HECLA MINING CO/DE/ - 10-K Annual Report

In connection with the requirements of Section 404 of the Sarbanes Oxley Act of 2002, we identified three material weaknesses related to our system of internal controls over financial reporting during the fourth quarter of 2004. These material weaknesses are discussed below. Two of the material weaknesses concern an employee strike at our Velardeña processing Mill (“the Mill”) in Mexico. First, management was not able to complete testing of all internal controls at the Mill as access to the Mill was restricted, as provided by Mexican law and practice, by the employees on strike. Second, operations personnel, in order to preserve the equipment, prepared for the strike by emptying work-in-process inventory into the tailings impoundment at the Mill, and the emptying of the work-in-process inventory was not properly communicated to accounting personnel. BDO Seidman, LLP, our external auditors, identified the work-in-process matter as a part of their audit of our consolidated financial statements, and the result was an adjustment to our consolidated financial statements to correctly state the balance of work-in-process inventory. This adjustment is reflected in the 2004 financial statements presented in this annual report on Form 10-K. The third material weakness relates to the lack of appropriate levels of monitoring and oversight of the accounts payable process in Mexico, which lack of monitoring and oversight restricts the Company’s ability to analyze, reconcile and accurately report information relative to accounts payable.

Management considers the above three items to be material weaknesses in financial reporting for the year ended December 31, 2004. Management made this assessment using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Plans for remediation of the inability to test all controls at the Mill are dependent upon resolution of the strike at the Mill, and management intends to test controls at the Mill once access is reinstated. Remediation steps taken to date with regard to the lack of communication to accounting personnel have included discussion and education of personnel involved in the Mill operating and financial reporting process. Management believes this to be an isolated incident due to the circumstances surrounding the strike, and management has taken steps to prevent a reccurrence in the future. With regard to the internal controls over the accounts payable process in Mexico, management intends to provide additional training to the accounting staff in Mexico concerning proper recording of accounts payable transactions and the reconciliation and review of accounts payable and related accounts payable transactions and balances. Additionally, management intends to provide additional oversight via review and monitoring by management of the Mexican operations as well as additional oversight by the corporate accounting department.

Based upon the presence of these material weaknesses, management’s evaluation, which was performed under the supervision and with the participation of management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures, is that management concludes that our disclosure controls and procedures were ineffective as of December 31, 2004, in ensuring that all material information required to be filed in this annual report on Form 10-K has been made known to it in a timely fashion.

Other than the items discussed above, there have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to December 31, 2004.

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Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2004. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework.

Management excluded the Greens Creek Joint Venture (“Greens Creek”), a 29.73% owned subsidiary, from its assessment of internal control over financial reporting as of December 31, 2004. Greens Creek was excluded because management is not able to assess the effectiveness of internal control at Greens Creek because the Company does not have the ability to dictate or modify the controls of Greens Creek and does not have the ability to assess those controls. Greens Creek total assets and total revenues represent 24.2% and 26.1%, respectively, of our related consolidated financial statement amounts as of and for the year ended December 31, 2004.

Our evaluation of internal controls as of December 31, 2004, resulted in the identification of material weaknesses. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The material weaknesses identified are as follows:

In planning its assessment of internal control, management determined that controls over the processes at the Velardeña mill (the “Mill”) in Mexico should be documented and tested. Employees at the Mill have been on strike since October 16, 2004. The strike was not anticipated by management. As a result of this strike and the resulting shutdown in operations at the Mill, management was not able to complete all the testing of controls that it had planned to perform. Management successfully completed tests of the controls relating to the processing costs at the Mill, but management’s testing of controls over the determination of the quantity of metal ounces in the Mill work-in-process inventory was not completed before the strike occurred. Processing costs incurred at the Mill represent approximately 6% of Cost of Sales during the year ended December 31, 2004. The Mill work-in-process inventory as of December 31, 2004 is zero due to the circumstances described in the following paragraph. Management believes that its inability to test these controls as planned is a material weakness in its control environment and monitoring components of internal control as defined by the COSO framework.

When the strike occurred, the Mill supervisors determined the inventory quantities and reported them to accounting personnel. Subsequently, certain shutdown procedures were performed at the Mill, which included emptying work-in-process inventory into the tailings impoundment. The emptying of the work-in-process inventory was not reported to accounting personnel who would have adjusted the Mill inventory balance to zero had the information been reported. This discrepancy was discovered by our independent auditors during their year end audit. As a result, management recorded an adjustment of $421,000 to properly reflect the work in process inventory balance. This adjustment is reflected in the 2004 financial statements presented in this annual report on Form 10-K. Management considers the failure of the accounting personnel to be properly notified of the Mill activity a material weakness under the information and communication component of the COSO framework.

At our Mexican operations, certain vendor balances in accounts payable were not reviewed and adjusted on a timely basis to proper balances. The Company failed to have an appropriate control in place for oversight and monitoring of the detail of accounts payable balances. The result was four errors in recorded balances, none of which alone, or in the aggregate, was material to the financial statements of the Company; however, the lack of a control over the monitoring of the detail of accounts payable records cannot ensure that a material misstatement in the financial statements would be prevented or detected under normal operating conditions. Accordingly, the Company views the lack of a control to monitor the detail of accounts payable records as a material weakness in financial reporting.

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Due to these material weaknesses, management concludes that internal controls over financial reporting were ineffective as of December 31, 2004. Furthermore, the Company’s independent auditors, BDO Seidman LLP, have issued a disclaimer of opinion with respect to the Company’s internal controls over financial reporting due to the auditors’ inability to test controls over financial reporting at the Mill in Mexico, as described in BDO Seidman, LLP’s report, which report is included in this annual report on Form 10-K.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

Hecla Mining Company

Coeur d’Alene, Idaho

We were engaged to audit management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing under Item 9A, that Hecla Mining Company did not maintain effective internal control over financial reporting as of December 31, 2004 because of the material weaknesses noted below, and based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Hecla Mining Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.

The Company’s financial statements include Greens Creek Joint Venture; a 29.73 percent owned subsidiary that is proportionately consolidated in accordance with Emerging Issues Task Force No. 00-1. Management has been unable to assess the effectiveness of internal control at this subsidiary due to the fact that the Company does not have the ability to dictate or modify the controls of the subsidiary and also does not have the ability to assess those controls.

The Company’s employees at the Velardeña Mill in Mexico initiated a strike in October 2004. As a result of this strike, the Velardeña Mill has been temporarily idled. Additionally, the terms of the strike are such that access to the facility is limited. As this strike occurred before Management was able to complete all of its testing of the internal controls for the Velardeña Mill operations, we are unable to evaluate the effectiveness of the Company’s internal controls over the Velardeña Mill operations.

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A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses has been identified and included in management’s assessment. The Company’s accounts payable process in Mexico has an insufficient level of monitoring, training and oversight, which restricts the Company’s ability to analyze, reconcile and accurately report information relative to the accounts payable. In addition, inventory that was in process at the date of the strike at the Velardeña Mill in Mexico was disposed of into the tailings pond by operations, but this event did not get communicated to accounting, and was therefore not properly expensed until the matter was discovered by us during the financial statement audit procedures. As a result, the Company recorded an adjustment as of December 31, 2004 to decrease the year-end inventory balance and to increase the net loss by $421,000. We believe these conditions represent a material weakness under the standards of the Public Company Accounting Oversight Board (United States), in the design and operation of the internal control of Hecla Mining Company in effect as of, and for the year ended, December 31, 2004.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Since management was unable to complete all of its testing of internal control related to the Velardeña Mill operations, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion either on management’s assessment or on the effectiveness of the company’s internal control over financial reporting.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of Hecla Mining Company as of December 31, 2004 and 2003 and our report dated March 10, 2005 expressed an unqualified opinion on these consolidated financial statements.

/s/ BDO Seidman, LLP

March 10, 2005

Spokane, Washington

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Item 9B. Other Information

On December 14, 2004, we entered into indemnification agreements with each of our directors and executive officers. A copy of the form of these indemnification agreements is attached to this Form 10-K as Exhibit 10.4.

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Part III

Item 10. Directors and Executive Officers of the Registrant

Information with respect to our directors and executive officers is set forth as follows:

	Age at
	May 6, 2005	Position and Committee Assignments

Ian Atkinson	55	Vice President - Exploration and Strategy

Phillips S. Baker, Jr.	45	President and Chief Executive Officer, Director (1,6)

Michael H. Callahan	41	Vice President - Corporate Development

Ronald W. Clayton	46	Vice President - North American Operations

Thomas F. Fudge, Jr.	50	Vice President - Operations

Vicki Veltkamp	48	Vice President - Investor and Public Relations

Lewis E. Walde	38	Vice President and Chief Financial Officer

Arthur Brown	64	Chairman of the Board (1,7)

David J. Christensen	43	Director (2,3,8)

John E. Clute	70	Director (1,4,5)

Ted Crumley	60	Director (1,2,4,5)

Charles L. McAlpine	71	Director (3,4,5,7)

George R. Nethercutt, Jr.	60	Director

Jorge E. Ordoñez C.	65	Director (2,3,4,7)

Dr. Anthony P. Taylor	63	Director (7,8)

(1)	Member of Executive Committee

(2)	Member of Finance Committee

(3)	Member of Audit Committee

(4)	Member of Corporate Governance and Directors Nominating Committee

(5)	Member of Compensation Committee

(6)	Member of Retirement Board

(7)	Member of Technical Committee

(8)	Elected by holders of Series B preferred stock

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Ian Atkinson was appointed Vice President - Exploration and Strategy in September 2004. Prior to that, Mr. Atkinson was a senior management consultant for various mining companies from 2001 to August 2004. He was Senior Vice President with Battle Mountain Gold Company from 1996 to 2001; Senior Vice President with Hemlo Gold Mines from 1991 to 1996; and held various positions with Noranda Exploration Company from 1979 to 1991. Mr. Atkinson was a senior geologist/geophysicist with Resource Associates of Alaska from 1978 to 1979 and regional geologist with McIntyre Mines Limited from 1974 to 1978.

Phillips S. Baker, Jr., has been our Chief Executive Officer since May 2003; President since November 2001; and a director since November 2001. Prior to that, Mr. Baker was our Chief Financial Officer from May 2001 to June 2003; Chief Operating Officer from November 2001 to May 2003; and Vice President from May 2001 to November 2001. Prior to joining us, Mr. Baker served as Vice President and Chief Financial Officer of Battle Mountain Gold Company (a mining company) from March 1998 to January 2001 and Vice President and Chief Financial Officer of Pegasus Gold Corporation from January 1994 to January 1998. Mr. Baker also serves as a director for Questar Corporation (a Utah natural gas, pipeline and exploration and development company).

Michael H. Callahan has been our Vice President - Corporate Development since February 2002. Mr. Callahan was also the President of our subsidiary company, Minera Hecla Venezolana from 2000 to 2003. Prior to that, Mr. Callahan was our Director of Accounting and Information Services from 1999 to 2000. From 1997 to 1999, Mr. Callahan was the Financial Manager of Silver Valley Resources. Mr. Callahan was also a Senior Financial Analyst for us from 1994 to 1996. Mr. Callahan is the son-in-law of Arthur Brown, Chairman of our board of directors.

Ronald W. Clayton was appointed Vice President - North American Operations on September 27, 2002. Prior to joining us, Mr. Clayton was Vice President - Operations for Stillwater Mining Company (a mining company) from July 2000 to May 2002. Mr. Clayton was also our Vice President - Metals Operations from May 2000 to July 2000. Mr. Clayton also served as Manager of Operations and General Manager of our Rosebud, Republic and Lucky Friday mines from 1987 to 2000.

Thomas F. Fudge, Jr., has been our Vice President - Operations since June 2001 and currently serves as the Executive President of our subsidiary company, Minera Hecla Venezolana. Prior to that, Mr. Fudge was our Manager of Operations from July 2000 to May 2001, and our Lucky Friday Unit Manager from 1995 to 2000.

Vicki Veltkamp has been our Vice President - Investor and Public Relations since May 2000. Prior to that, Ms. Veltkamp served in various administrative functions with us from 1988 to 1993 and 1995 to 2000, including Public Relations Specialist, Manager of Public Relations, Manager of Corporate Communications and Director of Investor and Public Relations. Ms. Veltkamp was Director of Corporate Communications for Santa Fe Pacific Gold from 1993 to 1995.

Lewis E. Walde has been our Vice President since June 2001 and our Chief Financial Officer since June 2003. Mr. Walde has also served as our Treasurer since February 2002. Prior to that, Mr. Walde was our Controller from May 2000 to June 2003, our Assistant Controller from January 1999 to April 2000, and held various accounting functions with us from June 1992 to December 1998.

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Arthur Brown has been Chairman of our board of directors since June 1987 and served as our Chief Executive Officer from May 1987 to May 2003. Prior to that, Mr. Brown was our President from May 1986 to November 2001 and our Chief Operating Officer from May 1986 to May 1987. Mr. Brown also serves as a director for AMCOL International Corporation (an American industrial minerals company), and Idaho Independent Bank. Mr. Brown is the father-in-law of Michael H. Callahan, our Vice President - Corporate Development.

David J. Christensen was appointed to Hecla’s Board of Directors in August 2003. He had previously served as a director from May 2002 to October 2002 when he was elected to the Board of Directors by preferred shareholders in May 2002. Mr. Christensen was a research analyst with Credit Suisse First Boston (an investment banking company) from October 2002 to August 2003; Global Coordinator and First Vice President, Merrill Lynch & Co. (an investment banking company) from 1998 to 2001; Vice President and Precious Metals Equity Analyst, Merrill Lynch & Co. from 1994 to 1998; Portfolio Manager of Franklin Gold Fund and Valuemark Precious Metals Funds for Franklin Templeton Group from 1990 to 1994.

John E. Clute has served as a director since 1981. Mr. Clute has been a Professor of Law at Gonzaga University School of Law from 2001 to the present. Prior to that, Mr. Clute was the Dean of Gonzaga University School of Law from 1991 to 2001. Mr. Clute serves as a director of The Jundt Growth Fund, Inc.; the Jundt Funds, Inc. (Jundt U.S. Emerging Growth Fund, Jundt Opportunity Fund, Jundt Mid-Cap Growth Fund, Jundt Science & Technology Fund and Jundt Twenty-Five Fund); American Eagle Funds, Inc. (American Eagle Capital Appreciation Fund, American Eagle Large-Cap Growth Fund and American Eagle Twenty Fund); and RealResume, Inc.

Ted Crumley has served as a director since 1995. Mr. Crumley has served as the Executive Vice President and Chief Financial Officer of OfficeMax Inc. (distributor of office products) since January 2005, and as Senior Vice President from November 2004 to January 2005. Prior to that, Mr. Crumley was Senior Vice President and Chief Financial Officer of Boise, Inc. (a wood and paper company), from 1994 to 2004.

Charles L. McAlpine has served as a director since 1989. Mr. McAlpine served as the President of Arimathaea Resources Inc. (a Canadian gold exploration company) from 1982 to 1992. Since 1992, Mr. McAlpine has been retired. Mr. McAlpine also serves as a director of First Tiffany Resource Corporation, Goldstake Explorations Inc. and Postec Systems Inc.

George R. Nethercutt, Jr. was appointed to Hecla’s Board of Directors in February 2005. Mr. Nethercutt has been a principal of Lundquist, Nethercutt & Griles, LLC, (a strategic planning and consulting firm) and a board member for the Washington Policy Center since January 2005. From 1995 to 2005, Mr. Nethercutt served in the U.S. House of Representatives, including House subcommittees on Interior, Agriculture, Defense Appropriations, and Energy. He has been a member of the Washington State Bar Association since 1972.

Jorge E. Ordoñez C. has served as a director since 1994. Mr. Ordoñez has served as the President and Chief Executive Officer of Ordoñez Profesional S.C. (a business and management consulting corporation specializing in mining) from 1988 to present. Mr. Ordoñez is a director of Fischer-Watt Gold Co., Inc. Mr. Ordoñez received the Mexican National Geology Recognition in 1989 and was elected to the Mexican Academy of Engineering in 1990.

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Dr. Anthony P. Taylor has served as a director since May 2002. Mr. Taylor has been the President, CEO and Director of Gold Summit Corporation (a public Canadian minerals exploration company) since October 2003. Mr. Taylor has also served as President and Director of Caughlin Preschool Corp. (a private Nevada corporation that operates preschools) since October 2001 and has also been a director of Greencastle Resources Corporation since December 2003. Prior to that, Mr. Taylor was President, Chief Executive Officer and Director of Millennium Mining Corporation (a private Nevada minerals exploration company) from January 2000 to October 2003; Vice President - Exploration of First Point US Minerals from May 1997 to December 1999; President and Director of Great Basin Exploration & Mining Co., Inc. from June 1990 to January 1996. Mr. Taylor also held various exploration, management and geologist positions in the mining industry from 1964 to 1990.

Information with respect to our directors is set forth under the caption “Election of Director by Common Shareholders” and Election of Directors by Preferred Shareholders” in our proxy statement to be filed pursuant to Regulation 14A for the annual meeting scheduled to be held on May 6, 2005 (the Proxy Statement), which information is incorporated herein by reference.

Reference is made to the information set forth in the first paragraph under the caption “Audit Committee Report - Membership and Role of the Audit Committee,” and under the caption “Corporate Governance” in the Proxy Statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.

Reference is made to the information set forth under the caption “Section 16(A) Beneficial Ownership Reporting Compliance” in the Proxy Statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.

Reference is made to the information set forth under the caption “Available Information” in Item 1 for information about the Company’s Code of Business Conduct and Ethics, which information is incorporated herein by reference.

