Hecla Mining’s bid to take over US Silver falls through

Hecla Mining Co.’s (NYSE:HL) unsolicited all-cash take-over bid for US Silver (TSX-V:USA) has fallen through as the competitor’s shareholders rejected Hecla's cash buyout offer, announced the company.

US Silver board of directors voted instead to merge with Canadian RX Gold & Silver and form a new firm.

Hecla Mining announced its intention to make an all-cash offer for all outstanding shares in US Silver, the main competitor in northern Idaho's silver mining market, in July. The offer priced common shares of US Silver at Cd$1.80 each, making the total offer be worth about $110 million.

The company also published its financial results for the second quarter of 2012 on Tuesday, which showed a fall in profit as well as revenue decline:

Hecla Reports Second Quarter 2012 Results and Major Progress on Re-Opening of the Lucky Friday Mine

All Cash Tender Offer Launched for U.S. Silver SharesCOEUR D'ALENE, Idaho–(BUSINESS WIRE)–Aug. 7, 2012– Hecla Mining Company (NYSE:HL) today announced second quarter net income applicable to common shareholders of $2.4 million, or $0.01 per basic share, and earnings after adjustments applicable to common shareholders of $4.4 million, or $0.02 per basic share. Second quarter silver production was 1.4 million ounces at a cash cost of $1.03 per ounce, net of by-products.

SECOND QUARTER 2012 HIGHLIGHTS

  • Rehabilitation work at Lucky Friday mine advances past the 4900 foot level, activating development crews preparing the mine for expected resumption of operations beginning in the first quarter of 2013.
  • Sales of $67.0 million.
  • Net income applicable to common shareholders of $2.4 million, or $0.01 per basic share.
  • Earnings after adjustments applicable to common shareholders (a non-GAAP measure) of $4.4 million, or $0.02 per basic share.
  • Silver production of 1.4 million ounces at a total cash cost (a non-GAAP measure) of $1.03 per ounce, net of by-products.
  • Cash and cash equivalents of $233.0 million at June 30, 2012.
  • Declaration of $0.0025 dividend payable September 4 to shareholders of record as of August 28.
  • Credit facility increased to $150.0 million from $100.0 million.
  • Underground and surface drilling has extended high-grade mineralization at Greens Creek (Alaska), the Star (Idaho), the Equity (Colorado) and San Sebastian (Mexico).
  • Company launches all-cash offer to acquire U.S. Silver Corporation for CDN$1.80 per common share.

"Hecla is delivering cash flow today and investing in growth for the future. Despite only Greens Creek operating currently, Hecla generates enough cash flow and has a strong enough balance sheet to invest record amounts in capital, exploration and pre-development that we believe will provide long-lived production – 15 plus years at Greens Creek and 30 plus years at Lucky Friday – and 50% production growth over the next five years," said Hecla's President and Chief Executive Officer Phillips S. Baker, Jr.

"We are pleased to report that rehabilitation work at the Lucky Friday Silver Shaft through the second quarter has progressed ahead of schedule past the 4900 foot level. Access to this level materially changes the scope of activities at the mine. Now, in addition to rehabilitating the shaft, we expect to soon begin construction on two bypasses on the 5900 foot level which positions us to restart production in early 2013. Plus, we can restart planning work on the #4 Shaft, which will provide 3,000 feet of deeper access to higher grade ores and the potential for 30 years of future production," Mr. Baker added.

"At Greens Creek, second quarter silver production of 1.4 million ounces was impacted by lower grades, but cash costs net of by-product credits were $1.03 per ounce of silver, providing excellent operating margins. We expect production levels at Greens Creek to increase through the remainder of the year, as we continue our record capital investment program there, preparing the mine for many more years of anticipated low-cost production and reserve growth," Mr. Baker added.

"Our record 2012 exploration and pre-development program at the four districts we control continues to return excellent results. We expect this pre-development program, along with our existing operations, to help us reach our targeted goal of 15 million ounces of Company-wide silver production by 2017. Underpinning this growth is our very strong balance sheet, with $233.0 million in cash and no significant debt.

"Finally, our offer for U.S. Silver, an all-cash offer valued at approximately $100 million that expires August 31, represents a good strategic fit for Hecla. It would add another producing mine and expand our highly prospective land package and development projects in the world-class Silver Valley of North Idaho. The offer is conditional on the termination of a proposed merger which is the subject of a shareholder meeting today," Mr. Baker added.

FINANCIAL OVERVIEW

Net income applicable to common shareholders for the second quarter was $2.4 million, or $0.01 per share, compared to $33.2 million, or $0.12 per basic share, for the same period a year ago, and was impacted by the following items:

  • Temporary suspension of mining activities at the Lucky Friday mine, which were suspended in January 2012, are expected to resume in the first quarter 2013. There were $6.5 million in suspension-related costs at the Lucky Friday in the second quarter, including $1.6 million of depreciation.
  • Lower-than-expected grades at Greens Creek, as well as lower average silver and base metals prices compared to the same period a year ago.
  • Exploration and pre-development expense increased to $10.6 million in the second quarter from $5.8 million in the same period in 2011, for exploration work at Greens Creek, the Company's extensive land package at San Sebastian in Durango, Mexico, at the San Juan Silver project in Colorado, and the Star mine complex in North Idaho's Silver Valley near the Lucky Friday mine. Pre-development projects and engineering studies were advanced in Mexico, Colorado and the Silver Valley.
  • A $6.2 million gain on base metal derivative contracts for the second quarter, compared to a $0.6 million gain for the same period in 2011. A summary of the quantities of base metals committed at June 30, 2012 is included on page 4 of this release.
  • A $0.7 million tax provision compared to $19.6 million in the same period in 2011, as a result of higher pre-tax income in 2011. Our effective income tax rate is approximately 35% in 2012 compared to 33% in the same period in 2011.
  • Losses of $2.4 million on provisional price adjustments compared to losses of $7.6 million in the same period of 2011.

 

Full results here >> >>