Legal challenges could prevent the Rock Creek or Montanore projects from ever being developed.

The proposed development of our Rock Creek project has been challenged by several regional and national conservation groups at various times since the U.S. Forest Service ("USFS") issued its initial Record of Decision ("ROD") in 2003 approving Revett Mining Company’s plan of operation (Revett is now our wholly-owned subsidiary, named Hecla Montana, Inc.). Some of these challenges have alleged violations of a variety of federal and state laws and regulations pertaining to Revett’s permitting activities at Rock Creek, including the Endangered Species Act, the National Environmental Policy Act, the General Mining Law of 1872 ("1872 Mining Law"), the Federal Land Policy Management Act, the Wilderness Act, the National Forest Management Act, the Clean Water Act, the Clean Air Act, the Forest Service Organic Act of 1897, and the Administrative Procedure Act. Although Revett successfully addressed most of these challenges, Revett was directed by the Montana Federal District Court in May 2010 to produce a Supplemental Environmental Impact Statement (“SEIS”) to address National Environmental Policy Act procedural deficiencies that were identified by the court. We cannot predict how possible future challenges will be resolved. Possible new court challenges in the future to the final SEIS and ROD may delay the planned development at Rock Creek. If we are successful in completing the SEIS and defending any challenges to Rock Creek, we would still be required to comply with a number of requirements and conditions as development progresses, failing which could make us unable to continue with development activities.

A joint final Environmental Impact Statement on the Montanore project was issued in December 2015 by the USFS and Montana Department of Environmental Quality, and each agency issued a Record of Decision in February 2016 providing approval for development of the Montanore project. However, private conservation groups have taken and may in the future take actions to oppose or delay the Montanore project, and there are currently three pending lawsuits challenging environmental permits that have been granted. In addition, there are three lawsuits pending which involve potential defects in title or limiting our access to the properties comprising the Montanore project. A development or outcome from one of these or any other lawsuit could limit our ability to access, develop or operate the Montanore project.

Rock Creek and Montanore are significant assets obtained in the acquisitions of Revett and Mines Management in 2015 and 2016, respectively. However, even if Rock Creek and Montanore are permitted, there is no assurance that they will be successfully developed or operated, including, among other reasons, because financing necessary to develop the projects may be unavailable.

We face substantial governmental regulation, including the Mine Safety and Health Act, various environmental ruleslaws and regulations and the 1872 Mining Law.

Our business is subject to extensive U.S. and foreign federal, state and local laws and regulations governing environmental protection, natural resources, prospecting, development, production, post-closure reclamation, taxes, labor standards and occupational health and safety laws and regulations, including mine safety, toxic substances and other matters. The costs associated with compliance with such laws and regulations are substantial. Possible future laws and regulations, or more restrictive interpretations of current laws and regulations by governmental authorities, could cause additional expense, capital expenditures, restrictions on or suspensions of operations and delays in the development of new properties.

U.S. surface and underground mines like the Lucky Friday and Greens Creek mines are continuously inspected by the U.S. Mine Safety and Health Administration (“MSHA”), which inspections often lead to notices of violation under the Mine Safety and Health Act. Any of our U.S. mines could be subject to a temporary or extended shutdown as a result of a violation alleged by MSHA.

In addition, we have been and are currently involved in lawsuits or regulatory actions in which we have been accused of causing environmental damage, violating environmental laws, or violating environmental permits, and we may be subject to similar lawsuits or actions in the future. Moreover, such environmental matters have involved both our current and historical operations as well as the historical operations of entities and properties we have acquired. See the risk factors below titledOur environmental obligations may exceed the provisions we have made and "Our operations are subject to complex, evolving and increasingly stringent environmental laws and regulations. Complianceregulations," "Compliance with environmental regulations, and litigation based on such regulations, involves significant costs and can threaten existing operations or constrain expansion opportunities.," and "Our environmental obligations may exceed the provisions we have made."

There can be no assurance that we will at all times be in compliance with applicable laws, regulations and permitting requirements. Failure to comply with applicable laws, regulations and permitting requirements may result in lawsuits or regulatory actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, which may require corrective measures including capital expenditures, installation of additional equipment or remedial actions. Any one or more of these liabilities could have a material adverse impact on our financial condition.

In addition to existing regulatory requirements, legislation and regulations may be adopted, regulatory procedures modified, or permit limits reduced at any time, any of which could result in additional exposure to liability, operating expense, capital expenditures or restrictions and delays in the mining, production or development of our properties. Mining accidents and fatalities or toxic waste releases, whether or not at our mines or related to metals mining, may increase the likelihood of additional regulation or changes in law or enhanced regulatory scrutiny. In addition, enforcement or regulatory tools and methods available to regulatory bodies such as MSHA or the U.S. Environmental Protection Agency (“EPA”), which have not been or have infrequently been used against us or the mining industry, in the future could be used against us or the industry in general.

From time to time, the U.S. Congress considers proposed amendments to the 1872 Mining Law, which governs mining claims and related activities on federal lands. The extent of any future changes is not known and the potential impact on us as a result of U.S. Congressional action is difficult to predict. Changes to the 1872 Mining Law, if adopted, could adversely affect our ability to economically develop mineral reserves on federal lands. Although we are not currently mining on federal land, we do explore, and future mining could occur, on federal land.

Our operations are subject to complex, evolving and increasingly stringent environmental laws and regulations. Compliance with environmental regulations, and litigation based on such regulations, involves significant costs and can threaten existing operations or constrain expansion opportunities.

Our operations, both in the U.S.United States and internationally, are subject to extensive environmental laws and regulations governing wastewater discharges; remediation, restoration and reclamation of environmental contamination; the generation, storage, treatment, transportation and disposal of hazardous substances; solid waste disposal; air emissions; protection of endangered and protected species and designation of critical habitats; mine closures and reclamation; and other related matters. In addition, we must obtain regulatory permits and approvals to start, continue and expand operations.

New or revised environmental regulatory requirements are frequently proposed, many of which result in substantially increased costs for our business, which could be the case under the proposed financial assurance regulations discussed inbusiness. See the risk factor below, "Mine closure and reclamation regulations impose substantial costs on our operations, and include requirements that we provide financial assurance supporting those obligations. These costs could significantly increase."

WeOur U.S. operations are subject to the Clean Water Act, which requires permits for certain discharges into waters of the United States. Such permitting has been a frequent subject of litigation and enforcement activity by environmental advocacy groups and the EPA, respectively, which has resulted in declines in such permits or extensive delays in receiving them, as well as the imposition of penalties for permit violations. RecentlyIn 2015, the regulatory definition of “waters of the United States” that are protected by the Clean Water Act was expanded by the EPA, thereby imposing significant additional restrictions on waterway discharges and land uses. TheseIn early, 2018, implementation of the relevant rule was suspended for two years. If these changes are ultimately implemented, they could increase litigation involving water discharge permits, which may result in delays in, or in some instances preclude, the commencement or continuation of development or production operations. Enforcement actions by the EPA could also result. Adverse outcomes in lawsuits challenging permits or failure to comply with applicable regulations or permits could result in the suspension, denial, or revocation of required permits, or the imposition of penalties, any of which could have a material adverse impact on our cash flows, results of operations, or financial condition. SeeNote 7 ofNotes to Consolidated Financial Statements.

Some of the mining wastes from our U.S. mines currently are exempt to a limited extent from the extensive set of EPA regulations governing hazardous waste under the Resource Conservation and Recovery Act (“RCRA”). If the EPA were to repeal this exemption, and designate these mining wastes as hazardous under RCRA, we would be required to expend additional amounts on the handling of such wastes and to make significant expenditures to construct hazardous waste storage or disposal facilities. In addition, if any of these wastes causesor other substances we release or cause to be released into the environment cause or has caused contamination in or damage to the environment at a U.S. mining facility, that facility could be designated as a “Superfund” site under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”). Under CERCLA, any present owner or operator of a Superfund site or the owner or operator at the time of contamination may be held jointly and severally liable regardless of fault, and may be forced to undertake extensive remedial cleanup action or to pay for the cleanup efforts. The owner or operator also may be liable to federal, state and tribal governmental entities for the cost of damages to natural resources, which could be substantial. Additional regulations or requirements also are imposed on our tailings and waste disposal areas in Alaska under the federal Clean Water Act.

Legislative and regulatory measures to address climate change and greenhouse gas emissions are in various phases of consideration. If adopted, such measures could increase our cost of environmental compliance and also delay or otherwise negatively affect efforts to obtain permits and other regulatory approvals with regard to existing and new facilities. Proposed measures could also result in increased cost of fuel and other consumables used at our operations, including the diesel generation of electricity at our Greens Creek operation, used when we are unable to access hydroelectric power. Climate change legislation may also affect our smelter customers who burn fossil fuels, resulting in fewer customers or increased costs to us, and may affect the market for the metals we produce with effects on prices that are not possible for us to predict.

Adoption of these or similar new environmental regulations or more stringent application of existing regulations may materially increase our costs, threaten certain operating activities and constrain our expansion opportunities.

In addition to evolving and expanding environmental regulations providing governmental authorities with the means to make claims against us, private parties have in the past and may in the future bring claims against us based upon damage to property and injury to persons resulting from the environmental, health and safety impacts of prior and current operations (including for exposure to or contamination by lead). Laws in the U.S. such as CERCLA and similar state laws may expose us to joint and several liability, or claims for contribution made by the government (state or federal) or private parties. Moreover, exposure to these liabilities arises not only from our existing but also from closed operations, or operations sold to third parties, or operations in which we had a leasehold, joint venture, or other interest. Because liability under CERCLA is often alleged on a joint and several basis against any property owner or operator or arranger for the transport of hazardous waste, and because we have been in operation since 1891, our exposure to environmental claims may be greater because of the bankruptcy or dissolution of other mining companies which may have engaged in more significant activities at a mining site than we but which are no longer available for governmental agencies or other claimants to make claims against or obtain judgments from. Similarly, there is also the potential for claims against us based on agreements entered into by certain affiliates and predecessor companies relating to the transfer of businesses or properties, which contained indemnification provisions relating to environmental matters. In each of the types of cases described in this paragraph, the government (federal or state) or private parties could seek to hold Hecla Limited or Hecla Mining Company liable for the actions of their subsidiaries or predecessors.

The laws and regulations, changes in such laws and regulations, and lawsuits and enforcement actions described in this risk factor could lead to the imposition of substantial fines, remediation costs, penalties and other civil and criminal sanctions against us. Further, substantial costs and liabilities, including for restoring the environment after the closure of mines, are inherent in our operations. There is no assurance that any such law, regulation, enforcement or private claim, or reclamation activity would not have a material adverse effect on our financial condition, results of operations or cash flows.

Uncertainty due to ballot initiative or related legislation regarding salmon in Alaska.

In 2017, a citizen’s initiative entitled “An Act providing for protection of wild salmon and fish and wildlife habitat" was filed with the Alaska Division of Elections petitioning for a ballot initiative under Alaska’s Constitution that would revise Alaska’s fish habitat law. Lt. Gov. Byron Mallott rejected the proposed ballot initiative in September 2017 because he determined that it improperly appropriated a valuable public resource which the Alaska Constitution prohibits. A lawsuit challenging Lt. Gov. Mallott’s decision was filed and a trial court overturned the Lt. Gov.’s decision and ordered the State to certify the petition and allow the citizens group to collect signatures in an effort to qualify the initiative for consideration by the public. The State of Alaska has appealed the trial judge’s ruling to the Alaska Supreme Court which has established a briefing schedule that is anticipated to result in a ruling on whether the proposed initiative complies with the Constitution prior to the time by which the State would be required to print ballot booklets for the election at which the initiative would be considered (summer 2018). Also, under Alaska’s Constitution if the state legislature adopts substantially similar legislation, the ballot initiative is rendered void.

The citizens group proposal closely resembles H.B. 199, legislation introduced during the 2017 Alaska legislative session by Rep. Louise Stutes (R-Kodiak), and would create a new multi-tiered system of permits for projects in fish habitat.   Based on our review of the ballot initiative and H.B. 199, if either were adopted, “anadromous fish habitat” would be redefined to be “…a naturally occurring permanent or intermittent seasonal water body, and the bed beneath, including all sloughs, backwaters, portions of the floodplain covered by the mean annual flood, and adjacent riparian areas, that contribute, directly or indirectly, to the spawning, rearing, migration, or overwintering of anadromous fish.”  Major projects, including mining operations like Greens Creek, will require a Major Fish Habitat Permit in order to have adverse impacts on habitat.  A Major Fish Habitat Permit, under the initiative or the statute, may not be granted if an activity will, amongst other things, “store or dispose of mining waste, including overburden, and tailings in a way that could result in the release or discharge of sulfuric acid, other acids, dissolved metals, toxic pollutants, or other compounds that will adversely affect, directly or indirectly, anadromous fish habitat, fish or wildlife species that depend on anadromous fish habitat.”

At this time, we cannot determine with certainty whether the initiative or H.B.199 will be approved by the voters or enacted by the legislature in their current or a revised form; how the Alaska Supreme Court will rule on appeal; if legislation is enacted by the legislature whether it will be substantially similar to the ballot initiative; or how the initiative or H.B.199 would be applicable to Greens Creek in the future.  However, tailings and waste rock at Greens Creek are currently placed in storage facilities that are located in what would be defined as “anadromous fish habitat” under the initiative, and otherwise could be impacted by H.B. 199’s prohibition against any facility in defined habitat that “…necessitates water treatment, groundwater pumping, or other means of mechanical, chemical, or human intervention in perpetuity”.   Therefore, if either is passed, renewal of permits associated with these facilities would be difficult, if not impossible, and any future expansion of Greens Creek tailings and waste facilities could be disallowed.

Legal challenges could prevent the Rock Creek or Montanore projects from ever being developed.

The proposed development of our Rock Creek project has been challenged by several regional and national conservation groups at various times since the U.S. Forest Service ("USFS") issued its initial Record of Decision ("ROD") in 2003 approving Revett Mining Company’s plan of operation (Revett is now our wholly-owned subsidiary, named Hecla Montana, Inc.). Some of these challenges have alleged violations of a variety of federal and state laws and regulations pertaining to Revett’s permitting activities at Rock Creek, including the Endangered Species Act, the National Environmental Policy Act ("NEPA"), the General Mining Law of 1872 ("1872 Mining Law"), the Federal Land Policy Management Act, the Wilderness Act, the National Forest Management Act, the Clean Water Act, the Clean Air Act, the Forest Service Organic Act of 1897, and the Administrative Procedure Act. Although Revett successfully addressed most of these challenges, Revett was directed by the Montana Federal District Court in May 2010 to produce a Supplemental Environmental Impact Statement (“SEIS”) to address NEPA procedural deficiencies that were identified by the court. We cannot predict how possible future challenges will be resolved. Possible new court challenges in the future to the final SEIS and ROD may delay the planned development at Rock Creek. If we are successful in completing the SEIS and defending any challenges to Rock Creek, we would still be required to comply with a number of requirements and conditions as development progresses, failing which could make us unable to continue with development activities.

A joint final Environmental Impact Statement on our Montanore project was issued in December 2015 by the USFS and Montana Department of Environmental Quality, and each agency issued a Record of Decision ("ROD") in February 2016 providing approval for development of the Montanore project. However, private conservation groups have taken and may in the future take actions to oppose or delay the Montanore project. On May 30, 2017, the Montana Federal District Court issued Opinions and Orders in three lawsuits challenging previously granted environmental approvals for the Montanore project. The Orders overturned the approvals for the project granted by the USFS and the United States Fish and Wildlife Service, and in each case remanded the ROD and associated planning documents for further review by the agencies consistent with its Opinions. In June 2017, the Court vacated the agencies' approvals for the project. As a result, additional work must be performed by the agencies to address the deficiencies in the ROD and associated planning documents identified by the Court, and new approvals must be granted, before the project may proceed beyond certain preliminary actions. In addition, there are two lawsuits pending which involve potential defects in title or limiting our access to the properties comprising the Montanore project. A development or outcome from one of these or any other lawsuit could limit our ability to access, develop or operate the Montanore project.

Rock Creek and Montanore are significant projects obtained in the acquisitions of Revett and Mines Management in 2015 and 2016, respectively. However, even if Rock Creek and Montanore are permitted, there is no assurance that they will be successfully developed or operated, including, among other reasons, because financing necessary to develop the projects may be unavailable.

Mine closure and reclamation regulations impose substantial costs on our operations, and include requirements that we provide financial assurance supporting those obligations. These costs could significantly increase.

We are required by U.S. federal and state laws and regulations and by laws and regulations in the foreign jurisdictions we operate in to reclaim our mining properties. The specific requirements vary among jurisdictions. In some cases, we are required to provide financial assurances as security for reclamation costs, which may exceed our estimates for such costs. Conversely, our reclamation costs may exceed the financial assurances in place and those assurances may ultimately be unavailable to us.

The EPA and state agencies may also require financial assurance for investigation and remediation actions that are required under settlements of enforcement actions under CERCLA or equivalent state regulations. Currently there are no financial assurance requirements for active mining operations under CERCLA, but in January 2017, in response to a lawsuit filed previously by several environmental organizations, the EPA proposed rules for financial assurance regulations under CERCLA governing the hard rock mining industry, which includes us. TheIn December 2017, the EPA issued a notice of their decision not to issue final regulations for the proposed rules. However, the EPA may propose similar rules are now subject to a public comment period lasting until March 13, 2017 (unless extended). Itin the future, and it is uncertain how the newany such requirements, if adopted, willwould affect the amount and form of our existing and future financial assurance obligations or the extent to which they will supplement or replace state requirements. However, based on the current draft of the rules proposed rules, thein January 2017, any new requirements, if adopted, may be financially material and adverse to us.

Our environmental obligations may exceed the provisions we have made.

We are subject to significant environmental obligations.  At December 31, 2016,2017, we had accrued $85.6$86.0 million as a provision for environmental obligations. There can be no assurance that we have accurately estimated these environmental obligations, and in the future our accrual could materially change. Our environmental obligations could have a material adverse impact on our cash flows, results of operations, or financial condition. For information on our potential environmental liabilities, seeNote 4 andNote 7 ofNotes to Consolidated Financial Statements.

We face risks relating to transporting our products, as well as transporting employees and materials at Greens Creek.

Certain of the products we ship to our customers are subject to regulatory requirements regarding shipping, packaging, and handling of products that may be considered dangerous to human health or the environment. Although we believe we are currently in compliance with all material regulations applicable to shipping, packaging, and handling our products, the chemical properties of our products or existing regulations could change and cause us to fall out of compliance, or force us to incur substantial additional expenditures to maintain compliance with applicable regulations. Further, we do not ship our own products but instead rely on third party carriers to ship our products to our customers. To the extent that any of our carriers are unable or unwilling to ship our products in accordance with applicable regulations, including because of difficulty in obtaining, or increased cost of, insurance, or are involved in accidents during transit, we could be forced to find alternative shipping arrangements, assuming such alternatives would be available, and we could face liability as a result of any such accident. Any such changes to our current shipping arrangements or accidents involving the shipment of our products could have a material adverse impact on our operations and financial results.

In addition, Greens Creek operates on an island and is substantially dependent on various forms of marine transportation for the transportation of employees and materials to the mine and for the export of its products from the mine. Any disruption to these forms of marine transportation could adversely impact mine operations, and possible effects could include suspension of operations.

The titles to some of our properties may be defective or challenged.

Unpatented mining claims constitute a significant portion of our undeveloped property holdings in the U.S.United States. For our operations in Canada and Mexico, we hold mining claims, mineral concession titles and mining leases that are obtained and held in accordance with the laws of the respective countries, which provide Hecla the right to exploit and explore the properties. The validity of the claims, concessions and leases could be uncertain and may be contested. Although we have conducted title reviews of our property holdings, title review does not necessarily preclude third parties (including governments) from challenging our title. In accordance with mining industry practice, we do not generally obtain title opinions until we decide to develop a property. Therefore, while we have attempted to acquire satisfactory title to our undeveloped properties, some titles may be defective.

The price of our stock has a history of volatility and could decline in the future.

Shares of our common and outstanding preferred stock are listed on the New York Stock Exchange. The market price for our stock has been volatile, often based on:

The market price of our stock at any given point in time may not accurately reflect our value, and may prevent stockholders from realizing a profit on, or recovering, their investment.

Our Series B preferred stock has a liquidation preference of $50 per share or $7.9 million.

If we were liquidated, holders of our preferred stock would be entitled to receive approximately $7.9 million (plus any accrued and unpaid dividends) from any liquidation proceeds before holders of our common stock would be entitled to receive any proceeds, but after holders of all notes issued under the indenture governing our Senior Notes received any proceeds.

We may not be able to pay common or preferred stock dividends in the future.

Since January 2010, we have paid all regular quarterly dividends on our Series B preferred stock.  The annual dividend payable on the Series B preferred stock is currently $0.6 million. Prior to 2010, there were numerous occasions when we did not declare dividends on the Series B Preferred Stock, but instead deferred them. There can be no assurance that we will continue to pay preferred stock dividends in the future.

Our board of directors adopted a common stock dividend policy that has two components: (1) a dividend that links the amount of dividends on our common stock to our average quarterly realized silver price in the preceding quarter, and (2) a minimum annual dividend of $0.01 per share of common stock, in each case payable quarterly, when declared. SeeNote 9 ofNotes to Consolidated Financial Statementsfor more information on our common stock dividend policy.

From the fourth quarter of 2011 through and including the fourth quarter of 2016,2017, our board of directors has declared a common stock dividend under the policy described above (although in some cases only a minimum dividend was declared and none relating to the average realized price of silver due to the prices not meeting the policy threshold). The declaration and payment of common stock dividends, whether pursuant to the policy or in addition thereto, is at the sole discretion of our board of directors, and there can be no assurance that we will continue to declare and pay common stock dividends in the future. In addition, the indenture governing our Senior Notes limits our ability to pay dividends.

Our existing stockholders are effectively subordinated to the holders of our Senior Notes.

In the event of our liquidation or dissolution, stockholders' entitlement to share ratably in any distribution of our assets would be subordinated to the holders of our Senior Notes. Any rights that a stockholder may have in the event of bankruptcy, liquidation or a reorganization of us or any of our subsidiaries, and any consequent rights of stockholders to realize on the proceeds from the sale of any of our or our subsidiaries' assets, will be effectively subordinated to the claims of the holders of our Senior Notes.

Additional issuances of equity securities by us would dilute the ownership of our existing stockholders and could reduce our earnings per share.

We may issue securities in the future in connection with raising capital, acquisitions, strategic transactions or for other purposes. To the extent we issue any additional equity securities (or securities convertible into equity), the ownership of our existing stockholders would be diluted and our earnings per share could be reduced.

The issuance of additional shares of our preferred or common stock in the future could adversely affect holders of common stock.

The market price of our common stock may be influenced by any preferred or common stock we may issue.  Our board of directors is authorized to issue additional classes or series of preferred stock without any action on the part of our stockholders.  This includes the power to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights and preferences over common stock with respect to dividends or upon the liquidation, dissolution or winding up of the business and other terms.  If we issue preferred stock in the future that has preference over our common stock with respect to the payment of dividends or upon liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of holders of the common stock or the market price of the common stock could be adversely affected.

If a large number of shares of our common stock are sold in the public market, the sales could reduce the trading price of our common stock and impede our ability to raise future capital.

We cannot predict what effect, if any, future issuances by us of our common stock or other equity will have on the market price of our common stock. Any shares that we may issue may not have any resale restrictions, and therefore could be immediately sold by the holders. The market price of our common stock could decline if certain large holders of our common stock, or recipients of our common stock, sell all or a significant portion of their shares of common stock or are perceived by the market as intending to sell these shares other than in an orderly manner. In addition, these sales could also impair our ability to raise capital through the sale of additional common stock in the capital markets.

The provisions in our certificate of incorporation, our by-laws and Delaware law could delay or deter tender offers or takeover attempts.

Certain provisions in our certificate of incorporation, our by-laws and Delaware law could make it more difficult for a third party to acquire control of us, even if that transaction could be beneficial to stockholders. These impediments include:

In addition, amendment of most of the provisions described above requires approval of at least 80% of the outstanding voting stock.

If we cannot meet the New York Stock Exchange continued listing requirements, the NYSE may delist our common stock.

Our common stock is currently listed on the NYSE. In the future, if we are not be able to meet the continued listing requirements of the NYSE, which require, among other things, that the average closing price of our common stock be above $1.00 over 30 consecutive trading days, our common stock may be delisted. Our closing stock price on February 20, 201712, 2018 was $6.58.$3.75.  

If we are unable to satisfy the NYSE criteria for continued listing, our common stock would be subject to delisting. A delisting of our common stock could negatively impact us by, among other things, reducing the liquidity and market price of our common stock; reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing; decreasing the amount of news and analyst coverage of us; and limiting our ability to issue additional securities or obtain additional financing in the future.  In addition, delisting from the NYSE might negatively impact our reputation and, as a consequence, our business.

Risks Relating to Our Debt

Our level of debt could impair our financial health and prevent us from fulfilling our obligations under our existing and future indebtedness.

As of December 31, 2017, we had total indebtedness of approximately $514.0 million. Our level of debt and our debt service obligations could:

We and our subsidiaries may incur substantial additional indebtedness in the future. Although the indenture governing our Senior Notes contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions and, under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial. In May 2016, we entered into our senior credit facility, which allows us to draw up to $100 million on a revolving basis.

If new debt is added to our and our subsidiaries’ existing debt levels, the risks associated with such debt that we currently face would increase. In addition, the indenture governing the Senior Notes does not prevent us from incurring additional indebtedness under that agreement.

Our Senior Notes and the guarantees thereof are effectively subordinated to any of our and our guarantors’ secured indebtedness to the extent of the value of the collateral securing that indebtedness.

Our Senior Notes and the guarantees thereof are not secured by any of our assets or the assets of our subsidiaries. The indenture governing the Senior Notes permits us to incur secured debt up to specified limits. As a result, the Senior Notes and the guarantees thereof are effectively subordinated to our and our subsidiary guarantors’ future secured indebtedness with respect to the collateral that secures such indebtedness, including any borrowings under our revolving credit facility. Upon a default in payment on, or the acceleration of, any of our secured indebtedness, or in the event of bankruptcy, insolvency, liquidation, dissolution, reorganization or other insolvency proceeding involving us or such guarantor, the proceeds from the sale of collateral securing any secured indebtedness will be available to pay obligations on the Senior Notes only after such secured indebtedness has been paid in full. As a result, the holders of the Senior Notes may receive less, ratably, than the holders of secured debt in the event of a bankruptcy, insolvency, liquidation, dissolution, reorganization or other insolvency proceeding involving us or such guarantor.

Any draw-downs on our $100 million revolving credit facility would be secured debt.

We may be unable to generate sufficient cash to service all of our indebtedness and meet our other ongoing liquidity needs and may be forced to take other actions to satisfy our obligations under our indebtedness, which may be unsuccessful.

Our ability to make scheduled payments or to refinance our debt obligations and to fund our planned capital expenditures and other ongoing liquidity needs depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. There can be no assurance that our business will generate sufficient cash flow from operations or that borrowings will be available to us to (1) pay the principal, premium, if any, and interest on our indebtedness, including the Senior Notes which are due May 1, 2021, or (2) to fund our other liquidity needs. We may need to refinance all or a portion of our debt on or before maturity; however, we may be unable to do so on commercially reasonable terms or at all.

In addition, we conduct substantially all of our operations through our subsidiaries, certain of which are not guarantors of our indebtedness. Accordingly, repayment of our indebtedness is dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Unless they are guarantors of our indebtedness, our subsidiaries do not have any obligation to pay amounts due with respect to our indebtedness or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. While the credit agreement governing our revolving credit facility and the indenture governing our Senior Notes limit the ability of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to qualifications and exceptions. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures or to sell assets, seek additional capital or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments and the indenture governing our Senior Notes may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

The terms of our debt impose restrictions on our operations.

The indenture governing our Senior Notes includes a number of significant restrictive covenants. These covenants could adversely affect us by limiting our ability to plan for or react to market conditions or to meet our capital needs. These covenants, among other things:

In addition, our revolving credit facility requires us to comply with various covenants. A breach of any of these covenants could result in an event of default under the agreement governing our revolving credit facility that, if not cured or waived, could give the holders of the defaulted debt the right to terminate commitments to lend and cause all amounts outstanding with respect to the debt to be due and payable immediately. Acceleration of any of our debt could result in cross-defaults under our other debt instruments, including the indenture governing our Senior Notes, as well as certain forward sales contracts which may be outstanding from time to time. Our assets and cash flow may be insufficient to repay borrowings fully under all of our outstanding debt instruments if any of our debt instruments are accelerated upon an event of default, which could force us into bankruptcy or liquidation. In such an event, we may be unable to repay our debt obligations. In addition, in some instances, this would create an event of default under the indenture governing our Senior Notes.

Our Senior Notes are structurally subordinated to all liabilities of our non-guarantor subsidiaries.

The Senior Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries that are not guaranteeing the Senior Notes, which include all of our non-domestic subsidiaries and certain other subsidiaries. These non-guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Senior Notes, or to make any funds available therefor, whether by dividends, loans, distributions or other payments. Any right that we or the guarantors have to receive any assets of any of the non-guarantor subsidiaries upon the liquidation or reorganization of those subsidiaries, and the consequent rights of holders of the Senior Notes to realize proceeds from the sale of any of those subsidiaries’ assets, will be effectively subordinated to the claims of those subsidiaries’ creditors, including trade creditors and holders of preferred equity interests of those subsidiaries. Accordingly, in the event of a bankruptcy, liquidation or reorganization of any of our non-guarantor subsidiaries, these non-guarantor subsidiaries will pay the holders of their debts, holders of preferred equity interests and their trade creditors before they will be able to distribute any of their assets to us or any guarantor. Unless they are guarantors of the Senior Notes or our other indebtedness, our subsidiaries do not have any obligation to pay amounts due on the Senior Notes or our other indebtedness or to make funds available for that purpose.

For the year ended December 31, 2017, our non-guarantor subsidiaries represented 48% of our sales of metals and 46% of our operating expenses. As of December 31, 2017, our non-guarantor subsidiaries represented 37% of our total assets and 20% of our total liabilities, including trade payables, deferred tax liabilities and royalty obligations but excluding intercompany liabilities.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly.

Borrowings under our credit facility are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease. Assuming all revolving loans were fully drawn, each one percentage point change in interest rates would result in a $1.0 million change in annual cash interest expense on our credit facility.

Key terms of the Senior Notes will be suspended if the Senior Notes achieve investment grade ratings and no default or event of default has occurred and is continuing.

Many of the covenants in the indenture governing the Senior Notes will be suspended if the Senior Notes are rated investment grade by Standard & Poor’s and Moody’s provided at such time no default or event of default has occurred and is continuing, including those covenants that restrict, among other things, our ability to pay dividends, incur debt and to enter into certain other transactions. There can be no assurance that the Senior Notes will ever be rated investment grade. However, suspension of these covenants would allow us to engage in certain transactions that would not be permitted while these covenants were in force, and the effects of any such transactions will be permitted to remain in place even if the Senior Notes are subsequently downgraded below investment grade.

We may be unable to repurchase Senior Notes in the event of a change of control as required by the indenture.

Upon the occurrence of certain kinds of change of control events specified in the indenture, holders of the Senior Notes will have the right to require us to repurchase all of the Senior Notes at a repurchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of repurchase. Any change of control also would constitute a default under our revolving credit facility. Therefore, upon the occurrence of a change of control, the lenders under our revolving credit facility would have the right to accelerate their loans and, if so accelerated, we would be required to repay all of our outstanding obligations under such facility. We may not be able to pay the Senior Note holders the required price for their notes at that time because we may not have available funds to pay the repurchase price. In addition, the terms of other existing or future debt may prevent us from paying the Senior Note holders. There can be no assurance that we would be able to repay such other debt or obtain consents from the holders of such other debt to repurchase the Senior Notes. Any requirement to offer to purchase any outstanding Senior Notes may result in us having to refinance our outstanding indebtedness, which we may not be able to do. In addition, even if we were able to refinance our outstanding indebtedness, such financing may be on terms unfavorable to us.

Holders of the Senior Notes may not be able to determine when a change of control giving rise to their right to have the Senior Notes repurchased has occurred following a sale of “substantially all” of our assets.

The definition of change of control in the indenture governing the Senior Notes includes a phrase relating to the sale of “all or substantially all” of our assets. There is no precise established definition of the phrase “substantially all” under applicable law. Accordingly, the ability of a holder of Senior Notes to require us to repurchase its notes as a result of a sale of less than all our assets to another person may be uncertain.

Federal and state fraudulent transfer laws may permit a court to void the Senior Notes or any of the guarantees thereof, and if that occurs, holders of the Senior Notes may not receive any payments on the notes.

Federal and state fraudulent transfer and conveyance statutes may apply to the issuance of the Senior Notes and the incurrence of any guarantees of the Senior Notes. Under federal bankruptcy law and comparable provisions of state fraudulent transfer or conveyance laws, which may vary from state to state, the Senior Notes or any guarantees thereof could be voided as a fraudulent transfer or conveyance if we or any existing or future subsidiary guarantors, as applicable, (a) issued the Senior Notes or incurred such guarantee with the intent of hindering, delaying or defrauding creditors or (b) received less than reasonably equivalent value or fair consideration in return for either issuing the Senior Notes or incurring the guarantee and, in the case of (b) only, one of the following is also true at the time thereof:

As a general matter, value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or a valid antecedent debt is satisfied. A court would likely find that any subsidiary guarantor did not receive reasonably equivalent value or fair consideration for its guarantee to the extent such subsidiary guarantor did not obtain a reasonably equivalent benefit from the issuance of the Senior Notes.

We cannot be certain as to the standards a court would use to determine whether or not we or any subsidiary guarantor was insolvent at the relevant time or, regardless of the standard that a court uses, whether the Senior Notes or any guarantees would be subordinated to our or any subsidiary guarantor’s other debt. In general, however, a court would deem an entity insolvent if:

The subsidiary guarantees contain a “savings clause” intended to limit the subsidiary guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its subsidiary guarantee to be a fraudulent transfer. This provision may not be effective to protect any subsidiary guarantees from being avoided under fraudulent transfer law. Furthermore, in Official Committee of Unsecured Creditors of TOUSA, Inc. v Citicorp North America, Inc., the U.S. Bankruptcy Court in the Southern District of Florida held that a savings clause similar to the savings clause used in the indenture was unenforceable. As a result, the subsidiary guarantees in that case were found to be fraudulent conveyances. The United States Court of Appeals for the Eleventh Circuit affirmed the liability findings of the Bankruptcy Court without ruling directly on the enforceability of savings clauses generally. If the TOUSA decision were followed by other courts, the risk that the guarantees would be deemed fraudulent conveyances would be significantly increased.

To the extent that any subsidiary guarantee is avoided, then, as to that subsidiary, the guaranty would not be enforceable.

If a court were to find that the issuance of the Senior Notes or the incurrence of any guarantee was a fraudulent transfer or conveyance, the court could (1) void the payment obligations under the Senior Notes or such guarantee, (2) subordinate the Senior Notes or such guarantee to presently existing and future indebtedness of ours or of the related subsidiary guarantor or (3) require the holders of the Senior Notes to repay any amounts received with respect to such guarantee. In the event of a finding that a fraudulent transfer or conveyance occurred, holders of the Senior Notes may not receive any repayment on the Senior Notes. Further, the avoidance of the Senior Notes could result in an event of default with respect to our and our subsidiaries’ other debt that could result in acceleration of that debt.

Finally, as a court of equity, a bankruptcy court could subordinate the claims in respect of the Senior Notes to other claims against us under the principle of equitable subordination if the court determines that (1) the holders of the Senior Notes engaged in some type of inequitable conduct, (2) the inequitable conduct resulted in injury to our other creditors or conferred an unfair advantage upon the holders of the Senior Notes and (3) equitable subordination is not inconsistent with the provisions of the Bankruptcy Code.

Our credit ratings may not reflect all risks associated with an investment in our Senior Notes.

Credit rating agencies rate our debt securities on factors that include our results of operations, actions that we take, their view of the general outlook for our industry and their view of the general outlook for the economy. Actions taken by the rating agencies can include maintaining, upgrading, or downgrading the current rating or placing us on a watch list for possible future downgrading. At February 12, 2018, our Senior Notes were rated “B" with a stable outlook by Standard and Poor’s and “B3" with a stable outlook by Moody’s Investors Service. In February 2016, Standard and Poor's lowered their rating of our Senior Notes from a previous "B" rating to a "B-" rating, prior to restoring it to "B" in June 2017. In January 2016, Moody's indicated that they had placed us, along with other mining companies, on review for downgrade. Downgrading the credit rating of our debt securities or placing us on a watch list for possible future downgrading would likely increase our cost of financing, limit our access to the capital markets and have an adverse effect on the market price of our securities, including our Senior Notes. We cannot be assured that our credit ratings will not be downgraded in the future.

Item1B. Unresolved Staff Comments

None.

Item 2. Properties

OPERATING PROPERTIES

The Greens Creek Unit

Various of our subsidiaries collectively own 100% of the Greens Creek mine, located on Admiralty Island near Juneau in southeast Alaska. Admiralty Island is accessed by boat, float plane, or helicopter. On the island, the mine site and various surface facilities are accessed by 13 miles of all-weather gravel roads. The Greens Creek mine has been in production since 1989, with a temporary care and maintenance period from April 1993 through July 1996.  Since the start of production, Greens Creek has been owned and operated through various joint venture arrangements.  For approximately 15 years prior to April 16, 2008, our wholly-owned subsidiary, Hecla Alaska LLC, owned an undivided 29.7% joint venture interest in the assets of Greens Creek.  On April 16, 2008, we completed the acquisition of all of the equity of two Rio Tinto subsidiaries holding a 70.3% interest in the Greens Creek mine, and which previously operated the mine, for approximately $758.5 million.  The acquisition gave us through various of our subsidiaries control collectively of 100% of the Greens Creek mine.

The Greens Creek orebody contains silver, zinc, gold and lead, and lies within the Admiralty Island National Monument, an environmentally sensitive area. The Greens Creek property includes 440 unpatented lode mining claims, 58 unpatented millsite claims, 17 patented lode claims and one patented millsite. In addition, the Greens Creek site includes properties under lease from the U.S. Forest Service ("USFS") for a road right-of-way, mine portal and mill site access, camp site, mine waste area and tailings impoundment. The USFS leases have varying expiration terms. Greens Creek also has title to mineral rights on 7,301 acres of federal land acquired through a land exchange with the USFS. We are currently exploring, but not mining, on such federal land.

approximately 24 square miles.

 

The project consists of the mine, an ore concentrating mill, a tailings impoundment area, a ship-loading facility, camp facilities, a ferry dock, and other related infrastructure.  The map below illustrates the location and access to Greens Creek:

 

 

The Greens Creek deposit is a polymetallic, stratiform, massive sulfide deposit. The host rock consists of predominantly marine sedimentary, and mafic to ultramafic volcanic and plutonic rocks, which have been subjected to multiple periods of deformation. These deformational episodes have imposed intense tectonic fabrics on the rocks. Mineralization occurs most often along the contact between a structural hanging wall of quartz mica carbonate phyllites and a structural footwall of graphitic and calcareous argillite. Major sulfide minerals are pyrite, sphalerite, galena, and tetrahedrite/tennanite.

 

31

---

Table of Contents

Pursuant to a 1996 land exchange agreement, the joint venture owning Greens Creek transferred private property equal to a value of $1.0 million to the U.S. Forest ServiceUSFS and received exploration and mining rights to approximately 7,500 acres of land with mining potential surrounding the existing mine. Any production from new ore discoveries on the exchanged lands will be subject to a federal royalty included in the land exchange agreement. The royalty is only due on any production from reserves that are not part of Greens Creek’sCreek’s extralateral rights. Thus far, there has been no production triggering payment of the royalty. The royalty is 3% if the average value of the ore during a year is greater than the benchmark, and 0.75% if the value is equal to or less than the benchmark. The benchmark of $120 per ton iswas adjusted annually in July according to the Gross Domestic Product (GDP) Implicit Price Deflator until the year 2016. The benchmark was fixed after 2016 and at December 31, 2016, was at approximately $161 per ton when applying the latest GDP Implicit Price Deflator.at December 31, 2017.

 

Greens Creek is an underground mine accessed by a ramp from surface which produces approximately 2,100 to 2,300 tons of ore per day. The primary mining methods are cut and fill and longhole stoping. The Greens Creek ore processing facility includes a SAG/ball mill grinding circuit to grind the run of mine ore to liberate the minerals and produce a slurry suitable for differential flotation of mineral concentrates.  A gravity circuit recovers free gold that exists as electrum, a gold/silver alloy in the ore.  Gravity concentrates are produced from this circuit prior to flotation.  Three flotation concentrates are produced: a lead concentrate which contains most of the silver recovered; a zinc concentrate which is low in precious metals content; and a zinc-rich bulk concentrate that contains gold, silver, zinc, and lead and must be marketed to an imperial smelter.  Doré is produced from the gravity concentrate by a third partythird-party processor and further refined and sold to precious metal traders and othertraders. The concentrate products are sold to a number of smelters and traders worldwide.  SeeNote 11 ofNotes to Consolidated Financial Statements for information on the significant customers for Greens Creek’s products. Concentrates are shipped from the Hawk Inlet marine terminal about nine miles from the mill.

 

31

---

Table of Contents

In 2016,2017, ore was processed at an average rate of approximately 2,2292,300 tons per day and total mill recovery was approximately 78%77% for silver, 88%86% for zinc, 81%79% for lead and 68%65% for gold.  The processing facility was originally constructed in 1988, with the first production commencing in 1989. Various modifications and upgrades have been made since that time.  Changes to the flotation circuit have included:  installation of regrind mills in 1992; mill recommissioning in 1996; expansion of concentrate cleaning equipment in 2000 and 2001; addition of a swing cell option in 2004, allowing for a reduction in bulk concentrate production; addition of an on-stream analyzer in 2006; expansion of lead rougher equipment in 2007; retrofit of 2two column sparge systems in 2010 and 2011; replacement of the carbon flotation columns complete with sparger upgrades in 2012 and 2013; installation of a replacement on-stream analyzer with an additional multiplexer in 2013 and 2014; and replacement of the sulfuric acid system with a carbon dioxide system for pH control in 2015.  Significant changes to the grinding circuit since original construction have included a new motor, two stage screening, and various internal lining modifications for the SAG mill, and replacement of the primary cyclones and the addition of a trommel magnet in the ball mill. In 2017, the swing cells were replaced with Woodgrove staged flotation reactor cells.

 

Electricity for the Greens Creek unit is provided through the purchase of surplus hydroelectric power from Alaska Electric Light and Power Company (“AEL&P”), to the extent it is available after the power needs of Juneau and the surrounding area are met. When weather conditions are not favorable to maintain lake water levels sufficient for all of the power needs at Greens Creek to be met by available hydroelectric power, the mine relies on power provided by on-site diesel generators.

 

The employees at Greens Creek are employees of Hecla Greens Creek Mining Company, our wholly-owned subsidiary, and are not represented by a bargaining agent. There were 414423 employees at the Greens Creek unit at December 31, 2016.2017.

 

Definition drilling in 20162017 focused on refiningdefining mineralized material at the East, Northwest West, 9A,Southeast, West, Upper Plate and Deep 200 South zones. After applying economic analysis to these drilling results, and incorporating them into the life of mine plan, we expectbelieve this mineralized material towill likely be converted into reserves. Other zones that were targeted by definition drilling includedreserves in the future, primarily in the East Ore and Upper SouthwestWest zones. While ore tonnage in the reserve did not change significantly, silver-equivalent ounces in the reserve experienced a notable increase driven by high-grade definition and exploration drill results, the new net smelter return terms (improved by-product credits and payable portions for zinc and gold) as well as various design changes made to reduce dilution. Underground exploration activities at Greens Creek in 20162017 continued to define new mineralization along trend of the East, Gallagher, 9A, Deep 200 South, and Southwest Bench zones. Additional exploration included drilling Gallagher Zone, Mine Syncline, and 5250 Zone targets.Upper Plate zones.

 

In 2017, undergroundPlanned activities to potentially add reserves in 2018 include additional drilling of the East Ore, Upper Plate, Lower Southwest and Deep 200 South zones as well as a new exploration drift in the Upper Plate. Exploration targets in 2018 are expected to include Upper Plate, Deep Southwest, and West zones. Development is planned in 2019 for a major new exploration drift which we believe will enable definition of targets in the deepest areas of the 200 South Zone. Surface exploration drilling is expected to begin on a multi-year projectevaluate the projections to refine known East Ore resources alongsurface of the mineralized horizon. The Upper Plate Deep 200 South, Gallagher, Deep Southwest, and West5250 zones are expected to be advanced by definition drilling as well. Underground exploration in 2017 is expected to resume testing down plunge targetsand the deeper, western projections of the Deep 200 South, Gallagher,Southwest Bench and Gallagher Fault Block zones after the advancementzones.

32

---

Table of the M390 exploration drift is complete. Surface drilling in 2017 is expected to concentrate on targets south of the 9A, 5250 and East Ore orebodies, and up-dip of the 5250 and Gallagher West zones.

Contents

 

As of December 31, 2016,2017, we have recorded a $39.0$41.7 million asset retirement obligation for reclamation and closure costs. We maintained a $68.9$72.8 million reclamation and long-term water treatment bond for Greens Creek as of December 31, 2016.2017.  The net book value of the Greens Creek unit property and its associated plant, equipment and mineral interests was approximately $631.0$611.0 million as of December 31, 2016.2017.

32

---

Table of Contents

 

Based on current ore reserve estimates of reserves and mineralized material, the currently knownexpected remaining mine life at Greens Creek is 10 years. Information with respect to production, average Cash Cost, After By-product Credits, Per Silver Ounce, All-In Sustaining Costs ("AISC"), After By-product Credits, Per Silver Ounce, and proven and probable ore reserves is set forth in the following table.

 

		Years Ended December 31,												Years Ended December 31,
Production		2016				2015				2014				2017				2016				2015
Ore milled (tons)			815,639				814,398				816,213				839,589				815,639				814,398
Silver (ounces)			9,253,543				8,452,153				7,826,341				8,351,882				9,253,543				8,452,153
Gold (ounces)			53,912				60,566				58,753				50,854				53,912				60,566
Zinc (tons)			57,729				61,934				59,810				52,547				57,729				61,934
Lead (tons)			20,596				21,617				20,151				17,996				20,596				21,617
Cost of sales and other direct production costs and depreciation, depletion and amortization		$	191,297			$	195,276			$	199,682			$	201,803			$	191,297			$	195,276
Cash Cost, After By-product Credits, Per Silver Ounce(1)		$	3.84			$	3.91			$	2.89			$	0.71			$	3.84			$	3.91
AISC, After By-Product Credits, per Silver Ounce (1)														$	5.76			$	9.42			$	10.08
Proven Ore Reserves(2,3,4,5,6)
Proven Ore Reserves(2,3,4,5,6,7)
Total tons			9,100				10,100				4,700				7,200				9,100				10,100
Silver (ounces per ton)			15.5				20.8				15.7				12.2				15.5				20.8
Gold (ounces per ton)			0.09				0.12				0.1				0.09				0.09				0.12
Zinc (percent)			6.6				9.0				9.2				6.1				6.6				9
Lead (percent)			2.5				3.7				3.7				2.4				2.5				3.7
Contained silver (ounces)			140,400				209,900				74,200				88,600				140,400				209,900
Contained gold (ounces)			800				1,200				500				600				800				1,200
Contained zinc (tons)			600				910				440				440				600				910
Contained lead (tons)			230				370				180				170				230				370
Probable Ore Reserves(2,3,4,5,6)
Probable Ore Reserves(2,3,4,5,6,7)
Total tons			7,585,000				7,204,100				7,691,000				7,542,500				7,585,000				7,204,100
Silver (ounces per ton)			11.7				12.3				12.2				11.9				11.7				12.3
Gold (ounces per ton)			0.09				0.09				0.10				0.10				0.09				0.09
Zinc (percent)			7.6				8.1				8.3				8.1				7.6				8.1
Lead (percent)			2.9				3.0				3.1				3.0				2.9				3.0
Contained silver (ounces)			88,728,600				88,522,900				93,946,900				90,130,300				88,728,600				88,522,900
Contained gold (ounces)			672,100				675,500				738,200				724,800				672,100				675,500
Contained zinc (tons)			575,530				581,730				639,490				614,390				575,530				581,730
Contained lead (tons)			217,050				218,030				240,670				224,880				217,050				218,030
Total Proven and Probable Ore Reserves(2,3,4,5,6)
Total Proven and Probable Ore Reserves(2,3,4,5,6,7)
Total tons			7,594,100				7,214,200				7,695,700				7,549,700				7,594,100				7,214,200
Silver (ounces per ton)			11.7				12.3				12.2				11.9				11.7				12.3
Gold (ounces per ton)			0.09				0.09				0.10				0.10				0.09				0.09
Zinc (percent)			7.6				8.1				8.3				8.1				7.6				8.1
Lead (percent)			2.9				3.0				3.1				3.0				2.9				3.0
Contained silver (ounces)			88,869,000				88,732,800				94,021,100				90,218,900				88,869,000				88,732,800
Contained gold (ounces)			672,900				676,700				738,700				725,400				672,900				676,700
Contained zinc (tons)			576,130				582,640				639,930				614,830				576,130				582,640
Contained lead (tons)			217,280				218,400				240,850				225,050				217,280				218,400

33

---

Table of Contents

 

(1)

Includes by-product credits from gold, lead and zinc production. Cash Cost, After By-product Credits, Per Silver Ounce represents a measurementand AISC, After By-product Credits, Per Silver Ounce represent measurements that isare not in accordance with GAAP that management uses to monitor and evaluate the performance of our mining operations. We believe Cash Cost, After By-product Credits, Per Silver Ounce provides an indicatorthese measurements provide indicators of economic performance and efficiency at each location and on a consolidated basis, as well as providing a meaningful basis to compare our results to those of other mining companies and other operating mining properties. A reconciliation of cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, to thisthese non-GAAP measuremeasures can be found inItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, underReconciliation of Costs of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP).

 

33

---

Table of Contents

(2)

The term “reserve” means that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. The term “economically,” as used in the definition of reserve, means that profitable extraction or production has been established or analytically demonstrated to be viable and justifiable under reasonable investment and market assumptions. The term “legally,” as used in the definition of reserve, does not imply that all permits needed for mining and processing have been obtained or that other legal issues have been completely resolved. However, for a reserve to exist, we must have a justifiable expectation, based on applicable laws and regulations, that issuance of permits or resolution of legal issues necessary for mining and processing at a particular deposit will be accomplished in the ordinary course and in a time frame consistent with our current mine plans.

(3)

Proven and probable ore reserves are calculated and reviewed in-house and are subject to periodic audit by others, although audits are not performed on an annual basis. Cutoff grade assumptions vary by ore body and are developed based on reserve metals price assumptions, anticipated mill recoveries and smelter payables, and cash operating costs.  Due to multiple ore metals, and complex combinations of ore types, metal ratios and metallurgical performances at Greens Creek, the cutoff grade is expressed in terms of net smelter return (“NSR”), rather than metal grade.  The cutoff grade at Greens Creek is $190 per ton NSR.  Our estimates of proven and probable reserves are based on the following metals prices:

 

		December 31,												December 31,
		2016				2015				2014				2017				2016				2015
Silver (per ounce)		$	14.50			$	14.50			$	17.25			$	14.50			$	14.50			$	14.50
Gold (per ounce)		$	1,200			$	1,100			$	1,225			$	1,200			$	1,200			$	1,100
Lead (per pound)		$	0.90			$	0.90			$	0.95			$	0.90			$	0.90			$	0.90
Zinc (per pound)		$	1.05			$	0.90			$	0.90			$	1.05			$	1.05			$	0.90

 

(3)	Reserves are in-place materials that incorporate estimates of the amount of waste that must be mined along with the ore and expected mining recovery. The 20162017 reserve model assumes average total mill recoveries of 78%77% for silver, 68%65% for gold, 88%86% for zinc and 81%79% for lead.

 

(4)

The changes in reserves in 2017 versus 2016 and 2016 versus 2015 arewere due to the addition of data from new drill holes, partially offset by continued depletion of the deposit through production. The changes in reserves in 2015 versus 2014 were due to continued depletion of the deposit through production and lower metals price assumptions, partially offset by the addition of data from new drill holes.

 

(5)

Probable reserves at the Greens Creek unit are based on average drill spacing of 50 to 100 feet. Proven reserves typically require that mining samples are partly the basis of the ore grade estimates used, while probable reserve grade estimates can be based entirely on drilling results.  The proven reserves reported for Greens Creek for 20162017 represent stockpiled ore.

 

(6)

Greens Creek ore reserve estimates were prepared by Robert Callaghan,Paul Jensen, Chief Geologist, and Kerry Lear, Senior Resource Geologist (contractor), and Kyle Mehalek, Planning Engineer, at the Greens Creek unit and reviewed by Keith Blair, SeniorChief Resource Geologist at Hecla Limited and Dean McDonald, Senior Vice President of Exploration.

 

(7)	An independent review of the 2016 reserve model for Greens Creek was performed by Roscoe Postle Associates Inc. during 2017. An independent review of the modeling process at Greens Creek was performed by Amec Foster Wheeler E&C Services, Inc. during 2016.

 

34

---

Table of Contents

 

TheLucky Friday Unit

 

Since 1958, we have owned and operated the Lucky Friday mine, a deep underground silver, lead and zinc mine located in the Coeur d’Alened’Alene Mining District in northern Idaho. Lucky Friday is one-quarter mile east of Mullan, Idaho, and is adjacent to U.S. Interstate 90. The mine site and various surface facilities are accessed by paved roads from U.S. Interstate 90.  The Lucky Friday mine is comprised of 710 acres of patented mining claims and fee lands and 535 acres of unpatented mining claims. We also own or control approximately 26 square miles of mineral interests, which include patented mining and millsite claims, fee lands, and unpatented mining claims, that are adjacent to the Lucky Friday mine property. Below is a map illustrating the location and access to the Lucky Friday unit:

 

There have been two ore-bearing structures mined at the Lucky Friday unit.  The first, mined through 2001, was the Lucky Friday Vein, a fissure vein typical of many in the Coeur d’Alene Mining District. The ore body is located in the Revett Formation, which is known to provide excellent host rocks for a number of ore bodies in the Coeur d’Alene Mining District. The Lucky Friday Vein strikes northeasterly and dips steeply to the south with an average width of six to seven feet. Its principal ore minerals are galena and tetrahedrite with minor amounts of sphalerite and chalcopyrite. The ore occurs as a single continuous ore body in and along the Lucky Friday Vein. The major part of the ore body has extended from 1,200 feet to 6,020 feet below surface.