Item 11. Executive Compensation

Reference is made to the information set forth under the caption “Compensation of Directors,” the caption “Compensation of Executive Officers,” the caption “Compensation Committee Interlocks and Insider Participation,” the caption “Compensation Tables,” the first paragraph under the caption “Certain Information About the Board of Directors and Committees of the Board” and under the caption “Other Benefits” in the Proxy Statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Reference is made to the information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” and the caption “Equity Compensation Plan Information” in the Proxy Statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.

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Item 13. Certain Relationships and Related Transactions

Reference is made to the information set forth in the Proxy Statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

Reference is made to the information set forth under the caption “Audit Fees - Audit and Non-Audit Fees” in the Proxy Statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.

Reference is made to the information set forth under the caption “Audit Fees - Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent Auditors” in the Proxy Statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.

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Part IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)

(1) Financial Statements

See Index to Financial Statements on Page F-1

(a)

(2) Financial Statement Schedules

Not applicable

(a)

(3) Exhibits

See Exhibit Index following the Financial Statements

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Signatures

Pursuant to the requirements of Section 13 or 15(d) 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

	By:	/s/ Phillips S. Baker, Jr.

		Phillips S. Baker, Jr. Chief Executive Officer and Director

	Date:	March 16, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


/s/ Phillips S. Baker, Jr.	3/16/05	/s/ Ted Crumley	3/16/05
Phillips S. Baker, Jr.	Date	Ted Crumley	Date
President, Chief Executive Officer		Director
and Director
(principal executive officer)

/s/ Lewis E. Walde	3/16/05	/s/ Charles L. McAlpine	3/16/05
Lewis E. Walde	Date	Charles L. McAlpine	Date
Vice President and Chief Financial Officer		Director
(principal financial and accounting officer)

/s/ Arthur Brown	3/16/05	/s/ George R. Nethercutt, Jr.	3/16/05
Arthur Brown	Date	George R. Nethercutt, Jr.	Date
Chairman and Director		Director

/s/ David J. Christensen	3/16/05	/s/ Jorge E. Ordoñez	3/16/05
David J. Christensen	Date	Jorge E. Ordoñez	Date
Director		Director

/s/ John E. Clute	3/16/05	/s/ Anthony P. Taylor	3/16/05
John E. Clute	Date	Anthony P. Taylor	Date
Director		Director

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Index to Consolidated Financial Statements


Consolidated Financial Statements		Page

Reports of Independent Registered Public Accounting Firms		F-2 to F-3

Consolidated Balance Sheets at December 31, 2004 and 2003		F-4

	Consolidated Statements of Operations and Comprehensive Income (Loss)
for the Years Ended December 31, 2004, 2003 and 2002		F-5

Consolidated Statements of Cash Flows for the Years Ended
December 31, 2004, 2003 and 2002		F-6

Consolidated Statements of Changes in Shareholders’ Equity for the
Years Ended December 31, 2004, 2003 and 2002		F-7

Notes to Consolidated Financial Statements		F-8 to F-54

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of

Hecla Mining Company

Coeur d’Alene, Idaho

We have audited the accompanying consolidated balance sheets of Hecla Mining Company as of December 31, 2004 and 2003, and the related consolidated statements of operations and comprehensive income (loss), cash flows and changes in shareholders’ equity for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of the Greens Creek Joint Venture, a 29.73 percent owned subsidiary, which statements reflect total assets constituting 24.2 percent and 19.4 percent of the consolidated total assets as of December 31, 2004 and 2003, respectively, and 26.1 percent, 26.9 percent and 24.0 percent, respectively, of the consolidated revenues for the years ended December 31, 2004, 2003 and 2002, respectively. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the Greens Creek Joint Venture, is based solely on the reports of the other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hecla Mining Company at December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for asset retirement obligations in 2003.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Hecla Mining Company’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and issued our report dated March 10, 2005, which disclaimed an opinion on the Hecla Mining Company’s internal controls over financial reporting.

/s/ BDO Seidman, LLP

March 10, 2005

Spokane, Washington

F-2

Report of Independent Registered Public Accounting Firm

To the Management Committee of the Greens Creek Joint Venture:

In our opinion, the accompanying balance sheets and the related statements of operations, of changes in venturers’ equity and of cash flows present fairly, in all material respects, the financial position of Greens Creek Joint Venture (the “Venture”) as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Venture’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in a note to the financial statements, the Venture changed the manner in which it accounts for asset retirement obligations as of January 1, 2003.

/PricewaterhouseCoopers LLP/

Salt Lake City, Utah

February 1, 2005

F-3

Hecla Mining Company and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)

__________

			December 31,
			2004			2003
ASSETS

Current assets:
	Cash and cash equivalents		$	52,610		$	105,387
	Short-term investments			28,178			18,003
	Accounts and notes receivable:
	Trade			6,911			6,975
	Other			15,025			9,343
	Inventories			20,250			16,936
	Deferred income taxes			- -			1,427
	Other current assets			5,607			3,174
		Total current assets		128,581			161,245
Investments				1,657			722
Restricted cash and investments				19,789			6,447
Properties, plants and equipment, net				114,515			95,315
Deferred income taxes				- -			896
Other noncurrent assets				14,906			13,570

		Total assets	$	279,448		$	278,195

LIABILITIES

Current liabilities:
	Accounts payable and accrued liabilities		$	16,042		$	13,847
	Accrued payroll and related benefits			9,405			7,307
	Current portion of debt			- -			2,332
	Accrued taxes			2,379			3,193
	Current portion of accrued reclamation and closure costs			9,237			7,400
		Total current liabilities		37,063			34,079
Long-term debt				- -			2,341
Accrued reclamation and closure costs				65,951			63,232
Other noncurrent liabilities				7,107			7,114
		Total liabilities		110,121			106,766

Commitments and contingencies (Notes 2, 3, 4, 5, 8 and 11)

SHAREHOLDERS’ EQUITY

Preferred stock, $0.25 par value, authorized 5,000,000 shares;
	issued 2004 - 157,816 shares and 2003 - 464,777 shares,
	liquidation preference 2004 - $10,238 and 2003 - $28,932			39			116
Common stock, $0.25 par value, authorized 200,000,000 shares;
	issued 2004 - 118,350,861 shares and issued 2003 - 115,543,695 shares			29,588			28,886
Capital surplus				506,630			504,858
Accumulated deficit				(367,832	)		(361,560	)
Accumulated other comprehensive income (loss)				1,020			(753	)
Less treasury stock, at cost; 8,274 common shares				(118	)		(118	)

		Total shareholders’ equity		169,327			171,429

		Total liabilities and shareholders’ equity	$	279,448		$	278,195

The accompanying notes are an integral part of the consolidated financial statements.

F-4

Hecla Mining Company and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Dollars and shares in thousands, except per share amounts)

__________

	Year Ended December 31,
	2004			2003			2002

Sales of products	$	130,826		$	116,353		$	105,700

Cost of sales and other direct production costs		71,868			61,197			59,449
Depreciation, depletion and amortization		21,552			20,121			22,536
		93,420			81,318			81,985
Gross profit		37,406			35,035			23,715

Other operating expenses:
General and administrative		8,731			8,407			7,121
Exploration		15,995			9,608			5,172
Pre-development expense		4,227			1,395			653
Depreciation and amortization		326			341			116
Other operating expense (income)		1,723			(1,439	)		414
Provision for closed operations and environmental matters		11,170			23,777			898
		42,172			42,089			14,374
Income (loss) from operations		(4,766	)		(7,054	)		9,341

Other income (expense):
Interest income		1,923			2,590			420
Interest expense		(500	)		(1,407	)		(1,816	)
		1,423			1,183			(1,396	)
Income (loss) from continuing operations before income taxes and
items shown below		(3,343	)		(5,871	)		7,945
Income tax benefit (provision)		(2,791	)		(1,217	)		2,918
Income (loss) from continuing operations before items shown below		(6,134	)		(7,088	)		10,863
Cumulative effect of change in accounting principle, net of income tax		- -			1,072			- -
Discontinued operations, net of income tax		- -			- -			(2,224	)
Net income (loss)		(6,134	)		(6,016	)		8,639
Preferred stock dividends		(11,602	)		(12,154	)		(23,253	)
Loss applicable to common shareholders	$	(17,736	)	$	(18,170	)	$	(14,614	)

Net income (loss)	$	(6,134	)	$	(6,016	)	$	8,639
Minimum pension liability adjustment		32			(1,400	)		- -
Change in derivative contracts		(761	)		- -			(256	)
Unrealized holding gains on investments		2,481			645			9
Other		21			38			38
Comprehensive income (loss)	$	(4,361	)	$	(6,733	)	$	8,430

Basic and diluted income (loss) per common share:
Loss from operations after preferred stock dividends	$	(0.15	)	$	(0.17	)	$	(0.15	)
Cumulative effect of change in accounting principle		- -			0.01			- -
Loss from discontinued operations		- -			- -			(0.03	)
Basic and diluted loss per common share	$	(0.15	)	$	(0.16	)	$	(0.18	)

Weighted average number of common
shares outstanding - basic and diluted		118,048			110,610			80,250

The accompanying notes are an integral part of the consolidated financial statements.

F-5

Hecla Mining Company and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

__________

	Year Ended December 31,
	2004			2003			2002
Operating activities:
Net income (loss)	$	(6,134	)	$	(6,016	)	$	8,639
Non-cash elements included in net income (loss):
Depreciation, depletion and amortization		21,878			20,462			22,652
Cumulative effect of change in accounting principle		- -			(1,072	)		- -
Gain on disposition of properties, plants and equipment		(222	)		(350	)		(329	)
Provision for reclamation and closure costs		10,271			24,086			1,931
Deferred income taxes		2,323			677			(3,300	)
Stock compensation		495			- -			- -
Change in assets and liabilities:
Accounts and notes receivable		(5,618	)		(6,164	)		(3,506	)
Inventories		(3,314	)		(2,178	)		(3,890	)
Other current and noncurrent assets		(3,163	)		(2,051	)		575
Accounts payable and accrued expenses		1,690			2,154			1,581
Accrued payroll and related benefits		1,859			396			312
Accrued taxes		(814	)		1,621			395
Accrued reclamation and closure costs and other noncurrent liabilities		(5,917	)		(5,588	)		(4,825	)
Net cash provided by operating activities		13,334			25,977			20,235

Investing activities:
Proceeds from sale of discontinued operations		- -			- -			1,585
Additions to properties, plants and equipment		(41,371	)		(19,535	)		(11,219	)
Proceeds from disposition of properties, plants and equipment		352			486			5,710
Increase in restricted investments		(13,433	)		(19	)		(3	)
Purchases of short-term investments		(35,034	)		(21,053	)		- -
Maturities of short-term investments		26,404			3,050			- -
Other, net		(2	)		8			(285	)
Net cash used by investing activities		(63,084	)		(37,063	)		(4,212	)

Financing activities:
Common stock issued under warrants and stock option plans		1,646			14,218			2,925
Issuance of common stock, net of offering costs		- -			91,243			72
Borrowings on debt		2,430			1,350			3,317
Repayments on debt		(7,103	)		(9,880	)		(10,355	)
Net cash provided (used) by financing activities		(3,027	)		96,931			(4,041	)

Change in cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents		(52,777	)		85,845			11,982
Cash and cash equivalents at beginning of year		105,387			19,542			7,560
Cash and cash equivalents at end of year	$	52,610		$	105,387		$	19,542

Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest, net of amount capitalized	$	1,312		$	707		$	1,174
Income tax payments, net	$	413		$	148		$	9

See Notes 2, 4, 9 10 and 11 for non-cash investing and financing activities.

The accompanying notes are an integral part of the consolidated financial statements.

F-6

Hecla Mining Company and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

For the Years Ended December 31, 2004, 2003 and 2002

(Dollars and shares in thousands, except per share amounts)

_______________

																	Accumulated			Stock
																	Other			Held by
	Preferred Stock						Common Stock				Capital			Accumulated			Comprehensive			Grantor			Unearned			Treasury
	Shares			Amount			Shares		Amount		Surplus			Deficit			Income (Loss)			Trust			Compensation			Stock

Balances, January 1, 2002		2,300		$	575			73,069	$	18,267	$	404,354		$	(364,183	)	$	173		$	(330	)	$	(6	)	$	(886	)
Net income															8,639
Preferred stock exchange		(1,547	)		(387	)		10,826		2,707		(2,320	)
Stock issued as compensation								429		108		332
Stock issued to directors								73		18		52
Stock disbursed by grantor trust												(264	)								264
Stock issued under stock option and warrant plans								1,733		433		2,493
Warrants issued under warrant plans												1,936
Issuance of restricted stock								57		14		42												(56	)
Amortization of unearned compensation																								62
Stock issued as contribution to benefit plan												(666	)														768
Other comprehensive loss																		(209	)

Balances, December 31, 2002		753			188			86,187		21,547		405,959			(355,544	)		(36	)		(66	)		- -			(118	)
Net loss															(6,016	)
Stock issued for cash, net of issuance costs								23,000		5,750		85,493
Preferred stock exchange		(288	)		(72	)		2,184		546		(473	)
Stock issued as compensation								186		47		555
Stock issued to directors								19		5		73
Stock disbursed by grantor trust												(66	)								66
Stock issued under stock option and warrant plans								3,968		991		13,227
Stock options issued for deferred compensation												90
Other comprehensive loss																		(717	)

Balances, December 31, 2003		465			116			115,544		28,886		504,858			(361,560	)		(753	)		- -			- -			(118	)
Net loss															(6,134	)
Preferred stock exchange		(307	)		(77	)		2,436		609		(532	)
Stock issued to directors								14		4		84
Modification of stock option awards												441
Stock issued under stock option plans								357		89		1,520
Stock options issued for deferred compensation												259
Preferred stock dividends															(138	)
Other comprehensive income																		1,773
Balances, December 31, 2004		158		$	39			118,351	$	29,588	$	506,630		$	(367,832	)	$	1,020		$	-		$	-		$	(118	)

The accompanying notes are an integral part of the consolidated financial statements.

F-7

Hecla Mining Company and Subsidiaries

Notes to Consolidated Financial Statements

Note 1: Summary of Significant Accounting Policies

A. Basis of Presentation -- The accompanying consolidated financial statements include our accounts, our wholly owned subsidiaries’ accounts and a proportionate share of the accounts of the joint ventures in which we participate. All significant intercompany transactions and accounts are eliminated in consolidation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates.

The most critical accounting principles upon which our financial status depends are those requiring estimates of proven and probable reserves, recoverable ounces there from, and/or assumptions of future metals prices. Additionally, estimates of our environmental liabilities are considered critical due to the assumptions and estimates inherent in accruals of such liabilities, including uncertainties relating to specific reclamation and remediation methods and costs, the application and changing of environmental laws, regulations and interpretations by regulatory authorities and the possible participation of other potentially responsible parties.

Our revenues and profitability are largely dependent on world prices for silver, gold, lead and zinc, which fluctuate widely and are affected by numerous factors beyond our control, including inflation and worldwide forces of supply and demand. The aggregate effect of these factors is not possible to accurately predict.

B. Business and Concentrations of Risk -- We are engaged in mining and mineral processing activities, including exploration, extraction, processing and reclamation. Our principal products are metals, primarily silver, gold, lead and zinc. Substantially all of our operations are conducted in the United States, Mexico and Venezuela. Sales of metals products are made to domestic and foreign custom smelters and metal traders.

We sell substantially all of our metallic concentrates to custom smelters which are subject to extensive regulations including environmental protection laws. We have no control over the smelters’ operations or their compliance with environmental laws and regulations. If the smelting capacity available to us was significantly reduced because of environmental requirements or otherwise, it is possible that our silver operations could be adversely affected.

Beginning late in the fourth quarter of 2002, Venezuela experienced a nationwide general strike that ended in February 2003. Following the general strike, the Venezuelan government implemented exchange controls on foreign currency transactions. Rules and regulations regarding the implementation of exchange controls in Venezuela have been published and periodically revised and/or updated. From February 2003 through the beginning of February 2004, the Venezuelan government-fixed exchange rate had been 1,600 bolivares to one U.S. dollar. We utilize the fixed exchange rate to translate the financial statements of our Venezuelan subsidiary included in our consolidated financial statements. On February 7, 2004, the Venezuelan government-fixed exchange rate was increased to 1,920 bolivares to one U.S. dollar. Because of the exchange controls in place and their impact on local suppliers, some supplies, equipment parts and other items previously purchased in Venezuela have been ordered outside the country. Increased lead times in receiving orders from outside Venezuela has created an increased supply inventory at December 31, 2004, compared to December 31, 2003. Although management is actively monitoring exchange controls in Venezuela, there can be no assurance that the exchange controls will not further affect our operations in Venezuela in the future.

F-8

Due to the exchange controls in place in Venezuela, our Venezuelan operations have recognized foreign exchange gains which reduced our cost of sales by of $7.9 million in 2004 and $6.3 million in 2003 due to the use of multiple exchange rates in valuing U.S. dollar denominated transactions. No such gains were recognized in 2002. As discussed above, the Venezuelan government had fixed the exchange rate of the bolivar to the U.S. dollar at 1,920 to $1 as of February 7, 2004; however, markets outside of Venezuela in 2004, reflected a devaluation of the Venezuelan currency in the range of 25% to 60%. Effective March 3, 2005 the Venezuelan government increased the exchange rate of the bolivar to the U.S. dollar to 2,150 to $1.

In February 2005, the Venezuelan government announced new regulations concerning the export of goods and services from Venezuela, which will require, effective April 1, 2005, all goods and services to be invoiced in the currency of the country of destination or in U.S. dollars. In 2004, we recognized approximately $7.9 million in reductions to cost of sales related to our ability to export production in bolivares. We are currently evaluating the impact of these new regulations, however, we may no longer be able to export our production in bolivares, which could result in an increase in our costs. . In addition, the new regulations may impact our cash flows, our profitability of operations, and our production in Venezuela. There can be no assurance that further developments or interpretations of these regulations are limited to the impact we have described herein.

