Hecla boosts gold exposure with Quebec plays

VANCOUVER — Gold production is playing a growing role in U.S.-based silver miner Hecla Mining’s (NYSE: HL) precious metals portfolio, and most of the company’s new exposure to the yellow metal is in Eastern Canada.

In March 2013 Hecla inked a $796-million cash-and-share deal for Aurizon Mining and its Casa Berardi underground gold mine 95 km north of the town of La Sarre, Que., and in late July the company took over as exploration operator at the Fayolle gold prospect, 130 km southeast of the mine.

As a result of the Aurizon acquisition Hecla’s six-month gold production has jumped 150% year-on-year to 89,288 oz., at by-product cash costs of US$952 per oz. Casa Berardi accounts for most of that increase, with production pegged at 60,000 oz. gold since the start of 2014.

Mineralization at Casa Berardi is comprised of Archean sedimentary hosted lode gold deposits located along a 5 km east–west corridor, including the East and West mines, and the Principal zones. Hecla has boosted gold production and lowered costs at the operation over the past six months due in part to accessing higher-grade stopes in the 118 and 113 zones.

The company finished its excavation program at the West Mine shaft in the second quarter, and progressed on building the shaft station, loading pocket and transfer raises. The enhanced shaft is expected to lower operating costs as the mining horizon deepens.

Engineering work is underway to increase metallurgical recoveries, control dilution and reduce the development needed for production. Beginning in 2015, the company expects the program should “positively affect project economics” by $140 million over the mine’s life.

“When we acquired Casa Berardi we believed there were a number of areas at the operation that we could improve,” senior vice-president and CEO James A. Sabala noted during a second-quarter conference call. “Our technical team has been working non-stop, and we expect to see the benefits from that work next year. We’ve seen a solid production improvement and continue to pay careful attention to costs.”

Hecla is pursuing further underground exploration at the mine, with five drills turning through the first six months of 2014.

The company reports that drilling has expanded the 113, 118, 124, 125 and 140 zones. Exploration at the upper 113 zone from the 350 level has confirmed and expanded previous resources upward towards the 310 level. Recent results include 45.4 grams gold per tonne over 3.6 metres, and 25 grams gold over 2.5 metres.

“We’ve been active at Casa Berardi with extensive definition and exploration drill programs, and recent efforts have been successful in upgrading and expanding resources,” senior vice-president of exploration Dean McDonald noted. “The improved coordination between surface and underground teams is giving a renewed focus to our exploration program, and resulting in some of the highest-grade intersections since we acquired the mine, confirming our strong belief in its exploration potential.”

In July, Hecla notified junior Typhoon Exploration (TSXV: TYP; US-OTC: TYPFF) that it would not exercise the right to earn another 15% interest in Fayolle. Hecla has already earned a 50% interest via $10 million in exploration and a $2-million investment in Typhoon shares.

Fayolle consists of 39 mining claims over 14 sq. km straddling the Porcupine-Destor fault. The mineralized zones at the project are distributed along a major shear corridor that is 3 km long by 1 km wide.

In mid-2013 Typhoon reported a preliminary economic assessment (PEA) at Fayolle based on 3.6 million indicated tonnes grading 1.6 grams gold for 188,000 contained oz. at a 0.4 gram gold cut-off grade. The US$22.7-million mine plan includes open-pit and underground options, and features a $5.6-million net present value at a 7% discount rate, along with a 26.2% internal rate of return. The PEA outlines a  mine that would produce 28,500 oz. gold annually over a 27-month mine life at total cash costs of US$1,205 per oz.

Earlier this year Typhoon reported assays from a drill program at the Cinco showing — which lies 2.7 km east of Fayolle — with highlights including: 5 grams gold over 1 metre from 86 metres deep in hole 14-71; and 2.88 grams gold over 1.5 metres from 168 metres deep in hole 14-72.

Hecla shares have traded between $2.61 and $3.76 over the past year, and closed at $2.66 at press time. Hecla has 350 million shares outstanding for a $933-million market capitalization.

The largest primary silver miner in the U.S. had US$222 million in cash to end the second quarter, and expects to mine 10 million oz. silver and 180,000 oz. gold this year.