UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
Commission file number 1-8491
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HECLA MINING COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 82-0126240
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6500 Mineral Drive, Suite 200
Coeur d'Alene, Idaho 83815-9408
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
208-769-4100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for at least the past 90 days.
Yes _XX_. No ____.
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes _XX_. No ____.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Shares Outstanding April 30, 2003
- ----------------------- ---------------------------------
Common stock, par value 109,389,338
$0.25 per share
Hecla Mining Company and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2003
I N D E X*
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Page
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PART I. - Financial Information
Item l - Consolidated Balance Sheets - March 31,
2003 (unaudited) and December 31, 2002 3
- Consolidated Statements of Operations - Three Months
Ended March 31, 2003 and 2002 (unaudited) 4
- Consolidated Statements of Cash Flows - Three
Months Ended March 31, 2003 and 2002 (unaudited) 5
- Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 20
Item 3 - Quantitative and Qualitative Disclosure About Market Risk 38
Item 4 - Controls and Procedures 40
PART II. - Other Information
Item 1 - Legal Proceedings 41
Item 3 - Defaults Upon Senior Securities 41
Item 6 - Exhibits and Reports on Form 8-K 41
*Items omitted are not applicable.
Part I - Financial Information
Hecla Mining Company and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(In thousands, except share data)
(unaudited)
March 31, December 31,
2003 2002
--------- ---------
ASSETS
------
Current assets:
Cash and cash equivalents $ 113,554 $ 19,542
Accounts and notes receivable 9,890 10,154
Inventories 15,675 14,758
Deferred income taxes 2,025 2,700
Other current assets 3,333 1,780
--------- ---------
Total current assets 144,477 48,934
Investments 125 76
Restricted investments 6,455 6,428
Properties, plants and equipment, net 90,893 92,365
Deferred income taxes 300 300
Other noncurrent assets 12,250 12,038
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Total assets $ 254,500 $ 160,141
========= =========
LIABILITIES
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Current liabilities:
Accounts payable and accrued expenses $ 9,245 $ 11,731
Accrued payroll and related benefits 4,432 7,603
Current portion debt 8,490 7,296
Accrued taxes 1,296 1,572
Current portion of accrued reclamation and closure costs 7,064 7,005
--------- ---------
Total current liabilities 30,527 35,207
Long-term debt 4,476 4,657
Accrued reclamation and closure costs 42,439 42,718
Other noncurrent liabilities 6,370 5,629
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Total liabilities 83,812 88,211
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SHAREHOLDERS' EQUITY
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Preferred stock, $0.25 par value, authorized 5,000,000 shares;
issued 2003 - 752,752 shares, issued 2002 - 753,402 shares,
liquidation preference 2003 - $44,921 and 2002 - $44,262 188 188
Common stock, $0.25 par value, authorized 200,000,000 shares;
issued 2003 - 109,328,201 shares, issued 2002 - 86,187,468 shares 27,349 21,547
Capital surplus 492,055 405,959
Accumulated deficit (348,809) (355,544)
Accumulated other comprehensive income (loss) 23 (36)
Less stock held by grantor trust; 2002 - 81,696 common shares -- (66)
Less treasury stock, at cost; 2003 and 2002 - 8,274 common shares (118) (118)
--------- ---------
Total shareholders' equity 170,688 71,930
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Total liabilities and shareholders' equity $ 254,500 $ 160,141
========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
3
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(in thousands, except for share data)
Three Months Ended
------------------------------
March 31, 2003 March 31, 2002
-------------- --------------
Sales of products $ 26,441 $ 23,383
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Cost of sales and other direct production costs 14,583 14,091
Depreciation, depletion and amortization 4,903 5,558
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19,486 19,649
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Gross profit 6,955 3,734
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Other operating expenses:
General and administrative 2,039 1,877
Exploration 2,133 524
Depreciation and amortization 29 53
Provision for closed operations and environmental matters 80 109
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4,281 2,563
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Income from operations 2,674 1,171
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Other income (expense):
Interest and other income 4,579 409
Miscellaneous, net (472) (146)
Interest expense (359) (464)
--------- ---------
3,748 (201)
--------- ---------
Income from operations, before income tax, cumulative effect
of change in accounting principle and discontinued operations 6,422 970
Income tax provision (759) --
--------- ---------
Income from operations before cumulative effect of change in
accounting principle and discontinued operations 5,663 970
Cumulative effect of change in accounting principle, net of
income tax 1,072 --
Discontinued operations, net of income tax -- (484)
--------- ---------
Net income 6,735 486
Preferred stock dividends (659) (2,012)
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Income (loss) applicable to common shareholders $ 6,076 $ (1,526)
========= =========
Net income 6,735 486
Change in derivative contracts -- (256)
Unrealized holding gains on securities 50 19
Reclassification adjustment of loss included in net income 9 10
--------- ---------
Comprehensive income (loss) applicable to common shareholders $ 6,794 $ (259)
========= =========
Basic and diluted income (loss) per common share:
Income (loss) from continuing operations after preferred
stock dividends $ 0.05 $ (0.01)
Cumulative effect of change in accounting principle 0.01 --
Loss from discontinued operations -- (0.01)
--------- ---------
Basic and diluted income (loss) per common share $ 0.06 $ (0.02)
========= =========
Basic weighted average number of common shares outstanding 109,320 73,840
========= =========
Diluted weighted average number of common shares outstanding 110,209 73,840
========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
4
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended
------------------------------
March 31, 2003 March 31, 2002
-------------- --------------
Operating activities:
Net income $ 6,735 $ 486
Noncash elements included in net income:
Depreciation, depletion and amortization 4,932 5,611
Cumulative effect of change in accounting principle (1,072) --
Gain on disposition of properties, plants and equipment (209) (122)
Provision for reclamation and closure costs 234 340
Change in deferred income taxes 675 --
Change in net assets of discontinued operations -- 438
Change in assets and liabilities:
Accounts and notes receivable 264 (3,230)
Inventories (917) (1,169)
Other current and noncurrent assets (415) (839)
Accounts payable and accrued expenses (2,476) (875)
Accrued payroll and related benefits (2,535) 669
Accrued taxes (276) 206
Accrued reclamation and closure costs and other noncurrent
liabilities (190) (992)
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Net cash provided by operating activities 4,750 523
--------- ---------
Investing activities:
Proceeds from sale of discontinued operations -- 1,585
Additions to properties, plants and equipment (2,027) (2,182)
Proceeds from disposition of properties, plants and equipment 325 138
Increase in restricted investments (1,377) --
Other, net -- 108
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Net cash used by investing activities (3,079) (351)
--------- ---------
Financing activities:
Common stock issued under warrants and stock option plans 41 983
Common stock issued, net of offering costs 91,287 --
Borrowings on debt 1,350 3,300
Repayments on debt (337) (3,396)
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Net cash provided by financing activities 92,341 887
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Change in cash and cash equivalents:
Net increase in cash and cash equivalents 94,012 1,059
Cash and cash equivalents at beginning of period 19,542 7,560
--------- ---------
Cash and cash equivalents at end of period $ 113,554 $ 8,619
========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
5
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Basis of Preparation of Financial Statements
In the opinion of management, the accompanying unaudited consolidated
balance sheets, consolidated statements of operations and consolidated
statements of cash flows contain all adjustments, consisting only of normal
recurring accruals, necessary to present fairly, in all material respects, the
financial position of Hecla Mining Company ("we" or "our"). These unaudited
interim consolidated financial statements should be read in conjunction with our
audited consolidated financial statements and related footnotes as set forth in
our annual report filed on Form 10-K for the year ended December 31, 2002.
Note 2. Discontinued Operations
During 2000, in furtherance of our determination to focus operations on
silver and gold mining and to raise cash to retire debt and provide working
capital, our board of directors made the decision to sell the industrial
minerals segment. In March 2003, we sold the remaining inventories of the
briquette division of the Colorado Aggregate division ("CAC") of MWCA, Inc., and
no longer produce or sell any product from our former industrial minerals
segment. The briquette division of CAC represented the remaining portion of our
industrial minerals segment, which reported income from operations of
approximately $6,000 for the first three months of 2003. We did not record any
gain or loss from discontinued operations during the first quarter of 2003,
compared to a loss of $0.5 million, or $0.01 per common share, during the first
quarter of 2002. All activity associated with the former industrial minerals
segment during the first quarter of 2003 is considered a general corporate
activity and is presented as "other" where appropriate.
Note 3. Income Taxes
Our income tax provision for the first three months of 2003 and 2002
varies from the amount that would have been provided by applying the statutory
rate to the income before income taxes primarily due to the availability and
utilization of net operating losses in Mexico and Venezuela. For the three
months ended March 31, 2003, we recorded a $0.8 million provision for foreign
income taxes. This provision takes into consideration the accrued Mexican
withholding tax payable on interest expense, as well as the benefit of existing
deferred tax assets in Mexico. No tax provision was recorded for the three
months ended March 31, 2002, primarily due to the utilization of foreign net
operating loss carryforwards which were previously not recorded as an asset due
to the uncertainty of recoverability.
6
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Note 4. Inventories
Inventories consist of the following (in thousands):
March 31, December 31,
2003 2002
-------- --------
Concentrates, bullion, metals
in transit and other products $ 7,653 $ 7,034
Materials and supplies 8,022 7,724
-------- --------
$ 15,675 $ 14,758
======== ========
At March 31, 2003, we had forward sales commitments through December
31, 2004, for 93,729 ounces of gold at an average price of $288.25 per ounce.
These contracts meet the criteria to be treated as normal sales in accordance
with SFAS 138 and as a result, these contracts are not required to be accounted
for as derivatives under SFAS 133. We are exposed to certain losses, generally
the amount by which the contract price exceeds the spot price of a commodity, in
the event of nonperformance by the counterparties to these agreements. The
London Final gold price at March 31, 2003, was $335.35 per ounce.
We have a quarterly Gold Lease Rate Swap at a fixed rate of 1.5% on
78,728 ounces of the above gold forward contracts. The ounces covered under the
swap are adjusted each quarter, in accordance with the expiration of the gold
forward contracts. At March 31, 2003, the fair market value of the Gold Lease
Rate Swap was approximately $253,000, which represents the amount the
counterparty would have to pay us if the contract was terminated.
Note 5. Contingencies
Bunker Hill Superfund Site
In 1994, we, as a potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"),
entered into a consent decree with the Environmental Protection Agency ("EPA")
and the State of Idaho, concerning environmental remediation obligations at the
Bunker Hill Superfund site located in Kellogg, Idaho. The 1994 Consent Decree
(the "1994 Decree") settled our response-cost liability under CERCLA at the
Bunker Hill 21-square mile site.
In August 2000, Sunshine Mining and Refining Company, which was also a
party to the 1994 Decree, filed for Chapter 11 bankruptcy and in January 2001,
the Federal District Court approved a new Consent Decree between Sunshine, the
U.S. Government and the Coeur d'Alene Indian Tribe which settled Sunshine's
environmental liabilities in the Coeur d'Alene Basin lawsuits described below
and released Sunshine from further obligations under the 1994 Decree. In
response to a request by us and ASARCO Incorporated, the United States Federal
District Court in Idaho, having jurisdiction over the 1994 Decree, issued an
Order in September 2001
7
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
that the 1994 Decree should be modified in light of a significant change in
factual circumstances not reasonably anticipated by the mining companies at the
time they signed the 1994 Decree. In its Order, the Court reserved the final
ruling on the appropriate modification to the 1994 Decree until after the
issuance by the EPA of a Record of Decision ("ROD") on the Basin-wide Remedial
Investigation/Feasibility Study.