Our financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable. We place our cash and temporary cash investments in government and corporate obligations rated A or higher. We routinely assess the financial strength of our customers and, as a consequence, believe that our trade accounts receivable credit risk exposure is limited.

C. Inventories -- Inventories are stated at the lower of average cost or net realizable value. For products, we determine net realizable value by estimating value based on current metals prices, less cost to convert stockpiled and in-process inventories to finished products. Major types of inventories include:

F-9

Stockpiled ore, primarily at our San Sebastian mine location. Stockpiled ore in Mexico, comprising 87% of our total stockpiled inventory, is incidental to the strike at the Velardeña mill. Costs included in our stockpile inventories are limited to those directly related to mining. Assuming resolution of the strike in Mexico, the San Sebastian stockpile will be depleted in 2005.

Work in process, includes circuit inventories in our milling process. Inventories are valued at the cost of production through the point at which inventory has been processed.

Finished goods, include doré and concentrates at our operations, doré in transit to refiners, and bullion in our accounts at refineries. Inventories are valued at the lower of full cost of production or net realizable value based on current metals prices.

Materials and supplies at our operations are valued at the lower of cost or estimated net realizable value in the production process in future periods.

D. Investments -- Short-term investments included certificates of deposit and held-to-maturity securities, based on management’s intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, which approximates market, and include government and corporate obligations rated A or higher.

Marketable equity securities are categorized as available for sale and carried at fair market value. Realized gains and losses on the sale of securities are recognized on a specific identification basis. Unrealized gains and losses are included as a component of accumulated other comprehensive income (loss), net of related deferred income taxes, unless a permanent impairment in value has occurred, which is then charged to operations. At the time of acquisition, management assesses whether marketable equity securities are short-term investments or noncurrent assets.

Restricted cash and investments primarily represent investments in money market funds and bonds of U.S. government agencies and cash posted with the Venezuelan court system. These investments are restricted primarily for reclamation funding or surety bonds.

E. Properties, Plants and Equipment -- Expenditures for new facilities, new assets or expenditures that extend the useful lives of existing facilities are capitalized and depreciated or depleted using the straight-line method or units-of-production method at rates sufficient to depreciate such costs over the shorter of estimated productive lives of such facilities or the useful life of the individual assets. Productive lives range from 21 months to 10 years, but do not exceed the useful life of the individual asset. Maintenance, repairs and renewals are charged to operations. When assets are retired or sold, the costs and related allowances for depreciation and amortization are eliminated from the accounts and any resulting gain or loss is reflected in operations. Idle facilities, placed on a standby basis, are carried at the lower of net carrying value or estimated net realizable value.

Management reviews and evaluates the net carrying value of all facilities, including idle facilities, for impairment at least annually, or upon the occurrence of other events or changes in circumstances that indicate that the related carrying amounts may not be recoverable. We estimate the net realizable value of each property based on the estimated 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 estimates of metals to be recovered from proven and probable ore reserves, and to some extent, identified resources beyond proven and probable reserves, future production costs and future metals prices 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 net cash flows from the property discounted at an interest rate commensurate with the risk involved.

F-10

Management’s estimates of metals prices, 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 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 its operating properties and the need for asset impairment write-downs.

Management’s calculations of proven and probable ore reserves are based on engineering and geological estimates including minerals prices and operating costs. Changes in the geological and engineering interpretation of various orebodies, minerals prices and operating costs may change our estimates of proven and probable ore reserves. It is reasonably possible that certain of management’s estimates of proven and probable ore reserves will change in the near term resulting in a change to amortization rates in future reporting periods.

Included in property, plants and equipment are mineral interests. Mineral interests are tangible assets and include acquired undeveloped mineral interests and royalty interests. Undeveloped mineral interests include: (i) other mineralized material which is measured, indicated or inferred with insufficient drill spacing or quality to qualify as proven and probable reserves; and ii) inferred material not immediately adjacent to existing proven and probable reserves but accessible within the immediate mine infrastructure. Undeveloped mineral interests are amortized on a straight-line basis over their estimated useful lives taking into account residual values. At such time as an undeveloped mineral interest is converted to proven and probable reserves, the remaining unamortized basis is amortized on a unit-of-production basis as described above. Residual values for undeveloped mineral interests represents the expected fair value of the interests at the time we plan to convert, develop, further explore or dispose of the interests and are evaluated at least annually.

Determination of expected useful lives for amortization calculations are made on a property-by-property basis at least annually.

F. Mine Exploration and Development -- Exploration costs and secondary development costs at operating mines are charged to operations as incurred. Costs are capitalized when it has been determined that an orebody can be economically developed. Major mine development expenditures, including primary development costs, are capitalized. These development costs include the cost of building access ways, shaft sinking, lateral development, drift development, ramps and infrastructure developments.

G. Pre-Development Expense -- Costs incurred in the exploration stage that may ultimately benefit production, such as underground ramp development, are expensed due to the lack of proven and probable reserves.

H. Reclamation and Remediation of Mining Areas -- All our properties are subject to extensive federal, state and local environmental laws. The risk of incurring environmental liability is inherent in the mining industry.

F-11

On January 1, 2003, we adopted SFAS No. 143 “Accounting for Asset Retirement Obligations,” which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. SFAS No. 143 requires us to record a liability for the present value of our estimated environmental remediation costs and the related asset created with it. The liability will be accreted and the asset will be depreciated over the life of the related assets. Adjustments 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 will be made. If there is a current impairment of an asset’s carrying value and a decision is made to permanently close the property, changes to the liability will be recognized currently and charged to provision for closed operations and environmental matters.

Prior to the adoption of SFAS No. 143 in 2003, reserves for mine reclamation costs and a charge for reclamation expense had been established for our operating properties for restoring the disturbed mining areas based upon estimates of cost to comply with existing reclamation standards. Mine reclamation costs for operating properties had been accrued using the Unit of Production method and charged to cost of sales and other direct production costs.

At our non-operating properties, we accrue costs associated with environmental remediation obligations when it is probable that such costs will be incurred and they are reasonably estimable. Accruals for estimated losses from environmental remediation obligations have historically been recognized no later than completion of the remedial feasibility study for such facility and are charged to provision for closed operations and environmental matters. 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 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.

It is reasonably possible that, due to uncertainties associated with defining the nature and extent of environmental contamination and the application of laws and regulations by regulatory authorities and changes in reclamation or remediation technology, the ultimate cost of reclamation and remediation could change in the future. We periodically review accrued liabilities for such reclamation and remediation costs as evidence becomes available indicating that our liabilities have potentially changed.

I. Income Taxes -- We record deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of those assets and liabilities, as well as operating loss and tax credit carryforwards, using enacted tax rates in effect in the years in which the differences are expected to reverse.

J. Basic and Diluted Loss Per Common Share -- Basic earnings per share (“EPS”) is calculated by dividing loss applicable to common shareholders by the weighted average number of common shares outstanding for the year. Dilutive EPS is computed by increasing the weighted-average number of outstanding common shares to include the additional common shares that would be outstanding after conversion and adjusting loss applicable to common shareholders for changes that would result from the conversion. Diluted EPS reflects the potential dilution that could occur if potentially dilutive securities, including other contracts which may require the issuance of common shares in the future, were exercised or converted to common stock. Due to the losses applicable to common shareholders in 2004, 2003 and 2002, potentially dilutive securities were excluded from the calculation of diluted EPS, as they were antidilutive (see Note 14). Therefore, there was no difference in the calculation of basic and diluted EPS in 2004, 2003 or 2002.

K. Comprehensive Income (Loss) -- In addition to net income (loss), comprehensive income (loss) includes all changes in equity during a period, such as adjustments to minimum pension liabilities, the effective portion of changes in fair value of derivative instruments and cumulative unrecognized changes in the fair value of available-for-sale investments.

F-12

L. Revenue Recognition and Accounts Receivable -- Sales of metal products sold directly to smelters are recorded when title and risk of loss transfer to the smelter at current metals spot prices. Recorded values are adjusted to month-end metals prices until final settlement. 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. Third party smelting and refinery costs and freight expense are recorded as a reduction of revenue.

Accounts and notes receivable include both receivables due from sales, as well as valued added tax receivables paid in Venezuela and Mexico. At December 31, 2004 and 2003 value added tax receivables totaled $9.2 million and $4.3 million in Venezuela, and $2.2 million and $4.0 million in Mexico. Management periodically evaluates the recoverability of these receivables and establishes a reserve for uncollectibility, if warranted. At December 31, 2004 and 2003, we have established a reserve equal to 20% and 21% for the value added taxes in Venezuela to reflect estimated discounts we expect to incur.

M. Cash and Cash Equivalents -- We consider cash equivalents to consist of highly liquid investments with a remaining maturity of three months or less when purchased. Because of the short maturity of these investments, the carrying amounts approximate their fair value. Cash and cash equivalents are invested in certificates of deposit, U.S. government and federal agency securities, municipal securities and corporate bonds.

N. Foreign Currency Translation -- We operate in Mexico with our wholly owned subsidiary, Minera Hecla, S.A. de C.V. (“Minera Hecla”). We also operate in Venezuela with our wholly owned subsidiary, Minera Hecla Venezolana, C.A. The functional currency for Minera Hecla and Minera Hecla Venezolana is the U.S. dollar. Accordingly, we translate the monetary assets and liabilities of these subsidiaries at the period-end exchange rate while nonmonetary assets and liabilities are translated at historical rates. Income and expense accounts are translated at the average exchange rate for each period. Translation adjustments and transaction gains and losses are included in the net income or loss for any period.

O. Risk Management Contracts -- We use derivative financial instruments as part of an overall risk-management strategy. These instruments are used as a means of hedging exposure to metals prices. We do not hold or issue derivative financial instruments for speculative trading purposes.

We recognize derivatives as assets of liabilities based on a fair value measurement. Gains or losses resulting from changes in the fair value of derivatives in each period are to be accounted for either in current earnings or other comprehensive income depending on the use of the derivatives and whether they qualify for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in the fair value or cash flows of the hedging instruments and the hedged items.

At December 31, 2004 our hedging contracts, used to reduce exposure to precious metals prices, consisted of forward sales contracts. All contracts outstanding at December 31, 2004, are required to be accounted for as derivatives. At December 31, 2003, we had outstanding forward sales contracts and a gold lease swap. The forward contracts were accounted for as normal sales and not as derivatives. The gold lease rate swap is considered a derivative and the unamortized loss of $21,000 as of December 31, 2003 was recognized in the income statement in 2004.

P. Accounting for Stock Options -- We measure compensation cost for stock option plans using the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” We also provide the required disclosures of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123).

F-13

We have adopted the disclosure-only provisions of SFAS 123. No compensation expense was recognized in 2003 or 2002 for stock-based options related to the stock option plans. In 2004, we recognized $0.4 million in expense associated with stock options plans as a result of the modification of terms on 385,000 options. Had compensation expense for our stock-based plans been determined based on the fair market value at the grant date for awards during these periods consistent with the provisions of SFAS 123, our loss and per share loss applicable to common shareholders would have been increased to the pro forma amounts indicated below (in thousands, except per share amounts):

		Year Ended December 31,
		2004			2003			2002
Loss applicable to common shareholders:
As reported	$	(17,736	)	$	(18,170	)	$	(14,614	)

Stock-based employee compensation expense included in
reported loss (a)		583			1,130			1,455
Total stock-based employee compensation expense determined
under fair value based method for all awards		(3,344	)		(3,694	)		(3,012	)
Pro forma loss applicable to common Shareholders	$	(20,497	)	$	(20,734	)	$	(16,171	)


Loss applicable to common Shareholders per share:
As reported	$	(0.15	)	$	(0.16	)	$	(0.18	)
Pro forma	$	(0.17	)	$	(0.19	)	$	(0.20	)

(a) Includes value of restricted stock awards, realization of tax offset bonus’ on outstanding stock options, accruals for tax offset bonus, stock compensation paid to members of the Board of Directors, and the value of the modification of terms on 385,000 outstanding options.

Q. Reclassifications -- Certain reclassifications of prior year balances have been made to conform to the current year presentation. We have reclassified net mineral interests into net properties, plants and equipment on the December 31, 2003, Consolidated Balance Sheet to conform to the December 31, 2004, Consolidated Balance Sheet presentation.

R. New Accounting Pronouncements -- 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. 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 effect on our consolidated financial statements.

F-14

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. 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 effect on our consolidated financial statements.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor’s Accounting for Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107 and rescission of FASB Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others (“FIN 45”). The adoption of FIN 45 in 2003 did not have a material effect on our consolidated financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46) “Consolidation of Variable Interest Entities.” In December 2003, the FASB issued a revision to this interpretation (FIN 46(r)). FIN 46(r) clarifies the application 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. We adopted FIN 46 in 2003 for those provisions then in effect, which did not have a material effect on our consolidated financial statements. We adopted FIN 46(r) in 2004, which 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 and for hedging activities under FASB Statement No. 133 “Accounting for Derivative Instruments and Hedging Activities.” The adoption of this standard in 2003 did not have a material effect on our consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” SFAS No. 150 establishes standards on the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The adoption of SFAS No. 150 in 2003 did not have a material effect on our consolidated financial statements.

In December 2003, the FASB revised SFAS No. 132 “Employers’ Disclosures about Pensions and Other Postretirement Benefits-an amendment of FASB Statements No. 87, 88, and 106.” SFAS No. 132 has been revised to include additional disclosures about the assets, obligations, cash flows and net periodic benefit costs of defined benefit pension plans and other defined benefit postretirement plans. The revisions do not change the measurement or recognition of those plans required by existing standards. We adopted the new disclosure requirements of SFAS No. 132 in 2003.

F-15

In January 2004, the FASB issued a FASB Staff Position (“FSP”) regarding SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” FSP 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” discusses the effect of the Medicare Prescription Drug, Improvement and Modernization Act (“the Prescription Act”) enacted on December 8, 2003. FSP 106-1 considers the effect of the two new features introduced in the Prescription Act in determining accumulated postretirement benefit obligation (“APBO”) and net periodic postretirement benefit cost, which may serve to reduce a company’s postretirement benefit costs. Companies may elect to defer accounting for this benefit or may attempt to reflect the best estimate of the impact of the Prescription Act on net periodic costs currently. We have chosen to defer accounting for the benefit until the FASB issues final accounting guidance due to various uncertainties related to this legislation and the appropriate accounting. Our measures of APBO and net periodic postretirement benefit costs as of and for the period ended December 31, 2004 do not reflect the effect of the Prescription Act.

In May 2004, the FASB issued a second FSP regarding SFAS No. 106. FSP 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” discusses the effect of the Prescription Act. FSP 106-2 considers the effect of the two new features introduced in the Prescription Act in determining APBO and net periodic postretirement benefit cost, which may serve to reduce a company’s post-retirement benefit costs. The adoption of FSP 106-2 did not have a material impact on our consolidated financial statements.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an Amendment of ARB No. 43, Chapter 4.” SFAS 151 amends ARB 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) be recognized as current period charges. It also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS 151 did not have a material effect on our consolidated financial statements.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an Amendment of APB Opinion No. 29.” The guidance in APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in APB Opinion No. 29, however, included certain exceptions to that principle. SFAS No. 153 amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary asset exchanges in fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 is not expected to have a material effect on our consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment.” This Statement is a revision to SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123(R) requires the measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award. No compensation cost is recognized for equity instruments for which employees do not render service. We will adopt SFAS No. 123(R) on July 1, 2005, requiring compensation cost to be recognized as expense for the portion of outstanding unvested awards, based on the grant-date fair value of those awards calculated using an option pricing model. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. We are currently evaluating the effect this new pronouncement will have on our consolidated financial statements.

F-16

In April 2004, the Financial Accounting Standards Board (“FASB”) ratified Emerging Issues Task Force (“EITF”) Issue No. 04-2, which amends Statement of Financial Accounting Standards (“SFAS”) No. 141 “Business Combinations” to the extent all mineral rights are to be considered tangible assets for accounting purposes. There has been diversity in practice related to the application of SFAS No. 141 to certain mineral rights held by mining entities that are not within the scope of SFAS No. 19 “Financial Accounting and Reporting by Oil and Gas Producing Companies.” The SEC staff’s position previously was entities outside the scope of SFAS No. 19 should account for mineral rights as intangible assets in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets.” At March 31, 2004, we reclassified the net cost of mineral interests and associated accumulated amortization to property, plant and equipment of $5.1 million, and reclassified the amount recorded at December 31, 2003, of $5.3 million.

In December 2004, the FASB issued two FSPs that provide accounting guidance on how companies should account for the effects of the American Jobs Creation Act of 2004 (the Act) that was signed into law on October 22, 2004. The Act could affect how companies report their deferred income tax balances. The first FSP is FSP FAS 109-1 (FSP 109-1); the second is FSP FAS 109-2 (FSP 109-2). In FSP 109-1, the FASB concludes that the tax relief (special tax deduction for domestic manufacturing) from the Act should be accounted for as a “special deduction” instead of a tax rate reduction. FSP 109-2 gives a company additional time to evaluate the effects of the Act on any plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109, “Accounting for Income Taxes.” However, a company must provide certain disclosures if it chooses to utilize the additional time granted by the FASB. We are evaluating the impact, if any, these FSPs may have on our consolidated financial statements.

F-17

Note 2. Short-Term Investments, Investments, and Restricted Cash

Short-term Investments

Investments consisted of the following at December 31, 2004 and 2003 (in thousands):

	2004		2003
Certificates of deposit	$	6,498	$	3,094
United States government and federal agency securities		9,500		5,616
Municipal securities		1,480		6,091
Corporate bonds		1,000		3,202
Marketable equity security (cost - $7,807)		9,700		- -
	$	28,178	$	18,003

With the exception of marketable equity securities, all of the investments held at December 31, 2004 will mature during 2005.

