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In Search Of A Silver Lining Sunshine Mining Stakes Its Future On Results Of Exploration At Flagship North Idaho Mine

A picture of the sun poised just above the horizon can be either a sunrise or a sunset.

For Sunshine Mining and Refining Co., the next year of exploration at its flagship mine in the Silver Valley will determine if its fortunes are rising or if the company is in its twilight.

The silver vein containing the potential lifeblood for Sunshine is called the West Chance. Sunk under 3,100 feet of Silver Valley hardrock near Big Creek, the West Chance could contain concentrations of the white metal high enough to rival the big mine’s legendary veins of the past.

Much is at stake for Sunshine, its nearly 180 employees and the Silver Valley.

If the light at the end of the tunnel for North Idaho’s mining industry doesn’t come from Sunshine, the outlook may never brighten.

With only one other silver mine - Hecla Mining Co.’s Lucky Friday in Mullan - currently working, the low-cost and high-potential Sunshine may lead a Silver Valley mining revival or become a harbinger of its demise.

And although Sunshine is exploring overseas ventures like most other U.S. mining companies, the company’s future lies right here in the Silver Valley, said Chief Executive John Simko.

For the West Chance to pan out as a part of the mine where Sunshine can make money, the ore there needs to yield between 25 and 30 ounces of silver for every ton of rock brought up the Jewell Shaft.

Sunshine workers are slowly tunneling toward the West Chance deposit area. The early returns show the ore yields about 20 ounces of silver per ton, which has Simko and others somewhat encouraged. “But it’s not quite to what we had hoped to show from the deposits,” admits Harry Cougher, vice president and manager of the mine operations.

The verdict on West Chance won’t be in until next year when the miners will have the area prepared for large-scale mining of the deposit, Cougher said.

Meanwhile, the company and community will do what they’ve been doing for a decade: hope for a strong rally in silver prices.

Even if the West Chance ore makes the grade, the fickle silver market will have the final say on whether Sunshine can make it, Simko said.

“We can cry all we want, but we can’t do a darn thing about the silver market,” Simko said in his wood-trimmed new office in Boise’s Seafirst Bank Building. Despite year after year of increased demand for silver than supply, the market has struggled to support more than $5 an ounce.

The worst of the price weakness pushed Sunshine to Chapter 11 bankruptcy in 1992. Disastrous results from Sunshine’s speculative oil and natural gas investments also were a factor.

The bulk of Sunshine’s problem while emerging from bankruptcy revolved around $71.5 million of bonds whose value was indexed to the sagging price of silver.

Sunshine reissued new bonds and common stock to refinance the sinking silver bonds. Last December, the remainder of the new bonds were exchanged for common stock.

The company has a lot more stockholders, but now has less than $1 million of debt, said Simko, who has run the company since late 1992.

Those new stockholders must have the stamina to ride the ups and downs of the silver market, Simko said. No other factor plays a bigger role in moving Sunshine’s stock price, but at least the company’s past financial misfortunes will no longer affect shareholder value.

Debt-free and with more working capital than in recent years, Sunshine stands ready to reward its shareholders if the silver market turns up.

“The best vehicle for doing that is through the Sunshine mine,” Simko said. After losing millions in risky oil and gas ventures in the 1980s, Sunshine has left behind its Dallas headquarters for Boise and re-focused its efforts on silver mining, for better or worse.

A corporate name change in June 1994 reflects Sunshine’s new emphasis: refining. The company’s large refinery complex at the Sunshine Mine continues to contract for other sources of silver to refine.

When the ore comes out of the mine, it is crushed and the silver and other metals are chemically extracted. The refinery operates at just a fraction of its total capacity, which has pushed the mine’s cost per ounce up higher, Cougher said from the Sunshine Complex at Big Creek, Idaho.

If the West Chance delivers and the silver market rebounds, that extra capacity at the refinery could push the company into profitability for the first time this decade.

Sunshine appears to be one of the few regional mining companies with new exploration projects in the United States. Most others have looked overseas or in South America for new ore bodies.

Sunshine continues to explore a silver mine in Colorado with very similar ore deposits to the Sunshine Mine. How much silver could be pulled from the site near Revenue, Colo., and at what cost won’t be know for several years as drilling has just begun, Simko said.

But like many domestic mining companies frustrated by U.S. public lands policy toward mining, Sunshine has looked to South America for new opportunities. Sunshine teamed with an Argentinian firm in 1994 to gain half the revenues from a gold mine in the Chubut province of Argentina.

While promising, gains from the Argentine project would be years away, Simko said.

Foreign refining opportunities could provide the real niche for Sunshine, Simko said. With a new office established in Peru, the company will look for Peruvian partners to start refining ore from idled mines there.

“The concentrates from those mines are very dirty, but with our technology we can clean them up within their new environmental standards,” Simko said. “It’s so green down there now - the standards are quite high and their current smelting operations can’t meet them.”

By removing arsenic and other dangerous elements from ore through environmentally sound techniques, Sunshine has drawn the attention of potential mining and refining partners in Latin American and Europe. Simko emphasizes that these refining ventures are in their infancy, but appear to be a promising complement to the Sunshine mine.

For the short term, the company’s fortunes still lay with the Sunshine Mine and hope for the silver market.

Experts who forecast the market see lower short-term prices for silver. Technical factors and short-term trading strategies could drive the price down to the $4.60 an ounce range, said Joe Rosta, an analyst with the CPM Group Ltd. in New York City.

“The market hasn’t been responding to the strong demand fundamentals since last October,” Rosta said. “It’s really been influenced by these technical trading factors, and that has kept the price at this low range.”

However, Rosta sees an improvement in prices starting in May. By year’s end, silver could be trading as high as $5.80 an ounce, perhaps reaching $6 an ounce, he said.

Sunshine isn’t alone in watching the movement in the market each day. Coeur d’Alene Mines Corp. and Asarco Inc.’s new joint venture, Silver Valley Resources Corp., own the idled Coeur and Galena mines. Managers there had pointed to $6 silver as the benchmark where those mines could reopen, but have recently backed away from that estimate.

For Sunshine, any modest improvement in prices could lead to more activity and accelerated exploration at the mine. With no workers on the midnight shift at the Sunshine, the operation has room to ramp up, Cougher said.

But Sunshine isn’t out of the woods by any means, said James Pingpank, an analyst at American Investment Services in New Hampshire.

While lauding Simko for reducing debt, the company still has unpaid dividends from its preferred stock, Pingpank said. His firm has advised clients to hold less of Sunshine’s stock.

“They’ve got quite a ways to go yet,” he said. “We just hope that they continue to focus on the Sunshine Mine.”

Back in Boise, Simko sees Sunshine making further financial progress and soon turning a fiscal year in the black.

“I’m reasonably encouraged by the situation, and all indications show that silver should be rallying,” Simko said. “I think our employees are reasonably optimistic about our future.”

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