The EPA issued the ROD on the Basin in September 2002, proposing a $359
million Basin clean-up plan to be implemented over 30 years. The ROD also
establishes a review process at the end of the 30-year period to determine if
further remediation would be appropriate. Based on the 2001 Order issued by the
Court, we intend to seek relief from the work program under the 1994 Decree
within the Bunker Hill site. In addition, we and ASARCO negotiated a reduced
2002 work program with the EPA and the State of Idaho pending the outcome of the
dispute resolution over the 1994 Decree. We anticipate negotiating the 2003 work
program during the first half of 2003; however, we expect the work program for
2003 will be subject to a final decision on modification of the 1994 Decree by
the Court.
On February 2, 2003, ASARCO entered into a Consent Decree with the
United States relating to a transfer of certain assets to its parent
corporation, Grupo de Mexico, S.A. de C.V. The Consent Decree also addresses
ASARCO's environmental liabilities on a number of sites in the United States,
including the Bunker Hill site. The provisions of the Consent Decree could limit
ASARCO's annual obligation at the Bunker Hill site for 2003 to 2005. In
addition, in February 2003, we were advised that ASARCO had reached an agreement
with the Coeur d'Alene Indian Tribe settling the Tribe's claims against ASARCO
for damages to natural resources. We believe the settlement will have no
material effect on any liability we may have for the Tribe's claims.
As of March 31, 2003, we have estimated and accrued a liability for
remedial activity costs at the Bunker Hill site of $8.3 million, which are
anticipated to be made over the next three to five years. Although we believe
the accrual is adequate based upon our current estimates of aggregate costs, it
is reasonably possible that our estimate may change in the future due to the
assumptions and estimates inherent in the accrual.
8
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Coeur d'Alene River Basin Environmental Claims
Coeur d'Alene Indian Tribe Claims
In July 1991, the Coeur d'Alene Indian Tribe brought a lawsuit, under
CERCLA, in Idaho Federal District Court against us, ASARCO and a number of other
mining companies asserting claims for damages to natural resources downstream
from the Bunker Hill site over which the Tribe alleges some ownership or
control. In February 2003, ASARCO reached an agreement with the Coeur d'Alene
Tribe settling the Tribe's claim against ASARCO. The Tribe's natural resource
damage litigation has been consolidated with the United States' litigation
described below.
U.S. Government Claims
In March 1996, the United States filed a lawsuit in Idaho Federal
District Court against certain mining companies that conducted historic mining
operations in the Silver Valley of northern Idaho, including us. The lawsuit
asserts claims under CERCLA and the Clean Water Act and seeks recovery for
alleged damages to or loss of natural resources located in the Coeur d'Alene
River Basin in northern Idaho for which the United States asserts it is the
trustee under CERCLA. The lawsuit claims that the defendants' historic mining
activity resulted in releases of hazardous substances and damaged natural
resources within the Basin. The suit also seeks declaratory relief that we and
other defendants are jointly and severally liable for response costs under
CERCLA for historic mining impacts in the Basin outside the Bunker Hill site. We
have asserted a number of defenses to the United States' claims.
As discussed above, in May 1998, the EPA announced that it had
commenced a Remedial Investigation/Feasibility Study under CERCLA for the entire
Basin, including Lake Coeur d'Alene, in support of its response cost claims
asserted in its March 1996 lawsuit. In October 2001, the EPA issued its proposed
clean-up plan for the Basin. The EPA issued the ROD on the Basin in September
2002, proposing a $359 million Basin clean-up plan to be implemented over 30
years. The ROD also establishes a review process at the end of the 30-year
period to determine if further remediation would be appropriate.
The first phase of the trial commenced on the consolidated Coeur
d'Alene Indian Tribe's and the United States' claims on January 22, 2001, and
was concluded on July 30, 2001. In the first phase of the trial, the Court was
to determine the extent of liability, if any, of the defendants for the
plaintiffs' CERCLA claims. The Court was also asked to determine the liability
of the United States for its historic involvement in the Basin. No decision on
the issues before the Court in the first phase of the litigation has been
issued. If liability is determined in the first phase, a second trial is
anticipated to be scheduled during 2003 to address damages and remedy selection.
Two of the defendant mining companies, Coeur d'Alene Mines Corporation and
Sunshine Mining and Refining Company, settled their liabilities under the
litigation during the first quarter of 2001. We and ASARCO are the only
defendants remaining in the United States' litigation.
During 2000 and into 2001, we were involved in settlement negotiations
with representatives of the U.S. Government and the Coeur d'Alene Indian Tribe.
We also
9
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
participated with certain of the other defendants in the litigation in a State
of Idaho-led settlement effort. On August 16, 2001, we entered into a now
terminated Agreement in Principle with the United States and the State of Idaho
to settle the governments' claims for natural resource damages and clean-up
costs related to the historic mining practices in the Coeur d'Alene Basin in
northern Idaho. That Agreement in Principle covered the potential settlement of
liability relating not only to the Coeur d'Alene River Basin, but also other
Idaho-related claims for which separate provision has already been made. The
total undiscounted amount of the potential settlement was $138.0 million. Due to
a number of changes that have occurred since the signing of the Agreement in
Principle, including improvements in the environmental conditions at Grouse
Creek and lower estimated clean-up costs in the Coeur d'Alene Basin as well as
our improved financial condition, the terms of the multiple properties
settlement approach set forth in the Agreement in Principle no longer appears
favorable to us. Therefore, the United States, the State of Idaho and we have
agreed to discontinue utilizing the Agreement in Principle as a settlement
vehicle. However, we may participate in further settlement negotiations with the
United States, the State of Idaho and the Coeur d'Alene Indian Tribe in the
future. Due to a number of uncertainties related to this matter, including the
outcome of pending litigation and the result of any settlement negotiations, we
do not have the ability to estimate what, if any, liability we may have related
to the Coeur d'Alene Basin at this time.
It is reasonably possible that our ability to estimate what, if any,
liability we may have relating to the Coeur d'Alene Basin may change in the near
or long term depending on a number of factors. In addition, an adverse ruling
against us for liability and damages in this matter could have a material
adverse effect on us.
Class Action Litigation
On or about January 7, 2002, a class action complaint was filed in the
Idaho District Court, County of Kootenai, against several corporate defendants,
including Hecla. We were served with the complaint on January 29, 2002. The
complaint seeks certification of three plaintiff classes of Coeur d'Alene Basin
residents and current and former property owners to pursue three types of
relief: various medical monitoring programs, real property remediation and
restoration programs, and damages for diminution in property value, plus other
damages and costs. On April 23, 2002, we filed a motion with the Court to
dismiss the claims for relief relating to any medical monitoring programs and
the remediation and restoration programs. At a hearing before the Idaho District
Court on our and other defendants' motions held October 16, 2002, the Judge
struck the complaint filed by the plaintiffs in January 2002 and instructed the
plaintiffs to re-file the complaint limiting the relief requested by the
plaintiffs to wholly private damages. The Court also dismissed the medical
monitoring claim as a separate cause of action and stated that any requested
remedy that encroached upon the EPA's cleanup in the Silver Valley would be
precluded by the pending Federal Court case described above. The plaintiffs
re-filed their amended complaint on January 9, 2003. As ordered by the Court,
the amended complaint omits any cause of action for medical monitoring and no
longer requests relief in the
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
form of real property remediation or restoration programs. At a hearing on
May 7, 2003, the Court vacated the entire amended complaint and issued sanctions
against Plaintiffs' counsel for noncompliance with Idaho law. The Court gave
Plaintiffs' counsel until June 30, 2003, to re-file an amended complaint that
complies with Idaho law. We believe the claims alleged against us are subject to
challenge on a number of bases and intend to vigorously defend this litigation.
Insurance Coverage Litigation
In 1991, we initiated litigation in the Idaho District Court, County of
Kootenai, against a number of insurance companies that provided comprehensive
general liability insurance coverage to us and our predecessors. We believe the
insurance companies have a duty to defend and indemnify us under their policies
of insurance for all liabilities and claims asserted against us by the EPA and
the Tribe under CERCLA related to the Bunker Hill site and the Basin in northern
Idaho. In 1992, the Idaho State District Court ruled that the primary insurance
companies had a duty to defend us in the Tribe's lawsuit. During 1995 and 1996,
we entered into settlement agreements with a number of the insurance carriers
named in the litigation. We have received a total of approximately $7.2 million
under the terms of the settlement agreements. Thirty percent of these
settlements were paid to the EPA to reimburse the U.S. government for past costs
under the Bunker Hill site Consent Decree. Litigation is still pending against
one insurer with trial suspended until the underlying environmental claims
against us are resolved or settled. The remaining insurer in the litigation,
along with a second insurer not named in the litigation, is providing us with a
partial defense in all Basin environmental litigation. As of March 31, 2003, we
have not reduced our accrual for reclamation and closure costs to reflect the
receipt of any potential insurance proceeds.
Other Claims
On November 17, 2000, we entered into an agreement with Zemex U.S.
Corporation guaranteed by its parent, Zemex Corporation of Toronto, Canada, to
sell the stock of K-T Clay and K-T Mexico, which included the ball clay and
kaolin operations, for a price of $68.0 million. On January 18, 2001, Zemex U.S.
Corporation failed to close on the transaction, and on January 22, 2001, we
brought suit in the United States District Court for the Northern District of
Illinois, Eastern Division, against the parent, Zemex Corporation, under its
guarantee for its subsidiary's failure to close on the purchase and meet its
obligations under the November 2000 agreement. In January 2003, the parties
reached an agreement to settle our claims in full for $3,950,000. The payment
was recorded as other income during the first quarter of 2003.
In March 2002, Independence Lead Mines Company ("Independence"), the
holder of a net 18.52% interest in the Gold Hunter or DIA unitized area of the
Lucky Friday mine, notified us of certain alleged defaults by us under the 1968
Lease Agreement between the unit owners (Independence and us under the terms of
the 1968 DIA Unitization Agreement) as lessors and defaults by us as lessee and
operator of the properties. We are a net 81.48% interest holder under these
Agreements. Independence alleges that we violated the "prudent operator
obligations" implied under the lease by undertaking the Gold Hunter project and
violated certain other provisions of the Agreement with respect to milling
equipment and calculating net profits and
11
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
losses. Under the Lease Agreement, we have the exclusive right to manage,
control and operate the DIA properties, and our decisions with respect to the
character of work are final. On June 17, 2002, Independence filed a lawsuit in
Idaho State District Court seeking termination of the Lease Agreement and
requesting unspecified damages. On March 18, 2003, Independence filed a motion
for partial summary judgment or in the alternative for preliminary injunction
("Motion"). The Motion requests that the Court terminate our leasehold interest
in property owned by Independence within the DIA area, rule that we have
committed waste while mining ore within property owned by Independence, and
prohibit us from any further mining within property owned by Independence. We
believe that we have fully complied with all obligations of the 1968 Lease
Agreement and will be able to successfully defend our right to operate the
property under the Lease Agreement.
