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DEAR FELLOW SHAREHOLDER,
It was a good year for Hecla – both operationally and financially.
We achieved the second-highest silver and third-highest gold production in the 127-year history of the company. We produced 12.5 million ounces of silver and 232,684 ounces of gold, at a low cash cost per silver ounce, after by-product credits, ending the year with cash, cash equivalents, and short-term investments of $220 million, a $21 million increase over the prior year.
We’ve also had good success with drilling, recording the highest silver, gold, and lead reserves in our history, as well as the fifth highest zinc reserves. And we lowered our All Injury Frequency Rate for the fifth year in a row, exceeding our goal of a 50% reduction in five years.
Each of these achievements is a direct result of our strategy: adding value through the ownership of high- quality, long-lived assets in good mining jurisdictions – and investing in those assets to extend their lives even further, making them more productive and safer along the way.
And we continue to implement this strategy. We’ve recently reached a definitive arrangement agreement
to acquire Klondex Mines Ltd. Klondex is a gold producer with several mines in Nevada, one of the most important gold-producing areas in North America. Among our many strengths is the ability to operate high- grade, narrow-vein underground mines, and Klondex’s three mines – Fire Creek, Midas, and Hollister – share these attributes. This acquisition will bring immediate and significant gold production and cash flow to Hecla, as well as excellent exploration potential to increase the lives of these mines. Assuming an affirmative vote from Klondex shareholders and that all court and regulatory approvals are obtained, the transaction is expected to close in the second quarter of 2018.
INNOVATION
2017 marked my fourteenth year leading Hecla Mining Company, and it’s the most interesting and satisfying time of my career. We are in an exciting era of rapid technology advancement, and its adoption allows us to focus on fundamentally improving the value proposition of everything we do.
Our business is already changing, and we’re going to see a seismic shift in this industry over the next five to 15 years. But we made a strategic decision to not wait. Technology is being developed right now that can profoundly alter the way we operate, and we want to get as much of that value into our existing operations as soon as we can – in order to take advantage of it for as long as we can.
The technological investments we’ve made at our operating mines are incremental and low-risk: small changes with potentially significant returns. I believe there is a strategic advantage to being an early adopter, because it enables us to gain experience with the new technologies in the mine, then use that information across our organization – and build on that knowledge. One example is installing Wi-Fi in our mines – which we’ve completed in-house rather than hiring contractors – to not only allow for the collection and transfer
of information, but also to open the door to other innovations. Ultimately, efforts like these put us in a better position when we’re looking to acquire new assets; to apply that knowledge and find value where others don’t see it.
It’s not about putting together a purely autonomous operation. That’s possible, of course – and will no doubt be implemented by some companies over the course of the next 15-20 years. But that’s not our focus, because that’s not what’s going to create real value for our shareholders. Our view is that it’s more important to develop areas within working mines where machines can do some of the work faster and, most important, safer than people can on their own.
Given the unique conditions and environment in which underground mining takes place, the technologies and innovations I’m talking about are, to a degree, borrowed from other industries and applied in different ways. For example, at the Lucky Friday, where we’re planning to mine at even greater depths thanks to the completion of the #4 Shaft in 2017, mechanical rock cutting is an important step toward significantly increasing safety and making the mine more productive and predictable – and has the potential to replace traditional drilling and blasting with cutting technology. After a joint R&D effort with Epiroc (Atlas Copco), a leader in
the field, we’ll take delivery of a Remote Vein Miner, essentially a form of tunnel-boring machine adapted for
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