Hecla Mining Co. announced it is curtailing much of the development work in Nevada, closing the Hollister mine and laying off 25% of its workforce in Nevada. The company said it has taken these actions to reduce spending, consistent with its goal of operating on a cash neutral basis, following the heavy investment the company made in Nevada in the first and second quarters.
“Hecla has a strong commitment to operate within cash flow as demonstrated by the positive free cash flow over the past three years and longer,” said Phillips S. Baker Jr., president and CEO. “However, the Nevada operations have not generated the cash flow we had hoped for, so we are curtailing most development and reducing the workforce with the goal of the operation generating positive cash flow in the second half of the year. We still see lots of opportunities to improve costs, manage water, improve recoveries and explore but only plan to do it within cash flow.”
With the company-wide reduction in spending, Baker said it believes Hecla will generate sufficient cash flow to nearly eliminate the need to borrow by year-end.
After conducting a review of its Nevada operations, Hecla said it has implemented changes with the goal of turning it into a positive cash-flowing unit. The new approach is to mine the currently developed ore at Fire Creek. Mining at Midas is expected to continue through the end of the year, but Hollister will be shut down. As a result, 25% of the Nevada workforce is being laid off. Some surface exploration drilling and hydrology studies are still planned to gather information on the deposits to help make future development programs more successful, the company said.
Third-party ore processing arrangements are also being pursued to try and reduce the transportation and milling costs. This could include mills that can process ore that is considered refractory. With water discharge from Fire Creek more than double from a year ago, work is under way to increase discharge permits and change how the water is treated.
Hecla said it is still committed to the exploration and definition of Hatter Graben, which is one of the key reasons the Nevada operations were acquired. The level of development activity, however, is being curtailed to reduce the cash consumption, and the focus instead is expected to be on surface drilling.
The company revised its annual 2019 Nevada gold production downward from 76,000 ounces (oz) to 60,000 oz at a cost of sales of $105 million, a cash cost after byproduct credits of $1,200/oz gold ounce and an all-in sustaining cost after byproduct credits of $1,700/oz per gold.
Hecla said it has purchased put contracts on 2.9 million oz of silver and 93,000 oz of gold, which set a floor to the prices for each, locking in $14.73/oz for silver and $1,318/oz for gold for the next four months. More protection may be put in place for the rest of the year and part of next year.