In Mexico, our subsidiary, Minera Hecla, S.A. de C.V. ("Minera Hecla"),
is involved in litigation in Mexico City concerning a lien on certain major
components of the Velardena mill at the San Sebastian mine that predated the
sale of the mill to Minera Hecla. The unpaid amount of the lien is in dispute.
At the time of the purchase, the lien amount was believed to be approximately
$590,000 and that amount was deposited with the court. The lien holder now
alleges the amount owed is approximately $2,017,000, plus accrued interest. The
lien holder has tried with limited success to remove the mill components subject
to the lien. On January 23, 2003, Minera Hecla deposited $145,000, which
represented the amount of accrued interest since the date of sale and Minera
Hecla requested that the Court cancel the lien. The lien holder opposed the
request made by Minera Hecla. On February 19, 2003, the Court in Mexico City
issued a decision that the lien was fully satisfied with the deposit made by
Minera Hecla on January 23, 2003, and the Court cancelled the lien. On February
24, 2003, the lien holder appealed that decision. The appeal is currently
pending before a federal appeals court in Mexico. We believe that the lien has
been fully satisfied and the lower court decision to cancel the lien will stand
on appeal.
In a related legal proceeding in Mexico, there is currently pending an
appeal in Mexico of the $2,017,000 judgment against the mill's prior owner, BLM
Minera Mexicana ("BLM"), which underlies the lien. However, the decision by the
court in Mexico City in February 2003 held that the lien on the mill mentioned
above does not guarantee the $2,017,000 judgment against BLM as the lien holder
alleged. Unless the lower court decision is overturned on appeal, Minera Hecla
and the Velardena mill will not be subject to any further attachment by the lien
holder in its pending action against BLM.
We are subject to other legal proceedings and claims not disclosed
above which have arisen in the ordinary course of our business and have not been
finally adjudicated. Although there can be no assurance as to the ultimate
disposition of these other matters, it is the opinion of our management that the
outcome of these other proceedings will not have a material adverse effect on
our financial condition.
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Note 6. Long-Term Debt and Credit Agreements
As of March 31, 2003, our wholly owned subsidiary, Hecla Resources
Investments Limited ("HRIL"), had $3.5 million outstanding under a credit
agreement used to provide project financing at the La Camorra mine. The project
financing agreement is repayable in semiannual payments ending December 31,
2004, and had an interest rate of 4.2% at March 31, 2003.
HRIL must maintain compliance with certain financial and other
restrictive covenants related to the available ore reserves and performance of
the La Camorra mine. We are required to maintain hedged gold positions
sufficient to cover all dollar loans, operating expenditures, taxes, royalties
and similar fees projected for the project. At March 31, 2003, there were 93,729
ounces of gold sold forward. The forward sales agreement assumes the ounces of
gold committed to forward sales at the end of each quarter can be leased at a
rate of 1.5% for each following quarter. We maintain a Gold Lease Rate Swap at a
fixed rate of 1.5% on the outstanding notional volume of the flat forward sale,
with settlement being made quarterly with us receiving the fixed rate and paying
the current floating gold lease rate.
In connection with the project financing agreement, we have outstanding
a $3.0 million subordinated loan agreement, repayable in three equal semiannual
payments beginning June 30, 2003. At March 31, 2003, the entire $3.0 million was
outstanding, $2.0 million of which is classified as current. The loan agreement
gives us the option to capitalize interest payments by adding them to the
principal amount of the loan. At March 31, 2003, the interest amount added to
principal was approximately $0.6 million. The interest rate on the subordinated
debt was 5.8% as of March 31, 2003.
At March 31, 2003, our wholly owned subsidiary, Minera Hecla, S.A. de
C.V. ("Minera Hecla"), had $5.1 million outstanding under a project loan used to
acquire a processing mill at Velardena, Mexico, to process ore mined from the
San Sebastian mine near Durango, Mexico. The credit facility is nonrecourse to
us. Under the terms of the credit facility, Minera Hecla will make monthly
payments for principal and interest over 63 months. The loan is collateralized
by the mill at Velardena and the Saladillo, Saladillo 1 and Saladillo 5 mining
concessions and bears interest at the rate of 13%.
In February 2003, following a general strike in Venezuela, the
Venezuelan government announced its intent to implement exchange controls which
have required us, in some instances, to convert United States dollars into the
country's currency. In February, our wholly owned subsidiary, Minera Hecla
Venezolana, C.A. ("MHV"), established a line of credit in Venezuelan bolivares
at a local bank to facilitate the payment of national vendors in the country's
currency. At March 31, 2003, approximately $1.4 million was outstanding under
the line of credit and is secured by $1.4 million held by the bank, classified
as a current restricted investment under other current assets on our
Consolidated Balance Sheet. The outstanding balance on this line of credit
13
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
bears interest at the rate of 33% and is repayable during the second quarter of
2003. For further information regarding the strike in Venezuela and the
implementation of exchange controls, see Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial Condition
and Liquidity.
In March 2003, we canceled a $7.5 million revolving bank agreement
established in March 2002. At the time of cancellation, no amount was
outstanding under the agreement.
Note 7. Income (Loss) per Common Share
The following table presents a reconciliation of the numerators and
denominators used in the basic and diluted income (loss) per common share
computations. Also shown is the effect that has been given to cumulative
preferred dividends in arriving at the income (loss) applicable to common
shareholders for the three months ended March 31, 2003 and 2002, in computing
basic and diluted income (loss) per common share (dollars and shares in
thousands, except per-share amounts).
14
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Three Months Ended
--------------------
March 31,
2003 2002
-------- --------
Income from continuing operations before cumulative effect of
change in accounting principle and preferred stock dividends $ 5,663 $ 486
Add: Cumulative effect of change in accounting principle 1,072 --
Less: Preferred stock dividends (659) (2,012)
-------- --------
Basic income (loss) applicable to common shareholders $ 6,076 $ (1,526)
Basic weighted average number of common shares outstanding 109,320 73,840
-------- --------
Basic income (loss) per common share $ 0.06 $ (0.02)
======== ========
Basic weighted average number of common shares outstanding 109,320 73,840
Effect of dilutive stock options 675 --
Effect of dilutive warrants 214 --
-------- --------
Diluted weighted average number of common shares 110,209 73,840
======== ========
Basic and diluted income (loss) per common share $ 0.06 $ (0.02)
======== ========
These calculations of diluted income (loss) per share for the three
months ended March 31, 2003 and 2002 exclude the effects of convertible
preferred stock ($37.6 million in 2003 and $115.0 million in 2002), as well as
common stock issuable upon the exercise of various stock options and warrants,
as their conversion and exercise would be antidilutive, as follows:
Three Months Ended
----------------------------
March 31,
2003 2002
----------- -----------
Stock Options 1,328,500 2,308,000
Warrants -- 300,000
Note 8. Business Segments
We are organized and managed primarily on the basis of the principal
products being produced from our operating units. Three of our operating units
have been aggregated into the Silver segment and one into the Gold segment.
General corporate activities not associated with operating units, as well as
idle properties, are presented as "other."
The following tables present information about reportable segments for
the three months ended March 31, 2003 and 2002 (in thousands):
15
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Three Months Ended
March 31,
2003 2002
-------- --------
Net sales to unaffiliated customers:
Silver $ 16,924 $ 12,110
Gold 8,976 11,273
Other 541 --
-------- --------
$ 26,441 $ 23,383
======== ========
Income (loss) from operations:
Silver $ 3,532 $ 465
Gold 1,284 2,745
Other (2,142) (2,039)
-------- ---------
$ 2,674 $ 1,171
======== ========
The following table presents identifiable assets by reportable segment
as of March 31, 2003 and December 31, 2002 (in thousands):
March 31, December 31,
2003 2002
--------- ---------
Identifiable assets:
Silver $ 83,032 $ 82,522
Gold 31,983 40,004
Other 139,485 37,615
--------- ---------
$ 254,500 $ 160,141
========= =========
Note 9. Equity Offering
In January 2003, we completed an underwritten public offering of 23.0
million newly issued shares of our common stock. The public offering also
included 2.0 million shares held by the Hecla Mining Company Retirement Plan and
the Lucky Friday Pension Plan ("the benefit plans"). We received net proceeds
from the offering totaling approximately $91.2 million, which will be used to
fund future exploration and development, working capital requirements, capital
expenditures, possible future acquisitions and for other general corporate
purposes. Our benefit plans realized net proceeds of approximately $8.0 million
from the sale of the 2.0 million shares included in the public offering.
We also filed a Registration Statement with the Securities and Exchange
Commission covering 1,394,883 shares of our common stock held by the benefit
plans and 2,000,000 shares of our common stock issuable upon exercise of a
warrant issued to Great Basin Gold Ltd. ("Great Basin") pursuant to an Earn-in
Agreement concerning exploration, development and
16
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
production in an area of Great Basin's Hollister Development Block gold
property, located on the Carlin Trend in Nevada. The Registration Statement
became effective in January 2003.
Note 10. Stock-Based Plans
At March 31, 2003, executives, key employees and directors had been
granted options to purchase our common shares or were credited with common
shares under the stock-based plans described below. We have adopted the
disclosure-only provisions of SFAS No. 123. No compensation expense has been
recognized during the first quarters of 2003 and 2002 for unexercised options
related to the stock option plans. Had compensation cost for our stock option
plans been determined based on the fair market value at the grant date for
awards during the first quarters of 2003 and 2002 consistent with the provisions
of SFAS No. 123, our income (loss) and per share income (loss) applicable to
common shareholders would have been decreased or increased to the pro forma
amounts indicated below (in thousands, except per share amounts):
March 31, March 31,
2003 2002
------- -------
Income (loss) applicable to common shareholders
As reported $ 6,076 $(1,526)
Stock-based employee compensation expense
included in reported income (loss) 385 61
Total stock-based employee compensation
expense determined under fair value
based methods for all awards (1,053) (142)
------- -------
Pro forma $ 5,408 $(1,607)
======= =======
Income (loss) applicable to common shareholders per
common share:
As reported $ 0.06 $ (0.02)
Pro forma $ 0.05 $ (0.02)
17
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Note 11. New Accounting Pronouncements
In August 2001, the issued SFAS No. 143 "Accounting for Asset
Retirement Obligations," which amends SFAS No. 19, and establishes a uniform
methodology for accounting for estimated reclamation and abandonment costs. This
statement requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The statement was required to be adopted by
January 1, 2003, at which time we recorded an estimated present value of
reclamation liabilities of $5.9 million and increased the carrying value of
related assets by $3.8 million. Also on January 1, 2003, we recorded a gain of
$1.1 million as a cumulative effect of change in accounting principle for the
difference between those amounts and amounts previously recorded in our
consolidated financial statements. Subsequently, reclamation costs will be
allocated to expense over the life of the related assets and will be adjusted
for changes resulting from the passage of time and changes to either the timing
or amount of the original present value estimate underlying the obligation.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" (SFAS No. 145). SFAS No. 145 updates, clarifies and simplifies
existing accounting pronouncements, by rescinding SFAS No. 4, which required all
gains and losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a
result, the criteria in Accounting Principles Board Opinion No. 30 will now be
used to classify those gains and losses. Additionally, SFAS No. 145 amends SFAS
No. 13 to require that certain lease modifications that have economic effects
similar to sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. Finally, SFAS No. 145 also makes technical
corrections to existing pronouncements. While those corrections are not
substantive in nature, in some instances, they may change accounting practice.
