COEUR D’ALENE, Idaho — Hecla Mining Co. announced this week that it will significantly reduce its planned development investment in Nevada following heavy investment and disappointing results in the first and second quarters of 2019.
Hecla said in a press release that production will continue in Nevada, but it is taking action to reduce spending, consistent with its goal of operating on a cash neutral basis.
Hecla, a 128-year-old company with about 1,800 employees worldwide, has a history of mining throughout the world. The company returned to Nevada in July 2018 with the acquisition of four large assets from Klondex: Fire Creek, Hollister, Midas and Aurora.
Fire Creek, a narrow-grade gold and silver mine in Lander County, was considered the most attractive property at the time of the purchase.
The Hollister Mine about 80 miles northeast of Winnemucca has been one of the few operating mines in Elko County. Hollister is now being shut down as part of Hecla’s cost-cutting measures. With the closure of Hollister, about 25 percent of Hecla’s workforce in Nevada is being laid off.
At Hollister in 2018, the 32,286 tons processed at the mill contained approximately 11,779 ounces of gold and 106,056 ounces of silver.
Some surface exploration drilling and hydrology studies are planned at the Nevada properties to gather information on the deposits to help make future development programs more successful.
Exploration is continuing at Hatter Graben, a vein system about 2,500 feet east of Hollister’s underground development. Hecla said it is still committed to the exploration and definition of Hatter Graben, which is one of the key reasons the Nevada operations were acquired.
However, the level of development activity is being curtailed to reduce the cash consumption, and the focus instead is expected to be on surface drilling with the goal of gaining more information on potential expansions of the deposit and to help plan the most efficient route to get to the deposit, once development is restarted.
“Hecla has a strong commitment to operate within cash flow as demonstrated by the positive free cash flow over the past three years and longer,” said Phillips S. Baker Jr., president and CEO. “However, the Nevada operations have not generated the cash flow we had hoped for so we are curtailing most development and reducing the workforce with the goal of the operation generating positive cash flow in the second half of the year. We still see lots of opportunities to improve costs, manage water, improve recoveries and explore, but only plan to do it within cash flow.”
Baker continued, “We expect that with the company-wide reduction in spending Hecla will generate sufficient cash flow to nearly eliminate the need to borrow under the revolver by year end. If borrowing is required, we expect to be in compliance with the covenants.”
Company-wide, Hecla has reduced its capital expectations by $12 million, and plans to reduce its exploration by $9 million and its general and administrative expenses by $4 million, for a total $25 million planned reduction in spending in 2019.
Class action lawsuit
Bragar Eagel & Squire PC announced last week that a class action lawsuit has been filed in the U.S. District Court for the Southern District of New York on behalf of all people or entities who purchased or otherwise acquired Hecla Mining Co. securities between March 19, 2018 and May 8, 2019. Investors have until July 23, 2019 to apply to the court to be appointed as lead plaintiff in the lawsuit.
The complaint alleges that throughout the class period, Hecla falsely and misleadingly represented that the Nevada operations would be “accretive” and cash flow positive, or at least “self-funding.” The complaint alleges that Hecla was aware from extensive due diligence that the Nevada operations had material problems in terms of excessive water, equipment availability, achieving enough development to have consistent production, and lack of characterization of ore types, among other things.
Hecla said the new approach to its Nevada operations will include mining the currently developed ore at Fire Creek. Mining at Midas is expected to continue through the end of the year.
Third-party ore processing arrangements are also being pursued to try to reduce transportation and milling costs. This could include mills that can process ore that is considered refractory. With water discharge from Fire Creek more than double of a year ago, work is underway to increase discharge permits and change how the water is treated.
Hecla is providing revised annual 2019 Nevada production estimates of 60,000 ounces — down from an earlier estimate of 76,000 ounces — at a cost of sales of $105 million.