Hecla Mining to assume ownership of La Camorra

Hecla Mining (HL-N) has signed a purchase agreement to acquire all the assets of Monarch Resources (MRE-T) for US$25 million.

The deal would see Hecla assume ownership of Monarch’s La Camorra gold mine in southeastern Venezuela.

Hecla has agreed to pay US$9 million in cash and US$16 million in shares, as well as issue more than 6 million common shares, based on a formula that has yet to be determined.

Initially, Hecla offered US$28 million, including US$15 million in cash and US$13 million in shares. However, the company adjusted the price based on its due diligence.

Hecla intends to finance the cash portion of the purchase, which is expected to close by August, largely through project-related debt.

La Camorra, a high-grade underground mine, produced 51,000 oz. gold in 1998 at a cash cost of US$260 per oz. Hecla expects to ramp up production to 80,000 oz. per year by 2001. Cash costs by that time are expected to fall below US$200 per oz.

Under the deal, Hecla would also acquire the Saladillo gold-silver property in Durango state, Mexico. The property’s Francine vein contains a drill-indicated resource of 75,000 oz. gold and 8 million oz. silver within 550,000 tons grading 0.13 oz. gold and 14.6 oz. silver per ton.

Monarch would retain a sliding-scale net smelter return royalty on future production at both La Camorra and Saladillo.

Apart from the transaction with Monarch, Hecla expects to raise US$11.3 million through a stock offering to an investor group. The company will sell 4.6 million common shares at US$2.63 per share.

Accompanying the shares are warrants for another 1.6 million shares exercisable at the lesser of US$3.19 per share or 102% of the volume-weighted average price during the 10 days prior to exercising. The warrants are valid for three years.

A portion of the proceeds will be used to repay bank debt.

Meanwhile, Hecla is preparing a feasibility study on the Noche Buena gold project in Sonora state, Mexico, while, at the same time, conducting grassroots exploration on the Alto Dorado project in Peru.

The company posted a loss of US$3.5 million (or 6 cents per share) for the first quarter of the year, compared with earnings of US$835,000 (2 cents per share) a year ago.