The provisions of SFAS No. 145 that amend SFAS No. 13 were effective for
transactions occurring after May 15, 2002, with all other provisions of SFAS No.
145 being required to be adopted by us in January 2003. The adoption of SFAS No.
145 did not have a material impact on our consolidated financial statements.
On July 30, 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing or other exit or disposal activity. SFAS
No. 146 replaces the prior guidance that was provided by EITF Issue No. 94-3
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS
No. 146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The adoption of SFAS No. 146 did not have a material
impact on our consolidated financial statements.
18
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
In December 2002, the FASB issued SFAS No. 148 "Accounting for
Stock-Based Compensation, Transition and Disclosure, an amendment of FASB
Statement No. 123." SFAS No. 148 provides alternative methods of transition for
an entity that voluntarily changes to the fair value based method of accounting
for stock-based employee compensation. It also amends the disclosure provisions
of SFAS No. 123 to require prominent disclosure about the effects of reported
net income of an entity's accounting policy decisions with respect to
stock-based employee compensation. Finally, this statement amends APB Opinion
No. 28, "Interim Financial Reporting," to require disclosure about those effects
in interim financial information. The amendments to SFAS No. 123, which provides
alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation is
effective for financial statements for fiscal years ending after December 15,
2002. The amendment to SFAS No. 123 relating to disclosures and the amendment to
Opinion 28 is effective for financial reports containing condensed financial
statements for interim periods beginning after December 15, 2002. We have
adopted the disclosure-only provisions of SFAS No. 123 and do not intend to
adopt the fair value accounting provisions of SFAS No. 123. The adoption of SFAS
No. 148 did not have a material impact on our financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46)
"Consolidation of Variable Interest Entities, an interpretation of Accounting
Research Bulletin (ARB) No. 51, Consolidated Financial Statements." FIN 46
clarifies the application of ARB No. 51 to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. The
adoption of FIN 46 did not have a material effect on our consolidated financial
statements.
In April 2003, the FASB issued SFAS No. 149 "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 149 is effective for all contracts created or modified
after June 30, 2003. We do not believe the adoption of this standard will have a
material effect on our consolidated financial statements.
19
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
CERTAIN STATEMENTS CONTAINED IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK ARE FORWARD-LOOKING STATEMENTS THAT REFLECT OUR
CURRENT EXPECTATIONS AND PROJECTIONS ABOUT OUR FUTURE RESULTS, PERFORMANCE,
PROSPECTS AND OPPORTUNITIES. WE HAVE TRIED TO IDENTIFY THESE FORWARD-LOOKING
STATEMENTS BY USING WORDS SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE,"
"BELIEVE," "INTEND," "PLAN," "ESTIMATE" AND SIMILAR EXPRESSIONS. THESE
FORWARD-LOOKING STATEMENTS ARE BASED ON INFORMATION CURRENTLY AVAILABLE TO US
AND ARE SUBJECT TO A NUMBER OF RISKS, UNCERTAINTIES AND OTHER FACTORS THAT COULD
CAUSE OUR ACTUAL RESULTS, PERFORMANCE, PROSPECTS OR OPPORTUNITIES TO DIFFER
MATERIALLY FROM THOSE EXPRESSED IN, OR IMPLIED BY, THESE FORWARD-LOOKING
STATEMENTS. THESE RISKS, UNCERTAINTIES AND OTHER FACTORS INCLUDE, BUT ARE NOT
LIMITED TO, THOSE SET FORTH UNDER ITEM 1 - BUSINESS - RISK FACTORS IN OUR ANNUAL
REPORT FILED ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2002.
OTHER MATTERS, INCLUDING UNANTICIPATED EVENTS AND CONDITIONS, ALSO MAY
CAUSE OUR ACTUAL FUTURE RESULTS TO DIFFER MATERIALLY FROM THESE FORWARD-LOOKING
STATEMENTS. THERE CAN BE NO ASSURANCE THAT OUR EXPECTATIONS WILL PROVE TO BE
CORRECT AND UNDUE RELIANCE SHOULD NOT BE PLACED ON THESE FORWARD-LOOKING
STATEMENTS. ALL OF THESE FORWARD-LOOKING STATEMENTS ARE BASED ON OUR
EXPECTATIONS AS OF THE DATE OF THIS FILING. EXCEPT AS REQUIRED BY FEDERAL
SECURITIES LAWS, WE DO NOT INTEND TO UPDATE OR REVISE ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
A 112-year-old company, we have long been known as a precious metals
producer and are principally engaged in the exploration, development, mining and
processing of silver, gold, lead and zinc. We are operated and organized into
two segments, silver and gold, with three operating properties included in the
silver segment (San Sebastian, Greens Creek and Lucky Friday) and one in the
gold segment (La Camorra). The following maps indicate the locations of our
operations:
20
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
[MAP]
We also own or have interests in a number of precious and nonferrous
metals properties. Our strategy for growth is to focus our efforts and resources
on expanding our precious metals reserves through exploration efforts, primarily
on properties we currently own. We will also consider acquisition opportunities
as a component of our growth strategy.
RESULTS OF OPERATIONS
In January 2003, we completed an underwritten public offering of 23.0
million newly issued shares of our common stock, resulting in net cash proceeds
totaling approximately $91.2 million to be used to fund future exploration and
development, working capital requirements, capital expenditures, possible future
acquisitions and for other general corporate purposes. For additional
information regarding the public offering, see Note 9 of Notes to Consolidated
Financial Statements.
During the first quarter of 2003, we recorded income applicable to
common shareholders of approximately $6.1 million, or $0.06 per common share,
compared to a loss applicable to common shareholders of $1.5 million, or $0.02
per common share, during the first quarter of 2002. Included in the income
(loss) applicable to common shareholders were undeclared and unpaid preferred
stock dividends of $0.7 million and $2.0 million, respectively. The variance in
preferred stock dividends quarter-on-quarter is due to a preferred stock
exchange offer completed during the third quarter of 2002, pursuant to which
67.2% of the preferred shares outstanding at the time (2.3 million) were
exchanged for shares of common stock (seven shares of common for every share of
preferred).
21
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Included in the income for 2003 is a $4.0 million cash settlement from
Zemex Corporation for its subsidiary's failure to close on its agreement to
purchase the Kentucky-Tennessee Clay Company, Kentucky-Tennessee Clay de Mexico
and certain other minor inactive industrial minerals companies (collectively the
K-T Group) in January 2001. In November 2000, we entered into an agreement with
Zemex U.S. Corporation, guaranteed by its parent, Zemex Corporation, to sell the
stock of the K-T Group for a price of $68.0 million. For additional information
on the settlement from Zemex Corporation, see Note 5 of Notes to Consolidated
Financial Statements.
Also included in the income for 2003 is a positive cumulative effect of
a change in accounting principle of $1.1 million relating to the adoption of
SFAS No. 143 "Accounting for Asset Retirement Obligations," which established a
uniform methodology for accounting for estimated reclamation and abandonment
costs. This statement was adopted on January 1, 2003, and required the fair
value of a liability for an asset retirement obligation be recognized in the
period in which it is incurred. The gain of $1.1 million recognized as a
cumulative effect of change in accounting principle represents the difference
between the amounts determined under SFAS No. 143 and amounts previously
recorded in our consolidated financial statements. For additional information,
see Note 11 of Notes to Consolidated Financial Statements.
Reflected in the loss applicable to common shareholders during the
first quarter of 2002 is a loss from discontinued operations of $0.5 million, or
$0.01 per common share. In March 2003, we sold the remaining inventories of the
briquette division of the Colorado Aggregate division ("CAC") of MWCA, Inc., and
no longer produce or sell any product from our former industrial minerals
segment. The briquette division of CAC represented the remaining portion of our
industrial minerals segment, which reported income from operations of
approximately $6,000 for the first three months of 2003. All activity associated
with the former industrial minerals segment during the first quarter of 2003 is
considered a general corporate activity and is presented as "other" where
appropriate. For additional information, see Note 2 of Notes to Consolidated
Financial Statements.
Silver Operations and Production
For the quarter ended March 31, 2003, the silver segment reported
income from operations of $3.5 million compared to income from operations of
$0.5 million for the quarter ended March 31, 2002. Sales of products increased
by $4.8 million and cost of sales and other direct production costs as a
percentage of sales from products decreased to 60.7% in the first quarter of
2003, from 71.0% in the first quarter of 2002.
The improvements in the silver segment are primarily a result of a
consolidated 19.3% increase in silver production and an increase in the price of
gold and silver compared to the first quarter of 2002. Silver production for the
first quarter of 2003 totaled 2.4 million ounces, compared to 2.0 million ounces
in the same period during 2002. The average total cash cost decreased 32.4%,
22
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
from $2.47 per silver ounce for the first quarter of 2002 to $1.67 per silver
ounce during the first quarter of 2003. Gold is a significant by-product of our
silver operations, which contributed dramatically to the cash costs per ounce
variance during the comparable periods due to increased gold production and a
higher average gold price.
Total silver ounces produced, total cash and total production costs and
average metals prices were as follows:
Three Months Ended
March 31,
-------------------------
2003 2002
-------------------------
Silver ounces produced (in thousands) 2,398 2,010
Total cash costs per ounce ($/oz.)(1,2) 1.67 2.47
Total production costs per ounce ($/oz.)(1,2) 2.83 4.02
Average Metals Prices:
Silver-Handy & Harman ($/oz.) 4.69 4.51
Gold-London Final ($/oz.) 352 290
Lead-LME Cash ($/pound) 0.208 0.223
Zinc-LME Cash ($/pound) 0.357 0.360
(1) Includes by-product credits from gold, lead and zinc production and are
calculated pursuant to standards of the Gold Institute.
(2) Cash costs per ounce of silver or gold represent non-U.S. Generally Accepted
Accounting Principles (GAAP) measurements that management uses to monitor
and evaluate the performance of its mining operations. We believe cash costs
per ounce of silver or gold provide an indicator of profitability at each
location and on a consolidated total, as well as a meaningful basis for
which to compare other mining companies and other mining operating
properties. A reconciliation of this non-GAAP measure to cost of sales and
other direct production costs, the most comparable GAAP measure, can be
found immediately following this table.
23
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
The following table presents a reconciliation between non-GAAP total
cash costs to cost of sales and other direct production costs (GAAP) for the
silver segment for the three months ended March 31, 2003 and 2002 (in thousands,
except costs per ounce). Cost of sales and other direct production costs is the
most comparable financial measure calculated in accordance with GAAP to total
cash costs. The sum of the cost of sales and other direct production costs for
our gold and silver segments is presented in our Consolidated Statement of
Operations and Comprehensive Income (Loss).
