Golden Minerals Company owns the silver and gold Velardeña Properties located in Durango State, Mexico. The Properties are comprised of two underground mines and two processing plants within the Velardeña mining district, approximately 65 kilometers southwest of the city of Torreón and 140 kilometers northeast of the city of Durango.
In July 2015, a wholly-owned subsidiary of Hecla Mining Company leased our Velardeña oxide plant for an initial term of 18 months beginning July 1, 2015. During the third quarter 2016 Hecla exercised its right to extend the initial 18-month term for six additional months until June 30, 2017, as permitted under the original lease agreement. As contemplated by the original agreement, the Company and Hecla also reached agreement regarding an expansion of the tailings impoundment, at Hecla's cost, to accommodate Hecla's use of tailings capacity in excess of an agreed amount while preserving flexibility for future tailings expansions. The agreed expansion is estimated to cost approximately $1.5 million, and Hecla is in the process of obtaining necessary permits for such expansion. The parties agreed that Hecla would either leave unused at the end of the lease term an agreed amount of capacity in the expanded tailings facility, or construct an additional expansion at its cost. In connection with their agreement regarding tailings impoundment expansions, the parties agreed that Hecla may at its option extend the lease for an additional 18 months following June 30, 2017, or until December 31, 2018. The original lease agreement had provided for a second 6 month extension until December 31, 2017, rather than the now agreed 18 month extension until December 31, 2018.
Hecla is responsible for ongoing operation and maintenance of the oxide plant. During 2016, Hecla processed approximately 136,000 tonnes of material through the oxide plant, resulting in a net margin to Golden Minerals of $4.4 million in 2016. Hecla reached its intended processing throughput of approximately 400 tonnes per day in 2016 and, at this rate, net cash payments to us, net of reimbursable costs, should total approximately $0.4 million per month, or nearly $5.0 million annually.
Of the two underground mines comprising the Velardeña Properties, the Velardeña mine includes five different major vein systems including the Terneras, Roca Negra, San Mateo, Santa Juana and San Juanes systems. During 2015 we mined from the San Mateo, Terneras and Roca Negra vein systems as well as the Santa Juana vein system to augment grades as mining and processing rates ramped up.
Due to continuing net operating losses, the company suspended mining and sulfide processing activities in November 2015 in order to conserve the asset until we are able to develop mining and processing plans that at then-current prices for silver and gold indicate a sustainable positive operating margin (defined as revenues less costs of sales) or we are able to locate, acquire and develop alternative mineral sources that could be economically mined and transported to the Velardeña Properties for processing.
We own a 300 tonne per day flotation sulfide mill situated near the town of Velardeña, which accounted for 100% of our revenue from saleable metals during 2015 and 2014. The mill includes lead, zinc and pyrite flotation circuits in which we can process the sulfide material to make lead, zinc and pyrite concentrates. Most of the silver and gold sold in 2014 and 2015 was contained in the lead concentrate. During 2015 we processed all our mined material through the sulfide plant.
Hecla Mining Company is presently leasing our conventional 550 tonne per day cyanide leach oxide mill with a Merrill-Crowe precipitation circuit and flotation circuit, located adjacent to our Chicago mine. We previously used this mill to process oxide and mixed sulfide/oxide material from the Velardeña Properties.
We continue to evaluate and search for other oxide and sulfide feed sources, focusing on sources within haulage distance of our sulfide and oxide mills at the Velardeña Properties.
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