 

The second ore-bearing structure, known as the Lucky Friday Expansion Area, or Gold Hunter, has been mined since 1997 pursuant to an operating agreement with Silver Hunter Mining Company (“Silver Hunter”), our wholly owned subsidiary.  During 1991, we discovered several mineralized structures containing some high-grade silver ores in an area known as the Gold Hunter property, approximately 5,000 feet northwest of the then existing Lucky Friday workings. This discovery led to the development of the Gold Hunter property on the 4900 level. At approximately 4,900 feet below surface, the Gold Hunter Veins are hosted in a 200-foot thick siliceous lens within the Wallace Formation that transitions to the St. Regis Formation below 5,900 feet. We are currently mining at approximately 5,900 feet below surface. The veins are sub-parallel, and are numbered consecutively from the hanging wall of the favorable horizon to the footwall. The strike of the vein system is west-northwest with a dip of 85 degrees to the south. The 30 Vein, which has been demonstrated to contain higher silver grades, represents approximately 70%66% of our current proven and probable ore reserve tonnages, while the remaining 30%34% of our reserves are contained in various intermediate veins having lower silver grades than 30 Vein. The width of 30 Vein ranges from approximately 0.5 feet to 15.4 feet, with an average width of approximately 7.4 feet. While the veins share many characteristics with the Lucky Friday Vein, the Gold Hunter area possesses some mineralogical and rock mechanics differences that make it more favorable to mine at this time. On November 6, 2008, we, through Silver Hunter, completed the acquisition of substantially all of the assets of Independence Lead Mines Company, which held an interest in the Gold Hunter property. The acquisition included all future interests or royalty obligations to Independence and the mining claims pertaining to the operating agreement with Hecla Limited that was assigned to Silver Hunter.

35

---

Table of Contents

 

The principal mining method at the Lucky Friday unit is ramp access, cut and fill. This method utilizes rubber-tired equipment to access the veins through ramps developed outside of the ore body. Once a cut is taken along the strike of the vein, it is backfilled with cemented tailings and the next cut is accessed, either above or below, from the ramp system.

 

35

---

TableIn 2017, we began work with a third-party equipment manufacturer to develop a remote vein miner ("RVM"), a disc-cutting, continuous-mining machine.  We believe RVMs could be used to eliminate the current drill-and-blast method and increase safety and productivity at Lucky Friday.  We conducted engineering of Contents

the machine and ordered long-lead components for the first RVM in late 2017, and we expect to begin commissioning of the machine in 2019.

 

In 2016,As discussed further below, the unionized employees at Lucky Friday have been on strike since mid-March 2017, resulting in limited production during that time. For the two months ended February 28, 2017, production averaged 803812 tons milled per day, and total mill recovery was approximately 95%96% for silver, 96%95% for lead, and 94%93% for zinc. The mill has operated intermittently during the strike period. Ore at the Lucky Friday is processed using a conventional lead/zinc flotation flowsheet, with process control guided by a real-time, on-line analyzer.  Run of mine ore is crushed in a conventional three stage crushing plant consisting of a primary jaw crusher, and a secondary crushing circuit, and tertiary cone crushing stage.  Crushed ore is ground in a ball mill, and the ground slurry reports to the lead flotation circuit.  The lead circuit tailings report to the zinc flotation circuit.  Lead and zinc concentrates are thickened and filtered, and final concentrate products are shipped to smelters for final processing.  The original flotation mill was constructed in 1960 and had a capacity of 750 tons per day. Various modifications and upgrades have been made since that time, including: installation of a 1,000 ton course ore bin and replacement of the ball mill in 1984 to increase processing capacity to 1,000 tons per day; replacement of the double-deck crushing screen with a triple-deck screen, installation of a tertiary cone crushing stage, lead concentrate flash flotation equipment, four ball mill cyclones, a mill feed sampler, and lead concentrate column cleaners and thickeners in 2005; addition of dust collection equipment in the crushing plant in 2006; installation of zinc concentrate flash flotation, conditioning, and column cleaner equipment, and an on-stream analyzer in 2007; construction of two new water treatment plants in 2008, with ongoing enhancements to those facilities since that time; addition of a discharge event pond in 2009; sand cyclone and reagent equipment in 2011; a disc filter added at Mine Tailing Impoundment Structure ("MTIS") 4 in 2016; and various refurbishments made during the temporary suspension period in 2012 discussed below.other mill refurbishments. Current processing capacity of the Lucky Friday facility is approximately 1,000 tons per day. All lead and zinc concentrate productionsales during 2016 was2017 were shipped to Teck Resources Limited's smelter in Trail, British Columbia, Canada.

 

During 2008, we initiated engineering, procurement and development activities relating to construction of #4 Shaft, which upon completion, would providewas completed in January 2017. The #4 Shaft provides access from the 4900 level down to the 8600 level. The project was temporarily placed on hold in the fourth quarter8300 level, with a total shaft depth of 2008 due to then prevailing metals prices.  However, detailed engineering, long lead time procurement, and other early-stage activities for the internal shaft project resumed in 2009.  The #4 Shaft sinking activities were temporarily suspended until certain rehabilitation work in the Silver Shaft was completed in early 2013. The #4 Shaft project has been completed, with commissioning finalized in January 2017. Activities related to the project as of December 31, 2016 have included engineering, detailed shaft design, excavation of the hoist room and off shaft development access to shaft facilities, installation of the hoist and head works, placement and receipt of orders for major equipment purchases, advancement of a geotechnical drill hole, 3,690 feet of vertical excavation to its final depth, shaft furnishing, installation of permanent conveyances, and other construction activities.8620 feet. Completion of #4 Shaft and associated development should allowallows us to mine mineralized material below our current workings and provide deeper platforms for exploration.

 

During 2014, Lucky Friday continued implementation of an Environmental Management System and completed installation of remote stream gauging stations. These stations assist in performing daily monitoring activities in nearby receiving waters as required by our effluent discharge permit. Additionally, we have completed reclamation activities on the 26 acre Mine Tailing Impoundment Structure ("MTIS")MTIS 4 borrow site and have achieved final stabilization of the site prior to onset of winter conditions.disturbed area.  In 2015, closure plans and costs were updated and developed for MTIS 3 and 4.  The closure cost for MTIS 3 is based on the closure design and cost estimate developed by a third-party firm in conjunction with cost estimates prepared by Lucky Friday personnel to complete necessary associated work to facilitate the closure of the impoundment. The closure cost for MTIS 4 is based on the most recent closure cap design and was prepared for us by a consultant. At December 31, 2016,2017, an asset retirement obligation of approximately $9.2$9.9 million had been recorded for closure of MTIS 3 and 4, reclamation and closure of the mine and mill upon the end of the known mine life based on a revised plan developed in 2016, and ongoing monitoring and maintenance.

36

---

Table of Contents

 

The net book value of the Lucky Friday unit property and its associated plant, equipment and mineral interests was approximately $431.3$429.2 million as of December 31, 2016.2017. The age of the facilities at Lucky Friday ranges from the 1950s to 2016.2017.

 

At December 31, 2016,2017, there were 310299 employees at Lucky Friday. The United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial, and Service Workers International Union is the bargaining agent for the Lucky Friday’s 240230 hourly employees. As further discussed inItem 1A. Risk Factors,the currentmost recent labor agreement expired on April 30, 2016. On February 19, 2017, the unionized employees voted against our contract offer. On March 13, 2017, the unionized employees went on strike, and have been on strike since that time. Production at Lucky Friday was suspended from the start of the strike, until limited production by salaried personnel commenced in July 2017.

 

Avista Corporation supplies electrical power to the Lucky Friday unit.

 

36

---

Table of Contents

Exploration drilling resumed at Lucky Friday in the fourth quarter of 2016 after a suspension of such activity since 2013. This represented the first exploration effort since 2011. Four holes tested for a westerly continuation of 30 Vein mineralization beyond the modeled boundary of mineralized material. This boundary had been defined by a fault segment, in what is described as the Silver Fault Zone. Each hole intercepted mineralization beyond the bounding fault, but the vein interpretation will require additional infilland definition drilling east of, and alongwas limited during 2017 due to the margin of the current boundary of mineralized material to better define the resource. This infillstrike. Upon restart, definition drilling program began in December of 2016 and is expected to continue into 2017.

Definition drilling in 2017 is expected to occur fromresume near the 6350-52 Ramp West, 6500 East Lateral, and 6500 Far East to test the 30 Vein and a portion of the 30 Vein offset by the Silver Fault. Drilling is also expected to refine the intermediate vein package at the 6500 level and upgrade 30 Vein resources on the eastern end of the deposit. These adjacent veins are roughly defined as intermediate veins which have become an increasingly significant component of the mine’smine’s production mix within the life of mine plan.

Exploration may resume again late in 2017 on the far-east end of the Lucky Friday Extension deposit. The goal of this exploration drilling is to define vein extensions for the 30 Vein and intermediate veins.

 

37

---

Table of Contents

 

Based on current estimates of reserves and mineralized material, and other resources, the currently expected mine life at Lucky Friday is approximately 22 years. Information with respect to the Lucky Friday unit’sunit’s production, average Cash Cost, After By-product Credits, Per Silver Ounce, AISC, After By-product Credits, Per Silver Ounce, and proven and probable ore reserves for the past three years is set forth in the table below.

 

		Years Ended December 31,												Years Ended December 31,
Production		2016				2015				2014				2017				2016				2015
Ore milled (tons)			293,875				297,347				309,070				70,718				293,875				297,347
Silver (ounces)			3,596,010				3,028,134				3,239,151				838,658				3,596,010				3,028,134
Lead (tons)			21,876				18,348				20,104				4,737				21,876				18,348
Zinc (tons)			10,787				8,139				8,159				2,560				10,787				8,139
Cost of sales and other direct production costs and depreciation, depletion and amortization		$	76,210			$	65,222			$	67,854			$	15,107			$	76,210			$	65,222
Cash Cost, After By-product Credits, Per Silver Ounce(1)		$	8.89			$	11.23			$	9.44			$	5.81			$	8.89			$	11.23
AISC, After By-product Credits, Per Silver Ounce (1)														$	12.48			$	20.66			$	31.08
Proven Ore Reserves(2,3,4,5)
Proven Ore Reserves(2,3,4,5,6,7)
Total tons			3,307,900				3,509,800				3,839,600				4,245,800				3,307,900				3,509,800
Silver (ounces per ton)			17.5				16.5				13.7				15.4				17.5				16.5
Lead (percent)			10.4				9.8				8.3				9.6				10.4				9.8
Zinc (percent)			3.3				3.2				2.6				4.1				3.3				3.2
Contained silver (ounces)			57,924,800				57,960,800				52,556,000				65,448,400				57,924,800				57,960,800
Contained lead (tons)			345,360				344,610				318,610				407,520				345,360				344,610
Contained zinc (tons)			110,400				111,210				98,230				175,400				110,400				111,210
Probable Ore Reserves(2,3,4,5)
Probable Ore Reserves(2,3,4,5,6,7)
Total tons			1,541,600				1,557,100				2,043,200				1,386,600				1,541,600				1,557,100
Silver (ounces per ton)			12.9				13.3				12.9				11.4				12.9				13.3
Lead (percent)			7.9				8.0				7.4				7.6				7.9				8.0
Zinc (percent)			2.8				2.9				2.2				3.7				2.8				2.9
Contained silver (ounces)			19,912,100				20,720,500				26,346,100				15,815,300				19,912,100				20,720,500
Contained lead (tons)			121,640				124,950				151,590				104,720				121,640				124,950
Contained zinc (tons)			43,410				45,080				44,910				50,640				43,410				45,080
Total Proven and Probable Ore Reserves(2,3,4,5)
Total Proven and Probable Ore Reserves(2,3,4,5,6,7)
Total tons			4,849,500				5,066,900				5,882,800				5,632,400				4,849,500				5,066,900
Silver (ounces per ton)			16.1				15.5				13.4				14.4				16.1				15.5
Lead (percent)			9.6				9.3				8.0				9.1				9.6				9.3
Zinc (percent)			3.2				3.1				2.4				4.0				3.2				3.1
Contained silver (ounces)			77,836,900				78,681,300				78,902,100				81,263,700				77,836,900				78,681,300
Contained lead (tons)			467,000				469,560				470,200				512,240				467,000				469,560
Contained zinc (tons)			153,810				156,290				143,140				226,040				153,810				156,290

 

(1)

Includes by-product credits from lead and zinc production. Cash Cost, After By-product Credits, Per Silver Ounce represents a measurementand AISC, After By-product Credits, Per Silver Ounce, represent measurements that isare not in accordance with GAAP that management uses to monitor and evaluate the performance of our mining operations. We believe Cash Costs, After By-product Credits, Per Silver Ounce provides an indicatorthese measurements provide indicators of economic performance and efficiency at each location and on a consolidated basis, as well as providing a meaningful basis to compare our results to those of other mining companies and other operating mining properties. A reconciliation of cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, to thisthese non-GAAP measuremeasures can be found inItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, underReconciliation of Costs of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP).

 

38

---

Table of Contents

(2)

The term “reserve” means that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. The term “economically,” as used in the definition of reserve, means that profitable extraction or production has been established or analytically demonstrated to be viable and justifiable under reasonable investment and market assumptions. The term “legally,” as used in the definition of reserve, does not imply that all permits needed for mining and processing have been obtained or that other legal issues have been completely resolved. However, for a reserve to exist, we must have a justifiable expectation, based on applicable laws and regulations, that issuance of permits or resolution of legal issues necessary for mining and processing at a particular deposit will be accomplished in the ordinary course and in a time frame consistent with our current mine plans.

(3)

Proven and probable ore reserves are calculated and reviewed in-house and are subject to periodic audit by others, although audits are not performed on an annual basis. Cutoff grade assumptions vary by ore body and are developed based on reserve metals price assumptions, anticipated mill recoveries and smelter payables, and cash operating costs.  Due to multiple ore metals, and complex combinations of ore types, metal ratios and metallurgical performances at Lucky Friday, the cutoff grade is expressed in terms of net smelter return (“NSR”), rather than metal grade.  The cutoff grade at Lucky Friday ranges from $161$216 per ton NSR to $171$231 per ton NSR.  Our estimates of proven and probable reserves are based on the following metals prices:

 

38

---

Table of Contents

		December 31,												December 31,
		2016				2015				2014				2017				2016				2015
Silver (per ounce)		$	14.50			$	14.50			$	17.25			$	14.50			$	14.50			$	14.50
Lead (per pound)		$	0.90			$	0.90			$	0.95			$	0.90			$	0.90			$	0.90
Zinc (per pound)		$	1.05			$	0.90			$	0.90			$	1.05			$	1.05			$	0.90

 

(3)(4)

Reserves are in-place materials that incorporate estimates of the amount of waste that must be mined along with the ore and expected mining recovery. The 20162017 reserve model assumes average total mill recoveries of 96% for silver, 96%94% for lead and 94%90% for zinc.

 

(4)(5)

The change in reserves in 2017 from 2016 fromwas because of inclusion of additional intermediate vein material, partially offset by depletion of the deposit through production. The change in reserves in 2016 versus 2015 was because of depletion of the deposit through production. The changes in reserves in 2015 versus 2014 was because of lower silver prices, depletion of the deposit through production, and exclusion of some lower-grade material, partially offset by inclusion of definition drilling information from 2014.

 

(5)(6)

Lucky Friday ore reserve estimates were prepared by Terry DeVoe, Chief Geologist, and Joshua Pritts, Resource Geologist, at the Lucky Friday unit and reviewed by Keith Blair, SeniorChief Resource Geologist at Hecla Limited and Dean McDonald, Senior Vice President of Exploration.

 

(7)	An independent review of the 2016 reserve model for Lucky Friday was performed by Roscoe Postle Associates Inc. during 2017.

TheCasa Berardi Unit

 

In 2013, as a result of our acquisition of Aurizon Mines Ltd. ("Aurizon"), we acquired the Casa Berardi mine, located 95 kilometers north of La Sarre in the Abitibi Region of northwestern Quebec, Canada. The mining site is reached via a 38 kilometer all season gravel road which connects with the provincial and national paved roads grid. The property is limitedborders Ontario to the west by the Quebec/Ontario border and covers parts of Casa Berardi, Dieppe, Raymond, D'Estrees, and Puiseaux townships. The project area extends east-west for more than 37 kilometers and reaches 3.5 kilometers in width.north-south. The Casa Berardi mine gold deposits are located along a 5 kilometer east-west mineralized corridor.

Aurizon acquired the claims, leases and infrastructure comprising the Casa Berardi mine project in 1998 from TVX Gold Inc. Aurizon engaged in exploration programs beginning in 1998, and production began in late 2006.

39

---

Table of Contents

The nearest commercial airport to the Casa Berardi mine is located at Rouyn-Noranda. La Sarre can be reached from Rouyn-Noranda via provincial roads 101 and 111. The 38 kilometer all-season gravel road to the mine site branches off from the paved Route des Conquérants road, which runs north from its intersection with road 393 north of La Sarre and passes through the village of Villebois. The branch is approximately 21 kilometers north of Villebois. A gravel road links the East Mine and the West Mine (which roughly represent the east-west boundaries of the mining lease), and a number of forestry roads provide access to the rest of the project area, from east and west.

Hecla Quebec Inc., Hecla’s wholly owned subsidiary, owns a 100% interest in the mineral titles and mining leases comprising the current Casa Berardi mine. The Casa Berardi mine is composed of 69 contiguous claims, covering 3,148.3 hectares (7,779.6 acres) and two mining leases covering 481.4 hectares (1,189.7 acres).  The total area of the Casa Berardi property is 3,629.75 hectares (8,969.3 acres).  All the claims and leases are in good standing. We own an additional approximately 45 square miles of exploration property located adjacent to the current Casa Berardi mine and comprised of approximately 230 claims, most of which are subject to a 1% NSR royalty in favor of Lake Shore Gold Corp.

We also hold a non-exclusive lease BNE 25938 for a sand and gravel pit, tailings lease 70218, and an additional 12 acres of land contiguous to mining lease BM 768 for rock waste material storage.

Under the Quebec Mining Act, claims are required to be renewed every two years. Statutorily prescribed minimum work commitments apply to all claims and leases. As of December 31, 2017, the claims and leases comprising part of the Casa Berardi mine have excess work credits of CAD$46.9 million.

The project consists of an underground mine and the East Mine Crown Pillar open pit mine. The underground mine has two shafts; the West Mine shaft reaching a vertical depth of 1096 meters, and the unused East Mine shaft located 4.3 kilometers to the east, and going down to a vertical depth of 379 meters. A system of declines and drifts connecting both shafts provide access and underground services to ore zones. The surface infrastructures include a cyanidation processing mill (carbon-in-leach), tailings impoundment areas, and other facilities and infrastructures. Power supply to the site is provided by a 55 kilometer, 120kV power line from the Hydro-Québec transformation station located in the town of Normétal. The map below illustrates the location and access to Casa Berardi:

40

---

Table of Contents

Prior to Aurizon’s ownership, the Casa Berardi underground mine operated from 1988 to 1997, producing approximately 3.9 million tons of ore at an average gold grade of 0.2 ounces per ton from two sites, the West Mine and the East Mine. Aurizon’s operations from 2006 to 2012 produced approximately 4.5 million tons of ore at an average gold grade of 0.3 ounces per ton. A total of 1,625,500 ounces of gold were recovered by the previous operators prior to 2013. The mineral deposits cover a distance of more than 5.0 kilometers.

 

The Casa Berardi mine is located in the northern part of the Abitibi sub-province, a subdivision of the Superior province, within the Canadian Shield. The Casa Berardi area belongs to the Harricana-Turgeon Belt, which is a part of the North Volcanic Zone. The regional geology is characterized by a mixed assemblage of mafic volcanics, flysch-type sedimentary iron formations, and graphitic mudrocks that are limited by a large granodioritic to granitic batholith. Structurally, the area is enclosed in the Casa Berardi Tectonic Zone, a 15 kilometers wide corridor that can be traced over 200 kilometers. A network of east-west to east-southeast and west-northwest ductile high strain zones mainly follows the lithological contacts.

 

Casa Berardi can be classified as an Archean sedimentary-hosted orogenic gold deposit. Mineralization is found in large low-sulphide quartz veins developed against the Casa Berardi fault, and in disseminated sulfides and stockworks lenses associated with strongly carbonate-sericite altered ductile deformation zones obliquely oriented to the Casa Berardi fault, and extending a few hundred metresmeters on both sides of the fault following northwest and northeast orientations. Gold mineralization emplacement was coeval with the fault`s evolution and shows a strong structural control and vertical extension, even if other factors such as the nature of some host rocks and lithological contacts seem to have favored gold deposition.

 

The Casa Berardi Fault is defined by a stratigraphic contact between a graphite-rich sediment sequence at the base of the Taïbi domain, a northern continuous intermediary fragmental volcanic unit, and a southern polymictic conglomerate unit. The mineralization system is composed of large, low-sulfide quartz veins and low-grade stockworks and carbonate-mica replacement zones forming in the West Mine and PrincipalePrincipal area. On the north side of the Fault, a thick sequence of very homogeneous wacke belonging to the Taïbi Group is affected by an amphibolites metamorphic grade. One kilometer further north is the easterly elongated Recher batholith, which is part of the north-westernnorthwestern boundary of the Abitibi greenstone belt.

 

3941

---

Table of Contents

 

Aurizon acquired the claims, leases and infrastructure comprisingCurrent reserves at the Casa Berardi mine project in 1998 from TVX Gold Inc. Aurizon engaged in exploration programs beginning in 1998, and production began in late 2006.

The nearest commercial airport to the Casa Berardi mine is locatedcomprise seven zones at Rouyn-Noranda. La Sarre can be reached from Rouyn-Noranda via provincial roads 101 and 111. The 38 kilometer all-season gravel road to the mine site branches off from the paved Route des Conquérants road, which runs north from its intersection with road 393 north of La Sarre and passes through the village of Villebois. The branch is approximately 21 kilometers north of Villebois. A gravel road links the East Mine and the West Mine, (which roughly representspread over a moderate horizontal distance from each other and located at different mine elevations, plus open pit and underground areas at the east-west boundaries ofEast Mine.  Zone 113, Lower Inter Zone, 118, 121,123, 134, 160, the mine),Principal Zones (open pit and a number of forestry roads provide access to the rest of the project area, from east and west.

Hecla Quebec Inc., Hecla’s wholly owned subsidiary, owns a 100% interest in the mineral titles and mining leases comprising the current Casa Berardi mine. The Casa Berardi mine is composed of 69 contiguous claims, covering 3,148.3 hectares (7,779.6 acres) and two mining leases covering 481.4 hectares (1,189.7 acres).  The Casa Berardi property area totals 3,629.75 hectares (8,969.3 acres).  All the claims and leases are in good standing. We own an additional approximately 29,000 acres of exploration property located adjacent to the current Casa Berardi mine and comprised of approximately 230 claims, most of which are subject to a 1% NSR royalty in favor of Lake Shore Gold Corp.

We also hold a non-exclusive lease BNE 25938 for a sand and gravel pit, tailings lease 70218, and an additional 12 acres of land contiguous to mining lease BM 768 for rock waste material storage.

Under the Quebec Mining Act, claims are required to be renewed every two years. Statutorily prescribed minimum work commitments apply to all claims and leases. As of December 31, 2016, the claims and leases comprising part of the Casa Berardi mine have excess work credits of CAD$47.5 million.

40

---

Table of Contents

The project consists of an underground mineunderground) and the East Mine Crown Pillar open(open pit mine.and underground) comprise the bulk of the deposit tonnage. The underground minezones are of varying thickness, ranging from over 50 meters to less than three meters, which is the minimum mining width. Most of the hanging walls are sub-vertical (55º to 85º) and exhibit similar wall characteristics with the exception of the Lower Inter Zone, which in a number of places has two shafts; the West Mine shaft reaching a vertical depth of 1096 meters, and the unused East Mine shaft located 4.3 kilometers to the east, and going down to a vertical depth of 379 meters. A system of declines and drifts connecting both shafts provide access and underground services to ore zones. The surface infrastructures include a cyanidation processing mill (carbon-in-leach), tailings impoundment areas, and other facilities and infrastructures. Power supply to the site is provided by a 55 kilometer, 120kV power line from the Hydro-Québec transformation station located in the town of Normétal. The map below illustrates the location and access to Casa Berardi:

Prior to Aurizon’s ownership, the Casa Berardi underground mine operated from 1988 to 1997, producing approximately 3.9 million tons of ore at an average gold grade of 0.2 ounces per ton from two sites, the West Mine and the East Mine. Aurizon’s operations from 2006 to 2012 produced approximately 4.5 million tons of ore at an average gold grade of 0.3 ounces per ton. A total of 1,625,500 ounces of gold were recovered by the previous operators prior to 2013. The mineral deposits cover a distance of morerelatively shallow hanging wall configurations (less than 5.0 kilometers.45º).

 

The underground mine at Casa Berardi is a trackless mine accessed by declines and a shaft, which produces approximately 2,300 tons of ore per day. The mining methods are longhole transversal stoping in 10 metresmeters or more mineralization width with good access from nearby development, and longitudinal retreat stoping in narrower ore bodies.bodies or long distances from development infrastructure. Longitudinal methods have the advantage of lower waste development requirements; however, there is much less flexibility in sequencing and in access, should ground instabilities occur. Timely supply of both cemented and unconsolidated backfill plays a crucial role in controlling dilution and maintaining a short stoping cycle. We believe this mining method satisfies all of the geotechnical requirements and constraints and, as a non-entry mining method, has proven to be safe and reliable in similar operations. The mineralized zones put in reserves are of varying thickness, ranging from a few tenths of meters to 3 metres,meters, which is the minimum mining width. Most of the hanging walls are sub-vertical (55° to 85°), with typically the graphitic Casa Berardi fault at the footwall.

 

In 2014, we completed a project initiated by Aurizon to deepen the West Mine Shaft and construct the associated shaft infrastructure, including loading pockets, shaft lining, services and steel.

 

In early 2016, we made the decision to move forward with construction of the East Mine Crown Pillar ("EMCP") open pit, which is situated between the East Mine and West Mine. Stripping and development of the EMCP pit is planned to take place over five stages. The first stage was completed in the first half of 2016, and processing of ore from the EMCP pit began in July 2016. Stripping and development has been ongoing, and the pit is currently in the third stage of development. The EMCP pit, as currently designed, is a smaller scale operation using conventional open pit mining methods, and is expected to run for approximately 5.5 years of production. The average amount of material to be moved every six months is anticipated to be approximately 190,000 to 360,000 tons of ore, with variable quantities of waste.

The 134 Zone open pit, as currently designed, would be mined using conventional open pit mining methods. The 134 Zone open pit is expected to commence production prior to depletion of the EMCP pit and to run for approximately 2 full years of production. The average amount of material to be moved every six months is expected to approximate 190,000 tons of ore, with variable quantities of waste.

The 160 Zone open pit, as currently designed, would be mined using conventional open pit mining methods. The 160 Zone open pit is expected to commence production after the EMCP and 134 Zone pits are depleted and to run for approximately 3 full years of production. The average amount of material to be moved every six months is expected to approximate 460,000 tons of ore, with variable quantities of waste.

The Principal Zone open pit, as currently designed, would be mined using conventional open pit mining methods. The Principale Zone open pit is expected to commence production after the 160 Zone pit is depleted and to run for approximately 3 full years of production. The average amount of material to be moved every six months is expected to approximate 570,000 tons of ore, with variable quantities of waste.

The gold recovery process is based on CIL (carbon in leach)(carbon-in-leach) technology where gold is dissolved in a cyanide solution, and precipitated on activated carbon grains put in suspension. The product is doré bars poured in the mill’smill’s refinery. Construction of the processing facility, consisting of a 3,600 ton crushing, plant, a 2,400 tons per day ore processing, plant and tailings facility, was completed in 1988 by Inco Gold and Golden Knight Resources Inc., and ore processing began in September 1989, and during the next 9 years the mill processed 3.9 million tons at an average grade of 0.2 ounces per ton.  Production at Casa Berardi was suspended in 1997 and the mill was put on care and maintenance until 2005, when major rehabilitation work was initiated by Aurizon.  Beginning in the third quarter of 2005, upgrades including refurbishing of the crushing, grinding circuits, conveyors, and leach circuits, the addition of gravity circuits, and construction of an assay laboratory were performed, resulting in an increase of mill capacity.  The mill facility was commissioned in November of 2006 and the processing rate ramped up to reach commercial production in May of 2007. During 2016, modifications were made to the plant to increase capacity to accommodate ore production from the open pit mines. In 2016,2017, total mill recovery of gold was approximately 88%87%.

 

4142

---

Table of Contents

Current reserves at the Casa Berardi mine comprise seven zones at the West Mine, spread over a moderate horizontal distance from each other and located at different mine elevations, plus open pit and underground areas at the East Mine.  Zone 113, Lower Inter Zone, 118, 121,123, the Principal Zones (open pit and underground) and the East Mine (open pit and underground) comprise the bulk of the deposit tonnage. The zones are of varying thickness, ranging from over 50 meters to less than three meters, which is the minimum mining width. Most of the hanging walls are sub-vertical (55º to 85º) and exhibit similar wall characteristics with the exception of the Lower Inter Zone, which in a number of places has relatively shallow hanging wall configurations (less than 45º).

A transverse blasthole open stoping mining method was selected for the Casa Berardi mine to provide the desired production rate. Timely supply of both cemented and unconsolidated backfill plays a crucial role in controlling dilution and maintaining a short stoping cycle. We believe this mining method satisfies all of the geotechnical requirements and constraints and, as a non-entry mining method, has proven to be safe and reliable in similar operations.

A very small part of the mineral reserves is planned for longitudinal sequencing, limited to the fringes of the small zones. Longitudinal methods have the advantage of lower waste development requirements; however, there is much less flexibility in sequencing and in access, should ground instabilities occur.

The transverse mining method is used in areas with wide mineralization (10 meters wide or more) and good access from nearby development. The blasthole longitudinal mining method will be used in areas with narrow mineralization, or long distances from development infrastructure.

In early 2016, we made the decision to move forward with construction of the East Mine Crown Pillar ("EMCP") open pit, which is situated between the East Mine and West Mine. Stripping and development of the EMCP pit is planned to take place over five stages. The first stage was completed in the first half of 2016, and processing of ore from the EMCP pit began in July 2016. Stripping and development has been ongoing. The EMCP pit, as currently designed, is a smaller scale operation using conventional open pit mining methods, and is expected to run for approximately 5.5 years of production. The average amount of material to be moved every six months is anticipated to be approximately 160,000 to 260,000 tons of ore, with variable quantities of waste.

The Principale Zone open pit, as currently designed, would be mined using conventional open pit mining methods. The Principale Zone open pit is expected to commence production after the EMCP pit is depleted and to run for approximately 4 full years of production. The average amount of material to be moved every six months is expected to approximate 450,000 tons of ore, with variable quantities of waste.

 

The mine and mill complex are permitted to process 1,250,0001,400,000 dry metric tonnes (approximately 1,378,0001,543,000 tons) of ore per year at a rate of 3,7754,227 tons per day. Difficult ground conditions and bottlenecks in stope preparation have limited underground production to levels below the designed capacity. In 2016,2017, the mill processed approximately 997,579805,047 tons, for an average of 2,7263,551 tons per day. During the fourth quarter of 2016, the mill processed approximately 3,307 tons per day, with the increase due primarily to the addition of ore from the EMCP pit. The current life of mine plan is based on an average milling rate of approximately 3,500 tons per day,near the permitted level, with the inclusion of material from the surface mines, for the remaining mine life.

 

Based on current ore reserve estimates of reserves and mineralized material, the knowncurrently expected remaining mine life of mine plan totals 13.6 million tons of ore grading 0.11 ounces of gold per ton, with production forat Casa Berardi is approximately 119 years.

 

At Casa Berardi, in-stopeIn-stope and definition underground drilling refinesduring 2017 concentrated within the 118, 121, 123, and 124 zones to refine orebody shapes and gold grade distributions within the orebodies for mine planning.planning and reserves. Underground definitionexploration drilling involves evaluating along strike or down plunge projections of the existing ore118, 121 and 123 zones near the bottom of the mine and to the west (118 Zone) and east (123 Zone) of current resources identified mineralization beyond currently defined mineralized material. Surface definition and exploration drilling has defined the limits and provided detailed characterization of gold grades for a series of new open pits at the 134 and 160 zones and defined a western extension of the EMCP and 146/148 zones. Exploration drilling evaluates similar trends but beyond currently definedhas identified west and northwest extensions to the proposed Principal Pit and commenced delineation of a possible open pit near the NW-SW Zone at the west end of the Mining Lease. Deep surface exploration drilling identified new high-grade mineralization and also evaluates previously untested targets identified along major structural trends such asat the Casa Berardi Fault and a number of other structures or zones that may be mineralized. During 2016, up to six drills operated underground and up to two drills operated on the surface to refine stope designs, upgrade and expand known mineralization to reserves and identify new mineralization in the 104, 113, 118, 123, 124, 134, Lower Inter and North Domain Zones.Inter.

42

---

Table of Contents

 

The proposed 2017 underground in-stope and definition drilling programs for 2018 are expected to appraise the high gradehigh-grade ore shoots of the 113, 118, 123 Principale Zones and Lower Inter124 zones in the western part of the mine and high-grade, down-plunge extensions from surface of the 148 and 160 zones in the East Mine area. Surface definition drilling is also expected to occur at the 160 Zone to potentially reclassify the resources to reserves.  Surface and underground exploration drilling in 2017 is expected to evaluate shallow extensions of the 104, 118, 123,NW-SW, 124, 134, North Domain, South Domain, West Mine area, North West,152 and 160 zones and deep targets such as the Lower Inter Zones. A surface programin the west part of the Mining Lease. Surface drilling to the west of the Mining Lease (Casa West) is also expected to evaluate new targets to the west, but along trend of the Casa Berardi Mine.Deformation Zone and the Lac Germain target to the east-northeast of the current Mine Lease.

 

We expect the mine plan will continually be modified as new mineralization is discovered and upgraded to reserves.

 

The employees at Casa Berardi are employees of Hecla Quebec Inc., our wholly-owned subsidiary, and are not represented by a bargaining agent. There were 559577 employees at the Casa Berardi unit at December 31, 2016.2017. We also currently utilize third-party contractors, which use their employees and equipment, for some of the mining activities at Casa Berardi.

 

Hecla acquired Aurizon on June 1, 2013 for approximately CAD$740.8 million (US$714.5 million), and has operated the Casa Berardi mine since the acquisition. The net book value of the Casa Berardi unit property and its associated plant, equipment and mineral interests was approximately $764.5$759.7 million as of December 31, 2016.2017. As of December 31, 2016,2017, we have recorded a $5.5$6.7 million asset retirement obligation for reclamation and closure costs. We maintain a surety bond as financial guarantee for future reclamation and closure work.

43

---

Table of Contents

 

Information with respect to the Casa Berardi unit’sunit’s production, average Cash Cost, After By-product Credits, Per Gold Ounce, AISC, After By-product Credits, Per Gold Ounce, and proven and probable ore reserves for 2017, 2016 2015 and 20142015 is set forth in the table below.

 

		Year Ended December 31,												Year Ended December 31,
Production		2016				2015				2014				2017				2016				2015
Ore milled (tons)			997,579				844,090				827,580				1,296,224				997,588				844,090
Gold (ounces)			145,975				127,891				128,244				156,653				145,975				127,891
Silver (ounces)			33,641				29,639				25,014				36,566				33,641				29,639
Cost of sales and other direct production costs and depreciation, depletion and amortization		$	155,711			$	144,558			$	148,043			$	180,179			$	155,711			$	144,558
Cash Cost, After By-product Credits, Per Gold Ounce(1)		$	763.98			$	771.54			$	826.35			$	819.60			$	763.98			$	771.54
AISC, After By-product Credits, Per Gold Ounce (1)														$	1,173.82			$	1,244.30			$	1,183.96
Proven Ore Reserves(2,3,4,5)
Proven Ore Reserves(2,3,4,5,6)
Total tons			2,574,700				2,118,600				1,605,700				2,458,100				2,574,700				2,118,600
Gold (ounces per ton)			0.11				0.11				0.15				0.13				0.11				0.11
Contained gold (ounces)			272,200				234,300				237,000				312,200				272,200				234,300
Probable Ore Reserves(2,3,4,5)
Probable Ore Reserves(2,3,4,5,6)
Total tons			7,751,900				8,103,700				7,806,200				11,412,500				7,751,900				8,103,700
Gold (ounces per ton)			0.13				0.14				0.14				0.10				0.13				0.14
Contained gold (ounces)			1,037,100				1,097,500				1,100,100				1,181,200				1,037,100				1,097,500
Total Proven and Probable Ore Reserves(2,3,4,5)
Total Proven and Probable Ore Reserves(2,3,4,5,6)
Total tons			10,326,600				10,222,300				9,411,900				13,870,600				10,326,600				10,222,300
Gold (ounces per ton)			0.13				0.13				0.14				0.11				0.13				0.13
Contained gold (ounces)			1,309,300				1,331,800				1,337,100				1,493,400				1,309,300				1,331,800

 

(1)

Includes by-product credits from silver production. Cash Cost, After By-product Credits, Per Gold Ounce represents a measurementand AISC, After By-product Credits, Per Gold Ounce represent measurements that isare not in accordance with GAAP that management uses to monitor and evaluate the performance of our mining operations. We believe Cash Cost, After By-product Credits, Per Gold Ounce provides an indicatorthese measurements provide indicators of economic performance and efficiency at each location and on a consolidated basis, as well as providing a meaningful basis to compare our results to those of other mining companies and other operating mining properties. A reconciliation of cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, to thisthese non-GAAP measuremeasures can be found inItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, underReconciliation of Cost of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP).

 

43

---

Table of Contents

(2)

The term “reserve” means that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. The term “economically,” as used in the definition of reserve, means that profitable extraction or production has been established or analytically demonstrated to be viable and justifiable under reasonable investment and market assumptions. The term “legally,” as used in the definition of reserve, does not imply that all permits needed for mining and processing have been obtained or that other legal issues have been completely resolved. However, for a reserve to exist, we must have a justifiable expectation, based on applicable laws and regulations, that issuance of permits or resolution of legal issues necessary for mining and processing at a particular deposit will be accomplished in the ordinary course and in a time frame consistent with our current mine plans.

(3)

Proven and probable ore reserves are calculated and reviewed in-house and are subject to periodic audit by others, although audits are not performed on an annual basis. Cutoff grade assumptions vary by ore body and are developed based on reserve metals price assumptions, anticipated mill recoveries and refiner payables, and cash operating costs.  The cutoff grade at Casa Berardi is assumed to be between 0.0980.095 and 0.1120.105 ounces per ton for underground reserves and between 0.015 and 0.023 ounces per ton for open pit reserves.  Our estimates of proven and probable reserves are based on prices of $1,200, $1,100$1,200 and $1,225$1,100 per gold ounce for 2017, 2016 and 2015, and 2014, respectively.

 

44

---

Table of Contents

(3)(4)

Reserves are in-place materials that incorporate estimates of the amount of waste that must be mined along with the ore and expected mining recovery. The 20162017 reserve model assumes average total mill recoveries for gold of approximately 89%87%.

 

(4)(5)

The change in reserves in 2017 compared to 2016 was a result of inclusion of definition drilling information, offset by depletion of the deposit through production. The change in reserves in in 2016 compared to 2015 iswas a result of depletion of the deposit through production, offset by inclusion of definition drilling information. The change in reserves in in 2015 compared to 2014 is a result of depletion of the deposit through production and a lower gold price assumption, offset by inclusion of definition drilling information.

 

(5)(6)

Casa Berardi ore reserve estimates were prepared by Sylvain Picard, Chief Geologist, and Real Parent, Senior Resource Geologist, at the Casa Berardi unit. Casa Berardi resource estimates were reviewed by Keith Blair, SeniorChief Resource Geologist at Hecla Limited and Dean McDonald, Senior Vice President of Exploration.

 

TheSan Sebastian Unit

 

The San Sebastian mine is located approximately 60 miles northeast of the city of Durango, Mexico, on concessions acquired in 1999. Access to San Sebastian is via Mexico highway 40, approximately 6 miles east of Guadalupe Victoria, and then approximately 15 miles of paved rural road through the towns of Ignacio Allende and Emiliano Zapata.

44

---

Table of Contents

 

Our concession holdings cover approximately 160 square miles, including the Francine Vein, East Francine Vein, Middle Vein, North Vein, and the Andrea Vein and multiple outlying active exploration areas. Mineral concession titles are obtained and held under the laws of Mexico, and are valid for 50 years with the possibility of extending another 50 years. There are work assessment and tax requirements that are variable and increase with the time that the concession is held. The map below illustrates the location and access to San Sebastian:

 

45

---

Table of Contents

 

Mineralization at the project occurs as low and intermediate sulfidation epithermal veins within the Saladillo valley area. Economically, the most important veins at the project are the Francine, East Francine, Middle and North veins located at the north end of the Saladillo valley and the Andrea Vein located 4 miles to the south. The veins are hosted within a series of shales with interbedded fine-grained sandstones interpreted to belong to the Cretaceous Caracol Formation. Most of the veins strike to the west-northwest and vein dips vary from steep toward the west to shallow toward the east. True vein widths range from 5 to 30 feet, and the average true width of the veins in the district is 8 feet.

 

Mineralization occurs in an epithermal setting at various paleo-depths. High-grade gold and silver occur both in the very shallow epithermal environment in the upper 1,000 feet of the crust as well asand in deep silver-gold-lead-zinc root zones of the system at depths between 2,000 and 3,500 feet below the paleo-water table. Hypogene minerals include sphalerite, galena, argentite, pyrite, chalcopyrite, native silver and gold in electrum. The veins are oxidized down to approximately 300 feet below surface and the oxidized portions of the veins contain limonite, hematite, silver halides and various copper carbonates. Matrix minerals include fine-grained to coarsely crystalline quartz bands and chlorite-quartz-adularia bands and late calcite fill. Mineralization within the vein structures is generally deposited in high-grade “shoots” bound both laterally and horizontally by sharp gradients in grade-thickness.

 

Hecla operated the San Sebastian underground mine from 2001 to 2005. The historical life-of-mine production from the Francine and Don Sergio veins over four years was 11.2 million ounces of silver and 155,937 ounces of gold. Access to both underground workings was through ramps from the surface connecting one or more levels. Ore was mined by the cut-and-fill stoping method and extracted from the stopes using rubber-tired equipment and hauled to the surface in trucks.

 

Recent exploration success on the Middle, North, and East Francine veins and completion of a Preliminary Economic Assessment lead to the decision in the third quarter of 2015 to develop shallow open pit mines on those veins, with development commencing in the fourth quarter of 2015. Ore production from the Middle and East Francine veins commenced late in the fourth quarter of 2015, and from the North Vein in the first quarter of 2016. Production from the current pits concluded in December 2017. An extension of the North Vein pit is planned, with surface ore production anticipated to resume in mid-2018. The pits are expected to extendwere extended to a maximum of approximately 270 feet in depth. Near-surface material is excavated, with drill and blast techniques used for deeper material. Ore production is anticipated to run for approximately 6 months at the East Francine and North veins and 16 months at the Middle Vein. Total production from the three pitsexpanded North Vein pit is anticipated to range from 7,0001,000 to 29,00017,000 tons of ore per month over approximately 1620 months, with variable quantities of waste, for total ore production of approximately 300,000150,000 tons. Production iswas achieved through excavating and drilling and blasting the shallow-dipping, high-grade silver veins which carrycarried significant gold credits. Third-party contractors are used for mining from the pits.

45

---

Table of Contents

 

In January 2017, work commenced to build a new underground decline and rehabilitate historical underground workings at the San Sebastian mine, in order to mine deeper ore from the Middle Vein. We expectLimited underground production to commence by the end of 2017. Underground productionbegan in January 2018 using third-party contractors, and is anticipated to total approximately 142,000263,000 tons over 15 months.2 years. We expect to mine ore by the cut-and-fill stoping method and for the ore to be extracted from the stopes using rubber-tired equipment and hauled to the surface in trucks.

 

Run of mine ore is hauled in trucks by contractors to a processing facility near Velardeña, Durango, Mexico, which is located approximately 60 miles from the San Sebastian mine site. We previously owned the Velardeña mill, but now use it to process ore under a lease arrangement. Processing of ore from the open pits averaged approximately 391395 tons per day in 2016,2017, with recovery of approximately 94%95% for silver and 94% for gold. As of December 31, 2016,2017, we have the ability to extend the lease through 2018.2020. The mill is a conventional leach, counter-current decantation and Merrill Crowe precipitation circuit capable of processing up to approximately 550 tons per day, depending on ore hardness. The ore is crushed in a two-staged crushing plant consisting of a primary jaw, a secondary cone crusher and a double-deck vibrating screen. The grinding circuit includes a primary ball mill and cyclone classifiers. The ground ore is thickened followed by agitated leaching and four stages of counter-current decantation to wash solubilized silver and gold from the pulp. The solution bearing silver and gold is clarified, deaerated and zinc dust added to precipitate silver and gold that is recovered in plate and frame filters. The precious metal precipitate is smelted and refined into doré, and is then shipped to a third-party refiner. Since construction of the mill in 1994, two leach tanks were added in 2001, a filter press was added in 2002, and the Merrill Crowe system and Autojet Filters were expanded and modified in 2012. In addition, rehabilitation of various components of the mill was completed in 2015 prior to the start of processing of the ore from the open pits.

46

---

Table of Contents

 

At December 31, 2016,2017, the net book value of the San Sebastian unit property and its associated plant and equipment was $6.7$13.7 million. Infrastructure includes a water supply system, maintenance shop, warehouse, laboratory, leased mill and related improvements, and various offices. Equipment and facilities are in good condition. As of December 31, 2016, $5.62017, $5.1 million has been accrued for reclamation and closure costs. All permits required for mining of the open pits and the underground mine and operation of the mill are in place.

 

There werewas a total of 5253 employees at the San Sebastian unit as of December 31, 2016,2017, with most of them employed by our subsidiary that provides certain specialized services to another subsidiary that owns the mine..mine. These employees are not represented by a bargaining agent. We currently primarily use third-party contractors for mining and operation of the processing facility. The hourly employees of the lessor of the processing facility are represented by the Sindicato Nacional de Trabajadores Mineros, Metalúrgicos, Siderúrgicos y Similares de la República Mexicana (a Mexico national union) as bargaining agent.

Based on current estimates of reserves and mineralized material, the currently expected remaining mine life at San Sebastian is approximately 2 years.

 

Electric power is purchased from Comisiòn Federal de Electricidad (a Mexico federal electric company).

 

Drilling success over the past three and a half yearsfrom 2012 through 2017 on the near-surface East Francine, Middle and North veins at the San Sebastian property has leadled to open pit mine production on all three veins.veins, and underground production on the Middle Vein. The Francine, Andrea, Middle and North veins now define over 5.06.0 miles of mineralized strike length and are open along strike and at depth. TheDrilling in 2017 identified a new high-grade, oxide ore shoot located approximately 1,000 feet east of the East Francine Vein has currently beenpit. This zone is approximately 300 feet from surface and can be traced for over 7,000about 1,500 feet along strike and to 600 feet of depth.  Thedown dip. In combination with a nearby ore shoot in the eastern Middle Vein, we believe this area may represent an important new development for the mine.

There was also a discovery and follow-up infill drilling of a new polymetallic ore shoot along the western Middle Vein. This zone has been traced for nearly 9,000dimensions of approximately 600 feet along strike and 800 feet downdip and, like the Hugh Zone resource area, contains recoverable quantities of copper, lead, and zinc, in addition to a depth of over 1,000 feet. Explorationhigh-grade gold and in-fillsilver. It is located about 300 feet west and 200 feet below the current Middle Vein underground mine development, and could expand the underground mineable reserves in this area. Recent drilling of the western extensionFrancine vein has defined significant extensions to both the east and west of the Middle Vein confirmed the continuity of the vein mineralization with design for exploitation from underground being finalized.  The North Vein has a mineralized trend that extends over 4,000 feet along strike and 1,000 feet to depth and remains open along strike in both directions and at depth.current Hugh Zone resource.

 

Exploration core drilling in 20172018 is expected to initially concentrate on definingextensions to the deeper, polymetallic mineralization along the Francine and Middle veins and define shallow high gradehigh-grade mineralization along northwest extensions of the North, Middle, and Francine veins and southeastern extension of the Francine and Middle veins,.Professor veins. Later in 2017,2018, drilling is expected to also test for deeper, high grade mineralization within these samefollow up on shallow rotary air blast drilling of gold-silver anomalies and close-spaced DC resistivity ground geophysics in the area in which the mine (Middle and Francine) veins intersect with the southwest-trending Esperanza veins. Exploration drilling is also expected to occur in the La Roca historical mercury mining district, which is located six miles northeast of the San Sebastian mine area. La Roca displays all the geological characteristics of being at the top an exceptionally large, fully preserved epithermal vein systems. Additional explorationsystem. Deep drilling at La Roca is expected to occur atevaluate the Esperanza Vein located approximately 1.5 miles westpotential of the mine area. Other exploration activities in 2017 are expected to include reverse circulation ("RC") drilling to test gold and silver anomalies generated by previous rotary air blast drilling. These RC targets are primarily south of the mine site as well as along the La India and Zapata Norte veins located west of the mine site. As in previous years, these drill programs may be expanded with continued success.

high-grade, precious metal-rich veins.

 

4647

---

Table of Contents

 

Information with respect to the San Sebastian unit’sunit’s production, average cost per ounce of silver producedCash Cost, After By-Product Credits, Per Silver Ounce, AISC, After By-product Credits, Per Silver Ounce, and proven and probable ore reserves is set forth in the table below.

 

		Year Ended December 31,								Year Ended December 31,
Production		2016				2015				2017				2016				2015
Ore milled (tons)			143,267				6,602				144,197				143,267				6,602
Silver (ounces)			4,294,123				81,677				3,257,738				4,294,123				81,677
Gold (ounces)			34,042				870				25,177				34,042				870
Cost of sales and other direct production costs and depreciation, depletion and amortization		$	31,233			$	—			$	23,700			$	31,233			$	—
Cash Cost, After By-product Credits, Per Silver Ounce(1)		$	(3.35	)		$	6.71			$	(3.36	)		$	(3.35	)		$	6.71
AISC, After By-product Credits, Per Silver Ounce (1)										$	(0.26	)		$	(1.99	)		$	11.99
Proven Ore Reserves(2,3,4,5)
Proven Ore Reserves(2,3,4,5,6)
Total tons			43,000				5,000				30,500				43,000				5,000
Silver (ounces per ton)			23.4				14.50				23.3				23.4				14.50
Gold (ounces per ton)			0.19				0.21				0.19				0.19				0.21
Contained silver (ounces)			1,007,800				72,300				711,700				1,007,800				72,300
Contained gold (ounces)			8,200				1,000				5,800				8,200				1,000
Probable Ore Reserves(2,3,4,5)
Probable Ore Reserves(2,3,4,5,6)
Total tons			283,300				284,100				367,500				283,300				284,100
Silver (ounces per ton)			16.2				28.00				13.1				16.2				28.0
Gold (ounces per ton)			0.10				0.22				0.10				0.10				0.22
Contained silver (ounces)			4,592,600				7,942,500				4,808,700				4,592,600				7,942,500
Contained gold (ounces)			28,500				63,000				37,000				28,500				63,000
Total Proven and Probable Ore Reserves(2,3,4,5)
Total Proven and Probable Ore Reserves(2,3,4,5,6)
Total tons			326,300				289,100				398,000				326,300				289,100
Silver (ounces per ton)			17.2				27.7				13.9				17.2				27.7
Gold (ounces per ton)			0.11				0.2				0.11				0.11				0.22
Contained silver (ounces)			5,600,400				8,014,800				5,520,400				5,600,400				8,014,800
Contained gold (ounces)			36,700				64,000				42,800				36,700				64,000

 

(1)

Includes by-product credits from gold production. Cash Cost, After By-product Credits, Per Silver Ounce represents a measurementand AISC, After By-product Credits, Per Silver Ounce represent measurements that isare not in accordance with GAAP that management uses to monitor and evaluate the performance of our mining operations. We believe Cash Cost, After By-product Credits, Per Silver Ounce provides an indicatorthese measurements provide indicators of economic performance and efficiency at each location and on a consolidated basis, as well as providing a meaningful basis to compare our results to those of other mining companies and other operating mining properties. A reconciliation of cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, to thisthese non-GAAP measuremeasures can be found inItem 7. — Management’s Discussion and Analysis of Financial Condition and Results of Operations, underReconciliation of Cost of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP).

 

(2)

The term “reserve” means that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. The term “economically,” as used in the definition of reserve, means that profitable extraction or production has been established or analytically demonstrated to be viable and justifiable under reasonable investment and market assumptions. The term “legally,” as used in the definition of reserve, does not imply that all permits needed for mining and processing have been obtained or that other legal issues have been completely resolved. However, for a reserve to exist, we must have a justifiable expectation, based on applicable laws and regulations, that issuance of permits or resolution of legal issues necessary for mining and processing at a particular deposit will be accomplished in the ordinary course and in a time frame consistent with our current mine plans.

4748

---

Table of Contents

 

(2)(3)

Proven and probable ore reserves are calculated and reviewed in-house and are subject to periodic audit by others, although audits are not performed on an annual basis. Cutoff grade assumptions vary by ore body and are developed based on reserve metals price assumptions, anticipated mill recoveries and refiner payables, and cash operating costs.  Due to multiple ore metals, and complex combinations of ore types, metal ratios and metallurgical performances at San Sebastian, the cutoff grade is expressed in terms of net smelter return, rather than metal grade.  The cutoff grade at San Sebastian is assumed to be $100 per ton NSR. The average prices used for the San Sebastian unit were:

 

		December 31,								December 31,
		2016				2015				2017				2016				2015
Silver (per ounce)		$	14.50			$	14.50			$	14.50			$	14.50			$	14.50
Gold (per ounce)		$	1,200			$	1,100			$	1,200			$	1,200			$	1,100

 

(3)(4)

Reserves are in-place materials that incorporate estimates of the amount of waste that must be mined along with the ore. Metal recoveries vary by mine zone and ore grade. The 20162017 reserve model assumes average total mill recoveries of approximately 94%95% for silver and 94% for gold.

 

(4)(5)

The decreasedecreases in silver reserves in 2017 compared to 2016 and 2016 compared to 2015, and the decrease in gold reserves in 2016 compared to 2015, iswere the result of depletion of the deposit through production, including higher grade portions, partially offset by inclusion of definition drilling information. The increase in gold reserves in 2017 compared to 2016 was the result of inclusion of definition drilling information, partially offset by depletion of the deposit through production.

 

(5)(6)

San Sebastian ore reserve estimates were prepared by Keith Blair, SeniorChief Resource Geologist at Hecla Limited, and reviewed by Dean McDonald, Senior Vice President of Exploration.

 

Item3. Legal Proceedings

 

For a discussion of our legal proceedings, seeNote 7 ofNotes to Consolidated Financial Statements.

 

Item 4. Mine Safety Disclosures

 

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in exhibit 95 to this report.

