Hecla contemplates open-pit revival at San Sebastian

VANCOUVER — U.S. silver outfit Hecla Mining (NYSE: HL) could be on the verge of adding a new asset to its near-term production profile after a 2014 drill program at its San Sebastian property in Durango, Mexico. The company briefly operated an underground mine at the property in the early 2000s, but recent exploration seems to hint at San Sebastian’s open-pit potential.

In mid-January the company update the market on its exploration efforts and boosted San Sebastian’s overall in-situ silver equivalent numbers thanks to inaugural resource estimates for the East Francine and North veins. 

Total global indicated resources jumped 46% to 2.2 million tonnes grading 232 grams silver per tonne and 2 grams gold per tonne for 37.7 million contained equivalent oz. silver.

Global inferred resources total 3.4 million tonnes of 120 grams silver and 1 gram gold for 35 million contained equivalent oz. silver.

From 2001 to 2005, Hecla produced 500,000 tonnes of ore at San Sebastian containing 177,541 oz. gold and 11.6 million oz. silver from the Francine vein, with an average grade of 9 grams gold and 648 grams silver.

Like other mines in the Mexican silver belt, mineralization in the Saladillo district is hosted in Mesozoic sedimentary rocks and is closely associated with Tertiary volcanic and intrusive rocks. A set of northwest oriented intermediate-sulphidation epithermal veins occur in the Saladillo Valley, including the Francine, Middle, Professor and North veins.

San Sebastian’s potential new lease on life dates back to an exploration program Hecla ran in 2012, which re-examined near-mine potential and led to the discovery of silver-gold mineralization in the Middle vein, located 250 metres north of the past-producing Francine vein. A series of stepout and infill drilling programs continued in the area over the past two years, and traced mineralization more than 6 km along strike and 350 metres deep.

Over the past 18 months, near-surface targets have been drilled at the Middle and North veins, as well as the East Francine vein discovery. The three targets are parallel and located 140 metres apart, although due to flattened veins near the surface, the Middle and North veins reportedly overlap in places.

“This year’s discovery of [East Francine] — when combined with the North and Middle veins — provides San Sebastian with near-surface, high-quality resources,” president and CEO Phillips Baker Jr. stated in the release. “We believe we are still in the early stages of discovery with most veins open along strike and at depth, and are focusing on further exploration and engineering to quickly return [the mine] to production.”

Hecla will conduct a US$3-million program at San Sebastian in 2015, which will expand the North vein near-surface resource northwest and southeast, and define a new resource on East Francine’s southeast extension. In addition, the company reports that a “number of parallel veins have been defined by rotary air-blast drilling and trenching,” and will be evaluated this year.

A preliminary economic assessment is underway to model shallow open-pit and underground mining combinations. Hecla figures the study should wrap up by its second-quarter earnings release date.

BMO Capital Markets analyst Andrew Kaip said the San Sebastian exploration results are “positive,” and that the project “continues to demonstrate resource growth potential, most recently with the discovery of [East Francine]. The shallow resources at [East Francine] provide initial, high-margin open-pit production potential that should form the basis of a development scenario that will be evaluated in the PEA.”

Kaip has a stock “underperform” on Hecla, along with a US$2-per-share price target.

Hecla shares have traded within a 52-week range of $2 and $3.76 per share, and rose 13.4%, or US41¢ on the San Sebastian news, en route to a $3.48 close at press time. The company exited 2014 with US$209 million in cash, and has 367.4 million shares outstanding for a US$1.3-billion market capitalization.

The company produced 34.5 million equivalent oz. silver in 2014, which marks a 50% increase over 2013 and a 142% increase over 2012 levels.