U.S.REPORT (December 02, 1991)

Aside from Noranda’s (TSE) recent decision to option ground held by Great Lakes Minerals (TSE) on the Keweenaw Peninsula, the early 1990s can hardly be described as vintage years for mining in the state of Michigan.

Noranda has agreed to spend US$4 million over four years to earn 60% of 41,840 acres (not including the 543-2 deposit) on Great Lakes, ground. “The agreement puts a stamp of credibility on chalcocite exploration on the Keweenaw Peninsula,” Great Lakes Chairman John McBride said recently. It is excellent news for the area. Since a drop in commodity prices persuaded Homestake Mining (NYSE) and Inco (TSE) to cancel exploration programs in 1975, no new metal mines have been added to the ones now operated by Metall Mining (TSE) and Cleveland Cliffs Iron Co.

Even though about 180,000 jobs have been lost to the auto industry since the early 1980s, mining still ranks a long way behind car manufacturing and agriculture in its contribution to the Michigan economy. Copper Range employs about 1,100 and Cleveland Cliffs about 2,400.

“The attitude towards mining in Michigan is different to that of Canadian provinces like Ontario,” said Jack Vanalstine, assistant division chief at the geological survey in Michigan’s Department of Natural Resources. “Outside of the northern Michigan, the average person would just as soon not see any mining activity at all.”

But if the auto industry continues to decline and commodity prices (particularly copper) eventually pick up, Vanalstine believes the population could change its mind about mining.

Hopes for a revival, he says, depend on the success of exploration now under way in the Keweenaw Peninsula where Great Lakes Minerals controls about 200,000 acres including ground previously explored by Inco and Homestake. Situated in northern Michigan, the Keweenaw district has yielded more than 12 billion lb. copper and within the past 12 months Great Lakes has acquired five known chalcocite deposits along the favorable stratigraphy. The largest is the 543-S which contains 1.28 million tons of grade 4.41% copper per ton. Another deposit (the G-2) hosting 454,000 tons of 3.49% copper has been optioned to Toronto junior Wheaton River Minerals (TSE). Based on data from a feasibility study conducted in 1990 by A.C.A. Howe International, Toronto engineering firm Dynatec Mining says the 543-S could be brought into production for a capital cost of about US$3 million. Indications are that Dynatec is ready to provide financing as soon as Great Lakes has secured a milling contract with Metall, which operates the Copper Range copper mine 80 miles down the peninsula.

Since Metall paid $83 million to acquire Copper Range Co. in 1989, it has spent about US$30 million to replace old equipment at the 17,000-ton-per-day copper-silver mine.

But Dr. Lutz Guenther, Metall’s vice-president of operations, says the impact of the capital replacement program won’t be reflected on the company’s bottom line until perhaps the middle of next year.

Proven and probable reserves of 194 million tons grading 22.38% copper per ton are contained in one orebody and are mined at two separate operations (the Northeast and Southwest mines) located three miles apart. Scheduled to be completed by the end of this year, the modernization plan is designed to get operating costs at the integrated copper-silver producer down to about 90 cents per lb. from about US$1.

However, although Metall succeeded in boosting its copper output to 94.4 million lb. last year from 87 million lb. in 1989, the cost of the reorganization proved so high that costs actually went up in 1990 to US$1.08 per lb.

Lower milling recovery rates and ore grades also affected Metall’s bottom line during the first and second quarters of this year when the company reported a 6-month loss of $2.49 million. Guenther said the company should be able to achieve the 90 cents operating cost level in 1992.

Recommendations to deal with the cumulative affects of large-scale gold mining in South Dakota have been approved by the Board of Minerals and Environment.

The result of two years of investigation, studies and public hearings by The Cumulative Environmental Evaluation Task Force, the recommendations provide an alternative to the 2-year moratorium that has curtailed mine development and expansion in the Black Hills area of South Dakota. (Since “large-scale” gold mining operations occur only in the Black Hills area, the recommendations apply to that mining camp exclusively. Smaller gold mines and sand and gravel operations fall under a different regulatory category.)

Included in the proposals is a 6,000-acre limit on the total area occupied by mining operations until Sept. 1, 1997, by which time the industry is expected to reclaim 500 acres of mine land. Mining in the Black Hills currently occupies about 2,500 acres, says an industry spokesman.

Under the new rules, miners would also have to post a $25,000-500,000 bond, tied to cyanide consumption, that would cover the cost of spills. A second, unlimited bond would insure for post-closure plans, including the cost of monitoring the mine site over several years.

Bonds can be in the form of cash or, alternatively, assets of the company. The proposals also call for more stringent reporting standards for both explorationists and operators.