 

PART II

 

Item 5. Market for Registrant’sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Shares of our common stock are traded on the New York Stock Exchange, Inc. under the symbol "HL." As of February 20, 2017,12, 2018, there were 4,1604,043 stockholders of record of our common stock. Our common stock quarterly high and low sale prices for the past two years were as follows:

 

																				Fourth Quarter				Third Quarter				Second Quarter				First Quarter
2017																		– High		$	5.42			$	5.58			$	6.17			$	6.78
			Fourth Quarter				Third Quarter				Second Quarter				First Quarter			– Low		$	3.43			$	4.66			$	4.95			$	6.17
2016	– High		$	7.64			$	7.26			$	5.10			$	2.95		– High		$	7.64			$	7.26			$	5.10			$	2.95
	– Low		$	4.93			$	5.20			$	2.66			$	1.45		– Low		$	4.93			$	5.20			$	2.66			$	1.45
2015	– High		$	2.65			$	2.76			$	3.37			$	3.54
	– Low		$	1.78			$	1.77			$	2.72			$	2.65

 

Quarterly dividends were paid on our Series B preferred stock for 2014, 2015, 2016 and 2016,2017, and no dividends are in arrears.

 

4849

---

Table of Contents

 

In September 2011 and February 2012, our board of directors adopted a common stock dividend policy that has two components: (1) a dividend that links the amount of dividends on our common stock to our average quarterly realized silver price in the preceding quarter, and (2) a minimum annual dividend of $0.01 per share of common stock, in each case, payable quarterly, when declared. SeeNote 9 ofNotes to Consolidated Financial Statementsfor more information on potential dividend amounts under the first component of the policy at various silver prices. The following table summarizes the quarterly common stock dividends declared by our board of directors for the years 2014, 2015, 2016 and 20162017 and the first quarter of 2017:

 

		(A)				(B)				(C)				(A+B+C)										(A)				(B)				(A+B)
Declaration date		Silver-price- linked component per share				Minimum annual component per share				Special dividend per share				Total dividend per share				Total dividend amount (in millions)			Month of payment			Silver-price- linked component per share				Minimum annual component per share				Total dividend per share				Total dividend amount (in millions)				Month of payment
February 21, 2014		$	—			$	0.0025			$	—			$	0.0025			$	0.9		March 2014
May 5, 2014		$	—			$	0.0025			$	—			$	0.0025			$	0.9		June 2014
July 31, 2014		$	—			$	0.0025			$	—			$	0.0025			$	0.9		September 2014
November 5, 2014		$	—			$	0.0025			$	—			$	0.0025			$	0.9		December 2014
February 17, 2015		$	—			$	0.0025			$	—			$	0.0025			$	0.9		March 2015				$—				$0.0025				$0.0025				$0.9			March 2015
May 6, 2015		$	—			$	0.0025			$	—			$	0.0025			$	0.9		June 2015				$—				$0.0025				$0.0025				$0.9			June 2015
August 6, 2015		$	—			$	0.0025			$	—			$	0.0025			$	0.9		September 2015				$—				$0.0025				$0.0025				$0.9			September 2015
November 3, 2015		$	—			$	0.0025			$	—			$	0.0025			$	0.9		December 2015				$—				$0.0025				$0.0025				$0.9			December 2015
February 20, 2016		$	—			$	0.0025			$	—			$	0.0025			$	0.9		March 2016				$—				$0.0025				$0.0025				$0.9			March 2016
May 4, 2016		$	—			$	0.0025			$	—			$	0.0025			$	1.0		June 2016				$—				$0.0025				$0.0025				$1.0			June 2016
August 3, 2016		$	—			$	0.0025			$	—			$	0.0025			$	1.0		September 2016				$—				$0.0025				$0.0025				$1.0			September 2016
November 4, 2016		$	—			$	0.0025			$	—			$	0.0025			$	1.0		December 2016				$—				$0.0025				$0.0025				$1.0			December 2016
February 21, 2017		$	—			$	0.0025			$	—			$	0.0025			$	1.0		March 2017				$—				$0.0025				$0.0025				$1.0			March 2017
May 4, 2017																									$—				$0.0025				$0.0025				$1.0			June 2017
August 3, 2017																									$—				$0.0025				$0.0025				$1.0			September 2017
November 7, 2017																									$—				$0.0025				$0.0025				$1.0			December 2017
February 14, 2018																									$—				$0.0025				$0.0025				$1.0			March 2018

 

Because the average realized silver price for each quarter of 2014, 2015, 2016 and 20162017 was below the minimum threshold of $30 according to the policy, no silver-price-linked component was declared or paid. Prior to 2011, no dividends had been declared on our common stock since 1990. We cannot pay dividends on our common stock if we fail to pay dividends on our Series B preferred stock. The declaration and payment of common stock dividends, whether pursuant to the policy or in addition thereto, is at the sole discretion of our board of directors, and there can be no assurance that we will continue to declare and pay common stock dividends in the future.

 

50

---

Table of Contents

The following table provides information as of December 31, 20162017 regarding our compensation plans under which equity securities are authorized for issuance:

 

		Number of Securities To Be Issued Upon Exercise of Outstanding Options, Warrants and Rights				Weighted-AverageWeighted- Average Exercise Price of Outstanding Options				Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans
Equity Compensation Plans Approved by Security Holders:
2010 Stock Incentive Plan			—				N/A				8,302,3266,866,026
Stock Plan for Non-employeeNon-Employee Directors			—				N/A				438,4593,282,337
Key Employee Deferred Compensation Plan			—				N/A				511,303540,798
Total			—				N/A				9,252,08810,689,161

 

See SeeNote 8 andNote 9 ofNotes to Consolidated Financial Statements for information regarding the above plans.

We did not issue any unregistered equity securities in 2017.

 

On February 26, 2016, we issued 1,826,509 unregistered shares of our common stock in private placements to the Hecla Mining Company Retirement Plan Trust and The Lucky Friday Pension Plan Trust, in order to satisfy the funding requirements for those defined benefit pension plans. The private placements were exempt from registration under the Securities Act of 1933 pursuant to section 4(a)(2) of that Act. The shares were subsequently registered for resale on a registration statement on Form S-3 filed with the SEC on February 26, 2016. We did not receive any proceeds from the sale of the shares. The shares had a value of $4.2 million at the time of issuance.

 

49

---

Table of Contents

On January 14, 2015, we issued 1,764,086 unregistered shares of our common stock in private placements to the Hecla Mining Company Retirement Plan Trust and The Lucky Friday Pension Plan Trust, in order to satisfy the funding requirements for those defined benefit pension plans. The private placements were exempt from registration under the Securities Act of 1933 pursuant to section 4(a)(2) of that Act. The shares were subsequently registered for resale on a registration statement on Form S-3 filed with the SEC on January 14, 2015. We did not receive any proceeds from the sale of the shares. The shares had a value of $5.0 million at the time of issuance.

 

We did not issue any unregistered equity securities in 2014.

51

---

Table of Contents

 

The following performance graph compares the performance of our common stock during the period beginning December 31, 20112012 and ending December 31, 20162017 to the S&P 500, the S&P 500 Gold Index, a peer group for the year ending December 31, 2016 (“2017 ("New Peer Group”Group"), and a peer group for the year ending December 31, 2015 (“2016 ("Old Peer Group”Group"). The New Peer Group consists of the following companies: Alamos Gold Inc., B2Gold Corp., Centerra Gold, Inc., Coeur Mining, Inc., Detour Gold Corporation, Eldorado Gold Corp., Endeavour Silver Corp., First Majestic Silver Corp., IAMGOLD Corporation, New Gold Inc., Pan American Silver Corp., Primero Mining Corp., Royal Gold, Inc., Silver Standard Resources Inc., Stillwater Mining Company, and Tahoe Resources Inc..Inc. The Old Peer Group included ProShares Trust,did not include Eldorado Gold Corp., which was replaced by Silver Standard Resources Inc.added in the New Peer Group, and Thompson Creek Metalsincluded Stillwater Mining Company, Inc., which was acquired by another company within the peer group during 2016.2017. The graph assumes a $100 investment in our common stock and in each of the indexes and peer groups since the beginning of the period, and a reinvestment of dividends paid on such investments on a quarterly basis throughout the period.

 

50

---

Table of Contents

 

Date		Hecla Mining				S&P 500				S&P 500 Gold Index				2015 Old Peer Group				2016 New Peer Group				Hecla Mining				S&P 500				S&P 500 Gold Index				2016 Old Peer Group				2017 New Peer Group
December 2011		$	100.00			$	100.00			$	100.00			$	100.00			$	100.00
December 2012		$	112.80			$	116.00			$	79.59			$	97.48			$	96.44			$	100.00			$	100.00			$	100.00			$	100.00			$	100.00
December 2013		$	59.91			$	153.58			$	40.98			$	55.08			$	50.49			$	53.11			$	132.39			$	51.49			$	50.55			$	49.37
December 2014		$	54.45			$	174.60			$	33.95			$	53.99			$	46.76			$	48.27			$	150.51			$	42.66			$	45.77			$	46.13
December 2015		$	37.04			$	177.01			$	32.48			$	37.56			$	31.17			$	32.83			$	152.59			$	40.81			$	30.90			$	29.48
December 2016		$	102.92			$	198.18			$	61.75			$	61.99			$	53.45			$	91.24			$	170.84			$	77.58			$	52.58			$	47.69
December 2017																						$	69.27			$	208.14			$	86.04			$	53.56			$	46.29

 

The stock performance information above is “furnished” and shall not be deemed to be “soliciting material” or subject to Rule 14A of the Exchange Act, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, and shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date of this report and irrespective of any general incorporation by reference language in any such filing, except to the extent that it specifically incorporates the information by reference.

 

On May 8, 2012, we announced that our board of directors approved a stock repurchase program.  Under the program, we are authorized to repurchase up to 20 million shares of our outstanding common stock from time to time in open market or privately negotiated transactions. SeeNote 9 ofNotes to Consolidated Financial Statements for more information. We made no purchases of our outstanding common stock during the quarter and year ended December 31, 2016.2017.

 

5152

---

Table of Contents

 

Item6. Selected Financial Data

 

The following table (in thousands, except per share amounts, common shares issued, stockholders of record, and employees) sets forth selected historical consolidated financial data as of and for each of the years ended December 31, 20122013 through 2016,2017, and is derived from our audited financial statements (except for stockholders of record and employees). The data set forth below should be read in conjunction with, and is qualified in its entirety by, our Consolidated Financial Statements and the Notes thereto.

 

		2016(7)				2015				2014				2013(6)				2012 (6)
Sales of products		$	645,957			$	443,567			$	500,781			$	382,589			$	321,143
Net income (loss)		$	69,547			$	(86,968	)		$	17,824			$	(25,130	)		$	14,954
Preferred stock dividends(1)		$	(552	)		$	(552	)		$	(552	)		$	(552	)		$	(552	)
Income (loss) applicable to common stockholders		$	68,995			$	(87,520	)		$	17,272			$	(25,682	)		$	14,402
Basic income (loss) per common share		$	0.18			$	(0.23	)		$	0.05			$	(0.08	)		$	0.05
Diluted income (loss) per common share		$	0.18			$	(0.23	)		$	0.05			$	(0.08	)		$	0.05
EBITDA(2)		$	236,184			$	107,316			$	151,532			$	69,130			$	76,373
Total assets		$	2,371,677			$	2,221,925			$	2,262,064			$	2,232,119			$	1,378,290
Accrued reclamation & closure costs		$	85,580			$	95,538			$	57,250			$	105,191			$	113,215
Non-current portion of debt and capital leases(3)		$	506,817			$	509,040			$	512,129			$	505,058			$	11,935
Cash dividends paid per common share(4)		$	0.01			$	0.01			$	0.01			$	0.02			$	0.06
Common shares issued and outstanding			395,286,875				378,112,840				367,376,863				342,663,381				285,209,848
Stockholders of record			4,197				4,392				5,571				6,435				6,630
Employees(5)			1,396				1,404				1,354				1,312				735

		2017 (6)				2016 (5)				2015				2014				2013
Sales of products		$	577,775			$	645,957			$	443,567			$	500,781			$	382,589
Net income (loss)		$	(23,519	)		$	69,547			$	(86,968	)		$	17,824			$	(25,130	)
Preferred stock dividends (1)		$	(552	)		$	(552	)		$	(552	)		$	(552	)		$	(552	)
Income (loss) applicable to common stockholders		$	(24,071	)		$	68,995			$	(87,520	)		$	17,272			$	(25,682	)
Basic income (loss) per common share		$	(0.06	)		$	0.18			$	(0.23	)		$	0.05			$	(0.08	)
Diluted income (loss) per common share		$	(0.06	)		$	0.18			$	(0.23	)		$	0.05			$	(0.08	)
EBITDA (2)		$	156,302			$	236,184			$	107,316			$	151,532			$	69,130
Total assets		$	2,364,957			$	2,371,677			$	2,221,925			$	2,262,064			$	2,232,119
Accrued reclamation & closure costs		$	86,045			$	85,580			$	95,538			$	57,250			$	105,191
Non-current portion of debt and capital leases(3)		$	508,422			$	506,817			$	509,040			$	512,129			$	505,058
Cash dividends paid per common share(4)		$	0.01			$	0.01			$	0.01			$	0.01			$	0.02
Common shares issued and outstanding			399,176,425				395,286,875				378,112,840				367,376,863				342,663,381
Stockholders of record			3,784				4,197				4,392				5,571				6,435
Employees			1,431				1,396				1,404				1,354				1,312

______________

 

(1)

We declared and paid all quarterly dividends on our Series B preferred shares for 2012, 2013, 2014, 2015, 2016 and 20162017 totaling $0.6 million for each of those years.

 

(2)

Earnings before interest, taxes, depreciation, and amortization ("EBITDA") is a measurement that is not in accordance with GAAP.non-GAAP measurement. EBITDA is used by management, and we believe is useful to investors, for evaluating our operational performance. A reconciliation of this non-GAAP measure to net income (loss), the most comparable GAAP measure, can be found inItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, underReconciliation of Net Income (Loss) (GAAP) to Earnings Before Interest, Taxes, Depreciation, and Amortization (non-GAAP).

 

(3)

On April 12, 2013, we completed an offering of $500 million in aggregate principal amount of our Senior Notes due May 1, 2021 in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. In 2014, an additional $6.5 million aggregate principal amount of the Senior Notes were issued to our pension plan. More information can be found inNote 6 ofNotes to Consolidated Financial Statements.

 

(4)

See SeeItem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities for a summary of the common stock dividends declared by our board of directors for the years presented.

 

(5)

The increase in the number of employees in 2013 was due largely to the acquisition of Aurizon in June 2013.

(6)

As a result of an order from MSHA to remove built-up cementitious material from the Silver Shaft, production was temporarily suspended at the Lucky Friday unit during all of 2012. Limited production resumed in early 2013 and has generally been at historical levels since September 2013. SeeItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, The Lucky Friday Segmentfor more information about production at Lucky Friday.

(7)

In the third quarter of 2015, we made the development decision to mine near-surface, high-grade portions of silver andgold deposits from shallow open pits at our San Sebastian unit in Mexico. Mine production commenced in the fourth quarter of 2015, and mill production started in December 2015. The first sales from San Sebastian occurred in the first quarter of 2016, and operations have continued there since that time. SeeItem 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, The San Sebastian Segmentfor more information.

 

(6)

In March 2017, employees represented by a union at our Lucky Friday unit went on strike, and have been on strike since that time. Production and sales at Lucky Friday have been limited during the strike period. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, The Lucky Friday Segmentfor more information.

 

5253

---

Table of Contents

 

Item7. Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

Established in 1891 in northern Idaho’sIdaho’s Silver Valley, we believe we are the oldest operating precious metals mining company in the United States and the largest silver producer in the U.S.  Our corporate offices are in Coeur d’Alene, Idaho and Vancouver, British Columbia. Our production profile includes:

 

silver, gold, lead, and zinc contained in concentrates shipped to various smelters or sold to brokers; and

 

doré containing gold and silver, which is further refined before sale of the metals to precious metal traders.

 

Our operating properties comprise our four business segments for financial reporting purposes: the Greens Creek operating unit on Admiralty Island in Alaska, the Lucky Friday operating unit in Idaho, the Casa Berardi operating unit in Quebec, Canada, and the San Sebastian operating unit in Durango, Mexico. Since our operating mines are located in the U.S., Canada, and Mexico, we believe they have low or relatively moderate political risk, and less economic risk than mines located in other parts of the world. Our exploration interests are also in the United States, Canada, and Mexico, and are located in historically successfulhistorical mining districts.

 

Our operating and strategic framework is based on expanding our production and locating and developing new resource potential. In 2016,2017, we

 

Reported sales of products of $646.0$577.8 million, which was a newthe second highest in our history, after our record and 29% higher than our previous recordset in 20142016, in spite of lower average prices for all metals we produce compared to thata strike at our Lucky Friday unit during most of the year.

 

Achieved record silver production, which was 48% higher than our previous record in 2015, and gold production that was 24% higher compared to 2015. The higher silver production is due to having a full yearthe second highest in our history after our record set in 2016, in spite of productionthe ongoing strike at San Sebastian after commencing ore processing there in the fourth quarter of 2015, and improved ore grades and recoveries at Greens Creek and Lucky Friday. The increaseGold production was the third highest in gold production isour history, primarily theas a result of the addition of San Sebastian and higher throughput at Casa Berardi.Berardi and continued production at San Sebastian.

 

•

Generated $225.3$115.9 million in net cash flows from operating activities, representing a 112% increase compared to 2015.activities. See theFinancial Liquidity and Capital Resourcessection below for further discussion.

 

RealizedProduced the most gold at our Casa Berardi unit since its acquisition in 2013, primarily due to record ore throughput there.

Continued to realize excellent operating results and substantially completed underground development at our San Sebastian unit, after making the decisionallowing us to develop a minebegin underground production there in the third quarter of 2015January 2018 (discussed further below).

 

Committed a significant level ofMade capital expenditures (including lease additions, capitalized interest, and other non-cash items) of approximately $181.8$106.3 million, including $44.8$50.7 million at Lucky Friday, $42.0Casa Berardi, $35.3 million at Greens Creek, $67.6 million at Casa Berardi, and $6.0$11.2 million at San Sebastian.

Substantially completed the #4 ShaftSebastian, and $6.3 million at Lucky Friday, the largest capital project in our history, which started in 2008.

53

---

Table of Contents

Commenced development of the EMCP open pit project at Casa Berardi, with processing of ore from EMCP beginning in July 2016.Friday. 

 

•

MaintainedIncreased overall proven and probable reserves at December 31, 2016,2017, with reserves for silver, gold, zinc and lead increasing by 3%, 12%, 15% and 8%, respectively, compared to their levels in 2016. The reserves remaining within 2% of its level in 2015, which wasfor all metals except zinc represent the highest levels in our history, and gold reserves remaining within 3% of its level in 2015. The slight decrease in reserves in 2016 was primarily due to depletion through production at San Sebastian.history. SeeItem 2. Property Descriptions for additional information on proven and probable reserves at each of our operating units.

 

54

---

Table of Contents

Performed exploration and pre-development activities during the year, drilling targets at our land packages in Alaska, Idaho, British Columbia, Quebec and Mexico.

Acquired Mines Management, giving us ownership of the Montanore project in northwestern Montana as discussed below.

 

Achieved the above milestones while maintaining a cash and short-term investments balance of $198.9$219.9 million as of December 31, 2016,2017, an increase of $43.7$21.0 million during the year.

 

Silver,The realized silver, gold, lead and zinc prices increased to annual averages of $17.10, $1,248, $0.85,$17.23, $1,261, $1.06 and $0.95,$1.32, respectively, for 2016,in 2017, from average realized prices of $15.70$17.16 for silver, $1,160$1,245 for gold, $0.81$0.85 for lead, and $0.88$0.95 for zinc for 2015. However, averagein 2016. Average realized prices for all four metals were lower forhigher in 2017 and 2016 compared to their annual averages for 2014,in 2015, which were $19.08$15.57 for silver, $1,266$1,150 for gold, $0.95$0.83 for lead, and $0.98$0.86 for zinc. Lead and zinc represent important by-products at our Greens Creek and Lucky Friday segments, and gold is also a significant by-product at Greens Creek and San Sebastian.

 

The factors driving metals prices are beyond our control and are difficult to predict. As noted above, prices have been highly volatile inSee the last three years and could be so in the future. Average prices in 2016 compared to those in 2015 and 2014 are illustrated in theResults of Operations section below.  Additionally, the metal grades of ore mined are impacted by geology and mine planning efficiencies and operations, which has the potential to create constraints on production.  Also, ore transportation and smelting schedules impact the timing of sales and final settlement.

See theResults of Operations section below for a discussion of the factors impacting income applicable to common stockholders for the three years ended December 31, 2017, 2016 2015 and 2014.2015.

 

Key Issues

 

We intend to achieve our long-term strategy of increasing production and expanding our proven and probable reserves through development and exploration, as well as by acquisitions. Our strategic plan requires that we manage severalmultiple challenges and risks inherent in conducting mining, development, exploration and metal sales at multiple locations.

 

One such risk involves metals prices, over which we have no control except, on a limited basis, through the use of derivative contracts. As discussed in theCritical Accounting Estimates section below, metals prices are influenced by a number of factors beyond our control. Average market prices of silver, gold, zinc and lead in 2016 were lower than their levels in 2015, as illustrated by the table inResults of Operations below. While we believe global economic and industrial trends could result in continued demand for the metals we produce, prices have been volatile and there can be no assurance that current prices will continue.

 

On June 1, 2013, we completed the acquisition of all of the issued and outstanding common shares of Aurizon for total consideration of CAD$740.8 million (US$714.5 million). The acquisition gave us 100% ownership of the producing Casa Berardi gold mine, along with interests in various gold exploration properties in the Abitibi region of northwestern Quebec, Canada. As further discussed inItem 7A. Quantitative and Qualitative Disclosures About Market Risk, the acquisition has increased our exposure to risks associated with exchange rate fluctuations between the U.S. dollar and Canadian dollar. The acquisition was partially funded by $490 million in net proceeds from our issuance of Senior Notes in April 2013 (seeNote 6 ofNotes to Consolidated Financial Statements).As discussed in theFinancial Liquidity and Capital Resourcessection below, we believe that we will be able to meet the obligations associated with the acquisition of Aurizon and the related debt; however, a number of factors could impact our ability to meet the debt obligations and fund our other projects.

 

54

---

Table of Contents

We make our strategic plans in the context of significant uncertainty about future availability of ore to mine and process. To sustain operations, we must find new opportunities that require many years and substantial expenditures from discovery to production. We approach this challenge by investing in exploration and capital in districts with known mineralization.  On June 15, 2015, we completed the acquisition of Revett, giving us 100% ownership of the Rock Creek project, a significant undeveloped silver and copper deposit in northwestern Montana. In addition, on September 13, 2016, we completed the acquisition of Mines Management, giving us 100% ownership of the Montanore project, another significant undeveloped silver and copper deposit located approximately 10 miles from our Rock Creek project. SeeNote 15 ofNotes to Consolidated Financial Statementsfor more information on these acquisitions. Development of Rock Creek and Montanore has been challenged by conservation groupsnon-governmental organizations at various times, and there can be no assurance that we will be able to obtain the permitting required to develop these projects. InRisk Factors, seeLegal challenges could prevent the Rock Creek or Montanore projects from ever being developedfor more information.

55

---

Table of Contents

 

 Volatility in global financial markets poses a significant challenge to our ability to access credit and equity markets, should we need to do so, and to predict sales prices for our products. We utilize forward contracts to manage exposure to declines in the prices of silver, gold, zinc and lead contained in our concentrates that have been shipped but have not yet settled, and zinc and lead contained in our forecastedthat we forecast for future concentrate shipments. In addition, we have in place a $100 million revolving credit agreement under which there were no borrowings during 2016 or$97 million was available as of the filing date of this report.

 

During the third quarter of 2015, we made a development decision to mine near surface, high grade portions of silver and gold deposits at our San Sebastian project in Mexico. Ore production commenced from the pits in the fourth quarter of 2015 and has continued since that time.until the end of 2017.  In addition, work began in the first quarter of 2017 to develop new and rehabilitate old underground access which would allow us to mine deeper portions of the deposits at San Sebastian.Sebastian, allowing limited underground ore production to began in January 2018. See theSan Sebastian Segment section below for more information. We generated positive cash flows at San Sebastian in 2016 and 2017, and we believe that we will continue to do so over the next approximately twothree years.  However, our ability to generate positive cash flows at San Sebastian may be impacted by changes in estimated costs, precious metals prices, or other factors, and there can be no assurance that we will be able to develop and operate San Sebastian as anticipated.

 

Unionized employees at our Lucky Friday unit, our only operation where some of our employees are subject to a collective bargaining agreement, went on strike in mid-March 2017, and have been on strike since that time.    Production has been limited at Lucky Friday during the strike period.  See the Lucky Friday Segment section below for more information.  In February 2018, we reached an agreement for binding third-party arbitration with the union, subject to ratification by the union membership.  We cannot predict whether the union members will approve the arbitration, the outcome of the arbitration, or how long the strike will last or whether an agreement will be reached if the arbitration is not agreed to.  As a result of the strike or other events related to labor at Lucky Friday, operations at Lucky Friday could continue to be disrupted, which could adversely affect our financial condition and results of operations. Additionally, if we enter into a new labor agreement with any union that significantly increases our labor costs relative to our competitors, our ability to compete may be materially and adversely affected.  Finally, it is possible operations at our other units, including San Sebastian in Mexico, could be subject to disruptions or union-organizing activity due to sympathy or coordinated action with the union or striking employees at the Lucky Friday unit.

We strive to achieve excellent mine safety and health performance. We seek to implement this goal by: training employees in safe work practices; establishing, following and improving safety standards; investigating accidents, incidents and losses to avoid recurrence; involving employees in the establishment of safety standards; and participating in the National Mining Association'sCORESafety program. We attempt to implement reasonable best practices with respect tofor mine safety and emergency preparedness. We work with MSHA to address issues outlined in itsMSHA's investigations and inspections and continue to evaluate our safety practices.

 

As a result of industry-wide fatal accidents in recent years, primarily at underground coal mines, there has been an increase in mine regulation.  In addition, under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC was directed to issue rules regarding the disclosure of mine safety data.  Our ability to achieve and maintain compliance with MSHA regulations will be challenging and may increase our operating costs. SeeItem 1A. Risk Factors - We face substantial governmental regulation, including the Mine Safety and Health Act, various environmental rules and regulations and the 1872 Mining Law.

 

Another challenge we face is the risk associated with environmental matters and ongoing reclamation activities. As described inRisk Factors andNote 7 ofNotes to Consolidated Financial Statements, it is possible that our estimate of these liabilities (and our ability to estimate liabilities in general)other liabilities) may change in the future, affecting our strategic plans.  We are involved in various environmental legal matters with no assurance thatand the estimate of our environmental liabilities orand liquidity needs, oras well as our strategic plans, will notmay be significantly impacted as a result of these matters or new matters that may arise. We strive to ensure that our activities are conducted in compliance with applicable laws and regulations and attempt to resolve environmental litigation on as favorable terms as possible.

55

---

Table of Contents

 

Reserve estimation is a major risk inherent in mining. Our reserve estimates, which drive our mining and investment plans, the valuation of a significant portion of our long-term assets, and depreciation, depletion and amortization expense, may change based on economic factors and actual production experience. Until ore is mined and processed, the volumes and grades of our reserves must be considered as estimates. Our reserves are depleted as we mine. Reserves can also change as a result of changes in economic and operating assumptions.

 

56

---

Table of Contents

Resultsof Operations

 

Sales of products by metal for the years ended December 31, 2017, 2016 2015 and 20142015 were as follows:

 

		Year Ended December 31,												Year Ended December 31,
(in thousands)		2016				2015				2014				2017				2016				2015
Silver		$	274,438			$	158,371			$	175,361			$	194,813			$	274,438			$	158,371
Gold			276,630				205,216				224,138				277,421				276,630				205,216
Lead			63,942				55,380				64,190				37,995				63,942				55,380
Zinc			95,058				85,290				96,154				104,023				95,058				85,290
Less: Smelter and refining charges			(64,111	)			(60,690	)			(59,062	)			(36,477	)			(64,111	)			(60,690	)
Sales of products		$	645,957			$	443,567			$	500,781			$	577,775			$	645,957			$	443,567

 

For the year ended December 31, 2016, we reported income applicable to common stockholders of $69.0 millionThe fluctuations in sales for 2017 compared to a loss of $87.5 million in2016 and 2015 and income of $17.3 million in 2014. The following factors led to those differences:were primarily due to:

 

•

Lower quantities of silver, gold, lead and zinc sold in 2017 compared to 2016 due to lower production of those metals. We also sold less lead and zinc in 2017 compared to 2015, but silver and gold sales quantities were higher in 2017 compared to 2015. See The Greens Creek Segment,The Lucky Friday Segment, The Casa Berardi Segment, and The San Sebastian Segment sections below for more information on metal production and sales volumes at each of our operating segments. Total metals production and sales volumes for each period are shown in the following table:

			Year Ended December 31,
			2017				2016				2015
Silver -	Ounces produced			12,484,844				17,177,317				11,591,603
	Payable ounces sold			11,308,958				15,997,087				10,171,896
Gold -	Ounces produced			232,684				233,929				189,327
	Payable ounces sold			219,929				222,105				178,400
Lead -	Tons produced			22,733				42,472				39,965
	Payable tons sold			17,960				37,519				33,409
Zinc -	Tons produced			55,107				68,516				70,073
	Payable tons sold			39,335				49,802				49,831

The difference between what we report as "ounces/tons produced" and "payable ounces/tons sold" is attributable to the difference between the quantities of metals contained in the concentrates we produce versus the portion of those metals actually paid for by our customers according to the terms of our sales contracts. Differences can also arise from inventory changes incidental to shipping schedules, or variances in ore grades which impact the amount of metals contained in concentrates produced and sold.

57

---

Table of Contents

Average realized silver, gold, lead and zinc prices for 2017 that were higher than 2016 and 2015. These price variances are illustrated in the table below.

			Average price for the year ended December 31,
			2017				2016				2015
Silver —	London PM Fix ($/ounce)		$	17.05			$	17.10			$	15.70
	Realized price per ounce			17.23				17.16				15.57
Gold —	London PM Fix ($/ounce)			1,257				1,248				1,160
	Realized price per ounce			1,261				1,245				1,150
Lead —	LME Final Cash Buyer ($/pound)			1.05				0.85				0.81
	Realized price per pound			1.06				0.85				0.83
Zinc —	LME Final Cash Buyer ($/pound)			1.31				0.95				0.88
	Realized price per pound			1.32				0.95				0.86

Average realized prices differ from average market prices primarily because concentrate sales are generally recorded as revenues at the time of shipment at forward prices for the estimated month of settlement, which differ from average market prices.  Due to the time elapsed between shipment of concentrates and final settlement with customers, we must estimate the prices at which sales of our metals will be settled.  Previously recorded sales are adjusted to estimated settlement metal prices each period through final settlement.  For 2017, we recorded net positive price adjustments to provisional settlements of $0.7 million compared to net negative price adjustments to provisional settlements of $0.9 million in 2016 and net positive adjustments of $0.6 million in 2015. The price adjustments related to silver, gold, zinc and lead contained in our concentrate sales were largely offset by gains and losses on forward contracts for those metals for each year (see Note 10 of Notes to Consolidated Financial Statements for more information).  The gains and losses on these contracts are included in revenues and impact the realized prices for silver, gold, lead and zinc.  Realized prices are calculated by dividing gross revenues for each metal (which include the price adjustments and gains and losses on the forward contracts discussed above) by the payable quantities of each metal included in concentrate and doré shipped during the period.

For the year ended December 31, 2017, we reported a loss applicable to common stockholders of $24.1 million compared to income of $69.0 million in 2016 and a loss of $87.5 million in 2015. The following factors contributed to those differences:

Net mark-to-market loss on base metal forward contracts of $21.3 million in 2017 compared to net gains of $4.4 million in 2016 and $8.3 million in 2015. These losses and gains are related to financially-settled forward contracts on forecasted zinc and lead production as part of a risk management program, and resulted from changes in zinc and lead prices during each period. We do not include silver and gold in this program.

Lucky Friday suspension costs of $17.1 million in 2017. These costs, along with $4.2 million in non-cash depreciation expense, were incurred during the suspension of full production resulting from the strike, which started in March 2017.

•

Net foreign exchange loss of $10.3 million in 2017 compared to a loss of $2.9 million in 2016 and a gain of $24.6 million in 2015. As discussed in Note 10 of Notes to Consolidated Financial Statements, in 2016 we initiated hedging programs to manage our exposure to fluctuations in the exchange rate between the U.S. dollar and Canadian dollar and Mexican peso and the impact on our future operating costs at our Casa Berardi and San Sebastian units.

•

Interest expense, net of amounts capitalized, of $38.0 million in 2017 compared to $21.8 million in 2016 and $25.4 million in 2015. The interest is primarily related to our Senior Notes issued in April 2013, with the net proceeds used to partially fund the acquisition of Aurizon, and additional issuances in 2014 to satisfy the funding requirements for one of our defined benefit pension plans (see Notes 6 and 16 of Notes to Consolidated Financial Statements). The increase in 2017 was due to a reduction in amount capitalized as a result of completion of the #4 Shaft project at Lucky Friday in January 2017. In addition, interest expense in 2017 included $0.9 million in costs related to our proposed private offering of new Senior Notes in June 2017 and concurrent tender offer to purchase our existing Senior Notes, which were not completed.

58

---

Table of Contents

Exploration and pre-development expense increased to $29.0 million in 2017 from $17.9 million in 2016 and $22.0 million in 2015. Our activity in 2017 included a continuation of extensive exploration work at our Greens Creek unit, on our land package near Durango, Mexico, and at the Casa Berardi mine and other projects on our land packages near our Lucky Friday mine in Idaho, and in Quebec and British Columbia, Canada. "Pre-development expense" is defined as costs incurred in the exploration stage that may ultimately benefit production, such as underground ramp development, which are expensed due to the lack of proven and probable reserves. Pre-development in 2016 and 2017 was primarily related to advancement of our Montanore and Rock Creek projects.

Research and development expense of $3.3 million in 2017 compared to $0.2 million in 2016, with no amount incurred in 2015, related to evaluation and development of technologies that would be new to our operations.

•

Gross profit at our San Sebastian unit in 20162017 of $62.1 million compared to $82.7 million in 2016, with no profit or loss reported there in 2015 or 2014 as metal sales commenced there in the first quarter of 2016. In addition, gross profit at Greens Creek in 2016 of $69.1 million was higher than $32.6 million in 2015 and $45.5 million in 2014. At Casa Berardi, gross profit of $21.4 million in 2016 was higher than $4.9 million in 2015 and $17.8 million in 2014. In addition, grossGross profit at Lucky Friday of $6.4 million in 2017 was lower than gross profit of $18.3 million in 2016, wasbut higher than gross profit of $1.1 million in 2015, but lower than2015. At Casa Berardi, gross profit of $21.9$12.0 million in 2014.2017 was lower than $21.4 million in 2016, but higher than $4.9 million in 2015. Gross profit at Greens Creek in 2017 of $76.5 million was higher than $69.1 million in 2016 and $32.6 million in 2015. See theGreens Creek Segment,Lucky Friday Segment,Casa Berardi Segment, andSan Sebastian Segment sections below.

 

Average realized silver, gold, leadProvision for closed operations and zinc pricesenvironmental matters increased to $6.7 million in 2017 from $5.7 million in 2016, were higher compared to 2015, but werewas lower than in 2014. These price variances are illustrated in the table below.

			Average price for the year ended December 31,
			2016				2015				2014
Silver —	London PM Fix ($/ounce)		$	17.10			$	15.70			$	19.08
	Realized price per ounce			17.16				15.57				18.46
Gold —	London PM Fix ($/ounce)			1,248				1,160				1,266
	Realized price per ounce			1,245				1,150				1,262
Lead —	LME Final Cash Buyer ($/pound)			0.85				0.81				0.95
	Realized price per pound			0.85				0.83				0.98
Zinc —	LME Final Cash Buyer ($/pound)			0.95				0.88				0.98
	Realized price per pound			0.95				0.86				0.99

56

---

Table of Contents

Average realized prices differ from average market prices primarily because concentrate sales are generally recorded as revenues at the time of shipment at forward prices for the estimated month of settlement, which differ from average market prices.  Due to the time elapsed between shipment of concentrates and final settlement with customers, we must estimate the prices at which sales of our metals will be settled.  Previously recorded sales are adjusted to estimated settlement metal prices each period through final settlement.  For 2016, we recorded net negative price adjustments to provisional settlements of $0.9 million compared to net positive price adjustments to provisional settlements of $0.6$12.2 million in 2015 and net negative adjustments of $2.3 million in 2014. The price adjustments related to silver, gold, zinc and lead contained in our concentrate sales were largely offset by gains and losses on forward contracts for those metals for each year (seeNote 10 ofNotes to Consolidated Financial Statementsfor more information).  The gains and losses on these contracts are included in revenues and impact the realized prices for silver, gold, lead and zinc.  Realized prices are calculated by dividing gross revenues for each metal (which include the price adjustments and gains and losses on the forward contracts discussed above) by the payable quantities of each metal included in concentrate and doré shipped during the period.

•

Provision for closed operations and environmental matters decreased to $5.7 million in 2016 from $12.2 million in 2015 and $10.1 million in 2014.2015. The 2015 provision includes a net $8.7 million charge for potentially resolving the exposure to liability at the South Dakota and Colorado Superfund Sites Related to CoCa Mines, Inc., which is in addition to $1.2 million in charges recognized in prior years. The 2014 provision includes a $5.6 million increase to the liability for the Johnny M site in New Mexico (SeeNote 7 ofNotes to Consolidated Financial Statementsfor more information).

•

Interest expense, net of amounts capitalized, of $21.8 million in 2016 compared to $25.4 million in 2015 and $26.8 million in 2014. The interest is primarily related to our Senior Notes issued in April 2013, with the net proceeds used to partially fund the acquisition of Aurizon, and additional issuances in 2014 to satisfy the funding requirements for one of our defined benefit pension plans (seeNotes 6 and16 ofNotes to Consolidated Financial Statements).

Exploration and pre-development expense decreased to $17.9 million in 2016 from $22.0 million in 2015 and $19.7 million in 2014. Our activity in 2016 included a continuation of extensive exploration work at our Greens Creek unit, on our land package near Durango, Mexico, and at the Casa Berardi mine and other projects on our land package in Quebec, Canada. "Pre-development expense" is defined as costs incurred in the exploration stage that may ultimately benefit production, such as underground ramp development, which are expensed due to the lack of proven and probable reserves. We advanced pre-development work at the San Sebastian property in Mexico during 2014 and 2015, resulting in the decision to develop a mine there in the third quarter of 2015.

 

Reclassifications of $1.0 million $3.0 million and $2.4$3.0 million in unrealized losses on certain marketable securities from other comprehensive income to current earnings in 2016 2015 and 2014,2015, respectively. The losses were recognized in current earnings in each period because the securities were deemed to be other than temporarily impaired.

 

Costs related to the acquisition of Mines Management of $2.7 million in 2016 and the acquisition of Revett of $2.2 million in 2015.

 

General and administrative costs, which increaseddecreased to $35.6 million in 2017 from $45.0 million in 2016, frombut were higher than the $34.2 million in 2015, and $31.5 million in 2014 primarily due to increaseddifferences in incentive compensation.

 

Net mark-to-market gainsGain on base metal forward contractsdisposition of $4.4properties, plants, equipment, and mineral interests of $6.0 million in 2017 compared to a gain of $0.1 million in 2016 $8.3and a loss of $0.4 million in 2015 and $9.12015. The gain in 2017 included $7.7 million in 2014. These gains areinsurance proceeds related to financially-settled forward contracts on forecasted zinc and lead production as partthe collapse of a risk management program, and resulted from decreasesthe mill building at the Troy mine in zinc and lead prices during each period. We do not include silver and gold in this program.February 2017 due to snow.

57

---

Table of Contents

•

Net foreign exchange loss of $2.9 million in 2016 compared to gains of $24.6 million in 2015 and $11.5 million in 2014. As discussed inNote 10 ofNotes to Consolidated Financial Statements, in 2016 we initiated hedging programs to manage our exposure to fluctuations in the exchange rate between the U.S. dollar and Canadian dollar and Mexican peso and the impact on our future operating costs at our Casa Berardi and San Sebastian units.

 

•

Income tax provision of $19.9 million in 2017 compared to $27.4 million in 2016 compared to an income tax provision ofand $56.3 million in 20152015. The provision in 2017 included a write-down of U.S. deferred tax assets, mainly due to a change to tax laws under the Tax Cuts and Jobs Act enacted in December 2017, and taxes related to our operations in Mexico and Quebec, partially offset by a benefit from a change in income tax position recognized in the first quarter of $5.2 million in 2014.2017 related to the timing of deduction of #4 Shaft development costs at Lucky Friday. The provision in 2016 is primarily related to pre-tax net income, partially offset by a decrease in the valuation allowance for U.S. deferred tax assets. The provision in 2015 is primarily the result of an increase in the valuation allowance for U.S. deferred tax assets, partially offset by a decrease in the valuation allowance for Mexican deferred tax assets. The benefit in 2014, in spite of reporting income before income taxes of $12.6 million for the year, is the result of book-versus-tax differences for certain items in Canada and the U.S. SeeCorporate Matters andNote 5 ofNotes to Consolidated Financial Statementsfor more information.

 

59

---

Table of Contents

GreensCreek Segment

 

Dollars are in thousands (except per ounce and per ton amounts)		Years Ended December 31,
		2016				2015				2014
Sales		$	260,446				227,833				245,175
Cost of sales and other direct production costs			(138,733	)			(138,723	)			(136,177	)
Depreciation, depletion and amortization			(52,564	)			(56,553	)			(63,505	)
Cost of sales and other direct production costs and depreciation, depletion and amortization			(191,297	)			(195,276	)			(199,682	)
Gross Profit		$	69,149			$	32,557			$	45,493
Tons of ore milled			815,639				814,398				816,213
Production:
Silver (ounces)			9,253,543				8,452,153				7,826,341
Gold (ounces)			53,912				60,566				58,753
Zinc (tons)			57,729				61,934				59,810
Lead (tons)			20,596				21,617				20,151
Payable metal quantities sold:
Silver (ounces)			8,244,723				7,384,657				6,434,739
Gold (ounces)			47,015				48,325				46,297
Zinc (tons)			40,817				44,492				42,744
Lead (tons)			16,795				17,553				15,526
Ore grades:
Silver ounces per ton			14.55				13.50				13.24
Gold ounces per ton			0.10				0.11				0.12
Zinc percent			8.08				8.74				8.38
Lead percent			3.11				3.30				3.22
Mining cost per ton		$	69.48			$	71.50			$	69.45
Milling cost per ton		$	31.99			$	30.32			$	30.56
Cash Cost, After By-product Credits, Per Silver Ounce(1)		$	3.84			$	3.91			$	2.89

Dollars are in thousands (except per ounce and per ton amounts)		Years Ended December 31,
		2017				2016				2015
Sales		$	278,297			$	260,446			$	227,833
Cost of sales and other direct production costs			(145,475	)			(138,075	)			(137,534	)
Depreciation, depletion and amortization			(56,328	)			(53,222	)			(57,742	)
Cost of sales and other direct production costs and depreciation, depletion and amortization			(201,803	)			(191,297	)			(195,276	)
Gross Profit		$	76,494			$	69,149			$	32,557
Tons of ore milled			839,589				815,639				814,398
Production:
Silver (ounces)			8,351,882				9,253,543				8,452,153
Gold (ounces)			50,854				53,912				60,566
Zinc (tons)			52,547				57,729				61,934
Lead (tons)			17,996				20,596				21,617
Payable metal quantities sold:
Silver (ounces)			7,384,596				8,244,723				7,384,657
Gold (ounces)			42,222				47,015				48,325
Zinc (tons)			37,648				40,817				44,492
Lead (tons)			14,182				16,795				17,553
Ore grades:
Silver ounces per ton			12.88				14.55				13.50
Gold ounces per ton			0.09				0.10				0.11
Zinc percent			7.25				8.08				8.74
Lead percent			2.72				3.11				3.30
Mining cost per ton		$	70.86			$	69.48			$	71.50
Milling cost per ton		$	32.38			$	31.99			$	30.32
Cash Cost, After By-product Credits, Per Silver Ounce (1)		$	0.71			$	3.84			$	3.91
AISC, After By-Product Credits, per Silver Ounce (1)		$	5.76			$	9.42			$	10.08

______________

 

(1)

A reconciliation of thisthese non-GAAP measuremeasures to cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, can be found inReconciliation of Cost of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP).

 

58

---

Table of Contents

The $36.6$7.4 and $44.0 million increaseincreases in gross profit for 20162017 compared to 2016 and 2015, was primarilyrespectively, were due to higher average realized silver, production as a result of higher ore grades, improved silver recoveries and higher silver prices. Higher gold, zinc and lead prices, partially offset by reduced metal production due to lower quantities soldore grades and additional costs due to more tons milled. Average realized prices for gold, zinc and lead also impacted gross profit. The $23.7 million increasefor 2017 were higher than in gross profit for 2016 compared to 2014 was primarily the result of higher quantities sold for silver, goldby 1%, 39% and lead, partially offset by lower average prices for all four metals25%, respectively, and less zinc sold. Average realized prices for silver, gold, zinc and lead for 2016 were higher than in 2015 by 9%, 8%53% and 28%, 9% and 2% respectively, and lowerrespectively. Average realized silver prices for 2017 were also slightly higher than in 20142016, and higher by 7%, 1%, 4% and 13% respectively.11% compared to 2015.

 

Gross profit was also impacted by negativepositive price adjustments to revenues of $0.6 million in 2017, negative price adjustments of $0.8 million in 2016 and positive price adjustments of $0.5 million in 2015 and negative price adjustments of $1.3 million in 2014.2015. Price adjustments to revenues result from changes in metals prices between transfer of title of concentrates to buyers and final settlements during the period,period. The price adjustments related to silver, gold, zinc and are partially offset bylead contained in concentrate shipments were net of gains and losses on forward contracts related to concentrates that have been shipped.for those metals for each period. The price adjustments and gains and losses on forward contracts discussed above are included in sales.

60

---

Table of Contents

 

Depreciation, depletion and amortization expense for 2017 was 7%6% higher compared to 2016 and 17% less in2% lower compared to 2015. The increase compared to 2016 was due to the timing of concentrate sales and the addition of depreciable assets. The decrease compared to 2015 and 2014, respectively,was due primarily to the effect on units-of-production depreciation of an increase in the estimated life of mine.

 

The Greens Creek operation is partially powered by diesel generators, and production costs have historically been affected by fluctuations in fuel prices and hydroelectric power availability. Installed infrastructure allows hydroelectric power to be supplied to Greens Creek by Alaska Electric Light and Power (AEL&P) via a submarine cable from North Douglas Island, near Juneau, to Admiralty Island, where Greens Creek is located. This has reduced production costs at Greens Creek to the extent power has been available. During 2017, 2016 2015 and 2014,2015, Greens Creek received approximately 94%95%, 96%94% and 97%96%, respectively, of its electricity from hydroelectric power from AEL&P due to higher precipitation levels in southeastern Alaska. When weather conditions are not favorable to maintain lake water levels, the mine relies on diesel generated power. Fuel costs were approximately $3.3$3.6 million (3% of total production costs) at Greens Creek in 20162017 compared to $3.3 million (3% of production costs) in 2016 and $4.7 million (4% of production costs) in 2015 and $5.5 million (5% of production costs) in 2014.2015. The cost of hydroelectric power was $11.6 million (9% of production costs) in 2017, $8.4 million (7% of production costs) in 2016, and $7.3 million (6% of production costs) in 2015, and $7.2 million (6% of production costs) in 2014.2015. The increase in cost of hydroelectric power in 2017 compared to 2016 and 2015 is the result of a price increase per kwh purchased from $0.10 to $0.16 in September 2016.2016, as well as an increase in kilowatt hours purchased.

 

Mining costs per ton decreasedincreased in 20162017 by 3%2% compared to 20152016 and were relatively unchanged compared to 2014.2015. The lowerhigher mining costs were primarily the result of lowerhigher maintenance labor and fuel costs.power costs, offset by an increase in tons milled. Milling costs per ton increased 5%1% and 7% compared to both2016 and 2015, and 2014respectively due primarily to higher power costs, along with an increase in costs for labor, maintenance and reagents.costs.

The following table summarizes the components of Cash Cost, After By-product Credits, per Silver Ounce:

		Years Ended December 31,
		2016				2015				2014
Cash Cost, Before By-product Credits, per Silver Ounce		$	21.32			$	23.24			$	25.46
By-product credits per silver ounce			(17.48	)			(19.33	)			(22.57	)
Cash Cost, After By-product Credits, per Silver Ounce		$	3.84			$	3.91			$	2.89

59

---

Table of Contents

 

The chart below illustrates the factors contributing to the variances in Cash Cost, After By-product Credits, Per Silver Ounce for 20162017 compared to 20152016 and 2014:2015:

 

61

---

Table of Contents

The following table summarizes the components of Cash Cost, After By-product Credits, per Silver Ounce:

		Years Ended December 31,
		2017				2016				2015
Cash Cost, Before By-product Credits, per Silver Ounce		$	22.54			$	21.32			$	23.24
By-product credits per silver ounce			(21.83	)			(17.48	)			(19.33	)
Cash Cost, After By-product Credits, per Silver Ounce		$	0.71			$	3.84			$	3.91

The following table summarizes the components of AISC, After By-product Credits, per Silver Ounce:

		Years Ended December 31,
		2017				2016				2015
AISC, Before By-product Credits, per Silver Ounce		$	27.59			$	26.90			$	29.41
By-product credits per silver ounce			(21.83	)			(17.48	)			(19.33	)
AISC, After By-product Credits, per Silver Ounce		$	5.76			$	9.42			$	10.08

 

Cash Costs, After By-product Credits, per Silver Ounce were lower in 20162017 compared to 2016 and 2015 primarily due to lower mining, milling, treatment and other costs on a per-ounce basis and higher silver production,by-product credits, partially offset by lower by-product credits by $5.69 per ounce.silver production. The increasedecrease in Cash Costs,AISC, After By-product Credits, per Silver Ounce is primarily due to the same factors, along with lower capital spending.

Mining and Milling costs increased in 20162017 compared to 2014 was the result of lower by-product credits by $8.93 per ounce, partially offset by lower mining, milling, treatment,2016 and other costs2015 on a per-ounce basis.

Mining costs decreased in 2016 compared to 2015 and 2014basis due primarily to higherlower silver production resulting from improvedreduced silver recoveries and grades, as well as lowerhigher production costs year over year. Milling costs decreased in 2016 compared to 2015 and 2014 on a per-ounce basis, despite increasing on a per-ton basis as discussed above, due primarily to higher silver production.

 

Other costs for 20162017 were lowerhigher compared to 2016 and 2015 due to the effect of higherlower silver production, partially offset by higher mine license tax. Other costs for 2016 compared to 2014 were lower due to the effectproduction.

62

---

Table of higher silver production and lower mine license tax.

Contents

 

Treatment costs were lower in 20162017 compared to 20152016 and 20142015 as a result of higher silver production and improved payment terms from smelters.smelters, partially offset by lower silver production. Treatment costs were also impacted by silver prices,price variances, as treatment costs include the value of silver not payable to us through the smelting process. The silver not payable to us is either recovered by the smelters through further processing or ultimately not recovered and included in the smelters' waste material. Treatment costs also include a price adjustment component that fluctuates with changes in base metal prices.

 

By-product credits per ounce were lowerhigher in 20162017 compared to 2016 and 2015 due to lower gold, zinc and lead production and higher silver production, partially offset by higher prices for silver, gold, zinc and lead. By-product credits per ounce were lower in 2016 compared to 2014 due to lower gold and zinc production and higher silver production, as well as lower prices for all fourthree metals.

 

The difference between what we report as "production" and "payable metal quantities sold" is attributable to the difference between the quantities of metals contained in the concentrate we produce versus the portion of those metals actually paid for by our customers according to the terms of our sales contracts. Differences can also arise from inventory changes incidental to shipping schedules, or variances in ore grades which impact the amount of metals contained in concentrates produced and sold. The differences in payable quantities sold for 20162017 compared to 20152016 and 20142015 were due mainly to timing of concentrate shipments.

60

---

Table of Contents

 

While revenue from zinc, lead and gold by-products is significant, we believe that identification of silver as the primary product of the Greens Creek unit is appropriate because:

 

silver has historically accounted for a higher proportion of revenue than any other metal and is expected to do so in the future;

 

we have historically presented Greens Creek as a producer primarily of silver, based on the original analysis that justified putting the project into production, and believe that consistency in disclosure is important to our investors regardless of the relationships of metals prices and production from year to year;

 

metallurgical treatment maximizes silver recovery;

 

the Greens Creek deposit is a massive sulfide deposit containing an unusually high proportion of silver; and

 

in most of its working areas, Greens Creek utilizes selective mining methods in which silver is the metal targeted for highest recovery.

 

Likewise, we believe the identification of gold, lead and zinc as by-product credits is appropriate because of their lower economic value compared to silver and due to the fact that silver is the primary product we intend to produce. In addition, we do not receive sufficient revenue from any single by-product metal to warrant classification of such as a co-product.     

 

We periodically review our revenues to ensure that reporting of primary products and by-products is appropriate.  Because we consider zinc, lead and gold to be by-products of our silver production, the values of these metals offset operating costs within our calculations of Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce.

 

In early 2014 we were engaged in negotiations with the U.S. Forest Service and state agencies on their proposed revisions to our previously-submitted reclamation and closure plan. In 2014, we updated our asset retirement obligation ("ARO") at Greens Creek to reflect a revised reclamation and closure plan having estimated undiscounted costs of approximately $96.7 million, an increase from the $73.9 million in the previous plan, which was primarily the result of a new requirement to include perpetual water treatment in the closure plan. This resulted in an increase to the ARO asset and liability of $2.2 million after discounting the estimated costs to present value. As part of the revised closure plan, we increased our reclamation bonding from $30 million to approximately $68.9 million in 2014. In the fourth quarter of 2016, we revised our AROasset retirement obligation ("ARO") to reflect estimated undiscounted costs of approximately $100.1 million and expected timing of expenditures. This resulted in a decrease to the ARO asset and liability of $5.0 million due to the impact of discounting and the change in expected timing of expenditures.

