Hecla Mining acquires Yukon miner Alexco Resource in all-share deal

American silver producer Hecla Mining (NYSE: HL) has agreed to acquire all shares of Canadian Alexco Resource (TSX: AXU: NYSE-AM: AXU) it doesn’t already own, in a deal that values the target’s shares at US47¢ each.

The Coeur d’Alene, Idaho-based miner, said the figure represents a premium of 23% based on Alexco’s five-day volume weighted average price on the New York Stock Exchange on July 1.

At Hecla’s Friday’s closing price of US$4.01, the value of the shares would be valued at around US$72.2 million.

Founded in 1891, Hecla Mining is the largest silver producer in the United States.

Hecla’s president and chief executive Phillips Baker Jr. said integrating Alexco’s Keno Hill project in the Yukon Territory, could also make the company Canada’s largest silver producer.

“Silver is a critical element to decarbonize the economy and the need for domestic supply is growing,” Baker said. “Acquiring Keno Hill allows Hecla to further meet this need with a secure high-grade silver development and exploration project that has a small environmental footprint.”

The deal has the support of Alexco, which last month had to halt production at its Keno Hill mine as it struggled to feed the mill at its 400 tonne-per-day capacity.

“By partnering with Hecla, an industry leader in high-grade narrow vein silver mining, we further position Keno Hill to achieve its full potential,” said Alexco CEO Clynton Nauman in a news release. “There is no doubt that we have fallen well behind the development and production plan at Keno Hill – and our original estimate of achieving commercial production in early 2022. There are myriad reasons for those challenges, but fundamentally, they all led to an increasing level of stress across our business, which was having a negative impact on the share price, our finances, our employees, and other stakeholders. As a much larger business, Hecla has the organizational expertise and financial strength to build Keno Hill to the level and capacity required, while being able to continue to invest in exploration across the district, something that we, as Alexco, independently would likely struggle to achieve.

Hecla Mining has also agreed to pay Wheaton Precious Metals (TSX: WPM; NYSE: WPM) $135 million in its own shares for the company to terminate its silver streaming interest at Alexco’s Keno Hill.

The two transactions would boost Hecla’s already significant reserves, which reached in 2021 the second highest level in the company’s 130-year history – to 200 million ounces.

Global demand for silver, used in solar panels, electric vehicles and other key green technologies, is on the way up and expected to reach a record this year of 1.1 billion ounces, according to the Silver Institute.

The organization, whose figures are prepared by consultants Metals Focus, said last week it expected global silver demand for industrial use to jump 5% this year to a new high of 552 million ounces.

CIBC analyst Cosmos Chiu has a 12-18 month target price on Hecla of US$7.00 per share. 

“We have updated our model to include Keno Hill, and show that the transaction is financially accretive to longer-term measures,” Chiu wrote in a July 5 research note to clients. “Our new model shows cash flow accretion beginning in 2024 (dilutive in 2022 and 2023). Overall, a small transaction for Hecla Mining, however, Keno Hill fits well within the company’s current portfolio of assets with respect to jurisdiction and geology, and has the potential to significantly increase consolidated silver production longer term.”