“We are going to support these recommendations,” says Dianna Miller, executive director of the South Dakota Mining Association. “Hopefully, they will show the people of South Dakota that we care about the environment.” The Mining Association is an advocacy group acting on behalf of several operators in the state including Homestake Mining (NYSE), Wharf Resources (TSE), MinVen Gold (TSE) and United Coin Mines (TSE). Most of South Dakota’s gold mines are open pit, heap leach operations, or, as in the case of the Homestake mine, a combination of underground and surface facilities. In 1990, after a long-running battle with environmentalists, miners in the Black Hills imposed a temporary moratorium on development and restricted expansions of existing mines. The moratorium, which helped to alleviate some hostilities against the industry, will be lifted in January, 1992, and almost certainly replaced with the new proposals.

Although many operators consider the proposals fair and workable, the weak gold price and cost of doing business in South Dakota is making gold mining in the state less and

less attractive. In the third quarter, the Homestake mine lost $918,000 million compared with an operating profit of $3.9 million during the same period last year. Homestake has since laid off 28 people at the mine, which produced almost 400,000 oz. gold in 1990.

The task force responsible for generating the proposals consisted of two local politicians, one industry representative, environmental lobbyists, a housewife, a representative from the tourism industry and the vice-president of the Board of Minerals and Development.

To cover the costs of the task force, the industry agreed to shoulder a 2 cents tax on cyanide purchases. Until 1994, when it will be revoked, the tax will finance groundwater research in the Black Hills area.

Back in the late 1800s, rich silver discoveries lured prospectors and entrepreneurs to Idaho’s Coeur d’Alene district. A number of junior mining companies were spawned during those exciting times, including Hecla Mining (NYSE), which began corporate life on Oct. 13, 1891, with little more than a single hillside claim purchased for $150.

Historical accounts show that the company got off to a slow start, producing ores worth no more than $14,000 during the next seven years. But before the turn of the century, Hecla went back to its original claim and drove a third adit which finally hit “paying ore”.

Hecla grew and prospered, and in 1991, celebrated its 100th year in mining. Now a diverse, multi-million-dollar corporation, it is the last of the pioneer mining companies incorporated in Idaho before 1900 to remain in business.

To celebrate this rare accomplishment, Hecla sponsored a number of centennial events in 1991. A new centennial logo was adopted, and a seven-foot bronze sculpture of a miner kneeling to inspect a rock was unveiled at Hecla’s Coeur d’Alene headquarters on May 3, following the company’s annual meeting. The sculpture was commissioned to commemorate the contribution of Hecla employees to the company’s success. Other events took place throughout the year at many of the company’s operations.

Hecla still has several projects in the Coeur d’Alene district, which is the premier silver mining region in the United States and one of the most important silver-producing areas in the world.

Since 1884, total historical production is estimated at over one billion ounces. And it’s estimated that nearly half the 35-40 million ounces of silver mined annually in the United States comes from Idaho’s “Silver Valley”. The district’s longevity as a producer is attributed to the fact that mines in the district typically have silver-bearing veins extending to great depths, currently 7,500 ft. and more.

Silver was first discovered in 1884, on the heels of a brief gold rush near what are today the towns of Wallace and Mullan.

Although the gold mines were soon exhausted, it is estimated that over $4 billion worth of silver along with lead, zinc, copper and lesser amounts of gold, cadmium and antimony were produced over the past century from the Coeur d’Alene district.

Of this amount, over $1.75 billion has been mined since 1972. But the fortunes of mining companies active in the region are tied to silver prices, which have fallen in recent years to record lows. Fortunately for Hecla, the company had already diversified into gold with the 1981 merger with Day Mines. With the merger, Hecla began operating the Republic gold mine in northeast Washington state, a low-cost producer which is now its flagship operation. In 1990, the mine produced over 80,000 oz. gold and over 300,000 oz. silver from ore grading an average of 0.9 oz. gold per ton.

The company also owns the Yellow Pine mine, a small heap leach operation in Idaho.

Earlier this year, Hecla signed an agreement to acquire CoCa Mines, a Denver-based gold producer. Through this acquisition, Hecla hopes to more than double its gold reserves by the end of this year.

Hecla has a 28% interest in the Greens Creek mine near Juneau, Alaska, a relatively new underground operation which produces silver, gold, zinc and lead. The company is also a major supplier of industrial minerals, and has exposure to specialty metals.

Well poised for its second century, Hecla is an active player in exploration in both the United States and Canada. Like many other companies today, it is also expanding its exploration horizons to investigate opportunities in Mexico and Chile.