 

6163

---

Table of Contents

 

TheLucky Friday Segment

 

Dollars are in thousands (except per ounce and per ton amounts)		Years Ended December 31,
		2016				2015				2014
Sales		$	94,479			$	66,302			$	89,757
Cost of sales and other direct production costs			(64,400	)			(53,960	)			(58,423	)
Depreciation, depletion and amortization			(11,810	)			(11,262	)			(9,431	)
Cost of sales and other direct production costs and depreciation, depletion and amortization			(76,210	)			(65,222	)			(67,854	)
Gross profit (loss)		$	18,269			$	1,080			$	21,903
Tons of ore milled			293,875				297,347				309,070
Production:
Silver (ounces)			3,596,010				3,028,134				3,239,151
Lead (tons)			21,876				18,348				20,104
Zinc (tons)			10,787				8,139				8,159
Payable metal quantities sold:
Silver (ounces)			3,433,618				2,759,114				3,039,697
Lead (tons)			20,724				15,856				17,105
Zinc (tons)			8,985				5,339				5,904
Ore grades:
Silver ounces per ton			12.69				10.68				11.00
Lead percent			7.78				6.55				6.87
Zinc percent			3.92				2.98				2.93
Mining cost per ton		$	98.12			$	89.69			$	87.90
Milling cost per ton		$	24.08			$	21.51			$	21.56
Cash Cost, After By-product Credits, Per Silver Ounce(1)		$	8.89			$	11.23			$	9.44

Dollars are in thousands (except per ounce and per ton amounts)		Years Ended December 31,
		2017				2016				2015
Sales		$	21,555			$	94,479			$	66,302
Cost of sales and other direct production costs			(12,660	)			(64,400	)			(53,960	)
Depreciation, depletion and amortization			(2,447	)			(11,810	)			(11,262	)
Cost of sales and other direct production costs and depreciation, depletion and amortization			(15,107	)			(76,210	)			(65,222	)
Gross profit		$	6,448			$	18,269			$	1,080
Tons of ore milled			70,718				293,875				297,347
Production:
Silver (ounces)			838,658				3,596,010				3,028,134
Lead (tons)			4,737				21,876				18,348
Zinc (tons)			2,560				10,787				8,139
Payable metal quantities sold:
Silver (ounces)			672,421				3,433,618				2,759,114
Lead (tons)			3,779				20,724				15,856
Zinc (tons)			1,688				8,985				5,339
Ore grades:
Silver ounces per ton			12.38				12.69				10.68
Lead percent			7.10				7.78				6.55
Zinc percent			4.01				3.92				2.98
Mining cost per ton		$	106.75			$	98.12			$	89.69
Milling cost per ton		$	21.71			$	24.08			$	21.51
Cash Cost, After By-product Credits, Per Silver Ounce (1)		$	5.81			$	8.89			$	11.23
AISC, After By-product Credits, Per Silver Ounce (1)		$	12.48			$	20.66			$	31.08

______________

 

(1)

A reconciliation of thisthese non-GAAP measuremeasures to cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, can be found below inReconciliation of Cost of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP).

 

The decrease in gross profit for 2017 compared to 2016 was primarily due to reduced metal production resulting from the strike by unionized employees starting in mid-March 2017, discussed further below, and the lack of concentrate shipments during most of the strike period. Although there was limited concentrate production since the start of the strike, we opted to defer shipments until some of the stockpiled concentrates were shipped in December 2017. Silver and lead production was also impacted by lower ore grades in the first quarter of 2017. These factors were partially offset by higher average silver, lead and zinc prices during the first quarter, prior to the start of the strike. The increase in gross profit for 2016in 2017 compared to 2015 was due to higher average silver, lead and zinc production due toprices and higher ore grades, and higher average prices for all three metals.grades. The lower grades in 2015 were a result of failure of the underground booster fan, which reduced the ventilation capacity of the mine, leading to the temporary closure of a higher-grade production stope. Production during most of the third quarter of 2015 came from lower grade material until the fan was replaced and other ventilation infrastructure completed. The decrease in gross profit in 2016 compared to 2014 was due primarily to reduced ore throughput and lower metals prices.

 

Gross profit was also impacted by depreciation expense, which increaseddecreased in 20162017 by 5%79% and 25%78% compared to 20152016 and 2014,2015, respectively, due to an increasethe lower sales volume in assets in service.2017.

64

---

Table of Contents

 

Mining costs per ton increased in 20162017 by 9% and 12%19% compared to 2016 and 2015, and 2014, respectively, and millingwith the increase due to lower ore production as a result of the strike discussed below. Milling costs per ton in 20162017 were 12% higher10% lower compared to both 20152016 and 2014.1% higher than in 2015. Mining and milling cost per ton for 2017 are not indicative of future operating results under full production, as there was reduced mill throughput during the year. The increasemill was idle during the strike in per-ton2017, and only operated when the limited mine production provided a sufficient ore stockpile. In addition, costs was primarilynot directly related to mining and processing ore have been classified as suspension costs during the resultstrike period, and excluded from the calculations of lower ore productionmining and higher labor costs.

62

---

Table of Contents

The following table summarizes the components ofmilling cost per ton, Cash Cost, After By-product Credits, per Silver Ounce:Ounce, and AISC, After By-product Credits, per Silver Ounce for 2017.

		Year ended December 31,
		2016				2015				2014
Cash Cost, Before By-product Credits, per Silver Ounce			23.00				23.79				23.95
By-product credits per silver ounce			(14.11	)			(12.56	)			(14.51	)
Cash Cost, After By-product Credits, per Silver Ounce		$	8.89			$	11.23			$	9.44

 

The chart below illustrates the factors contributing to the variances in Cash Cost, After By-product Credits, Per Silver Ounce for 2017, 2016 2015 and 2014:2015:

 

The following table summarizes the components of Cash Cost, After By-product Credits, per Silver Ounce:

		Year ended December 31,
		2017				2016				2015
Cash Cost, Before By-product Credits, per Silver Ounce		$	22.83			$	23.00			$	23.79
By-product credits per silver ounce			(17.02	)			(14.11	)			(12.56	)
Cash Cost, After By-product Credits, per Silver Ounce		$	5.81			$	8.89			$	11.23

The following table summarizes the components of AISC, After By-product Credits, per Silver Ounce:

		Years Ended December 31,
		2017				2016				2015
AISC, Before By-product Credits, per Silver Ounce		$	29.50			$	34.77			$	43.64
By-product credits per silver ounce			(17.02	)			(14.11	)			(12.56	)
AISC, After By-product Credits, per Silver Ounce		$	12.48			$	20.66			$	31.08

 

The decrease in Cash Cost, After By-product Credits, per Silver Ounce for 20162017 compared to 20152016 and 20142015 was due to higher by-product credits, partially offset by lower silver production. The decrease in AISC, After By-product credits, per Silver Ounce was due to the same factors, along with lower capital spending.

65

---

Table of Contents

Mining costs per ounce increased silver productionin 2017 compared to 2016 and 2015 as a result of higher grades. The variance compared to 2015 was also a result of higher by-product credits in 2016.

Mininglower silver production. Milling and millingother cash costs per ounce decreased slightly in 20162017 compared to 2016 and 2015, as the mill operated intermittently in 2017 during the strike, and 2014costs not directly related to production were classified as a result of higher silver production.suspension costs.

 

By-product credits per ounce increased in 20162017 compared to 2016 and 2015 due to higher lead and zinc production, as a result of improved grades, and higher average prices for those metals. However, by-product credits were lower in 2016 compared to 2014 due to lower lead and zinc prices.

 

Similar to the Greens Creek segment, the difference between what we report as “production” and “payable metal quantities sold” is due essentially to the difference between the quantities of metals contained in the concentrates we produce versus the portion of those metals actually paid for by our customers according to the terms of our sales contracts. Differences can also arise from inventory changes incidental to the timing of concentrate shipments, or variances in ore grades which impact the amount of metals contained in concentrates produced and sold.

 

While value from lead and zinc is significant, we believe that identification of silver as the primary product of the Lucky Friday unit is appropriate because:

 

silver has historically accounted for a higher proportion of revenue than any other metal and is expected to do so in the future;

 

63

---

Table of Contents

this mining district is long associated with silver production; and

 

selective mining methods target silver production.

 

Likewise, we believe the identification of lead and zinc as by-product credits is appropriate because of their low economic value compared to silver and due to the fact that silver is the primary product we intend to produce. In addition, we do not receive sufficient revenue from any single by-product metal to warrant classification of such as a co-product.

 

We periodically review our revenues to ensure that reporting of primary products and by-products is appropriate.  Because we consider zinc and lead to be by-products of our silver production, the values of these metals offset operating costs within our calculations of Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce.

 

The #4 Shaft project, an internal shaftIn 2017, we began work with a third-party equipment manufacturer to develop a remote vein miner ("RVM"), a disc-cutting, continuous-mining machine.  We believe RVMs could be used to eliminate the current drill-and-blast method and increase safety and productivity at Lucky Friday.  We conducted engineering of the Lucky Friday mine, is expected to provide deeper access which should in turn extendmachine and ordered long-lead components for the mine's operational life and expand silver production.  We commenced engineering and construction activities on the #4 Shaftfirst RVM in late 2008,2017, and our Board of Directors gave its final approvalwe expect to begin commissioning of the projectmachine in August 2011.  The #4 Shaft project, including excavation of the shaft to its final depth at 9,600 feet below surface, was completed in January 2017. Development to access ore from #4 Shaft is expected to continue through 2017.2019.

 

Many of the employees at our Lucky Friday unit are represented by a union. Theunion, and the most recent collective bargaining agreement with the union expired on April 30, 2016, and on2016.  On February 19, 2017, the unionized employees voted against our contract offer.  We expect further discussionsOn March 13, 2017, the unionized employees went on strike, and have been on strike since that time.  Production at Lucky Friday was suspended from the start of the strike, until limited production by salaried personnel commenced in July 2017.  Salaried personnel have continued to perform limited production and capital improvements, which are expected to include development in preparation for arrival of the RVM in 2019.  Suspension costs during the strike totaled $17.1 million in 2017, which are combined with non-cash depreciation expense of $4.2 million in a separate line item on our consolidated statement of operations.  These suspension costs are excluded from the calculation of gross profit, Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce.  In February 2018, we reached an agreement for binding third-party arbitration with the union, but itsubject to ratification by the union membership.  If the arbitration is possibleapproved by the union members in March 2018, three arbitrators will decide on one of the following to become effective for a period of three years:  1) the contract we submitted in December 2017 as our revised last, best and final offer or 2) the terms of the collective bargaining agreement that expired in April 2016, as modified by certain changes agreed to by the union and us.  It is anticipated the arbitration would be completed in May 2018.  If the arbitration is not approved by the union members, we will be back at the status quo.  We cannot predict whether the union members will approve the arbitration, the outcome of the arbitration, or how long the strike will last or whether an agreement will not be reached inif the arbitration is not agreed to.  As a result of the strike or other related events, operations at Lucky Friday could continue to be disrupted, which case we cannot predict what might happen next, including what actions we or the union might take in response to failing to reach an agreement.could adversely affect our financial condition and results of operations.

 

See SeeNote 7 ofNotes to Consolidated Financial Statementsfor more information about contingencies related to various accidents and other events that occurred at the Lucky Friday mine in prior periods.

 

6466

---

Table of Contents

 

TheCasa Berardi Segment

 

Dollars are in thousands (except per ounce and per ton amounts)		Years Ended December 31,												Years Ended December 31,
		2016				2015				2014				2017				2016				2015
Sales		$	177,143			$	149,432			$	165,849			$	192,165			$	177,143			$	149,432
Cost of sales and other direct production costs			(108,399	)			(100,884	)			(109,846	)			(125,585	)			(108,399	)			(100,884	)
Depreciation, depletion and amortization			(47,312	)			(43,674	)			(38,198	)			(54,594	)			(47,312	)			(43,674	)
Cost of sales and other direct production costs and depreciation, depletion and amortization			(155,711	)			(144,558	)			(148,044	)			(180,179	)			(155,711	)			(144,558	)
Gross profit		$	21,432			$	4,874			$	17,805			$	11,986			$	21,432			$	4,874
Tons of ore milled			997,579				844,090				827,580				1,296,224				997,588				844,090
Production:
Gold (ounces)			145,975				127,891				128,244				156,653				145,975				127,891
Silver (ounces)			33,641				29,639				25,014				36,566				33,641				29,639
Payable metal quantities sold:
Gold (ounces)			142,736				130,075				131,287				152,292				142,736				130,075
Silver (ounces)			32,957				28,125				24,785				35,191				32,957				28,125
Ore grades:
Gold ounces per ton			0.167				0.174				0.170				0.139				0.167				0.174
Silver ounces per ton			0.040				0.040				0.034				0.03				0.04				0.04
Mining cost per ton		$	89.25			$	94.51			$	103.53			$	56.39			$	89.25			$	94.51
Milling cost per ton		$	18.64			$	19.35			$	20.75			$	16.10			$	18.64			$	19.35
Cash Cost, After By-product Credits, per Gold Ounce(1)		$	763.98			$	772.00			$	826.35			$	819.60			$	763.98			$	771.54
AISC, After By-product Credits, per Gold Ounce (1)														$	1,173.82			$	1,244.30			$	1,183.96

 

(1)

A reconciliation of thisthese non-GAAP measuremeasures to cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, can be found below inReconciliation of Cost of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP).

 

Gross profit increaseddecreased in 20162017 compared to 20152016 primarily due to lower ore grades and 2014higher stripping costs in the first half of the year, partially offset by higher ore throughput and higher average gold prices. Gross profit for 2017 was higher than in 2015 primarily due to higher gold production as a result of increased mill throughput. Averagethroughput and higher average gold pricesprices. The lower grades in 2017 were higherdue to the addition of production from the East Mine Crown Pillar ("EMCP") pit, which commenced in July 2016, compared to 2015, but were lower compared to 2014.and underground mine sequencing. The increase in ore throughput was also a result of the addition of the EMCP pit.

 

Gross profit for each year was also affected by depreciation expense, which increased in 20162017 by 8%15% and 24%25% compared to 20152016 and 2014,2015, respectively, due to an increase in assets placed in service and the impact of higher throughput on units-of-production depreciation.

 

67

---

Table of Contents

Mining costs per ton for 20162017 were 6%37% lower than in 20152016 and 14%40% lower than in 2014.2015. The decrease is primarily due to higher ore production, and foreign exchange differences between the periods, as the U.S. dollar strengthened relative to the Canadian dollar in 2016 and 2015, partially offset by stripping costs incurred for the EMCP pit starting in the third quarter of 2016 as discussed below. Foreign exchange differences impacted mining costs per ton in 2016 by approximately 3% compared to 2015 and 17% compared to 2014.

 

Milling costs per ton decreased by 4%14% in 20162017 compared to 20152016 and by 10%17% compared to 20142015 mainly due to higher ore production and exchange rate differences.production.

 

In 2015, we madeThe chart below illustrates the decisionfactors contributing to develop the EMCP project, a new open pit mine at Casa Berardi. Processing of ore from the EMCP pit began in JulyCash Cost, After By-product Credits, Per Gold Ounce for 2017, 2016 and approximately 8,500 gold ounces were produced from the pit in 2016. Costs for stripping of the EMCP pit were capitalized prior to the start of ore production, and have been expensed since that time. The EMCP pit is expected to contribute between 20,000 and 30,000 ounces of gold production for each of the approximately five years remaining on the project.

2015:

 

65

---

Table of Contents

 

The following table summarizes the components of Cash Cost, After By-product Credits, per Gold Ounce:

 

		Year Ended December 31,												Year Ended December 31,
		2016				2015				2014				2017				2016				2015
Cash Cost, Before By-product Credits, per Gold Ounce		$	767.90			$	775.11			$	829.97			$	824			$	768			$	775
By-product credits per gold ounce			(3.92	)			(3.57	)			(3.62	)			(4	)			(4	)			(4	)
Cash Cost, After By-product Credits, per Gold Ounce		$	763.98			$	771.54			$	826.35			$	820			$	764			$	771

 

The chart below illustratesfollowing table summarizes the factors contributing to Cash Cost,components of AISC, After By-product Credits, Perper Gold Ounce for 2016, 2015 and 2014:Ounce:

 

		Years Ended December 31,
		2017				2016				2015
AISC, Before By-product Credits, per Gold Ounce		$	1,178			$	1,248			$	1,188
By-product credits per gold ounce			(4	)			(4	)			(4	)
AISC, After By-product Credits, per Gold Ounce		$	1,174			$	1,244			$	1,184

 

The decreaseincrease in Cash Cost, After By-product Credits, per Gold Ounce for 20162017 compared to 20152016 and 20142015 was primarily the result of higher gold production andstripping costs in the continued strengtheningfirst half of the U.S. dollar relative to the Canadian dollar,year, partially offset by the addition of EMCP pithigher gold production. AISC, After By-product Credits, per Gold Ounce was lower for 2017 compared to 2016 and 2015 due to lower capital spending and higher gold production, partially offset by increased stripping costs starting in the third quarterfirst half of 2016. Higher gold production impacted costs by approximately $96 per ounce and $100 per ounce in 2016 compared to 2015 and 2014, respectively. Foreign exchange differences impacted costs by approximately $26 per ounce and $137 per ounce in 2016 compared to 2015 and 2014, respectively.the year.

 

The difference between what we report as "production" and "payable metal quantities sold" is mainly attributable to inventory changes incidental to the timing of sales of refined metals and shipping schedules.

68

---

Table of Contents

 

We believe the identification of silver as a by-product credit is appropriate at Casa Berardi because of its lower economic value compared to gold and due to the fact that gold is the primary product we intend to produce there. In addition, we do not receive sufficient revenue from silver at Casa Berardi to warrant classification of such as a co-product. Because we consider silver to be a by-product of our gold production at Casa Berardi, the value of silver offsets operating costs within our calculations of Cash Cost, After By-product Credits, per Gold Ounce and AISC, After By-product Credits, per Gold Ounce.

 

 

66

---

Table of Contents

TheSan Sebastian Segment

 

		Years Ended December 31,
		2017				2016					2015 (1)
Sales		$	85,758			$	113,889			$	—
Cost of sales and other direct production costs			(21,007	)			(27,451	)			—
Depreciation, depletion and amortization			(2,693	)			(3,782	)			—
Cost of sales and other direct production costs and depreciation, depletion and amortization			(23,700	)			(31,233	)			—
Gross profit		$	62,058			$	82,656			$	—
Tons of ore milled			144,197				143,267				6,602
Production:
Silver (ounces)			3,257,738				4,294,123				81,677
Gold (ounces)			25,177				34,042				870
Payable metal quantities sold:
Silver (ounces)			3,216,750				4,285,788				—
Gold (ounces)			25,415				32,354				—
Ore grades:
Silver ounces per ton			23.91				31.94				13.70
Gold ounces per ton			0.185				0.254				0.148
Mining cost per ton		$	36.77			$	75.46			$	129.91
Milling cost per ton		$	67.52			$	69.12			$	44.76
Cash Cost, After By-product Credits, per Silver Ounce (2)		$	(3.36	)		$	(3.35	)		$	6.71
AISC, After By-product Credits, per Silver Ounce (2)		$	(0.26	)		$	(1.99	)		$	11.99

(1)

Ore was processed for 22 days in December 2015, with the first metal sales occurring in early 2016.

(2)

A reconciliation of these non-GAAP measures to cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, can be found below in Reconciliation of Cost of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP).

The decrease in gross profit in 2017 compared to 2016 was due to lower silver and gold production as a result of lower ore grades. The ore processed in the first half of 2016 had considerably higher grades than anticipated over the mine life. In the third quarter of 2015, we made the development decision to mine near surface, high grade portions of silver and gold deposits from shallow open pits at our San Sebastian unit in Mexico. We previously produced silver and gold from underground mines at San Sebastian from 2001 to 2005.pits. A Preliminary Economic Assessment was completed, and development of the pits and mine production commenced in the fourth quarter of 2015. Mill production started in December 2015 with the ore processed at a leased mill. The first sales did not occur until early 2016, and included production from December 2015.there was no gross profit reported for 2015 as a result.

 

		Years Ended December 31,
		2016					2015(1)
Sales		$	113,889			$	—
Cost of sales and other direct production costs			(27,451	)			—
Depreciation, depletion and amortization			(3,782	)			—
Cost of sales and other direct production costs and depreciation, depletion and amortization			(31,233	)			—
Gross profit		$	82,656			$	—
Tons of ore milled			143,267				6,602
Production:
Silver (ounces)			4,294,123				81,677
Gold (ounces)			34,042				870
Payable metal quantities sold:
Silver (ounces)			4,285,788				—
Gold (ounces)			32,354				—
Ore grades:
Silver ounces per ton			31.94				13.70
Gold ounces per ton			0.254				0.148
Mining cost per ton		$	75.46			$	129.91
Milling cost per ton		$	69.12			$	44.76
Cash Cost, After By-product Credits, per Silver Ounce(2)		$	(3.35	)		$	6.71

(1)

Ore was processed for 22 days in December 2015.

(2)

A reconciliation of this non-GAAP measure to cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, can be found below inReconciliation of Cost of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP).

69

---

Table of Contents

 

The ore processedProduction from the existing open pits ended in 2016 had considerably higher average grades than anticipated over the remaining mine life, which is currently expected to be approximately 24 months.

December 2017. In January 2017, we started development of a new underground portal and work to rehabilitate historic underground infrastructure which when completed, wouldshould allow us to mine deeper portions of the deposits at San Sebastian. We expect undergroundLimited ore production from underground began in January 2018, and we expect it to begin byramp-up to full production levels during the endfirst quarter of 2017.2018.

The following table summarizes the components of Cash Cost, After By-product Credits, per Silver Ounce:

		Year ended December 31,
		2016				2015
Cash Cost, Before By-product Credits, per Silver Ounce			6.59				18.07
By-product credits per silver ounce			(9.94	)			(11.36	)
Cash Cost, After By-product Credits, per Silver Ounce		$	(3.35	)		$	6.71

67

---

Table of Contents

 

The chart below illustrates the factors contributing to Cash Cost, After By-product Credits, Per Silver Ounce for the yearyears ended December 31, 2017 and 2016 and the 22 day period ended December 31, 2015:

 

The following table summarizes the components of Cash Cost, After By-product Credits, per Silver Ounce:

		Year ended December 31,
		2017				2016				2015
Cash Cost, Before By-product Credits, per Silver Ounce		$	6.35			$	6.59				18.07
By-product credits per silver ounce			(9.71	)			(9.94	)			(11.36	)
Cash Cost, After By-product Credits, per Silver Ounce		$	(3.36	)		$	(3.35	)		$	6.71

The following table summarizes the components of AISC, After By-product Credits, per Silver Ounce:

		Years Ended December 31,
		2017				2016				2015
AISC, Before By-product Credits, per Silver Ounce		$	9.45			$	7.95			$	23.35
By-product credits per silver ounce			(9.71	)			(9.94	)			(11.36	)
AISC, After By-product Credits, per Silver Ounce		$	(0.26	)		$	(1.99	)		$	11.99

The decrease in Cash Cost, After By-product Credits, per Silver Ounce in 2017 and 2016 compared to 2015 is due to higher silver production and lower mining costs as a result of reduced mining of waste material. The same factors, partially offset by higher exploration and sustaining capital spending, resulted in lower AISC, After By-product Credits, per Silver Ounce in 2017 and 2016 compared to 2015. The increase in AISC, After By-product Credits, per Silver Ounce in 2017 compared to 2016 was due to higher exploration and sustaining capital costs.

 

The difference between what we report as "production" and "payable metal quantities sold" is mainly attributable to inventory changes incidental to the timing of sales of refined metals and shipping schedules.

70

---

Table of Contents

 

We believe the identification of gold as a by-product credit is appropriate at San Sebastian because of its anticipated lower economic value compared to silver over the life of the mine. In addition, we willdo not receive sufficient revenue from gold at San Sebastian to warrant classification of such as a co-product. We periodically review our revenues to ensure that reporting of primary products and by-products is appropriate. Because we consider gold to be a by-product of our silver production at San Sebastian, the value of gold offsets operating costs within our calculations of Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce. In addition to the impact of the by-product credits from gold, because the orebody mined at San Sebastian ishas been near surface and has had higher precious metal grades, it has lower Cash Cost, Before By-product Credits, per Silver Ounce and AISC, Before By-product Credits, per Silver Ounce than our other silver mines, which also contributes to lower Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce.

 

CorporateMatters

 

Employee Benefit Plans

 

Our defined benefit pension plans while affordingprovide a significant benefit to our employees, alsobut represent a significant liability.liability to us.  During 2016,2017, the funded status of our plans changed from a liability of $46.9$44.9 million at the first of the year to a liability of $44.9$47.1 million at the end of the year. The decreasedincreased liability was attributable to service costs, interest costs, amortization of actuarial losses, and the impact of a plan amendment to add new participants that, collectively, exceeded returns on plan assets and our contributions that, collectively, exceeded service costs, interest costs, and amortization of actuarial losses.to the plans.  We contributed approximately $2.6 million in shares of our common stock andmade cash contributions to our defined benefit plans in February 2016, and $6.1of approximately $1.2 million in shares of our common stockApril 2017 and $5.7 million in July 2016,2017, with no additional contributions made in 2016.2017.  We expect to contribute a total of $4.0$3.8 million in shares of our common stock and cash to our defined benefit plans in 2017.2018.  See Note 8 of Notes to Consolidated Financial Statements for more information.  While the economic variables which will determine future cash requirements are uncertain, we expect contributions to increase in future years under current plan provisions, and we periodically examine the plans for affordability and competitiveness.

 

Income Taxes

 

Each reporting period we assess our deferred tax assets utilizing long-range forecasts to provide reasonable assurance that they will be realized through future earnings. We continue to haverecognized a full valuation allowance on our U.S. net deferred tax assetassets in 2017 as a result of tax law changes enacted at the U.S. andend of 2017, as discussed further below. We continue to recognize a net deferred tax liability in Canada. Our net deferred tax asset in Mexico was fully utilizedpartially recognized in 2016.2017.

 

Our U.S. net deferred tax assetliability at December 31, 20162017 totaled $35.8$0.3 million, or 2% of total assets, a decrease of $7.1$36.1 million from the $42.9$35.8 million net deferred tax asset at December 31, 2015. The largest component of the deferred tax asset is net operating loss carryforwards. The next largest component is deferred foreign exchange losses.2016. In 2015, we determined that we arewere indefinite Alternative Minimum taxpayers, resulting in additional valuation allowance primarily related to forecasted utilization of regular net operating loss carryforwards and the effect of reducing the carrying value of the net temporary deferred tax assets measured at 35% to a net realizable tax rate of 20%. DuringOn December 22, 2017, the United States enacted tax reform legislation known as the H.R. 1, commonly referred to as the “Tax Cuts and Jobs Act” (the “Act”), resulting in significant modifications to existing law. Among other changes, the Act repealed corporate Alternative Minimum tax ("AMT"). As a result, release of the valuation allowance on our deferred tax assets related to AMT was recognized in the fourth quarter of 2016, we determined that we are eligible2017. However, due to take a different income tax positionthe change relating to the timingU.S. taxation of deductions for #4 Shaft development costs at Lucky Friday. We filed withforeign earnings under the Internal Revenue Service ("IRS")Act, we determined it is more likely than not that we will not realize our U.S. net deferred tax assets. Accordingly, we have applied a request for approval to use this method and we believe the request will be approved during 2017, but we cannot be assured that it will. The change would result in additional deductions of approximately $188 million and $95 million for regular tax and AMT, respectively. We would reflect the effect of these changes to taxes payable and deferred taxes during the period in which the request is approved.full valuation allowance. At December 31, 2016,2017, we retained a valuation allowance on U.S. deferred tax assets of $96.1$75.5 million, primarily for net operating loss carryforwards.

68

---

Table of Contents

 

Our net Canadian deferred tax liability at December 31, 20162017 was $122.9$121.5 million, an increasea decrease of $2.6$1.4 million from the $120.3$122.9 million net deferred tax liability at December 31, 2015.2016. The deferred tax liability is the result of the acquisition of Aurizon completed on June 1, 2013 and is primarily related to the excess of the fair marketcarrying value of the mineral resource assets acquired over the tax bases of those assets for Canadian tax reporting, with the majority of that value allocated to mineral resources and reserves.reporting.

 

Our net Mexican deferred tax asset at December 31, 2016 was zero, a decrease of $11.7 million from the balance at December 31, 2015. The decrease resulted from San Sebastian having sufficient income in 2016 to utilize its net operating loss carryforwards. During the fourth quarter of 2016,2017, we filed withreleased the IRS a request for approval to change ourremaining valuation allowance against deferred tax treatment of exploration expenditures incurredassets in Mexico, except for purposesthe portion related to reclamation deferred tax assets. This resulted in a valuation allowance decrease and a deferred tax benefit of calculating earnings and profits. We believe the request will be approved during 2017, but we cannot be assured that it will. The change would increase the cumulative earnings and profits balance by approximately $55$1.8 million. We would reflect the effect of this change, if any, during the period in which the request is approved. A $3.5$3.2 million valuation allowance remains on deferred tax assets in foreign jurisdictions.

 

71

---

Table of Contents

As discussed inNote 5 of Notes to Consolidated Financial Statements, our effective tax rate for 20162017 was 28%negative 546% compared to negative 184%28% for 2015.2016. The change in effective tax rate for 20162017 was primarily the result of the change in the valuation allowances described above, the remeasurement of deferred tax assets and liabilities from 35% to 21%, the impact of AMT credits becoming refundable under the Act,  the U.S. deduction for percentage depletion, and the impact of taxation in foreign jurisdictions, the impacts of which were amplified in 2015 by relatively low worldwide pre-tax book income.jurisdictions. We are subject to income taxes in the United States and other foreign jurisdictions. The overall effective tax rate will continue to be dependent upon the geographic distribution of our earnings in different jurisdictions, the U.S. deduction for percentage depletion, and fluctuation in foreign currency exchange rates. As a result, the 20172018 effective tax rate could vary significantly from that of 2016.2017.

 

For the year 2017, we recorded a withholding tax liability of $0.3 million on unremitted earnings from Minera Hecla S.A. de C.V. For the years 2016 2015 and 2014,2015, we had no unremitted foreign earnings. SeeNote 5 of Notes to Consolidated Financial Statementsfor more information.

 

Reconciliationof Cost of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP)

The tables below present reconciliations between the most comparable GAAP measure of cost of sales and other direct production costs and depreciation, depletion and amortization andto the non-GAAP measures of (i) Cash Cost, Before By-product Credits, and(ii) Cash Cost, After By-product Credits, (iii) AISC, Before By-product Credits and (iv) AISC, After By-product Credits for our operations at the Greens Creek, Lucky Friday, San Sebastian and Casa Berardi units and for the Company for the years ended December 31, 2017, 2016 2015 and 2014. With commercial production beginning in late 2015, the San Sebastian unit's information is not applicable for 2014.2015.

 

Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce are measures developed by precious metals companies (including the Silver Institute and/or the World Gold Council) in an effort to provide a uniform standard for comparison purposes. There can be no assurance, however, that these non-GAAP measures as we report them are the same as those reported by other mining companies.

Cash Cost, After By-product Credits, per Ounce is an important operating statistic that we utilize to measure each mine's operating performance. ItWe have recently started reporting AISC, After By-product Credits, per Ounce which we use as a measure of our mines' net cash flow after costs for exploration, pre-development, reclamation, and sustaining capital. This is similar to the Cash Cost, After By-product Credits, per Ounce non-GAAP measure we report, but also allowsincludes on-site exploration, reclamation, and sustaining capital costs. Current GAAP measures used in the mining industry, such as cost of goods sold, do not capture all the expenditures incurred to discover, develop and sustain silver and gold production. Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce also allow us to benchmark the performance of each of our mines versus those of our competitors. As a primary silver mining company, we also use the statisticthese statistics on an aggregate basis - aggregating the Greens Creek, Lucky Friday and San Sebastian mines but not Casa Berardi, which is a primary gold mine - to compare our performance with that of other primary silver mining companies. With regard to Casa Berardi, we use Cash Cost, After By-product Credits, per Gold Ounce and AISC, After By-product Credits, per Gold Ounce to compare its performance with other gold mines. Similarly, the statistic isthese statistics are useful in identifying acquisition and investment opportunities as it providesthey provide a common tool for measuring the financial performance of other mines with varying geologic, metallurgical and operating characteristics.

 

69

---

Table of Contents

Cash Cost, Before By-product Credits includesand AISC, Before By-product Credits include all direct and indirect operating cash costs related directly to the physical activities of producing metals, including mining, processing and other plant costs, third-party refining expense, on-site general and administrative costs, royalties and mining production taxes. AISC, Before By-product Credits for each mine also includes on-site exploration, reclamation, and sustaining capital costs. AISC, Before By-product Credits for our consolidated silver properties also includes corporate costs for general and administrative expense, exploration and sustaining capital projects. By-product credits include revenues earned from all metals other than the primary metal produced at each unit. As depicted in the tables below, by-product credits comprise an essential element of our silver unit cost structure, distinguishing our silver operations due to the polymetallic nature of their orebodies.

72

---

Table of Contents

In addition to the uses described above, Cash Cost, After By-product Credits, per Ounce providesand AISC, After By-product Credits, per Ounce provide management and investors an indication of operating cash flow, after consideration of the average price received from production. ManagementWe also uses this measurementuse these measurements for the comparative monitoring of performance of our mining operations period-to-period from a cash flow perspective.

The Casa Berardi information below reports Cash Cost, After By-product Credits, per Gold Ounce is a measure developed by precious metals companies (including the Silver Institute) in an effort to provide a uniform standard for comparison purposes. There can be no assurance, however, that our reporting of this non-GAAP measure is the same as that reported by other mining companies.

The Casa Berardi section below reports Cash Cost,and AISC, After By-product Credits, per Gold Ounce for the production of gold, its primary product, and by-product revenues earned from silver, which is a by-product at Casa Berardi. Only costs and ounces produced relating to units with the same primary product are combined to represent Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce. Thus, the gold produced at our Casa Berardi unit is not included as a by-product credit when calculating CashCost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce for the total of Greens Creek, Lucky Friday and San Sebastian, our combined silver properties. Similarly, the silver produced at our other three units is not included as a by-product credit when calculating the gold metrics for Casa Berardi.

 

As depicted in the Greens Creek Unit, the Lucky Friday Unit, and the San Sebastian Unit tables below, by-product credits comprise an essential element of our silver unit cost structure distinguishing our silver operations due to the polymetallic nature of their orebodies. By-product credits included in our presentation of Cash Cost, After By-product Credits, per Silver Ounce include:

		Total, Greens Creek, Lucky Friday and San Sebastian Units
In thousands (except per ounce amounts)		Year ended December 31,
		2016				2015				2014
By-product value, all silver properties:
Zinc		$	92,277			$	87,383			$	95,701
Gold			99,905				59,019				61,871
Lead			62,989				55,955				66,082
Total by-product credits		$	255,171			$	202,357			$	223,654
By-product credits per silver ounce, all silver properties
Zinc		$	5.38			$	7.56			$	8.65
Gold			5.83				5.10				5.59
Lead			3.67				4.84				5.97
Total by-product credits		$	14.88			$	17.50			$	20.21

By-product credits included in our presentation of Cash Cost, After By-product Credits, per Gold Ounce for our Casa Berardi Unit include:

		Casa Berardi Unit(3)
In thousands (except per ounce amounts)		Year ended December 31,
		2016				2015				2014
Silver by-product value		$	572			$	457			$	464
Silver by-product credits per gold ounce		$	3.92			$	3.57			$	3.62

In thousands (except per ounce amounts)		Year Ended December 31, 2017
		Greens Creek				Lucky Friday(2)				San Sebastian				Corporate(3)				Total Silver				Casa Berardi (Gold)				Total
Cost of sales and other direct production costs and depreciation, depletion and amortization		$	201,803			$	15,107			$	23,700							$	240,610			$	180,179			$	420,789
Depreciation, depletion and amortization			(56,328	)			(2,447	)			(2,693	)							(61,468	)			(54,594	)			(116,062	)
Treatment costs			47,774				4,759				1,185								53,718				2,432				56,150
Change in product inventory			(2,247	)			1,853				(55	)							(449	)			1,466				1,017
Reclamation and other costs			(2,716	)			(115	)			(1,467	)							(4,298	)			(476	)			(4,774	)
Cash Cost, Before By-product Credits (1)			188,286				19,157				20,670								228,113				129,007				357,120
Reclamation and other costs			2,666				217				468								3,351				475				3,826
Exploration			4,265				(1	)			6,879				1,825				12,968				4,351				17,319
Sustaining capital			35,255				5,377				2,770				2,716				46,118				50,664				96,782
General and administrative															35,611				35,611								35,611
AISC, Before By-product Credits (1)			230,472				24,750				30,787								326,161				184,497				510,658
By-product credits:
Zinc			(96,950	)			(4,914	)											(101,864	)							(101,864	)
Gold			(55,694	)							(31,625	)							(87,319	)							(87,319	)
Lead			(29,717	)			(9,367	)											(39,084	)							(39,084	)
Silver																							(614	)			(614	)
Total By-product credits			(182,361	)			(14,281	)			(31,625	)							(228,267	)			(614	)			(228,881	)
Cash Cost, After By-product Credits		$	5,925			$	4,876			$	(10,955	)						$	(154	)		$	128,393			$	128,239
AISC, After By-product Credits		$	48,111			$	10,469			$	(838	)						$	97,894			$	183,883			$	281,777
Divided by ounces produced			8,352				839				3,258								12,449				157
Cash Cost, Before By-product Credits, per Ounce		$	22.54			$	22.83			$	6.35							$	18.33			$	823.52
By-product credits per ounce			(21.83	)			(17.02	)			(9.71	)							(18.34	)			(3.92	)
Cash Cost, After By-product Credits, per Ounce		$	0.71			$	5.81			$	(3.36	)						$	(0.01	)		$	819.60
AISC, Before By-product Credits, per Ounce		$	27.59			$	29.50			$	9.45							$	26.20			$	1,177.74
By-product credits per ounce			(21.83	)			(17.02	)			(9.71	)							(18.34	)			(3.92	)
AISC, After By-product Credits, per Ounce		$	5.76			$	12.48			$	(0.26	)						$	7.86			$	1,173.82

 

7073

---

Table of Contents

 

Cost of sales and other direct production costs and depreciation, depletion and amortization is the most comparable financial measure calculated in accordance with GAAP to Cash Cost, After By-product Credits.  The sum of the cost of sales and other direct production costs and depreciation, depletion and amortization for our operating units in the tables below is presented in ourConsolidated Statement of Operations and Comprehensive Income (Loss).

In thousands (except per ounce amounts)		Total, Greens Creek, Lucky Friday and San Sebastian Units
		Year ended December 31,
		2016				2015				2014
Cost of sales and other direct production costs and depreciation, depletion and amortization (GAAP)		$	298,740			$	260,498			$	267,536
Depreciation, depletion and amortization			(68,156	)			(67,815	)			(72,936	)
Treatment costs			84,535				80,239				82,639
Change in product inventory			(1,429	)			(1,632	)			1,649
Reclamation and other costs			(5,406	)			(1,319	)			(2,046	)
Cash Cost, Before By-product Credits(1)			308,284				269,971				276,842
By-product credits			(255,171	)			(202,357	)			(223,654	)
Cash Cost, After By-product Credits		$	53,113			$	67,614			$	53,188
Divided by silver ounces produced			17,144				11,562				11,065
Cash Cost, Before By-product Credits, per Silver Ounce		$	17.98			$	23.35			$	25.02
By-product credits per silver ounce		$	(14.88	)		$	(17.50	)		$	(20.21	)
Cash Cost, After By-product Credits, per Silver Ounce		$	3.10			$	5.85			$	4.81

		Greens Creek Unit
In thousands (except per ounce amounts)		Year ended December 31,
		2016				2015				2014
Cost of sales and other direct production costs and depreciation, depletion and amortization (GAAP)		$	191,297			$	195,276			$	199,682
Depreciation, depletion and amortization			(52,564	)			(56,553	)			(63,505	)
Treatment costs			62,754				63,284				63,313
Change in product inventory			(1,866	)			(4,222	)			1,706
Reclamation and other costs			(2,327	)			(1,342	)			(1,949	)
Cash Cost, Before by-Product Credits(1)			197,294				196,443				199,247
By-product credits			(161,782	)			(163,394	)			(176,650	)
Cash Cost, After By-product Credits		$	35,512			$	33,049			$	22,597
Divided by silver ounces produced			9,254				8,452				7,826
Cash Cost, Before By-product Credits, per Silver Ounce		$	21.32			$	23.24			$	25.46
By-product credits per silver ounce		$	(17.48	)		$	(19.33	)		$	(22.57	)
Cash Cost, After By-product Credits, per Silver Ounce		$	3.84			$	3.91			$	2.89

In thousands (except per ounce amounts)		Year Ended December 31, 2016
		Greens Creek				Lucky Friday				San Sebastian				Corporate(3)				Total Silver				Casa Berardi (Gold)				Total
Cost of sales and other direct production costs and depreciation, depletion and amortization		$	191,297			$	76,210			$	31,233							$	298,740			$	155,711			$	454,451
Depreciation, depletion and amortization			(53,222	)			(11,810	)			(3,782	)							(68,814	)			(47,312	)			(116,126	)
Treatment costs			62,754				20,277				1,504								84,535				1,264				85,799
Change in product inventory			(1,208	)			(1,162	)			1,599								(771	)			2,890				2,119
Reclamation and other costs			(2,327	)			(822	)			(2,257	)							(5,406	)			(459	)			(5,865	)
Cash Cost, Before By-product Credits (1)			197,294				82,693				28,297								308,284				112,094				420,378
Reclamation and other costs			2,716				720				244								3,680				458				4,138
Exploration			1,892				76				4,043				1,658				7,669				3,331				11,000
Sustaining capital			47,046				41,536				1,540				593				90,715				66,326				157,041
General and administrative															45,040				45,040								45,040
AISC, Before By-product Credits (1)			248,948				125,025				34,124								455,388				182,209				637,597
By-product credits:
Zinc			(76,710	)			(15,567	)											(92,277	)							(92,277	)
Gold			(57,238	)							(42,667	)							(99,905	)							(99,905	)
Lead			(27,833	)			(35,156	)											(62,989	)							(62,989	)
Silver																							(572	)			(572	)
Total By-product credits			(161,781	)			(50,723	)			(42,667	)							(255,171	)			(572	)			(255,743	)
Cash Cost, After By-product Credits		$	35,513			$	31,970			$	(14,370	)						$	53,113			$	111,522			$	164,635
AISC, After By-product Credits		$	87,167			$	74,302			$	(8,543	)						$	200,217			$	181,637			$	381,854
Divided by ounces produced			9,254				3,596				4,294								17,144				146
Cash Cost, Before By-product Credits, per Ounce		$	21.32			$	23.00			$	6.59							$	17.98			$	767.90
By-product credits per ounce			(17.48	)			(14.11	)			(9.94	)							(14.88	)			(3.92	)
Cash Cost, After By-product Credits, per Ounce		$	3.84			$	8.89			$	(3.35	)						$	3.10			$	763.98
AISC, Before By-product Credits, per Ounce		$	26.90			$	34.77			$	7.95							$	26.56			$	1,248.22
By-product credits per ounce			(17.48	)			(14.11	)			(9.94	)							(14.88	)			(3.92	)
AISC, After By-product Credits, per Ounce		$	9.42			$	20.66			$	(1.99	)						$	11.68			$	1,244.30

 

7174

---

Table of Contents

 

		Lucky Friday Unit
In thousands (except per ounce amounts)		Year ended December 31,
		2016				2015				2014
Cost of sales and other direct production costs and depreciation, depletion and amortization (GAAP)		$	76,210			$	65,222			$	67,854
Depreciation, depletion and amortization			(11,810	)			(11,262	)			(9,431	)
Treatment costs			20,277				16,915				19,326
Change in product inventory			(1,162	)			1,154				(57	)
Reclamation and other costs			(822	)			23				(97	)
Cash Cost, Before By-product Credits(1)			82,693				72,052				77,595
By-product credits			(50,722	)			(38,035	)			(47,004	)
Cash Cost, After By-product Credits		$	31,971			$	34,017			$	30,591
Divided by silver ounces produced			3,596				3,028				3,239
Cash Cost, Before By-product Credits, per Silver Ounce		$	23.00			$	23.79			$	23.95
By-product credits per silver ounce		$	(14.11	)		$	(12.56	)		$	(14.51	)
Cash Cost, After By-product Credits, per Silver Ounce		$	8.89			$	11.23			$	9.44

In thousands (except per ounce amounts)		Year Ended December 31, 2015
		Greens Creek				Lucky Friday				San Sebastian				Corporate(3)				Total Silver				Casa Berardi (Gold)				Total
Cost of sales and other direct production costs and depreciation, depletion and amortization		$	195,276			$	65,222			$	—							$	260,498			$	144,558			$	405,056
Depreciation, depletion and amortization			(57,742	)			(11,262	)			—								(69,004	)			(43,674	)			(112,678	)
Treatment costs			63,284				16,915				40								80,239				670				80,909
Change in product inventory			(3,033	)			1,154				1,436								(443	)			(1,970	)			(2,413	)
Reclamation and other costs			(1,342	)			23				—								(1,319	)			(455	)			(1,774	)
Cash Cost, Before By-product Credits (1)			196,443				72,052				1,476								269,971				99,129				369,100
Reclamation and other costs			2,570				72				—								2,642				454				3,096
Exploration			3,576				—				(17	)			1,669				5,228				3,435				8,663
Sustaining capital			45,962				60,021				448				348				106,779				48,857				155,636
General and administrative															34,201				34,201								34,201
AISC, Before By-product Credits (1)			248,551				132,145				1,907								418,821				151,875				570,696
By-product credits:
Zinc			(77,211	)			(10,172	)											(87,383	)							(87,383	)
Gold			(58,091	)							(928	)							(59,019	)							(59,019	)
Lead			(28,092	)			(27,863	)											(55,955	)							(55,955	)
Silver																							(457	)			(457	)
Total By-product credits			(163,394	)			(38,035	)			(928	)							(202,357	)			(457	)			(202,814	)
Cash Cost, After By-product Credits		$	33,049			$	34,017			$	548							$	67,614			$	98,672			$	166,286
AISC, After By-product Credits		$	85,157			$	94,110			$	979							$	216,464			$	151,418			$	367,882
Divided by ounces produced			8,452				3,028				82								11,562				128
Cash Cost, Before By-product Credits, per Ounce		$	23.24			$	23.79			$	18.07							$	23.35			$	775.11
By-product credits per ounce			(19.33	)			(12.56	)			(11.36	)							(17.50	)			(3.57	)
Cash Cost, After By-product Credits, per Ounce		$	3.91			$	11.23			$	6.71							$	5.85			$	771.54
AISC, Before By-product Credits, per Ounce		$	29.41			$	43.64			$	23.35							$	36.22			$	1,187.53
By-product credits per ounce			(19.33	)			(12.56	)			(11.36	)							(17.50	)			(3.57	)
AISC, After By-product Credits, per Ounce		$	10.08			$	31.08			$	11.99							$	18.72			$	1,183.96

 

		San Sebastian Unit(2)
In thousands (except per ounce amounts)		Year ended December 31,
		2016				2015				2014
Cost of sales and other direct production costs and depreciation, depletion and amortization (GAAP)		$	31,233			$	—			$	—
Depreciation, depletion and amortization			(3,782	)			—				—
Treatment costs			1,504				40				—
Change in product inventory			1,599				1,436				—
Reclamation and other costs			(2,257	)			—				—
Cash Cost, Before By-product Credits(1)			28,297				1,476				—
By-product credits			(42,667	)			(928	)			—
Cash Cost, After By-product Credits		$	(14,370	)		$	548			$	—
Divided by silver ounces produced			4,294				82				—
Cash Cost, Before By-product Credits, per Silver Ounce		$	6.59			$	18.07			$	—
By-product credits per silver ounce		$	(9.94	)		$	(11.36	)		$	—
Cash Cost, After By-product Credits, per Silver Ounce		$	(3.35	)		$	6.71			$	—

72

---

Table of Contents

		Casa Berardi Unit
In thousands (except ounce and per ounce amounts)		Year ended December 31,
		2016				2015				2014
Cost of sales and other direct production costs and depreciation, depletion and amortization (GAAP)		$	155,711			$	144,558			$	148,043
Depreciation, depletion and amortization			(47,312	)			(43,674	)			(38,198	)
Treatment costs			1,264				670				564
Change in product inventory			2,890				(1,970	)			(3,151	)
Reclamation and other costs			(459	)			(455	)			(820	)
Cash Cost, Before By-product Credits (1)			112,094				99,129				106,438
By-product credits			(572	)			(457	)			(464	)
Cash Cost, After by-product credits		$	111,522			$	98,672			$	105,974
Divided by gold ounces produced			145,975				127,891				128,244
Cash Cost, Before By-product Credits, per Gold Ounce		$	767.90			$	775.11			$	829.97
By-product credits per gold ounce		$	(3.92	)		$	(3.57	)		$	(3.62	)
Cash Cost, After By-product Credits, per Gold Ounce		$	763.98			$	771.54			$	826.35

		Total, All Locations
In thousands		Year ended December 31,
		2016				2015				2014
Reconciliation to GAAP:
Cost of sales and other direct production costs and depreciation, depletion and amortization (GAAP)		$	454,451			$	405,056			$	415,580
Depreciation, depletion and amortization			(115,468	)			(111,489	)			(111,134	)
Treatment costs			85,799				80,909				83,203
By-product credits			(255,743	)			(202,814	)			(224,118	)
Change in product inventory			1,461				(3,602	)			(1,502	)
Reclamation and other costs			(5,865	)			(1,774	)			(2,867	)
Cash Cost, After By-product Credits		$	164,635			$	166,286			$	159,162

(1)

Includes all direct and indirect operating costs related directly to the physical activities of producing metals, including mining, processing and other plant costs, third-party refining and marketing expense, on-site general and administrative costs, royalties and mining production taxes, afterbefore by-product revenues earned from all metals other than the primary metal produced at each unit. AISC, Before By-product Credits also includes on-site exploration, reclamation, and sustaining capital costs.

 

(2)

CommercialThe unionized employees at Lucky Friday have been on strike since March 13, 2017, and production began at Lucky Friday has been limited since that time. For 2017, costs related to suspension of full production totaling approximately $17.1 million, along with $4.2 million in non-cash depreciation expense for that period, have been excluded from the San Sebastian unit in the fourth quartercalculations of 2015. SeeThe San Sebastian Unitfor more information on the property.cost of sales and other direct production costs and depreciation, depletion and amortization, Cash Cost, Before By-product Credits, Cash Cost, After By-product Credits, AISC, Before By-product Credits, and AISC, After By-product Credits.

 

(3)	AISC, Before By-product Credits for our consolidated silver properties includes corporate costs for general and administrative expense, exploration and sustaining capital.

 

7375

---

Table of Contents

 

Reconciliationof Net Income (Loss) (GAAP) to Earnings Before Interest, Taxes, Depreciation, and Amortization (non-GAAP)

 

The non-GAAP measure of earnings before interest, taxes, depreciation, and amortization ("EBITDA") is calculated as net income (loss) before the following items: interest expense, income tax provision (benefit), and depreciation, depletion, and amortization expense. Management believes that, when presented in conjunction with comparable GAAP measures, EBITDA is useful to investors in evaluating our operating performance. The table below presents reconciliations between the non-GAAP measure EBITDA to the GAAP measure of net income (loss) for the years ended December 31, 2017, 2016, 2015, 2014, 2013, and 20122013 (in thousands).

 

		Year ended December 31,																				Year ended December 31,
		2016				2015				2014				2013				2012				2017				2016				2015				2014				2013
Net income (loss) (GAAP)		$	69,547			$	(86,968	)		$	17,824			$	(25,130	)		$	14,954			$	(23,519	)		$	69,547			$	(86,968	)		$	17,824			$	(25,130	)
Interest expense, net of amount capitalized(1)			21,796				25,389				26,775				21,689				2,427				38,012				21,796				25,389				26,775				21,689
Income tax provision (benefit)			27,428				56,310				(5,240	)			(9,795	)			8,879				19,879				27,428				56,310				(5,240	)			(9,795	)
Depreciation, depletion, and amortization			117,413				112,585				112,173				82,366				50,113				121,930				117,413				112,585				112,173				82,366
EBITDA		$	236,184			$	107,316			$	151,532			$	69,130			$	76,373			$	156,302			$	236,184			$	107,316			$	151,532			$	69,130

 

(1)

On April 12, 2013, we completed an offering of $500 million in aggregate principal amount of our Senior Notes due May 1, 2021, and issued additional Senior Notes in 2014 to fund one of our defined benefit pension plans. SeeNote 6of Notes to Consolidated Financial Statementsfor more information. The Senior Notes bear interest at a rate of 6.875% per year from the date of original issuance or from the most recent payment date to which interest has been paid or provided for. Interest on the Senior Notes is payable on May 1 and November 1 of each year, commencing November 1, 2013.

 

 

FinancialLiquidity and Capital Resources

 

Our liquid assets include (in millions):

 

		December 31, 2016				December 31, 2015				December 31, 2014				December 31, 2017				December 31, 2016				December 31, 2015
Cash and cash equivalents held in U.S. dollars		$	156.1			$	137.0			$	180.9			$	168.0			$	156.1			$	137.0
Cash and cash equivalents held in foreign currency			13.7				18.2				28.8				18.1				13.7				18.2
Total cash and cash equivalents			169.8				155.2				209.7				186.1				169.8				155.2
Marketable debt securities, current			29.1				—				—				33.8				29.1				—
Marketable equity securities, non-current			5.0				1.5				4.9				7.6				5.0				1.5
Total cash, cash equivalents and investments		$	203.9			$	156.7			$	214.6			$	227.5			$	203.9			$	156.7

 

Cash and cash equivalents increased in 2016,2017, as discussed below. Cash and cash equivalents held in foreign currencies represents balances in Canadian dollars and Mexican pesos, with the $4.2$4.4 million decreaseincrease in 20162017 resulting primarily from a reductionincreases in Canadian dollarsboth currencies held. Current marketable debt securities increased by $29.1$4.7 million (discussed below), and the value of non-current marketable equity securities increased by $3.5$2.6 million (discussed inNote 2 ofNotes to Consolidated Financial Statements).

 

76

---

Table of Contents

As discussed inNote 6 ofNotes to Consolidated Financial Statements,on April 12, 2013, we completed an offering of Senior Notes in the total principal amount of US$500 million, which have a total principal balance of $506.5 million as of December 31, 20162017.The Senior Notes are due May 1, 2021 and bear interest at a rate of 6.875% per year from the most recent payment date to which interest has been paid or provided for.  Interest on the Senior Notes is payable on May 1 and November 1 of each year, commencing November 1, 2013, and we have made all interest payments payable to date.

 

In the third quarter of 2015, we made a development decision to mine near surface, high grade portions of the silver and gold deposits at our San Sebastian project in Mexico and commenced ore production at the end of 2015.  As a result, San Sebastian generated positive cash flows in 2016. In January 2017, we initiated work to develop and rehabilitate underground access which upon completion, wouldshould allow us to mine deeper portions of the deposits at San Sebastian. Limited underground ore production began in January 2018. We anticipate San Sebastian will continue to generate positive cash flows in 2017 and 2018.until early- or mid-2020.  However, our estimate of costs could change, and our ability to generate cash flow at San Sebastian could be impacted by changes in precious metals prices or other factors, and there can be no assurance that we will be able to develop and operate San Sebastian as anticipated.

