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Released May 29, 2013 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The Lucky Friday Silver Mine, closed for more than a year following accidents, is again producing silver. The mine's owner, Hecla Mining Company (NYSE:HL) (Coeur d'Alene, Idaho), predicts the mine will produce about 2 million ounces of silver this year, about even with its pre-shutdown production level. Next year, silver production at northern Idaho's Lucky Friday mine should reach 3 million ounces, company executives told investors and analysts on a quarterly conference call earlier this month. And when a $206 million project to expand the mine is complete at the end of 2015, Lucky Friday could produce up to 5 million ounces of silver per year.
Lucky Friday, one of the largest silver mines in the U.S., came back online in a soft silver market characterized by falling prices and rising concerns about demand from China. Last month, silver prices dropped about $4 per ounce in one day after China reported an unexpected deceleration is economic growth for the first quarter. Today, silver trades for about $22 per ounce, down sharply from the $35 per ounce price it reached in late September and early October 2012.
Click the image at right for a one-year snapshot of silver prices.
"China is really important for silver," Michael George, a mineral commodity specialist with the U.S. Geological Survey (USGS) (Reston, Virginia), told Industrial Info in an interview. "China is a very large producer and consumer of silver, much of it for investment purposes. That first-quarter economic report caused a little panic in the market."
China's gross domestic product (GDP) grew 7.7% in the first quarter, slightly lower than fourth-quarter GDP growth of 7.9% and below expectations of about 8%. China is the world's second-largest economy, after the U.S. The Chinese economy has expended rapidly in recent years, but there are concerns about the scale and pace of government investment in industry and infrastructure. China's large and growing debt concerns some bankers and analysts, who are warning of the potential for asset bubbles and potential loan defaults.
Click on the image at right for a graphic showing China's GDP growth in recent years.
All the hand-wringing about China is taking place far away from Mullan, Idaho, where the Lucky Friday mine is located. The mine restarted production in mid-February, and expects to reach full annualized output of 2 million ounces during the second half of the year. Hecla also is drilling a fourth shaft at the mine, to expand production and extend the life of the mine.
The Lucky Friday mine is one of the largest silver mines in the U.S., and Hecla is one of the top domestic producers of silver. The company reopened the mine after spending about $30 million on safety improvements last year. Closure of the mine cost the company about $135 million of revenue during its 13-month closure, according to news reports. During Lucky Friday's closure, Hecla's silver production was reduced to 6.4 million ounces in 2012, all from its Greens Creek Mine in Alaska.
Shortly after Lucky Friday restarted production, a massive slide closed Rio Tinto's (NYSE:RIO) Bingham Canyon mine in Utah, removing about 3 million ounces of silver per year from domestic production, noted USGS's George. Bingham Canyon likely will be closed for many months, he added. That closure may create a market opportunity for Hecla.
Last year, global demand for silver was about 772 million ounces (24,000 metric tons) per year, USGS estimated. About 33 million ounces (or 1,030 metric tons) of that came from the U.S., meaning the U.S. produced about 4% of the world's silver in 2012, according to USGS. While the resumption of operations at Lucky Friday is good news for its miners and the northern Idaho economy, George said it is not likely to have a significant impact on the U.S. silver market, which relies on imports for about 60% of its needs. The U.S. imports most of its silver from Mexico and Canada, according to USGS's 2013 mineral commodity summaries. The world's largest producers of silver are Mexico, China and Peru. The nations with the largest silver reserves are Peru, Poland, Chile and Australia, the USGS report said.
About 54 silver-related capital and maintenance projects, valued at $6.6 billion, are scheduled to kick off in Mexico, Canada and the U.S. over the next 12 months, according to Industrial Info's North American Metals & Minerals Project Database. Industrial Info is tracking a total of 171 active silver-related projects under development in those three countries, with total value of $34.6 billion. Globally, Industrial Info is tracking 309 active silver-related capital and maintenance projects carrying a total investment value (TIV) of $68.2 billion.
Click on image at right for a chart showing planned capital and maintenance spending for silver-related projects in Mexico, Canada and the U.S. scheduled to kick off over the next 12 months.
In a quarterly earnings conference call earlier this month, Hecla executives told investors and analysts that the company's competitive strategy is based on low costs, operational scale, high-quality grades of silver, and operating in industry-friendly areas. When production at Lucky Friday hits 2 million ounces per year, Hecla's per-ounce cost of production will fall, enabling it to recapture its low-cost position in the market. When that happens, the company would be better equipped to compete in a soft price environment. That could include displacing some imports or filling any supply shortfall caused by production interruptions at other silver mines.
"There has been significant weakness in precious metals prices this spring, which we are watching closely, but I am pleased to note the increase in demand for the physical metal, particularly in the Middle East and in Asia, that has emerged as a result of these lower prices," said Phillips S. Baker, Jr., Hecla's president and chief executive, in a first-quarter earnings release earlier this month. "I believe that in these times of price volatility and uncertainty, those companies like Hecla with low costs, high margins and the flexibility to scale back or increase discretionary expenditures such as exploration, pre-development, capital and investments, will fare the best."
