Just a few short years ago, I would have thought it utterly impossible. Hecla Mining
Hecla reported this week that its Lucky Friday mine in Idaho will remain idle through February as the company builds a new haulage way to replace the one lost to a rock burst last week. The incident occurred 5,900 feet underground and injured seven miners. While the company insists that the several unfortunate incidents at Lucky Friday this year are not related to one another, it is fairly evident that safety concerns broadly increase with mine depth. As major miner Gold Fields
And as primary silver mines go, Lucky Friday is about as deep as they come. With construction of the underground No. 4 shaft proceeding to expand mining access to 8,800 feet below the surface, the logistical challenges to reliably operating the mine safely appear unlikely to diminish. A strong trailing safety record at Lucky Friday prior to 2011 speaks to the quality of the operation and the existing underground infrastructure, but increasing mine depth is nonetheless a salient factor for investors to be aware of.
Silver challengers in hot pursuit
Strategically speaking, Hecla's string of unfortunate events during 2011 could hardly have struck at a worse time. Hecla's costly settlement of a legacy environmental litigation not only siphoned-off some coveted capital, but it also damaged the miner's long-standing position as one of the most popular investment vehicles for silver.
Although Hecla still forecasts minor production growth, to 9.5 million ounces for 2012, the company's long-term production forecast displays a decidedly stagnant picture until the next anticipated growth spurt in 2016. Coeur d'Alene Mines
From 2009 production of 4.3 million silver-equivalent ounces, First Majestic Silver
Fortuna Silver Mines
Hecla's road back to relative dominance
Although several up-and-comers have their sights set on Hecla's current production scale, there is one strategic asset none of them can claim: the $414 million in cash and equivalents adorning Hecla's gorgeously debt-free balance sheet. I suspect we'll see Hecla strike fairly soon here with a major strategic acquisition to juice up its underwhelming growth outlook, and a well-selected target could certainly alter this story in a hurry and set Hecla back on a path toward retained dominance among the mid-tier silver producers. Deals can be difficult to consummate in this environment, where the entire sector appears grossly undervalued, but I would not be surprised to see Hecla take an interest in budding producers like Alexco Resource
Hecla possesses some interesting organic growth potential in several past-producing mines that it could potentially reactivate with minimal capital expenditures, but I believe management needs to get those balls rolling a little faster to target production at one or more of those sites before 2016. With 142 million ounces of silver in reserves, Hecla still commands a monster stash of the metal in its existing pair of lucrative U.S. mining operations. A return to safe operation at Lucky Friday and growth-focused execution overall -- along with the company's vanguard dividend policy that links future payouts to the prevailing price of silver -- could go a long way to restore Hecla as a popular investment vehicle for silver, but ultimately I believe that acquiring some near-term production growth is the only way Hecla can effectively keep the wolves at bay and hang onto its long-standing position among the dominant mid-tier miners of silver.
Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Alexco Resource, Aurcana, Coeur d'Alene Mines, Endeavour Silver, First Majestic Silver, and Hecla Mining. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.