Three months ended March 31, 2003
-----------------------------------------------------------
Lucky San Greens
Total Friday Sebastian Creek
-----------------------------------------------------------
Total cash costs $ 4,005 $ 2,840 $ (72) $ 1,237
Divided by ounces produced 2,398 635 1,022 741
-----------------------------------------------------------
Total cash cost per ounce produced $ 1.67 $ 4.47 $ (0.07) $ 1.67
===========================================================
Reconciliation to GAAP:
Total cash costs 4,005 2,840 (72) 1,237
Reclamation 233 9 152 72
Treatment & freight costs (4,654) (1,155) (510) (2,989)
By-product credits 10,891 1,315 4,062 5,514
Change in product inventory (250) 25 18 (293)
Other costs (8) -- -- --
-----------------------------------------------------------
Cost of sales and other direct
production costs (GAAP) $ 10,217 $ 3,034 $ 3,650 $ 3,541
===========================================================
24
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Three months ended March 31, 2002
----------------------------------------------------------
Lucky San Greens
Total Friday Sebastian Creek
----------------------------------------------------------
Total cash costs $ 4,956 $ 2,210 $ 1,164 $ 1,582
Divided by ounces produced 2,010 412 769 829
----------------------------------------------------------
Total cash cost per ounce produced $ 2.47 $ 5.36 $ 1.51 $ 1.91
==========================================================
Reconciliation to GAAP:
Total cash costs 4,956 2,210 1,164 1,582
Reclamation 267 21 99 147
Treatment & freight costs (4,403) (764) (545) (3,094)
By-product credits 8,553 840 2,636 5,077
Change in product inventory (836) 17 39 (892)
Other costs 60 -- -- --
----------------------------------------------------------
Cost of sales and other direct
production costs (GAAP) $ 8,597 $ 2,324 $ 3,393 $ 2,820
==========================================================
For the quarter ended March 31, 2003, the San Sebastian mine, located
in the State of Durango, Mexico, reported sales of $8.4 million compared to $5.4
million in the same period of 2002, primarily due to increased production
results from significantly higher gold and silver ore grades, as well as higher
average gold and silver prices. San Sebastian commenced mining operations in May
2001 and reached full capacity during the second quarter of 2002. During the
first three months of 2003, San Sebastian produced approximately 1.0 million
ounces of silver and over 11,500 ounces of gold, compared to approximately 0.8
million and 9,000 ounces, respectively, of silver and gold during the first
three months of 2002. The total cash cost at San Sebastian decreased 105% from
the first quarter of 2002 to a negative $0.07 per silver ounce during the first
quarter of 2003, due in part to significant by-product credits from increased
gold production and a higher average gold price. Silver and gold production at
San Sebastian is estimated to be approximately 3.8 million ounces and 35,000
ounces, respectively, for the year ended December 31, 2003.
The Greens Creek mine, a 29.73%-owned joint-venture arrangement with
Kennecott Greens Creek Mining Company located on Admiralty Island, near Juneau,
Alaska, reported sales of $5.5 million for the quarter ended March 31, 2003, as
compared to $4.7 million during the same period in 2002, primarily due to
increased metals prices. Greens Creek's silver production during the first
quarter of 2003 was approximately 0.7 million ounces, compared to 0.8 million
ounces in 2002, with gold production of over 6,800 ounces during the first
quarter of 2003, compared to almost 7,100 ounces of gold during the same period
in 2002. Lead and zinc ton production increased
25
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
approximately 2% and 5%, respectively, in the first quarter of 2003 as compared
to the 2002 period. The total cash cost per silver ounce decreased from $1.91 in
the first three months of 2002 to $1.67 in the first three months of 2003,
primarily due to the increased by-product credits from a higher average gold
price during 2003. For the year ending December 31, 2003, production is
forecasted to total approximately 3.3 million silver ounces, 30,000 ounces of
gold and 8,000 and 24,000 tons of lead and zinc, respectively.
The Lucky Friday mine, located in northern Idaho and a producing mine
for Hecla since 1958, reported sales of approximately $3.1 million for the
quarter ended March 31, 2003, as compared to $2.0 million during the same period
in 2002. Silver production during the first quarter of 2003 was approximately
0.6 million ounces, a 54% increase over the same period in 2002, primarily the
result of a change in mine plan during January 2002 causing a short-term
increase in development and a resultant drop in ore tons mined during the 2002
period, as well as a 13% increase in silver ore grade during the first quarter
of 2003. For the first quarters of 2003 and 2002, the total cash cost per silver
ounce was $4.47 and $5.36, respectively. For the year ending December 31, 2003,
production is forecasted to total approximately 1.9 million silver ounces and
14,000 tons of lead.
Gold Operations and Production
We currently operate the La Camorra mine, located in the eastern
Venezuelan State of Bolivar, approximately 120 miles southeast of Puerto Ordaz.
At the present time, La Camorra is our sole gold operating unit.
Sales of product decreased by $2.3 million, while cost of sales and
other direct production costs as a percentage of sales from products decreased
to 42.7% during the first quarter of 2003, from 49.6% in the first quarter of
2002. The decrease in sales is primarily due to a 13% decrease in gold ounces
produced, compared to the same period in 2002, offset by increases in the
average market price of gold, which increased 21% from a year ago. The decrease
to cost of sales and other direct production costs as a percentage of sales, for
the quarter period is primarily due to the impact of higher gold prices during
the 2003 period.
During the first three months of 2003, La Camorra has produced
approximately 35,000 ounces of gold at a total cash cost of $137 per gold ounce,
compared to approximately 40,000 ounces at a total cash cost of $137 during the
first three months of 2002. Compared to actual gold production at La Camorra
during 2002, which had an average grade of 0.89 ounce of gold per ton and
reached over 167,000 ounces for the year ended December 31, 2002, gold
production is projected to reach approximately 150,000 ounces at an average
grade of 0.74 ounce of gold per ton for the year ending December 31, 2003.
During the first quarter of 2003 and 2002, the average grade remained
approximately the same at 0.82 ounce of gold per ton.
26
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Total gold ounces produced, total cash and total production costs and
average gold realized and London Final prices were as follows:
Three Months Ended
March 31,
------------------
2003 2002
------------------
Gold ounces produced (in thousands):
La Camorra 35 40
San Sebastian 12 9
Greens Creek(1) 7 7
Total cash costs per ounce ($/oz.)(2,3) 137 137
Total production costs per ounce ($/oz.)(2,3) 206 207
Average Metals Prices:
Gold-Realized ($/oz.) 333 295
Gold-London Final ($/oz.) 352 290
(1) Reflects our portion.
(2) Costs per ounce of gold are based on the gold produced by the
gold segment only. Gold produced in the silver segment (San
Sebastian and Greens Creek) is treated as a by-product credit in
calculating silver costs per ounce.
(3) Cash costs per ounce of silver or gold represent non-U.S. GAAP
measurements that management uses to monitor and evaluate the
performance of our mining operations and is calculated pursuant
to standards of the Gold Institute. We believe cash costs per
ounce of silver or gold provide an indicator of profitability at
each location and on a consolidated total, as well as a
meaningful basis for which to compare other mining companies and
other mining operating properties. A reconciliation of this
non-GAAP measure to cost of sales and other direct production
costs, the most comparable GAAP measurement, can be found
immediately following this table.
The following table presents a reconciliation between non-GAAP total
cash costs to cost of sales and other direct production costs (GAAP) for the La
Camorra mine for the three months ended March 31, 2003 and 2002 (in thousands,
except costs per ounce). The sum of the cost of sales and other direct
production costs for our gold and silver segments is presented in our
Consolidated Statement of Operations and Comprehensive Income (Loss).
27
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Three Months
Ended
March 31,
2003 2002
------- -------
Total cash costs $ 4,785 $ 5,499
Divided by ounces produced 35 40
------- -------
Total cash cost per ounce produced $ 137 $ 137
======= =======
Reconciliation to GAAP:
Total cash costs 4,785 5,499
Reclamation 52 93
Treatment & freight costs (347) (379)
Change in product inventory (659) 248
Other costs -- 33
------- -------
Cost of sales and other direct
production costs (GAAP) $ 3,831 $ 5,494
======= =======
Venezuela recently experienced an approximate two-month long general
strike ending in February 2003. The result of the strike included shortages of
oil and gas supplies in Venezuela and a severe economic downturn. We continued
to operate the La Camorra mine during the general strike and were able to obtain
adequate supplies, including oil and gas for our operations. Although we believe
we will be able to manage and operate our La Camorra mine and related
exploration projects successfully, due to the continued political, regulatory
and economic uncertainty and its ramifications on exchange controls, labor
stoppages and supplies of oil, gas and other products, there can be no assurance
we will be able to operate without interruptions to our operations.
Following the general strike in Venezuela, the Venezuelan government
announced its intent to implement exchange controls on foreign currency
transactions. Rules and regulations regarding the implementation of exchange
controls in Venezuela have not been finalized. Since February 2003, the
Venezuelan government-fixed exchange rate has been 1,597 bolivares to one U.S.
dollar, which is the exchange rate we utilized to translate the financial
statements of our Venezuelan subsidiary, which is included in our consolidated
financial statements. In some instances, the exchange controls have required us
to convert United States dollars into bolivares. Management is actively
monitoring the implementation of exchange controls in Venezuela and believes
there has been no material effect on our operations, although there can be no
assurance that the implementation of exchange controls will not affect our
operations in Venezuela in the future.
28
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Corporate Matters
Interest and other income increased $4.2 million in the first quarter
ending March 31, 2003, compared to the same period in 2002, primarily due to a
cash settlement from Zemex Corporation as discussed above ($4.0 million),
interest income generated from an increased cash balance due to the public
offering in January 2003 ($0.2 million), as well as a gain on the sale of fixed
assets during 2003, including a portion of the deferred gain on the sale of our
headquarters building in 2002 ($0.2 million).
Exploration expense increased $1.6 million in the first quarter ending
March 31, 2003, compared to the same period in 2002, primarily due to increased
exploration expenditures in Venezuela at the La Camorra mine ($0.4 million) and
Block B concessions ($0.4 million); in Mexico at or near the San Sebastian mine
($0.3 million); at the Hollister Development Block in Nevada ($0.4 million); and
at the Greens Creek mine in Alaska ($0.1 million).
We estimate that exploration expenditures for the remainder of 2003
will be in the range of $10.0 million to $13.0 million, principally for
continued drilling in Venezuela and Mexico and permitting activities at the
Hollister Development Block in Nevada. In Venezuela, exploration will focus on
the Block B concessions, Canaima and the Main and Betzy veins, all within
trucking distance of the La Camorra mill. In Mexico, exploration will focus on
the Don Sergio vein and other targets surrounding the San Sebastian mine. By the
end of 2003, providing favorable outcomes from feasibility studies and
permitting, we could begin underground ramp development at Block B, Canaima, the
Hollister Development Block and Don Sergio , as well as a shaft to the Main and
Betsy veins.
Miscellaneous expense increased $0.3 million in the three months ending
March 31, 2003, compared to the same period in 2002, primarily due to foreign
exchange variances in Mexico and Venezuela ($0.3 million).
General and administrative expenses increased $0.2 million in the first
three months of 2003 compared to the first three months of 2002.
