Lucky Friday is a deep underground silver, lead, and zinc mine located in the Coeur d’Alene Mining District in northern Idaho. The mine began operating in 1942, and thanks to the #4 Shaft project which should be completed in late 2016, is expected to have another 34 years of mine life. Lucky Friday is located one mile east of Mullan, Idaho, and is adjacent to U.S. Interstate 90.
In 2015, the company updated the ventilation system and ore was processed at an average rate of 815 tons per day. The mine produced 3.0 million ounces of silver at a cash cost, after by-product credits, per silver ounce of $11.23 (a non GAAP measure) (1). Production in 2016 is expected to be 3.0 million ounces of silver at a cash cost, after by-product credits, of $9.00 per ounce (1).
(1) Cash cost, after of by-product credits, per silver ounce represents a non-GAAP measurement, a reconciliation of which to cost of sales and other direct production costs and depreciation, depletion and amortization (GAAP) can be found in the legal page of this website.
The Lucky Friday mine is a deep underground silver, lead, and zinc mine located in the Coeur d’Alene Mining District in northern Idaho. Hecla now controls 100% of the Gold Hunter deposit, also known as the Lucky Friday Expansion Area, after completing acquisition from Independence Lead Mines Company in the 4th quarter of 2008.
The mine is located approximately one mile east of Mullan, in Shoshone County, North Idaho, and 55 miles east of Coeur d’Alene, Idaho, along Interstate 90 (I-90). The facility lies just north of the interstate near exit ramp 69. The Silver Shaft head frame can be easily observed from I-90 with the shaft collar approximately 70 feet above the valley floor. The Lucky Friday vein system is immediately adjacent to the Silver Shaft and the Gold Hunter deposit lies 5,000 feet northwest of the Silver Shaft.
Lucky Friday resumed limited production in February 2013, and full production in late September 2013. In 2015, ore was processed at an average rate of 850 tons per day and produced 3.0 million ounces of silver.
The #4 Shaft Project is a key growth project that is currently excavated to the 8500 level. The #4 Shaft Project is more than 90% completed, and is expected to be finished in 2016, allowing access to higher-grade zones beginning in 2018 once the associated development is concluded. The #4 Shaft Project is expected to cost approximately $225 million, with about $20 million left to be spent over the next this year.
The plant has a full surface facility complete with a 1,000 tons of ore per day mill, which produces lead and zinc concentrates. These concentrates are currently shipped for treatment via truck to Teck Cominco Metals Ltd. smelter in Trail, BC, Canada. All production is by underground methods, which include both underhand and overhand mining. The coarse mill tailing is mixed with cement and used as backfill. Production is via ramps and transfers, and substantially utilizes jumbo drills, mechanized mining, and truck haulage to the Silver Shaft. Access to the underground workings is via the 18-foot diameter, concrete lined, Silver Shaft.
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, is located in the Wallace Formation. It has been mined since 1997 pursuant to an operating agreement with Silver Hunter Mining Company (“Silver Hunter”), our wholly owned subsidiary. 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, through Silver Hunter, completed the acquisition of substantially all of the assets of Independence Lead Mines Company (“Independence”), including all future interest or royalty obligations to Independence and the mining claims pertaining to the operating agreement with Hecla Limited that was assigned to Silver Hunter.
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.
There are three main phases to the mining process: development, production, and backfilling.
development – the tunneling or accessing phase
Using plans from the geology and engineering departments, miners drive tunnels 12ft high by 12ft wide to access the various ore zones to be mined.
production – the extraction phase
The method of extraction depends upon the geological nature of the orebody involved. Some of the narrower orebodies can be extracted using conventional mining methods (slushers and jackleg drills), mining as narrow as three feet. In other, more massive orebodies, mechanized mining methods are employed using large rubber-tired equipment to mine widths of up to 20 feet.
backfilling – the replacement phase
The voids created during the production phase are filled up with a combination of mill waste (tailings) and cement. This “backfilling” process stabilizes the production voids and allows extraction of the ore beside, above, and even below the backfilled area.
|(years ended December 31)|
|Cash cost per ounce of silver, after by-product credits, ($/oz) (1) (2)||$6.47||–||$19.21||$9.44||$11.23|
(1) Cash cost, after by-product credits, per silver or gold ounce is a non-GAAP measurement. A reconciliation of cash cost, after by-product credits, per silver or gold ounce to cost of sales and other direct production costs and depreciation, depletion and amortization (GAAP) can be found in the legal page of this website.
(2) During 2012, the Lucky Friday conducted rehabilitation work with operations and production resuming as planned in early 2013.
Information with respect to proven and probable ore reserves, measured, and inferred resources is set forth below.
|(As of December 31, 2015 unless otherwise noted)|
|(000)||(oz/ton)||(oz/ton)||(%)||(%)||(000 oz)||(000 oz)||(Tons)||(Tons)|
|Proven Reserves (a)||3,510||16.5||–||9.8||3.2||57,961||–||344,610||111,210|
|Probable Reserves (a)||1,557||13.3||–||8.0||2.9||20,721||–||124,950||45,080|
|Proven and Probable Reserves||5,067||15.5||–||9.3||3.1||78,681||–||469,560||156,290|
|Measured Resources (1) (b)||13,762||6.1||–||4.1||2.3||83,711||–||569,190||319,810|
|Indicated Resources (1) (b)||7,067||6.3||–||4.4||2.1||44,436||–||308,260||149,830|
|M&I Resources (1) (b)||20,829||6.2||–||4.2||2.3||128,147||–||877,450||469,640|
|Inferred Resources (2) (b)||4,451||7.7||–||5.7||1.9||34,302||–||254,080||85,850|
Note: All estimates are in-situ. Resources are exclusive of reserves. Totals may not represent the sum of parts due to rounding.