 

74

---

TableAs further discussed in the Lucky Friday Segment section above, the union employees at Lucky Friday have been on strike since March 13, 2017. Production at Lucky Friday was suspended from the start of Contents

the strike until July 2017, with limited production resuming at that time. We cannot predict how long the strike will last or whether an agreement will be reached. We expect to incur cash expenditures of approximately $1.0 million to $1.5 million per month to advance engineering and infrastructure for the restart of full production, in addition to costs related to limited interim production. As a result of the strike or other related events, operations at Lucky Friday could continue to be disrupted, which could adversely affect our financial condition and results of operations.

 

As discussed inNote 9 ofNotes to Consolidated Financial Statements, in February 2016 we entered into an equity distribution agreement under which we may issue and sell shares of our common stock from time to time having an aggregate offering price of up to $75 million, with the net proceeds available for general corporate purposes. Whether or not we engage in sales from time to time may depend on a variety of factors, including share price, our cash resources, customary black-out restrictions, and whether we have any material inside information, and the agreement can be terminated by us at any time. As of December 31, 2016,2017, we had sold 2,780,0874,608,847 shares through the at-the-market program for net proceeds of $8.1$17.7 million, including 1,828,760 shares sold in 2017 for total proceeds of approximately $9.6 million. In July 2017, we used $5.7 million of the proceeds from shares sold in the second quarter of 2017 to fund contributions to our defined benefit pension plans.

 

Pursuant to our common stock dividend policy described inNote 9 ofNotes to Consolidated Financial Statements, our Board of Directors declared and paid dividends on common stock totaling $4.0 million in 2017, $3.9 million in 2016, and $3.7 million in 2015, and $3.5 million in 2014.2015. On February 21, 2017,14, 2018, our Board of Directors declared a dividend on common stock totaling $1.0 million payable in March 2017.2018. Our dividend policy has a silver-price-linked component which ties the amount of declared common stock dividends to our realized silver price for the preceding quarter. Another component of our common stock dividend policy anticipates paying an annual minimum dividend. The declaration and payment of dividends on common stock is at the sole discretion of our board of directors, and there can be no assurance that we will continue to declare and pay common stock dividends in the future.

 

On May 8, 2012, we announced that our board of directors approved a stock repurchase program.  Under the program, we are authorized to repurchase up to 20 million shares of our outstanding common stock from time to time in open market or privately negotiated transactions, depending on prevailing market conditions and other factors.  The repurchase program may be modified, suspended or discontinued by us at any time. Whether or not we engage in repurchases from time to time may depend on a variety of factors, including not only price and cash resources, but customary black-out restrictions, whether we have any material inside information, limitations on share repurchases or cash usage that may be imposed by our credit agreement or in connection with issuances of securities, alternative uses for cash, applicable law, and other investment opportunities from time to time.Astime. As of December 31, 2016,2017, 934,100 shares have been purchased in prior periods at an average price of $3.99 per share, leaving 19.1 million shares that may yet be purchased under the program. The closing price of our common stock at February 20, 2017,12, 2018, was $6.58$3.75 per share.

77

---

Table of Contents

 

We may defer some capital investment and/or exploration and pre-development activities, engage in asset sales or secure additional capital if necessary to maintain liquidity. We also may pursue additional acquisition opportunities, which could require additional equity issuances or other forms of financing. There can be no assurance that such financing will be available to us.

 

As a result of our current cash balances, the performance of our current and expected operations, current metals prices, proceeds from potential at-the-market sales of common stock, and full availability of approximately $97 million of our $100 million revolving credit facility, we believe our cash, cash equivalents, investments, projected cash from operations, and availability of financing, (including equity issuances), if needed, will be adequate to meet our obligations and other potential cash requirements during the next 12 months. Our obligations and other uses of cash may include, but are not limited to: debt service obligations related to the Senior Notes, capital expenditures at our operations, potential acquisitions of other mining companies or properties, regulatory matters, litigation, potential repurchases of our common stock under the program described above, and payment of dividends on common stock, if declared by our board of directors.  We currently estimate that a total of between $120$95 million and $125$105 million will be spent on capital expenditures, primarily for equipment, infrastructure, and development at our mines, in 2017.2018.  We also estimate that exploration and pre-development expenditures will total between $20$35 million and $25$42 million in 2017.2018. In addition, we expect research and development expenditures to total between $13 million and $18 million in 2018. However, capital, exploration, pre-development, and pre-developmentresearch and development expenditures may change based upon our financial position, metals prices, and other considerations. Our ability to fund the activities described above will depend on our operating performance, metals prices, our ability to estimate costs, sources of liquidity available to us, and other factors. A sustained downturn in metals prices or significant increase in operational or capital costs, other uses of cash, or other factors beyond our control could impact our plans.

 

		Year Ended December 31,
		2016				2015				2014
Cash provided by operating activities (in millions)		$	225.3			$	106.4			$	83.1

		Year Ended December 31,
		2017				2016				2015
Cash provided by operating activities (in millions)		$	115.9			$	225.3			$	106.4

 

75

---

TableCash provided by operating activities decreased by $109.4 million in 2017 compared to 2016. The decrease is due to income, adjusted for non-cash items, being lower by $96.8 million. The lower income is primarily due to lower gross profit generated at San Sebastian, Lucky Friday, and Casa Berardi (see the San Sebastian Segment, Lucky Friday Segment, and Casa Berardi Segment sections above for more information), suspension costs incurred at Lucky Friday as a result of Contents

the strike, and higher exploration, pre-development, and research and development spending. In addition, working capital and other operating asset and liability changes resulted in a net reduction in cash of $39.5 million in 2017 compared to an addition of $22.5 million in 2016. Significant variances in working capital changes between 2017 and 2016 resulted from settlement of the reclamation insurance policy for the Troy mine for cash proceeds of $16.0 million in 2016, payment of estimated income taxes in Mexico in 2017, lower incentive compensation accruals, and reduced accounts payable balances due to completion of #4 Shaft and the strike at Lucky Friday. These items were partially offset by net payments in 2016 totaling $9.9 million by CoCa Mines, Inc., our wholly-owned subsidiary, for settlement of response costs at the Gilt Edge and Nelson Tunnel/Commodore sites.

 

Cash provided by operating activities increased by $118.9 million in 2016 compared to 2015. The increase is due to income, adjusted for non-cash items, being higher by $106.0 million. The higher income is primarily due to gross profit generated at San Sebastian following commencement of production there in December 2015, improved metals production at Greens Creek, Lucky Friday, and Casa Berardi, and higher average metals prices. In addition, working capital and other operating asset and liability changes resulted in a net increase inaddition to cash flows of $22.5 million in 2016 compared to an increaseaddition of $9.6 million in 2015. Significant variances in working capital changes between 2016 and 2015 resulted from from settlement of the $16.0 million reclamation insurance policy for the Troy mine for cash proceeds of $16.0 millionsettlement and higher incentive compensation accruals.accruals in 2016. These variancesitems were partially offset by net payments totaling $9.9 million by CoCa Mines, Inc., our wholly-owned subsidiary, for settlement of response costs at the Gilt Edge and Nelson Tunnel/Commodore sites, higher accounts receivable and inventory balances, and lower accrued taxes.

 

		Year Ended December 31,
		2017				2016				2015
Cash used in investing activities (in millions)		$	95.4			$	198.7			$	138.6

Cash provided by operating activities increased by $23.3 million in 2015 compared to 2014. The increase in 2015 was due to working capital and other operating asset and liability changes that resulted in a net increase in cash flows

78

---

Table of $9.6 million in 2015 compared to a decrease in cash flows of $51.1 million in 2014. Significant variances in working capital changes between 2015 to 2014 included payments of approximately $55.4 million in the third quarter of 2014 to satisfy the remaining obligation under the Coeur d'Alene Basin environmental litigation settlement, primarily with proceeds from the exercise of warrants to purchase our common stock (seeNote 4 ofNotes to Consolidated Financial Statementsfor more information), and higher accounts payable balances due to increased capital spending at the end of 2015. These variances were partially offset by an increased portion of incentive compensation related to prior-period performance paid in cash in 2015 rather than stock, and higher accounts receivable balances due to the timing of sales. In addition, income, as adjusted for non-cash items, was lower by $37.4 million in 2015 compared to 2014 due primarily to lower metals prices.

		Year Ended December 31,
		2016				2015				2014
Cash used in investing activities (in millions)		$	198.7			$	138.6			$	118.4

Contents

 

Capital expenditures, excluding non-cash lease additions of $2.3$6.4 million, were $98.0 million in 2017, which was $66.8 million lower than capital expenditures in 2016. The decrease was primarily related to lower costs for (i) the #4 Shaft project, which was completed in January 2017, (ii) other activity at Lucky Friday as a result of the strike, (iii) construction of the tailings facility at Greens Creek, and (iv) development of the EMCP pit at Casa Berardi. We purchased marketable securities having a cost basis of $56.6 million and $48.9 million during 2017 and 2016, respectively, with all but $1.6 million and $0.9 million for those years related to purchases of bonds having maturities of greater than 90 days and less than 365 days. Bonds valued at $50.0 million and $18.6 million matured during 2017 and 2016, respectively. During 2017, we received $7.7 million in insurance proceeds related to the collapse of the mill building at the Troy mine in February 2017 due to snow. We reduced restricted cash by $1.2 million during 2017 as a result of replacing cash collateral for future reclamation costs with non-cash bonding.

We invested $164.8 million in 2016, which was $27.3 million higher than capital expenditures in 2016, excluding $2.3 million in non-cash capital lease additions, compared to $137.4 million, excluding $5.1 million in capital leases, in 2015. The increase was primarily related to higher costs at Casa Berardi for development of the new EMCP pit, a tailings dam raise project, underground development, and machinery and equipment. We purchased marketable securities having a cost basis of $48.9 million during 2016, with all but $0.9 million related to purchases of bonds having maturities of greater than 90 days and less than 365 days. Bonds valued at $18.6 million matured during 2016. We had a net cash outflow of $3.9 million for the purchase of Mines Management in 2016, and $0.8 million for the purchase of Revett in 2015.

We invested $137.4 million in capital expenditures in 2015, excluding $5.1 million in non-cash capital lease additions, compared to $122.5 million, excluding $9.5 million in capital leases, in 2014. The increase was primarily related to tailings facility expansion at Greens Creek, higher costs incurred for the #4 Shaft project at Lucky Friday, and open pit development and mill rehabilitation costs in support of start-up at San Sebastian, partially offset by the completion of the shaft deepening project at Casa Berardi in 2014. During 2014, restricted investments related to reclamation bonding at the Casa Berardi unit decreased by $4.3 million, with no change to our restricted cash balances during 2015. We purchased marketable equity securities having a cost basis of $0.9 million during both 2016 and $0.6 million during 2015 and 2014, respectively.2015.

 

		Year Ended December 31,
		2016				2015				2014
Cash provided by (used in) financing activities (in millions)		$	(12.0	)		$	(17.1	)		$	36.5

		Year Ended December 31,
		2017				2016				2015
Cash used in financing activities (in millions)		$	(5.2	)		$	(12.0	)		$	(17.1	)

 

WeIn 2017 and 2016, we received $54.4$9.6 million and $8.1 million, respectively, in net proceeds from the exercisesale of warrants during 2014, asour common stock under the equity distribution agreement discussed above. During 2017, 2016, 2015, and 2014,2015, we paid cash dividends on our common stock totaling $4.0 million, $3.9 million, $3.7 million, and $3.5$3.7 million, respectively. We also paid cash dividends of $0.6 million on our Series B preferred stock during each of those years. We made payments on our capital leases of $6.5 million, $8.4 million, and $10.0 million in 2017, 2016, and $9.1 million, in 2016, 2015, and 2014, respectively, and payments on debt of $0.5 million, $2.7 million and $0.9 million in 2017, 2016 and 2015, respectively. We also purchased shares of our common stock for $2.9 million, $4.4 million, and $1.9 million in 2017, 2016, and $3.7 million in 2016, 2015, and 2014, respectively, with $1.5 million of the amount in 2014 related to our stock repurchase program discussed above, and the remaining amounts for each year primarily related to the election by employees to satisfy tax withholding obligations for the vesting of restricted stock units through net share settlement.

 

7679

---

Table of Contents

 

ContractualObligations and Contingent Liabilities and Commitments

 

The table below presents our fixed, non-cancelable contractual obligations and commitments primarily related to our Senior Notes, outstanding purchase orders, certain capital expenditures, our credit facility, and lease arrangements as of December 31, 20162017 (in thousands):

 

		Payments Due By Period
		Less than 1 year				1-3 years				3-5 years				After 5 years				Total
Purchase obligations(1)		$	12,823			$	—			$	—			$	—			$	12,823
Commitment fees(2)			500				442				—				—				942
Contractual obligations(3)			355				—				—				—				355
Capital lease commitments(4)			6,000				5,752				295				—				12,047
Operating lease commitments(5)			4,571				3,442				1,646				634				10,293
Defined benefit pension plans(6)			3,986				—				—				—				3,986
Supplemental executive retirement plan(6)			420				957				1,223				4,389				6,989
Senior Notes(7)			34,822				69,644				552,929				—				657,395
Total contractual cash obligations		$	63,477			$	80,237			$	556,093			$	5,023			$	704,830

		Payments Due By Period
		Less than 1 year				1-3 years				3-5 years				After 5 years				Total
Purchase obligations (1)		$	12,706			$	—			$	—			$	—			$	12,706
Commitment fees (2)			500				817				—				—				1,317
Contractual obligations (3)			5,769				—				—				—				5,769
Capital lease commitments (4)			6,014				5,656				844				—				12,514
Operating lease commitments (5)			4,812				5,746				5,428				—				15,986
Defined benefit pension plans (6)			3,843				—				—				—				3,843
Supplemental executive retirement plan (6)			471				1,277				1,665				5,648				9,061
Senior Notes (7)			34,822				69,644				518,107				—				622,573
Total contractual cash obligations		$	68,937			$	83,140			$	526,044			$	5,648			$	683,769

 

(1)	Consist of open purchase orders of approximately $10.0$10.5 million at the Greens Creek unit, $0.7$0.2 million at the Lucky Friday unit and $2.1$2.0 million at the Casa Berardi unit.

 

(2)

We have a $100 million revolving credit agreement under which we are required to pay a standby fee of 0.5% per annum on undrawn amounts underamounts. With the revolvingexception of $2.6 million in letters of credit agreement. Thereoutstanding, there was no amount drawn under the revolving credit agreement as of December 31, 2016,2017, and the amounts above assume no amounts will be drawn during the agreement's term.  For more information on our credit facility, seeNote 6 ofNotes to Consolidated Financial Statements.

 

(3)	As of December 31, 2016,2017, we were committed to approximately $0.4$5.8 million in expenditures for various items.

 

(4)

Includes scheduled capital lease payments of $4.2$2.2 million, $3.2$3.3 million and $4.7$7.0 million (including interest), respectively, for equipment at our Greens Creek, Lucky Friday and Casa Berardi units.  These leases have fixed payment terms and contain bargain purchase options at the end of the lease periods.  SeeNote 6 ofNotes to Consolidated Financial Statements for more information.

 

(5)

We enter into operating leases in the normal course of business. Substantially all lease agreements have fixed payment terms based on the passage of time. Some lease agreements provide us with the option to renew the lease or purchase the leased property. Our future operating lease obligations would change if we exercised these renewal options and if we entered into additional operating lease arrangements.

 

(6)

We sponsor defined benefit pension plans covering substantially all U.S. employees and provide certain post-retirement benefits for qualifying retired employees, along with a supplemental executive retirement plan. These amounts represent our estimate of the future funding requirements for these plans.  We believe we will have funding requirements related to our defined benefit plans beyond one year; however, such obligations are not fixed in nature and are difficult to estimate, as they involve significant assumptions. SeeNote 8 ofNotes to Consolidated Financial Statements for more information.

 

(7)

On April 12, 2013, we completed an offering of $500 million in aggregate principal amount of our Senior Notes due May 1, 2021. SeeNote 6of Notes to Consolidated Financial Statementsfor more information. The Senior Notes bear interest at a rate of 6.875% per year from the date of original issuance or from the most recent payment date to which interest has been paid or provided for. Interest on the Senior Notes is payable on May 1 and November 1 of each year, commencing November 1, 2013, and we have made all interest payments payable to date. Since the initial offering, we have issued an additional $6.5 million in aggregate principal amount of the Senior Notes to fund obligations under our defined benefit pension plans. SeeNote 6 and Note 8 of Notes to Consolidated Financial Statementsfor more information.

 

7780

---

Table of Contents

 

We record liabilities for costs associated with mine closure, reclamation of land and other environmental matters.  At December 31, 2016,2017, our liabilities for these matters totaled $85.6$86.0 million.  Future expenditures related to closure, reclamation and environmental expenditures at our other sites are difficult to estimate, although we anticipate we will incur expenditures relating to these obligations over the next 30 years. For additional information relating to our environmental obligations, seeNote 4 ofNotes to Consolidated Financial StatementsandItem 1A. Risk Factors –Our environmental obligations may exceed the provisions we have made.

 

Off-BalanceOff-Balance Sheet Arrangements

 

At December 31, 2016,2017, we had no existing off-balance sheet arrangements, as defined under SEC regulations, that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that iswould be material to investors.

 

Critical Accounting Estimates

 

Our significant accounting policies are described inNote 1 ofNotes to Consolidated Financial StatementsStatements.. As described inNote 1, we are required to make estimates and assumptions that affect the reported amounts and related disclosures of assets, liabilities, revenue, and expenses. Our estimates are based on our experience and our interpretation of economic, political, regulatory, and other factors that affect our business prospects. Actual results may differ significantly from our estimates.

 

We believe that our most critical accounting estimates are related to future metals prices; obligations for environmental, reclamation, and closure matters; mineral reserves; and accounting for business combinations, as they require us to make assumptions that wereare highly uncertain at the time the accounting estimates wereare made and changes in them are reasonably likely to occur from period to period. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed the disclosures presented below. In addition, there are other items within our financial statements that require estimation, but are not deemed to be critical. However, changes in estimates used in these and other items could have a material impact on our financial statements.

 

Future Metals Prices

 

Metals prices are key components in estimates that determine the valuation of some of our significant assets and liabilities, including properties, plants and equipment, deferred tax assets, and certain accounts receivable. Metals prices are also an important component in the estimation of reserves.  As shown underabove in Item 1A. - Risk Factors1. – Business, metals prices have historically been volatile. Silver demand arises from investment demand, particularly in exchange-traded funds, industrial demand, and consumer demand. Gold demand arises primarily from investment and consumer demand.  Investment demand for silver and gold iscan be influenced by variousseveral factors, including:  the value of the U.S. Dollardollar and other currencies, changing U.S. budget deficits, widening availability of exchange-traded funds, interest rate levels, the health of credit markets, and inflationary expectations.  Uncertainty related to the change in presidencypolitical environment in the U.S., Britain's exit from the European Union and a global economic recovery, including recent uncertainty in China, could result in continued investment demand for precious metals.  Industrial demand for silver is closely linked to world Gross Domestic Product growth and industrial fabrication levels, as it is difficult to substitute for silver in industrial fabrication.  Consumer demand is driven significantly by demand for jewelry and other retail products. We believe that long-term industrial and economic trends, including urbanization and growth of the middle class in countries such as China and India, will result in continued consumer demand for silver and gold and industrial demand for silver.  However, China has recently experienced a lower rate of economic growth which is ongoing and could continue in the near term. There can be no assurance whether these trends will continue or how they will impact prices of the metals we produce. In the past, we have recorded impairments to our asset carrying value because of low prices, and we can offer no assurance that prices will either remain at their current levels or increase.

 

7881

---

Table of Contents

 

Processes supporting valuation of our assets and liabilities that are most significantly affected by prices include analysis of asset carrying values, depreciation, reserves, and deferred income taxes. On at least an annual basis - and more frequently if circumstances warrant - we examine our depreciation rates, reserve estimates, and the valuation allowances on our deferred tax assets. We examine the carrying values of our assets as changes in facts and circumstances warrant.  In our evaluation of carrying values and deferred taxes, we apply several pricing views to our forecasting model, including current prices, analyst price estimates, forward-curve prices, and historical prices (seeMineral Reserves, below, regarding prices used for reserve estimates). Using applicable accounting guidance and our view of metals markets, we use the probability-weighted average of the various methods to determine whether the values of our assets are fairly stated, and to determine the level of valuation allowances, if any, on our deferred tax assets.  In addition, estimates of future metals prices are used in the valuation of certain assets in the determination of the purchase price allocations for our acquisitions (seeBusiness Combinations below).

 

Sales of concentrates sold directly to customers are recorded as revenues when title and risk of loss transfer to the customer (generally at the time of shipment) atusing estimated forward metals prices for the estimated month of settlement. Due to the time elapsed between the time of shipment of concentrates to the customer and final settlement with the customer, we must estimate the prices at which sales of our metals will be settled. Previously recorded sales and trade accounts receivable are adjusted to estimated settlement metals prices until final settlement by the customer. Changes in metals prices between shipment and final settlement result in changes to revenues and accounts receivable previously recorded upon shipment.  As a result, our trade accounts receivable balances related to concentrate sales are subject to changes in metals prices until final settlement occurs.  For more information, see part N. Revenue Recognition ofNote 1 ofNotes to Consolidated Financial Statements.

 

We utilize financially-settled forward contracts to manage our exposure to changes in prices for silver, gold, zinc and lead.  SeeItem 7A. – Quantitative and Qualitative Disclosures About Market Risk - Commodity-Price Risk Management below for more information on our contract programs.  These contracts do not qualify for hedge accounting and are therefore marked-to-market through earnings each period.  Changes in silver, gold, zinc and lead prices between the dates that the contracts are entered into and their settlements will result in changes to the fair value asset or liability associated with the contracts, with a corresponding gain or loss recognized in earnings.

 

Obligations for Environmental, Reclamation and Closure Matters

 

Accrued reclamation and closure costs can represent a significant and variable liability on our balance sheet. We have estimated our liabilities under appropriate accounting guidance, and on at least an annual basis - and more frequently if warranted - management reviews our liabilities with our Audit Committee. However, the ranges of liability could exceed the liabilities recognized. If substantial damages were awarded, claims were settled, or remediation costs incurred in excess of our accruals, our financial results or condition could be materially adversely affected. See Item 1A. Risk Factors –Our environmental obligations may exceed the provisions we have made.

 

Mineral Reserves

 

Critical estimates are inherent in the process of determining our reserves. Our reserves are affected largely by our assessment of future metals prices, as well as by engineering and geological estimates of ore grade, accessibility and production cost. Metals prices are estimated at long-term averages, as described above inItem 2. - Property Descriptions– Properties. Our assessment of reserves occurs at least annually, and periodically utilizes external audits.

 

79

---

Table of Contents

Reserves are a key component in the valuation of our properties, plants and equipment. Reserve estimates are used in determining appropriate rates of units-of-production depreciation, with net book value of many assets depreciated over remaining estimated reserves. Reserves are also a key component in forecasts, with which we compare future cash flows to current asset values in an effort to ensure that carrying values are reported appropriately. Our forecasts are also used in determining the level of valuation allowances on our deferred tax assets. Reserves also play a key role in the valuation of certain assets in the determination of the purchase price allocations for acquisitionsacquisitions. Annual reserve estimates are also used to determine conversions of mineral assets beyond the known reserve resulting from business combinations to depreciable reserves, in periods subsequent to the business combinations (seeBusiness Combinations below).  Reserves are a culmination of many estimates and are not guarantees that we will recover the indicated quantities of metals or that we will do so at a profitable level.

 

82

---

Table of Contents

Business Combinations

 

We are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date.  The valuation of assets acquired and liabilities assumed requires management to make significant estimates and assumptions, especially with respect to long-lived assets (including mineral assets beyond the known reserves); thesereserve). These estimates include estimates of future metals prices and mineral reserves, as discussed above.  Management may also be required to make estimates related to the valuation of deferred tax assets or liabilities as part of the purchase price allocation for business combinations. In some cases, we use third-party appraisers to determine the fair values and lives of property and other identifiable assets. In addition, costs related to business combinations are included in earnings as incurred, and our financial results for periods in which business combinations are pursued could be adversely affected as a result.

 

NewAccounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 Revenue Recognition, replacing guidance currently codified in Subtopic 605-10 Revenue Recognition-Overall with various SEC Staff Accounting Bulletins providing interpretive guidance.Recognition-Overall.  The new ASU establishes a new five step principle-basedprinciples-based framework in an effort to significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets.  In August 2015, the FASB issued ASU No. 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.  ASU No. 2015-14 defers the effective date of ASU No. 2014-09 until annual and interim reporting periods beginning after December 15, 2017. We have elected to adopt the modified-retrospective transition approach to implement this standard.

 

We have performed a preliminaryan assessment of the impact of implementation of ASU No. 2014-09, and do not believeconcluded it will not change the timing of revenue recognition or amounts of revenue recognized compared to how we recognize revenue under our current policies. Our revenues involve a relatively limited number of types of contracts and customers. In addition, our revenue contracts do not involve multiple types of performance obligations. Revenues from doré are recognized, and the transaction price is known, at the time the metals sold are delivered to the customer. Concentrate revenues are generally recognized at the time of shipment. Concentrates sold at our Lucky Friday unit typically leave the mine and are received by the customer within the same day. There is a period of time between shipment of concentrates from our Greens Creek unit and their physical receipt by the customer. However, based on our assessment, we believe control of the concentrate parcels is generally obtained by the customer at the time of shipment.

 

Our concentrate sales involve variable consideration, as they are subject to changes in metals prices between the time of shipment and their final settlement. However, we are able to reasonably estimate the transaction price for the concentrate sales at the time of shipment using forward prices for the month of settlement, and we then adjust the values each period until final settlement. Also, it is unlikely a significant reversal of revenue for any one concentrate parcel will occur.

 

80

---

Table of Contents

During 2017, we plan to finalize our assessment of the impact of ASU No. 2014-09 will require additional disclosures, where applicable, on our revenue recognition,(i) contracts with customers, (ii) significant judgments and assesschanges in judgments in determining the additional disclosure requirements under the new guidance.

In April 2015, the FASB issued ASU No. 2015-03 Interest - Imputationtiming of Interest (Subtopic 835-30): Simplifying the Presentationsatisfaction of Debt Issuance Costs. The update requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liabilityperformance obligations and the effective interest rate. The update requires retrospective applicationtransaction price, and represents a change in accounting principle. The update is effective(iii) assets recognized for fiscal years beginning after December 15, 2015. ASU No. 2015-03 did notcosts to obtain or fulfill contracts. We have a material impact on our consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11 Inventory (Topic 330): Simplifying the Measurement of Inventory. The update provides for inventory to be measured at the lower of cost and net realizable value, and is effective for fiscal years beginning after December 15, 2016. We do not expect this update to have a material impact on our consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17 Income Taxes - Balance Sheet Classification of Deferred Taxes (Topic 740). The update is designed to reduce complexity of reporting deferred income tax liabilities and assets into current and non-current amounts in a statement of financial position. ASU No. 2015-17 requires the presentation of deferred income taxes, changes to deferred tax liabilities and assets be classified as non-current in the statement of financial position. The update is effective for fiscal years beginning after December 15, 2016. ASU No. 2015-17. Our current deferred tax asset balance at December 31, 2016 was $12.3 million,developed draft disclosure which would be reclassified as non-current under ASU No. 2015-17.we believe, when implemented, will meet these new requirements.

 

In January 2016, the FASB issued ASU No. 2016-01 Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance requires entities to measure equity investments that are not accounted for under the equity method at fair value, with any changes in fair value included in current earnings, and updates certain disclosure requirements. The update is effective for fiscal years beginning after December 15, 2017. We are currently evaluatingAdoption will be accounted for using the impactmodified-retrospective approach, with a cumulative-effect adjustment to our balance sheet as of implementing this update on our consolidated financial statements.January 1, 2018. At December 31, 2016,2017, we had net unrealized gains of $1.8 million related to equity investments of $3.7 million included in accumulated other comprehensive loss.

83

---

Table of Contents

 

In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842). The update modifies the classification criteria and requires lessees to recognize the assets and liabilities on the balance sheet for most leases. The update is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are currently evaluatingreviewing our leases and compiling the impactinformation required to implement the new guidance. See the Contractual Obligations and Contingent Liabilities and Commitments section above for information on future commitments related to our operating leases; the present value of implementing this updatethese leases will be recognized on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09 Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The update simplifies the accounting for stock-based compensation, including income tax consequences and balance sheet and cash flow statement classificationupon implementation of awards. The update is effective for fiscal years beginning after December 15, 2016, with early adoption permitted.the new guidance. We are currently evaluating the potential impact of implementing this update on our consolidated financial statements.

 

In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The update provides guidance on classification for cash receipts and payments related to eight specific issues. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. We do not expect this update to have a material impact on our consolidated financial statements.

 

In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash. The update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the potential impact of implementingOur restricted cash balance at December 31, 2017 was $1.0 million, and we do not expect this update to have a material impact on our consolidated financial statements.

81

---

Table of Contents

 

In January 2017, the FASB issued ASU No. 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business. The update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We will apply the applicable provisions of the update to potential futureany acquisitions occurring after the effective date.

 

Forward-Looking StatementsIn March 2017, the FASB issued ASU No. 2017-07 Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Period Postretirement Benefit Cost. The update provides specific requirements for classification and disclosure regarding the service cost component and other components of net benefit cost related to pension plans. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We have implemented this update effective January 1, 2018. For the full year of 2018, a total net expense of approximately $2.8 million for the components of net benefit cost except service cost is expected to be included in other income (expense) on our consolidated statements of operations, and not reported in the same line items as other employee compensation costs.

 

In August 2017, the FASB issued ASU No. 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The objective of the update is to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements, and simplify the application of existing hedge accounting guidance. The update is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the potential impact of implementing this update on our consolidated financial statements.

84

---

Table of Contents

Forward-Looking Statements

The foregoing discussion and analysis, as well as certain information contained elsewhere in this report, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, and are intended to be covered by the safe harbor created thereby. See the discussion inSpecial Note on Forward-Looking Statements included prior toItem 1.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 

The following discussion about our risk-management activities includes forward-looking statements that involve risk and uncertainties, as well as summarizes the financial instruments held by us at December 31, 2016,2017 which are sensitive to changes in commodity prices and foreign exchange rates and are not held for trading purposes. Actual results could differ materially from those projected in the forward-looking statements. In the normal course of business, we also face risks that are either non-financial or non-quantifiable (seeItem 1A. Risk Factors)above).

 

Provisional Sales

 

Sales of all metals products sold directly to customers, including by-product metals, are recorded as revenues when title and risk of loss transfers to the customer. For concentrate sales, revenues are generally recorded at the time of shipment at forward prices for the estimated month of settlement. Due to the time elapsed between shipment to the customer and the final settlement with the customer we must estimate the prices at which sales of our concentrates will be settled. Previously recorded sales are adjusted to estimated settlement metals prices until final settlement by the customer.  Changes in metals prices between shipment and final settlement will result in changes to revenues previously recorded upon shipment.  Metals prices can and often do fluctuate widely and are affected by numerous factors beyond our control (seeItem 1A. Risk Factors –A substantial or extended decline in metals prices would have a material adverse effect on us).  At December 31, 2016,2017, metals contained in concentrates and exposed to future price changes totaled approximately 1.41.6 million ounces of silver, 4,6795,799 ounces of gold, 10,16611,365 tons of zinc, and 4,0522,705 tons of lead.  If the price for each metal were to change by ten percent,10%, the change in the total value of the concentrates sold would be approximately $5.9$7.6 million.  However, as discussed inCommodity-Price Risk Management below, we utilize a program designed and intended to mitigate the risk of negative price adjustments with limited mark-to-market financially-settled forward contracts for our silver, gold, zinc and lead sales. Therefore, the impact of changes in prices on the value of concentrates sold would be substantially offset by a gain or loss on forward contracts.

 

Commodity-Price Risk Management

 

At times, we may 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, thereby partially offsetting our exposure to fluctuations in the market. Our risk management policy allows for up to 75% of our planned metals price exposure for five years into the future, with certain other limitations, to be hedged under such programs. These instruments do, however, expose us to (i) credit risk in the event of non-performance by counterparties for contracts in which the contract price exceeds the spot price of a commodity and (ii) price risk to the extent that the spot price exceeds the contract price for quantities of our production covered under contract positions.

 

82

---

Table of Contents

We are currently using financially-settled forward contracts to manage the exposure to changes in prices of silver, gold, zinc and lead contained in our concentrate shipments between the time of shipment and final settlement. In addition, we are using financially-settled forward contracts to manage the exposure to changes in prices of zinc and lead (but not silver and gold) contained in our forecasted future concentrate shipments. These contracts do not qualify for hedge accounting and are marked-to-market through earnings each period.  At December 31, 2016,2017, we recorded a current assetliability of $2.8$10.3 million, which is included in other current assetsliabilities and is net of $0.7$0.2 million for contracts in a fair value current liabilityasset position. In addition, we recorded a non-current assetliability of $2.5$5.2 million at December 31, 20162017 which is included in other non-current assets.liabilities.

85

---

Table of Contents

 

We recognized a $14.2$6.0 million net loss during 20162017 on the contracts utilized to manage exposure to prices of metals in our concentrate shipments, which is included in sales of products.  The net loss recognized on the contracts offsets $6.7 million in gains related to price adjustments on our provisional concentrate sales, due toboth of which resulted from changes to silver, gold, lead and zinc prices between the time of sale and final settlement.

 

We recognized a $4.4$21.3 million net gainloss during 20162017 on the contracts utilized to manage exposure to prices for forecasted future concentrate shipments. The net gainloss on these contracts is included as a separate line item under other income (expense), as they relate to forecasted future shipments, as opposed to sales that have already taken place but are subject to final pricing as discussed in the preceding paragraph.  The net gainloss for 20162017 is the result of lowerhigher zinc and lead prices. This program, when utilized, is designed to mitigate the impact of potential future declines in leadzinc and zinclead prices from the price levels established in the contracts (see average price information below). When those prices increase compared to the contract prices, we recognize losses.

 

The following tables summarize the quantities of metals committed under forward sales contracts at December 31, 2016:2017:

 

December 31, 2016		Ounces/pounds under contract (in 000's)																Average price per ounce/pound
		Silver				Gold				Zinc				Lead				Silver				Gold				Zinc				Lead
		(ounces)				(ounces)				(pounds)				(pounds)				(ounces)				(ounces)				(pounds)				(pounds)
Contracts on provisional sales
2017 settlements			1,295				4				19,070				7,441			$	16.29			$	1,172			$	1.18			$	0.97
Contracts on forecasted sales
2017 settlements			—				—				35,384				17,637				N/A				N/A			$	1.19			$	1.03
2018 settlements			—				—				13,779				5,732				N/A				N/A			$	1.21			$	1.05

December 31, 2017		Ounces/pounds under contract (in 000's)																Average price per ounce/pound
		Silver				Gold				Zinc				Lead				Silver				Gold				Zinc				Lead
		(ounces)				(ounces)				(pounds)				(pounds)				(ounces)				(ounces)				(pounds)				(pounds)
Contracts on provisional sales
2018 settlements			1,447				5				21,550				4,740			$	16.64			$	1,279			$	1.45			$	1.11
Contracts on forecasted sales
2018 settlements			—				—				32,187				16,645				N/A				N/A			$	1.29			$	1.06
2019 settlements			—				—				23,589				18,078				N/A				N/A			$	1.33			$	1.09
2020 settlements			—				—				3,307				2,866				N/A				N/A			$	1.27			$	1.08

 

ForeignCurrency

 

We operate or have mining interests in Canada and Mexico, which exposes us to risks associated with fluctuations in the exchange rates between the U.S. dollar ("USD") and the Canadian dollar ("CAD") and Mexican peso ("MXN"). We have determined that the functional currency for our Canadian and Mexican operations is the USD. As such, foreign exchange gains and losses associated with the re-measurement of monetary assets and liabilities from CAD and MXN to USD are recorded to earnings each period. For the year ended December 31, 2016,2017, we recognized a net foreign exchange loss of $2.9$10.3 million. Foreign currency exchange rates are influenced by a number of factors beyond our control. A 10% change in the exchange rate between the USD and CAD from the rate at December 31, 20162017 would have resulted in a change of approximately $13.9$12.2 million in our net foreign exchange gain or loss. A 10% change in the exchange rate between the USD and MXN from the rate at December 31, 20162017 would have resulted in an immateriala change of approximately $0.4 million in our net foreign exchange gain or loss.

 

In April 2016, we initiated a program to manage our exposure to fluctuations in the exchange rate between the USD and CAD and the impact on our future operating costs denominated in CAD. In October 2016, we also initiated a program to manage our exposure to the impact of fluctuations in the exchange rate between the USD and MXN on our future operating costs denominated in MXN. The programs utilize forward contracts to sellbuy CAD and MXN, and each contract is designated as a cash flow hedge. As of December 31, 2016,2017, we have 130had 96 forward contracts outstanding to sellbuy CAD$290.1213.1 million having a notional amount of US$222.9164.5 million, and 2425 forward contracts outstanding to sellbuy MXN$202.5278.2 million having a notional amount of US$10.314.1 million. The CAD contracts represent between 21% and 75% of our annualare related to forecasted cash operating costs at Casa Berardi to be incurred from 20172018 through 2020 and have CAD-to-USD exchange rates ranging between 1.2787 and 1.3380. The MXN contracts represent 75% of ourare related to forecasted cash operating costs at San Sebastian for 20172018 and 2019 and have MXN-to-USD exchange rates ranging between 18.997518.8317 and 21.000.20.8550. Our risk management policy allows for up to 75% of our planned cost exposure for five years into the future to be hedged under such programs, and for potential additional programs to manage other foreign currency-related exposure areas.

 

8386

---

Table of Contents

 

As of December 31, 2016,2017, we recorded the following balances for the fair value of the contracts:

 

•      a non-currentcurrent asset of $27 thousand, which is included in other non-current assets;

•      a current liability of $2.8$2.3 million, which is included in other current liabilities,assets and is net of $0.4 million for contracts in a current liability position; and

•      a non-current liabilityasset of $2.4$2.7 million, which is included in other non-current liabilities.assets and is net of $0.3 million for contracts in a non-current liability position.

 

Net unrealized lossesgains of approximately $5.2$5.0 million related to the effective portion of the hedges were included in accumulated other comprehensive income as of December 31, 2016,2017, and are net of related deferred taxes. Unrealized gains and losses will be transferred from accumulated other comprehensive loss to current earnings as the underlying operating expenses are recognized. We estimate approximately $3.0$2.1 million in net unrealized lossesgains included in accumulated other comprehensive income as of December 31, 20162017 would be reclassified to current earnings in the next twelve months. Net unrealized lossesrealized gains of approximately $2$1.1 million on contracts related to underlying expenses which have been recognized were transferred from accumulated other comprehensive loss and included in cost of sales and other direct production costs in 2017.

Net unrealized gains of approximately $5 thousand related to ineffectiveness of the hedges were included in gain (loss) on derivatives contracts on our consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2016.2017.

 

Item8. Financial Statements and Supplementary Data

 

Our Consolidated Financial Statements are included herein beginning on page F-1. Financial statement schedules are omitted as they are not applicable or the information required in the schedule is already included in the Consolidated Financial Statements.

87

---

Table of Contents

 

The following table sets forth supplementary financial data (in thousands, except per share amounts) for each quarter offor the years ended December 31, 20162017 and 2015,2016, derived from our unaudited quarterly financial statements, with the total amounts for each year derived from our audited financial statements. The data set forth below should be read in conjunction with and is qualified in its entirety by reference to our Consolidated Financial Statements.

 

																						Fourth Quarter				Third Quarter				Second Quarter				First Quarter				Total
2017
Sales of products																						$	160,113			$	140,839			$	134,279			$	142,544			$	577,775
Gross profit																						$	47,226			$	43,637			$	31,207			$	34,916			$	156,986
Net income (loss)																						$	(27,749	)		$	1,412			$	(24,016	)		$	26,834			$	(23,519	)
Preferred stock dividends																						$	(138	)		$	(138	)		$	(138	)		$	(138	)		$	(552	)
Income (loss) applicable to common stockholders																						$	(27,887	)		$	1,274			$	(24,154	)		$	26,696			$	(24,071	)
Basic income (loss) per common share																						$	(0.07	)		$	—			$	(0.06	)		$	0.07			$	(0.06	)
Diluted income (loss) per common share																						$	(0.07	)		$	—			$	(0.06	)		$	0.07			$	(0.06	)
		Fourth Quarter				Third Quarter				Second Quarter				First Quarter				Total
2016
Sales of products		$	164,245			$	179,393			$	171,302			$	131,017			$	645,957			$	164,245			$	179,393			$	171,302			$	131,017			$	645,957
Gross profit		$	43,547			$	58,685			$	58,452			$	30,822			$	191,506			$	43,547			$	58,685			$	58,452			$	30,822			$	191,506
Net income (loss)		$	20,260			$	25,789			$	24,116			$	(618	)		$	69,547			$	20,260			$	25,789			$	24,116			$	(618	)		$	69,547
Preferred stock dividends		$	(138	)		$	(138	)		$	(138	)		$	(138	)		$	(552	)		$	(138	)		$	(138	)		$	(138	)		$	(138	)		$	(552	)
Income (loss) applicable to common stockholders		$	20,122			$	25,651			$	23,978			$	(756	)		$	68,995			$	20,122			$	25,651			$	23,978			$	(756	)		$	68,995
Basic income per common share		$	0.05			$	0.07			$	0.06			$	—			$	0.18
Diluted income per common share		$	0.05			$	0.07			$	0.06			$	—			$	0.18
2015
Sales of products		$	115,337			$	104,941			$	104,197			$	119,092			$	443,567
Gross profit		$	11,735			$	(2,561	)		$	9,464			$	19,873			$	38,511
Net income (loss)		$	(62,963	)		$	(9,890	)		$	(26,667	)		$	12,552			$	(86,968	)
Preferred stock dividends		$	(138	)		$	(138	)		$	(138	)		$	(138	)		$	(552	)
Income (loss) applicable to common stockholders		$	(63,101	)		$	(10,028	)		$	(26,805	)		$	12,414			$	(87,520	)
Basic income (loss) per common share		$	(0.17	)		$	(0.03	)		$	(0.07	)		$	0.03			$	(0.23	)		$	0.05			$	0.07			$	0.06			$	—			$	0.18
Diluted income (loss) per common share		$	(0.17	)		$	(0.03	)		$	(0.07	)		$	0.03			$	(0.23	)		$	0.05			$	0.07			$	0.06			$	—			$	0.18

 

 

84

---

Table of Contents

Item9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

 

None.

 

Item 9A. Controls and Procedures

 

Disclosure Controls and Procedures

 

An evaluation was performed under the supervision and with the participation of management, including the CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as required by Exchange Act Rules 13a-15(e) and 15(d)-15(e) as of the end of the reporting period covered by this report.  Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures, including controls and procedures designed to ensure that information required to be disclosed by us is accumulated and communicated to our management (including our CEO and CFO), were effective as of December 31, 2016,2017, in assuring them in a timely manner that material information required to be disclosed in this report has been properly recorded, processed, summarized and reported.

 

Management’sManagement’s Annual Report on Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over our financial reporting, which is 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 in the United States of America.

 

Because of its inherent limitations, any system of internal control over financial reporting, no matter how well designed, may not prevent or detect misstatements due to the possibility that a control can be circumvented or overridden or that misstatements due to error or fraud may occur that are not detected. Also, because of changes in conditions, internal control effectiveness may vary over time.

 

8588

---

Table of Contents

 

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016,2017, using criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and concluded that we have maintained effective internal control over financial reporting as of December 31, 2016,2017, based on these criteria. 

 

Our internal control over financial reporting as of December 31, 20162017 has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in the attestation report which is included herein.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2016,2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

8689

---

Table of Contents

 

ReportReport of Independent Registered Public Accounting Firm

 

 

Shareholders and Board of Directors and Stockholders

Hecla Mining Company

Coeur d’Alene,d’Alene, Idaho

 

Opinion on Internal Control over Financial Reporting

We have audited Hecla Mining Company’sCompany’s (the “Company’s”) internal control over financial reporting as of December 31, 2016,2017, based on criteria established inInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria)criteria. Hecla Mining Company’s

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company and subsidiaries as of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and our report dated February 15, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

The 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, included in the accompanying Item 9A, Management’s Annual Report on Internal Control Overover Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

Definition and Limitations of Internal Control over Financial Reporting

A company’scompany’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.

 

In our opinion, Hecla Mining Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Hecla Mining Company as of December 31, 2016 and 2015, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016 and our report dated February 23, 2017 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP

Spokane, Washington

February 23, 2017

15, 2018

 

8790

---

Table of Contents

 

Item9B. Other Information

 

None.

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

In accordance with our certificate of incorporation, our board of directors is divided into three classes. The terms of office of the directors in each class expire at different times. The directors are elected for three-year terms. The Effective Dates listed below for each director indicate their current term of office. All officers are elected for a term which ordinarily expires on the date of the meeting of the board of directors immediately following the annual meeting of stockholders. The positions and ages listed below for our current directors and officers are as of the scheduled date of our next annual meeting of stockholders in May 2017.2018. There are no arrangements or understandings between any of the directors or officers and any other person(s) pursuant to which such directors or officers were elected.

 

	Age at May 24, 2018	Age at May 25, 2017		Position and Committee Assignments				Effective Dates
Phillips S. Baker, Jr.		5758		President and CEO,	5/17	—	5/16 — 5/1718
				Director(1)			5/14 17	—	5/1720
Lindsay A. Hall		6162		Senior Vice President, and Chief Financial Officer and Treasurer	5/17	—	7/16 — 5/1718
Lawrence P. Radford		5657		Senior Vice President – Operations	5/17	—	5/16 — 5/1718
Dr. Dean W.A. McDonald		6061		Senior Vice President – Exploration	5/17	—	5/16 — 5/1718
David C. Sienko		4849		Vice President and General Counsel	5/17	—	5/16 — 5/1718
Robert D. Brown		4849		Vice President – Corporate Development	5/17	—	5/16 — 5/1718
Ted Crumley	73	72		Director and Chairman of the Board(1,4)	5/16	—	5/16 — 5/19
Catherine J. Boggs	63	62		Director Director(2,3)(2,3,4)	1/17	—	1/17 — 5/18
George R. Johnson	69	68		Director Director(2,5)	5/17	—	3/16 — 5/1720
George R. Nethercutt, Jr.	73	72		Director Director(3,4)	5/15	—	5/15 — 5/18
Stephen F. Ralbovsky	64	63		Director Director(2,3)(2,3,5)	3/16	—	3/16 — 5/18
Terry V. Rogers	71	70		Director Director(2,4,5)(1,4,5)	5/16	—	5/16 — 5/19
Charles B. Stanley	59	58		Director Director(2,3,5)	5/16	—	5/16 — 5/19
Dr. Anthony P. Taylor		75		Director(3,4,5)			5/14 — 5/17

 

(1)     Member of Executive Committee

 

(2)     Member of Audit Committee

 

(3)     Member of Corporate Governance and Directors'Directors Nominating Committee

 

(4)     Member of Compensation Committee

 

(5)     Member of Health, Safety, Environmental and Technical Committee

 

Phillips S. Baker, Jr., has been our Chief Executive Officer since May 2003 and a director since November 2001. Prior to that, Mr. Baker held a variety of other positions with us starting in May 2001. Prior to joining us, Mr. Baker served as Vice President and Chief Financial Officer of Battle Mountain Gold Company (a gold mining company) from March 1998 to January 2001.  Mr. Baker served as a director of Questar Corporation (a U.S. natural gas-focused exploration and production, interstate pipeline and local distribution company) from February 2004 to June 2010, and has served as a director for QEP Resources, Inc. (a natural gas and oil exploration and production company) since May 2010. Mr. Baker has served as Vice2010, and Chairman of the Board for the National Mining Association (a U.S. mining advocate and national trade organization that represents the interests of mining businesses)mining) since October 2015,2017, and has been a Board member since September 2010. He also served as Vice Chairman of the Board for the National Mining Association from October 2015 to October 2017. He has also served as a Board member of the National Mining Hall of Fame and Museum (a federally-chartered non-profit national mining museum) since February 2012.

 

8891

---

Table of Contents

 

Lindsay A. Hall was appointed Senior Vice President and Chief Financial Officer in July 2016.  Prior to his appointment, Mr. Hall was Chief Financial Officer of Goldcorp Inc. (a leadingCanadian gold producer)mining company) from April 2006 to March 2016, and also Executive Vice President from March 2006 to March 2016. Mr. Hall served as Chief Financial Officer and Executive Vice President for Placer Dome (a company engaged in exploration, acquisition, development and operation of gold mineral properties) from November 2005 to February 2006. He also served as Vice President and Treasurer at Duke Energy Corporation (an electric power holding company) from July 2005 to October 2005.

 

Lawrence P. Radford was appointed Senior Vice President - Operations in July 2013, and prior to that was Vice President - Operations from October 2011 to June 2013. Prior to joining Hecla, Mr. Radford was Vice President of South American Operations for Kinross Gold Corporation (gold(a Canadian gold mining operations)company) from April 2010 to September 2011. Mr. Radford held various other positions at Kinross from June 2007 to March 2010. He was General Manager for Barrick Gold Corporation at its Cowal operation (a gold mining operation) in West Wyalong, NSW, Australia from January 2006 to May 2007. Mr. Radford also held various positions with Barrick from 1990 to December 2005.

 

Dr. Dean W.A. McDonald was appointed Senior Vice President - Exploration in July 2013 and prior to that was Vice President - Exploration from August 2006 to June 2013.  Prior to joining Hecla,  Dr. McDonald was also appointed Senior Vice President - Exploration of our Canadian subsidiary, Hecla Canada Ltd., in July 2013 and Business Development for Committee Bay Resource Ltd. (a Canadian-based exploration and development company)was Vice President - Exploration from 2003January 2007 to August 2006.June 2013. Dr. McDonald has also served as a Director for Canamex Gold Corp. (formerly known as Canamex Resources Corp.) (a mineral exploration company) sincefrom August 2013.2013 to December 2017.

 

David C. Sienko was appointed Vice President and General Counsel in January 2010.  Prior to his appointment, Mr. Sienko was a partner with the law firm K&L Gates LLP from 2004 to January 2010, where he specialized in securities, mergers and acquisitions, and corporate governance. Mr. Sienko also was an attorney at the law firm of Bell, Boyd & Lloyd LLC from 2000 to 2004, at the law firm of Locke Lord from 1998 to 2000, and at the Securities and Exchange Commission from 1995 to 1998.

 

Robert D. Brown was appointed Vice President - Corporate Development in January 2016, and prior to that was a consultant for Hecla from March 2015 to December 2015. Mr. Brown was also appointed Vice President - Corporate Development of our Canadian subsidiary, Hecla Canada Ltd., in January 2016. Prior to joining Hecla, Mr. Brown was President of Septemus Consulting Ltd. (a private consulting firm providing technical and corporate support for exploration, development, and production companies) from October 2011 to December 2015. He also served as a Vice President - Corporate Development for Fortuna Silver Mines (a Canadian-basedCanadian silver producing mining company) from May 2012 to October 2014, and Chief Executive Officer, President and Director of Calibre Mining Corporation (a Canadian-based exploration and mine development company) from March 2007 to June 2011.2014.

 

 Ted Crumley has served as a director since 1995 and became Chairman of the Board in May 2006. Mr. Crumley served as the Executive Vice President and Chief Financial Officer of OfficeMax Incorporated (a distributor of office products) from January 2005 until his retirement in December 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 Cascade Corporation (a wood and paper company), from 1994 to 2004.

 

Catherine “Cassie” J. Boggs has served as a director since January 2017. Ms. Boggs has been the General Counsel at Resource Capital Funds (a mining-focused private equity firm) since January 2011. Prior to that, she served as Senior Vice President, Corporate Development at Barrick Gold Corporation (a gold mining company) from January 2009 to December 2010, and Vice President from July 2005 to 2008. Ms. Boggs was also an international partner at Baker & McKenzie (a law firm) from July 2001 to July 2005. She also served ashas been a board member of Funzeleo (a non-profit dedicated to inspiring and preparing youth for high-demand science and math-based careers) since January 2016, as well as serving as President of the Rocky Mountain Mineral Law Foundation (a non-profit organization dedicated to the study of laws and regulations relating to mining, oil and gas, energy, public lands, water, environmental and international law) from July 2012 to July 2013, and a board member of the Rocky Mountain Law Foundation from July 2011 to July 2015.

 

89

---

Table of Contents

George R. Johnson was appointed to Hecla’s board of directors inhas served as a director since March 2016. Mr. Johnson was Senior Vice President of Operations of B2Gold Corporation (a Canadian-based gold producing company) from August 2009 until his retirement in MayApril 2015. Mr. Johnson also served as Senior Vice President of Russian Operations at Kinross Gold Corporation (a senior gold mining company) from March 2007 to August 2009, and Senior Vice President of Operations at Bema Gold Corporation (a gold producing company) from October 1999 to March 2007. He has served on the Board of Directors of B2Gold Corporation since March 2016.

 

George R. Nethercutt, Jr., was appointed to Hecla's board of directors in has served as a director since February 2005. Mr. Nethercutt has served as Chairman of The George Nethercutt Foundation (a non-profit student leadership and civics education charity), since 2005, and was appointed Of Counsel to Lee & Hayes PLLC (a law firm) in September 2010. He has been a board member of Washington Policy Center (a public policy organization providing analysis on issues relating to the free market and government regulation) since January 2005; board member of ARCADIS Corporation (an international company providing consultancy, engineering and management services) since May 2005; and Board of Chancellors, Juvenile Diabetes Research Foundation International (a charity and advocate of juvenile diabetes research worldwide) since June 2001.2011. He was a principalboard member of ARCADIS Corporation (an international company providing consultancy, engineering and management services) from May 2005 to April 2017; a Principal of Nethercutt Consulting LLC, (a strategic planning and consulting firm) from January 2007 to January 2012, and served as a member ofon the board of IP Street (a software company) from May 20012011 to January 2015. He also served as U.S. Chairman

92

---

Table of the Permanent Joint Board on Defense - U.S./Canada from April 2005 to December 2009; Member, U.S. House of Representatives from 1995 to 2005; Member, Subcommittee on Interior, Agriculture and Defense Appropriations from 1995 to 2005; Member, Committee on Science and Energy from 1998 to 2005; and Vice Chairman, Defense Subcommittee on Appropriations from 2000 to 2004.

Contents

 

Stephen F. Ralbovsky was appointed to Hecla’s board of directors in Februaryhas served as a director since March 2016. Mr. Ralbovsky has been the founder and principal of Wolf Sky Consulting LLC (a tax consulting firm) since June 2014. Prior to that, he was a partner with PricewaterhouseCoopers LLP (an accounting firm) from February 1987 until his retirement in June 2014, where he concentrated his practice on public companies operating in the mining industry. Mr. Ralbovsky previously served as an advisory board memberis a part-time Professor of DiocesePractice at the University of Phoenix Catholic CemeteriesArizona James E. Rogers College of Law, where he teaches Global Mining Taxation, and Mortuaries (a non-profit organization) from July 2009 to July 2012. He is also a member of several organizations, including:including AICPA, Arizona Society of CPAs, National Mining Association, and Society for Mining, Metallurgy and Exploration.