Interest expense decreased $0.1 million in the first three months of
2003 compared to the first three months of 2002, principally due to lower
average borrowings and lower interest rates on debt.
FINANCIAL CONDITION AND LIQUIDITY
Our financial condition improved considerably during the first quarter
of 2003 due to the completion of an underwritten public offering of 23.0 million
shares of our common stock in January 2003, which resulted in net cash proceeds
of approximately $91.2 million. At March 31, 2003, we held cash and cash
equivalents of $113.6 million (compared to $19.5 million at
29
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
December 31, 2002), with a current ratio of 4.73 to 1. For additional
information regarding the public offering, see Note 9 of Notes to Consolidated
Financial Statements.
We believe cash requirements over the next twelve months will be funded
through a combination of current cash, future cash flows from operations and/or
future debt or equity security issuances. Although we believe existing cash and
cash equivalents are adequate, we cannot project the cash impact of possible
future investment opportunities or acquisitions, and our operating properties
may require more cash than forecasted.
Contractual Obligations and Contingent Liabilities and Commitments
The table below presents our contractual obligations and commitments
primarily with regards to payment of debt, certain capital expenditures and
lease arrangements (in thousands). For additional information on debt
outstanding, see Note 6 of Notes to Consolidated Financial Statements.
Payments Due By Period
-------------------------------------------------------------------------
Contractual obligations 2003 2004 2005 2006 2007 Total
-------------------------------------------------------------------------
Debt $ 8,309 $ 2,332 $ 1,366 $ 959 $ -- $ 12,966
Capital expenditure commitments 1,000 -- -- -- -- 1,000
Operating lease commitments 456 534 506 482 117 2,095
-------------------------------------------------------------------------
Total contractual cash obligations $ 9,765 $ 2,866 $ 1,872 $ 1,441 $ 117 $ 16,061
=========================================================================
We maintain reserves for costs associated with mine closure,
reclamation of land and other environmental matters. At March 31, 2003, our
reserves for these matters totaled $49.5 million, for which no contractual or
commitment obligations exist. Future expenditures related to closure,
reclamation and environmental expenditures are difficult to estimate, although
we anticipate we will make expenditures relating to these reserves over the next
five to ten years. During 2003, expenditures for environmental remediation and
reclamation are estimated to be in the range of $6.0 million and $8.0 million.
For additional information relating to our environmental obligations, see Note 5
of Notes to Consolidated Financial Statements.
Operating Activities
Operating activities provided approximately $4.8 million in cash during
the first quarter of 2003, primarily from cash provided by La Camorra, San
Sebastian and Greens Creek. Significant uses of cash included accounts payable
and other accrued expenses ($2.8 million), reductions in accrued payroll ($2.5
million), increases in inventories ($0.9 million) and changes in other current
and noncurrent assets ($0.4 million), offset by changes in accounts and notes
receivable ($0.3 million). Principal noncash elements included charges for
depreciation, depletion and amortization of $4.9 million and a change in
deferred income taxes ($0.7 million),
30
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
offset by a cumulative effect of change in accounting principle upon adoption of
SFAS No. 143 ($1.1 million).
Venezuela recently experienced an approximate two-month long general
strike ending in February 2003. The result of the strike included shortages of
oil and gas supplies in Venezuela and a severe economic downturn. We continued
to operate the La Camorra mine during the general strike and were able to obtain
adequate supplies, including oil and gas for our operations. Although we believe
we will be able to manage and operate our La Camorra mine and related
exploration projects successfully, due to the continued political, regulatory
and economic uncertainty and its ramifications on exchange controls, labor
stoppages and supplies of oil, gas and other products, there can be no assurance
we will be able to operate without interruptions to our operations.
Following the general strike in Venezuela, the Venezuelan government
announced its intent to implement exchange controls on foreign currency
transactions. Rules and regulations regarding the implementation of exchange
controls in Venezuela have not been finalized. Since February 2003, the
Venezuelan government-fixed exchange rate has been 1,597 bolivares to one U.S.
dollar, which is the exchange rate we utilized to translate the financial
statements of our Venezuelan subsidiary, which is included in our consolidated
financial statements. In some instances, the exchange controls have required us
to convert United States dollars into bolivares. Management is actively
monitoring the implementation of exchange controls in Venezuela and believes
there has been no material affect on our operations, although there can be no
assurance that the implementation of exchange controls will not effect our
operations in Venezuela in the future.
Investing Activities
Investing activities required $3.1 million in cash during the first
quarter of 2003 primarily for additions to properties, plants and equipment
($2.0 million) at the San Sebastian ($0.9 million), La Camorra ($0.8 million)
and Greens Creek ($0.3 million) mines and a $1.4 million increase in current
restricted investments deposited as security for a newly established short-term
line of credit for national currency in Venezuela, offset by proceeds received
on the sale of fixed assets of $0.3 million.
In 2003, we estimate our capital expenditures will be in the range of
$16.0 to $20.0 million. The lower end of the range of capital expenditures in
2003 represents sustaining capital at our existing operations, equipment
acquisitions at the San Sebastian mine in Mexico and at the Hollister
Development Block in Nevada, and a custom milling project at the La Camorra mine
in Venezuela. The upper end of the estimate includes other possible capital
projects, including commencement of a project to construct a shaft at the La
Camorra mine in Venezuela and other possible development activities. In March,
we made a payment of $1.3 million for our acquisition of the Block B lease in
Venezuela during 2002, and anticipate making the final
31
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
$1.0 million payment in September 2003. There can be no assurance that our
estimated capital expenditures for 2003 will be in the range we have projected.
Financing Activities
During the first quarter of 2003, financing activities generated
approximately $92.3 million in cash due to the public offering in January for
$91.2 million and short-term borrowings on a line of credit for national
currency in Venezuela ($1.4 million), offset slightly by the repayment of
project financing debt ($0.3 million).
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make a wide variety
of estimates and assumptions that affect (i) the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements, and (ii) the reported amounts of revenues and
expenses during the reporting periods covered by the financial statements. Our
management routinely makes judgments and estimates about the effect of matters
that are inherently uncertain. As the number of variables and assumptions
affecting the future resolution of the uncertainties increases, these judgments
become even more subjective and complex. We have identified certain accounting
policies that are most important to the portrayal of our current financial
condition and results of operations.
Revenue Recognition
Sales of metals products sold directly to smelters are recorded when
title and risk of loss transfer to the smelter at current spot metals prices.
Due to the time elapsed from the transfer to the smelter and the final assay
settlement with the smelter (generally three months), we must estimate the price
at which our metals will be sold in reporting our profitability and cash flow.
Recorded values are adjusted monthly until final settlement at month-end metals
prices. If there was a significant variance in estimated metals prices or assays
compared to the final actual metals prices and assays, our monthly results of
operations could be affected. Sales of metal in products tolled, rather than
sold to smelters, are recorded at contractual amounts when title and risk of
loss transfer to the buyer.
Changes in the market price of metals significantly affect our
revenues, profitability and cash flow. Metals prices can and often do fluctuate
widely and are affected by numerous factors beyond our control, such as
political and economic conditions, demand, forward selling by producers,
expectations for inflation, central bank sales, the relative exchange rate of
the U.S. dollar, purchases and lending, investor sentiment, and global mine
production levels. The aggregate effect of these factors is impossible to
predict. Because a significant portion of our revenues is derived from the sale
of silver, gold, lead and zinc, our earnings are directly related
32
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
to the prices of these metals. If the market price for these metals falls below
our total production costs, we will experience losses on such sales.
Proven and Probable Ore Reserves
On a periodic basis, management reviews the reserves that reflect
estimates of the quantities and grades of ore at our mines which management
believes can be recovered and sold at prices in excess of the total cost
associated with extraction and processing the ore. Management's calculations of
Proven and Probable ore reserves are based on in-house engineering and
geological estimates using current operating costs, metals prices and demand for
our products. Periodically, management obtains external determinations of
reserves.
Reserve estimates will change as existing reserves are depleted through
production, as well as changes in estimates caused by changing production cost
and/or metals prices. Changes in reserves may also reflect that grades of ore
fed to process may be different from stated reserve grades because of variation
in grades in areas mined, mining dilution and other factors. Reserves estimated
for properties that have not yet commenced production may require revision based
on actual production experience.
Declines in the market price of metals, as well as increased production
or capital costs or reduced recovery rates, may render ore reserves uneconomic
to exploit unless the utilization of forward sales contracts or other hedging
techniques is sufficient to offset such effects. If our realized price for the
metals we produce, including hedging benefits, were to decline substantially
below the levels set for calculation of reserves for an extended period, there
could be material delays in the development of new projects, net losses, reduced
cash flow, restatements or reductions in reserves and asset write-downs in the
applicable accounting periods. Reserves should not be interpreted as assurances
of mine life or of the profitability of current or future operations. No
assurance can be given that the estimate of the amount of metal or the indicated
level of recovery of these metals will be realized.
Depreciation and Depletion
Depreciation is based on the estimated useful lives of the assets and
is computed using straight-line and unit-of-production methods. Depletion is
computed using the unit-of-production method. The unit-of-production method is
based on Proven and Probable ore reserves. As discussed above, our estimates of
Proven and Probable ore reserves may change, possibly in the near term,
resulting in changes to depreciation, depletion, amortization and reclamation
accrual rates in future reporting periods.
Impairment of Long-Lived Assets
Management reviews the net carrying value of all facilities, including
idle facilities, on a periodic basis. We estimate the net realizable value of
each property based on the estimated
33
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
undiscounted future cash flows that will be generated from operations at each
property, the estimated salvage value of the surface plant and equipment and the
value associated with property interests. These estimates of undiscounted future
cash flows are dependent upon the future metals price estimates over the
estimated remaining mine life. If undiscounted cash flows are less than the
carrying value of a property, an impairment loss is recognized based upon the
estimated expected future cash flows from the property discounted at an interest
rate commensurate with the risk involved.
Management's estimates of metals prices, recoverable Proven and
Probable ore reserves, and operating, capital and reclamation costs are subject
to risks and uncertainties of change affecting the recoverability of our
investment in various projects. Although management believes it has made a
reasonable estimate of these factors based on current conditions and
information, it is reasonably possible that changes could occur in the near term
which could adversely affect management's estimate of net cash flows expected to
be generated from our operating properties and the need for asset impairment
write-downs.
Environmental Matters
When it is probable that such costs will be incurred and they are
reasonably estimable, we accrue costs associated with environmental remediation
obligations at the most likely estimate. Accruals for estimated losses from
environmental remediation obligations generally are recognized no later than
completion of the remedial feasibility study for such facility and are charged
to provision for closed operations and environmental matters. We periodically
review our accrued liabilities for such remediation costs as evidence becomes
available indicating that our remediation liability has potentially changed.
Costs of future expenditures for environmental remediation are not discounted to
their present value unless subject to a contractually obligated fixed payment
schedule. Such costs are based on management's current estimate of amounts that
are expected to be incurred when the remediation work is performed within
current laws and regulations. Recoveries of environmental remediation costs from
other parties are recorded as assets when their receipt is deemed probable.
