mine will have two points of access, a main ramp and a small, rehabilitated incline shaft. The shaft rehabilitation is about 90% complete, and this shaft will allow Hecla to gain early access to high-grade gold ore in Mina Isidora. The Mina Isidora ramp is more than halfway to the vein. Approximately 350,000 ounces of proven and probable gold reserve with an average grade of 1 ounce per ton has been identified at Mina Isidora, with the deposit remaining open at depth.
Hecla started its custom milling business in 2004, providing technical assistance to 20 small mining cooperatives. Baker said, "Realizing that these miners are an integral part of the gold mining industry in Venezuela and lending a helping hand has created incalculable goodwill from the communities and the government toward Hecla. We recently received recognition from the Governor of the State of Bolivar for our model economic programs and integration of the small miners into our business."
RESERVES AND RESOURCES
Hecla replaced or increased the proven and probable ore reserves mined in 2004 at each operation except for San Sebastian in Mexico, where ore reserves will be depleted and mining will be finished in mid-2005.
ESTIMATED ORE RESERVES
(as of December 31, 2004)
Proven and Probable
----------------------------------------------------------------------
Gold Silver Lead Zinc
Mine - (Hecla interest in %) Tons (oz/ton) (oz/ton) (%) (%)
----------------------------------------------------------------------
Lucky Friday Unit, USA 757,700 - 14.7 7.9 2.4
Greens Creek (29.73%), USA 2,358,189 0.11 14.1 3.9 10.2
San Sebastian Unit, Mexico 30,300 0.29 15.4 - -
La Camorra Unit, Venezuela 695,157 0.81 - - -
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ESTIMATED ORE RESERVES
(as of December 31, 2004)
Proven and Probable
------------------------------- ------------------------------
Gold Silver Lead Zinc
Mine - (Hecla interest in
%) (ounces) (ounces) (tons) (tons)
------------------------------- --------------------------------------
Lucky Friday Unit, USA - 11,150,368 59,888 18,047
Greens Creek (29.73%),
USA 261,604 33,334,025 92,916 240,467
San Sebastian Unit,
Mexico 8,600 465,400 - -
La Camorra Unit,
Venezuela 563,791 - - -
TOTAL 833,995 44,949,793 152,804 258,514
------------------------------- --------------------------------------
Mineralized Material (1)
----------------------------------------------------
Gold Silver Lead Zinc
Mine - (Hecla interest in %) Tons (oz/ton) (oz/ton) (%) (%)
----------------------------------------------------------------------
San Sebastian Unit (2) 33,000 0.33 20.6 - -
La Camorra Unit (3) 571,272 0.39 - - -
Lucky Friday Unit (4) 5,221,315 - 9.3 5.1 2.6
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(1) Securities and Exchange Commission guidelines do not allow the
company to complete the calculation of tons multiplied by grade to
equal contained ounces in the "mineralized material" and "other
resources" categories.
(2) In situ Francine vein and Don Sergio vein, diluted to assumed
mining width and adjusted for expected mining recovery.
(3) In situ resources, Canaima Lower and Middle veins, diluted and
factored for mining recovery (90%) and Isidora in situ M and S
vein.
(4) In situ Measured and Indicated resources from Gold Hunter and
Lucky Friday vein systems, diluted and factored for expected
mining recovery.
Other Resources(1)
-----------------------------------------
Gold Silver Lead Zinc
Mine - (Hecla interest in %) Tons (oz/ton) (oz/ton) (%) (%)
----------------------------------------------------------------------
San Sebastian Hugh (2) 478,837 0.02 8.6 5.4 6.7
San Sebastian DS & F (3) 83,000 0.35 8.6 - -
Lucky Friday Unit (4) 2,623,560 - 10.3 6.2 2.6
Greens Creek (29.73%) (5) 785,276 0.13 14.0 4.0 11.1
La Camorra Unit (6) 616,486 0.62 - - -
Noche Buena (7) 9,349,737 0.03 - - -
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