Hecla Mining Co. absorbed a $104.7 million third-quarter loss Friday after discovering last month that its promising gold mine has far less metal than the company had thought.
The write-down of $97 million for Grouse Creek erases 29 percent of the company’s balance-sheet assets, which Hecla listed as $334 million in its 1994 annual report.
The loss is the biggest blow yet in a string of bad years for one of Coeur d’Alene’s oldest and most influential companies.
Though the loss is not expected to immediately affect the 60 Hecla employees at the headquarters or the hundreds at mine sites around North America, it could reduce Hecla’s ability to spend money on community projects.
The troubles at the Grouse Creek mine also show that Northwest mining companies face problems beyond their much-publicized battles with regulators and environmentalists.
Much of the easily mined gold ore in the region is gone. New domestic mining projects, therefore, entail considerable financial risk.
Despite the write-down, Hecla has not totally given up on Grouse Creek.
“We’ll do everything we can to keep the Grouse Creek open,” said Vicki Veltkamp, manager of corporate communications. “None of our other operations will be affected.”
In accounting terms, Hecla will quit counting the $97 million investment it took to bring the Grouse Creek property to life as an asset on its balance sheet. That amount includes millions spent on permitting, environmental cleanup, construction of a state-of-the-art mill and equipment used to haul and crush the rock from the open-pit mine.
Not counting the write-down, Hecla lost $2.6 million, or 5 cents for each share of common stock, from July to September of this year. That compares with a loss of $1.2 million, or 3 cents a common share, that Hecla ran up for the third quarter of 1994.
Along with the Grouse Creek write-down, Hecla took a charge of $5.1 million more for environmental cleanup at other properties. All told, Hecla common stockholders lost $2.17 on each share of the 104-year-old company they own.
The Grouse Creek mine located near Challis, Idaho, could have been the project that made Hecla a profitable mining company after four years of multimillion-dollar losses.
Grouse Creek was to have provided Hecla with more than 100,000 ounces of gold for each of the next seven years.
With gold selling at about $390 an ounce and the cost of producing the ounces falling toward $300 at Grouse Creek, Hecla stood an excellent chance to see a return on its nearly $100 million investment over the life of the mine.
Mining began late last year, with the first gold poured from the mill in December. With Idaho dignitaries and Hecla officials presiding, the mine was officially christened this August.
But after blasting and hauling for less than a year, Hecla geologists ran into trouble. The amount of gold in the nearly 7,000 tons of rock processed each day was only about half of what Hecla had hoped.
Though Hecla spent millions examining the mine and drilling around the area to ensure the gold was there, geologic surprises like this one are not uncommon, said Ivan Urnovitz of the Northwest Mining Association.
“I think this serves as a good example of the kinds of risks mining companies know are part of the business,” Urnovitz said. “These risks are often ignored by people in the federal government who like to portray mining activity on public lands as some sort of giveaway.”
On Oct. 25 of this year, Hecla told its stockholders the bad news about the mine. The company stock fell about 25 percent in two days, and Hecla hopes that Friday’s news won’t trigger another sell-off, Veltkamp said.
Hecla’s stock ended Friday unchanged at $7.63 a share. The company didn’t release its earnings until the market was closed, however.
Hecla plans to have a revised plan for Grouse Creek by early next year. The mine, which employs 200 workers, will end its productive life far sooner, Veltkamp said.
Though a tremendous blow to Hecla’s balance sheet, the Grouse Creek loss will not affect any other Hecla operations such as the Lucky Friday silver mine in Mullan, Veltkamp said.
Hecla’s corporate presence in North Idaho will not end, Veltkamp said, “though we may have less money to spend than in other years.”
, DataTimes ILLUSTRATION: Graphic: Hecla’s woes
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