Hecla seeks arbitration to end Lucky Friday strike

VANCOUVER — Hecla Mining (NYSE: HL) is turning to arbitration to resolve a labour dispute at its Lucky Friday underground silver mine in Shoshone County, North Idaho. The company has been at odds with the United Steelworkers Union (USW) for nearly a year due to what members of the local 5114 chapter claim are “unfair labour practices.”

Lucky Friday has been operating since 1942 and celebrated its 75th anniversary in 2017.

On Feb. 15, Hecla reported an agreement for “binding third-party arbitration” with the USW. The agreement is subject to a ratification vote by union membership in March.

The three arbitrators, in early May, will choose between two alternatives for a three-year labour deal: a contract the company submitted in December 2017 as its revised final offer, or an agreement that expired in April 2016, as modified by agreed upon changes.

Miners at Hecla Mining’s Lucky Friday underground silver operation in Idaho. Credit: Hecla Mining.

Hecla’s initial proposal reportedly includes amendments to health care benefits, vacation scheduling and bonus pay tied to silver prices. The company has also been at an impasse with the union over the method in which work crews are assigned at the mine.

“There has been some progress on the strike. If they vote in favour … the arbitrators will decide,” Hecla president and CEO Phil Baker said during a conference call. “We are not happy about having to resort to a third party to reach a resolution. But we see this as an opportunity to have it resolved.”

Hecla reported suspension costs of US$17.1 million — along with US$4.2 million in non-cash depreciation expenses — at Lucky Friday last year. The mine produced 838,658 oz. silver in 2017, which marks a decrease from the 3.6 million oz. produced in 2016.

The company reported an annual net loss of US$24.1 million, or US6¢ per share. Baker pointed out that it recorded the “second-highest silver production in its 127-year history,” however, and cited Hecla’s “record performance in many categories.”

The Coeur d’Alene-based company produced 12.5 million oz. silver and 232,684 oz. gold in 2017 at all-in sustaining costs of US$7.86 per oz. silver, after by-product credits.

Workers underground at Hecla Mining’s Lucky Friday operation in Idaho. Credit: Hecla Mining.

It also boosted year-end cash and equivalents by US$21 million to US$220 million.

Hecla said it continues to invest “limited production and capital improvements” at Lucky Friday, which is being staffed by salaried employees. The company is also undertaking development activities in preparation for a remote vein-miner machine scheduled to arrive in late 2019.

BMO Capital Markets analyst Ryan Thompson has a US$4.50-per-share price target on Hecla, as well as a “market perform” rating.

“Although a resolution is not yet guaranteed because of the requirement for ratification via vote, this proposal appears to be a step in the right direction to a potential restart of Lucky Friday,” Thompson notes. “In the event the union votes against moving into arbitration, we see downside risk to our 2018 estimates, as the restart of Lucky Friday would likely be delayed even further.”

Hecla shares have traded in a 52-week range of US$3.86 to US$6.72 per share, and closed at US$3.99 at press time.

The company has 399 million shares outstanding for a US$1.6-billion market capitalization.