SILVERTON, Idaho – Mark Hartmann scanned the walls of the Galena Mine, looking for a tell-tale sparkle in the darkness.
In the beam from his head lamp, a seam of rock glistened smoky-blue. The glint came from a lead vein; the duller gray rock around it signaled the presence of silver.
Silver-lead mineralization — called galena — is prevalent in its namesake mine. But it’s been four decades since miners drilled and blasted in this tunnel, located about a ½-mile below the earth’s surface.
“I don’t mean to sound critical of the past owners,” said Hartmann, president of U.S. Silver Corp., “but they left a lot of good stuff behind.”
U.S. Silver Corp. is going after that ore. With silver trading near $13 per ounce and lead prices on the rise, the start-up company hopes to succeed where its predecessor failed: Make the Galena profitable and ensure a future for the historic silver mine.
After years of losses, the previous owner — Coeur d’Alene Mines Corp. — sold the mine and two adjoining properties to U.S. Silver in June for $15 million.
U.S. Silver has a bold plan for resuscitating the Galena, which lost $2.2 million in 2005. The strategy revolves around a heavy cash infusion, aggressive exploration, and vesting workers in the mine’s turnaround through stock awards and profit-sharing.
U.S. Silver will spend $5 million exploring for new silver targets in the mine this year, and more than $1 million on repairs to the mine’s main shaft. Those kinds of expenditures are critical to sustaining a deep underground mine, Hartmann said, but they’re also places where companies cutback during lean times.
A lot rides on U.S. Silver’s ability to execute a successful turnaround. Tucked into a narrow canyon above Interstate 90, the Galena is one of two, large operating mines left in Idaho’s Silver Valley, and the source of 140 high-paying jobs.
Stakes are also high for the management team. Hartmann is a past manager of the Sunshine Mine near Kellogg. He left his most recent job near Kansas City, Mo., so his two kids could grow up in a small town atmosphere. CEO John Ryan, who lives in South Carolina, is a graduate of Wallace High School. He’s been involved in a number of mining start-ups. “This is Ryan’s hometown play. He’s got a point to make in Wallace,” said David Bond, a Silver Valley-based mining correspondent, who writes for McGraw Hill & Co.
Since the purchase, U.S. Silver’s geologists have combed through the Galena’s records, looking for new ore targets that could help bolster the mine’s silver production and its financial outlook. Investigating 40-year-old drill holes led the geologists to this tunnel, or drift, located 2,400 feet below the surface.
Much of the Galena’s mining activity occurs at lower elevations of the mine, which extends more than a mile underground. But on a recent morning, the whine of a drill echoed through the 2,400-foot level. In an exploratory operation, diamond-drill bits sliced through quartzite rock, advancing at a rate of about 100 feet per shift.
U.S. Silver has identified four silver veins in the drift. Within a month, the company plans to re-start a mining operation in this older, shallower part of the Galena.
The $5 million that U.S. Silver will spend on exploration this year targets similar ore zones.
Past operators, including Coeur d’Alene Mines, focused on extracting silver ore with high amounts of copper from the Galena. The mine’s silver-lead ore was largely passed by, because material with high-lead content had to be sent to a different smelter, according to Hartmann.
During the years of low silver prices, past operators weren’t willing to pay extra smelter costs, he said. With metals prices on the upswing, U.S. Silver is pursuing the silver-lead ore to increase the Galena’s production, Hartmann said.
This year, the company’s target is to produce 3.2 million ounces of silver at the Galena, at costs of less than $5 per ounce. At prices of $13 per ounce, the silver would be worth nearly $42 million.
If the mine prospers, workers will prosper, too, Hartmann said. Part of the Galena’s turnaround strategy involves a profit-sharing plan for all employees. And for the first time, the Galena’s hourly workers are receiving stock awards.
“If the employees have an ownership value in the company, they will perhaps perform at a different level,” Hartmann said.
The ownership philosophy makes sense to Gary Bailey, a 52-year-old hoist operator who’s worked at the Galena for more than 30 years. It gives everyone a stake in the mine’s success, he said.
Bailey receives 50 shares of U.S. Silver stock each month. By the end of the year, he’ll own 600 shares in U.S. Silver, which is currently at trading at 65 cents per share on the Toronto Venture Stock Exchange.
“I’ll keep it until she hits about $5 per share,” Bailey said, “then she can go.”
The Galena needed a dramatic overhaul. Under Coeur d’Alene Mines, the Galena struggled in recent years with declining production, high costs and fading ore reserves.
By early 2006, the cost of extracting an ounce of silver at the mine had ballooned to nearly $10 per ounce, said Scott Lamb, Coeur d’Alene Mines’ spokesman. That was despite a $12 million investment in the mine in the 3 ½-year period leading up to the sale, he said.
“Our strategy is to focus on assets that have low cost and long life,” Lamb said.
Workers recognized that Coeur d’Alene Mines was cutting its losses at the Galena.
“I don’t think we had a future the way it was headed,” said Nick Jurkovich, the Galena’s maintenance superintendent. David Gray, then the mine’s lead electrician, was blunter: “We were a sinking ship.”
Skilled employees started drifting off to other mines in Montana, Nevada and Alaska. With two high school-age kids, and 20 years at the mine, Jurkovich chose to stay. Gray, now the mine’s safety superintendent, stayed on, too. Their retirement plan was included in the assets for sale. They waited to see if the Galena could attract a buyer.
Large companies weren’t bidding. But the newly formed U.S. Silver Corp. saw potential for reducing the Galena’s high overhead and posting profits at the mine.
“One man’s trash is another man’s treasure,” said Jason Hommel, who writes a mining newsletter from Penn Valley, Calif., and owns U.S. Silver stock. “These old mines — that were once held by New York Stock Exchange-traded companies — have now been purchased by fresh, young start-ups.”
Through investors, U.S. Silver raised nearly $28 million to purchase the mine, take the company public and provide working capital.
With the exploration work that U.S. Silver is doing at the Galena, Bond, the metals reporter, said he’s optimistic about the mine’s chances.
“It’s a hell of an ore body,” Bond said. “They’re doing all the right things … things that Coeur d’Alene Mines should have done 10 years ago.”
Gray, the mine’s safety superintendent, is hopeful, too. “From here,” he said, “we have no where to go but up.”
U.S. Silver’s management team figured it would take 19 months to reverse the Galena’s failing course. But the turnaround is already underway, Hartmann said. The Galena lost money last year, but it should post a profit by the end of the first quarter, he said.
The profit will allow workers to collect their first, quarterly profit-sharing checks. It won’t be much, Hartmann said. But if the Galena meets its targets, employees could each pocket $10,000 in bonuses by the end of the year.
A daily progress report is posted at the Galena’s office. It lists the prior day’s production, metals prices and gives quotes for U.S. Silver Corp.’s stock.
At the moment, silver prices are one of most gratifying numbers on the report. Bolstered by investors’ interest in precious metals and industrial demand for silver, prices are the highest in years. Silver was trading at just under $13 per ounce Friday. It had topped $14 earlier in the week.
“That’s a great price,” Hartmann said. “If silver holds at $14 per ounce, we’ll do well for our investors and our workers.”
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