Future closure, reclamation and environment-related expenditures are
difficult to estimate in many circumstances due to the early stages of
investigation, uncertainties associated with defining the nature and extent of
environmental contamination, the uncertainties relating to specific reclamation
and remediation methods and costs, application and changing of environmental
laws, regulations and interpretations by regulatory authorities and the possible
participation of other potentially responsible parties. Reserves for closure
costs, reclamation and environmental matters totaled $49.5 million at March 31,
2003. We anticipate that expenditures relating to these reserves will be made
over the next five to ten years. It is reasonably possible that the ultimate
cost of remediation could change in the future and that changes to these
estimates could have a material effect on future operating results as new
information becomes known.
34
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
NEW ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations," which amends SFAS No. 19, and establishes a uniform
methodology for accounting for estimated reclamation and abandonment costs. This
statement requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The statement was required to be adopted by
January 1, 2003, at which time we recorded an estimated present value of
reclamation liabilities of $5.9 million and increased the carrying value of
related assets by $3.8 million. Also on January 1, 2003, we recorded a gain of
$1.1 million as a cumulative effect of change in accounting principle for the
difference between those amounts and amounts previously recorded in our
consolidated financial statements. Subsequently, reclamation costs will be
allocated to expense over the life of the related assets and will be adjusted
for changes resulting from the passage of time and changes to either the timing
or amount of the original present value estimate underlying the obligation.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" (SFAS No. 145). SFAS No. 145 updates, clarifies and simplifies
existing accounting pronouncements, by rescinding SFAS No. 4, which required all
gains and losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a
result, the criteria in Accounting Principles Board Opinion No. 30 will now be
used to classify those gains and losses. Additionally, SFAS No. 145 amends SFAS
No. 13 to require that certain lease modifications that have economic effects
similar to sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. Finally, SFAS No. 145 also makes technical
corrections to existing pronouncements. While those corrections are not
substantive in nature, in some instances, they may change accounting practice.
The provisions of SFAS No. 145 that amend SFAS No. 13 were effective for
transactions occurring after May 15, 2002, with all other provisions of SFAS No.
145 being required to be adopted by us in January 2003. The adoption of SFAS No.
145 did not have a material impact on our consolidated financial statements.
On July 30, 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing or other exit or disposal activity. SFAS
No. 146 replaces the prior guidance that was provided by EITF Issue No. 94-3
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS
No. 146 is to be applied prospectively to exit or disposal
35
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
activities initiated after December 31, 2002. The adoption of SFAS No. 146 did
not have a material impact on our consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148 "Accounting for
Stock-Based Compensation, Transition and Disclosure, an amendment of FASB
Statement No. 123." SFAS No. 148 provides alternative methods of transition for
an entity that voluntarily changes to the fair value based method of accounting
for stock-based employee compensation. It also amends the disclosure provisions
of SFAS No. 123 to require prominent disclosure about the effects of reported
net income of an entity's accounting policy decisions with respect to
stock-based employee compensation. Finally, this statement amends APB Opinion
No. 28, "Interim Financial Reporting," to require disclosure about those effects
in interim financial information. The amendments to SFAS No. 123, which provides
alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation is
effective for financial statements for fiscal years ending after December 15,
2002. The amendment to SFAS No. 123 relating to disclosures and the amendment to
Opinion 28 is effective for financial reports containing condensed financial
statements for interim periods beginning after December 15, 2002. We have
adopted the disclosure-only provisions of SFAS No. 123 and do not intend to
adopt the fair value accounting provisions of SFAS No. 123. The adoption of SFAS
No. 148 did not have a material impact on our financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46)
"Consolidation of Variable Interest Entities, an interpretation of Accounting
Research Bulletin (ARB) No. 51, Consolidated Financial Statements." FIN 46
clarifies the application of ARB No. 51 to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. The
adoption of FIN 46 did not have a material effect on our consolidated financial
statements.
In April 2003, the FASB issued SFAS No. 149 "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 149 is effective for all contracts created or modified
after June 30, 2003. We do not believe the adoption of this standard will have a
material effect on our consolidated financial statements.
OTHER
Holders of the preferred shares are entitled to receive cumulative cash
dividends at the annual rate of $3.50 per share payable quarterly, when and if
declared by the board of directors and have voting rights related to certain
amendments to our Certificate of Incorporation. As of January 31, 2002, we had
not declared and paid the equivalent of six quarterly dividends, entitling
holders of the preferred shares to elect two directors at our annual
shareholders' meeting. On May 10, 2002, holders of the preferred shares, voting
as a class, elected two additional directors. One of our two directors elected
by holders of Series B preferred stock resigned from our board of directors in
October 2002 to avoid any appearance of conflict of interest as a result of a
new position as a research analyst. In order to fill the resulting vacancy, the
remaining director elected by the holders of Series B preferred stock will name
a new director, currently anticipated to be named during 2003.
36
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
We filed a Registration Statement with the Securities and Exchange
Commission (SEC) covering 1,394,883 shares of our common stock held by the
benefit plans and 2.0 million shares of our common stock issuable upon exercise
of a warrant issued to Great Basin Gold Ltd. (Great Basin) pursuant to an
Earn-in Agreement concerning exploration, development and production in an area
of Great Basin's Hollister Development Block gold property, located on the
Carlin Trend in Nevada. The Registration Statement became effective in January
2003. For additional information, see Note 9 of Notes to Consolidated Financial
Statements.
For information on hedged positions and derivative instruments, see
Item 3 "Quantitative and Qualitative Disclosure About Market Risk."
37
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The following discussion about our risk-management activities includes
forward-looking statements that involve risk and uncertainties, as well as
summarize the financial instruments and derivative instruments held by us at
March 31, 2003, which are sensitive to changes in interest rates and commodity
prices and are not held for trading purposes. Actual results could differ
materially from those projected in the forward-looking statements. We believe
there has not been a material change in its market risk since the end of our
last fiscal year. In the normal course of business, we also face risks that are
either nonfinancial or nonquantifiable (See Part I, Item 1 - Risk Factors in our
2002 Annual Report on Form 10-K).
Interest-Rate Risk Management
At March 31, 2003, our debt was subject to changes in market interest
rates and was sensitive to those changes. We currently have no derivative
instruments to offset the risk of interest rate changes. We may choose to use
derivative instruments, such as interest rate swaps, to manage the risk
associated with interest rate changes.
The following table presents principal cash flows (in thousands) for
debt outstanding at March 31, 2003, by maturity date and the related average
interest rate. The variable rates are estimated based on implied forward rates
in the yield curve at the reporting date.
Expected Maturity Date
--------------------------------------------------- Fair
2003 2004 2005 2006 2007 Total Value
-------------------------------------------------------------------------
Subordinated debt $ 2,000 $ 1,000 -- -- -- $ 3,000 $ 3,000
Average interest rate 5.2% 6.2% -- -- --
Project financing debt $ 3,000 $ 500 -- -- -- $ 3,500 $ 3,500
Average interest rate 3.7% 4.7% -- -- --
Project financing debt $ 1,959 $ 832 $ 1,366 $ 959 -- $ 5,116 $ 5,116
Average interest rate 13% 13% 13% 13% --
Line of credit $ 1,350 -- -- -- -- $ 1,350 $ 1,350
Average interest rate 33% -- -- -- --
38
Commodity-Price Risk Management
We use commodity forward sales commitments, commodity swap contracts
and commodity put and call option contracts to manage our exposure to
fluctuation in the prices of certain metals which we produce. Contract positions
are designed to ensure that we will receive a defined minimum price for certain
quantities of our production. We use these instruments to reduce risk by
offsetting market exposures. We are exposed to certain losses, generally the
amount by which the contract price exceeds the spot price of a commodity, in the
event of nonperformance by the counterparties to these agreements. The
instruments held by us are not leveraged and are held for purposes other than
trading. These contracts meet the criteria to be treated as normal sales in
accordance with SFAS No. 138 and as a result, these contracts are not required
to be accounted for as derivatives under SFAS No. 133.
The following table provides information about our forward sales
contracts at March 31, 2003. The table presents the notional amount in ounces,
the average forward sales price and the total-dollar contract amount expected by
the maturity dates, which occur between June 30, 2003, and December 31, 2004.
Expected Maturity Date Estimated
---------------------- Fair
2003 2004 Value
-------- --------- --------
Forward contracts:
Gold sales (ounces) 44,801 48,928
Future price (per ounce) $ 288 $ 288
Contract amount (in $000's) $ 12,914 $ 14,103 $ (4,804)
Estimated % of annual production
committed to contracts 25% 25%
In addition to the above contracts, we have a quarterly Gold Lease Rate
Swap at a fixed rate of 1.5% on 78,728 ounces of the above gold forward
contracts. The ounces covered under the swap are adjusted each quarter, in
accordance with the expiration of the gold forward contracts. At March 31, 2003,
the fair market value of the Gold Lease Rate Swap was approximately $253,000,
which represents the amount the counterparty would have to pay us if the
contract was terminated.
39
Item 4. Controls and Procedures
An evaluation was performed under the supervision and with the
participation of the Company's management, including the Chief Executive Officer
("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design
and operation of the Company's disclosure controls and procedures. Based on that
evaluation, the Company's management, including the CEO and CFO, concluded the
Company's disclosure controls and procedures were effective as of March 31,
2003, in ensuring that all material information required to be filed in this
quarterly report has been made known to them in a timely fashion.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to March 31, 2003.
40
Part II - Other Information
Hecla Mining Company and Subsidiaries
Item 1. Legal Proceedings
For information concerning legal proceedings, refer to Note 5 of Notes
to Consolidated Financial Statements.
Item 3. Defaults Upon Senior Securities
As of March 31, 2003, we have not declared or paid $7.3 million of
Series B Convertible Preferred stock dividends.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See the exhibit index to this Form 10-Q for the list of exhibits.
(b) Reports on Form 8-K
Form 8-K, dated May 1, 2003, announcing first quarter 2003 earnings in
a news release.
Items 2,4 and 5 of Part II are not applicable and are omitted from this report.
41
Hecla Mining Company and Subsidiaries
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HECLA MINING COMPANY
(Registrant)
Date: May 9, 2003 By /s/ Arthur Brown
Arthur Brown, Chairman and
Chief Executive Officer
(principle executive officer)
Date: May 9, 2003 By /s/ Phillips S. Baker, Jr.
Phillips S. Baker, Jr., President,
Chief Operating Officer, Chief
Financial Officer and Director
(principle financial officer)
Date: May 9, 2003 By /s/ Lewis E. Walde
Lewis E. Walde, Vice President -
Controller and Treasurer
Financial Officer and Director
(principle accounting officer)
42
Hecla Mining Company and Subsidiaries
CERTIFICATIONS
I, Arthur Brown, Chairman and Chief Executive Officer of Hecla Mining Company
("Hecla"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hecla Mining Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
43
Hecla Mining Company and Subsidiaries
CERTIFICATIONS (Continued)
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 9, 2003
/s/ Arthur Brown
------------------------------------
Arthur Brown
Chairman and Chief Executive Officer
44
Hecla Mining Company and Subsidiaries
CERTIFICATIONS
I, Phillips S. Baker, Jr., President, Chief Operating Officer, Chief Financial
Officer and Director of Hecla Mining Company ("Hecla"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of Hecla Mining Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
45
Hecla Mining Company and Subsidiaries
CERTIFICATIONS (Continued)
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 9, 2003
/s/ Phillips S. Baker, Jr.