 

Charles B. Stanley was elected to Hecla’s board of directors inhas served as a director since May 2007.  Mr. Stanley has been the Chief Executive Officer, President and Director of QEP Resources, Inc. (a natural gas and oil exploration and production company) since May 2010, and Chairman of QEP's boardBoard of directorsDirectors since May 2012. He also served as Chairman, Chief Executive Officer, President and Director of QEP Midstream Partners, LP (a master limited partnership that owns, operates, acquires and develops midstream energy assets) from May 2013 to December 2014. He served as Chief Operating Officer of Questar Corporation (a U.S. natural gas-focused exploration and production, interstate pipeline and local distribution company) from March 2008 to June 2010, and also as its Executive Vice President and Director from February 2002 to June 2010.

 

Terry V. Rogers was elected to Hecla’s board of directors inhas served as a director since May 2007.  Mr. Rogers was the Senior Vice President and Chief Operating Officer of Cameco Corporation (a uranium producer) from February 2003 until his retirement in June 2007.   Mr. Rogers also served as President of Kumtor Operating Company (a gold producing company and a division of Cameco Corporation) from 1999 to 2003. He has also served as a Director for Centerra Gold Inc. (a Canadian gold mining company) and its predecessor company, Cameco Gold, since February 2003.

Dr. Anthony P. Taylor has served as a director since May 2002. Dr. Taylor has been the President, CEO and Director of Selex Resources Ltd. (a private Ontario Corporation engaged in mineral exploration) since January 2012. He previously served as Executive Chairman and Director of Crown Gold Corporation (a public Canadian minerals exploration company) from August 2010 to August 2012, and President, CEO and Director of Gold Summit Corporation (a public Canadian minerals exploration company) from October 2003 to August 2010. He has served as President and Director of Caughlin Preschool Corporation (a private Nevada corporation that operates a preschool) since October 2001.

90

---

Table of Contents

 

Information with respect to our directors is set forth under the caption “Proposal 1 - Election of Directors” in our proxy statement to be filed pursuant to Regulation 14A for the annual meeting scheduled to be held on May 25, 2017 24, 2018 (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 “Report of Audit Committee,” and under the caption “Corporate Governance and Related Matters”Matters,” 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” inItem 1 for information about the Company’s Code of Business Conduct and Ethics, which information is incorporated herein by reference.

 

There have been no material changes to the procedures by which stockholders may recommend director nominees.

 

Item11. Executive Compensation

 

Reference is made to the information set forth under the caption “Compensation Discussion and Analysis;” the caption “Compensation of Named Executive Officers;” the caption “Compensation of Non-Management Directors;” the caption “Compensation Committee Interlocks and Insider Participation;” and the caption “Compensation Committee Report” in the Proxy Statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.

 

93

---

Table of Contents

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

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.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

Reference is made to the information set forth under the captions "Certain Relationships and Related Transactions" and "Director Independence" of the Proxy Statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.

 

Item 14. Principal Accountant Fees and Services

 

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

 

9194

---

Table of Contents

 

PARTIV

 

Item 15. Exhibits and Financial Statement Schedules

 

(a)      (1)    Financial Statements

(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

          

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

Item 16. Form 10-K Summary

 

None.

 

9295

---

Table of Contents

 

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., President, Chief Executive Officer and Director
Date:	Date:	February 23, 201715, 2018

 

 

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.		2/23/201715/2018		/s/ Ted Crumley		2/23/201715/2018
Phillips S. Baker, Jr. President, Chief Executive Officer and Director (principal executive officer)		Date		Ted Crumley Director		Date
(principal executive officer)
/s/ Lindsay A. Hall		2/23/201715/2018		/s/ Charles B. Stanley		2/23/201715/2018
Lindsay A. Hall Senior Vice President and Chief Financial Officer (principal financial and accounting officer)		Date		Charles B. Stanley Director		Date
(principal financial and accounting officer)
/s/ Anthony P. TaylorStephen F. Ralbovsky		2/23/201715/2018		/s/ George R. Nethercutt, Jr.		2/23/201715/2018
Anthony P. TaylorStephen F. Ralbovsky Director		Date		George R. Nethercutt, Jr. Director		Date
/s/ Terry V. Rogers		2/23/201715/2018		/s/ Catherine J. Boggs		2/23/201715/2018
Terry V. Rogers Director		Date		Catherine J. Boggs Director		Date
/s/ George R. Johnson		2/23/201715/2018		/s/ Stephen F. Ralbovsky		2/23/2017
George R. Johnson Director		Date		Stephen F. Ralbovsky Director

 

9396

---

Table of Contents

 

Indexto Consolidated Financial Statements

 

	Page
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F- 2 F-2
Consolidated Balance Sheets at December 31, 20162017 and 20152016	F- 3 F-3
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2017, 2016 2015 and 20142015	F- 4 F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 2015 and 20142015	F- 5 F-5
Consolidated Statements of Changes in Stockholders’Stockholders’ Equity for the Years Ended December 31, 2017, 2016 2015 and 20142015	F- 6 F-6
Notes to Consolidated Financial Statements	F- 7 F-7

 

F-1

---

Table of Contents

 

Report of Independent Registered Public Accounting Firm

 

 

Shareholders and Board of Directors and Stockholders

Hecla Mining Company

Coeur d’Alene,d’Alene, Idaho

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of Hecla Mining Company and Subsidiaries (the “Company”) as of December 31, 20162017 and 20152016 and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016. These2017, and the related notes (collectively referred to as the “consolidated 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 conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States)statements”). 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, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hecla Miningthe Company and subsidiaries at December 31, 20162017 and 2015,2016, and the results of itstheir operations and itstheir cash flows for each of the three years in the period ended December 31, 20162017, in conformity with accounting principles generally accepted in the United States of America.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), Hecla Mining Company’sthe Company's internal control over financial reporting as of December 31, 2016,2017, based on criteria established inInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(“COSO”) and our report dated February 23, 201715, 2018 expressed an unqualified opinion thereon.

Change in Accounting Method Related to Deferred Income Taxes

As discussed in Note 5 to the consolidated financial statements, the Company has changed its method of accounting for balance sheet classification of income taxes in 2017 due to the adoption of Accounting Standards Update 2015-17.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

/s/ BDO USA, LLP

 

We have served as the Company's auditor since 2001.

 

Spokane, Washington

February 23, 2017

15, 2018

 

F-2

---

Table of Contents

 

Hecla Mining Company and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share data)

 

		December 31,								December 31,
		2016				2015				2017				2016
ASSETS	ASSETS								ASSETS
Current assets:
Cash and cash equivalents		$	169,777			$	155,209			$	186,107			$	169,777
Investments			29,117				—				33,758				29,117
Accounts receivable:
Trade			20,082				13,490				14,805				20,082
Taxes			187				11,458				10,382				187
Other, net			9,780				16,401				7,003				9,780
Inventories:
Concentrates, doré, stockpiled ore, and metals in transit and in-process			25,944				22,441				28,455				25,944
Materials and supplies			24,079				23,101				26,100				24,079
Current deferred income taxes			12,293				17,980
Other current assets			12,125				9,453				13,715				12,125
Total current assets			303,384				269,533				320,325				291,091
Non-current investments			5,002				1,515				7,561				5,002
Non-current restricted cash and investments			2,200				999				1,032				2,200
Properties, plants, equipment and mineral interests, net			2,032,685				1,896,811				2,020,021				2,032,685
Non-current deferred income taxes			23,522				36,589
Reclamation insurance			—				13,695
Deferred income taxes											1,509				35,815
Other non-current assets			4,884				2,783				14,509				4,884
Total assets		$	2,371,677			$	2,221,925			$	2,364,957			$	2,371,677
LIABILITIES	LIABILITIES								LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities		$	60,064			$	51,277			$	46,549			$	60,064
Accrued payroll and related benefits			36,515				27,563				31,259				36,515
Accrued taxes			9,061				8,915				5,919				9,061
Current portion of capital leases			5,653				8,735				5,608				5,653
Current portion of accrued reclamation and closure costs			5,653				20,989				6,679				5,653
Current portion of debt			470				2,721				—				470
Accrued interest											5,745				5,745
Other current liabilities			10,064				6,884				10,371				3,064
Total current liabilities			127,480				127,084				112,130				126,225
Long-term capital leases			5,838				8,841				6,193				5,838
Accrued reclamation and closure costs			79,927				74,549				79,366				79,927
Long-term debt			500,979				500,199				502,229				500,979
Non-current deferred tax liability			121,600				119,623
Deferred tax liability											121,546				122,855
Non-current pension liability			44,491				46,513				46,628				44,491
Other non-current liabilities			11,518				6,190				12,983				11,518
Total liabilities			891,833				882,999				881,075				891,833
Commitments and contingencies (Notes 2, 3, 4, 6, 7, 8, and 10)
STOCKHOLDERS’ EQUITY
STOCKHOLDERS’ EQUITY									STOCKHOLDERS’ EQUITY
Preferred stock, 5,000,000 shares authorized:
Series B preferred stock, $0.25 par value, 157,816 shares issued and outstanding, liquidation preference — $7,891			39				39				39				39
Common stock, $0.25 par value, authorized 500,000,000 shares; issued and outstanding 2016 — 395,286,875 shares and 2015 — 378,112,840 shares			99,806				95,219
Common stock, $0.25 par value, authorized 750,000,000 shares; issued and outstanding 2017 — 399,176,425 shares and 2016 — 395,286,875 shares											100,926				99,806
Capital surplus			1,597,212				1,519,598				1,619,816				1,597,212
Accumulated deficit			(167,437	)			(232,565	)			(195,484	)			(167,437	)
Accumulated other comprehensive loss, net			(34,602	)			(32,631	)			(23,373	)			(34,602	)
Less treasury stock, at cost; 2016 — 3,941,210 and 2015 — 2,764,973 shares issued and held in treasury			(15,174	)			(10,734	)
Total stockholders’ equity			1,479,844				1,338,926
Total liabilities and stockholders’ equity		$	2,371,677			$	2,221,925
Less treasury stock, at cost; 2017 — 4,529,450 and 2016 — 3,941,210 shares issued and held in treasury											(18,042	)			(15,174	)
Total stockholders’ equity											1,483,882				1,479,844
Total liabilities and stockholders’ equity										$	2,364,957			$	2,371,677

 

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

 

F-3

---

Table of Contents

 

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,												Year Ended December 31,
		2016				2015				2014				2017				2016				2015
Sales of products		$	645,957			$	443,567			$	500,781			$	577,775			$	645,957			$	443,567
Cost of sales and other direct production costs			338,983				293,567				304,446				304,727				338,325				292,378
Depreciation, depletion and amortization			115,468				111,489				111,134				116,062				116,126				112,678
Total cost of sales			454,451				405,056				415,580				420,789				454,451				405,056
Gross profit			191,506				38,511				85,201				156,986				191,506				38,511
Other operating expenses:
General and administrative			45,040				34,201				31,538				35,611				45,040				34,201
Exploration			14,720				17,745				17,698				23,510				14,720				17,745
Pre-development			3,137				4,213				1,969				5,448				3,137				4,213
Research and development			243				—				—				3,276				243				—
Provision for closed operations and environmental matters			5,721				12,220				10,098				6,701				5,721				12,220
Other operating expense			3,153				3,177				2,295				2,513				3,153				3,177
(Gain) loss on disposition of properties, plants, equipment and mineral interests			(147	)			404				(25	)			(6,042	)			(147	)			404
Lucky Friday suspension-related costs															21,301				—				—
Acquisition costs			2,695				2,162				—				25				2,695				2,162
Total other operating expense			74,562				74,122				63,573				92,343				74,562				74,122
Income (loss) from operations			116,944				(35,611	)			21,628				64,643				116,944				(35,611	)
Other income (expense):
Gain on derivative contracts			4,423				8,252				9,134
Net (loss) on sale of investments			—				(44	)			—
(Loss) gain on derivative contracts															(21,250	)			4,423				8,252
Loss on disposition of investments															(166	)			—				(44	)
Unrealized loss on investments			(177	)			(3,333	)			(3,224	)			(247	)			(177	)			(3,333	)
Net foreign exchange (loss) gain			(2,926	)			24,551				11,535				(10,300	)			(2,926	)			24,551
Interest and other income			507				916				286				1,692				507				916
Interest expense, net of amount capitalized			(21,796	)			(25,389	)			(26,775	)			(38,012	)			(21,796	)			(25,389	)
Total other (expense) income:			(19,969	)			4,953				(9,044	)			(68,283	)			(19,969	)			4,953
Income (loss) before income taxes			96,975				(30,658	)			12,584
Income tax (provision) benefit			(27,428	)			(56,310	)			5,240
Net income (loss)			69,547				(86,968	)			17,824
(Loss) income before income taxes															(3,640	)			96,975				(30,658	)
Income tax provision															(19,879	)			(27,428	)			(56,310	)
Net (loss) income															(23,519	)			69,547				(86,968	)
Preferred stock dividends			(552	)			(552	)			(552	)			(552	)			(552	)			(552	)
Income (loss) applicable to common stockholders		$	68,995			$	(87,520	)		$	17,272
(Loss) income applicable to common stockholders														$	(24,071	)		$	68,995			$	(87,520	)
Comprehensive income (loss):
Net income (loss)		$	69,547			$	(86,968	)		$	17,824
Other comprehensive income, net of tax:
Comprehensive (loss) income:
Net (loss) income														$	(23,519	)		$	69,547			$	(86,968	)
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) and amortization of prior service on pension plans			676				(850	)			(6,875	)			(1,326	)			676				(850	)
Change in fair value of derivative contracts designated as hedge transactions			(5,260	)			—				—				10,290				(5,260	)			—
Unrealized holding gains (losses) on investments			1,613				(2,743	)			(1,282	)			2,098				1,613				(2,743	)
Reclassification of impairment of investments included in net income (loss)			1,000				2,993				2,425
Reclassification of disposition or impairment of investments included in net (loss) income															167				1,000				2,993
Total change in accumulated other comprehensive income (loss), net		$	(1,971	)		$	(600	)		$	(5,732	)		$	11,229			$	(1,971	)		$	(600	)
Comprehensive income (loss)		$	67,576			$	(87,568	)		$	12,092			$	(12,290	)		$	67,576			$	(87,568	)
Basic income (loss) per common share after preferred dividends		$	0.18			$	(0.23	)		$	0.05
Diluted income (loss) per common share after preferred dividends		$	0.18			$	(0.23	)		$	0.05
Basic (loss) income per common share after preferred dividends														$	(0.06	)		$	0.18			$	(0.23	)
Diluted (loss) income per common share after preferred dividends														$	(0.06	)		$	0.18			$	(0.23	)
Weighted average number of common shares outstanding – basic			386,416				373,954				353,442				397,394				386,416				373,954
Weighted average number of common shares outstanding – diluted			389,322				373,954				357,435				397,394				389,322				373,954

 

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

 

F-4

---

Table of Contents

 

Hecla Mining Company and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands) 

 

		Year Ended December 31,												Year Ended December 31,
		2016				2015				2014				2017				2016				2015
Operating activities:
Net income (loss)		$	69,547			$	(86,968	)		$	17,824
Non-cash elements included in net income (loss):
Net (loss) income														$	(23,519	)		$	69,547			$	(86,968	)
Non-cash elements included in net (loss) income:
Depreciation, depletion and amortization			117,413				112,585				112,173				121,930				117,413				112,585
Net loss on sale of investments			—				44				—
Loss on disposition of investments															167				—				44
Unrealized loss on investments			177				3,333				3,224				251				177				3,333
Adjustment of inventory to market value			811				1,649				—				—				811				1,649
(Gain) loss on disposition of properties, plants, equipment and mineral interests			(147	)			404				(25	)			(6,042	)			(147	)			404
Provision for reclamation and closure costs			4,813				12,036				10,215				4,508				4,813				12,036
Deferred income taxes			2,112				54,978				1,895				18,308				2,112				54,978
Stock compensation			6,184				5,425				4,965				6,323				6,184				5,425
Acquisition costs			1,048				—				—				—				1,048				—
Amortization of loan origination fees			1,871				1,821				2,183				1,864				1,871				1,821
(Gain) loss on derivative contracts			(5,494	)			11,630				(6,886	)
Loss (gains) on derivative contracts															20,741				(5,494	)			11,630
Foreign exchange loss (gain)			4,649				(20,081	)			(10,482	)			10,828				4,649				(20,081	)
Other non-cash items			(174	)			(35	)			(858	)			51				(174	)			(35	)
Change in assets and liabilities, net of business acquired:
Accounts receivable			4,233				(6,834	)			3,091				(2,414	)			4,233				(6,834	)
Inventories			(5,697	)			(854	)			1,119				(3,744	)			(5,697	)			(854	)
Other current and non-current assets			14,422				1,195				(580	)			(11,595	)			14,422				1,195
Accounts payable and accrued liabilities			(6,539	)			(4,211	)			(19,697	)			(16,434	)			(6,539	)			(4,211	)
Accrued payroll and related benefits			17,705				7,325				16,422				2,092				17,705				7,325
Accrued taxes			263				4,653				(3,612	)			(2,234	)			263				4,653
Accrued reclamation and closure costs and other non-current liabilities			(1,869	)			8,350				(47,847	)			(5,203	)			(1,869	)			8,350
Net cash provided by operating activities			225,328				106,445				83,124				115,878				225,328				106,445
Investing activities:
Additions to properties, plants, equipment and mineral interests			(164,788	)			(137,443	)			(122,537	)			(98,038	)			(164,788	)			(137,443	)
Proceeds from sale of investments			—				14				—				—				—				14
Proceeds from disposition of properties, plants and equipment			348				579				428				374				348				579
Insurance proceeds received for damaged property															7,745				—				—
Redemptions of restricted cash and investment balances			—				—				4,334				1,168				—				—
Purchases of investments			(48,943	)			(947	)			(580	)			(56,613	)			(48,943	)			(947	)
Maturities of investments			18,649				—				—				49,969				18,649				—
Purchase of other companies, net of cash acquired			(3,931	)			(809	)			—				—				(3,931	)			(809	)
Net cash used by investing activities			(198,665	)			(138,606	)			(118,355	)			(95,395	)			(198,665	)			(138,606	)
Financing activities:
Proceeds from issuance of common stock, net of offering costs			8,121				—				—				9,610				8,121				—
Proceeds from exercise of warrants			—				—				54,418
Dividends paid to common stockholders			(3,867	)			(3,739	)			(3,547	)			(3,976	)			(3,867	)			(3,739	)
Dividend paid to preferred stockholders			(552	)			(552	)			(552	)			(552	)			(552	)			(552	)
Debt issuance and credit facility fees paid			(127	)			(127	)			(938	)			(476	)			(127	)			(127	)
Acquisition of treasury shares			(4,440	)			(1,874	)			(3,740	)			(2,868	)			(4,440	)			(1,874	)
Payments on debt			(2,721	)			(870	)			—				(470	)			(2,721	)			(870	)
Payments on capital leases			(8,435	)			(9,981	)			(9,137	)			(6,516	)			(8,435	)			(9,981	)
Net cash (used in) provided by financing activities			(12,021	)			(17,143	)			36,504				(5,248	)			(12,021	)			(17,143	)
Effect of exchange rates on cash			(74	)			(5,152	)			(3,783	)			1,095				(74	)			(5,152	)
Net increase (decrease) in cash and cash equivalents			14,568				(54,456	)			(2,510	)			16,330				14,568				(54,456	)
Cash and cash equivalents at beginning of year			155,209				209,665				212,175				169,777				155,209				209,665
Cash and cash equivalents at end of year		$	169,777			$	155,209			$	209,665			$	186,107			$	169,777			$	155,209
Supplemental disclosure of cash flow information:
Cash received (paid) during year for:
Interest, net of amount capitalized		$	(19,280	)		$	(22,628	)		$	(23,749	)		$	(35,624	)		$	(19,280	)		$	(22,628	)
Income tax (payments) receipts		$	(6,333	)		$	4,186			$	7,124			$	(23,128	)		$	(6,333	)		$	4,186
Significant non-cash investing and financing activities:
Common stock issued for acquisition of other companies		$	48,109			$	19,133			$	—			$	—			$	48,109			$	19,133
Capital leases acquired		$	2,297			$	5,090			$	9,475			$	6,439			$	2,297			$	5,090
Payment of accrued compensation in restricted stock units		$	5,511			$	3,016			$	4,600			$	4,240			$	5,511			$	3,016
Senior notes contributed to pension plan, par value		$	—			$	—			$	6,500

 

See Notes 2 and 9 for additional non-cash investing and financing activities.

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

F-5

---

Table of Contents

Hecla Mining Company and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the Years Ended December 31, 2017, 2016 and 2015

(Dollars in thousands)

		Series B Preferred Stock				Common Stock				Additional Paid-In Capital				Accumulated Deficit				Accumulated Other Comprehensive Loss, net				Treasury Stock				Total
Balances, January 1, 2015		$	39			$	92,382			$	1,486,750			$	(141,306	)		$	(32,031	)		$	(8,860	)		$	1,396,974
Net loss															(86,968	)											(86,968	)
Stock issued to directors (235,000 shares)							59				547																606
Series B Preferred Stock dividends declared															(552	)											(552	)
Stock issued for 401(k) match (1,331,000 shares)							333				3,114																3,447
Restricted stock units granted											4,819																4,819
Restricted stock unit distributions (896,000 shares)							224				(224	)											(934	)			(934	)
Common stock issued to pension plans (1,764,000 shares)							441				4,569																5,010
Common stock issued for purchase of another company (6,253,000 shares)							1,562				17,215																18,777
Common stock dividends declared ($0.01 per common share)															(3,739	)											(3,739	)
Common stock issued for employee incentive compensation (871,000 shares)							218				2,808																3,026
Repurchase of common shares (284,000 shares)																							(940	)			(940	)
Other comprehensive loss																			(600	)							(600	)
Balances, December 31, 2015			39				95,219				1,519,598				(232,565	)			(32,631	)			(10,734	)			1,338,926
Net income															69,547												69,547
Stock issued to directors (189,000 shares)							47				756																803
Series B Preferred Stock dividends declared															(552	)											(552	)
Stock issued for 401(k) match (1,128,000 shares)							282				3,236																3,518
Restricted stock units granted											5,128																5,128
Restricted stock unit distributions (1,390,000 shares)							348				(348	)											(2,211	)			(2,211	)
Common stock issued for cash, net of offering costs (2,780,000 shares)							695				7,426																8,121
Common stock issued to pension plans (1,827,000 shares)							457				7,230																7,687
Common stock issued for purchase of another company (8,852,000 shares)							2,213				48,998												(959	)			50,252
Common stock dividends declared ($0.01 per common share)															(3,867	)											(3,867	)
Common stock issued for employee incentive compensation (2,185,000 shares)							545				5,188												(1,270	)			4,463
Other comprehensive loss																			(1,971	)							(1,971	)
Balances, December 31, 2016			39				99,806				1,597,212				(167,437	)			(34,602	)			(15,174	)			1,479,844
Net loss															(23,519	)											(23,519	)
Stock issued to directors (187,000 shares)							47				735																782
Series B Preferred Stock dividends declared															(552	)											(552	)
Stock issued for 401(k) match (678,000 shares)							170				3,379																3,549
Restricted stock units granted											5,550																5,550
Common stock issued for cash, net of offering costs (1,829,000 shares)							457				9,154																9,611
Restricted stock unit distributions (1,251,000 shares)							313				(321	)											(2,199	)			(2,207	)
Common stock dividends declared ($0.01 per common share)															(3,976	)											(3,976	)
Common stock issued for employee incentive compensation (533,000 shares)							133				4,107												(669	)			3,571
Other comprehensive income																			11,229								11,229
Balances, December 31, 2017		$	39			$	100,926			$	1,619,816			$	(195,484	)		$	(23,373	)		$	(18,042	)		$	1,483,882

 

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

 

F-5F-6

---

Table of Contents

 

Hecla Mining Company and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the Years Ended December 31, 2016, 2015 and 2014

(Dollars in thousands)

		Series B Preferred Stock				Common Stock				Additional Paid-In Capital				Accumulated Deficit				Accumulated Other Comprehensive Loss, net				Treasury Stock				Total
Balances, January 1, 2014		$	39			$	85,896			$	1,426,845			$	(154,982	)		$	(26,299	)		$	(5,080	)		$	1,326,419
Net income															17,824												17,824
Stock issued to directors (150,000 shares)							37				438																475
Series B Preferred Stock dividends declared															(552	)											(552	)
Stock issued for 401(k) match (811,000 shares)							203				2,226																2,429
Restricted stock units granted											9,019																9,019
Restricted stock unit distributions (2,674,000 shares)							665				(665	)											(2,279	)			(2,279	)
Warrants exercised (22,308,000 shares)							5,577				48,841																54,418
Common stock dividends declared ($0.01 per common share)							4				46				(3,596	)											(3,546	)
Repurchase of common shares (534,000 shares)																							(1,501	)			(1,501	)
Other comprehensive loss																			(5,732	)							(5,732	)
Balances, December 31, 2014			39				92,382				1,486,750				(141,306	)			(32,031	)			(8,860	)			1,396,974
Net loss															(86,968	)											(86,968	)
Stock issued to directors (235,000 shares)							59				547																606
Series B Preferred Stock dividends declared															(552	)											(552	)
Stock issued for 401(k) match (1,331,000 shares)							333				3,114																3,447
Restricted stock units granted											4,819																4,819
Restricted stock unit distributions (896,000 shares)							224				(224	)											(934	)			(934	)
Common stock issued to pension plans (1,764,000 shares)							441				4,569																5,010
Common stock issued for purchase of another company (6,253,000 shares)							1,562				17,215																18,777
Common stock dividends declared ($0.01 per common share)															(3,739	)											(3,739	)
Common stock issued for employee incentive compensation (871,000 shares)							218				2,808																3,026
Repurchase of common shares (284,000 shares)																							(940	)			(940	)
Other comprehensive loss																			(600	)							(600	)
Balances, December 31, 2015			39				95,219				1,519,598				(232,565	)			(32,631	)			(10,734	)			1,338,926
Net income															69,547												69,547
Stock issued to directors (189,000 shares)							47				756																803
Series B Preferred Stock dividends declared															(552	)											(552	)
Stock issued for 401(k) match (1,128,000 shares)							282				3,236																3,518
Restricted stock units granted											5,128																5,128
Common stock issued for cash, net of offering costs (2,780,000 shares)							695				7,426																8,121
Restricted stock unit distributions (1,390,000 shares)							348				(348	)											(2,211	)			(2,211	)
Common stock issued to pension plans (1,827,000 shares)							457				7,230																7,687
Common stock issued for purchase of another company (8,852,000 shares)							2,213				48,998												(959	)			50,252
Common stock dividends declared ($0.01 per common share)															(3,867	)											(3,867	)
Common stock issued for employee incentive compensation (2,185,000 shares)							545				5,188												(1,270	)			4,463
Other comprehensive loss																			(1,971	)							(1,971	)
Balances, December 31, 2016		$	39			$	99,806			$	1,597,212			$	(167,437	)		$	(34,602	)		$	(15,174	)		$	1,479,844

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

F-6

---

Table of Contents

Hecla Mining Company and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Note 1: Summary of Significant Accounting Policies

 

A. Principles of Consolidation — Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America, and include our accounts and our wholly-owned subsidiaries’ accounts. All significant inter-company balances and transactions have been eliminated in consolidation.  Certain prior year amounts have been reclassified to conform to the current year presentation.

 

B.  Assumptions and Use of Estimates — Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts and related disclosure of assets, liabilities, revenue and expenses at the date of the consolidated financial statements and reporting periods. We consider our most critical accounting estimates to be future metals prices; obligations for environmental, reclamation and closure matters; mineral reserves; and valuation of business combinations. Other significant areas requiring the use of management assumptions and estimates relate to reserves for contingencies and litigation; asset impairments, including long-lived assets and investments; valuation of deferred tax assets; and post-employment, post-retirement and other employee benefit assets and liabilities. We have based our estimates on historical experience and on various other assumptions that we believe to be reasonable. Accordingly, actual results may differ materially from these estimates under different assumptions or conditions.

 

C.  Cash and Cash Equivalents — Cash and cash equivalents consist of all cash balances and highly liquid investments with a remaining maturity of three months or less when purchased and are carried at fair value. Cash and cash equivalents are invested in money market funds, certificates of deposit, U.S. government and federal agency securities, municipal securities and corporate bonds.

 

D. Investments and Securities Held for Sale — We determine the appropriate classification of our investments at the time of purchase and re-evaluate such determinations at each reporting date. Short-term investments include certificates of deposit and held to maturity or available for sale debt securities, based on our intent and ability to hold the securities to maturity. Held to maturity securities are carried at amortized cost. Marketable debt and 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), unless an other than temporary impairment in value has occurred or we have elected the fair value option accounting method when available for certain investments; in either of those cases, the unrealized gain or loss would be charged to current period net income (loss).  The fair value option allows for the fair value measurement of specified assets or liabilities on a case-by-case basis. The fair value option may be elected when an investment becomes subject to the equity method of accounting. In determining whether our investments are subject to the equity method of accounting, we evaluate whether our ownership percentage and other factors indicate that we have the ability to exercise significant influence in the financial and/or operational decisions of the investee. We have elected the fair value option under such circumstances in the past and may do so in the future. Unrealized gains and losses originally included in accumulated other comprehensive income are reclassified to current period net income (loss) when the sale of securities, determination of an other than temporary impairment, or election of the fair value option accounting method occurs.

 

E.  Inventories — Major types of inventories include materials and supplies and metals product inventory, which is determined by the stage at which the ore is in the production process (stockpiled ore and finished goods). Product inventories are stated at the lower of full cost of production or estimated net realizable value based on current metal prices. Materials and supplies inventories are stated at cost.

 

Stockpiled ore inventory represents ore that has been mined, hauled to the surface, and is available for further processing. Stockpiles are measured by estimating the number of tons added and removed from the stockpile, the amount of contained metal ounces or pounds (based on assay data) and the estimated metallurgical recovery rates (based on the expected processing method). Costs are allocated to a stockpile based on relative values of material stockpiled and processed using current mining costs incurred up to the point of stockpiling the ore, including applicable overhead, depreciation, depletion and amortization relating to mining operations, and removed at each stockpile’s average cost per recoverable unit.

 

F-7

---

Table of Contents

 

Finished goods inventory includes doré and concentrates at our operations, doré in transit to refiners or at refiners waiting to be processed, and bullion in our accounts at refineries.

 

F. Restricted Cash — Restricted cash and investments primarily represent investments in money market funds, certificates of deposit, and bonds of U.S. government agencies and are restricted primarily for reclamation funding or surety bonds. Restricted cash balances are carried at fair value.

 

G. Properties, Plants and Equipment – Costs are capitalized when it has been determined an ore body can be economically developed.  The development stage begins at new projects when our management and/or board of directors makes the decision to bring a mine into commercial production, and ends when the production stage, or exploitation of reserves, begins.  Expenditures incurred during the development and production stages for new assets, new facilities, alterations to existing facilities that extend the useful lives of those facilities, and major mine development expenditures are capitalized, including primary development costs such as costs of building access ways, shaft sinking, lateral development, drift development, ramps and infrastructure developments. Costs to improve, alter, or rehabilitate primary development assets which appreciably extend the life, increase capacity, or improve the efficiency or safety of such assets are also capitalized.

 

The cost of removing overburden and waste materials to access the ore body at an open-pit mine prior to the production stage are referred to as "pre-stripping costs." Pre-stripping costs are capitalized during the development stage. Where multiple open pits exist at an operation utilizing common facilities, pre-stripping costs are capitalized at each pit. The production stage of a mine commences when salable materials, beyond a de minimis amount, are produced. Stripping costs incurred during the production stage are treated as variable production costs included as a component of inventory, to be recognized in cost of sales and other direct production costs in the same period as the revenue from the sale of inventory.

 

Costs for exploration, pre-development, secondary development at operating mines, including drilling costs related to those activities (discussed further below), and maintenance and repairs on capitalized property, plant and equipment are charged to operations as incurred.  Exploration costs include those relating to activities carried out (a) in search of previously unidentified mineral deposits, (b) at undeveloped concessions, or (c) at operating mines already containing proven and probable reserves, where a determination remains pending as to whether new target deposits outside of the existing reserve areas can be economically developed.  Pre-development activities involve costs incurred in the exploration stage that may ultimately benefit production, such as underground ramp development, which are expensed due to the lack of evidence of economic development, which is necessary to demonstrate future recoverability of these expenses. At an underground mine, secondary development costs are incurred for preparation of an ore body for production in a specific ore block, stope or work area, providing a relatively short-lived benefit only to the mine area they relate to, and not to the ore body as a whole. Primary development costs benefit long-term production, multiple mine areas, or the ore body as a whole, and are therefore capitalized.

 

Drilling and related costs are either classified as exploration or secondary development, as defined above, and charged to operations as incurred, or capitalized, based on the following criteria:

whether the costs are incurred to further define mineralization at and adjacent to existing reserve areas or intended to assist with mine planning within a reserve area;

whether the drilling costs relate to an ore body that has been determined to be commercially mineable, and a decision has been made to put the ore body into commercial production; and

whether, at the time that the cost is incurred: (a) the expenditure embodies a probable future benefit that involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future net cash inflows, (b) we can obtain the benefit and control others’others’ access to it, and (c) the transaction or event giving rise to our right to or control of the benefit has already occurred.

 

F-8

---

Table of Contents

 

If all of these criteria are met, drilling and related costs are capitalized.  Drilling costs not meeting all of these criteria are expensed as incurred.  The following factors are considered in determining whether or not the criteria listed above have been met, and capitalization of drilling costs is appropriate:

completion of a favorable economic study and mine plan for the ore body targeted;

authorization of development of the ore body by management and/or the board of directors; and

all permittingthere is a justifiable expectation, based on applicable laws and regulations, that issuance of permits or resolution of legal issues and/or contractual requirements necessary for us to have the right to or control of the future benefit from the targeted ore body have been met.

 

Drilling and related costs of approximately $6.8$9.9 million, $6.7$6.8 million, and $5.3$6.7 million for the years ended December31,2017,2016 2015 and 2014,2015, respectively, met our criteria for capitalization listed above at our properties that are in the production stage.

 

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 current period net income (loss).  Idle facilities placed on standby are carried at the lower of net carrying value or estimated net realizable value.  The net carrying values of idle facilities on standby are written-downwritten down to salvage value upon reaching the end of the economic life.  Therefore, with the exception of depreciation recorded on mobile equipment used in ongoing exploration and reclamation efforts at such properties, we do not record depreciation on idle facilities when they are not in operation.

 

Included in properties, plants, equipment and mineral interests on our consolidated financial statements are mineral interests, which are tangible assets that include acquired undeveloped mineral interests and royalty interests.  Undeveloped mineral interests include: (i) mineralized material and other resources which are 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.  Residual values for undeveloped mineral interests represent 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.

 

We capitalize portions of interest costs incurred on our debt as a part of the cost of constructing or acquiring certain qualifying assets. The amount of interest capitalized represents the portion of interest cost incurred during the construction or acquisition periods that theoretically could have been avoided if expenditures for the qualifying assets had not been made, limited to the total interest cost actually incurred during the period. Qualifying assets include discrete projects constructed by us or by a third party for our use which required a period of time to prepare the assets for their intended use. Interest capitalization takes place when capital expenditures for qualifying assets have been incurred, activities to prepare the qualifying asset for its intended use are underway, and interest cost is being incurred.

 

H. Depreciation, Depletion and Amortization — Capitalized costs are depreciated or depleted using the straight-line method or unit-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 13 to 22 years, but do not exceed the useful life of the individual asset. Determination of expected useful lives for amortization calculations are made on a property-by-property or asset-by-asset basis at least annually. Our estimates for reserves, mineralized material, and other resources are a key component in determining our units of production depreciation rates. Our estimates of proven and probable ore reserves, mineralized material, and other resources may change, possibly in the near term, resulting in changes to depreciation, depletion and amortization rates in future reporting periods.

 

Undeveloped mineral interests and value beyond proven and probable reserves are not amortized until such time as there are proven and probable reserves or the related mineralized material is converted to proven and probable reserves.  At that time, the basis of the mineral interest is amortized on a units-of-production basis.  Pursuant to our policy on impairment of long-lived assets (discussed further below), if it is determined that an undeveloped mineral interest cannot be economically converted to proven and probable reserves, the basis of the mineral interest is reduced to its net realizable value and an impairment loss is recorded to expense in the period in which it is determined to be impaired.

 

F-9

---

Table of Contents

 

I. Impairment of Long-lived Assets — Management reviews and evaluates the net carrying value of all facilities, including idle facilities, for impairment upon the occurrence of 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.

 

Although management has made a reasonable estimate of factors based on current conditions and information, assumptions underlying future cash flows are subject to significant risks and uncertainties. Estimates of undiscounted future cash flows are dependent upon, among other factors, estimates of: (i) metals to be recovered from proven and probable ore reserves and, to some extent, identified mineralization and other resources beyond proven and probable reserves, (ii) future production and capital costs and (iii) estimated metals prices (considering current and historical prices, forward pricing curves and related factors) over the estimated remaining mine life. It is reasonably possible that changes could occur in the near term that could adversely affect our estimate of future cash flows to be generated from our operating properties. If estimated undiscounted cash flows are less than the carrying value of a property, an impairment loss is recognized for the difference between the carrying value and fair value of the property.

 

J. Proven and Probable Ore Reserves — At least annually, management reviews the reserves used to estimate the quantities and grades of ore at our mines which we believe can be recovered and sold economically. Management’s calculations of proven and probable ore reserves are based on financial, engineering and geological estimates, including future metals prices and operating costs.costs, and an assessment of our ability to obtain the permits required to mine and process the material. From time to time, management obtains external audits of reserves. Independent reviews of the 2016 reserve models for Greens Creek and Lucky Friday were performed during 2017. An independent review of the modeling process at Greens Creek was performed during 2016.

 

Reserve estimates will change as existing reserves are depleted through production and as production costs and/or metals prices change. A significant drop in metals prices may reduce reserves by making some portion of such ore uneconomic to develop and produce. Changes in reserves may also reflect that actual grades of ore processed may be different from stated reserve grades because of variation in grades in areas mined, mining dilution and other factors. Our reserve estimates may change based on actual production experience. It is reasonably possible that certain of our estimates of proven and probable ore reserves will change in the near term, which could result in a change to estimated future cash flows, associated carrying values of the asset and amortization rates in future reporting periods, among other things.

 

Declines in the market prices of metals, increased production or capital costs, reduction in the grade or tonnage of the deposit or an increase in the dilution of the ore or reduced recovery rates or change in smelter terms may render ore reserves uneconomic to exploit. If our realized price for the metals we produce were to decline substantially below the levels set for calculation of reserves for an extended period, there could be material delays in the development of new projects, net losses, reduced cash flow, restatements or reductions in reserves and asset write-downs in the applicable accounting periods. Reserves should not be interpreted as assurances of mine life or of the profitability of current or future operations. No assurance can be given that the estimate of the amount of metal or the indicated level of recovery of these metals will be realized.

 

F-10

---

Table of Contents

K. Pension Plans and Other Post-retirement Benefits — Accounting principles regarding employers’ accounting for defined benefit pension and other post-retirement plans, among other things, require us to:

 

recognize the funded or underfunded status of our defined benefit plans in our consolidated financial statements; and

recognize as a component of other comprehensive income (loss) the actuarial gains and losses and prior service costs and credits that arise during the period but are not immediately recognized as components of net periodic benefit cost.

•

recognize as a component of other comprehensive income (loss) the actuarial gains and losses and prior service costs and credits that arise during the period but are not immediately recognized as components of net periodic benefit cost.

 

See Note 8for more information on the valuation of the underfunded status of our defined benefit pension plans.

L. Income and Production Taxes — We provide for federal, state and foreign income taxes currently payable, as well as those deferred due to timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Federal, state and foreign tax benefits are recorded as a reduction of income taxes, when applicable. We record deferred tax liabilities and assets for 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.

 

F-10

---

Table of Contents

We evaluate uncertain tax positions in a two-steptwo-step process, whereby (i) it is determined whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-notmore-likely-than-not recognition threshold, the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the related tax authority would be recognized.

 

We classify mine license taxes incurred in the states of Alaska and Idaho as other direct production costs reported in our gross profits. Resource taxes incurred in Quebec, Canada are classified as income taxes.

 

For additional information, seeNote 5 — Income Taxes.

 

M. Reclamation and Remediation Costs (Asset Retirement Obligations) — At our operating properties, we record a liability for the present value of our estimated environmental remediation costs, and the related asset created with it, in the period in which the liability is incurred. The liability is accreted and the asset is 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 are made in the period incurred.

 

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 current earnings under 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’smanagement’s current estimate of amounts to be incurred when the remediation work is performed, within current laws and regulations.

 

Future closure, reclamation and environmental-related expenditures are difficult to estimate in many circumstances, due to the early stage nature of investigations, uncertainties associated with defining the nature and extent of environmental contamination, the application of laws and regulations by regulatory authorities, and changes in reclamation or remediation technology. We periodically review accrued liabilities for such reclamation and remediation costs as evidence becomes available indicating that our liabilities have potentially changed. Changes in estimates at our non-operating properties are reflected in current period net income (loss).

 

It is reasonably possible the ultimate cost of reclamation and remediation could change in the future, and that changes to these estimates could have a material effect on future operating results as new information becomes known.

 

N. Revenue Recognition and Trade Accounts Receivable — Sales of all metals products sold directly to customers, including by-product metals, are recorded as revenues and accounts receivable when title and risk of loss transfer to the customer. For concentrate sales, revenues are generally recorded at the time of shipment at estimated forward prices for the anticipated month of settlement. Due to the time elapsed from shipment to the customer and the final settlement with the customer, we must estimate the prices at which sales of our concentrates will be settled. Previously recorded sales and accounts receivable are adjusted to estimated settlement metals prices until final settlement by the customer.

 

F-11

---

Table of Contents

Sales and accounts receivable for concentrate shipments are recorded net of charges by the customers for treatment, refining, smelting losses, and other charges negotiated by us with the customers. Charges are estimated by us upon shipment of concentrates based on contractual terms, and actual charges typically do not vary materially from our estimates. Costs charged by customers include fixed treatment and refining costs per ton of concentrate, and also include price escalators which allow the customers to participate in the increase of lead and zinc prices above a negotiated baseline.

F-11

---

Table of Contents

 

Changes in metals prices between shipment of concentrates and final settlement will result in adjustments to revenues and accounts receivable related to sales of concentrate previously recorded upon shipment. Our concentrate sales and accounts receivable are based on provisional sales prices containing an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of the concentrates at the forward price at the time of the sale. The embedded derivative, which does not qualify for hedge accounting, is adjusted to market through earnings each period prior to final settlement.

 

At December31, 2016,2017, metals contained in concentrates and exposed to future price changes totaled 1.41.6 million ounces of silver, 4,6795,799 ounces of gold, 10,16611,365 tons of zinc, and 4,0522,705 tons of lead.  However, asAs discussed inP. Risk Management Contracts below, we seek to mitigate the risk of negative price adjustments by using financially-settled forward contracts for some of our sales.

 

Sales of metals in products tolled by refiners and sold directly by us, rather than sold to smelters, are recorded at contractual amounts when title and risk of loss transfer to the buyer.

 

Changes in the market price of metals significantly affect our revenues, profitability, and cash flow. Metals prices can and often do fluctuate widely and are affected by numerous factors beyond our control, such as political and economic conditions, demand, forward selling by producers, aggregation by metals speculators and others, expectations for inflation, central bank sales, custom smelter activities, the relative exchange rate of the U.S. dollar, investor sentiment, and global mine production levels. The aggregate effect of these factors is impossible to predict. Because our revenue is derived from the sale of silver, gold, lead, and zinc, our earnings are directly related to the prices of these metals.

 

O. Foreign Currency — The functional currency for our operations located in the U.S., Mexico and Canada was the U.S. dollar ("USD") for all periods presented. Accordingly, for the Casa Berardi unit in Canada and San Sebastian project in Mexico, we have translated our monetary assets and liabilities at the period-end exchange rate, and non-monetary assets and liabilities at historical rates, with income and expenses translated at the average exchange rate for the current period. All translation gains and losses have been included in the current period net income (loss). Expenses incurred at our foreign operations and denominated in Canadian dollars ("CAD") and Mexican pesos ("MXN") expose us to exchange rate fluctuations between those currencies and the USD. However, asAs discussed inP. Risk Management Contracts below, we seek to mitigate this exposure by using financially-settled forward contracts to sell CAD and MXN.

 

For the year ended December31, 20162017 we recognized a total net foreign exchange loss of $2.9$10.3 million. For the years ended December 31, 20152016 and 2014,2015, we recognized a total net foreign exchange gainsloss of $24.6$2.9 million and $11.5a gain of $24.6 million, respectively.  

 

P. Risk Management Contracts — We use derivative financial instruments as part of an overall risk-management strategy utilized as a means of managing exposure to metals prices and exchange rate fluctuations between the USD and CAD and MXN. We do not hold or issue derivative financial instruments for speculative trading purposes. We measure derivative contracts as assets or liabilities based on their fair value. Amounts recognized for the fair value of derivative asset and liability positions with the same counterparty and which would be settled on a net basis are offset against each other on our consolidated balance sheets. Gains or losses resulting from changes in the fair value of derivatives in each period are recorded either in current earnings or other comprehensive income (“OCI”), depending on the use of the derivative, whether it qualifies for hedge accounting and whether that hedge is effective. Amounts deferred in OCI are reclassified to sales of products (for metals price-related contracts) or cost of sales (for foreign currency-related contracts). Ineffective portions of any change in fair value of a derivative are recorded in current period other operating income (expense). As of December 31, 2016,2017, our foreign currency-related forward contracts qualified for hedge accounting, with unrealized gains and loss related to the effective portion of the contracts included in OCI. Our metals price-related forward contracts do not qualify for hedge accounting as of December 31, 2016,2017, and all unrealized gains and losses are therefore reported in earnings.

 

F-12

---

Table of Contents

 

See SeeNote 10 for additional information on our foreign exchange and metal derivative contracts as of December 31, 2016.2017.

 

Q. Stock Based Compensation — The fair values of equity instruments granted to employees and havingthat have vesting periods are expensed over the vesting periods on a straight-line basis. The fair values of instruments having no vesting period are expensed when granted.   Stock-based compensation expense is recorded among general and administrative expenses, exploration and cost of sales and other direct production costs.

 

For additional information on our employee stock option and restricted stock unit compensation, seeNote 9.

 

R.  Legal Costs – Legal costs incurred in connection with a potential loss contingency are recorded to expense as incurred.

 

S. Basic and Diluted Income (Loss) Per Common Share — We calculate basic earnings per share on the basis of the weighted average number of shares of common sharesstock outstanding during the period. Diluted earnings per share is calculated using the weighted average number of shares of common sharesstock outstanding during the period plus the effect of potential dilutive common shares during the period using the treasury stock and if-converted methods.

 

Potential dilutive shares of common sharesstock include outstanding stock options, unvested restricted stock awards, stock units, warrants and convertible preferred stock for periods in which we have reported net income. For periods in which we reported net losses, potential dilutive shares of common sharesstock are excluded, as their conversion and exercise would be anti-dilutive. SeeNote 13 for additional information.

 

T. Comprehensive Income (Loss) — In addition to net income (loss), comprehensive income (loss) includes certain changes in equity during a period, such as adjustments to minimum pension liabilities, adjustments to recognize the over-funded or under-funded status of our defined benefit pension plans, the change in fair value of derivative contracts designated as hedge transactions, and cumulative unrecognized changes in the fair value of available for sale investments, net of tax, if applicable.

 

U.  Fair Value Measurements— We disclose the following information for each class of assets and liabilities that are measured at fair value:

1.

the fair value measurement;

2.

the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1)1), significant other observable inputs (Level 2)2), and significant unobservable inputs (Level 3)3);

3.

for fair value measurements using significant unobservable inputs (Level 3)3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following:

a.

total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings, and a description of where those gains or losses included in earnings are reported in the statement of operations;

b.

the amount of these gains or losses attributable to the change in unrealized gains or losses relating to those assets or liabilities still held at the reporting period date and a description of where those unrealized gains or losses are reported;

c.

purchases, sales, issuances, and settlements (net); and

d.

transfers into and/or out of Level 3.

4.

the amount of the total gains or losses for the period included in earnings that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of operations; and

5.

in annual periods only, the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period.

 

SeeNotes 8 and12 for more information on the fair value measurement of our financial instruments.

 

F-13

---

Table of Contents

 

V. Research and development— Costs related to research and development of technologies or equipment new to our operations are recorded to expense when it is uncertain whether future economic benefit will result from the costs. Such costs are capitalized if it can be determined they will result in future economic benefit through use of the new technology or equipment. Research and development costs to date as of for the years ended December 31,2017 and 2016 include included contractor fees.

 

W. New Accounting Pronouncements — In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-092014-09 Revenue Recognition, replacing guidance currently codified in Subtopic 605-10605-10 Revenue Recognition-Overall with various SEC Staff Accounting Bulletins providing interpretive guidance.Recognition-Overall.  The new ASU establishes a new five step principle-basedprinciples-based framework in an effort to significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets.  In August 2015, the FASB issued ASU No. 2015-142015-14 Revenue from Contracts with Customers (Topic 606)606): Deferral of the Effective Date.  ASU No. 2015-142015-14 defers the effective date of ASU No. 2014-092014-09 until annual and interim reporting periods beginning after December 15, 2017.We have elected to adopt the modified-retrospective transition approach to implement this standard.

 

We have performed a preliminaryan assessment of the impact of implementation of ASU No. 2014-09,2014-09, and do not believeconcluded it willnot change the timing of revenue recognition or amounts of revenue recognized compared to how we recognize revenue under our current policies. Our revenues involve a relatively limited number of types of contracts and customers. In addition, our revenue contracts do not involve multiple types of performance obligations. Revenues from doré are recognized, and the transaction price is known, at the time the metals sold are delivered to the customer. Concentrate revenues are generally recognized at the time of shipment. Concentrates sold at our Lucky Friday unit typically leave the mine and are received by the customer within the same day. There is a period of time between shipment of concentrates from our Greens Creek unit and their physical receipt by the customer. However, based on our assessment, we believe control of the concentrate parcels is generally obtained by the customer at the time of shipment.

 

Our concentrate sales involve variable consideration, as they are subject to changes in metals prices between the time of shipment and their final settlement. However, we are able to reasonably estimate the transaction price for the concentrate sales at the time of shipment using forward prices for the month of settlement, and we then adjust the values each period until final settlement. Also, it is unlikely a significant reversal of revenue for any one concentrate parcel will occur.

 

During 2017,ASU No.2014-09 will require additional disclosures, where applicable, on (i) contracts with customers, (ii) significant judgments and changes in judgments in determining the timing of satisfaction of performance obligations and the transaction price, and (iii) assets recognized for costs to obtain or fulfill contracts. We have developed draft disclosure which we plan to finalize our assessment of the impact of ASU No. 2014-09 on our revenue recognition, and assess the additional disclosure requirements under thebelieve, when implemented, will meet these new guidance.requirements.

 

In April 2015, January 2016, the FASB issued ASU No. 2015-03 Interest 2016- Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The update requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting principle. The update is effective for fiscal years beginning after December 15, 2015. ASU No. 2015-03 did not have a material impact on our consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11 Inventory (Topic 330): Simplifying the Measurement of Inventory. The update provides for inventory to be measured at the lower of cost and net realizable value, and is effective for fiscal years beginning after December 15, 2016. We do not expect this update to have a material impact on our consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17 Income Taxes - Balance Sheet Classification of Deferred Taxes (Topic 740). The update is designed to reduce complexity of reporting deferred income tax liabilities and assets into current and non-current amounts in a statement of financial position. ASU No. 2015-17 requires the presentation of deferred income taxes, changes to deferred tax liabilities and assets be classified as non-current in the statement of financial position. The update is effective for fiscal years beginning after December 15, 2016. Our current deferred tax asset balance at December 31, 2016 was $12.3 million, which would be reclassified as non-current under ASU No. 2015-17.

F-14

---

Table of Contents

In January 2016, the FASB issued ASU No. 2016-0101 Financial Instruments - Overall (Subtopic 825-10)825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The guidance requires entities to measure equity investments that are not accounted for under the equity method at fair value, with any changes in fair value included in current earnings, and updates certain disclosure requirements. The update is effective for fiscal years beginning after December 15, 2017. We are currently evaluatingAdoption will be accounted for using the impactmodified-retrospective approach, with a cumulative-effect adjustment to our balance sheet as of implementing this update on our consolidated financial statements. January 1, 2018. At December31, 2016,2017, we had net unrealized gains of $1.8 million related to equity investments of $3.7 million included in accumulated other comprehensive loss.

 

F-14

---

Table of Contents

In February 2016, the FASB issued ASU No. 2016-022016-02 Leases (Topic 842)842). The update modifies the classification criteria and requires lessees to recognize the assets and liabilities on the balance sheet for most leases. The update is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are currently reviewing our leases and compiling the information required to implement the new guidance. See Note 3for information on future commitments related to our operating leases; the present value of these leases will be recognized on our balance sheet upon implementation of the new guidance. We are currently evaluating the potential impact of implementing this update on our consolidated financial statements. SeeNote 3 for information on our operating lease commitments as of December 31, 2016.

 

In MarchAugust 2016, the FASB issued ASU No. 2016-09 Compensation 2016- Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The update simplifies the accounting for stock-based compensation, including income tax consequences and balance sheet and cash flow statement classification of awards. The update is effective for fiscal years beginning after December 15 2016, with early adoption permitted. We are currently evaluating the impact of implementing this update on our consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230)230): Classification of Certain Cash Receipts and Cash Payments. The update provides guidance on classification for cash receipts and payments related to eight specific issues. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the potential impact of implementingdo not expect this update to have a material impact on our consolidated financial statements.

 

In November 2016, the FASB issued ASU No. 2016-182016-18 Statement of Cash Flows (Topic 230)230): Restricted Cash. The update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the potential impact of implementingOur restricted cash balance at December31,2017 was $1.0 million, and we do not expect this update to have a material impact on our consolidated financial statements.

 

In January 2017, the FASB issued ASU No. 2017-012017-01 Business Combinations (Topic 805)805): Clarifying the Definition of a Business. The update clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We will apply the applicable provisions of the update to potential futureany acquisitions occurring after the effective date.

 

In March 2017, the FASB issued ASU No.2017-07 Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Period Postretirement Benefit Cost. The update provides specific requirements for classification and disclosure regarding the service cost component and other components of net benefit cost related to pension plans. The update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We have implemented this update effective January 1, 2018. For the full year of 2018, a total net expense of approximately $2.8 million for the components of net benefit cost except service cost is expected to be included in other income (expense) on our consolidated statements of operations, and not reported in the same line items as other employee compensation costs.

