The second coming of Idaho’s Silver Valley

VANCOUVER–North Idaho’s Silver Valley is famous for having produced about 1.2 billion oz. of silver plus by-product metals from mines that in some cases operated for more than a century.

At the low point of the industry downturn in 2001, only two mines were still in production, both owned by companies with deep roots in the mining camp. Hecla Mining (HL-N) was operating its Lucky Friday mine near Mullan at reduced capacity, while Coeur d’Alene Mines (CDE-N, CDM-T) was struggling to keep its Galena mine alive by introducing mechanized mining to selected areas.

Most other mines were on care-and- maintenance or up for sale at scrap value. But with metal prices at their lowest levels in decades, scrap dealers had little incentive to haul away the mines’ rusting remnants.

After silver fell to a low of US$4.02 per oz., the outlook was so grim that financial advisors and institutional investors urged Hecla to “get out of the silver business.” The prevailing view was that prices might never recover with silver usage in photography dwindling in a digital world.

Hecla did diversify, mostly by acquiring gold projects in Venezuela and elsewhere, but didn’t abandon silver or its Idaho roots. Coeur d’Alene diversified as well, but ultimately found buyers for its Silver Valley assets in order to pursue global opportunities.

During the lean years, Hecla remained convinced that silver’s fundamentals and prices would soon improve. Its faith was rewarded as prices began to climb in 2005, driven by new industrial applications for silver, including solar energy, electronic circuitry and relays, water purification and medical products, among others. While photographic usage fell from one-third to 17% of total demand, industrial demand climbed from one-third to about half of all silver produced. In 2007, silver prices averaged US$13.39 per oz., up 16% from 2006, and have since topped US$20 before settling back to about US$16.

Don Poirier, Hecla’s vice-president of corporate development and a former mining analyst, is a newcomer to the company, yet shares its vision that the historic camp has a bright future. “The general view of management is that this is only the beginning for the Silver Valley.”

Poirier notes that Hecla acquired ground during the downturn and now controls about 25 sq. miles that encompass many historic mines.

The company also has exposure to another 11 sq. miles through exclusivity agreements with 35 Silver Valley mining companies. Much of this ground has never been explored by modern exploration technologies and methods.

Hecla started corporate life in the Silver Valley in 1891, and over the years had assembled thou- sands of hand-drawn maps, cross-sections, and bits and pieces of geological and mining information. The company has now digitized a century’s worth of historic data for input into 3D computer models used to guide exploration and mine development. The models are district-wide in scope and show the spatial relationship between more than 10 major mines and 60 other underground projects and the regional structures controlling the district’s mineralized vein systems.

Poirier says the high-tech 3D models and mapping technologies have given a new lease on life to the Lucky Friday mine, which marked its 50th year of production in 2008. “In the old days the mines never had significant reserves or resources. The operators just focused on their immediate needs.”

Major mines in the Silver Valley are deep, and Lucky Friday is no exception. Drilling has shown that ore extends to at least the 8,000-ft. level, or 2,000 ft. deeper than the lowest workings.

Plans are in the works to sink a new shaft or winze to reach the deeper ore, starting before the end of this year. A pre-feasibility study is looking at expanding production and lowering costs through new infrastructure, such as a new shaft and a new or expanded mill.

As a result of successful exploration programs in recent years, about 130 million oz. silver in reserves and resources have been identified at Lucky Friday — almost as much as has been mined to date — and further increases are expected from ongoing exploration.

Some drilling is focused on the 2,500-ft. Gap area between the old Gold Hunter mine and the Lucky Friday Expansion Area. This area had seen little exploration in the past because of the previous fractured ownership of claims.

Hecla recently increased its interest in the Greens Creek mine in Alaska, to 100% from 29.73%, which is expected to almost double the company’s silver production to about 11 million oz. annually, while also boosting its silver reserves by 150% and gold resources by 140%.

While Greens Creek will likely become Hecla’s flagship mine over time, Lucky Friday is pulling its weight. The mine produced 3.1 million oz. silver in 2007, at an average total cash cost of negative US75 per oz. silver, after by-product credits, representing one of the best performances of its long life.