But to be on the safe side, given weakness in silver prices, Hecla announced it was trimming about 8% of its planned project spending for 2013, compared to estimates given earlier in the year:
Lucky Friday, one of the largest silver mines in the U.S., came back online in a soft silver market characterized by falling prices and rising concerns about demand from China. Last month, silver prices dropped about $4 per ounce in one day after China reported an unexpected deceleration is economic growth for the first quarter. Today, silver trades for about $22 per ounce, down sharply from the $35 per ounce price it reached in late September and early October 2012.
Click the image at right for a one-year snapshot of silver prices."China is really important for silver," Michael George, a mineral commodity specialist with the U.S. Geological Survey (USGS) (Reston, Virginia), told Industrial Info in an interview. "China is a very large producer and consumer of silver, much of it for investment purposes. That first-quarter economic report caused a little panic in the market."
China's gross domestic product (GDP) grew 7.7% in the first quarter, slightly lower than fourth-quarter GDP growth of 7.9% and below expectations of about 8%. China is the world's second-largest economy, after the U.S. The Chinese economy has expended rapidly in recent years, but there are concerns about the scale and pace of government investment in industry and infrastructure. China's large and growing debt concerns some bankers and analysts, who are warning of the potential for asset bubbles and potential loan defaults.
Click on the image at right for a graphic showing China's GDP growth in recent years.All the hand-wringing about China is taking place far away from Mullan, Idaho, where the Lucky Friday mine is located. The mine restarted production in mid-February, and expects to reach full annualized output of 2 million ounces during the second half of the year. Hecla also is drilling a fourth shaft at the mine, to expand production and extend the life of the mine.
The Lucky Friday mine is one of the largest silver mines in the U.S., and Hecla is one of the top domestic producers of silver. The company reopened the mine after spending about $30 million on safety improvements last year. Closure of the mine cost the company about $135 million of revenue during its 13-month closure, according to news reports. During Lucky Friday's closure, Hecla's silver production was reduced to 6.4 million ounces in 2012, all from its Greens Creek Mine in Alaska.
Shortly after Lucky Friday restarted production, a massive slide closed Rio Tinto's (NYSE:RIO) Bingham Canyon mine in Utah, removing about 3 million ounces of silver per year from domestic production, noted USGS's George. Bingham Canyon likely will be closed for many months, he added. That closure may create a market opportunity for Hecla.
Last year, global demand for silver was about 772 million ounces (24,000 metric tons) per year, USGS estimated. About 33 million ounces (or 1,030 metric tons) of that came from the U.S., meaning the U.S. produced about 4% of the world's silver in 2012, according to USGS. While the resumption of operations at Lucky Friday is good news for its miners and the northern Idaho economy, George said it is not likely to have a significant impact on the U.S. silver market, which relies on imports for about 60% of its needs. The U.S. imports most of its silver from Mexico and Canada, according to USGS's 2013 mineral commodity summaries. The world's largest producers of silver are Mexico, China and Peru. The nations with the largest silver reserves are Peru, Poland, Chile and Australia, the USGS report said.
About 54 silver-related capital and maintenance projects, valued at $6.6 billion, are scheduled to kick off in Mexico, Canada and the U.S. over the next 12 months, according to Industrial Info's North American Metals & Minerals Project Database. Industrial Info is tracking a total of 171 active silver-related projects under development in those three countries, with total value of $34.6 billion. Globally, Industrial Info is tracking 309 active silver-related capital and maintenance projects carrying a total investment value (TIV) of $68.2 billion.
Click on image at right for a chart showing planned capital and maintenance spending for silver-related projects in Mexico, Canada and the U.S. scheduled to kick off over the next 12 months.In a quarterly earnings conference call earlier this month, Hecla executives told investors and analysts that the company's competitive strategy is based on low costs, operational scale, high-quality grades of silver, and operating in industry-friendly areas. When production at Lucky Friday hits 2 million ounces per year, Hecla's per-ounce cost of production will fall, enabling it to recapture its low-cost position in the market. When that happens, the company would be better equipped to compete in a soft price environment. That could include displacing some imports or filling any supply shortfall caused by production interruptions at other silver mines.
"There has been significant weakness in precious metals prices this spring, which we are watching closely, but I am pleased to note the increase in demand for the physical metal, particularly in the Middle East and in Asia, that has emerged as a result of these lower prices," said Phillips S. Baker, Jr., Hecla's president and chief executive, in a first-quarter earnings release earlier this month. "I believe that in these times of price volatility and uncertainty, those companies like Hecla with low costs, high margins and the flexibility to scale back or increase discretionary expenditures such as exploration, pre-development, capital and investments, will fare the best."
But to be on the safe side, given weakness in silver prices, Hecla announced it was trimming about 8% of its planned project spending for 2013, compared to estimates given earlier in the year:
- Capital expenditures at operating mines will fall by $7 million this year, to about $145 million from about $152 million
- Pre-development expenditures for properties in Colorado and Mexico will be trimmed by about $3 million this year, to about $21 million from about $24 million
- Exploration outlays will fall to $21 million in 2013, down about $6 million from earlier estimate