In August 2017, the FASB issued ASU No.2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The objective of the update is to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements, and simplify the application of existing hedge accounting guidance. The update is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the potential impact of implementing this update on our consolidated financial statements.

 

F-15

---

Table of Contents

 

Note 2. Investments

Investments

 

Investments

Our current investments, which are classified as "available for sale" and consist of bonds having maturities of greater than 90 days and less than 365 days, had a fair value of $29.1$33.8 million and $29.1 million at December 31, 2016.2017 and 2016, respectively. During 2016,2017, we had purchases of such investments of $48.0$55.0 million and maturities of $18.6$50.0 million. We held no such investments as of December 31, 2015. Our current investments at December 31,2017 and 2016 consist consisted of the following:following (in thousands):

 

														December 31, 2017												December 31, 2016
		Amortized cost				Unrealized loss				Fair market value				Amortized cost				Unrealized loss				Fair market value				Amortized cost				Unrealized loss				Fair market value
Corporate bonds		$	22,100			$	(46	)		$	22,054			$	33,778			$	(20	)		$	33,758			$	22,100			$	(46	)		$	22,054
Municipal bonds			3,727				(1	)			3,726				—				—				—				3,727				(1	)			3,726
Agency bonds			3,339				(2	)			3,337				—				—				—				3,339				(2	)			3,337
Total		$	29,166			$	(49	)		$	29,117			$	33,778			$	(20	)		$	33,758			$	29,166			$	(49	)		$	29,117

 

At December 31, 20162017 and 2015,2016, the fair value of our non-current investments was $5.0$7.6 million and $1.5$5.0 million, respectively.  Our non-current investments consist of marketable equity securities which are carried at fair value, and are primarily classified as “available-for-sale.” The cost basis of our non-current investments was approximately $4.1$5.7 million and $4.0$4.1 million at December 31, 20162017 and 2015,2016, respectively. In each of 20162017 and 2015,2016, we acquired marketable equity securities having a cost basis of $0.9 million.$1.6 million and $0.9 million, respectively. In 2016, and 2015, we recognized an impairment chargescharge against current earnings of $1.0$1.0 million, and $2.5 million, respectively, as we determined the impairmentsimpairment to be other-than-temporary.

 

Note 3: Properties, Plants, Equipment and Mineral Interests, and Lease Commitments

 

Properties, Plants, Equipment and Mineral Interests

 

Our major components of properties, plants, equipment, and mineral interests are (in thousands):

 

		December 31,								December 31,
		2016				2015				2017				2016
Mining properties, including asset retirement obligations		$	403,935			$	372,935			$	443,182			$	403,935
Development costs			347,356				291,780				390,094				347,356
Plants and equipment			814,091				738,065				847,462				814,091
Land			26,229				21,362				26,949				26,229
Mineral interests			952,382				907,791				919,082				952,382
Construction in progress			330,785				295,155				347,323				330,785
			2,874,778				2,627,088				2,974,092				2,874,778
Less accumulated depreciation, depletion and amortization			842,093				730,277				954,071				842,093
Net carrying value		$	2,032,685			$	1,896,811			$	2,020,021			$	2,032,685

 

During 2016,2017, we incurred total capital expenditures of approximately $164.8$98.0 million. This excludes non-cash items for additions acquired under capital leases and adjustments for asset retirement obligations. The expenditures included $41.5$4.5 million at the Lucky Friday unit, $47.0$34.2 million at the Greens Creek unit, $70.1$47.1 million at the Casa Berardi unit, and $1.6$11.2 million at the San Sebastian unit.

 

Properties, plants, equipment, and mineral interests includes the portion of interest costs incurred on our debt capitalized as a part of the cost of constructing certain qualifying assets. For the years ended December31, 20162017 and 2015,2016, capitalized interest totaled $16.2$0.9 million and $13.5$16.2 million, respectively. The capitalized interest was primarily related to the #4 Shaft project at Lucky Friday, which was completed in January 2017.

F-16

---

Table of Contents

Capital Leases

 

Capital Leases

We periodically enter into lease agreements, primarily for equipment at our Greens Creek, Lucky Friday and Casa Berardi units, which we have determined to be capital leases.  As of December 31, 20162017 and 2015,2016, we have recorded $42.2$48.6 million and $39.9$42.2 million, respectively, for the gross amount of assets acquired under the capital leases and $26.0$33.1 million and $24.4$26.0 million, respectively, in accumulated depreciation on those assets, classified as plants and equipment inProperties, plants, equipment and mineral interests.  SeeNote 6 for information on future obligations related to our capital leases.

 

F-16

---

Table of Contents

Operating Leases

 

We enter into operating leases during the normal course of business. During the years ended December 31,2017, 2016 2015 and 2014,2015, we incurred expenses of $4.8$4.8 million, $3.8$4.8 million and $3.5$3.8 million, respectively, for these leases. At December 31, 2016,2017, future obligations under our non-cancelable operating leases were as follows (in thousands):

 

Year ending December 31,
2017		$	4,571
2018			2,466
2019			976
2020			993
2021			653
Thereafter			634
Total		$	10,293

Year ending December 31,
2018		$	4,812
2019			2,864
2020			2,882
2021			2,881
2022			2,547
Thereafter			—
Total		$	15,986

 

Note 4: Environmental and Reclamation Activities

 

The liabilities accrued for our reclamation and closure costs at December 31, 20162017 and 2015,2016 were as follows (in thousands):

		2016				2015
Operating properties:
Greens Creek		$	39,014			$	41,338
Lucky Friday			9,194				5,212
Casa Berardi			5,475				5,494
San Sebastian			5,425				1,189
Non-operating properties:
Troy mine			16,167				17,295
South Dakota and Colorado Superfund Sites			—				16,300
Johnny M			5,830				5,830
Republic			1,500				774
All other sites			2,975				2,106
Total			85,580				95,538
Reclamation and closure costs, current			(5,653	)			(20,989	)
Reclamation and closure costs, long-term		$	79,927			$	74,549

 

		2017				2016
Operating properties:
Greens Creek		$	41,677			$	39,014
Lucky Friday			9,911				9,194
Casa Berardi			6,729				5,475
San Sebastian			5,067				5,592
Non-operating properties:
Troy mine			12,724				16,167
Johnny M			5,813				5,830
Republic			1,500				1,500
All other sites			2,624				2,808
Total			86,045				85,580
Reclamation and closure costs, current			(6,679	)			(5,653	)
Reclamation and closure costs, long-term		$	79,366			$	79,927

F-17

---

Table of Contents

 

The activity in our accrued reclamation and closure cost liability for the years ended December31,2017,2016 2015 and 2014,2015 was as follows (in thousands):

Balance at January 1, 2014		$	105,191
Accruals for estimated costs			6,863
Accretion expense			3,089
Revision of estimated cash flows due to changes in reclamation plans			675
Payment of reclamation obligations			(58,568	)
Balance at December 31, 2014			57,250
Accruals for estimated costs			15,114
Accretion expense			1,904
Revision of estimated cash flows due to changes in reclamation plans			4,112
Addition due to development and production at our San Sebastian unit			1,189
Liability addition due to acquisition of Revett			17,513
Payment of reclamation obligations			(1,544	)
Balance at December 31, 2015			95,538
Accruals for estimated costs			672
Accretion expense			3,191
Revision of estimated cash flows due to changes in reclamation plans			2,759
Liability addition due to acquisition of Mines Management			1,124
Payment of reclamation obligations			(17,704	)
Balance at December 31, 2016		$	85,580

On September 8, 2011, a Consent Decree (the “Consent Decree”) settling environmental litigation and related claims involving Hecla Limited pertaining to historic releases of mining wastes in the Coeur d'Alene Basin was approved and entered by the U.S. District Court in Idaho. The Consent Decree resolved all existing claims of the Plaintiffs against Hecla Limited and its affiliates under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) (and certain other statutes) for past response costs, future environmental remediation costs, and natural resource damages related to historic releases of mining wastes in the Coeur d'Alene River Basin. The Consent Decree also resolved all remaining obligations of Hecla Limited under the 1994 Consent Decree relating to the “Box,” a rectangular 21-square-mile site located near Kellogg, Idaho within the Bunker Hill Superfund site. The Consent Decree contains comprehensive terms of settlement, including financial terms which required that Hecla Limited pay, in the aggregate, $264.4 million to the Plaintiffs over approximately three years following the settlement. Payments of approximately $168 million, $25 million, and $15 million (and related interest) were made in October 2011, 2012, and 2013, respectively, pursuant to the terms of the Consent Decree. In addition, a payment of approximately $14.1 million in proceeds from warrants exercised during the second quarter of 2014 was made in July 2014. Finally, a payment of approximately $41.3 million, consisting primarily of proceeds from the exercise of the remaining outstanding warrants, was made in August 2014, which satisfied Hecla Limited's remaining payment obligations under the Consent Decree.

 

Balance at January 1, 2015		$	57,250
Accruals for estimated costs			15,114
Accretion expense			1,904
Revision of estimated cash flows due to changes in reclamation plans			4,112
Addition due to development and production at our San Sebastian unit			1,189
Liability addition due to acquisition of Revett			17,513
Payment of reclamation obligations			(1,544	)
Balance at December 31, 2015			95,538
Accruals for estimated costs			705
Accretion expense			3,158
Revision of estimated cash flows due to changes in reclamation plans			2,759
Liability addition due to acquisition of Mines Management			1,124
Payment of reclamation obligations			(17,704	)
Balance at December 31, 2016			85,580
Accruals for estimated costs			16
Accretion expense			4,870
Revision of estimated cash flows due to changes in reclamation plans			(578	)
Payment of reclamation obligations			(3,843	)
Balance at December 31, 2017		$	86,045

In June 2015, we completed the acquisition of Revett, giving us 100% ownership of the Troy mine and other interests in northwestern Montana (seeNote 15 for more information). As a result, we recorded a $17.5$17.5 million liability for the present value of estimated costs for reclamation and closure of the Troy mine. Revett held an environmental risk transfer program ("insurance policy") which would have funded costs incurred prior to the expiration date of March 29, 2020 for reclamation at the Troy mine up to a maximum limit of $16.8$16.8 million. In the third quarter of 2016, we reached a settlement on the insurance policy for cash proceeds to us of $16.0$16.0 million.

 

On each of June 15, 2016 and September 19, 2016, a Consent Decree settling environmental claims involving our wholly-owned subsidiary, CoCa Mines, Inc. ("CoCa") at the Nelson Tunnel/Commodore Waste Rock Pile site (Colorado) and Gilt Edge site (South Dakota), respectively, was approved and entered by the U.S. District Court in Colorado and South Dakota, respectively. Pursuant to the Consent Decrees, CoCa paid an aggregate of $6$6 million in August 2016 to the United States and the State of Colorado, and an aggregate of $3.9$3.9 million in November 2016 to the United States and the State of South Dakota (insurers and another potentially responsible party ("PRP") paid an additional $6.4$6.7 million to settle the Gilt Edge matter). As a result, CoCa has resolved the claims with respect to the Gilt Edge and Nelson Tunnel sites. During the negotiations leading up to these settlements, in the second quarter of 2015 we accrued $9.9$9.9 million by recording a liability for the total amount that would be paid by CoCa to settle these matters, and an asset for the amount to be recovered by CoCa from insurers and the other settling PRP with respect to the Gilt Edge site.

 

F-18

---

Table of Contents

 

Asset Retirement Obligations

 

Below is a reconciliation as of December31, 20162017 and 20152016 (in thousands) of the asset retirement obligations ("ARO") relating to our operating properties, which are included in our total accrued reclamation and closure costs of $85.6$86.0 million and $95.5$85.6 million, respectively, discussed above. The estimated reclamation and abandonment costs were discounted using credit adjusted, risk-free interest rates ranging from 6%5.75% to 14.5% from the time we incurred the obligation to the time we expect to pay the retirement obligation.

 

		2016				2015				2017				2016
Balance January 1		$	53,233			$	46,539			$	59,275			$	53,433
Changes in obligations due to changes in reclamation plans			2,760				4,112				(578	)			2,760
Addition due to development and production at our San Sebastian unit			—				1,189
Accretion expense			3,191				1,904				4,870				3,158
Payment of reclamation obligations			(76	)			(511	)			(183	)			(76	)
Balance at December 31		$	59,108			$	53,233			$	63,384			$	59,275

 

In the third quarter of 2016, we updated our ARO at Lucky Friday to reflect a reclamation plan that includes estimated costs for reclamation and closure of the mine and mill upon the end of the known mine life, in addition to reclamation of existing tailings impoundments already considered. The previous plan contemplated stabilization, clean-up and ongoing monitoring and maintenance of the mine and mill site. The change to the reclamation plan resulted in an increase in total undiscounted costs of approximately $22.6 million, and an increase to the ARO asset and liability of $3.3 million after discounting the costs to present value.

 

In the thirdfourth quarter of 2016,2017, we updated the ARO at San Sebastian to include estimated costs for fillingnew underground mine development initiated in 2017 and to revise the timing for reclamation of the existing open pits, at the end of their known life, resulting in an increase in undiscounted costs of $4.3$0.5 million and decrease in the ARO asset and liability of $1.2 million.

In the fourth quarter of 2017, we revised the ARO at Casa Berardi to include costs for reclamation related to the East Mine Crown Pillar open pit, resulting in an increase in undiscounted costs of $1.0 million and increase in the ARO asset and liability of $4.5$0.7 million.

In the fourth quarter of 2016, we revised the ARO at Greens Creek to include costs for reclamation of additional waste rock, along with updated timing of estimated reclamation costs. The change resulted in an increase in undiscounted costs of $3.7 million, but a decrease in the ARO asset and liability of $5.0 million due to the impact of discounting costs to present value and the change in estimated timing costs.

 

The ARO layers related to the changes described above were discounted using a credit adjusted, risk-free interest rate of 6.5%5.75% and inflation rates ranging from 2% to 3.25%4%.

 

Note 5: Income Taxes

 

Major components of our income tax (provision) benefitprovision for the years ended December31,2017,2016 2015 and 20142015 are as follows (in thousands):

		2016				2015				2014
Current:
Domestic		$	(10,702	)		$	3,892			$	7,761
Foreign			(13,713	)			(5,376	)			(619	)
Total current income tax (provision) benefit			(24,415	)			(1,484	)			7,142
Deferred:
Domestic			7,480				(75,456	)			(1,572	)
Foreign			(10,493	)			20,630				(330	)
Total deferred income tax (provision) benefit			(3,013	)			(54,826	)			(1,902	)
Total income tax benefit (provision)		$	(27,428	)		$	(56,310	)		$	5,240

 

 

		2017				2016				2015
Current:
Domestic		$	22,171			$	(10,702	)		$	3,892
Foreign			(22,526	)			(13,713	)			(5,376	)
Total current income tax provision			(355	)			(24,415	)			(1,484	)
Deferred:
Domestic			(30,766	)			7,480				(75,456	)
Foreign			11,242				(10,493	)			20,630
Total deferred income tax provision			(19,524	)			(3,013	)			(54,826	)
Total income tax provision		$	(19,879	)		$	(27,428	)		$	(56,310	)

F-19

---

Table of Contents

 

Domestic and foreign components of (loss) income before income taxes for the years ended December31,2017,2016 2015 and 20142015 are as follows (in thousands): 

 

		2016				2015				2014				2017				2016				2015
Domestic		$	41,014			$	(65,895	)		$	(1,505	)		$	(7,920	)		$	41,014			$	(65,895	)
Foreign			55,961				35,237				14,089				4,280				55,961				35,237
Total		$	96,975			$	(30,658	)		$	12,584			$	(3,640	)		$	96,975			$	(30,658	)

F-19

---

Table of Contents

 

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

 

		2016								2015								2014
Computed “statutory” benefit (provision)		$	(33,941	)			35	%		$	10,731				35	%		$	(4,405	)			35	%
Percentage depletion			8,114				(8	)			2,432				8				6,034				(48	)
Change in valuation allowance			11,336				(12	)			(84,951	)			(277	)			(6,314	)			50
State taxes, net of federal taxes			(565	)			1				(3,639	)			(12	)			1,671				(13	)
Foreign currency remeasurement of monetary assets and liabilities			(4,598	)			5				28,184				92				16,368				(130	)
Rate differential on foreign earnings			(6,853	)			7				(4,746	)			(15	)			(5,938	)			47
Compensation			(1,311	)			1				(815	)			(3	)			(1,308	)			10
Other			390				(1	)			(3,506	)			(12	)			(868	)			7
Total		$	(27,428	)			28	%		$	(56,310	)			(184	)%		$	5,240				(42	)%

		2017								2016								2015
Computed “statutory” benefit (provision)		$	1,274				35	%		$	(33,941	)			35	%		$	10,731				35	%
Percentage depletion			5,174				142				8,114				(8	)			2,432				8
Change in valuation allowance			24,464				672				11,336				(12	)			(84,951	)			(277	)
Federal rate change			(37,546	)			(1,031	)			—				—				—				—
State taxes, net of federal taxes			1,112				30				(565	)			1				(3,639	)			(12	)
Foreign currency remeasurement of monetary assets and liabilities			(10,357	)			(284	)			(4,598	)			5				28,184				92
Rate differential on foreign earnings			(1,438	)			(39	)			(6,853	)			7				(4,746	)			(15	)
Compensation			(661	)			(18	)			(1,517	)			1				(1,014	)			(3	)
Foreign withholding taxes			(278	)			(8	)			—				—				—				—
Expiration of U.S. foreign tax credits			(2,300	)			(63	)			—				—				—				—
Other			677				18				596				(1	)			(3,307	)			(12	)
Total provision		$	(19,879	)			(546	)%		$	(27,428	)			28	%		$	(56,310	)			(184	)%

On January 1, 2017 we adopted ASU No.2015-17 Income Taxes - Balance Sheet Classification of Deferred Taxes (Topic 740).  Accordingly, all deferred income tax assets and liabilities are classified as non-current in the consolidated balance sheet. Upon adoption, we classified, as non-current, previously reported current deferred tax assets of $12.3 million and current deferred tax liabilities of $1.3 million.

 

We evaluated the positive and negative evidence available to determine the amount of valuation allowance required on our deferred tax assets.  At December 31, 20162017 and 2015,2016, the balances of our valuation allowances were approximately $100$79 million and $116$100 million, respectively, primarily related to net operating losses and tax credit carryforwards. The amount ofDue to the changes to tax laws under the Tax Cuts and Jobs Act, we determined it is more likely than not that we will not realize our U.S. net deferred tax asset considered recoverable, however, could be reduced in the near term if estimates of future taxable income are reduced.assets. Accordingly, we have applied a full valuation allowance.

F-20

---

Table of Contents

 

At December31, 20162017 and 2015,2016, the net deferred tax liability was approximately $87$120 million and $66$87 million, respectively. The individual components of our net deferred tax assets and liabilities are reflected in the table below (in thousands).

 

		December 31,
		2016				2015
Deferred tax assets:
Accrued reclamation costs		$	30,188			$	26,473
Deferred exploration			26,785				29,120
Foreign net operating losses			1,058				21,140
Domestic net operating losses			82,359				82,116
AMT credit carryforwards			20,405				11,607
Pension and benefit obligation			18,115				18,916
Foreign exchange loss			34,977				38,779
Foreign tax credit carryforward			7,283				6,692
Miscellaneous			30,166				27,205
Total deferred tax assets			251,336				262,048
Valuation allowance			(99,602	)			(115,806	)
Total deferred tax assets			151,734				146,242
Deferred tax liabilities:
Miscellaneous			(3,046	)			(2,394	)
Properties, plants and equipment			(235,700	)			(209,577	)
Total deferred tax liabilities			(238,746	)			(211,971	)
Net deferred tax liability		$	(87,012	)		$	(65,729	)

		December 31,
		2017				2016
Deferred tax assets:
Accrued reclamation costs		$	21,812			$	30,188
Deferred exploration			17,426				26,785
Foreign net operating losses			1,003				1,058
Domestic net operating losses			130,186				82,359
AMT credit carryforwards			584				20,405
Pension and benefit obligation			12,584				18,115
Foreign exchange loss			18,112				34,977
Foreign tax credit carryforward			4,983				7,283
Miscellaneous			25,411				30,166
Total deferred tax assets			232,101				251,336
Valuation allowance			(78,684	)			(99,602	)
Total deferred tax assets			153,417				151,734
Deferred tax liabilities:
Miscellaneous			(4,978	)			(3,046	)
Properties, plants and equipment			(268,476	)			(235,700	)
Total deferred tax liabilities			(273,454	)			(238,746	)
Net deferred tax liability		$	(120,037	)		$	(87,012	)

F-20

---

Table of Contents

 

We planFor the year 2017, we recorded a liability of $0.3 million related to permanently reinvestwithholding taxes on unremitted earnings from foreign subsidiaries, with the exception ofat Minera Hecla Quebec Inc.S.A. de C.V., our wholly-owned subsidiary which owns our Casa Berardi mine and other interests in Quebec, Canada, and Minera Hecla, our wholly-owned subsidiary which owns our San Sebastian mine and other interests in Durango, Mexico. For the years 2016 2015 and 2014,2015, we had no unremitted foreign earnings. Foreign net operating losses carried forward are shown above as a deferred tax asset, with a partial valuation allowance as discussed below.

 

We recorded a valuation allowance in the U.S. to reflect the estimated amount of deferred tax assets, which may not be realized principally due to the forecastedmore likely than not expiration of net operating losses and tax credit carryforwards. A portion of the valuation allowance relating to foreign net operating loss carryforwardsexploration and other deferred tax assets was released in 20152017 as we determined that it was more likely than not that a portion of the benefit of the net operating loss carryforwards would be realized as a result of operating activities at San Sebastian. There was also significant utilization of deferred tax assets in the U.S. and Mexico. As of December31, 2016,2017, a $96$76 million valuation allowance remains in U.S. jurisdictions, $2$2 million in Hecla Canada LimitedLtd. and $1$1 million in Minera Hecla S.A. de C.V. There is no valuation allowance at Hecla Quebec, Inc. The changes in the valuation allowance for the years ended December 31,2017,2016 2015 and 2014,2015, are as follows (in thousands):

 

		2016				2015				2014
Balance at beginning of year		$	(115,806	)		$	(32,094	)		$	(27,155	)
Increase related to non-utilization of net operating loss carryforwards and non-recognition of deferred tax assets due to uncertainty of recovery			(2,868	)			(92,393	)			(6,314	)
Decrease related to utilization and expiration of deferred tax assets, other			19,072				8,681				1,375
Balance at end of year		$	(99,602	)		$	(115,806	)		$	(32,094	)

		2017				2016				2015
Balance at beginning of year		$	(99,602	)		$	(115,806	)		$	(32,094	)
Increase related to non-utilization of net operating loss carryforwards and non-recognition of deferred tax assets due to uncertainty of recovery			(14,964	)			(2,868	)			(92,393	)
Decrease related to utilization and expiration of deferred tax assets, other			35,882				19,072				8,681
Balance at end of year		$	(78,684	)		$	(99,602	)		$	(115,806	)

 

As of December31, 2016,2017, for U.S. income tax purposes, we have federal and state net operating loss carryforwards of $244$506 million and $84$366 million, respectively.  These net operating loss carryforwards have a 20 year expiration period, the earliest of which could expire in 2020.  We have foreign and provincial net operating loss carryforwards of approximately $4$4 million each, which expire between 20172018 and 2036. We have approximately $20 million in alternative minimum tax credit carryforwards which do not expire and are eligible to reduce future U.S. tax liabilities.2037. Our utilization of U.S. net operating loss carryforwards may be subject to annual limitations if there is a change in control as defined under Internal Revenue Code Section 382.

F-21

---

Table of Contents

 

At December31, 20162017 and 20152016 we had $22$0 million and $20$22 million, respectively, of federal net operating loss carryovers relating to excess tax benefits from the exercise of employee stock options and the vesting of restricted stock awards. These amounts are not reflected in ourIn 2017, we adopted ASU 2016-09 Stock Compensation: Improvements to Employee Share-Based Payment Accounting. As a result, the deferred tax asset for net operating loss carryovers. We recognizerelated to our NOL increased by $5 million due to the inclusion of additional NOLs related to excess tax benefits from the exercise of employee stock options and the vesting of restricted stock awardsbenefits. The increase in the perioddeferred tax asset was fully offset by a valuation allowance, resulting in which theseno change to our recognized net deferred tax benefits reduce income taxes payable, after net operating loss carryforwards are fully utilized.assets.

 

We file income tax returns in the U.S. federal jurisdiction, various state and foreign jurisdictions.  We are no longer subject to income tax examinations by U.S. federal and state tax authorities for years prior to 2000, or examinations by foreign tax authorities for years prior to 2010.2011.  We currently have no tax years under examination.

 

We had no unrecognized tax benefits as of December31, 20162017 or 2015.2016.  Due to the net operating loss carryover provision, coupled with the lack of any unrecognized tax benefits, we have not provided for any interest or penalties associated with any uncertain tax positions.  If interest and penalties were to be assessed, our policy is to charge interest to interest expense, and penalties to other operating expense.  It is not anticipated that there will be any significant changes to unrecognized tax benefits within the next 12 months.

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the "Act") resulting in significant modifications to existing law. We have completed the accounting for the effects of the Act during the quarter ended December 31, 2017. Our financial statements for the year ended December 31, 2017, reflect certain effects of the Act which includes a reduction in the corporate tax rate from 35% to 21% as well as other changes. As a result of the changes to tax laws and tax rates under the Act, we incurred incremental income tax expense of $30 million during the year ended December 31, 2017, which consisted primarily of the remeasurement of deferred tax assets and liabilities from 35% to 21% and application of a full valuation allowance. We have not accrued a one-time transition tax on unrepatriated foreign earnings due to an estimated net deficit in foreign earnings from all foreign jurisdictions.

F-21

---

Table of Contents

 

As discussed inNote 15, we acquired Mines Management, Inc. in September 2016. In accounting for thisthe acquisition, we adopted a policy to consider the recoverability of deferred tax assets acquired in the acquisition before considering the recoverability of the acquirer’sacquirer's existing deferred tax assets.

 

Note 6: Senior Notes, Credit Facilities and Capital Leases

 

Senior Notes

 

On April 12, 2013, we completed an offering of $500$500 million in aggregate principal amount of our Senior Notes due May 1, 2021 in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended, and in 2014, an additional $6.5$6.5 million aggregate principal amount of the Senior Notes was issued to one of our pension plans. The Senior Notes were subsequently exchanged for substantially identical Senior Notes registered with the SEC. The Senior Notes are governed by the Indenture, dated as of April 12, 2013, as amended (the "Indenture"), among Hecla Mining Company ("Hecla") and certain of our subsidiaries and The Bank of New York Mellon Trust Company, N.A., as trustee. The net proceeds from the initial offering of the Senior Notes ($($490 million) were used to partially fund the acquisition of Aurizon and for general corporate purposes, including expenses related to the Aurizon acquisition.

 

The Senior Notes are recorded net of a 2% initial purchaser discount totaling $10$10 million at the time of the April 2013 issuance and having an unamortized balance of $5.5$4.3 million as of December31, 2016.2017. The Senior Notes bear interest at a rate of 6.875% per year from the date of original issuance or from the most recent payment date on which interest has been paid or provided for.  Interest on the Senior Notes is payable on May 1 and November 1 of each year, commencing November 1, 2013. During 20162017 and 2015,2016, interest expense related to the Senior Notes and amortization of the initial purchaser discount and fees related to the issuance of the Senior Notes totaled $35.3 million and $20.1 million, respectively. The interest expense related to the Senior Notes for 2017 and 2016 was net of $16.2$0.9 million and $13.5$16.2 million, respectively, in capitalized interest, totaled $20.1primarily related to the #4 Shaft project at our Lucky Friday unit which was completed in January 2017. Interest expense for 2017 also included $0.9 million in costs related to our proposed private offering of new Senior Notes in June 2017 and $22.7 million, respectively.concurrent tender offer to purchase our existing Senior Notes, which were not completed.

 

The Senior Notes are guaranteed on a senior unsecured basis by certain of our subsidiaries (the "Guarantors"). The Senior Notes and the guarantees are, respectively, Hecla's and the Guarantors' general senior unsecured obligations and are subordinated to all of Hecla's and the Guarantors' existing and future secured debt to the extent of the assets securing that secured debt.  In addition, the Senior Notes are effectively subordinated to all of the liabilities of Hecla's subsidiaries that are not guaranteeing the Senior Notes, to the extent of the assets of those subsidiaries.

 

The Senior Notes became redeemable in whole or in part, at any time and from time to time after May 1, 2016, on the redemption dates and at the redemption prices specified in the Indenture, plus accrued and unpaid interest, if any, to the date of redemption.

 

Upon the occurrence of a change of control (as defined in the Indenture), each holder of Senior Notes will have the right to require us to purchase all or a portion of such holder's Senior Notes pursuant to a change of control offer (as defined in the Indenture), at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase, subject to the rights of holders of the Senior Notes on the relevant record date to receive interest due on the relevant interest payment date.

 

F-22

---

Table of Contents

 

As of December31, 2016,2017, the annual future obligations related to the Senior Notes, including interest, were (in thousands):

 

Twelve-month period ending December 31,
2017		$	34,822
2018			34,822
2019			34,822
2020			34,822
2021			518,107
Total			657,395
Less: interest			(150,895	)
Principal			506,500
Less: unamortized discount			(5,521	)
Long-term debt		$	500,979

Twelve-month period ending December 31,
2018		$	34,822
2019			34,822
2020			34,822
2021			518,107
Total			622,573
Less: interest			(116,073	)
Principal			506,500
Less: unamortized discount			(4,271	)
Long-term debt		$	502,229

 

Credit Facility

 

In May 2016, we entered into a $100$100 million senior secured revolving credit facility with a three year term. term, which was amended in July 2017 to extend the term until July 14, 2020. The credit facility is collateralized by the shares of common stock held in our material domestic subsidiaries and by our joint venture interests in the Greens Creek mine, all of our rights and interests in the joint venture agreement, and all of our rights and interests in the assets of the joint venture.  This credit facility replaced our previous $100$100 million credit facility which had the same terms of collateral as described above. Below is information on the interest rates, standby fee, and financial covenant terms under our current credit facility:

 

Interest rates:
Spread over the London Interbank Offer Rate		2.25	-	3.25%
Spread over alternative base rate		1.25	-	2.25%
Standby fee per annum on undrawn amounts		0.50%
Covenant financial ratios:
Senior leverage ratio (debt secured by liens/EBITDA)		not more than 2.50:1
Leverage ratio (total debt less unencumbered cash/EBITDA)		not more than 4.00:1
Interest coverage ratio (EBITDA/interest expense)		not more than 3.00:1

 

⁽¹⁾The leverage ratio was amended to be 5.00:1 for 2016, and reverted back to 4.00:1 effective January 1, 2017.

Interest rates:
Spread over the London Interbank Offer Rate			2.25	-	3.25%
Spread over alternative base rate			1.25	-	2.25%
Standby fee per annum on undrawn amounts				0.50%
Covenant financial ratios:
Senior leverage ratio (debt secured by liens/EBITDA)			not more than 2.50:1
Leverage ratio (total debt less unencumbered cash/EBITDA)			not more than 4.00:1
Interest coverage ratio (EBITDA/interest expense)			not less than 3.00:1

 

We are also able to obtain letters of credit under the facility, and for any such letters we are required to pay a participation fee of between 2.25% and 3.25% based on our total leverage ratio, as well as a fronting fee to each issuing bank of 0.20% annually on the average daily dollar amount of any outstanding letters of credit. There were $2.6$2.6 million in letters of credit outstanding as of December31, 2016.2017.

 

We believe we were in compliance with all covenants under the credit agreement and no amounts were outstanding as of December31,2017.  With the exception of the $2.6 million in letters of credit outstanding at December 31, 2016.  We2017, we have not drawn funds on the current revolving credit facility as of the filing date of this report.

 

F-23

---

Table of Contents

Capital Leases

 

We have entered into various lease agreements, primarily for equipment at our Greens Creek, Lucky Friday and Casa Berardi units, which we have determined to be capital leases.  At December 31, 2016,2017, the total liability associated with the capital leases, including certain purchase option amounts, was $11.5$11.8 million, with $5.7$5.6 million of the liability classified as current and $5.8$6.2 million classified as non-current. At December 31, 2015,2016, the total liability balance associated with capital leases was $17.6$11.5 million, with $8.7$5.7 million of the liability classified as current and $8.8$5.8 million classified as non-current. The total obligation for future minimum lease payments was $12.0$12.5 million at December 31, 2016,2017, with $0.6$0.7 million attributed to interest.

F-23

---

Table of Contents

 

At December31, 2016,2017, the annual maturities of capital lease commitments, including interest, were (in thousands):

 

Twelve-month period ending December 31,
	2017		$	6,000
	2018			4,081
	2019			1,671
	2020			295
	Total			12,047
	Less: imputed interest			(556	)
	Net capital lease obligation		$	11,491

Twelve-month period ending December 31,
2018		$	6,014
2019			3,500
2020			2,156
2021			844
Total			12,514
Less: imputed interest			(713	)
Net capital lease obligation		$	11,801

 

Note 7: Commitments, Contingencies, and Obligations

 

General

 

We follow the FASB ASCU.S. Generally Accepted Accounting Principles guidance in determining our accruals and disclosures with respect to loss contingencies, and evaluate such accruals and contingencies for each reporting period. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable that a liability could be incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred.

 

Rio Grande Silver Guaranty

 

Our wholly-owned subsidiary, Rio Grande Silver Inc. (“Rio”), is party to a joint venture with Emerald Mining & Leasing, LLC (“EML”) and certain other parties with respect to a land package in the Creede Mining District of Colorado that is adjacent to other land held by Rio. Rio holds a 70% interest in the joint venture. In connection with the joint venture, we are required to guarantee certain environmental remediation-related obligations of EML to a third party up to a maximum liability to us of $2.5$2.5 million. As of December31, 2016,2017, we have not been required to make any payments pursuant to the guaranty. We may be required to make payments in the future, limited to the $2.5$2.5 million maximum liability, should EML fail to meet its obligations to the third party. However, to the extent that any payments are made by us under the guaranty, EML, in addition to other parties, has jointly and severally agreed to reimburse and indemnify us for any such payments. We have not recorded a liability relating to the guaranty as of December 31, 2016.2017.

 

F-24

---

Table of Contents

Lucky Friday Water Permit Matters

 

OverIn the last several yearspast, the Lucky Friday unit has experienced severalmultiple regulatory issues relating to its water discharge permits and water management more generally. In All of these issues have been resolved except for one: in December 2013, the EPA issued to Hecla Limited a notice of violation (“2013 NOV”) alleging certain storm water reporting violations under Lucky Friday’s Clean Water Act Multi-Sector General Stormwater Permit for Industrial Activities. The alleged violations were resolved. The 2013 NOV also contained a request for information under Section 308 of the Clean Water Act directing Hecla Limited to undertake a comprehensive groundwater investigation of Lucky Friday’sFriday’s tailings pond no.3 to evaluate whether the pond is causing the discharge of pollutants via seepage to groundwater that is discharging to surface water.

We completed the investigation mandated by the EPA and submitted a draft report to the agency in December 2015. We are waiting for the EPA’s response and until such time as the process is complete, we cannot predict what the impact of the investigation will be.

F-24

---

Table of Contents

 

Hecla Limited strives to maintain its water discharges at the Lucky Friday unit in full compliance with its permits and applicable laws, however, we cannot provide assurance that in the future it will be able to fully comply with the permit limits and other regulatory requirements regarding water management.

 

Johnny M Mine Area near San Mateo, McKinley County, New Mexico

 

In May 2011, the EPA made a formal request to Hecla Mining Company for information regarding the Johnny M Mine Area near San Mateo, McKinley County, New Mexico, and asserted that Hecla Mining Company may be responsible under CERCLAthe Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") for environmental remediation and past costs the EPA has incurred at the site. Mining at the Johnny M was conducted for a limited period of time by a predecessor of our subsidiary, Hecla Limited. In August 2012, Hecla Limited and the EPA entered into a Settlement Agreement and Administrative Order on Consent for Removal Action (“Consent Order”), pursuant to which Hecla Limited agreed to pay (i) $1.1$1.1 million to the EPA for its past response costs at the site and (ii) any future response costs at the site under the Consent Order, in exchange for a covenant not to sue by the EPA. Hecla Limited paid the approximately $1.1$1.1 million to the EPA for its past response costs and in December 2014, submitted to EPA the Engineering Evaluation and Cost Analysis (“EE/CA”) for the site. The EE/CA evaluates three alternative response actions: 1) 1) no action, 2)2) off-site disposal, and 3)3) on-site disposal. The range in estimated costs of these alternatives is $0$0 to $221$221 million. In the EE/CA, Hecla Limited recommended that EPA approve on-site disposal, which is currently estimated to cost $5.6$5.6 million, on the basis that it is the most appropriate response action under CERCLA. In June 2015, the EPA approved the EE/CA, with a few minor conditions. The EPA still needs to publish the EE/CA for public notice and comment, and the agency will not make a final decision on the appropriate response action until the public comment process is complete. It is anticipated that Hecla Limited will implement the response action selected by the EPA pursuant to an amendment to the Consent Order or a new order. Based on the foregoing, we believe it is probable that Hecla Limited will incur a liability for remediation at the site, andsite. In the fourth quarter of 2014, we accrued $5.6 million, which continues to be our best estimate of that liability as of the date of this report is $5.6 million, and we have accrued that amount.report. There can be no assurance that Hecla Limited’sLimited’s liability will not be more than $5.6$5.6 million, or that its ultimate liability will not have a material adverse effect on Hecla Limited’s or our results of operations or financial position.

 

In September 2016, Hecla Limited was served with a lawsuit filed by an individual in state court in New Mexico alleging personal injury claims of several millions of dollars arising from alleged exposure to contaminants as a result of allegedly living on land adjacent to the Johnny M Mine site.  The case was subsequently removed to federal court in New Mexico, and Hecla Limited filed a motion to dismiss. We do not yet have enough information to conclude if Hecla Limited has any liability or to estimate any loss that it may incur.

Carpenter Snow Creek Site, Cascade County,and Barker-Hughesville Sites in Montana

 

In July 2010, the EPA made a formal request to Hecla Mining Company for information regarding the Carpenter Snow Creek Superfund Sitesite located in Cascade County, Montana. The Carpenter Snow Creek Sitesite is located in a historic mining district, and in the early 1980s Hecla Limited leased 6 mining claims and performed limited exploration activities at the site. Hecla Limited terminated the mining lease in 1988.

F-25

---

Table of Contents

 

In June 2011, the EPA informed Hecla Limited that it believes Hecla Limited, among several other viable companies, may be liable for cleanup of the site or for costs incurred by the EPA in cleaning up the site. The EPA stated in the June 2011 letter that it has incurred approximately $4.5$4.5 million in response costs and estimated that total remediation costs may exceed $100$100 million. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning the site.

 

In February 2017, the EPA made a formal request to Hecla Mining Company for information regarding the Barker-Hughesville Mining District Superfund site located in Judith Basin and Cascade Counties, Montana. The Barker-Hughesville site is located in a historic mining district, and between approximately June and December 1983, Hecla Limited was party to an agreement with another mining company under which limited exploration activities occurred at or near the site. Neither the EPA nor any other party has made any claims against Hecla Limited (or Hecla Mining Company), however, it is possible that such a claim will be made in the future. Unless and until such a claim is made, Hecla Limited cannot estimate the amount or range of liability, if any, relating to this matter.

F-25

---

Table of Contents

Senior Notes

 

On April 12, 2013, we completed an offering of $500$500 million aggregate principal amount of 6.875% Senior Notes due 2021. The net proceeds from the offering of the Senior Notes were used to partially fund the acquisition of Aurizon Mines Ltd. ("Aurizon") and for general corporate purposes, including expenses related to the Aurizon acquisition. Through the acquisition of Aurizon, heldwe acquired our Casa Berardi mine and other interests in Quebec, Canada. In 2014, we completed additional issuances of our Senior Notes in the aggregate principal amount of $6.5$6.5 million, which were contributed to one of our pension plans to satisfy the funding requirement for 2014. Interest on the Senior Notes is payable on May 1 and November 1 of each year, commencing November 1, 2013. SeeNote 6 for more information.

 

Other Commitments

 

Our contractual obligations as of December31, 20162017 included approximately $0.4$5.8 million for various costs. In addition, our open purchase orders at December 31, 20162017 included approximately $0.7$0.2 million, $2.1$2.0 million and $10.0$10.5 million respectively, for various capital and non-capital items at the Lucky Friday, Casa Berardi and Greens Creek units.units, respectively. We also have total commitments of approximately $12.0$12.5 million relating to scheduled payments on capital leases, including interest, primarily for equipment at our Greens Creek, Lucky Friday and Casa Berardi units (seeNote 6 for more information). As part of our ongoing business and operations, we are required to provide surety bonds, bank letters of credit, and restricted deposits for various purposes, including financial support for environmental reclamation obligations and workers compensation programs. As of December 31, 2016,2017, we had surety bonds totaling $112.7$117.4 million in place as financial support for future reclamation and closure costs, self-insurance, and employee benefit plans. The obligations associated with these instruments are generally related to performance requirements that we address through ongoing operations. As the requirements are met, the beneficiary of the associated instruments cancels or returns the instrument to the issuing entity. Certain of these instruments are associated with operating sites with long-lived assets and will remain outstanding until closure of the sites. We believe we are in compliance with all applicable bonding requirements and will be able to satisfy future bonding requirements as they arise.

 

Other Contingencies

On April 12, 2013, the family of Larry Marek, an employee of Hecla Limited who was fatally injured in an April 2011 accident, filed a lawsuit against us and certain of our officers and employees in state court in Idaho (Kootenai County District Court) seeking damages for, among other claims, wrongful death and infliction of emotional distress. On April 21, 2015, the judge hearing the case granted Hecla’s motion for summary judgment and dismissed the case. The plaintiffs appealed the decision to the Idaho Supreme Court, which affirmed the lower court’s decision on November 18, 2016, ending the lawsuit.

On December 11, 2013, four employees of Hecla Limited who were injured in a December 2011 rock burst filed a lawsuit against us and certain of our employees in state court in Idaho (Kootenai County District Court) seeking damages for, among other claims, intentional and willful injury and infliction of emotional distress. On August 28, 2015, the judge hearing the case granted Hecla’s motion for summary judgment and dismissed the case. The plaintiffs appealed the decision to the Idaho Supreme Court, which affirmed the lower court’s decision on November 18, 2016, ending the lawsuit.

When we acquired Revett Mining Company, Inc. in June 2015 (now known as Hecla Montana, Inc.), it was the subject of a lawsuit filed in Montana state court by an employee of its wholly owned subsidiary, Troy Mine, Inc., alleging that Revett was responsible for injuries he suffered on the job. The case is continuing with plaintiff claiming injuries totaling several millions of dollars; however, we believe the claims are without merit and that the injured employee is limited under Montana law to recovery under workers’ compensation insurance. Although it is possible that Revett faces some liability in the case, we are unable to estimate the amount or range of any potential liability. Insurance is currently providing a defense to Revett, however there is no guarantee it would provide coverage for any losses incurred.

F-26

---

Table of Contents

 

We also have certain other contingencies resulting from litigation, claims, EPA investigations, and other commitments and are subject to a variety of environmental and safety laws and regulations incident to the ordinary course of business. We currently expecthave no basis to conclude that the resolutionany or all of such contingencies will not materially affect our financial position, results of operations or cash flows. However, in the future, there may be changes to these contingencies, or additional contingencies may occur, any of which might result in an accrual or a change in the estimatedcurrent accruals recorded by us, and there can be no assurance that their ultimate disposition will not have a material adverse effect on our financial position, results of operations or cash flows.

 

F-26

---

Table of Contents

Note 8: Employee Benefit Plans

 

Pensions and Other Post-retirement Plans

 

We sponsor defined benefit pension plans covering substantially all U.S. employees. The following tables provide a reconciliation of the changes in the plans’plans’ benefit obligations and fair value of assets over the two-yeartwo-year period ended December 31, 2016,2017, and the funded status as of December 31, 20162017 and December 31, 20152016 (in thousands):

 

		Pension Benefits								Pension Benefits
		2016				2015				2017				2016
Change in benefit obligation:
Benefit obligation at beginning of year		$	120,237			$	118,284			$	132,270			$	120,237
Service cost			4,309				4,216				4,786				4,309
Interest cost			5,230				4,823				5,356				5,230
Amendments											2,571				—
Change due to discount rate change											5,529				5,088
Actuarial loss (gain)			7,500				(2,617	)			1,733				2,412
Benefits paid			(5,006	)			(4,469	)			(5,222	)			(5,006	)
Benefit obligation at end of year			132,270				120,237				147,023				132,270
Change in fair value of plan assets:
Fair value of plan assets at beginning of year			73,321				74,551				87,357				73,321
Actual return (loss) on plan assets			9,950				(2,221	)			10,560				9,950
Employer contributions			9,092				5,460				7,227				9,092
Benefits paid			(5,006	)			(4,469	)			(5,222	)			(5,006	)
Fair value of plan assets at end of year			87,357				73,321				99,922				87,357
Underfunded status at end of year		$	(44,913	)		$	(46,916	)		$	(47,101	)		$	(44,913	)

 

The following table provides the amounts recognized in the consolidated balance sheets as of December31,2017 and December 31,2016 and December 31, 2015 (in thousands):

		Pension Benefits
		2016				2015
Current liabilities:
Accrued benefit liability		$	(420	)		$	(402	)
Non- current pension liability:
Accrued benefit liability			(44,491	)			(46,513	)
Accumulated other comprehensive loss			40,917				42,103
Net amount recognized		$	(3,994	)		$	(4,812	)

 

F-27

---

Table of Contents

		Pension Benefits
		2017				2016
Current liabilities:
Accrued benefit liability		$	(471	)		$	(420	)
Non- current pension liability:
Accrued benefit liability			(46,628	)			(44,491	)
Accumulated other comprehensive loss			42,243				40,917
Net amount recognized		$	(4,856	)		$	(3,994	)

 

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

 

		Pension Benefits								Pension Benefits
		2016				2015				2017				2016
Discount rate: net periodic pension cost			4.45	%			4.17	%			4.14	%			4.45%
Discount rate: projected benefit obligation			4.14	%			4.45	%			3.83	%			4.14%
Expected rate of return on plan assets			6.80	%			7.20	%			6.80	%			7.20%
Rate of compensation increase: net periodic pension cost			2.00	%			2.00	%			2.00	%			2.00%
Rate of compensation increase: projected benefit obligation(1)		0.00%/2.00		%		0.00%/2.00		%			2.00	%		0.00%	/	2.00%

 

⁽¹⁾⁽¹⁾ For 2016,0% was assumed for years 2016 through 2018 and 2% was assumed thereafter.

 

The above assumptions were calculated based on information as of December31,2017 and December 31,2016, and December 31, 2015, the measurement dates for the plans. The discount rate is based on the yield curve for investment-grade corporate bonds as published by the U.S. Treasury Department. The expected rate of return on plan assets is based upon consideration of the plan’s current asset mix, historical long-term return rates and the plan’s historical performance. Our current expectedassumption for the rate on plan assets is 6.62%.

F-27

---

Table of 6.8% is based on historical returns over the past five years.

Contents

 

Net periodic pension cost for the plans consisted of the following in 2017,2016, 2015, and 20142015 (in thousands):

 

		Pension Benefits
		2016				2015				2014
Service cost		$	4,309			$	4,216			$	4,312
Interest cost			5,229				4,823				4,859
Expected return on plan assets			(5,299	)			(5,382	)			(4,996	)
Amortization of prior service benefit			(337	)			(337	)			(337	)
Amortization of net gain from earlier periods			4,372				4,260				3,275
Net periodic pension cost		$	8,274			$	7,580			$	7,113

		Pension Benefits
		2017				2016				2015
Service cost		$	4,786			$	4,309			$	4,216
Interest cost			5,356				5,229				4,823
Expected return on plan assets			(5,849	)			(5,299	)			(5,382	)
Amortization of prior service benefit			(337	)			(337	)			(337	)
Amortization of net gain from earlier periods			4,132				4,372				4,260
Net periodic pension cost		$	8,088			$	8,274			$	7,580

 

The allocations of investments at December31,2017 and December 31,2016, and December 31, 2015, the measurement dates of the plan, by asset category in the Hecla Mining Company Retirement Plan and the Lucky Friday Pension Plan are as follows:

		Hecla								Lucky Friday
		2016				2015				2016				2015
Cash			3	%			2	%			3	%			4	%
Large cap U.S. equities			18	%			10	%			17	%			10	%
Small cap U.S. equities			9	%			5	%			9	%			5	%
Non-U.S. equities			24	%			9	%			25	%			9	%
Fixed income			20	%			34	%			20	%			33	%
Real estate			13	%			18	%			13	%			18	%
Absolute return hedge funds			6	%			15	%			6	%			14	%
Real return			—	%			1	%			—	%			1	%
Company stock			7	%			6	%			7	%			6	%
Total			100	%			100	%			100	%			100	%

 

		Hecla								Lucky Friday
		2017				2016				2017				2016
Cash			—	%			3	%			—	%			3	%
Large cap U.S. equities			19	%			18	%			18	%			17	%
Small cap U.S. equities			9	%			9	%			10	%			9	%
Non-U.S. equities			27	%			24	%			26	%			25	%
Fixed income			21	%			20	%			20	%			20	%
Real estate			14	%			13	%			15	%			13	%
Absolute return hedge funds			5	%			6	%			6	%			6	%
Company stock			5	%			7	%			5	%			7	%
Total			100	%			100	%			100	%			100	%

F-28

---

Table of Contents

 

"Company stock" asset category in the table above includes our common stock in the amounts of $6.3$4.8 million and $4.3$6.3 million at December31,2017 and December 31, 2016 and December 31, 2015.2016.

 

Each plan's statement of investment policy delineates the responsibilities of the board, the retirement/pension committee, the investment manager(s), and investment adviser/consultant, and provides guidelines on investment management. Investment objectives are established for each of the asset categories included in the pension plans with comparisons of performance against appropriate benchmarks. Each plan's policy calls for investments to be supervised by qualified investment managers. 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 policy sets forth the following allocation of assets:

 

		As of December 31, 2016(1)								As of December 31, 2015
		Target				Maximum				Target				Minimum				Maximum
Large cap U.S. equities			17	%			20	%			10	%			7	%			13	%
Small cap U.S. equities			8	%			10	%			5	%			4	%			6	%
Non-U.S. equities			25	%			30	%			10	%			8	%			12	%
Fixed income			20	%			25	%			35	%			29	%			43	%
Real estate			15	%			18	%			15	%			12	%			18	%
Absolute return			5	%			7	%			15	%			12	%			18	%
Company stock/Real return			10	%			13	%			10	%			8	%			12	%

		Target				Maximum
Large cap U.S. equities			17	%			20	%
Small cap U.S. equities			8	%			10	%
Non-U.S. equities			25	%			30	%
Fixed income			20	%			25	%
Real estate			15	%			18	%
Absolute return			5	%			7	%
Company stock/Real return			10	%			13	%

 

F-28

---

Table of Contents

⁽¹⁾The policy as of December 31, 2016 does not include minimum investment thresholds.

Each plan's statement of investment policy and objectives aspires to achieve the assumed long term rate of return on plan assets established by the plan’splan’s actuary plus one percent.

 

Accounting guidance has established a hierarchy of assets measured at fair value on a recurring basis. The three levels included in the hierarchy are:

 

Level 1: quoted prices in active markets for identical assets or liabilities

 

Level 2: significant other observable inputs

 

Level 3: significant unobservable inputs

 

The fair values by asset category in each plan, along with their hierarchy levels, are as follows as of December31, 20162017 (in thousands):

		Hecla																Lucky Friday
		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Interest-bearing cash		$	1,924			$	—			$	—			$	1,924			$	550			$	—			$	—			$	550
Common stock			4,973				—				—				4,973				1,340				—				—				1,340
Real estate			—				—				8,974				8,974				—				—				2,389				2,389
Common collective funds			—				12,379				2,108				14,487				—				3,427				550				3,977
Mutual funds			38,326				—				—				38,326				10,417				—				—				10,417
Total fair value		$	45,223			$	12,379			$	11,082			$	68,684			$	12,307			$	3,427			$	2,939			$	18,673

 

		Hecla																Lucky Friday
		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Interest-bearing cash		$	351			$	—			$	—			$	351			$	100			$	—			$	—			$	100
Common stock			3,768				—				—				3,768				1,015				—				—				1,015
Real estate			—				—				11,154				11,154				—				—				3,023				3,023
Common collective funds			—				14,802				2,301				17,103				—				4,115				601				4,716
Mutual funds			47,181				—				—				47,181				11,511				—				—				11,511
Total fair value		$	51,300			$	14,802			$	13,455			$	79,557			$	12,626			$	4,115			$	3,624			$	20,365

F-29

---

Table of Contents

 

The following is a roll-forward of assets in Level 3 of the fair value hierarchy (in thousands):

 

		Hecla								Lucky Friday								Hecla								Lucky Friday
		Real estate				Common collective funds				Real estate				Common collective funds				Real estate				Common collective funds				Real estate				Common collective funds
Beginning balance at January 1, 2016		$	10,326			$	4,462			$	2,856			$	1,309
Beginning balance at January 1, 2017																		$	8,974			$	2,108			$	2,389			$	550
Net unrealized gains on assets held at the reporting date			283				80				71				20				350				104				94				28
Purchases			333				—				90				—				1,830				2,108				540				550
Sales			(1,968	)			(2,434	)			(628	)			(779	)			—				(2,019	)			—				(527	)
Ending balance at December 31, 2016		$	8,974			$	2,108			$	2,389			$	550
Ending balance at December 31, 2017																		$	11,154			$	2,301			$	3,023			$	601

 

Of the $14.0$17.1 million in plan assets classified as level 3, $11.4$14.2 million was invested in real estate, and the remaining $2.6$2.9 million was invested in collective investment funds.