(a) Mineral reserves are based on $1,100 gold, $14.50 silver, $0.90 lead, $0.90 zinc, unless otherwise stated.
(b) Mineral resources are based on $1,300 gold, $20.00 silver, $0.95 lead, $0.90 zinc and $3.00 copper, unless otherwise stated.
(1) Measured and indicated resources from Gold Hunter and Lucky Friday vein systems are diluted and factored for expected mining recovery.
(2) Inferred resources from Gold Hunter and Lucky Friday vein systems are diluted and factored for expected mining recovery.
Reporting requirements in the United States for disclosure of mineral properties are governed by the SEC and included in the SEC’s Securities Act Industry Guide 7, entitled “Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations” (Guide 7). However, the Company is also a “reporting issuer” under Canadian securities laws, which require estimates of mineral resources and reserves to be prepared in accordance with Canadian National Instrument 43-101 (NI 43-101). NI 43-101 requires all disclosure of estimates of potential mineral resources and reserves to be disclosed in accordance with its requirements. Such Canadian information is being included here to satisfy the Company’s “public disclosure” obligations under Regulation FD of the SEC and to provide U.S. holders with ready access to information publicly available in Canada.
Reporting requirements in the United States for disclosure of mineral properties under Guide 7 and the requirements in Canada under NI 43-101 standards are substantially different. This website contains a summary of certain estimates of the Company, not only of proven and probable reserves within the meaning of Guide 7, which requires the preparation of a “final” or “bankable” feasibility study demonstrating the economic feasibility of mining and processing the mineralization using the three-year historical average price for any reserve or cash flow analysis to designate reserves and that the primary environmental analysis or report be filed with the appropriate governmental authority, but also of mineral resource and mineral reserve estimates estimated in accordance with the definitional standards of the Canadian Institute of Mining, Metallurgy and Petroleum referred to in NI 43-101. The terms “measured resources”, “indicated resources,” and “inferred resources” are Canadian mining terms as defined in accordance with NI 43-101. These terms are not defined under Guide 7 and are not normally permitted to be used in reports and registration statements filed with the SEC in the United States, except where required to be disclosed by foreign law. The term “resource” does not equate to the term “reserve”. Under Guide 7, the material described herein as “indicated resources” and “measured resources” would be characterized as “mineralized material” and is permitted to be disclosed in tonnage and grade only, not ounces. The category of “inferred resources” is not recognized by Guide 7. Investors are cautioned not to assume that any part or all of the mineral deposits in such categories will ever be converted into proven or probable reserves. “Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of such a “resource” will ever be upgraded to a higher category or will ever be economically extracted. Investors are cautioned not to assume that all or any part of a “resource” exists or is economically or legally mineable. Investors are also especially cautioned that the mere fact that such resources may be referred to in ounces of silver and/or gold, rather than in tons of mineralization and grades of silver and/or gold estimated per ton, is not an indication that such material will ever result in mined ore which is processed into commercial silver or gold.
Lucky Friday milled 297,350 tons containing approximately 3.2 million ounces of silver during 2015. Current reserve tons are 14% lower than last year; however, the contained silver ounces are essentially unchanged as the silver grade in the reserve went up 15% to 15.5 oz/ton. These changes are a result of definition drilling programs from the 6500 level drill platform that upgraded resources to reserves along the western extent of the 30 Vein from the 7200 to 7800 levels, and increased the grade. The interpretation of previous drilling of the 50 Vein also added new high-grade silver ounces to the reserve. The 2015 reductions to reserve tonnages at Lucky Friday are due to mining depletion, increased production costs, lower silver prices over 2014 and consequent removal of some lower-grade reserve material along the resource margins. Measured and indicated silver resources at Lucky Friday increased 2% compared with 2014.
Our goal is to access more resource to further extend the mine life at Lucky Friday. Currently, we believe only one-third of the tons and one-half of the ounces that are contained underground at Lucky Friday are in the current mine life. Hecla sees great organic growth opportunities at Lucky Friday.
The #4 Shaft project, an internal shaft at the Lucky Friday mine, is expected, upon its completion, to provide deeper access in order to increase the mine’s production and operational life. The #4 Shaft project, as currently designed, is expected to involve development down to the 8800-foot level. Hecla commenced engineering and construction activities on the #4 Shaft in late 2008, and the Board of Directors gave its final approval of the project in August 2011.
The #4 Shaft Project is a key growth project that is currently excavated to the 8500 level. The #4 Shaft Project is approximately 90% completed, and is expected to be finished late this year, allowing access to higher-grade zones once the associated development is concluded. The #4 Shaft Project is expected to cost approximately $225 million, with about $20 million left to be spent this year.