Non-current Investments

At December 31, 2004 and 2003, the fair value of our non-current investments were $1.7 million and $0.7 million, respectively. The cost of these investments was approximately $0.4 million and $0.1 million, respectively.

Restricted Cash and Investments

Various laws and permits require that financial assurances be in place for certain environmental and reclamation obligations and other potential liabilities. Restricted investments primarily represent investments in money market funds and bonds of U.S. government agencies. These investments are restricted primarily for reclamation funding or surety bonds and were $19.8 million at December 31, 2004, and $6.4 million at December 31, 2003.

During the third quarter of 2003, the parties to the Greens Creek joint venture determined it would be necessary to replace existing surety requirements via the establishment of a restricted trust for future reclamation funding. In 2004, the joint venture placed into restricted cash $26.6 million to the trust of which our 29.73% portion is $7.9 million.

In April 2004, we posted a cash deposit with the Superior Tax Court in Venezuela of approximately $4.3 million related to alleged unpaid tax liabilities that predates our purchase of the La Camorra unit. The former owner has assumed defense of the pending tax case. For additional information, refer to Note 8 of Notes to Consolidated Financial Statements.

F-18

We have received notification of approval of the federal permits needed from the Bureau of Land Management (“BLM”) for the Hollister Development Block exploration project in Nevada. The BLM reviewed the necessary bonding calculations associated with this project and in March 2004, required us to post a bond of approximately $1.0 million. In order to secure the bond, we deposited this amount in a restricted account as collateral for this bond.

Note 3: Inventories

Inventories consist of the following (in thousands):

	December 31,
	2004		2003
Concentrates, doré, bullion, metals in transit and other products	$	4,965	$	7,745
Stockpiled ore		2,782		43
Materials and supplies		12,503		9,148
	$	20,250	$	16,936

At December 31, 2004, we had forward sales contracts for 4,050 metric tons of lead, at an average price of $782.40 per metric ton, equal to a total contract value of $3.2 million. These forward contracts expose us 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 the agreement. For additional information, see Note 11 to Notes to Consolidated Financial Statements.

In October 2004, employees at the Velardeña mill, where ore from our San Sebastian mine is milled, initiated a strike that has continued into 2005. During the fourth quarter of 2004 and continuing in 2005, the mine is operating and stockpiling ore in preparation for future processing. Only those costs directly related to mining operations at San Sebastian are included in our stockpile inventory in Mexico. Inventories at December 31, 2004, include $2.4 million for ore mined and stockpiled at the San Sebastian mine in Mexico. The Company is currently evaluating the use of contract custom milling facilities to process the stockpiled ore.

At December 31, 2003, we had forward sales contracts for 48,928 ounces of gold at an average price of $288.25. During 2004, we delivered physical metal into these contracts, and no gold forward contracts are outstanding as of December 31, 2004.

F-19

Note 4: Properties, Plants and Equipment and Mineral Interests

The major components of properties, plants and equipment are (in thousands):

		December 31,
		2004		2003
Mining properties	$	13,127	$	13,947
Development costs		118,411		109,734
Plants and equipment		183,581		176,369
Land		857		655
Mineral interests		7,338		6,722
Construction in progress		31,159		8,796
		354,473		316,223
Less accumulated depreciation, depletion and amortization		239,958		220,908
Net carrying value	$	114,515	$	95,315

We make royalty payments on production from the San Sebastian unit equivalent to 2.5% of the net smelter return that escalates to 3% after the first 500,000 troy ounces of gold equivalent are shipped. Total royalties paid during the years ended December 31, 2004, 2003 and 2002 were $0.6 million, $0.8 million and $0.5 million, respectively. As of December 31, 2004, we have shipped approximately 290,000 troy ounces of gold equivalent.

In 2002, we sold our headquarters building in Coeur d‘Alene, Idaho, for $5.6 million in cash. In connection with the sale, we entered into a lease agreement with the purchaser to lease a portion of the building. The lease calls for monthly payments of approximately $42,000 through April 30, 2006. The company, at its option, may extend the lease an additional five years. The sale of the building resulted in a gain of $0.6 million, which we are amortizing over the current lease period of five years. During 2004, 2003 and 2002, we recognized approximately $123,000, $123,000 and $90,000, respectively, of gain on the sale.

In addition to our building lease, we enter into operating leases during the normal course of business. During the years ended December 31, 2004, 2003 and 2002, we incurred expenses of $0.6 million, $0.7 million and $0.5 million, respectively, for these leases. Future obligations under our noncancelable leases are as follows (in thousands):

Year ending December 31,
2005	$	731
2006		611
2007		146
2008		19
2009		15
Total	$	1,522

F-20

In May 2004, our board of directors approved expenditures of approximately $31 million to develop the Mina Isidora gold mine on the Block B lease in eastern Venezuela’s El Callao gold district. We acquired the Block B exploration and mining lease in March 2002. As of December 31, 2004, the development project is approximately 35% complete including approximately $10.0 million of capitalized costs, and the mine is scheduled to reach full production in the second quarter of 2006. Ore from Mina Isidora will be shipped to the La Camorra mill for processing, and the mine will be included as a property under our La Camorra unit for reporting purposes.

In August 2002, we entered into an earn-in agreement with Rodeo Creek Gold, Inc., a wholly owned subsidiary of Great Basin Gold Ltd. (“Great Basin”), concerning exploration, development and production on Great Basin’s Hollister Development Block gold property, located on the Carlin Trend in Nevada. An “earn-in” agreement is an agreement under which a party must take certain actions in order to “earn” an interest in an entity. The agreement provides us with an option to earn a 50% working interest in the Hollister Development Block in return for funding a two-stage, advanced exploration and development program leading to commercial production. We estimate the cost to achieve our 50% interest in the Hollister Development Block to be approximately $21.8 million, and at December 31, 2004, we had spent approximately $6.1 million. As of December 31, 2004, we were contractually committed to approximately $4.3 million, which represents the remaining portion committed by us to complete the first stage of the agreement. Upon earn-in, we will be the operator of the mine.

Pursuant to the Earn-in Agreement, we and Great Basin each agreed to issue a series of warrants to the other party, entitling the parties to purchase one another’s common stock within two years from the date of issuance of the warrants at prevailing market prices at such date. In August 2002, we issued a warrant to purchase 2.0 million shares of our common stock to Great Basin and Great Basin issued a warrant to purchase 1.0 million shares of its common stock to us. The warrant we issued to Great Basin was recorded at its estimated fair value of $1.9 million. The estimated fair value of the Great Basin warrant received was $0.2 million. The resulting difference was recorded as an addition to mineral interests. The warrant to purchase our common stock was exercised by Great Basin in November 2003, in which we received cash proceeds of approximately $7.5 million. In January 2004, we exercised a portion of our warrant to purchase 1.0 million shares, by purchasing 250,000 shares of Great Basin common stock for $0.3 million. In August 2004, the remaining 750,000 warrants to purchase shares of Great Basin expired unexercised, and as a result we recognized an impairment loss of the remaining investment balance of $0.1 million.

The Earn-In Agreement obligates us to issue: (i) a warrant to Great Basin, entitling it to purchase an additional 1.0 million shares of our common stock, exercisable at the then market value of our common stock on the date of issuance, if and when we decide to commence certain development activities, and, (ii) an additional warrant to Great Basin, entitling it to purchase 1.0 million shares of our common stock, exercisable at the then market value of our common stock on the date of issuance, following completion of such activities, if undertaken. Great Basin will issue warrants to us, entitling us to purchase 500,000 shares of its common stock immediately upon receipt of the second and third warrants to purchase our stock. In addition to the foregoing, we will pay to Great Basin from our share of commercial production, a sliding scale royalty that is dependent on the cash operating profit per ounce of gold equivalent production. No production occurred to date and therefore, no royalty has been paid.

F-21

The La Camorra mine purchase agreement includes a provision to pay Monarch Resources a net smelter return (“NSR”) royalty on production exceeding a cumulative total of 600,000 ounces of gold from the properties acquired from Monarch Resources in Venezuela. The royalty is based on a sliding scale dependent on the price of gold. When the gold price is below $300.00 per troy ounce there is no royalty, when the price is between $300.00 and $399.99 per troy ounce the royalty is 1%, when the price is between $400.00 and $499.99 per troy ounce the royalty is 2% and when the price is $500.00 and above the royalty is 3%. The production milestone was reached in the second quarter of 2004, and gold production since that time has been subject to the provisions of the royalty agreement. As a result, approximately $0.5 million in royalty expense was incurred in 2004, and no royalties were recognized during 2003 and 2002.

We are also subject to a royalty obligation on the Block B property in Venezuela. Under the agreement, we are required to pay CVG-Minerven a royalty of 2% to 3%, depending on the gold price, on production from Block B. No production occurred for Block B in 2004, 2003 and 2002; therefore, no royalties have been paid to CVG-Minerven.

In August 2003, our board of directors approved the development of a production shaft at the La Camorra mine in Venezuela, which is scheduled to enter operation during the second quarter of 2005. At December 31, 2004, we estimate the remaining cost to complete the shaft to be approximately $5.7 million.

In October 2003, we acquired a pre-existing lease within the Block B area for $750,000 in cash plus the assumption of $1.3 million in debt, which was paid during 2003.

In January 2005, we signed a letter of intent to acquire the Guariche gold project in Venezuela, which would more than double our land position in that country. To obtain the property, we will acquire the shares of the subsidiary corporations of Triumph Gold Corporation (“Triumph”), which collectively control the concessions. The transaction is subject to approval of the board of directors of each company, as well as the shareholders of Triumph. We have proposed to issue to Triumph 1.24 million units of stock, each unit consisting of one share of common stock and one warrant entitling the holder to purchase one additional common share for a period of three years. The warrant exercise price shall be the average closing price of our common shares for the 10 days preceding closing. In addition to the stock and warrants, we have agreed to a cash payment to Triumph of $75,000 as well as giving Triumph the ability to earn an interest into the rights that we have in two other Venezuelan concessions by conducting exploration on the properties. The letter of intent provides us the right to buy back into the properties and operate them, as well as providing us with a right to buy into Triumph’s Las Flores property.

F-22

Note 5: Environmental and Reclamation Activities

The liabilities accrued for our reclamation and closure costs at December 31, 2004 and 2003, were as follows (in thousands):

Operating properties:		2004			2003
Greens Creek	$	4,746		$	4,486
La Camorra unit		1,475			1,240
San Sebastian		1,917			1,812
Lucky Friday		498			677
Hollister		630			- -
Nonoperating properties:
Grouse Creek		31,734			32,154
Coeur d’Alene Basin		23,600			18,000
Bunker Hill		4,533			6,831
Republic		2,600			2,594
All other sites		3,455			2,838
Total		75,188			70,632
Amount reflected as current		(9,237	)		(7,400	)
Amount reflected as long-term	$	65,951		$	63,232

In 2004, we recorded accruals totaling $10.3 million for future environmental and reclamation expenditures, primarily for anticipated past response costs in Idaho’s Coeur d’Alene Basin ($5.6 million) and for the Grouse Creek mine cleanup in central Idaho ($2.9 million). For additional information on the Coeur d’Alene Basin and Court ruling, see Note 8 of Notes to Consolidated Financial Statements.

We have developed a revised reclamation cost estimate for the Grouse Creek mine, which suspended operations in 1997. The estimate is based on our assumptions of time required for dewatering in compliance with current regulations. We have commenced dewatering of the tailings impoundment and developed a conceptual 15-year closure plan that provided the basis for the increase in estimated costs of $2.9 million discussed above.

F-23

The activity in our accrued reclamation and closure cost liability for the years ended December 31, 2004, 2003 and 2002, was as follows (in thousands):

Balance at January 1, 2002	$	52,481
Accruals for estimated costs		2,514
Payment of reclamation obligations		(5,272	)

Balance at December 31, 2002		49,723
Accruals for estimated costs		24,086
Adoption of SFAS No. 143 and subsequent additions due to changes in reclamation plans		1,744
Payment of reclamation obligations		(4,921	)

Balance at December 31, 2003		70,632
Accruals for estimated costs		10,271
Revision of estimated cash flows due to changes in reclamation plans		569
Payment of reclamation obligations		(6,284	)
Balance at December 31, 2004	$	75,188

For additional information regarding environmental matters, see Note 8 of Notes to Consolidated Financial Statements.

In August 2001, the FASB issued SFAS No. 143 “Accounting for Asset Retirement Obligations,” which we adopted in January 2003. Upon initial application of SFAS No. 143 on January 1, 2003, we recorded the following:

1.	An increase of approximately $0.7 million to accrued reclamation and closure costs to reflect the estimated present value of reclamation liabilities based on the discounted fair market value of future cash flows to settle the obligation;

2.	An increase to the carrying amounts of the associated long-lived assets of approximately $3.3 million to capitalize the present value of the liabilities as of the date the obligation occurred, offset by $1.5 million of accumulated depletion through January 1, 2003; and

3.	A cumulative effect of change in accounting principle of $1.1 million gain, reflecting the difference between those amounts and amounts previously recorded in our consolidated financial statements at January 1, 2003.

In September 2004, we assessed future closure costs at our operating properties and revised their associated long-lived assets and adjusted our reclamation and closure costs accordingly. The sum of our estimated reclamation and abandonment costs was discounted using a credit adjusted, risk-free interest rate of 6% from the time we expect to pay the retirement obligation to the time we incurred the obligation, along with assumed annual inflation of 2.5%.

F-24

The following is a reconciliation, as of December 31, 2004 and 2003, of the total liability for asset retirement obligations, which are part of our $75.2 million and $70.6 million accrued reclamation and closure costs, respectively (in thousands):

	2004			2003
Balance January 1	$	7,631		$	6,053
Changes in obligations due to changes in reclamation plans		(15	)		1,031
Accretion expense		263			747
Payment of reclamation obligations		(17	)		(200	)
Balance December 31	$	7,862		$	7,631

If SFAS No. 143 had been in effect as of January 1, 2002, our total liability for asset retirement obligations would have been approximately $5.5 million. The following table presents the pro forma effects of the application of SFAS No. 143 for the year ended December 31, 2002, as if SFAS No. 143 had been in effect for that period (in thousands, except per share data):

	For the Year Ended December 31,
	2002
Reported loss applicable to common shareholders	$	(14,614	)
Adjustment to cost of sales and other direct production costs		1,038
Adjustment to depreciation, depletion and amortization		(523	)
Pro forma loss applicable to common shareholders	$	(14,099	)

Basic and diluted loss per share:
As reported	$	(0.18	)
Pro forma	$	(0.18	)

F-25

Note 6: Income Taxes

Major components of our income tax provision (benefit) for the years ended December 31, 2004, 2003 and 2002, relating to continuing operations are as follows (in thousands):

	2004		2003		2002
Current:
Federal	$	117	$	- -	$	- -
State		4		6		- -
Foreign		347		534		382

Total current income tax provision	468	540	382

Deferred:
Federal	- -	- -	- -
Foreign	2,323	677	(3,300	)
Total deferred income tax provision (benefit)	2,323	677	(3,300	)

Total income tax provision (benefit)

2,791

1,217

(2,918

)

For the years ended December 31, 2004, 2003 and 2002, the income tax provision related to discontinued operations was zero.

Domestic and foreign components of income (loss) from continuing operations before income taxes, discontinued operations and cumulative effect of change in accounting principle, for the years ended December 31, 2004, 2003 and 2002, are as follows (in thousands):

	2004			2003			2002
Domestic	$	(9,144	)	$	(26,973	)	$	(11,234	)
Foreign		5,801			21,102			19,179
Total	$	(3,343	)	$	(5,871	)	$	7,945

F-26

As of December 31, 2004, a valuation allowance was recorded on deferred tax assets of $156 million. Recent changes in operations in Mexico reduced 2004 utilization of Mexican net operating loss carryforward to $96,000 and future taxable income is not determinable at this time. Consistent with prior years, a valuation allowance remains on the deferred assets in the U.S. and Venezuela, therefore no net deferred tax asset is recorded as of December 31, 2004. The components of the net deferred tax asset were as follows (in thousands):

	December 31,
	2004			2003

Deferred tax assets:
Accrued reclamation costs	$	26,043		$	23,273
Investment valuation differences		710			1,357
Postretirement benefits other than pensions		1,462			1,099
Deferred compensation		897			282
Foreign net operating losses		3,872			2,796
Federal net operating losses		110,399			118,014
State net operating losses		13,547			14,518
Tax credit carryforwards		2,604			1,362
Miscellaneous		2,973			1,663
Total deferred tax assets		162,507			164,364
Valuation allowance		(155,968	)		(156,463	)
Total deferred tax assets		6,539			7,901
Deferred tax liabilities:
Pension costs		(4,783	)		(4,266	)
Properties, plants and equipment		(699	)		(1,312	)
Inventory		(1,057	)		- -
Total deferred tax liabilities		(6,539	)		(5,578	)
Net deferred tax asset	$	- -		$	2,323

F-27

We recorded a valuation allowance to reflect the estimated amount of deferred tax assets, which may not be realized principally due to the expiration of net operating losses and tax credit carryforwards. The changes in the valuation allowance for the years ended December 31, 2004, 2003 and 2002, are as follows (in thousands):

	2004			2003			2002

Balance at beginning of year	$	(156,463	)	$	(150,165	)	$	(153,214	)

Increase related to nonutilization of net operating loss carryforwards and nonrecognition of deferred tax assets due to uncertainty of recovery		(5,768	)		(12,408	)		- -

(Increase) decrease related to net recognition of foreign deferred tax asset		(2,323	)		(677	)		3,000

Decrease related to utilization and expiration of net operating loss carryforwards		8,586			6,787			49
Balance at end of year	$	(155,968	)	$	(156,463	)	$	(150,165	)

The annual tax provision (benefit) is different from the amount that would be provided by applying the statutory federal income tax rate to our pretax income (loss). The reasons for the difference are (in thousands):

	2004					2003					2002


Computed “statutory” (benefit)/provision	$	(1,137	)	(34	)%	$	(1,996	)	(34	)%	$	2,701		34	%
Net increase (reduction) of valuation
allowance on Mexican loss carryforward		2,323		69			677		12			(3,000	)	(38	)
Nonutilization of net operating losses and
effect of state and foreign taxes		1,605		48			2,536		43			(2,619	)	(33	)
	$	2,791		83	%	$	1,217		21	%	$	(2,918	)	(37	)%

As of December 31, 2004, for U.S. income tax purposes, we have net operating loss carryforwards of $324.7 million and $265.8 million for regular and alternative minimum tax purposes, respectively. These operating loss carryforwards expire over the next 15 to 20 years, the majority of which expire between 2006 and 2022. In addition, we have foreign tax operating loss carryforwards of approximately $12.4 million, which expire between 2004 and 2014. Approximately $12.0 million of U.S. regular tax loss carryforwards are subject to limitations in any given year due to mergers. Our U.S. tax loss carryforwards may also be limited upon a change in control. We have approximately $1.0 million in alternative minimum tax credit carryforwards eligible to reduce future regular U.S. tax liabilities.

