Hecla Annual Report For the fiscal year ended December 31, 2005. Filed March 10, 2006.
PRE-DEVELOPMENT EXPLORATION PROPERTIES
Hollister Development Block
In August 2002, our wholly owned subsidiary, Hecla Ventures Corporation, entered into an earn-in agreement with Rodeo Creek Gold, Inc., a wholly owned subsidiary of Great Basin Gold Ltd. (“Great Basin”), for the exploration, development and production of Great Basin’s underground gold property in the Ivanhoe Mining District of northern Nevada known as the Hollister Development Block (“Hollister”). Located on the northwestern extension of the Carlin Trend, the nearest active mining operations are the Dee mine, located eight miles to the southeast, and the Ken Snyder mine, located twelve miles to the northwest. The nearest major population centers are the towns of Battle Mountain, 38 miles to the southwest; Elko, approximately 47 miles to the southeast; and Winnemucca, 64 miles to the west-southwest.
The Earn-in Agreement, as modified by the parties in March 2006, provides us with an option to earn a 50% working interest in Hollister in return for funding the first stage of an advanced exploration and development program and funding 50% of the second stage. We estimate the cost to achieve our 50% interest to be a maximum of $25.1 million, with our share of the total project to reach full production levels at approximately $36.0 million. We are the manager of the exploration and development activities and if we complete earn-in activities, and if we achieve successful exploration results and upon completion of a favorable feasibility study, we will be the operator of the property. Our project costs through 2005 total $15.7 million.
Hollister is defined by a 6,000-foot by 7,000-foot project boundary, or 964 acres, within a larger claim block held by Newmont Mining Corporation and Great Basin Gold. The most recent operation was the Hollister mine, operated from 1990 through 1996, consisting of two open-pit gold mines and a heap-leach facility.
The underground exploration project consists of approximately 7,500 feet of underground excavation, including a decline access to the mineralized structures, crosscuts, diamond drill stations, muck bays and miscellaneous openings. Approximately 5,000 to 15,000 tons of bulk samples from the different veins within the system are planned, along with approximately 55,000 feet of diamond drilling from underground locations. Surface support facilities for the underground exploration project are located in the existing east Hollister pit, thereby limiting most surface disturbance to areas associated with previous mining activities.
In 2005, construction of the surface facilities was completed and physical exploration efforts underground continued. By the end of 2005, a total of 4,227 feet of openings had been created, and one of the veins had been intersected. Forty nine full-time employees work on the project, with an additional eight contractor/part-time employees performing support roles. All surface facilities and systems have been installed and are operational, with the exception of the waste-rock dump evaporation sump. The originally conceived sump system has not been constructed due to high groundwater levels below the surface. Modifications to the sump design have been approved by federal and state regulatory agencies.
In 2006, we anticipate completing physical exploration by driving another 3,300 feet of openings, and to complete approximately 55,000 additional feet of diamond drilling from underground drill platforms. Metallurgical testing is expected to be conducted, negotiations with potential milling facilities are likely to be pursued and a feasibility study is expected to be compiled. A decision on the viability of a commercial operation is anticipated to be made during 2007. If a production decision was not favorable, closure and reclamation activities would commence pursuant to the stipulations in the Earn-In Agreement.
In April 2005, Hecla Ventures Corporation filed a lawsuit in Elko County, Nevada, against Great Basin and Rodeo Creek Gold Inc., to resolve contractual disagreements involving the Earn-In Agreement. In March 2006, the parties agreed to amend the original Earn-In Agreement to reflect changing conditions at the project, revise certain deadlines and to dismiss all litigation. The main modifications to the Earn-In Agreement were as follows:
- We have committed to complete and fund 100% of the remaining Stage 1 earn-in activities by March 31, 2007;
- We and Great Basin will fund Stage 2 equally, although we will fund Great Basin’s Stage 2 activities until we deliver the feasibility study, at which time Great Basin will reimburse us for their Stage 2 expenses;
- If the decision is made to develop and operate a mine, we must achieve full production by August 2009, as a condition of earning a 50% working interest in the project;
- We are entitled to the proceeds of the first 50,000 ounces of gold (or equivalent) up to the actual costs of Stage 1 activities plus 15%, not to exceed $25.1 million, from Stage 1 activities, thereafter any revenues will be shared equally; and
- We and Great Basin have agreed to terminate the litigation.
