Hecla bids for Mines Management and its Montanore deposit

Mines Management’s Montanore silver-copper project, 37 km south of the town of Libby in northwestern Montana.  Credit: Mines Management

VANCOUVER — Hecla Mining (NYSE: HL) is hoping to fortify its silver development portfolio in the U.S. Northwest with a US$37-million, all-share acquisition of Mines Management (TSX: MGT; NYSE-MKT: MGN) and its large Montanore silver-copper deposit in northwestern Montana.

The friendly deal would see Mines Management shareholders receive 0.2218 of a share of Hecla, or a 41% premium based on the companies’ 10-day, volume-weighted average trading prices at the time of signing.

Montanore is one of the largest undeveloped silver and copper deposits in North America. The project lies 16 km from Hecla’s Rock Creek silver project and 80 km north of its prolific Lucky Friday silver-lead-zinc operation in Idaho.

The U.S. Forest Service and the Montana Department of Environmental Quality conditionally approved an operation at Montanore of up to 18,143 tonnes per day under an environmental impact statement (EIS) tabled in December.

“This opportunity emerged for us and we think it makes good business sense to control both Rock Creek and Montanore, and advance the two projects under common ownership,” Hecla’s vice-president of external affairs Luke Russell said during an interview.

“We’ll definitely explore potential project synergies after this transaction closes early in the third quarter. We’ll take a hard look at our strategy, but we see these as two independent projects. That being said, we can provide consistency in technical approach, agency and permitting, and in the community,” he added.

The stratabound, sediment-hosted deposit has measured and indicated resources of 166.3 million oz. silver and 1.2 billion lb. copper, within 73.9 million tonnes of 63.5 grams silver per tonne and 0.8% copper, using a 31.1-gram silver cut-off. Inferred resources include 65.1 million oz. silver and 497.5 million lb. copper, within 31.8 million tonnes of 57.5 grams silver and 0.7% copper.

Mines Management has steadily advanced project engineering since Montanore’s discovery in 1983, by completing 70,000 metres of diamond drilling, excavating a 4,300-metre evaluation adit and filing a preliminary economic assessment in 2011.

The study models a US$552-million underground mine that would crank out 6.4 million oz. silver and 51 million lb. copper over a 15-year mine life. Based on US$15 per oz. silver and US$2.50 per lb. copper, the mine would feature a US$229-million pre-tax net present value at a 5% discount rate and an 11.5% internal rate of return.

“Part of the evaluation at Montanore is completing the additional drift necessary to get down into the orebody,” Russell said.

After more metallurgical and geotechnical testing, Hecla will update the mine plan and feasibility study, he said.

Down the road, Hecla acquired Rock Creek in early 2015 for US$20 million by buying junior Revett Mining.

Hecla wrapped up the public comment period on its draft EIS at Rock Creek during the first quarter, and hopes the U.S. Forest Service will issue the final supplemental EIS and draft record of decision within the next year.

Rock Creek has had a few social licence issues, namely court challenges from regional environmental groups concerned the mine could harm the local water supply, and fish and bear populations.

“We have really good relationships with the agencies and communities in and around Rock Creek. Montanore is a similar situation for us, so having the two projects together under one owner provides opportunity for consistency that could help streamline the permit process moving forward,” Russell said.

“These are two long-life assets that fit our profile. We’re looking at Hecla’s next 100 years, and see these as two great potential assets.”

Rock Creek has inferred resources of 229 million oz. silver and 2 billion lb. copper, within 124.3 million tonnes of 51.9 grams silver and 0.7% copper.

Hecla estimates an underground room-and-pillar mine at Rock Creek could produce 6 million oz. silver and 50 million lb. copper annually over a 35-year mine life.

But next up for Hecla at Rock Creek is an evaluation phase that would involve digging a 1,900-metre decline to access the orebody, which could take up to 36 months to complete.

Hecla shares have traded in a 52-week range of US$1.45 to US$4.73, and closed at US$3.93 per share at press time. The company has 384 million shares outstanding for a $1.5-billion market capitalization.

Mines Management shares have traded in a range of US11¢ to US91¢ over the past year, and last closed at US87¢ per share. The company has 31.6 million shares outstanding for a US$27-million market capitalization.