F-28

In February 2005, we were notified by the SENIAT, that it had completed its audit of our Venezuelan tax returns for the years ended December 31, 2002 and 2003. In the notice, the SENIAT has alleged certain expenses are not deductible for income tax purposes and that calculations of tax deductions based upon inflationary adjustments were overstated, and has issued an assessment that is equal to taxes payable of $3.8 million. We have initiated a review of the SENIAT’s findings, and believe the SENIAT’s assessments are inappropriate, and we expect to vigorously defend our position. Any resolution could involve significant delay, legal proceedings, and related costs and uncertainty. We have not accrued any amounts associated with the tax audits as of December 31, 2004. There can be no assurance that we will be successful in defending ourselves against the tax assessment, that there will not be additional assessments in the future or that SENIAT or other governmental agencies or officials may not take other actions against us, whether or not justified, that could disrupt our operations in Venezuela and have a material adverse effect on our financial condition.

Note 7: Long-term Debt and Credit Agreement

At December 31, 2003, our wholly owned subsidiary, Hecla Resources Investments Limited had $0.5 million outstanding under a credit agreement used to provide project financing at the La Camorra mine. This debt was paid in full in 2004.

At December 31, 2003, we had $1.0 million outstanding under a subordinated loan agreement. This debt was paid in full in 2004.

At December 31, 2003, our wholly owned subsidiary, Minera Hecla had $3.2 million outstanding under a project loan used to acquire a processing mill at Velardeña, Mexico, to process ore mined from San Sebastian located near Durango, Mexico. This debt was paid in 2004.

At December 31, 2004, there was no debt outstanding.

Note 8: Commitments and 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 the Kellogg, Idaho area. The 1994 Consent Decree (the “1994 Decree”) settled our response-cost responsibility 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.

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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 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, in April 2003, we requested the Court release Hecla and ASARCO from future work under the 1994 Decree within the Bunker Hill site. On November 18, 2003, the Idaho Federal District Court issued its order on ASARCO’s and our request for final relief on the motion to modify the 1994 Decree. The Court held that we and ASARCO were entitled to a reduction of $7.0 million from the remaining work or costs under the 1994 Decree. Pursuant to the Court’s order, the parties to the 1994 Decree have negotiated an agreement for crediting this reduction against the government’s past cost claims and future work and payments under the 1994 Decree. In January 2004, both the United States and the State of Idaho filed notice of their appeal of the Federal District Court’s order modifying the 1994 Consent Decree.

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 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 through 2005.

As of December 31, 2004, we have estimated and accrued a liability for remedial activity costs at the Bunker Hill site of $4.5 million, which are anticipated to be made over the next three to four 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.

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. The Tribe’s natural resource damage litigation has been consolidated with the United States’ litigation described below. Because of various bankruptcies and settlements of other defendants, we are the only remaining defendant in the Tribe’s Natural Resource Damages case.

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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.

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 participated with certain of the other defendants in the litigation in a State of Idaho-led settlement effort. In August 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. In August 2002, because the parties were making no progress toward a final settlement under the terms of the Agreement in Principle, the United States, the State of Idaho and we 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.

The first phase of the trial commenced on the consolidated Coeur d’Alene Indian Tribe’s and the United States’ claims in January 2001, and was concluded in July 2001. The first phase of the trial addressed the extent of liability, if any, of the defendants and the allocation of liability among the defendants and others, including the U.S. Government. In September 2003, the Court issued its Phase I ruling, holding that we have some liability for Coeur d’Alene Basin environmental conditions. The Court refused to hold the defendants jointly and severally liable for historic tailings releases and instead allocated a 31% share of liability to us for impacts resulting from these releases. The portion of damages, past costs and clean-up costs to which this 31% applies, other cost allocations applicable to us and the Court’s determination of an appropriate clean-up plan will be addressed in the Phase II trial. The Court also left for the Phase II trial issues on the deference, if any, to be afforded the Government’s clean-up plan. The Court has not yet scheduled the second phase of the trial.

F-31

The Court also found that while certain Basin natural resources had been injured, “there has been an exaggerated overstatement” by the plaintiffs of Basin environmental conditions and the mining impact. The Court also significantly limited the scope of the trustee plaintiffs’ resource trusteeship and will require proof in the Phase II trial of the trustees’ percentage of trusteeship in co-managed resources. The U.S. Government and the Coeur d’Alene Tribe are re-evaluating their claims for natural resource damages for the Phase II trial. Although we believe, because of the actions of the Court described above, we have limited liability for natural resource damages, such claims may be in the range of $2.0 billion and $3.4 billion. Because of a number of factors relating to the quality and uncertainty of the U.S. Government’s and Tribe’s natural resources damage claims, we are currently unable to estimate any liability or range of liability for these claims.

In expert reports exchanged with the defendants in August and September 2004, the U.S. Government claimed to have incurred approximately $87 million for past environmental study, remediation and legal costs associated with the Coeur d’Alene Basin for which it is alleging it is entitled to reimbursement in the Phase II trial. A portion of these costs is also included in the work to be done under the ROD. With respect to the U.S. Government’s past cost claims, we have determined a potential range of liability between $5.6 million and $13.6 million, with no amount in the range being more likely than any other amount. At September 30, 2004, we recorded an accrual for the U.S. Government past cost claim of $5.6 million.

The Phase II trial has not yet been scheduled by the court. 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.

Although the U.S. Government has previously issued its ROD proposing a clean-up plan totaling approximately $359 million and the U.S. Government’s past cost claim is $87 million, based upon the Court’s prior orders, including its September 2003 order and other factors and issues to be addressed by the Court in the Phase II trial, we currently estimate, including the September 2004 accrual of $5.6 million for past response costs, the range of our potential liability for both past costs and remediation (but not natural resource damages as discussed above) in the Basin to be $23.6 million to $72.0 million, with no amount in the range being more likely than any other number at this time. Based upon generally accepted accounting principles, we have accrued the minimum liability within this range, which at December 31, 2004, was $23.6 million. It is reasonably possible that our ability to estimate what, if any, additional liability we may have relating to the Coeur d’Alene Basin may change in the future depending on a number of factors, including information obtained or developed by us prior to the Phase II trial, any interim court determinations and the outcome of the Phase II trial.

Class Action Litigation

On 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 they allege resulted from historic mining and transportation practices of the defendants in the Coeur d’Alene Basin. On August 18, 2004, the District Court of Kootenai County issued its Opinion and Order with respect to a number of Summary Judgment Motions filed by the defendants in the litigation. In the Order, the Judge dismissed all of the plaintiff’s claims against the defendants, asserting that in each case the applicable statute of limitations had been exceeded prior to filing the lawsuit. The Court held that Hecla Mining Company had completely ceased discharging mill tailings into the South Fork of the Coeur d’Alene River in 1968 and that all mill tailings were deposited on lands within ten years of that date or by 1978. The Court stated that the action was brought in 2002, and the four-year statute of limitations had expired. Therefore, the Court held that the lawsuit against us was time barred. In September 2004, the plaintiffs filed a Notice of Appeal, appealing the District Court’s dismissal decision to the Idaho Supreme Court. On December 13, 2004 the Idaho Supreme Court, pursuant to a stipulation among the parties, dismissed the appeal and ordered each party to bear its own costs and attorney fees.

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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 Coeur d’Alene 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 1994 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 December 31, 2004, we have not reduced our accrual or recorded a receivable for reclamation and closure costs to reflect the receipt of any potential insurance proceeds.

Independence Lead Mines Litigation

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 unit, 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 alleged 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 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. In June 2002, Independence filed a lawsuit in Idaho State District Court seeking termination of the lease agreement and requesting unspecified damages. Trial of the case occurred from March 23 through April 1, 2004. On July 19, 2004, the Court issued a decision that found in our favor on all issues and subsequently awarded us approximately $0.1 million in attorney fees and certain costs, which Independence has paid. On August 10, 2004, Independence filed its Notice of Appeal that is currently pending before the Supreme Court of Idaho. We believe that we have complied in all material respects with all of our obligations under the 1968 lease agreement, and intend to continue defending our right to operate the property under the lease agreement.

Mexico Litigation

In Mexico, our wholly owned subsidiary, Minera Hecla, S.A. de C.V., was involved in litigation in Mexico City concerning a lien on certain major components of the Velardeña mill that predated the sale of the mill to Minera Hecla. At the time of the purchase, the lien amount was believed to be approximately $590,000, which was deposited by the prior owner of the mill with the Court. In January 2003, Minera Hecla deposited $145,000, which represented the amount of accrued interest since the date of sale, and the Court in Mexico City canceled the lien. In September 2003, the lien holder filed the last in a series of unsuccessful appeals before a federal appeals court in Mexico City. In February 2004, the federal appeals court in Mexico City upheld the lower court decisions that the lien had been canceled. We believe that the lien has been fully satisfied and the lien holder has exhausted all appeals.

Minera Hecla is also involved in other litigation in state and federal courts located within the State of Durango, Mexico, concerning the Velardeña mill. In October 2003, representatives from Minera William, S.A. de C.V. (an affiliate of the prior owner of the Velardeña mill and subsidiary of ECU Silver Mining, a Canadian company) presented to Minera Hecla court documents from a state court in Durango, Mexico, that purported to award custody of the mill to Minera William to satisfy an alleged unpaid debt by the prior owner. Minera Hecla was not a party to and did not have any notice of the legal proceeding in Durango. In October 2003, Minera Hecla obtained a temporary restraining order from a federal court in Durango to preserve our possession of the mill. In February 2004, Minera Hecla obtained a permanent restraining order that prohibits further interference with our operation and possession of the mill. Minera William appealed that decision and on March 8, 2005 the Federal Court of Appeals in the City and State of Durango upheld the lower court decision in favor of the Company. We believe the claim of Minera William is without merit and it has no right to any portion of the Velardeña mill. We intend to zealously defend our ownership interest.

The court proceedings discussed above do not affect Minera Hecla’s San Sebastian mine, located approximately 65 miles from the Velardeña mill. The above-mentioned dispute could result in future disruption of operations at the Velardeña mill. Although there can be no assurance as to the outcome of these proceedings, we believe an adverse ruling will not have a material adverse effect on our financial condition.

F-33

Venezuela Litigation

In February 2004, the Venezuelan National Guard impounded a shipment of approximately 5,000 ounces of gold doré produced from the La Camorra unit, which is owned and operated by our wholly owned subsidiary, Minera Hecla Venezolana, C.A. (“MHV”). The impoundment was allegedly made due to irregularities in documentation that accompanied the shipment. That shipment was stored at the Central Bank of Venezuela. In March 2004, we filed with the Superior Tax Court in Bolivar City, State of Bolivar an injunction action against the National Guard to release the impounded gold doré. In April 2004, that Court granted our request for an injunction, but conditioned release of the gold pending resolution of an unrelated matter (described in the following paragraph) involving the Venezuelan tax authority (“SENIAT”) that was proceeding in the Superior Tax Court in Caracas. In June 2004, the Superior Tax Court in Caracas ordered return of the impounded gold to Hecla. Although we encountered difficulties, delays, and costs in enforcing such order, the impounded gold was returned to us in July 2004 and was shipped to our refiner for further processing and sale by us. All subsequent shipments of gold doré have been exported without intervention by Venezuelan government authorities, but there can be no assurance that such impoundments may not occur in the future or, that, if such were to occur, they would be resolved in a similar manner or time frame or upon acceptable conditions or costs.

MHV is also involved in litigation in Venezuela with SENIAT concerning alleged unpaid tax liabilities that predate our purchase of the La Camorra unit from Monarch Resources (“Monarch”) in 1999. Pursuant to our Purchase Agreement, Monarch has assumed defense of and responsibility a pending tax case in the Superior Tax Court in Caracas. In April 2004, SENIAT filed with the Third Superior Tax Court in Bolivar City, State of Bolivar an embargo action against all of MHV’s assets in Venezuela to secure the alleged unpaid tax liabilities. In order to prevent the embargo, in April 2004, MHV made a cash deposit with the Court of approximately $4.3 million. In June 2004, the Superior Tax Court in Caracas ordered suspension and revocation of the embargo action filed by the SENIAT. Although we believe the cash deposit will continue to prevent any further action by SENIAT with respect to the embargo, there can be no assurances as to the outcome of this proceeding. If the tax court in Caracas or an appellate court were to subsequently award SENIAT its entire requested embargo, it could disrupt our operations in Venezuela and have a material adverse effect on our financial condition.

Other

In October 2004, the employees at the Velardeña mill in Mexico initiated a strike, in an attempt to unionize the employees at the San Sebastian mine. Although there can be no assurance as to the outcome or length of the strike, production was affected during the fourth quarter of 2004, and continues to be affected as of the date of this report. We currently believe the strike will not materially affect our longer-term expected production, although there can be no assurance that the strike will not affect our longer term production. The mine is stockpiling ore until the strike is resolved or contract milling facilities can be arranged.

F-34

The Central Bank of Venezuela maintains regulations concerning the export of gold from Venezuela. Under current regulations, 15% of our gold production from Venezuela is required to be sold in Venezuela. Prior to our acquisition of the La Camorra mine, the previous owners had sold substantially all of the gold production to the Central Bank of Venezuela and built up a significant credit to cover the 15% requirement, which we assumed upon our acquisition. Since we began operating in Venezuela in 1999, all our production of gold has been exported and no sales have been made in the Venezuelan market. We currently expect that our credit for national sales will be exhausted in the middle of 2005, and we may be required to sell 15% of our future gold production to either the Central Bank of Venezuela or to other customers within Venezuela. Markets within Venezuela are limited, and historically the Central Bank of Venezuela has been the primary customer of gold. There can be no assurance that the Central Bank of Venezuela will purchase gold from us, and we may be required to sell gold into a limited market, which could result in lower sales and cash flows from gold as a result of discounts, or we may have to inventory a portion of our gold production until such time we find a suitable purchaser for our gold. These matters could have a material adverse effect on our financial results.

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.

Note 9: Employee Benefit Plans

Pensions and Post-retirement Plans

We sponsor defined benefit pension plans covering substantially all U.S. employees and provide certain post-retirement benefits, principally health care and life insurance benefits for qualifying retired employees. The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of assets over the two-year period ended December 31, 2004, and a statement of the funded status as of December 31, 2004 and 2003 (in thousands):

	Pension Benefits						Other Benefits
	2004			2003			2004			2003
Change in benefit obligation:
Benefit obligation at beginning of year	$	54,927		$	47,071		$	1,531		$	1,376
Service cost		578			649			6			6
Interest cost		3,185			2,978			90			88
Participant transfers in		- -			100			- -			- -
Plan amendments		- -			1,714			- -			- -
Actuarial (gain) loss		254			5,848			(270	)		124
Benefits paid		(3,491	)		(3,433	)		(34	)		(63	)
Benefit obligation at end of year		55,453			54,927			1,323			1,531

Change in fair value of plan assets:
Fair value of plan assets at beginning of year		66,414			60,397			- -			- -
Actual return on plan assets		8,370			9,076			- -			- -
Employer and employee contributions		363			374			34			63
Benefits paid		(3,491	)		(3,433	)		(34	)		(63	)
Fair value of plan assets at end of year		71,656			66,414			- -			- -

Funded status at end of year		16,203			11,487			(1,323	)		(1,531	)
Unrecognized net actuarial gain		(7,015	)		(3,992	)		(338	)		(76	)
Unrecognized transition obligation		3			7			- -			- -
Unamortized prior-service cost		2,972			3,361			(17	)		59
Net amount recognized in consolidated
balance sheets	$	12,163		$	10,863		$	(1,678	)	$	(1,548	)

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The following table provides the amounts recognized in the consolidated balance sheets as of December 31, 2004 and 2003 (in thousands):

	Pension Benefits						Other Benefits
	2004			2003			2004			2003
Other noncurrent assets:
Prepaid benefit costs	$	14,069		$	12,547		$	- -		$	- -
Other noncurrent liabilities:
Accrued benefit liability		(4,078	)		(3,960	)		(1,678	)		(1,548	)
Intangible asset		804			876			- -			- -
Accumulated other comprehensive income (loss)		1,368			1,400			- -			- -
Net amount recognized	$	12,163		$	10,863		$	(1,678	)	$	(1,548	)

The benefit obligation and prepaid benefit costs were calculated by applying the following weighted average assumptions:


	Pension Benefits						Other Benefits
	2004			2003			2004			2003

Discount rate		6.00	%		6.00	%		6.00	%		6.00	%
Expected rate on plan assets		8.00	%		8.00	%		- -			- -
Rate of compensation increase		4.00	%		4.00	%		- -			- -

The above assumptions were calculated based on information as of September 30, 2004 and 2003, the measurement dates for the plans. The expected rate of return is based upon consideration of the plan’s current asset mix, historical long-term return rates and the plan’s historical performance. Our current expected rate on plan assets of 8.0% represents approximately 67% of our past five-year’s average annual return rate of 12%.

