The Lucky Friday silver mine is located in one of the world’s most prolific silver-producing districts, northern Idaho’s Silver Valley. It is the deepest operating mine in the United States and has been in commercial production since 1942. Over the past 67 years, nearly 144.5 million ounces of silver have been mined, with 3.5 million ounces produced in 2009 at an average ore grade of 10.86 ounces of silver per ton. The total average cash cost in 2009 was $5.21 per ounce of silver.
Information with respect to the Lucky Friday unit’s production, average cost per ounce of silver produced and proven and probable ore reserves for the past three years is set forth in the table below.
Year Ended December 31| Production | 2009 | 2008 | 2007 | |
| Ore milled (tons) | 346,395 | 317,777 | 323,659 | |
| Silver (ounces) | 3,530,490 | 2,880,264 | 3,071,857 | |
| Lead (tons) | 22,010 | 18,393 | 18,297 | |
| Zinc (tons) | 10,616 | 9,386 | 8,009 | |
| Average Cost per Ounce of Silver Produced (1) |
2009 | 2008 | 2007 | |
| Total cash costs | $5.21 | $6.06 | $(0.75) | |
| Total production costs | $8.02 | $7.87 | $0.52 | |
| Proven & Probable Ore Reserves (2,3,4) |
2009 | 2008 | 2007 | |
| Total tons | 1,358,200 | 1,793,400 | 1,440,700 | |
| Silver (ounces per ton) | 13.9 | 12.2 | 12.1 | |
| Lead (percent) | 8.9 | 7.4 | 7.3 | |
| Zinc (percent) | 2.9 | 2.6 | 2.5 | |
| Contained silver (ounces) | 21,947,600 | 21,847,500 | 17,390,000 | |
| Contained lead (tons) | 140,300 | 132,600 | 105,400 | |
| Contained zinc (tons) | 46,100 | 45,900 | 35,600 |
(1) Includes by-product credits from lead and zinc production. Cash costs per ounce of silver or gold represent measurements that are not in accordance with GAAP that management uses to monitor and evaluate the performance of our mining operations. We believe cash costs per ounce of silver provide an indicator of profitability and efficiency at each location and on a consolidated basis, as well as providing a meaningful basis to compare our results to those of other mining companies and other mining operating properties.
(2)
Proven and probable ore reserves are calculated and reviewed in-house and are subject to periodic audit by others, although audits are not performed on an annual basis. Cutoff grade assumptions vary by orebody and are developed based on reserve prices, anticipated mill recoveries and smelter payables and cash operating costs. Due to multiple ore metals, and complex combinations of ore types, metal ratios and metallurgical performances at the Lucky Friday, the cutoff grade is expressed in terms of net smelter return (“NSR”), rather than metal grade. The cutoff grade at the Lucky Friday ranges from $72 per ton NSR to $84 per ton NSR. Our estimates of proven and probable reserves are based on the following metals prices:
| 2009 | 2008 | 2007 | |
| Silver | $13.75 | $12.25 | $10.00 |
| Lead | $0.70 | $0.80 | $0.60 |
| Zinc | $0.70 | $0.80 | $1.00 |
3) Reserves are in-place materials that incorporate estimates of the amount of waste that must be mined along with the ore and expected mining recovery. Mill recoveries are expected to be 93% for silver, 93% for lead and 86% for zinc. Zinc recovery has improved from historical levels due to mill upgrades completed during 2007, 2006 and 2005.
(4) The changes in reserves in 2009 versus 2008, and in 2008 versus 2007, are due to addition of data from new drill holes and development work, higher-than-anticipated ore grades, and increases in forecasted metals prices, which has resulted in the addition of new reserves based on updated estimates, partially offset by depletion due to production. The change in reserves in 2009 versus 2008 is also attributed to potential expansion of the mine plan resulting from deeper access beyond the current workings.