67 WALL STREET, New York - December 3, 2013 - The Wall Street Transcript has just published its Gold and Precious Metals Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Precious Metals - Lower Gold Price Environment - Precious Metals Exploration and Production - Increasing Capital Expenditures - Emerging Markets Silver Consumption - Mining Safety and Environmental Concerns
Companies include: Hecla Mining Co. (HL)
In the following excerpt from the Gold and Precious Metals Report, an expert analyst discusses the outlook for the sector for investors:
TWST: Let's begin, if you will, with an overview of Hecla's long history and how the company has evolved in recent years.
Mr. Baker: Hecla has been an operating company for over 120 years, and in that time it has consistently been a silver producer. But over the last 30 years, we have also been a gold producer, and in fact, in the last 20 years, I would say we've had almost as many years where gold has been bigger than silver by revenue contribution. In the past few years we've made some major acquisitions, the first of which was Greens Creek in Alaska. We've acquired the portion of that mine that we didn't already own. And then earlier this year, we acquired Aurizon and their Casa Berardi mine.
Casa Berardi is a gold mine in Quebec, and with that acquisition we've really increased the gold production that we will have in the coming years. So we are both a silver and a gold producer as well as lead and zinc. We are, in fact, the largest silver producer in the U.S., the second-largest zinc producer and the third-largest lead producer.
TWST: Can you please share something about your own background and career highlights and if there have been any recent changes to your management team?
Mr. Baker: I've been in the mining industry since the mid-1980s. In my family, I've had family members that have been in the mining industry before me. I'm a lawyer and an accountant by training, but the real pleasure I get in working has been working in the mining industry, and I've worked for three companies. It's been gratifying being at Hecla for the last 13 years, because I've been able to associate myself with some great assets in Lucky Friday, Greens Creek and now Casa Berardi, and a great group of people that work for the company, some of which have been here a lot longer than I have and some that we've added in the last few years.
For example, Mike Westerlund is our Vice President, Investor Relations. He has been on board for just slightly less than a year now; I guess about nine months. And our Senior Vice President of Operations has been on board for over two years now. The rest of the management team has been on for some time now, so it's an experienced team with an average of 25-plus years of experience. And we are prepared for the sort of ups and downs that you have in the commodities business.
TWST: Which mines have been your strongest producers and which looks most promising going forward?
Mr. Baker: The Lucky Friday silver mine in Idaho and Greens Creek silver mine in Alaska are mines that have been operating for decades; Lucky Friday for almost 70 years, Greens Creek for 26 years. Greens Creek is an exceptional mine. It is a mine that has consistently been one of the largest silver producers in the world and has consistently been one of the three or four lowest-cost silver producers, and we see that continuing in the future. The Lucky Friday has been a strong silver producer but amazingly enough, despite the fact that it has been in production for all these decades, we see the best ore, the most economic ore in its history in its future, and we are developing a new shaft that's going to allow us to access that deeper, higher-grade, more economic ore.
TWST: How closely is your company's share price tied to mining production and/or to the metal's underlying spot price?
Mr. Baker: We're tied very closely to both what we produce and to what happens to the metal's price. If you go back to 2010, we saw the silver price move dramatically, but by early 2011 it had reached close to $50, and you saw our share price really outperform the move in the silver price as well as outperform our peers. So it's a company that has leverage to the silver price, and we would expect when silver prices rebound from the decline that it's had over the last three years, that I would expect you'll see our share price move, and quite dramatically. I would expect the share price to move up as a result of us putting the Lucky Friday mine back into production. The mine was shutdown in 2012. In 2013, after a year of full rehabilitation of the Silver Shaft, the main haulage way for the mine, as well as more than eight miles of underground workings, we restarted the mine in February and are now up to full production, and so I would expect you should see the share price move on that as well.
TWST: Do you see trends developing in the global marketplace that could affect either gold or silver demand or the spot price?
Mr. Baker: There have been some dramatic changes in the precious metals market, and it really relates to two factors. One is the wealth that has been created in the developing world. You look at China, you look at India, and you look at how far they've come and how quickly they've done it, and what you see is them consuming silver. In fact, it's interesting to see China now as the biggest consumer of gold; more gold is being imported into that country now than ever.
TWST: Do you see China superseding India in terms of demand as a long-term change?
Mr. Baker: Over the last few months it has been China, and the reason for that is there have been some regulations that have limited the imports into India. Otherwise, I'm not sure that would be the case, but it is at the moment. In addition to that, you've had a change in technology that has required the characteristics that silver has as a component within these different technologies. And it's not just one thing. It's a whole series of technology developments, with the most obvious one being the smartphone and similar technology. There is a little bit of silver in all of those products. There are lots of other modern products that utilize silver's unrivaled ability to conduct electrical currents, and through that you see a dramatic increase in the demand for silver and the demand for gold as well.