Net periodic pension cost (income) for the plans consisted of the following in 2004, 2003 and 2002 (in thousands):

	Pension Benefits									Other Benefits
	2004			2003			2002			2004			2003			2002

Service cost	$	578		$	649		$	534		$	6		$	6		$	9
Interest cost		3,186			2,978			2,814			90			88			183
Expected return on plan assets		(5,180	)		(4,733	)		(4,585	)		- -			- -			- -
Amortization of transition asset (obligation)		5			5			23			- -			- -			- -
Amortization of unrecognized prior
service cost		389			542			439			76			75			75
Amortization of unrecognized net
gain (loss) from earlier periods		86			(65	)		15			(8	)		(22	)		(18	)
Net periodic pension cost (income)	$	(936	)	$	(624	)	$	(760	)	$	164		$	147		$	249

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The weighted-average allocations of investments at September 30, 2004 and 2003, the measurement dates of the plan, by asset category in the Hecla Mining Company Retirement Plan (“Hecla Plan”) and the Lucky Friday Pension Plan (“Lucky Friday Plan”) are as follows:

	Hecla Plan						Lucky Friday Plan
	2004			2003			2004			2003
Interest-bearing cash		8	%		27	%		13	%		28	%
Equity securities		40	%		33	%		38	%		33	%
Debt securities		37	%		29	%		34	%		28	%
Real estate		0	%		0	%		0	%		0	%
Absolute return		10	%		0	%		10	%		0	%
Precious metals and other natural resources		5	%		11	%		5	%		11	%
Total		100	%		100	%		100	%		100	%

Precious metals and other natural resources include Hecla common stock in the amounts of $3.7 million and $7.3 million at September 30, 2004 and 2003, the measurement dates of the plan, respectively. These investments represent approximately 5.2% and 11.0% of the total combined assets of these plans at September 30, 2004 and 2003, respectively.

Hecla’s target asset allocations are currently set in the ranges that follow:

Equity Portion	30-46	%
Fixed Income Portion	29-43	%
Real Estate Portion	8-12	%
Absolute Return Portion	8-12	%
Precious Metals and Other Natural Resources Portion	5-10	%

During 2004, with the assistance of a consulting firm, we redefined target allocations and reallocated the investment portfolio of both plans. As part of this process, we added a Real Estate component to the fund, and the plan is holding cash for a future investment in Real Estate expected to occur in 2005. Investment objectives are established for each of the asset categories included in the pension plan with comparisons of performance against appropriate benchmarks. The policy calls for each portion of the investments be supervised by a Qualified Investment Manager(s). The Investment Managers are monitored on an ongoing basis by our outside consultant, with formal reporting to us and the consultant performed each quarter.

The future benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the following years (in thousands):

Year Ending December 31,	Hecla Plan		Lucky Friday Plan
2005	$	2,633	$	688
2006		2,610		764
2007		2,579		755
2008		2,579		806
2009		2,581		866
Years 2010-2014		13,512		4,545

We do not expect to contribute to the pension plans during the next year.

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The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $4.5 million, $4.1 million and zero, respectively, as of December 31, 2004, and $4.6 million, $4.0 million and zero, respectively, as of December 31, 2003.

Deferred Compensation Plans

We maintain a Deferred Compensation Plan that was approved by our shareholders that allows eligible officers and key employees to defer a portion or all of their compensation. A total of 6.0 million shares of common stock are authorized under this plan. Deferred amounts may be allocated to either an investment account or a stock account. The investment account is similar to a cash account and bears interest at the prime rate. In the stock account, quarterly deferred amounts and a 10% matching amount are converted into stock units equal to the average closing price of our common stock over a quarterly period. At the end of each quarterly period, participants are eligible to elect to convert a portion of their investment account into either the stock account, with no matching contribution, or participants may utilize the investment account to purchase discounted stock options. During 2004, 2003 and 2002, participants accumulated 7,130, 4,322 and 873 common stock units, respectively, into their stock accounts. In 2004, 456 common stock units were distributed to participants in the form of common shares. During 2004, 2003 and 2002, participants purchased approximately 394,485, 194,089 and 6,740 discounted stock options, respectively, under the plan. During 2004 and 2003, 16,728 and 34,239, respectively of those options were exercised. The plan also allows the board of directors to make other awards to employees. During 2004, the board of directors granted 187,500 restricted common stock units, which are subject to vesting requirements. In 2004, 2000 restricted common stock units reverted back to the plan as the units were not vested upon employee termination. The deferred compensation is distributable based upon predetermined dates as elected by the participants. As of December 31, 2004, the deferred compensation, together with matching amounts and accumulated interest, amounted to approximately $0.9 million, and we had 5,149,728 shares available for future deferral under the plan. At December 31, 2004, 57,133 common stock units were held under the terms of the Deferred Compensation Plan as compensation for the chairman of the board of directors.

Capital Accumulation Plans

We have an employees’ Capital Accumulation Plan, which is available to all U.S. salaried and certain hourly employees after completion of two months of service. Employees may contribute from 2% to 15% of their annual compensation to the plan. We make a matching contribution of 25% of an employee’s contribution up to, but not exceeding, 6% of the employee’s earnings. Our contribution was approximately $0.1 million in 2004, 2003, and 2002.

We also maintain an employee’s 401(k) plan, which is available to all hourly employees at the Lucky Friday unit after completion of six months of service. Employees may contribute from 2% to 15% of their compensation to the plan. We make a matching contribution of 25% of an employee’s contribution up to, but not exceeding, 5% of the employee’s earnings. Our contribution was approximately $29,000 in 2004, $21,000 in 2003, and $19,000 in 2002.

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Note 10: Shareholders’ Equity

Common Stock

We are authorized to issue 200,000,000 shares of common stock, $0.25 par value per share, of which 118,342,587 shares of common stock were outstanding as of December 31, 2004. All of our currently outstanding shares of common stock are listed on the New York Stock Exchange under the symbol “HL”.

Subject to the rights of the holders of any outstanding shares of preferred stock, each share of common stock is entitled to: (i) one vote on all matters presented to the stockholders, with no cumulative voting rights; (ii) receive such dividends as may be declared by the board of directors out of funds legally available therefore; and (iii) in the event of our liquidation or dissolution, share ratably in any distribution of our assets.

Common Stock Offerings

In January 2003, we completed an underwritten public offering of 23.0 million shares of our common stock. The public offering also included 2.0 million shares offered 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, 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 offered by the benefit plans and 2.0 million shares of our common stock issuable upon exercise of a warrant issued to Great Basin. The Registration Statement became effective in January 2003. In November 2003, Great Basin exercised its warrant to purchase 2.0 million shares of our common stock, and we received proceeds of approximately $7.5 million from the exercise.

During 2002, previously outstanding warrants to purchase 1,098,801 shares were exercised, and proceeds of $1.8 million were realized from the exercise of the warrants.

Rights

Each share of our common stock is accompanied by a Series A junior participating preferred stock purchase right (a “Right”) that trades with the share of common stock. Upon the terms and subject to the conditions of our Rights Agreement dated as of May 10, 1996 (the “Rights Agreement”), a holder of a Right is entitled to purchase one one-hundredth of a share of Series A preferred stock at an exercise price of $50, subject to adjustment in several circumstances, including upon a merger. The Rights are currently represented by the certificates for our common stock and are not transferable apart there from. Transferable rights certificates will be issued at the earlier of (i) the 10th day after the public announcement that any person or group has acquired beneficial ownership of 15% or more of our common stock (an “Acquiring Person”) or (ii) the 10th day after a person commences, or announces an intention to commence, a tender or exchange offer the consummation of which would result in any person or group becoming an Acquiring Person. The 15% threshold for becoming an Acquiring Person may be reduced by the board of directors to not less than 10% prior to any such acquisition.

All the outstanding Rights may be redeemed by us for $0.01 per Right prior to such time that any person or group becomes an Acquiring Person. Under certain circumstances, the board of directors may decide to exchange each Right (except Rights held by an Acquiring Person) for one share of common stock. The Rights will expire on May 19, 2006, unless earlier redeemed.

A Right is currently attached to each issued and outstanding share of common stock. As long as the Rights are attached to and evidenced by the certificates representing our common stock, we will continue to issue one Right with each share of common stock that shall become outstanding.

F-39

Preferred Stock

Our Charter authorizes us to issue 5,000,000 shares of preferred stock (Series A and B), par value $0.25 per share. The preferred stock is issuable in series with such voting rights, if any, designations, powers, preferences and other rights and such qualifications, limitations and restrictions as may be determined by our board of directors or a duly authorized committee thereof, without stockholder approval. The board may fix the number of shares constituting each series and increase or decrease the number of shares of any series. As of December 31, 2004, there were 157,816 shares of Series B Cumulative Convertible Preferred Stock outstanding. All of the shares of our Series B Preferred Stock are listed on the New York Stock Exchange under the symbol “HLPRB”.

Ranking

The Series B preferred stock ranks senior to our common stock and any shares of Series A Preferred Shares issued pursuant to the Rights (as defined above) with respect to payment of dividends and amounts upon liquidation, dissolution or winding up.

While any shares of Series B preferred stock are outstanding, we may not authorize the creation or issue of any class or series of stock that ranks senior to the Series B preferred stock as to dividends or upon liquidation, dissolution or winding up without the consent of the holders of 66⅔% of the outstanding shares of Series B preferred stock and any other series of preferred stock ranking on a parity with the Series B preferred stock as to dividends and upon liquidation, dissolution or winding up (a “Parity Stock”), voting as a single class without regard to series.

Dividends

Series B preferred stockholders are entitled to receive, when, as and if declared by the board of directors out of our assets legally available therefore, cumulative cash dividends at the rate per annum of $3.50 per share of Series B preferred stock. Dividends on the Series B preferred stock are payable quarterly in arrears on October 1, January 1, April 1 and July 1 of each year (and, in the case of any undeclared and unpaid dividends, at such additional times and for such interim periods, if any, as determined by the board of directors), at such annual rate. Dividends are cumulative from the date of the original issuance of the Series B preferred stock, whether or not in any dividend period or periods we have assets legally available for the payment of such dividends. Accumulations of dividends on shares of Series B preferred stock do not bear interest.

Redemption

The Series B preferred stock is redeemable at our option, in whole or in part, at $50 per share, plus, in each case, all dividends undeclared and unpaid on the Series B preferred stock ($14.875 per share at January 3, 2005) up to the date fixed for redemption, upon giving notice as provided below.

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Liquidation Preference

The Series B preferred stockholders are entitled to receive, in the event that we are liquidated, dissolved or wound up, whether voluntary or involuntary, $50 per share of Series B preferred stock plus an amount per share equal to all dividends undeclared and unpaid thereon to the date of final distribution to such holders (the “Liquidation Preference”), and no more. Until the Series B preferred stockholders have been paid the Liquidation Preference in full, no payment will be made to any holder of Junior Stock upon our liquidation, dissolution or winding up. The term “Junior Stock” means our common stock and any other class of our capital stock issued and outstanding that ranks junior as to the payment of dividends or amounts payable upon liquidation, dissolution and winding up to the Series B preferred stock. As of December 31, 2004, our preferred stock had a liquidation preference of $7.9 million, plus dividends in arrears of approximately $2.3 million.

Voting Rights

Except as indicated below, or except as otherwise from time to time required by applicable law, the Series B preferred stockholders have no voting rights and their consent is not required for taking any corporate action. When and if the Series B preferred stockholders are entitled to vote, each holder will be entitled to one vote per share.

Because we had not declared and paid six quarterly dividends on the Series B preferred stock, the Series B preferred stockholders, voting as a single class, elected two additional directors to the board to serve for three-year terms at our annual meeting on May 10, 2002. The Series B preferred stockholders will have the right to elect two directors (never to total more than two) at subsequent annual meetings at which the three-year terms expire if any cumulative dividends then remain unpaid.

Conversion Rights

Each share of Series B preferred stock is convertible, in whole or in part at the option of the holders thereof, into shares of common stock at a conversion price of $15.55 per share of common stock (equivalent to a conversion rate of 3.2154 shares of common stock for each share of Series B preferred stock). The right to convert shares of Series B preferred stock called for redemption will terminate at the close of business on the day preceding a redemption date (unless we default in payment of the redemption price).

F-41

During the years ended December 31, 2004, 2003, and 2002, we entered into various agreements to acquire Series B preferred stock in exchange for newly issued shares of common stock as follows:

	Year Ended December 31,
	2004		2003		2002
Number of shares of Series B preferred stock exchanged for shares of common stock		306,961		288,625		1,546,598
Number of shares of common stock issued		2,436,098		2,183,719		10,826,186
Non-cash preferred stock dividend incurred in exchange (millions of dollars) ⁽¹⁾	$	10.9	$	9.6	$	17.6

(1) The non-cash dividend represents the difference between the value of the common stock issued in the exchange offer and the value of the shares that were issuable under the stated conversion terms of the Series B preferred stock. The non-cash dividend had no impact on our total shareholders’ equity as the offset was an increase in common stock and surplus.

Stock Based Plans

At December 31, 2004, 2003 and 2002 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.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	2004			2003			2002
Expected dividend yield		0.00	%		0.00	%		0.00	%
Expected stock price volatility		70.86	%		77.38	%		78.89	%
Risk-free interest rate		2.59	%		1.90	%		2.09	%
Expected life of options		2.8 years			3.2 years			3.0 years

The weighted average fair value of options granted in 2004, 2003 and 2002 was $2.49, $1.93 and $1.38, respectively.

With respect to our executive officers and certain key employees, we use three stock-based compensation plans, which are intended to aid us in attracting, retaining and motivating our officers and key employees, and are intended to provide us with the ability to provide incentives more directly linked to the profitability of our business and increases in stockholder value. These plans provide for the grant of options to purchase shares of our common stock and the issuance of restricted shares of our common stock, among other things.

We adopted a nonstatutory stock option plan in 1987. A total of 15,000 stock options remained outstanding under this plan as of December 31, 2004. During 2004, 2003 and 2002, respectively, 50,500, zero and 46,000 options to acquire shares expired under the 1987 plan. The ability to grant further options under the plan expired in 1997.

F-42

Our 1995 Stock Incentive Plan, as amended in 2004, authorizes the issuance of up to 11 million shares of our common stock pursuant to the grant or exercise of awards under the plan. The board committee that administers the 1995 plan has broad authority to fix the terms and conditions of individual agreements with participants, including the duration of the award and any vesting requirements. The 1995 plan will terminate 15 years after the effective date of the plan.

During 2004, 2003 and 2002, respectively, options to acquire 752,000, 1,186,000 and 1,095,000 shares were granted to our officers and key employees. The 2002 options were granted with vesting requirements, however all of such options are currently available for exercise. The 2003 options were granted without vesting requirements and 702,000 of the 752,000 options granted in 2004 did not include vesting requirements. The remaining 50,000 options granted in 2004 have vesting requirements that call for 25,000 options to vest on September 1, 2005 and 25,000 options on September 1, 2006. Vesting on these options will be accelerated if the stock price closes above $9.00 per share for a period of ten consecutive days. During 2004, 2003 and 2002, respectively, 1,500, 1,334, and 4,000 options to acquire shares expired under the 1995 plan, and such options became available for re-grant under the 1995 plan.

In 2003 and 2002, 186,055 and 431,277 shares, respectively, of our common stock were issued under the 1995 plan to key personnel as payment for incentive compensation earned during the previous year. No shares were issued in 2004 for incentive compensation.

At December 31, 2004, there were 5,071,360 shares available for future grant under the 1995 plan, and at December 31, 2003, there were 821,860 shares available for future grant.

In 1995, we adopted the Hecla Mining Company Stock Plan for Nonemployee Directors (the “Directors’ Stock Plan”), which may be terminated by our board of directors at any time. Each nonemployee director is to be credited on May 30 of each year that number of shares determined by dividing $10,000 by the average closing price for our common stock on the New York Stock Exchange for the prior calendar year. All credited shares are held in trust for the benefit of each director until delivered to the director. Delivery of the shares from the trust occurs upon the earliest of: (1) death or disability; (2) retirement; (3) a cessation of the director’s service for any other reason; or (4) a change in control. The shares of our common stock credited to nonemployee directors pursuant to the Directors’ Stock Plan may not be sold until at least six months following the date they are delivered.

A maximum of one million shares of common stock may be granted pursuant to the Directors’ Stock Plan. During 2004, 2003 and 2002, respectively, 13,650, 18,780, and 72,681 shares were credited to the nonemployee directors. During 2004, 2003 and 2002, $88,000, $78,000, and $70,000, respectively, were charged to operations associated with the Directors’ Stock Plan. At December 31, 2004, there were 843,946 shares available for grant in the future under the plan.

