Hecla Mining Company [HL-NYSE] said Thursday June 6 that it is cutting spending by US$25 million and laying off 25% of its Nevada workforce following a heavy investment it made in Nevada in the first and second quarters of 2019.
The move comes after Hecla recently suspended its annual production and cost outlook for the Nevada operations pending the outcome of a comprehensive review.
On Thursday, Hecla said its production guidance for the Nevada operations has been reduced by 20% to 60,000 ounces from 76,000 ounces. All-in-sustaining cost forecasts for Nevada have increased by 28% to US$1,700 from US$1,325 an ounce.
Investors reacted to the news by sending Hecla shares down 2.08% or US$0.03 to US$1.41. At current levels, the stock has declined from a 52-week high of almost US$4.
Hecla Mining is a leading U.S. silver producer with operating mines in Alaska, Idaho, and Mexico. It also has gold mines in Quebec and Nevada. They include three high-grade gold mines in Nevada, which the company added to its portfolio through the US$462 million acquisition last year of Klondex Mines Ltd.
They included the Fire Creek Mine, the Midas Mine and ore facility, plus the Hollister Mine,
The Klondex assets are largely high-grade, narrow vein deposits operated as underground mines that fit well with Hecla’s underground experience and expertise located close by in Idaho, the company said.
The reduction in guidance was largely anticipated following management’s comments during a conference call with analysts to discuss the company’s first quarter 2019 financial results. “However, with Hollister on hold and development delayed, the future of Hecla’s Nevada operations remains uncertain,” Scotiabank said in a report.
Hecla said a review has been conducted of the Nevada operations and changes are being made 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,” the company said. “As a result, 25% of the Nevada workforce is being laid off,” it said.
Meanwhile, third-party ore processing arrangements are also being pursued to try and reduce transportation and milling costs. This could include mills that process ore that is considered refractory. With water discharge from Fire Creek more than double of a year ago, work is underway to increase discharge permits and change how the water is treated.
Also, Hecla said it has bought contracts on 2.9 million ounces of silver and 93,000 ounces of gold, which set a floor to the prices for each, locking in a US$14.73 per silver ounce and US$1,318 per gold ounce for the next four months. “More protection may be put in place for the rest of the year and part of next year,” the company said.