The mine’s strong 2007 helped Hecla generate its highest revenue in its 117-year history, along with record low cash costs for silver, at negative US$2.81 per oz. after by-product credits. The company earned US$52.5 million, or US43 per share, on revenue of US$222.6 million for the year, compared with US$68.6 million, or US57 per share, on revenue of US$218.9 million a year earlier. Silver production from all mines totaled 5.6 million oz., along with by-product zinc, lead and gold.

Elsewhere in the Silver Valley, Hecla is evaluating the potential to revive the Star mine (closed in 1981, excluding intermittent production in the 1990s) using detailed 3D modeling and resource assessments. The company also inked a deal to acquire all the Silver Valley assets of Independence Lead Mines (ILDS-O), which allows for consolidation of properties and claims into the Lucky Friday mine assets.

Junior miners

The Galena mine complex once owned by Coeur d’Alene Mines is now in the hands of U. S. Silver (USA-V), which began negotiating to buy the mine and related assets in 2005. The ambitious junior closed the deal in mid-2006, for a price tag of about US$15 million.

“It’s not accurate to call this a deal,” says company spokesman Vance Loeber. “It was a steal. We bought it because we saw an undervalued asset that wasn’t being run properly, and because we’re big believers in silver.”

Galena is known as the second most prolific silver mine in U. S. history, with 210 million oz. produced since 1953, along with 159 million lbs. copper and 22 million lbs. lead.

U. S. Silver has invested in improving the surface and underground facilities at the mine complex, which includes the Galena and Coeur mills, and carried out aggressive exploration programs to increase resources and resources, which now contain more than 48 million oz. silver. The focus now is on ramping up production. In early 2008, the company boosted average throughput to 615 tons from an average of 444 tons in the fourth quarter.

SNS Silver (SNS-V) bought Coeur’s Crescent silver mine in early 2007 for US$650,000. This historic high-grade mine — once part of the famous Bunker Hill mining and metallurgical complex — has produced 25 million oz. silver from its discovery in 1917 to closure in 1982.

The company plans to conduct 20,000-30,000 ft. of surface drilling this season, mostly to complete a National Instrument 43-101 compliant resource estimate for the project. As is the case with most mines in the Silver Valley, only a small percentage of the property has been explored using modern techniques.

Sterling Mining (SMQ-T, SRLM-O) acquired the dormant Sunshine mine for a bargain price in mid-2003, and achieved initial production in late 2007 after investing extensively in new infrastructure, notably the Sterling Tunnel connecting the western and eastern parts of the mine for the first time.

Once the world’s largest silver mine, Sunshine is the Silver Valley’s most proli
fic silver producer, with total production of more than 360 million oz. since operations began in 1884.

Sterling aims to produce 2.8 million oz. silver this year and boost production to 5 million oz. within the next three to four years.

Today, with several mines back in production, a Silver Valley mining veteran who wants a job has a choice of several. How long the good times will last is less certain. For this reason, silver prices are as closely watched as weather reports in North Idaho, where faith in silver is almost a religion.

Over the near-term at least, the outlook for silver is positive.

According to CPM Group’s CPM Silver Yearbook 2008, investment demand was the catalyst for recent increases in silver prices. Investors bought 60.8 million oz. silver in 2007, down from 65.5 million oz. in 2006, yet marking the second consecutive year that investors were net buyers rather than net sellers. CPM expects that net investor buying will keep prices strong this year as well, despite seasonal weakness in the second and third quarters.

The report shows that total silver supply reached 784.4 million oz. in 2007, up 0.2% from 2006. Mine supply accounted for 533.7 million oz. of this total, up 4.1% from 2006, with a similar increase projected for 2008.

Fabrication demand rose 0.9% to 724 million oz. in 2007 from a year earlier, however this total is well below 2000, when fabrication demand peaked at 852.3 million oz., helped no doubt by affordable silver prices.

— The author is a Vancouverbased freelance writer specializing in mining issues, and a former editor of The Northern Miner.