F-43

Transactions concerning stock options pursuant to all of the above-described stock option plans are summarized as follows:

				Weighted Average
	Shares			Exercise Price

Outstanding, December 31, 2001		2,391,000		$	3.89

Year ended December 31, 2002
Granted		1,095,000		$	3.25
Exercised		(634,330	)	$	1.85
Expired		(50,000	)	$	9.75

Outstanding, December 31, 2002		2,801,670		$	3.99

Year ended December 31, 2003
Granted		1,186,000		$	4.95
Exercised		(1,933,434	)	$	3.43
Expired		(1,334	)	$	3.23

Outstanding, December 31, 2003		2,052,902		$	5.08

Year ended December 31, 2004
Granted		752,000		$	5.99
Exercised		(340,234	)	$	4.34
Expired		(52,000	)	$	9.58

Outstanding, December 31, 2004		2,412,668		$	5.37

The following table displays exercisable stock options and the weighted average exercise price of the exercisable options as of December 31, 2004, 2003 and 2002:

	2004		2003		2002
Exercisable options		2,362,668		2,052,902		2,467,714
Weighted average exercise price	$	5.35	$	5.08	$	4.09

F-44

The following table presents information about the stock options outstanding as of December 31, 2004:

					Weighted Average
			Range of		Exercise		Remaining
	Shares		Exercise Price		Price		Life (years)

Exercisable options		159,000	$	1.13 - $1.31	$	1.13		1.6
Exercisable options		189,168	$	2.88 - $3.23	$	3.23		0.5
Exercisable options		438,000	$	4.10 - $5.19	$	4.48		2.6
Exercisable options		1,413,500	$	5.63 - $8.00	$	6.00		3.4
Exercisable options		163,000	$	8.63 - $9.34	$	8.69		0.9
Total exercisable options		2,362,668	$	1.13 - $9.34	$	5.36		2.8
Unexercisable options		50,000	$	5.99	$	5.99		4.5
Total all options		2,412,668	$	1.13 - $9.34	$	5.37		2.8

The above stock option information excludes stock options purchased under the 2002 Deferred Compensation Plan discussed in more detail in Note 9 to the Consolidated Financial Statements.

For the years ended December 31, 2003 and 2002, approximately $1.0 million, and $0.7 million, respectively, were recognized for tax offset bonus expenditures and accruals on employee stock option plans. In 2004, the Company recognized a credit of $0.4 million for tax offset bonus and accruals under the employee stock option plans. In 2004, the Company’s Board of Directors approved an extension of one year on the term of 385,000 stock options, and the Company recognized expense of $0.4 million associated with this modification in terms.

Note 11: Derivative Instruments

At times, 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.

We formally document all relationships between hedge derivative instruments and the items they are hedging, as well as the risk-management goals and strategy for entering into hedge transactions.

For these documented relationships, we formally assess, both at the start of the hedge and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting changes in the fair value or cash flows of hedged items, and whether those derivatives are expected to remain highly effective in the future. The ineffective portion of the hedge is reclassed from other comprehensive income (“OCI”) to earnings in each reporting period.

F-45

In accordance with our risk management policy, in July 2004 we entered into forward sales contracts for 7,425 metric tons of lead to hedge lead produced at the Lucky Friday unit to protect against the risk that its market price may decline and decrease our future cash flows. The contracts represent approximately 38% of our lead production for the contract period, from August 2004 to June 2005. These contracts are required to be accounted for as derivatives under SFAS No. 133. As such, we have designated these contracts as cash flow hedges. Decreases in cash flow from the sale of lead will be highly correlated against increases in cash flows from the forward contract.

Derivative instruments outstanding as of December 31, 2004

	Maturity Date
	2005

Lead contract (metric tons)		4,050
Future price (per tonne)	$	782.40
Contract amount (in thousands)	$	3,169
Estimated fair value (in thousands)	$	(904)	(a)
Estimated % of annual lead production
Committed to contracts		19	%

(a)

The estimated fair value is determined based on information as of December 31, 2004 provided by our counterparties and represents an approximation of the amount we would have to pay the counterparties to close out the positions at December 31, 2004.

Change in gains (losses) accumulated in OCI for cash flow hedge contracts (in thousands)

At January 1, 2004	$	- -
Change in fair value		(1,208	)
Hedge losses transferred to earnings		310	(a)
Hedge ineffectiveness transferred to earnings		135	(b)
At December 31, 2004	$	(763	)

(a)	Included as sales on the consolidated statement of operations.

(b)

Included as sales on the consolidated statement of operations. A portion of our smelter treatment charge is linked to the lead price. As the lead price increases our treatment charge also increases, thus creating the hedge to be less than 100% effective. Inception to date, our lead hedges have been approximately 82% effective. The ineffective portion of the hedge has been reclassed to sales in each reporting period.

As all of the contracts expire on a monthly basis through June 2005, the balance of the OCI will be transferred to earnings in 2005. Based on the fair value of cash flow hedge contracts at December 31, 2004, the amount that will be transferred from OCI to earnings in 2005 is expected to be $763,000. During each reporting period before June 2005, the ineffective portion of the hedge will be reclassed to sales.

At December 31, 2003, in connection with a credit agreement used to provide project financing at the La Camorra mine, we were required to maintain hedged gold positions sufficient to cover all dollar loans, operating expenditures, taxes, royalties and similar fees projected for the project. At December 31, 2003, there were 48,928 ounces of gold sold forward. The forward sales agreement assumed the ounces of gold committed to forward sales at the end of each quarter thereafter 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 sales, with settlement being made quarterly with us receiving the fixed rate and paying the current floating gold lease rate. At December 31, 2003, the accumulated fair value loss of the Gold Lease Rate Swap contract was approximately $21,000 which was reported as OCI. This amount was recognized as Sales during the year end December 31, 2004 when the Gold Lease Rate Swaps expired.

F-46

Note 12: Business Segments

We are organized and managed into three segments which represent the geographical areas in which we operate, Venezuela (the La Camorra unit), Mexico (the San Sebastian unit) and the United States (the Greens Creek unit and the Lucky Friday unit). Prior to 2003, we were organized into the silver segment, the gold segment and industrial minerals segment, the majority of which was sold during 2001 and reported as a discontinued operation. We have changed our reportable segments to better reflect the economic characteristics of our operating properties and have restated the corresponding information for all periods presented. For information regarding our former industrial minerals segment, see Note 17 - Discontinued Operations. General corporate activities not associated with operating units, as well as idle properties, are presented as Other. Interest expense, interest income and income taxes are considered a general corporate expense and are not allocated to segments.

Sales of metal concentrates and metal products are made principally to custom smelters and metals traders. The percentage of sales contributed by each segment is reflected in the following table:

	Year Ended December 31,
Segment	2004			2003			2002
United States		40.3	%		35.9	%		31.1	%
Venezuela		36.6	%		33.7	%		46.6	%
Mexico		23.1	%		30.0	%		22.3	%
Other		- -			0.4	%		- -

F-47

The tables below present information about reportable segments as of and for the years ended December 31 (in thousands). Information related to the statement of operations data relates to continuing operations only.

	2004			2003			2002
Net sales to unaffiliated customers:
United States	$	52,713		$	41,685		$	32,873
Venezuela		47,884			39,192			49,296
Mexico		30,229			34,956			23,531
Other		- -			520			- -
	$	130,826		$	116,353		$	105,700

Income (loss) from operations:
United States	$	12,730		$	4,323		$	(1,476	)
Venezuela		6,718			10,344			15,181
Mexico		3,557			11,906			5,954
Other		(27,771	)		(33,627	)		(10,318	)
	$	(4,766	)	$	(7,054	)	$	9,341

Capital expenditures (including non-cash additions):
United States	$	8,610		$	1,887		$	2,856
Venezuela		31,848			13,879			8,564
Mexico		984			3,863			1,834
Other		354			1,156			1,997
	$	41,796		$	20,785		$	15,251

Depreciation, depletion and amortization:
United States	$	6,454		$	7,986		$	8,342
Venezuela		11,439			8,538			11,273
Mexico		3,659			3,597			2,921
Other		326			341			116
	$	21,878		$	20,462		$	22,652

Other significant non-cash items:
United States	$	192		$	217		$	714
Venezuela		43			(475	)		2,638
Mexico		223			165			403
Other		9,813			23,120			2,213
	$	10,271		$	23,027		$	5,968

F-48

	2004		2003		2002
Identifiable assets:
United States	$	77,692	$	71,539	$	68,954
Venezuela		80,198		47,538		40,004
Mexico		23,362		17,837		13,568
Discontinued operations		- -		- -		686
Other		98,196		141,281		36,929
	$	279,448	$	278,195	$	160,141

The following is sales information for continuing operations by geographic area, based on the location of concentrate shipments and location of parent company for sales to metal traders, for the years ended December 31 (in thousands):

	2004		2003		2002

United States	$	3,474	$	13,698	$	7,779
Canada		46,174		21,698		13,276
Mexico		9,193		14,468		22,929
United Kingdom		40,825		16,970		28,070
Japan		17,069		34,500		24,090
Korea		12,164		8,407		5,456
Other foreign		1,927		6,612		4,100
	$	130,826	$	116,353	$	105,700

The following are our long-lived assets for continuing operations by geographic area as of December 31 (in thousands):

		2004		2003		2002

United States	$	59,365	$	57,443	$	61,281
Venezuela		48,773		28,811		23,000
Mexico		6,377		9,061		8,084
	$	114,515	$	95,315	$	92,365

F-49

Sales to significant metals customers as a percentage of total sales from continuing operations were as follows for the years ended December 31:

	2004		2003		2002

Teck Cominco Ltd.	20.2	%	21.1	%	12.6	%
Standard Bank London	19.4	%	15.2	%	24.8	%
Scotia Mocatta	15.7	%	1.4	%	- -	%
HSBC Bank USA	9.5	%	9.0	%	6.1	%
Korea Zinc	8.0	%	5.5	%	4.0	%
Mitsubishi International Corp.	7.5	%	26.2	%	19.9	%
Met-Mex Peñoles, S.A. de C.V.	7.2	%	13.7	%	21.7	%

Note 13: Fair Value of Financial Instruments

The following estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data and to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts we could realize in a current market exchange.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Potential income tax ramifications related to the realization of unrealized gains and losses that would be incurred in an actual sale or settlement have not been taken into consideration.

The carrying amounts for cash and cash equivalents, accounts and notes receivable, restricted cash and investments and current liabilities are a reasonable estimate of their fair values. Fair value for equity securities investments is determined by quoted market prices as recognized in the financial statements. Fair value of forward contracts are supplied by our counterparties and reflect the difference between the contract prices and forward prices available on the date of valuation. The discount rate is estimated using the rates currently offered for debt with similar remaining maturities.

The estimated fair values of other financial instruments are as follows (in thousands):

	December 31,
	2004						2003
	Carrying			Fair			Carrying			Fair
	Amounts			Value			Amounts			Value

Financial assets (liabilities):
Short-term investments	$	28,178		$	28,178		$	18,003		$	18,003
Investments	$	19,789		$	19,789		$	722		$	722
Gold lease rate swap	$	- -		$	- -		$	169		$	169
Long-term debt	$	- -		$	- -		$	(4,673	)	$	(4,673	)
Gold forward sales contracts	$	- -		$	- -		$	- -		$	(6,300	)
Lead forward sales contracts	$	(897	)	$	(897	)	$	- -		$	- -

F-50

Note 14: 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 losses applicable to common shareholders in computing basic and diluted loss per common share (dollars and shares in thousands, except per share amounts). Non-cash dividends of approximately $10.9 million in 2004, $9.6 million in 2003, and $17.6 million in 2002, were included in the amounts related to completed preferred stock exchange offerings. For additional information relating to the exchange offerings, see Note 10 of Notes to Consolidated Financial Statements.

	2004			2003			2002

Income (loss) before cumulative effect of change in
accounting principle and preferred stock dividends	$	(6,134	)	$	(7,088	)	$	8,639

Add: Cumulative effect of change in accounting principle		- -			1,072			- -
Less: Preferred stock dividends		(11,602	)		(12,154	)		(23,253	)

Basic and diluted loss applicable to common Shareholders	$	(17,736	)	$	(18,170	)	$	(14,614	)

Basic and dilutive weighted average shares		118,048			110,610			80,250

Basic and diluted loss per common share	$	(0.15	)	$	(0.16	)	$	(0.18	)

These calculations of diluted losses per share exclude the effects of convertible preferred stock ($7.9 million in 2004, $23.2 million in 2003 and $37.7 million in 2002), restricted stock units, 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:

	2004		2003		2002

1995 Stock Incentive Plan
Stock options		2,412,668		2,052,902		2,801,670
2002 Key Employee Deferred Compensation Plan
Stock options		544,347		202,218		7,613
Restricted Stock Units		185,500		- -		- -

Warrants		--		- -		2,000,000

F-51

Note 15: Other Comprehensive Income (Loss)

Due to the availability of U.S. net operating losses and related deferred tax valuation allowances, there is no tax effect associated with any component of other comprehensive income (loss). The following table lists the beginning balance, yearly activity and ending balance of each component of accumulated other comprehensive income (loss) (in thousands):

									Total
	Unrealized		Minimum						Accumulated
	Gains		Pension			Change in			Other
	(Losses)		Liability			Derivative			Comprehensive
	On Securities		Adjustment			Contracts			Income (Loss)

Balance January 1, 2002		14		- -			159			173
2002 change		9		- -			(218	)		(209	)
Balance December 31, 2002		23		- -			(59	)		(36	)
2003 change		647		(1,400	)		36			(717	)
Balance December 31, 2003		670		(1,400	)		(23	)		(753	)
2004 change		2,481		32			(740	)		1,773
Balance December 31, 2004	$	3,151	$	(1,368	)	$	(763	)	$	1,020

Note 16: Investment in Greens Creek Joint Venture

We hold a 29.73% interest in the Greens Creek unit through a joint-venture arrangement. We record our portion of the assets and liabilities of the Greens Creek unit pursuant to the proportionate consolidation method whereby 29.73% of the assets and liabilities of the Greens Creek unit are included in our consolidated financial statements. The following summarized balance sheets as of December 31, 2004 and 2003, and the related summarized statement of operations for the years ended December 31, 2004, 2003 and 2002, are derived from the audited financial statements of the Greens Creek Joint Venture. The financial information below is presented on a 100% basis (in thousands).

Balance Sheet	2004		2003

Assets:
Current assets	$	31,996	$	46,715
Properties, plants and equipment, net		122,955		134,383
Securities held for reclamation fund		26,499		- -

Total assets	$	181,450	$	181,098

Liabilities and equity:
Liabilities	$	29,495	$	27,150
Equity		151,955		153,948

Total liabilities and equity	$	181,450	$	181,098

F-52

Summary of Operations	2004		2003		2002

Net revenue	$	123,751	$	105,259	$	85,190

Operating income	$	29,558	$	17,406	$	5,274

Net income	$	30,007	$	15,130	$	5,437

The Greens Creek unit is operated through a joint-venture arrangement, and we own an undivided 29.73% interest in the assets of the venture. The remaining 70.27% owners are wholly owned subsidiaries of Kennecott Minerals. Under the joint-venture agreement, the joint participants, including us, are entitled to indemnification from the other participants and are severally liable only for the liabilities of the participants in proportion to their interest therein. If a participant defaults on its obligations under the terms of the joint venture, we could incur losses in excess of our pro-rata share of the joint venture. In the event any participant so defaults, the agreement provides certain rights and remedies to the remaining participants. These include the right to force a dilution of the percentage interest of the defaulting participant and the right to utilize the proceeds from the sale of the defaulting party’s share of products, or its joint-venture interest in the properties, to satisfy the obligations of the defaulting participant. Based on the information available to us, we have no reason to believe that our joint-venture participants with respect to the Greens Creek unit will be unable to meet their financial obligations under the terms of the agreement.

Note 17: Discontinued Operations

In 2000, our board of directors made the decision to sell the industrial minerals segment to provide cash to retire debt and to provide working capital. In 2000 and 2001, we completed sales of the majority and most significant components of our industrial minerals segment. In 2002, we completed a sale of the pet operations of the Colorado Aggregate division (“CAC”) of MWCA, Inc. for approximately $1.6 million in cash. The sale of the pet operations did not result in a gain or loss. At December 21, 2002, the remaining net assets of the industrial minerals segment were reclassified from net assets of discontinued operations to their respective categories of inventory and accrued reclamation on our consolidated balance sheet.

In March 2003, we sold the remaining inventories of the briquette division of CAC 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 a loss from operations of approximately $84,000 for the year ended December 31, 2003. During 2004 and 2003, we did not record any gain or loss from discontinued operations compared to a loss from discontinued operations of $2.2 million ($0.03 per common share) for the year ended December 31, 2002. All activity associated with the former industrial minerals segment for the year ended December 31, 2004 and 2003 is considered a general corporate activity and is presented as “other” where appropriate.

F-53

A summary of operating results of discontinued operations for the year ended December 31, 2002 is as follows (in thousands):

	2002

Sales of products	$	4,221

Cost of sales		5,145
Depreciation, depletion and amortization		116
		5,261
Gross loss		(1,040	)

Loss from operations		(1,040	)

Other expense:
Miscellaneous expense		(1,178	)
Interest expense		(6	)
		(1,184	)

Loss from discontinued operations before income taxes		(2,224	)
Income tax provision		- -

Loss from discontinued operations	$	(2,224	)



F-54

Hecla Mining Company and Wholly Owned Subsidiaries
Form 10-K – December 31, 2004
Index to Exhibits

3.1

Certificate of Incorporation of the Registrant as amended to date. Filed as exhibit 3.1 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 and incorporated herein by reference.

3.2

By-Laws of the Registrant as amended to date.*

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 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 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 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.

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.

