Since 1958, we have owned and operated the Lucky Friday unit, a deep underground silver, lead and zinc mine located in the Coeur d’Alene Mining District in northern Idaho. Lucky Friday is one-quarter mile east of Mullan, Idaho, and is adjacent to U.S. Interstate 90.
There have been two ore-bearing structures mined at the Lucky Friday unit. The first, mined through 2001, was the Lucky Friday vein, a fissure vein typical of many in the Coeur d’Alene Mining District. The orebody is located in the Revett Formation, which is known to provide excellent host rocks for a number of orebodies in the Coeur d’Alene Mining District. The Lucky Friday vein strikes northeasterly and dips steeply to the south with an average width of six to seven feet. Its principal ore minerals are galena and tetrahedrite with minor amounts of sphalerite and chalcopyrite. The ore occurs as a single continuous orebody in and along the Lucky Friday vein. The major part of the orebody has extended from the 1,200-foot level to and below the 6,020-foot level.
The second ore-bearing structure, known as the Lucky Friday Expansion Area, has been mined since 1997 pursuant to an operating agreement with Independence Lead Mines Company (“Independence"). During 1991, we discovered several mineralized structures containing some high-grade silver ores in an area known as the Gold Hunter property, approximately 5,000 feet northwest of the then existing Lucky Friday workings. This discovery led to the development of the Gold Hunter property on the 4900 level. On November 6, 2008, we completed the acquisition of substantially all of the assets of Independence, including the mining claims pertaining to their agreement with us that includes all future interest or royalty obligation to Independence. Prior to the acquisition, we controlled the Gold Hunter property under a long-term operating agreement with Independence that was to expire in February 2018 and was renewable thereafter, that entitled us, as operator, to an 81.48% interest in the net profits from operations from the Gold Hunter property. Under that agreement, we would have been obligated to pay a net profits interest of 18.52% to Independence after we have recouped our costs to explore and develop the property.
The principal mining method at the Lucky Friday unit is ramp access, cut and fill. This method utilizes rubber-tired equipment to access the veins through ramps developed outside of the orebody. Once a cut is taken along the strike of the vein, it is backfilled with cemented tailings and the next cut is accessed, either above or below, from the ramp system.
The ore produced from Lucky Friday is processed in a conventional flotation mill, which produces both a silver-lead concentrate and a zinc concentrate. In 2008, ore was processed at an average rate of approximately 875 tons per day. During 2008, mill recovery totaled approximately 93% silver, 93% lead and 83% zinc. All silver-lead and zinc concentrate production during 2008 was shipped to Teck Cominco Limited’s smelter in Trail, British Columbia, Canada.
During 2008, we initiated engineering, procurement and development activities relating to construction of an internal shaft at the Lucky Friday mine, which, upon completion, would provide access from the 6200 level down to the 8000 level in the mine. This new infrastructure would allow us to mine mineralized material below our current workings on the 5900 level, and also provide a deeper exploration platform. Activities for this project thus far have included: engineering, purchase of some equipment including hoists and service trucks, and pre-development construction from existing workings to the shaft collar, hoist room and other smaller facilities on the 4900 level. However, the project has been placed on hold due to decreases in metals prices during the second half of 2008; allowing time for additional internal study and review of deep access alternatives at the Lucky Friday. As a result, the timing and extent of future work on the internal shaft project is uncertain at this time.
Ultimate reclamation activities are anticipated to include stabilization of tailings ponds and waste rock areas. No final reclamation activities were performed in 2008, and at December 31, 2008, an asset retirement obligation of approximately $0.9 million had been recorded for reclamation and closure costs. The net book value of the Lucky Friday unit property and its associated plant, equipment and mineral interests was approximately $95.8 million as of December 31, 2008. The construction of the facilities at Lucky Friday ranges from the 1950s to 2008, and all are in good physical condition. In 2005, 2006 and 2007, we made capital improvements to our processing plant to improve concentrate grades and metal recoveries. Additions included a three-stage crushing system, increased flotation capacity and two new flash cells, new column cells and tailings thickeners, and an on-stream analyzer. The plant is maintained by our employees with assistance from outside contractors as required.
At December 31, 2008, there were 269 employees at the Lucky Friday unit. The United Steelworkers of America is the bargaining agent for the Lucky Friday’s 211 hourly employees. The current labor agreement expires on April 30, 2009. Avista Corporation supplies electrical power to the Lucky Friday unit.