-----------------------------------
Phillips S. Baker, Jr.
President, Chief Operating Officer, Chief Financial Officer and Director
46
Exhibit Index
-------------
3.1(a) Certificate of Incorporation of the Registrant as amended to
date. Filed as exhibit 3.1 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1987 (File No.
1-8491) and incorporated herein by reference.
3.1(b) Certificate of Amendment of Certificate of Incorporation of
the Registrant. Filed as exhibit 3.1(b) to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1987 (File
No. 1-8491) and incorporated herein by reference.
3.2 By-Laws of the Registrant as amended to date. Filed as exhibit
3(ii) to Registrant's Current Report on Form 8-K dated
November 13, 1998 (File No. 1-8491) and incorporated herein by
reference.
4.1(a) Certificate of Designations, Preferences and Rights of Series
A Junior Participating Preferred Stock of the Registrant.
Filed as exhibit 4.1(d)(e) to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993 (File No.
1-8491) and incorporated herein by reference.
4.1(b) Certificate of Designations, Preferences and Rights of Series
B Cumulative Convertible Preferred Stock of the Registrant.
Filed as exhibit 4.5 to Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993 (File No. 1-8491) and
incorporated herein by reference.
4.2 Rights Agreement dated as of May 10, 1996, between Hecla
Mining Company and American Stock Transfer & Trust Company,
which includes the form of Rights Certificate of Designation
setting forth the terms of the Series A Junior Participating
Preferred Stock of Hecla Mining Company as Exhibit A and the
summary of Rights to Purchase Preferred Shares as Exhibit B.
Filed as exhibit 4 to Registrant's Current Report on Form 8-K
dated May 10, 1996 (File No. 1-8491) and incorporated herein
by reference.
4.3 Stock Purchase Agreement dated as of August 27, 2001, between
Hecla Mining Company and Copper Mountain Trust. Filed as
exhibit 4.3 to Registrant's Registration Statement on Form S-1
filed on October 7, 2002 (File No. 333 - 100395) and
incorporated herein by reference.
4.4 Warrant Agreement dated August 2, 2002, between Hecla Mining
Company and Great Basin Gold Ltd. Filed as exhibit 4.4 to
Registrant's Registration Statement on Form S-1 filed on
October 7, 2002 (File No. 333 - 100395) and incorporated
herein by reference.
47
4.5 Registration Rights Agreement dated August 2, 2002, between
Hecla Mining Company and Great Basin Gold Ltd. Filed as
exhibit 4.5 to Registrant's Registration Statement on Form S-1
filed on October 7, 2002 (File No. 333 - 100395) and
incorporated herein by reference.
Certain instruments defining the rights of holders of
long-term debt of the Registrant and its consolidated
subsidiaries, where the total amount of securities authorized
under any such instrument does not exceed 10% of the
Registrant's consolidated total assets, are not filed herewith
pursuant to Item 601(b)(ii)(A) of Regulation S-K. The
Registrant agrees to furnish a copy of any such instrument to
the Commission upon request.
10.2 Employment agreement dated June 1, 2000, between Hecla Mining
Company and Arthur Brown. (Registrant has substantially
identical agreements with each of Messrs. Phillips S. Baker,
Jr., Thomas F. Fudge, Jr., Michael H. Callahan, Ronald W.
Clayton, Lewis E. Walde and Ms. Vicki Veltkamp. Such
substantially identical agreements are not included as
separate exhibits.) Filed as exhibit 10.2 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September
30, 2000, (File No. 1-8491) and incorporated herein by
reference.
10.3(a) Form of Executive Deferral Plan Master Document, as amended,
effective November 13, 1993. Filed as exhibit 10.3(a) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 1-8491) and incorporated herein by
reference.
10.3(b) Form of Director Deferral Plan Master Plan Document effective
January 1, 1995. Filed as exhibit 10.3(b) to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1994 (File No. 1-8491) and incorporated herein by reference.
10.4(a) 1987 Nonstatutory Stock Option Plan of the Registrant. Filed
as exhibit B to Registrant's Proxy Statement dated March 20,
1987 (File No. 1-8491) and incorporated herein by reference.
10.4(b) Hecla Mining Company 1995 Stock Incentive Plan, as amended.
Filed as exhibit 99.1 to Registrant's Preliminary Proxy
Statement dated April 8, 2002 (File No. 1-8491) and
incorporated herein by reference.
10.4(c) Hecla Mining Company Stock Plan for Nonemployee Directors, as
amended. Filed as exhibit 99.1 to Registrant's Preliminary
Proxy Statement dated April 8, 2002 (File No. 1-8491) and
incorporated herein by reference.
10.4(d) Hecla Mining Company Key Employee Deferred Compensation Plan.
Filed as exhibit 4.3 to Registrant's Registration Statement on
Form S-8
48
filed on July 24, 2002 (File No. 333-96995) and incorporated
herein by reference.
10.5(a) Hecla Mining Company Retirement Plan for Employees and
Supplemental Retirement and Death Benefit Plan. Filed as
exhibit 10.11(a) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1985 (File No. 1-8491) and
incorporated herein by reference.
10.5(b) Supplemental Excess Retirement Master Plan Documents. Filed as
exhibit 10.5(b) to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994 (File No. 1-8491) and
incorporated herein by reference.
10.5(c) Hecla Mining Company Nonqualified Plans Master Trust
Agreement. Filed as exhibit 10.5(c) to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 (File
No. 1-8491) and incorporated herein by reference.
10.6 Form of Indemnification Agreement dated May 27, 1987, between
Hecla Mining Company and each of its Directors and Officers.
Filed as exhibit 10.15 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1987 (File No. 1-8491)
and incorporated herein by reference.
10.7 Summary of Short-term Performance Payment Plan. Filed as
exhibit 10.7 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994 (File No. 1-8491) and
incorporated herein by reference.
10.8(a) Amended and Restated Golden Eagle Earn-In Agreement between
Echo Bay Mines Ltd. (successor in interest to Newmont Mining
Corp./Santa Fe Pacific Gold Corporation) and Hecla Mining
Company dated as of September 6, 1996. Filed as exhibit
10.11(a) to Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 (File No. 1-8491) and
incorporated herein by reference.
10.8(b) Golden Eagle Operating Agreement between Echo Bay Mines Ltd.
(successor in interest to Newmont Mining Corp./Santa Fe
Pacific Gold Corporation) and Hecla Mining Company dated as of
September 6, 1996. Filed as exhibit 10.11(b) to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1996 (File No. 1-8491) and incorporated herein by
reference.
10.8(c) First Amendment to the Amended and Restated Golden Eagle
Earn-in Agreement effective September 5, 2002 by and between
Echo Bay Mines Ltd. and Hecla Mining Company. Filed as exhibit
10.6(c) to Registrant's
49
Registration Statement on Form S-1 filed on October 7, 2002
(File No. 333 - 100395) and incorporated herein by reference.
10.9 Limited Liability Company Agreement of the Rosebud Mining
Company, LLC between Newmont Mining Corp. (as successor to
Santa Fe Pacific Gold Corporation) and Hecla Mining Company
dated as of September 6, 1996. Filed as exhibit 10.12 to
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 (File No. 1-8491) and incorporated
herein by reference.
10.10 Restated Mining Venture Agreement among Kennecott Greens Creek
Mining Company, Hecla Mining Company and CSX Alaska Mining
Inc. dated May 6, 1994. Filed as exhibit 99.A to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994 (File No. 1-8491) and incorporated herein by reference.
10.11 Credit Agreement dated as of June 25, 1999, among Monarch
Resources Investments Limited as Borrower, Monarch Minera
Suramericana, C.A. as an additional obligor and Standard Bank
of London Limited as Collateral and Administrative Agent.
Filed as exhibit 10.3 to Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999 (File No. 1-8491) and
incorporated herein by reference.
10.12 Subordinated Loan Agreement dated as of June 25, 1999, among
Hecla Mining Company as Borrower and Standard Bank of London
Limited as Initial Lender, Collateral and Administrative
Agent. Filed as exhibit 10.4 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1999 (File No.
1-8491) and incorporated herein by reference.
10.13 Subordination Agreement dated as of June 25, 1999, among
NationsBank, N.A. as Senior Creditor, Standard Bank of London
Limited as Subordinated Creditor and Hecla Mining Company.
Filed as exhibit 10.5 to Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999 (File No. 1-8491) and
incorporated herein by reference.
10.14 Subordinated Loan Agreement dated June 29, 2000, among Hecla
Mining Company as Borrower and Standard Bank of London Limited
as Lender. Filed as exhibit 10.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000 (File
No. 1-8491) and incorporated herein by reference.
10.15 Subordination Agreement dated June 29, 2000, among Hecla
Mining Company and Standard Bank of London Limited as Senior
Creditor and Subordinated Creditor. Filed as exhibit 10.2 to
Registrant's Quarterly
50
Report on Form 10-Q for the quarter ended June 30, 2000 (File
No. 1-8491) and incorporated herein by reference.
10.16 Stock Purchase Agreement dated February 27, 2001, between
Hecla Mining Company and IMERYS USA, Inc. Filed as exhibit 99
to Registrant's Current Report on Form 8-K dated March 27,
2001 (File No. 1-8491) and incorporated herein by reference.
10.17 Form of Retention Agreement dated July 20, 2001, between Hecla
Mining Company and Arthur Brown. (Registrant has substantially
identical agreements, with each of Messrs. Thomas F. Fudge,
Jr., Lewis E. Walde and Ms. Vicki J. Veltkamp. Filed as
exhibit 10.19 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2001 (File No. 1-8491) and
incorporated herein by reference.
10.18 Retention Agreement dated November 6, 2001 between Hecla
Mining Company and Phillips S. Baker, Jr. Filed as exhibit
10.12 to Registrant's Registration Statement on Form S-1 filed
on January 7, 2003 (File No. 333 - 100395) and incorporated
herein by reference.
10.19 Real Estate Purchase and Sale Agreement between Hecla Mining
Company and JDL Enterprises, LLC, dated October 19, 2001.
Filed as exhibit 10.21 to Registrant's Annual Report on Form
10-K for the year ended December 31, 2001 (File No. 1-8491)
and incorporated herein by reference.
10.20 Credit Agreement dated March 27, 2002 between Hecla Mining
Company and IIG Capital, LLC. Filed as exhibit 10.18 to
Registrant's Registration Statement on Form S-1 filed on
October 7, 2002 (File No. 333 - 100395) and incorporated
herein by reference.
10.21 Earn-In Agreement dated August 2, 2002 between Hecla Ventures
Corp. and Rodeo Creek Gold Inc.. Filed as exhibit 10.19 to
Registrant's Registration Statement on Form S-1 filed on
October 7, 2002 (File No. 333 - 100395) and incorporated
herein by reference.
10.22 Lease Agreement dated September 5, 2002 between Hecla Mining
Company and CVG-Minerven. Filed as exhibit 10.20 to
Registrant's Registration Statement on Form S-1 filed on
October 7, 2002 (File No. 333 - 100395) and incorporated
herein by reference.
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
- --------------------------------------------------------------------------------
* Filed herewith.
51