10.1

Employment agreement dated November 6, 2001, between Hecla Mining Company and Phillips S. Baker, Jr. (Registrant has substantially identical agreements with each of Messrs. 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 June 30, 2003 and incorporated by herein by reference. (1)

10.2(a)

1987 Nonstatutory Stock Option Plan of the Registrant. Filed as exhibit B to Registrant’s Proxy Statement dated March 20, 1987 and incorporated herein by reference. (1)

10.2(b)

Hecla Mining Company 1995 Stock Incentive Plan, as amended. (1)*

10.2(c)

Hecla Mining Company Stock Plan for Nonemployee Directors, as amended. (1)*

10.2(d)

Hecla Mining Company Key Employee Deferred Compensation Plan. Filed as exhibit 4.3 to Registrant’s Registration Statement on Form S-8 filed on July 24, 2002 (File No. 333-96995) and incorporated herein by reference. (1)

10.2(e)

Hecla Mining Company form of Non-Qualified Stock Option Agreement (Under the Key Employee Deferred Compensation Plan) entered into between Hecla Mining Company and participants under the Key Employee Deferred Compensation Plan. Filed as Exhibit 10.2(e) to Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 and incorporated herein by reference. (1)

10.3(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 and incorporated herein by reference. (1)

10.3(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 and incorporated herein by reference. (1)

10.3(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 and incorporated herein by reference. (1)

10.4

Form of Indemnification Agreement dated December 14, 2004, between Hecla Mining Company and Arthur Brown (Registrant has substantially identical agreements with each of Messrs. David J. Christensen, John E. Clute, Ted Crumley, Charles L. McAlpine, George R. Nethercutt, Jr. (dated February 25, 2005), Jorge E. Ordonez C., Anthony P. Taylor, Phillips S. Baker, Jr., Thomas F. Fudge, Jr., Lewis E. Walde, Ian Atkinson, Ronald W. Clayton, Michael H. Callahan and Ms. Vicki Veltkamp. Such substantially identical agreements are not included as separate exhibits.) (1)*

10.5(a)

Hecla Mining Company Performance Pay Compensation Plan. (1) *

10.5(b)

Written description of objectives for 2004 under the Hecla Mining Company Performance Payment Plan. Filed as exhibit 10.6(b) to Registrant’s Amendment No. 1 on Form 10-Q/A for the quarter ended March 31, 2004, filed on March 16, 2005 and incorporated herein by reference. (1)

10.5(c)

Written description of objectives for 2005 under the Hecla Mining Company Performance Payment Plan. (1) *

10.5(d)

Written description of the Hecla Mining Company Executive and Senior Management Long-Term Performance Payment Plan. Filed as exhibit 10.7(b) to Registrant’s Amendment No. 1 on Form 10-Q/A for the quarter ended June 30, 2003, filed on March 15, 2005 and incorporated herein by reference. (1)

10.5(e)

Written description of objectives for the 2004-2006 plan period under the Hecla Mining Company Executive and Senior Management Long-Term Performance Payment Plan, which Plan was previously filed as exhibit 10.7(b) to Registrant’s Amendment No. 1 on Form 10-Q/A for the quarter ended June 30, 2003, filed on March 15, 2005. Filed as exhibit 10.6(c) to Registrant’s Amendment No. 1 on Form 10-Q/A for the quarter ended March 31, 2004, filed on March 16, 2005 and incorporated herein by reference. (1)

10.6(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 Corp.) and Hecla Mining Company dated 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 and incorporated herein by reference.

10.6(b)

Golden Eagle Operating Agreement between Echo Bay Mines Ltd. (successor in interest to Newmont Mining Corp./Santa Fe Pacific Gold Corp.) and Hecla Mining Company dated 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 and incorporated herein by reference.

10.6(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 Registration Statement on Form S-1 filed on October 7, 2002 (File No. 333-100395) and incorporated herein by reference.

10.7

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 and incorporated herein by reference.

10.8

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 and incorporated herein by reference.

10.9

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 and incorporated herein by reference.

10.10

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.

10.11

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.

10.12

Agreement No. C-020 between Minera Hecla Venezolana, C.A. and Redpath Venezolana, C.A., dated October 31, 2003, for the construction of the La Camorra mine production shaft facility. Filed as exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 and incorporated herein by reference.

11.

Computation of weighted average number of common shares outstanding.*

21.

List of subsidiaries of the Registrant.*

23.1

Consent of PricewaterhouseCoopers LLP.*

23.2

Consent of BDO Seidman, LLP.*

31.1

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

_________________

(1) Indicates a management contract or compensatory plan or arrangement.

* Filed herewith

Delaware		82-0126240
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6500 N. Mineral Drive, Suite 200 Coeur d’Alene, Idaho		83815-9408
(Address of principal executive offices)		(Zip Code)

		208-769-4100
		(Registrant’s telephone number, including area code)

Title of each class
Common Stock, par value $0.25 per share Preferred Share Purchase Rights for Series A Junior Participating Preferred Stock, par value $0.25 per share Series B Cumulative Convertible Preferred Stock, par value $0.25 per share	) ) ) ) ) ) ) ) )	Name of each exchange on which registered New York Stock Exchange

	Year
	2004		2003		2002
Silver (ounces)		6,960,580		9,817,324		8,681,293
Gold (ounces)		189,860		204,091		239,633
Lead (tons)		19,558		21,224		18,291
Zinc (tons)		25,644		25,341		26,134

Average cost per ounce of silver produced:

Cash operating cost (1,2)	$	1.87	$	1.31	$	2.16
Total cash cost (1,2)	$	2.02	$	1.43	$	2.25
Total production cost (1,2)	$	3.57	$	2.70	$	3.68

Average cost per ounce of gold produced:

Cash operating cost (2)	$	176	$	154	$	137
Total cash cost (2)	$	180	$	154	$	137
Total production cost (2)	$	271	$	222	$	206

Average metals prices:
Silver - Handy & Harman ($/oz.)	$	6.69	$	4.91	$	4.63
Gold - Realized ($/oz.)	$	379	$	339	$	303
Gold - London Final ($/oz.)	$	409	$	364	$	310
Lead - LME Cash ($/pound)	$	0.402	$	0.233	$	0.205
Zinc - LME Cash ($/pound)	$	0.475	$	0.375	$	0.353

	1985		1990		1995		2000		2001		2002		2003		2004
Silver (1) (per oz.)	$	6.14	$	4.82	$	5.19	$	5.00	$	4.36	$	4.63	$	4.91	$	6.69

Gold (2) (per oz.)		317.26		383.46		384.16		279.03		272.00		309.97		363.51		409.21

Lead (3) (per lb.)		0.18		0.37		0.29		0.21		0.22		0.21		0.23		0.40

Zinc (4) (per lb.)		0.36		0.69		0.47		0.51		0.40		0.35		0.38		0.48

	Years Ended December 31,
Production	2004			2003			2002

Ore processed (tons)		199,453 (1	)		197,591 (1	)		194,960
Gold (ounces)		130,436 (1	)		126,567 (1	)		167,386

Section	Page No

Special Note on Forward Looking Statements	1

Part I

Item 1. Business and Item 2. Properties	1

Products and Segments	4
Employees	5
Available Information	6
Risk Factors	6
Glossary of Certain Terms	20
Operating Properties	23
La Camorra Unit	23
-La Camorra Mine	24
-Block B	27
-Custom Milling Business	30
San Sebastian Unit	31
Greens Creek Unit	35
Lucky Friday Unit	39
Exploration	41
Hollister Development Block	42
Noche Buena	44
Discontinued Properties	44
Idle Properties	44
Grouse Creek Mine	44
Republic Mine	45

Item 3. Legal Proceedings	46

Item 4. Submission of Matters to a Vote of Security Holders	46

Part II

Item 5. Market Price of and Dividends on the Registrant’s Common Equity and Related Stock - Holders Matters	47

Item 6. Selected Financial Data	50

Item 7. Analysis of Financial Condition and Results of Operations	52

Overview	52
Results of Operations	56
2004 Compared to 2003	56
Mexico Segment	56
United States Segment	57
-Greens Creek	57
-Lucky Friday	57
Venezuelan Segment	58
Corporate Matters	61
2003 Compared to 2002	62
Mexico Segment	63
United States Segment	64
-Greens Creek	64
-Lucky Friday	64
Venezuelan Segment	65
Corporate Matters	65
Reconciliation of Total Cash Costs (non-GAAP) to Cost of Sales and Other
Direct Production Costs (GAAP)	67
Financial Condition and Liquidity	70
Contractual Obligations and Contingent Liabilities and Commitments	70
Operating Activities	71
Investing Activities	71
Financing Activities	72
Other	72
Critical Accounting Policies	73
Revenue Recognition	73
Proven & Probable Ore Reserves	74
Depreciation & Depletion	75
Impairment of Long Lived Assets	75
Environmental Matters	75
Foreign Exchange in Venezuela	76
Byproduct Credits at the San Sebastian Unit in Mexico	77
Value Added Taxes	77
New Accounting Pronouncements	78
Forward Looking Statements	80

Item7A.Quantitative and Qualitative Disclosures About Market Risk	81
Interest Rate Risk Management	81
Commodity Price Risk Management	81

Item 8. Financial Statements and Supplemental Data	83

Item 9. Changes in Disagreements with Accountants on Accounting and Financial Disclosures	83


Item 9A. Controls and Procedures	83
Management’s Report on Internal Controls over Financial Reporting	85
Report of Independent Registered Public Accounting Firm	86

Item 9B. Other Information	88

Part III

Item 10. Directors and Executive Officers of the Registrant	89

Item 11. Executive Compensation	92

Item 12. Security Ownership of Certain Beneficial Owners and Management	92

Item 13. Certain Relationships and Related Transactions	93

Item 14. Principal Accounting Fees and Services	93

Part IV

Item 15. Exhibit Financial Statement Schedules and Reports on Form 8K	94

Signatures	95

Index to Consolidated Financial Statements	F-1

Exhibit Index	F-55

Average Cost per Ounce of Gold Produced (2)

Cash operating costs	$	176	$	154	$	137
Total cash costs	$	180	$	154	$	137
Total production costs	$	271	$	222	$	206

Proven and Probable Ore Reserves (3,4,5,6)	12/31/04		12/31/03		12/31/02

Total tons		356,192		318,644		453,224
Gold (ounces per ton)		0.60		0.69		0.91
Contained gold (ounces)		213,244		220,552		412,332

Proven and Probable Ore Reserves (1,2,3)	12/31/04		12/31/03

Total tons		338,965		500,011
Gold (ounces per ton)		1.03		0.66
Contained gold (ounces)		350,547		327,303

Average Cost per Ounce of Silver Produced (1,2)

Cash operating costs	$	(0.10	)	$	(0.46	)	$	0.91
Total cash costs	$	0.21		$	(0.25	)	$	1.09
Total production costs	$	2.11		$	0.71		$	2.06

	Years Ended December 31, (reflects 29.73% interest)
Production	2004		2003		2002

Ore milled (tons)		239,456		232,297		218,072
Silver (ounces)		2,886,264		3,480,800		3,244,495
Gold (ounces)		25,624		29,564		30,531
Zinc (tons)		22,649		22,809		23,875
Lead (tons)		7,384		8,289		8,200

Average Cost per Ounce of Silver Produced (1,2)

Cash operating costs	$	0.98	$	1.10	$	1.76
Total cash costs	$	1.13	$	1.18	$	1.81
Total production costs	$	3.47	$	3.64	$	4.28

Average Cost per Ounce of Silver Produced (1,2)

Cash operating costs	$	5.12	$	4.86	$	4.97
Total cash costs	$	5.12	$	4.86	$	4.97
Total production costs	$	5.17	$	4.88	$	5.49

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
2004 - High	$	9.31	$	8.55	$	7.48	$	7.50
- Low	$	7.10	$	5.00	$	4.83	$	5.30
2003 - High	$	5.86	$	4.34	$	7.11	$	8.72
- Low	$	2.60	$	2.90	$	4.20	$	4.88

	Number of Securities To		Weighted-Average		Number of Securities
	Be Issued Upon Exercise		Exercise Price		Remaining Available For
	of Outstanding Options,		of Outstanding Options,		Future Issuance Under
	Warrants and Rights		Warrants and Rights		Equity Compensation Plans
Equity Compensation Plans Approved by Security Holders:

1987 and 1995 Stock Incentive Plans		2,412,668	$	5.37		5,071,360
Stock Plan for Nonemployee Directors		111,884		N/A		843,946
Key Employee Deferred Compensation Plan (1)		798,672	$	5.46		5,149,728

Equity Compensation Plans Not Approved by Security Holders		- -		- -		- -

	2004			2003 (1)			2002			2001			2000

Sales of products	$	130,826		$	116,353		$	105,700		$	85,247		$	75,850
Income (loss) from continuing operations before cumulative
effect of change in accounting principle (1)	$	(6,134	)	$	(7,088	)	$	10,863		$	(9,582	)	$	(84,847	)
Income (loss) from discontinued operations (2)		- -			--			(2,224	)		11,922			1,529
Net income (loss)		(6,134	)		(6,016	)		8,639			2,340			(83,965	)
Preferred stock dividends (3)		(11,602	)		(12,154	)		(23,253	)		(8,050	)		(8,050	)
Loss applicable to common shareholders (3)	$	(17,736	)	$	(18,170	)	$	(14,614	)	$	(5,710	)	$	(92,015	)

Loss from continuing operations per common share (1)	$	(0.15	)	$	(0.16	)	$	(0.15	)	$	(0.25	)	$	(1.39	)

Basic and diluted loss per common share	$	(0.15	)	$	(0.16	)	$	(0.18	)	$	(0.08	)	$	(1.38	)

Total assets	$	279,448		$	278,195		$	160,141		$	153,116		$	194,836

Accrued reclamation & closure costs	$	75,188		$	70,632		$	49,723		$	52,481		$	58,710

Noncurrent portion of debt	$	- -		$	2,341		$	4,657		$	11,948		$	10,041

Cash dividends paid per common share	$	- -		$	- -		$	- -		$	- -		$	--

Cash dividends paid per preferred share (3)	$	- -		$	- -		$	- -		$	--		$	1.75

Common shares issued		118,350,861			115,543,695			86,187,468			73,068,796			66,859,752

Shareholders of record		7,853			8,203			8,584			8,926			9,273

Employees		1,417			1,074			720			701			1,195

2004 Price	High		Low		Average
Gold, per ounce	$	454	$	375	$	409
Silver, per ounce	$	8.29	$	5.50	$	6.69
Lead, per tonne	$	1,040	$	690	$	960
Zinc, per tonne	$	1,260	$	940	$	1,110

	Projected		Actual
	2005		2004		2003		2002

Silver ounce production:
San Sebastian unit (1)		1,200		2,042		4,085		3,432
Greens Creek unit (2)		2,800		2,887		3,481		3,245
Lucky Friday unit		3,000		2,032		2,251		2,004
Total silver ounces		7,000		6,961		9,817		8,681

Gold ounce production:
La Camorra unit		140		130		127		167
San Sebastian unit (1)		27		34		48		42
Greens Creek unit (2)		23		26		29		31
Total gold ounces		190		190		204		240

	2004			2003			2002

Mexico & United States Segments (combined) (1)
Total cash costs	$	14,078		$	14,041		$	19,569
Divided by silver ounces produced		6,961			9,817			8,681
Total cash cost per ounce produced	$	2.02		$	1.43		$	2.25
Reconciliation to GAAP:
Total cash costs	$	14,078		$	14,041		$	19,569
Treatment & freight costs		(19,044	)		(18,556	)		(17,853	)
By-product credits		50,340			47,082			37,937
Change in product inventory		1,395			33			(2,734	)
Strike-related costs		777			- -			- -
Reclamation and other costs		407			869			1,156
Cost of sales and other direct production costs (GAAP)	$	47,953		$	43,469		$	38,075

San Sebastian Unit (1,2,3)
Total cash costs	$	421		$	(1,007	)	$	3,737
Divided by silver ounces produced		2,042			4,085			3,432
Total cash cost per ounce produced	$	0.21		$	(0.25	)	$	1.09
Reconciliation to GAAP:
Total cash costs	$	421		$	(1,007	)	$	3,737
Treatment & freight costs		(1,069	)		(2,158	)		(2,224	)
By-product credits		13,493			17,367			12,909
Change in product inventory		1,476			597			(2,089	)
Strike-related costs		777			- -			- -
Reclamation and other costs		224			294			403
Cost of sales and other direct production costs (GAAP)	$	15,322		$	15,093		$	12,736

Greens Creek Unit (1)
Total cash costs	$	3,257		$	4,108		$	5,872
Divided by silver ounces produced		2,886			3,481			3,245
Total cash cost per ounce produced	$	1.13		$	1.18		$	1.81
Reconciliation to GAAP:
Total cash costs	$	3,257		$	4,108		$	5,872
Treatment & freight costs		(12,745	)		(12,082	)		(12,271	)
By-product credits		27,013			23,985			21,367
Change in product inventory		(231	)		(472	)		(690	)
Reclamation and other costs		157			575			611
Cost of sales and other direct production costs (GAAP)	$	17,451		$	16,114		$	14,889

	Payments Due By Period
	2005		2006		2007		2008		2009		Thereafter	Total

Purchase obligations	$	12,987		- -		- -		- -		- -		$	12, 987
Contractual obligations (1)		2,828											2,828
Earn-in agreement (2)		4,288		- -		- -		- -		- -			4,288
Operating lease commitments (3)		731		611		146		19		15			1,522
Total contractual cash obligations	$	20,834	$	611	$	146	$	19	$	15		$	21,625

	Expected Maturity Date													Fair
	2005			2006		2007		2008		2009		Total		Value

Short-term investments	$	18,478			- -		- -		- -		- -	$	18,478	$	18,478
Average interest rate		1.996	%		- -		- -		- -		- -

	Expected Maturity
	Date
	2005

Forward contracts:
Lead tonnes		4,050
Future price (per tonne)	$	782.40
Contract amount (in thousands)	$	3,169
Estimated fair value	$	(904	)
Estimated % of annual production committed to contracts		19	%