And so that's what the big change is - this demand for the physical metal both as a store of value as well as for products, and that's competing with an unprecedented activity in the paper market for metals, where we've seen the price get pushed down despite the demand for the physical metal. At some point things will balance out, and the way it's going to balance out is either people will demand less or the price will go up, and we think the weight is on the price going up.
TWST: Has Hecla's performance met with the expectations of the investment community in recent quarters or with your targets for the company?
Mr. Baker: It's interesting. There was a study that was done by Scotiabank of the companies that they follow, and Hecla was a standout in that study. There was only one other company that I can think of in the silver space that had higher performance marks. We were about double the average of the gold companies they follow. So we do have very good operators, we have very good assets and we perform pretty solidly, but it is the mining business - you do have issues that arise, but we're fortunate because of the quality of our assets, which we think allows us to have more reliability than others.
TWST: Can you tell us about any new technologies or any other factors that might contribute to Hecla's mining efficiencies?
Mr. Baker: There are a number of things that I could talk about, but I'm going to talk about one that will be announced shortly, and that is the technology that we use at Greens Creek that is a technique that prevents collision of vehicles. And it's been announced that Greens Creek will receive a national award for the technology that they have implemented, which goes to show the real commitment that we have to safety. Throughout the organization, Greens Creek is a shining light for us that leads the way, but Lucky Friday follows along those same lines, and we're certainly looking at the same level of commitment and investment in technologies at our new Casa Berardi gold mine in Canada. So that's something we're very excited about. We're very proud about receiving this award for the technology.
TWST: What about environmental issues? Has that been an area of increased concern in recent years?
Mr. Baker: I've been in the mining business for almost 30 years, and I would say that the industry, very early in my career, became very committed to safe environmental practices, best practices, and that just has continued on over the last 30 years. We, as a 100-year-old-plus company, we're involved in different mining practices. As you can imagine, 100 years ago there were different technologies. It was a different time. And so as a result of that, we were involved in litigation with the government for practices that we had done over a 100 years ago, starting over a 100 years ago, and we finally settled that and got that behind us. Now we're one of the few companies in this area that's able to say they did that and they didn't go bankrupt. We fulfilled all of our obligations, so we're quite proud of the fact that we've put that behind us, and we did it in a very responsible way.
TWST: What other factors contribute to Hecla's competitive edge compared industry peers?
Mr. Baker: I think there are a number of things that give us competitive advantage. First is the assets that we have; they're high-quality assets, long-lived assets, very low-cost assets. They are located in Idaho, Alaska, Quebec, all great jurisdictions to operate in. And then the people that we have with these operations, we have excellent workforces at our mines. At Lucky Friday in particular, we've got second- and third-generation employees and miners. Same thing is happening to a degree at Greens Creek and Casa Berardi, the mine in Quebec, which has employees that were there when it first began operating over 20 years ago. So there is a commitment of people to the assets, and that makes a huge difference in the ups and downs that you have in the precious metals business.
TWST: Can you also share something about your short- and long-term growth strategy going forward?
Mr. Baker: Really in the short term the focus is on the Lucky Friday, completing the number four Shaft Project that is going to allow us to access that higher-grade material that I talked about earlier. With that higher-grade material you'll see the production rate at the Lucky Friday go up; we think it will go up about 60%, close to 5 million ounces a year of production from the mine from its current 3 million ounces per year level. That's going to make a big difference both in terms of the volume of ounces that we produce but also the costs, because the operating costs are not expected to change much. We're just producing higher-grade material.
Over the long term our focus is further developing the assets that we have which include the three operating assets, but also our predevelopment projects. One is in Colorado, one is in Mexico and one in Quebec, acquired in the Aurizon acquisition, as well as an exploration program that we have in some places in Canada as well as in Nevada. So we have many irons in the fire in a lot of places, but we are very focused primarily on our current operating assets.
TWST: In your view, what should investors focus on when evaluating Hecla?
Mr. Baker: I think you need to fundamentally focus on the quality of the assets, where the assets are, what the assets are capable of doing, their long-lived nature and their low cost of operations. Also, all of Hecla's assets are in politically safer jurisdictions, which we think is a huge competitive advantage for us, particularly when you're seeing nationalization efforts and higher taxes in some countries. The worst thing you can do is to have assets that are short-term assets that are in difficult jurisdictions with a high-cost structure. And if you focus on the fundamentals, then you're going to see that Hecla has a set of assets that have the capacity to perform regardless of what the price environment is. While I believe that we will see substantially higher prices in the future, the investor has to recognize that you need assets that can ride through all cycles. That's certainly what we have in Hecla, that's why Hecla has been in existence those 120-plus years.
TWST: Are there any other issues or topics or anything in relation to Hecla that you'd like to add that I missed?
Mr. Baker: No, I think that covers it.
TWST: Thank you. (VSB)
CEO & President
Hecla Mining Company
6500 North Mineral Drive
Coeur d'Alene, ID 83815
(208) 769-7612 - FAX
For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
- Commodity Markets
- Basic Materials Industry