F-29

---

Table of Contents

 

The fair values by asset category in each plan, along with their hierarchy levels, were as follows as of December31, 20152016 (in thousands):

 

		Hecla																Lucky Friday																Hecla																Lucky Friday
		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Interest-bearing cash		$	936			$	—			$	—			$	936			$	76			$	—			$	—			$	76			$	1,924			$	—			$	—			$	1,924			$	550			$	—			$	—			$	550
Common stock			3,284				—				—				3,284				989				—				—				989				4,973				—				—				4,973				1,340				—				—				1,340
Real estate			—				—				10,326				10,326				—				—				2,856				2,856				—				—				8,974				8,974				—				—				2,389				2,389
Common collective funds			—				9,862				4,462				14,324				—				2,573				1,309				3,882				—				12,379				2,108				14,487				—				3,427				550				3,977
Mutual funds			28,803				—				—				28,803				7,845				—				—				7,845				38,326				—				—				38,326				10,417				—				—				10,417
Total fair value		$	33,023			$	9,862			$	14,788			$	57,673			$	8,910			$	2,573			$	4,165			$	15,648			$	45,223			$	12,379			$	11,082			$	68,684			$	12,307			$	3,427			$	2,939			$	18,673

 

The following is a roll-forward of assets in Level 3 of the fair value hierarchy (in thousands):

 

		Hecla								Lucky Friday								Hecla								Lucky Friday
		Real estate				Common collective funds				Real estate				Common collective funds				Real estate				Common collective funds				Real estate				Common collective funds
Beginning balance at January 1, 2015		$	8,889			$	8,454			$	2,458			$	2,306
Beginning balance at January 1, 2016																		$	10,326			$	4,462			$	2,856			$	1,309
Net unrealized gains on assets held at the reporting date			1,094				8				303				3				283				80				71				20
Purchases			343				—				95				—				333				—				90				—
Sales			—				(4,000	)			—				(1,000	)			(1,968	)			(2,434	)			(628	)			(779	)
Ending balance at December 31, 2015		$	10,326			$	4,462			$	2,856			$	1,309
Ending balance at December 31, 2016																		$	8,974			$	2,108			$	2,389			$	550

 

Of the $19.0$14.0 million in plan assets classified as level 3, $13.2$11.4 million was invested in real estate, and the remaining $5.8$2.6 million was invested in collective investment funds.

 

Generally, investments are valued based on information provided by fund managers to each plan's trustee as reviewed by management and its investment advisers. Mutual funds and equities are valued based on available exchange data. Commingled equity funds consist of publicly-traded investments. Fair value for real estate and private equity partnerships is primarily based on valuation methodologies that include third-partythird-party appraisals, comparable transactions, and discounted cash flow valuation models.

F-30

---

Table of Contents

 

The following are estimates of future benefit payments, which reflect expected future service as appropriate, related to our pension plans (in thousands):

 

Year Ending December 31,		Pension Plans				Pension Plans
2017		$	5,775
2018			6,101			$	6,400
2019			6,471				6,571
2020			6,849				7,278
2021			7,128				7,404
Years 2022-2026			38,685
2022							8,044
Years 2023-2027							41,589

 

In February 2016, we contributed approximately $2.6 million in shares of our common stock and

We made cash contributions to our defined benefit plans and contributed $6.1of approximately $1.2 million in shares of our common stock April 2017 and cash$5.7 million in July 2016, 2017, with no additional contributions in 2016.2017. We expect to contribute a total of $4.0$3.8 million in cash or shares of our common stock or cash to our defined benefit plans in 2017.2018. We expect to contribute approximately $0.4$0.5 million to our unfunded supplemental executive retirement plan during 2017.2018.

F-30

---

Table of Contents

 

The following table indicates whether our pension plans had accumulated benefit obligations ("ABO") in excess of plan assets, or plan assets exceeded ABO (amounts are in thousands).

 

		December 31, 2016								December 31, 2015								December 31, 2017								December 31, 2016
		ABO Exceeds Plan Assets				Plan Assets Exceed ABO				ABO Exceeds Plan Assets				Plan Assets Exceed ABO				ABO Exceeds Plan Assets				Plan Assets Exceed ABO				ABO Exceeds Plan Assets				Plan Assets Exceed ABO
Projected benefit obligation		$	132,270			$	—			$	120,237			$	—			$	147,023			$	—			$	132,270			$	—
Accumulated benefit obligation			128,102				—				116,289				—				141,775				—				128,102				—
Fair value of plan assets			87,357				—				73,321				—				99,922				—				87,357				—

 

For the pension plans, the following amounts are included in "Accumulated other comprehensive loss, net" on our balance sheet as of December31, 2016,2017, that have not yet been recognized as components of net periodic benefit cost (in thousands):

 

		Pension Benefits			Pension Benefits
Unamortized net (gain)/loss		$	42,161		$	40,579
Unamortized prior service benefit			(1,244	)
Unamortized prior service cost					1,664

 

The amounts in "Accumulated other comprehensive loss, net" expected to be recognized as components of net periodic benefit cost during 20172018 are (in thousands):

 

		Pension Benefits			Pension Benefits
Amortization of net loss		$	4,132		$	3,726
Amortization of prior service benefit			(337	)	61

 

We do not expect to have any of the pension plans’plans’ assets returned during 2017.2018.

 

Non-U.S. employees are not eligible to participate in the defined benefit pension plans that we maintain for U.S. employees. Canadian employees participate in Canada's public retirement income system, which includes the following components: (i) the Canada (or Quebec) Pension Plan, which is a contributory, earnings-related social insurance program, and (ii) the Old Age Security program. In addition, the Registered Retirement Savings Plan is a tax-deferred individual savings plan available to Canadian employees. Mexican employees participate in Mexico's public retirement income system, which is based on contributions the employee, employer and the government submit to the retirement savings system. The system is administered through savings accounts managed by private fund managers selected by the participant.

 

F-31

---

Table of Contents

Capital Accumulation Plans

 

Our Capital Accumulation Plan ("Hecla 401(k)401(k) Plan") is available to all U.S. salaried and certain hourly employees and applies immediately upon employment. Employees may contribute from 1% to 50% of their annual compensation to the plan (subject to statutory limits). We make a matching contribution in the form of cash or stock of 100% of an employee’semployee’s contribution up to 6% of the employee’s earnings. Our matching contributions were approximately $3.5$3.5 million in 2016, $3.42017,$3.5 million in 2015,2016, and $3.2$3.4 million in 2014.

Effective January 1, 2014,2015. Payment of matching contributions to the Hecla 401(k)401(k) Plan was restated to allow for payment of matching contributionsis allowed to be made in Hecla common stock on a quarterly basis. Prior to 2014, contributions were made in cash on a payroll-to-payroll basis.

 

We also maintain a 401(k)401(k) plan that is available to all hourly employees at the Lucky Friday unit after completion of six months of service. Employees may contribute from 2% to 50% of their compensation to the plan (subject to statutory limits). The matching contribution is 55% of an employee’semployee’s contribution up to, but not exceeding, 5% of the employee’s earnings.  Our contributions were approximately $442,000$114,000 in 2016, $391,0002017,$442,000 in 2015,2016, and $292,000$391,000 in 2014.2015, with the decrease in 2017 due to the ongoing strike (see Note 11 for more information).

F-31

---

Table of Contents

Note 9: Stockholders’ Equity

 

Note 9: Stockholders’ Equity

Common Stock

 

We are authorized to issue 500,000,000750,000,000 shares of common stock, $0.25$0.25 par value per share, of which 399,228,085403,705,875 shares of common stock were issued and 4,529,450 shares issued and held in treasury, for a net of 399,176,425 shares outstanding as of December31, 2016.2017. 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 therefor; and (iii) in the event of our liquidation or dissolution, share ratably in any distribution of our assets.

 

Dividends

 

In September 2011 and February 2012, our board of directors adopted a common stock dividend policy that has two components: (1)(1) a dividend that links the amount of dividends on our common stock to our average quarterly realized silver price in the preceding quarter, and (2)(2) a minimum annual dividend of $0.01$0.01 per share of common stock, in each case, payable quarterly, when declared. For illustrative purposes only, the table below summarizes potential per share dividend amounts at different quarterly average realized price levels according to the first component of the policy:

 

Quarterly average realized silver price per ounce				Quarterly dividend per share				Annual dividend per share
$	30			$	0.01			$	0.04
$	35			$	0.02			$	0.08
$	40			$	0.03			$	0.12
$	45			$	0.04			$	0.16
$	50			$	0.05			$	0.20
$	55			$	0.06			$	0.24
$	60			$	0.07			$	0.28

Quarterly average realized silver price per ounce				Quarterly dividend per share				Annual dividend per share
	$30				$0.01				$0.04
	$35				$0.02				$0.08
	$40				$0.03				$0.12
	$45				$0.04				$0.16
	$50				$0.05				$0.20
	$55				$0.06				$0.24
	$60				$0.07				$0.28

 

F-32

---

Table of Contents

 

The following table summarizes the quarterly common stock dividends declared by our board of directors for the years ended December 31, 2014, 2015, 2016and 2016:2017:

 

		(A)				(B)				(C)				(A+B+C)
Declaration date		Silver-price-linked component per share				Minimum annual component per share				Special dividend per share				Total dividend per share				Total dividend amount (in millions)			Month of payment
May 5, 2014		$	—			$	0.0025			$	—			$	0.0025			$	0.9		June 2014
July 31, 2014		$	—			$	0.0025			$	—			$	0.0025			$	0.9		September 2014
November 5, 2014		$	—			$	0.0025			$	—			$	0.0025			$	0.9		December 2014
February 17, 2015		$	—			$	0.0025			$	—			$	0.0025			$	0.9		March 2015
May 6, 2015		$	—			$	0.0025			$	—			$	0.0025			$	0.9		June 2015
August 6, 2015		$	—			$	0.0025			$	—			$	0.0025			$	0.9		September 2015
November 3, 2015		$	—			$	0.0025			$	—			$	0.0025			$	0.9		December 2015
February 20, 2016		$	—			$	0.0025			$	—			$	0.0025			$	0.9		March 2016
May 4, 2016		$	—			$	0.0025			$	—			$	0.0025			$	1.0		June 2016
August 3, 2016		$	—			$	0.0025			$	—			$	0.0025			$	1.0		September 2016
November 4, 2016		$	—			$	0.0025			$	—			$	0.0025			$	1.0		December 2016
February 21, 2017		$	—			$	0.0025			$	—			$	0.0025			$	1.0		March 2017

		(A)				(B)				(A+B)
Declaration date		Silver-price- linked component per share				Minimum annual component per share				Total dividend per share				Total dividend amount (in millions)			Month of payment
February 17, 2015			$—				$0.0025				$0.0025				$0.9		March 2015
May 6, 2015			$—				$0.0025				$0.0025				$0.9		June 2015
August 6, 2015			$—				$0.0025				$0.0025				$0.9		September 2015
November 3, 2015			$—				$0.0025				$0.0025				$0.9		December 2015
February 20, 2016			$—				$0.0025				$0.0025				$0.9		March 2016
May 4, 2016			$—				$0.0025				$0.0025				$1.0		June 2016
August 3, 2016			$—				$0.0025				$0.0025				$1.0		September 2016
November 4, 2016			$—				$0.0025				$0.0025				$1.0		December 2016
February 21, 2017			$—				$0.0025				$0.0025				$1.0		March 2017
May 4, 2017			$—				$0.0025				$0.0025				$1.0		June 2017
August 3, 2017			$—				$0.0025				$0.0025				$1.0		September 2017
November 7, 2017			$—				$0.0025				$0.0025				$1.0		December 2017
February 14, 2018			$—				$0.0025				$0.0025				$1.0		March 2018

 

Because the average realized silver prices for all periods in 2014, 2015,2016 and 20162017 were below the minimum threshold of $30,$30, according to the policy no silver-price-linked component was declared or paid. Prior to 2011,no dividends had been declared on our common stock since 1990. The declaration and payment of common stock dividends is at the sole discretion of our board of directors.

 

At-The-Market Equity Distribution Agreement

 

Pursuant to an equity distribution agreement dated February 23, 2016, as amended, we may issue and sell from time to time through ordinary broker transactions shares of our common stock having an aggregate offering price of up to $75$75 million, with the net proceeds available for general corporate purposes. The terms of sales transactions under the agreement, including trading day(s), number of shares sold in the aggregate, number of shares sold per trading day, and the floor selling price per share, are proposed by us to the sales agent. Whether or not we engage in sales from time to time may depend on a variety of factors, including share price, our cash resources, customary black-out restrictions, and whether we have any material inside information. The agreement can be terminated by us at any time. The shares issued under the equity distribution agreement are registered under the Securities Act of 1933, as amended, pursuant to our shelf registration statement on Form S-3,S-3, which was filed with the SEC on February 23, 2016. As of December 31, 2016,2017, we had sold 2,780,0874,608,847 shares under the agreement for proceeds of approximately $8.1$17.7 million, net of commissions and fees of approximately $166$362 thousand. Of those amounts, 1,828,760 shares were sold in 2017 for total proceeds of approximately $9.6 million, net of commissions and fees of approximately $196 thousand.

 

Common Stock Repurchase Program

 

On May 8, 2012, we announced that our board of directors approved a stock repurchase program.  Under the program, we are authorized to repurchase up to 20 million shares of our outstanding common stock from time to time in open market or privately negotiated transactions, depending on prevailing market conditions and other factors. The repurchase program may be modified, suspended or discontinued by us at any time. As of December 31, 2016, 2017,934,100 shares have been repurchased under the program, at an average price of $3.99$3.99 per share, leaving 19.1 million shares that may yet be purchased under the program. The closing price of our common stock at February 20, 2017, 12, 2018, was $6.58$3.75 per share.

 

F-33

---

Table of Contents

 

Status of Warrants

As of December 31, 2015, we had 2,249,550 warrants outstanding, with each warrant exercisable for 0.1622 of a share of our common stock at an exercise price of $6.17 per share. The warrants expired in March 2016, and there were no warrants outstanding as of December 31, 2016.

Preferred Stock

 

Our certificate of incorporation authorizes us to issue 5,000,000 shares of preferred stock, par value $0.25$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. The board may fix the number of shares constituting each series and increase or decrease the number of shares of any series. As of December31, 2016, 2017,157,816 shares of Series B preferred stock were outstanding. Our Series B preferred stock is listed on the New York Stock Exchange under the symbol “HL PB.”

 

Ranking

 

The Series B preferred stock ranks senior to our common stock and any shares of Series A junior participating preferred stock (none(none of which have ever been issued) with respect to payment of dividends, and amounts due upon liquidation, dissolution or winding up.

 

While any shares of Series B preferred stock are outstanding, we may not authorize the creation or issuance of any class or series of stock that ranks senior to the Series B preferred stock as to dividends or amounts due upon liquidation, dissolution or winding up without the consent of the holders of 662/3% 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 amounts due upon liquidation, dissolution or winding up, 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 therefor, cumulative cash dividends at the rate per annum of $3.50$3.50 per share of Series B preferred stock. Dividends on the Series B preferred stock are payable quarterly in arrears on October1,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.

 

All quarterly dividends on our Series B preferred stock for 2014, 2015,2016 and 20162017 were declared and paid in cash.

 

Redemption

 

The Series B preferred stock is redeemable at our option, in whole or in part, at $50$50 per share, plus all dividends undeclared and unpaid on the Series B preferred stock up to the date fixed for redemption.

 

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$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 December31, 20162017 and 2015,2016, our Series B preferred stock had a Liquidation Preference of $7.9$7.9 million.

 

F-34

---

Table of Contents

 

Voting Rights

 

Except in certain circumstances and 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.

 

Conversion

 

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$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).

 

Stock Award Plans

 

We use stock-based compensation plans to aid us in attracting, retaining and motivating our employees, as well as to provide us with the ability to provide incentives more directly linked to increases in stockholder value. These plans provide for the grant of options to purchase shares of our common stock, the issuance of restricted stock units, and other equity-based awards.

 

Stock-based compensation expense amounts recognized for the years ended December31,2017,2016 2015 and 20142015 were approximately $6.2$6.3 million, $5.4$6.2 million, and $5.0$5.4 million, respectively.  Over the next twelve months, we expect to recognize approximately $3.2$3.4 million in additional compensation expense as outstanding restricted stock units vest.

 

Stock Incentive Plan

 

 During the second quarter of 2010, our stockholders voted to approve the adoption of our 2010 Stock Incentive Plan and to reserve up to 20,000,000 shares of common stock for issuance under the plan.  The board of directors has broad authority under the 2010 plan to fix the terms and conditions of individual agreements with participants, including the duration of the award and any vesting requirements. As of December 31, 2016,2017, there were 8,302,3266,866,026 shares available for future grant under the 2010 plan.

 

DirectorsDirectors’’ Stock Plan

 

In 1995,2017, we adopted the amended and restated Hecla Mining Company Stock Plan for non-employee directorsNon-Employee Directors (the “Directors’“Directors’ Stock Plan”), which may be terminated by our board of directors at any time. Each non-employee director is credited on May 30 of each year with that number of shares determined by dividing $24,000$100,000 by the average closing price for our common stock on the New York Stock Exchange for the prior calendar year. AllA minimum of 25% of the shares credited shares areeach year is held in trust for the benefit of each director until delivered to the director. Each director may elect, prior to the first day of the applicable year, to have a greater percentage contributed to the trust for that year. Delivery of the shares from the trust occurs upon the earliest of: (1)(1) death or disability; (2)(2) retirement; (3)(3) a cessation of the director’s service for any other reason; or (4)(4) a change in control. Thecontrol; or (5) at the election of the director at any time, provided, however, that shares of our common stock credited to non-employee directors pursuant tomust be held in the Directors’ Stock Plan may not be sold untiltrust for at least six months following the date they are delivered. A maximum of one million shares of common stock may be granted pursuanttwo years prior to the Directors’ Stock Plan.delivery. During 2017,2016, 2015, and 2014, 2015,156,122,68,462, 48,244, and 39,46848,244 shares, respectively, were credited to the non-employee directors. During 2017,2016 2015 and 2014, $271,000, $150,000,2015,$774,000,$271,000, and $109,000,$150,000, respectively, was charged to general and administrative expense associated with the Directors’ Stock Plan.shares issued to the no-employee directors. At December 31, 2016,2017, there were 438,4593,282,337 shares available for grant in the future under the plan.

 

In addition to the foregoing, in May of each year, each non-employee director is also granted additional common stock under our 2010 Stock Incentive Plan. For for 2016 2015, and 2014, 2015,120,911 186,888, and 110,910186,888 shares, respectively, were credited to the non-employee directors, and $532,000, $456,000,$532,000 and $366,000$456,000, respectively, associated with the 2010 Stock Incentive Plan was charged to operations associated with the 2010 Stock Incentive Plan.

general and administrative expense.

 

F-35

---

Table of Contents

 

Restricted Stock Units

 

Unvested restricted stock units granted by the board of directors to employees are summarized as follows:

 

		Shares				Weighted Average Grant Date Fair Value per Share				Shares				Weighted Average Grant Date Fair Value per Share
Unvested, January 1, 2016			3,375,798			$	2.73
Unvested, January 1, 2017											2,735,564			$	3.41
Granted (unvested)			1,138,669			$	4.40				884,406			$	5.87
Canceled			(205,032	)		$	2.70				(78,176	)		$	3.10
Distributed (vested)			(1,573,871	)		$	2.82				(1,446,476	)		$	3.26
Unvested, December 31, 2016			2,735,564			$	3.41
Unvested, December 31, 2017											2,095,318			$	4.52

 

The 2,735,5642,095,318 unvested units at December31, 20162017 are scheduled to vest as follows:

 

	790,253		in June 2017
	650,137		in July 2017
	379,743669,756		in June 2018
	579,437549,041		in July 2018
	335,994622,036		in June 2019
254,485		in June 2020

 

Unvested units maywill be forfeited by participants through termination of employment in advance of vesting.vesting, with the exception of termination due to retirement if certain criteria are met. Since the earliest grant date of unvested units (which was 2014)2015), we have recognized approximately $4.8$5.1 million in compensation expense, including approximately $3.6$3.7 million recognized in 2016,2017, and expect to record an additional $4.5$4.3 million in compensation expense over the remaining vesting period related to these units. The latest vesting date for unvested units as of December 31,2017 is June 2020.

Performance-Based Shares

We periodically grant performance-based share awards to certain executive employees. The value of the awards is based on the ranking of the market performance of our common stock relative to the performance of the common stock of a group of peer companies over a three-year measurement period. The number of shares to be issued is based on the value of the awards divided by the share price at grant date. The compensation cost is measured using a Monte Carlo simulation to estimate their value at grant date. Since the earliest grant date of unvested units (which was 2016), we have recognized approximately $0.6 million in compensation expense, including approximately $0.4 million recognized in 2017, and expect to record an additional $0.7 million in compensation expense over the remaining vesting period related to these awards. The latest vesting date for unvested units as of December31,2017 is December 31, 2016 is June 2019.

 

In connection with the vesting of restricted stock units, performance-based shares and other stock grants, employees have in the past, at their election and when permitted by us, chosen to satisfy their tax withholding obligations through net share settlement, pursuant to which we withhold the number of shares necessary to satisfy such withholding obligations.  Pursuant to such net settlements, in 20162017 we repurchased 1,010,509withheld 588,240 shares valued at approximately $3.5$2.9 million, or approximately $3.44$4.88 per share.  In 2015,2016, we withheld 613,6981,010,509 shares valued at approximately $1.9$3.5 million, or approximately $3.05$3.44 per share. These shares become treasury shares unless we cancel them.

Note 10: Derivative Instruments

 

Note 10: Derivative Instruments

Foreign Currency

 

Our wholly-owned subsidiaries owning the Casa Berardi and San Sebastian mines are USD-functional entities which routinely incur expenses denominated in CAD and MXN, and such expenses expose us to exchange rate fluctuations between the USD and CAD and MXN. In April 2016, we initiated a program to manage our exposure to fluctuations in the exchange rate between the USD and CAD and the impact on our future operating costs denominated in CAD. In October 2016, we also initiated a program to manage our exposure to the impact of fluctuations in the exchange rate between the USD and MXN on our future operating costs denominated in MXN. The programs utilize forward contracts to sellbuy CAD and MXN, and each contract is designated as a cash flow hedge. As of December31, 2016,2017, we have 130had 96 forward contracts outstanding to sell buy CAD$290.1213.1 million having a notional amount of US$222.9164.5 million, and 2425 forward contracts outstanding to sell buy MXN$202.5278.2 million having a notional amount of US$10.314.1 million. The CAD contracts represent between 21% and 75% of our annualare related to forecasted cash operating costs at Casa Berardi to be incurred from 20172018 through 2020 and have CAD-to-USD exchange rates ranging between 1.2787 and 1.3380. The MXN contracts represent 75% of ourare related to forecasted cash operating costs at San Sebastian for 20172018 and 2019 and have MXN-to-USD exchange rates ranging between 18.997518.8317 and 21.000.20.8550. Our risk management policy allows for up to 75% of our planned cost exposure for five years into the future to be hedged under such programs, and for potential additional programs to manage other foreign currency-related exposure areas.

 

F-36

---

Table of Contents

 

As of December31, 2016,2017, we recorded the following balances for the fair value of the contracts:

•

a current asset of $2.3 million, which is included in other current assets and is net of $0.4 million for contracts in a current liability position; and

•

a non-current asset of $2.7 million, which is included in other non-current assets and is net of $0.3 million for contracts in a non-current liability position.

 

•      a non-current asset of $27 thousand, which is included in other non-current assets;

•      a current liability of $2.8 million, which is included in other current liabilities, and

•      a non-current liability of $2.4 million, which is included in other non-current liabilities.

Net unrealized lossesgains of approximately $5.2$5.0 million related to the effective portion of the hedges were included in accumulated other comprehensive income as of December 31, 2016,2017, and are net of related deferred taxes. Unrealized gains and losses will be transferred from accumulated other comprehensive loss to current earnings as the underlying operating expenses are recognized. We estimate approximately $3.0$2.1 million in net unrealized lossesgains included in accumulated other comprehensive income as of December 31, 20162017 would be reclassified to current earnings in the next twelve months. Net unrealized lossesrealized gains of approximately $2$1.1 million on contracts related to underlying expenses which have been recognized were transferred from accumulated other comprehensive loss and included in cost of sales and other direct production costs in 2017. Net unrealized gains of approximately $5 thousand related to ineffectiveness of the hedges were included in gain (loss) on derivatives contracts on our consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2016.2017.

 

Metals Prices

 

At times, we may 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, thereby partially offsetting our exposure to fluctuations in the market. Our risk management policy allows for up to 75% of our planned metals price exposure for five years into the future, with certain other limitations, to be hedged under such programs. These instruments do, however, expose us to (i) credit risk in the event of non-performance by counterparties for contracts in which the contract price exceeds the spot price of a commodity and (ii) price risk to the extent that the spot price exceeds the contract price for quantities of our production covered under contract positions.

 

We are currently using financially-settled forward contracts to manage the exposure to changes in prices of silver, gold, zinc and lead contained in our concentrate shipments between the time of shipment and final settlement. In addition, we currently use financially-settled forward contracts to manage the exposure to changes in prices of zinc and lead (but not silver and gold) contained in our forecasted future concentrate shipments. These contracts are not designated as hedges and are marked-to-market through earnings each period.  At December 31, 2016,2017, we recorded a current assetliability of $2.8$10.3 million, which is included in other current assetsliabilities and is net of $0.7$0.2 million for contracts in a fair value current liabilityasset position. In addition, we recorded a non-current assetliability of $2.5$5.2 million at December 31, 20162017 which is included in other non-current assets.liabilities.

 

We recognized a $14.2$6.0 million net loss during 20162017 on the contracts utilized to manage exposure to prices of metals in our concentrate shipments, which is included in sales of products.  The net loss recognized on the contracts offsets gains related to price adjustments on our provisional concentrate sales due to changes to silver, gold, lead and zinc prices between the time of sale and final settlement.

F-37

---

Table of Contents

 

We recognized a $4.4$21.3 million net gainloss during 20162017 on the contracts utilized to manage exposure to prices for forecasted future concentrate shipments. The net gainloss on these contracts is included as a separate line item under other income (expense), as they relate to forecasted future shipments, as opposed to sales that have already taken place but are subject to final pricing as discussed in the preceding paragraph.  The net gainloss for 20162017 is the result of decreasingincreasing zinc and lead prices. This program, when utilized, is designed to mitigate the impact of potential future declines in leadzinc and zinclead prices from the price levels established in the contracts (see average price information below). When those prices increase compared to the contract prices, we recognize losses.

F-37

---

Table of Contents

 

The following tables summarize the quantities of metals committed under forward sales contracts at December31, 20162017 and 2015:2016:

 

December 31, 2016		Ounces/pounds under contract (in 000's)																Average price per ounce/pound
December 31, 2017																																		Ounces/pounds under contract (in 000's)																Average price per ounce/pound
		Silver				Gold				Zinc				Lead				Silver				Gold				Zinc				Lead				Silver				Gold				Zinc				Lead				Silver				Gold				Zinc				Lead
		(ounces)				(ounces)				(pounds)				(pounds)				(ounces)				(ounces)				(pounds)				(pounds)				(ounces)				(ounces)				(pounds)				(pounds)				(ounces)				(ounces)				(pounds)				(pounds)
Contracts on provisional sales
2017 settlements			1,295				4				19,070				7,441			$	16.29			$	1,172			$	1.18			$	0.97
2018 settlements																																			1,447				5				21,550				4,740			$	16.64			$	1,279			$	1.45			$	1.11
Contracts on forecasted sales
2017 settlements			—				—				35,384				17,637				N/A				N/A			$	1.19			$	1.03
2018 settlements			—				—				13,779				5,732				N/A				N/A			$	1.21			$	1.05				—				—				32,187				16,645				N/A				N/A			$	1.29			$	1.06
2019 settlements																																			—				—				23,589				18,078				N/A				N/A			$	1.33			$	1.09
2020 settlements																																			—				—				3,307				2,866				N/A				N/A			$	1.27			$	1.08

 

December 31, 2015

Ounces/pounds under contract (in 000's)

Average price per ounce/pound

Silver

Gold

Zinc

Lead

Silver

Gold

Zinc

Lead

(ounces)

(ounces)

(pounds)

(pounds)

(ounces)

(ounces)

(pounds)

(pounds)

Contracts on provisional sales

2016 settlements

1,368

5

23,755

8,433

14.12

1,076

$

0.71

$

0.77

December 31, 2016		Ounces/pounds under contract (in 000's)																Average price per ounce/pound
		Silver				Gold				Zinc				Lead				Silver				Gold				Zinc				Lead
		(ounces)				(ounces)				(pounds)				(pounds)				(ounces)				(ounces)				(pounds)				(pounds)
Contracts on provisional sales
2017 settlements			1,295				4				19,070				7,441			$	16.29			$	1,172			$	1.18			$	0.97
Contracts on forecasted sales
2017 settlements			N/A				N/A				35,384				17,637				N/A				N/A			$	1.19			$	1.03
2018 settlements			N/A				N/A				13,779				5,732				N/A				N/A			$	1.21			$	1.05

 

Our concentrate sales are based on a provisional sales price containing an embedded derivative that is required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of the concentrates at the forward price at the time of the sale. The embedded derivative, which does not qualify for hedge accounting, is adjusted to market through earnings each period prior to final settlement.

 

Credit-risk-related Contingent Features

 

We have agreements with certain counterparties that contain a provision whereby we could be declared in default onCertain of our derivative obligations if repayment ofcontracts contain cross default provisions which provide that a default under our revolving credit agreement would cause a default under the underlying indebtedness is accelerated by the lender due to our default on the indebtedness.derivative contracts. As of December 31, 2016,2017, we have not posted any collateral related to these agreements. The fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $6.4$0.8 million as of December 31, 2016.2017. If we had breachedwere in breach of any of these provisions at December 31, 2016,2017, we could have been required to settle our obligations under the agreements at their termination value of $6.4$0.8 million.

 

F-38

---

Table of Contents

Note 11: Business Segments and Significant Customers

 

We discover, acquire, develop, produce, and market concentrates and doré containing silver, gold, lead and zinc.  Our products consist of both metal concentrates, which we sell to custom smelters and brokers, and unrefined bullion bars (doré), which may be sold as doré or further refined before sale to precious metals traders.  We are currently organized and managed in four segments, which represent our operating units: the Greens Creek unit, the Lucky Friday unit, the Casa Berardi unit, and the San Sebastian unit. The San Sebastian unit, a historic operating property for Hecla, resumed commercial production in the fourth quarter of 2015 and was added as a new reporting segment in 2015.

 

General corporate activities not associated with operating units and their various exploration activities, as well as discontinued operations and idle properties, are presented as “other.”  Interest expense, interest income and income taxes are considered general corporate items, and are not allocated to our segments.

F-38

---

Table of Contents

 

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

 

		Year Ended December 31,												Year Ended December 31,
		2016				2015				2014				2017				2016				2015
Greens Creek			40.3	%			51.4	%			49.0	%			48.2	%			40.3	%			51.4	%
Lucky Friday			14.7	%			14.9	%			17.9	%			3.8	%			14.7	%			14.9	%
Casa Berardi			27.4	%			33.7	%			33.1	%			33.3	%			27.4	%			33.7	%
San Sebastian			17.6	%			—	%			—	%			14.8	%			17.6	%			—	%
			100	%			100	%			100	%			100	%			100	%			100	%

F-39

---

Table of Contents

 

The tables below present information about reportable segments as of and for the years ended December31,2017,2016 2015 and 20142015 (in thousands).

		2016				2015				2014
Net sales to unaffiliated customers:
Greens Creek		$	260,446			$	227,833			$	245,175
Lucky Friday			94,479				66,302				89,757
Casa Berardi			177,143				149,432				165,849
San Sebastian			113,889				—				—
		$	645,957			$	443,567			$	500,781
Income (loss) from operations:
Greens Creek		$	65,125			$	26,536			$	39,758
Lucky Friday			18,175				868				21,501
Casa Berardi			16,336				(1,557	)			11,828
San Sebastian			77,221				(9,269	)			(5,780	)
Other			(59,913	)			(52,189	)			(45,679	)
		$	116,944			$	(35,611	)		$	21,628
Capital additions (including non-cash additions):
Greens Creek		$	42,013			$	45,962			$	31,476
Lucky Friday			44,839				60,020				52,193
Casa Berardi			67,577				35,302				48,615
San Sebastian			6,026				4,623				—
Other			21,344				14,809				18,801
		$	181,799			$	160,716			$	151,085

 

		2017				2016				2015
Net sales to unaffiliated customers:
Greens Creek		$	278,297			$	260,446			$	227,833
Lucky Friday			21,555				94,479				66,302
Casa Berardi			192,165				177,143				149,432
San Sebastian			85,758				113,889				—
		$	577,775			$	645,957			$	443,567
Income (loss) from operations:
Greens Creek		$	70,132			$	65,125			$	26,536
Lucky Friday			(16,037	)			18,175				868
Casa Berardi			4,003				16,336				(1,557	)
San Sebastian			53,591				77,221				(9,269	)
Other			(47,046	)			(59,913	)			(52,189	)
		$	64,643			$	116,944			$	(35,611	)
Capital additions (including non-cash additions):
Greens Creek		$	35,255			$	42,013			$	45,962
Lucky Friday			6,268				44,839				60,020
Casa Berardi			51,327				67,577				35,302
San Sebastian			9,994				6,026				4,623
Other			2,908				21,344				14,809
		$	105,752			$	181,799			$	160,716
Depreciation, depletion and amortization:
Greens Creek		$	56,328			$	53,222			$	57,742
Lucky Friday			2,447				11,810				11,262
Casa Berardi			54,594				47,312				43,674
San Sebastian			2,693				3,782				—
		$	116,062			$	116,126			$	112,678
Other significant non-cash items:
Greens Creek		$	2,685			$	2,736			$	2,886
Lucky Friday			2,011				720				72
Casa Berardi			653				1,259				2,229
San Sebastian			468				—				13
Other			51,182				11,135				66,004
		$	56,999			$	15,850			$	71,204
Identifiable assets:
Greens Creek		$	671,960			$	681,303			$	698,265
Lucky Friday			432,400				442,829				393,338
Casa Berardi			804,505				806,044				779,423
San Sebastian			62,198				33,608				22,238
Other			393,894				407,893				328,661
		$	2,364,957			$	2,371,677			$	2,221,925

F-39F-40

---

Table of Contents

Depreciation, depletion and amortization:
Greens Creek		$	52,564			$	56,553			$	63,505
Lucky Friday			11,810				11,262				9,431
Casa Berardi			47,312				43,674				38,198
San Sebastian			3,782				—				—
		$	115,468			$	111,489			$	111,134
Other significant non-cash items:
Greens Creek		$	2,736			$	2,886			$	2,807
Lucky Friday			720				72				72
Casa Berardi			1,259				2,229				847
San Sebastian			—				13				—
Other			11,135				66,004				506
		$	15,850			$	71,204			$	4,232
Identifiable assets:
Greens Creek		$	681,303			$	698,265			$	704,121
Lucky Friday			442,829				393,338				356,482
Casa Berardi			806,044				779,423				800,961
San Sebastian			33,608				22,238				1,529
Other			407,893				328,661				398,971
		$	2,371,677			$	2,221,925			$	2,262,064

 

The following is sales information by geographic area based on the location of smelters and brokers (for concentrate shipments) and the location of parent companies (for doré sales to metals traders) for the years ended December31,2017,2016 2015 and 20142015 (in thousands):

 

		2016				2015				2014				2017				2016				2015
United States		$	22,499			$	17,862			$	22,200			$	16,776			$	22,499			$	17,862
Canada			437,621				275,771				295,027				358,663				437,621				275,771
Japan			44,158				38,835				58,466				58,475				44,158				38,835
Korea			116,687				66,293				70,548				80,183				116,687				66,293
China			35,220				38,611				53,067				69,631				35,220				38,611
Other			4,008				—				—				—				4,008				—
Total, excluding gains/losses on forward contracts		$	660,193			$	437,372			$	499,308			$	583,728			$	660,193			$	437,372

 

Sales of products for 2017 and 2016 include net losses of $14.2$6.0 million and $14.2 million, respectively, and 2015 included net gains of $6.2$6.2 million, on financially-settled forward contracts for silver, gold, lead and zinc contained in our concentrate sales.  2014 sales included a net gain of $1.5 million on the contracts for lead and zinc.  SeeNote 10 for more information.

 

The following are our long-lived assets by geographic area as of December31, 20162017 and 20152016 (in thousands):

		2016				2015
United States		$	1,261,488			$	1,150,521
Canada			764,489				741,612
Mexico			6,708				4,678
		$	2,032,685			$	1,896,811

 

F-40

---

Table of Contents

		2017				2016
United States		$	1,246,577			$	1,261,488
Canada			759,700				764,489
Mexico			13,744				6,708
		$	2,020,021			$	2,032,685

 

Sales from continuing operations to significant metals customers as a percentage of total sales were as follows for the years ended December31,2017,2016 2015 and 2014:2015:

 

		Year Ended December 31,												Year Ended December 31,
		2016				2015				2014				2017				2016				2015
Teck Metals Ltd.			21.2	%			22.5	%			25.8	%			11.3	%			21.2	%			22.5	%
Korea Zinc			16.9	%			16.0	%			14.1	%			16.4	%			16.9	%			16.0	%
Scotia			24.5	%			5.6	%			-	%			24.9	%			24.5	%			5.6	%
CIBC			19.0	%			17.6	%			17.0	%			22.8	%			19.0	%			17.6	%
Mitsui			4.4	%			10.2	%			15.8	%			7.6	%			4.4	%			10.2	%

 

The sales and income (loss) from operations amounts reported above include results from our Lucky Friday segment.  The Lucky Friday mine is our only operation where some of our employees are subject to a collective bargaining agreement, and the most recent agreement expired on April 30, 2016.  On February 19, 2017, the unionized employees voted against our contract offer.  We expect further discussionsOn March 13, 2017, the unionized employees went on strike and have been on strike since that time.  Production at Lucky Friday was suspended from the start of the strike until July 2017, when limited production resumed.  For 2017, suspension costs not related to production of $17.1 million, along with $4.2 million in non-cash depreciation expense, are reported in a separate line item on our consolidated statement of operations.  In February 2018, we reached an agreement for binding third-party arbitration with the union, but itsubject to ratification by the union membership.  If the arbitration is possibleapproved by the union members in March 2018, three arbitrators will decide on one of the following to become effective for a period of three years:  1) the contract we submitted in December 2017 as our revised last, best and final offer or 2) the terms of the collective bargaining agreement that expired in April 2016, as modified by certain changes agreed to by the union and us.  It is anticipated the arbitration would be completed in May 2018.  If the arbitration is not approved by the union members, we will be back at the status quo.  We cannot predict whether the union members will approve the arbitration, the outcome of the arbitration, or how long the strike will last or whether an agreement will not be reached in which case we cannot predict what might happen next, including what actions we orif the union might take in response to failing to reach an agreement. Inarbitration is not agreed to.  As a result of the event of a prolonged strike or other event related to labor at the Lucky Friday,events, operations at Lucky Friday could continue to be disrupted, which could adversely affect our financial condition and results of operations.

 

F-41

---

Table of Contents

 

 

Note 12: Fair Value Measurement

 

The table below sets forth our assets and liabilities (in thousands) that were accounted for at fair value on a recurring basis and the fair value calculation input hierarchy level that we have determined applies to each asset and liability category.  SeeNote 8 for information on the fair values of our defined benefit pension plan assets.

 

		Balance at December 31, 2016				Balance at December 31, 2015			Input Hierarchy Level		Balance at December 31, 2017				Balance at December 31, 2016			Input Hierarchy Level
Assets:
Cash and cash equivalents:
Money market funds and other bank deposits		$	169,777			$	155,209		Level 1		$	186,107			$	169,777		Level 1
Available for sale securities:
Debt securities – municipal and corporate bonds			29,117				—		Level 2			33,758				29,117		Level 2
Equity securities – mining industry			5,002				1,515		Level 1			7,561				5,002		Level 1
Trade accounts receivable:
Receivables from provisional concentrate sales			20,082				13,490		Level 2			14,805				20,082		Level 2
Derivative contracts:
Metal forward contracts			5,403				—		Level 2			—				5,403		Level 2
Foreign exchange contracts			27				—		Level 2			4,943				27		Level 2
Restricted cash balances:
Certificates of deposit and other bank deposits			2,200				999		Level 1			1,032				2,200		Level 1
Total assets		$	231,608			$	171,213				$	248,206			$	231,608
Liabilities
Derivative contracts:
Metal forward contracts		$	192			$	—		Level 2		$	15,531			$	192		Level 2
Foreign exchange contracts			5,288				—		Level 2			—				5,288		Level 2
Total liabilities		$	5,480			$	—				$	15,531			$	5,480

 

Cash and cash equivalents consist primarily of money market funds and are valued at cost, which approximates fair value, and a small portion consists of municipal bonds having maturities of less than 90 days, which are recorded at fair value.

 

Current available-for-sale securities consist of municipal and corporate bonds having maturities of more than 90 days, which are recorded at fair value.

 

Current and non-current restricted cash balances consist primarily of certificates of deposit, U.S. Treasury securities, and other deposits and are valued at cost, which approximates fair value.

 

Our non-current available for sale securities consist of marketable equity securities of companies in the mining industry which are valued using quoted market prices for each security.

 

F-42

---

Table of Contents

Trade accounts receivable include amounts due to us for shipments of concentrates, doré and precipitate sold to customers.  Revenues and the corresponding accounts receivable for sales of metals products are recorded when title and risk of loss transfer to the customer (generally at the time of loading on truck or ship).  Sales of concentrates are recorded using estimated forward prices for the anticipated month of settlement applied to our estimate of payable metal quantities contained in each shipment.  Sales are recorded net of estimated treatment and refining charges, which are also impacted by changes in metals prices and quantities of contained metals.  We estimate the prices at which sales of our concentrates will be settled due to the time elapsed between shipment and final settlement with the customer.  Receivables for previously recorded concentrate sales are adjusted to reflect estimated forward metals prices at the end of each period until final settlement by the customer.  We obtain the forward metals prices used each period from a pricing service.  Changes in metal prices between shipment and final settlement result in changes to revenues previously recorded upon shipment.  The embedded derivative contained in our concentrate sales is adjusted to fair market value through earnings each period prior to final settlement.

 

F-42

---

Table of Contents

We use financially-settled forward contracts to manage exposure to changes in the exchange rate between the U.S. dollarUSD and Canadian dollarCAD and Mexican peso,MXN, and the impact on Canadian dollar-CAD- and Mexican peso-denominatedMXN-denominated operating costs incurred at our Casa Berardi and San Sebastian units (seeNote 10 for more information). These contracts qualify for hedge accounting, with unrealized gains and losses related to the effective portion of the contracts included in accumulated other comprehensive loss, and unrealized gains and losses related to the ineffective portion of the contracts included in earnings each period. The fair value of each contract represents the present value of the difference between the forward exchange rate for the contract settlement period as of the measurement date and the contract settlement exchange rate.

 

We use financially-settled forward contracts to manage the exposure to changes in prices of silver, gold, zinc and lead contained in our concentrate shipments that have not reached final settlement.  We also use financially-settled forward contracts to manage the exposure to changes in prices of zinc and lead contained in our forecasted future concentrate shipments (seeNote 10 for more information).  These contracts do not qualify for hedge accounting, and are marked-to-market through earnings each period.  The fair value of each contract represents the present value of the difference between the forward metal price for the contract settlement period as of the measurement date and the contract settlement metal price.

 

Our Senior Notes, which were recorded at their carrying value of $501.0$502.2 million, net of unamortized initial purchaser discount at December31, 2016,2017, had a fair value of $521.4$520.4 million at December 31, 2016.2017. Third-party quotes, which we consider to be Level 2 inputs, are utilized to estimate fair values of the Senior Notes. SeeNote 6 for more information.

 

Note 13: Income (Loss) per Common Share

 

We are authorized to issue 500,000,000750,000,000 shares of common stock, $0.25$0.25 par value per share. At December31, 2016,2017, there were 399,228,085403,705,875 shares of our common stock issued and 3,941,2104,529,450 shares issued and held in treasury, for a net of 395,286,875399,176,425 shares outstanding.

 

We calculate basic earnings per share using, as the denominator, the weighted average number of common shares outstanding during the period. Diluted earnings per share uses, as its denominator, the weighted average number of common shares outstanding during the period plus the effect of potential dilutive common shares during the period using the treasury stock method for options, warrants, and restricted stock units, and if-converted method for convertible preferred shares.

 

Potential dilutive common shares include outstanding stock options, restricted stock unit awards, stock units, warrants and convertible preferred stock for periods in which we have reported net income. For periods in which we reported net losses, potential dilutive common shares are excluded, as their conversion and exercise would not reduce earnings per share. Under the if-converted method, preferred shares would not dilute earnings per share in any of the periods presented.

 

A total of 157,816 shares of preferred stock were outstanding at December31,2017,2016 2015 and 2014.

2015.

 

F-43

---

Table of Contents

 

The following table represents net income per common share – basic and diluted (in thousands, except earnings per share):

 

		Year ended December 31,												Year ended December 31,
		2016				2015				2014				2017				2016				2015
Numerator
Net income (loss)		$	69,547			$	(86,968	)		$	17,824			$	(23,519	)		$	69,547			$	(86,968	)
Preferred stock dividends			(552	)			(552	)			(552	)			(552	)			(552	)			(552	)
Net income (loss) applicable to common shares		$	68,995			$	(87,520	)		$	17,272			$	(24,071	)		$	68,995			$	(87,520	)
Denominator
Basic weighted average common shares			386,416				373,954				353,442				397,394				386,416				373,954
Dilutive stock options, restricted stock units, and warrants			2,906				—				3,993				—				2,906				—
Diluted weighted average common shares			389,322				373,954				357,435				397,394				389,322				373,954
Basic earnings (loss) per common share		$	0.18			$	(0.23	)		$	0.05			$	(0.06	)		$	0.18			$	(0.23	)
Diluted earnings (loss) per common share		$	0.18			$	(0.23	)		$	0.05			$	(0.06	)		$	0.18			$	(0.23	)

 

There were no options outstanding options for the years ended December31,2017,2016 and 2015, and no warrants outstanding for the years ended December 31, 20162017 and 2015. For the year ended December 31, 2014, options to purchase 259,342 shares of our common stock were excluded from the computation of diluted earnings per share, as the exercise price of the options exceeded the average price of our stock during those periods and therefore would not affect the calculation of earnings per share.2016. For the years ended December 31, 2016 2017 and 2014, respectively, 4,309,440 and 4,670,170 restricted stock units that were unvested or vested during the year were included in the calculation of diluted earnings per share. For the year ended December 31, 2015, all outstanding restricted stock units, warrants and warrantsdeferred shares were excluded from the computation of diluted loss per share, as our reported net losses for that period would cause their conversion and exercise to have no effect on the calculation of loss per share. For the year ended December 31, 2016, 4,309,440 restricted stock units that were unvested or vested during the year and 635,602 deferred shares were included in the calculation of diluted earnings per share.

 

Note 14: Accumulated Other Comprehensive Loss

 

The following table lists the beginning balance, yearly activity and ending balance of each component of "Accumulated other comprehensive loss, net" (in thousands):

 

		Unrealized Gains (Losses) On Securities				Changes in fair value of derivative contracts designated as hedge transactions				Adjustments For Pension Plans				Total Accumulated Other Comprehensive Loss, Net
Balance January 1, 2014		$	(2,552	)		$	—			$	(23,747	)		$	(26,299	)
2014 change			1,143				—				(6,875	)			(5,732	)
Balance December 31, 2014			(1,409	)			—				(30,622	)			(32,031	)
2015 change			250				—				(850	)			(600	)
Balance December 31, 2015			(1,159	)			—				(31,472	)			(32,631	)
2016 change			2,613				(5,260	)			676				(1,971	)
Balance December 31, 2016		$	1,454			$	(5,260	)		$	(30,796	)		$	(34,602	)

		Unrealized Gains (Losses) On Securities				Changes in fair value of derivative contracts designated as hedge transactions				Adjustments For Pension Plans				Total Accumulated Other Comprehensive Loss, Net
Balance January 1, 2015		$	(1,409	)		$	—			$	(30,622	)		$	(32,031	)
2015 change			250				—				(850	)			(600	)
Balance December 31, 2015			(1,159	)			—				(31,472	)			(32,631	)
2016 change			2,613				(5,260	)			676				(1,971	)
Balance December 31, 2016			1,454				(5,260	)			(30,796	)			(34,602	)
2017 change			2,265				10,290				(1,326	)			11,229
Balance December 31, 2017		$	3,719			$	5,030			$	(32,122	)		$	(23,373	)

 

F-44

---

Table of Contents

 

The $2.6$2.3 million $0.3unrealized gain on securities for 2017 includes $0.2 million for the reclassification to current earnings of a loss on disposal of equity securities. The $2.6 million and $1.1$0.3 million changes in unrealized gains (losses) on securities in 2016 2015 and 2014,2015, respectively, are net of $1.0 million, $3.0$1.0 million and $2.4$3.0 million for the reclassification to current earnings of impairments of equity securities, as we deemed the impairments to be other-than-temporary. The amounts above are net of the income tax effect of such balances and activity as summarized in the following table (in thousands):

 

		Income Tax Effect of:																Income Tax Effect of:
		Unrealized Gains (Losses) On Securities				Changes in fair value of derivative contracts designated as hedge transactions				Adjustments For Pension Plans				Total Accumulated Other Comprehensive Loss, Net				Unrealized Gains (Losses) On Securities				Changes in fair value of derivative contracts designated as hedge transactions				Adjustments For Pension Plans				Total Accumulated Other Comprehensive Loss, Net
Balance January 1, 2014		$	619			$	—			$	5,764			$	6,383
2014 change			6				—				4,653				4,659
Balance December 31, 2014			625				—				10,417				11,042
Balance January 1, 2015																		$	625			$	—			$	10,417			$	11,042
2015 change			6				—				213				219				6				—				213				219
Balance December 31, 2015			631				—				10,630				11,261				631				—				10,630				11,261
2016 change			(4	)			—				(510	)			(514	)			(4	)			—				(510	)			(514	)
Balance December 31, 2016		$	627			$	—			$	10,120			$	10,747				627				—				10,120				10,747
2017 change																			1,164				—				—				1,164
Balance December 31, 2017																		$	1,791			$	—			$	10,120			$	11,911

 

See SeeNote 2 for more information on our marketable securities,Note 8 for more information on our employee benefit plans, andNote 10 for more information on our derivative instruments.

 

Note 15:  Acquisitions

 

Acquisition of Mines Management

 

On September 13, 2016, we completed the acquisition of Mines Management and its subsidiaries through the merger of a wholly owned subsidiary of ours with and into Mines Management, pursuant to which we acquired all of the issued and outstanding common stock of Mines Management Inc. for total consideration of $52.1$52.1 million. The acquired entities hold 100% ownership of the Montanore project in Northwestnorthwestern Montana, a significant undeveloped silver and copper deposit which we believe provides long-term production growth potential if permitted and developed. Montanore is approximately 10 miles away from our Rock Creek project acquired through our acquisition of Revett Mining Company, Inc. in June 2015. The consideration was comprised of $4.0$4.0 million in cash used to fund Mines Management's operating activities prior to completion of the merger and for settlement of outstanding warrants to purchase shares of Mines Management's common stock, and $48.1$48.1 million in Hecla common stock. In the merger, each outstanding common share of Mines Management was exchanged for 0.2218 of a share of our common stock. Mines Management had 36,498,625 outstanding common shares and outstanding options to purchase 963,079 shares of Mines Management common stock, resulting in 8,309,006 new shares of Hecla stock issued as consideration. The value of Hecla stock issued as consideration was based upon the closing price at the time of consummation of $5.79$5.79 per share.

 

F-45

---

Table of Contents

 

The following summarizes the preliminary allocation of purchase price to the fair value of assets acquired and liabilities assumed as of the date of acquisition (in thousands):

 

Consideration:
Cash		$	4,025			$	4,025
Hecla stock issued (8,309,006 shares at $5.79 per share)			48,109				48,109
Total consideration		$	52,134			$	52,134
Fair value of net assets acquired:
Assets:
Cash		$	94			$	94
Property, plants, equipment and mineral interests			68,038				74,320
Restricted cash			1,185				1,185
Other assets			329				329
Total assets			69,646				75,928
Liabilities:
Accounts payable and accrued liabilities			2,357				2,357
Deferred tax liability			14,031				20,313
Non-current reclamation liability			1,124				1,124
Total liabilities			17,512				23,794
Net assets		$	52,134			$	52,134

 

The $68.0$74.3 million fair value for "Property, plants, equipment, and mineral interests" is comprised of $0.8$0.8 million for plant and equipment, $0.1$0.1 million for land, and $67.1$73.4 million for mineral interests.

The allocation of purchase price above is considered preliminary, as review by management of the valuation methodologies for mineral interests and the related deferred tax liability has not been finalized.

 

In September 2016, we issued 181,048 shares of our common stock for payment of approximately $1.0$1.0 million in acquisition-related costs, which are included inAcquisition costs on ourConsolidated Statements of Operations and Comprehensive Income (Loss).

 

The unaudited pro forma financial information below represents the combined results of our operations as if the acquisition had occurred at the beginning of the periods presented. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have occurred if the acquisition had taken place at the beginning of the periods presented, nor is it indicative of future operating results.

 

		Year Ended December 31,
(in thousands, except per share amounts)		2016				2015
		(unaudited)
Sales of products		$	645,957			$	443,567
Net income (loss)			68,778				(89,806	)
Income (loss) applicable to common shareholders			68,226				(90,357	)
Basic and diluted income (loss) per common share			0.17				(0.24	)

 

The unaudited pro forma financial information includes adjustments to 1)1) eliminate acquisition-related costs totaling $4.7$4.7 million for the year ended December 31,2016 which are non-recurring and 2)2) reflect the issuance of Hecla stock as consideration in the acquisition and for payment of acquisition costs. A net loss by the acquired entities since the acquisition date of $32$32 thousand is included in our net income reported for the year ended December 31,2016.

 

F-46

---

Table of Contents

 

Takeover Bid for Dolly Varden Silver Corporation

 

On June 27, 2016, we announced a takeover bid for all of the outstanding shares of Dolly Varden Silver Corporation ("Dolly Varden") not owned by us and our affiliates for cash of CAD$0.69 per share. Dolly Varden owns 100% of the Dolly Varden historic silver property in northwestern British Columbia, Canada. Our wholly owned subsidiary owns 4,478,087 Dolly Varden shares and warrants to purchase 1,351,762 Dolly Varden shares, representing approximately 18.5% of Dolly Varden's shares outstanding on a partially diluted basis. Based on Dolly Varden's outstanding shares and options and warrants to acquire Dolly Varden shares, and excluding shares and warrants held by us and our affiliates, total consideration would have been approximately CAD$13.6 million. In late July 2016, we withdrew the bid due to the failure of a required condition precedent to its consummation.

 

Acquisition of Revett Mining Company, Inc.

 

On June 15, 2015, we completed the acquisition of Revett through the merger of a wholly owned subsidiary of ours with and into Revett, pursuant to which we acquired all of the issued and outstanding common stock of Revett for total consideration of $20.1$20.1 million. The acquired entities hold 100% ownership of two properties and other interests in north-westnorthwestern Montana, including: the Troy Mine, which is on care-and-maintenance and which we intend to reclaim and close, and the Rock Creek project, a significant undeveloped silver and copper deposit which we believe provides long-term production growth potential if permitted and developed. The consideration was comprised of $0.9$0.9 million in cash used to fund Revett's operating activities prior to completion of the merger and $19.1$19.1 million in Hecla common stock. In the merger, each outstanding common share of Revett was exchanged for 0.1622 of a share of our common stock. Revett had 38,548,989 outstanding common shares, excluding 725,000 shares owned by our wholly-owned subsidiary which were canceled in the merger, resulting in 6,252,646 new shares of Hecla stock issued as consideration. The value of Hecla stock issued as consideration was based upon the closing price at the time of consummation of $3.06$3.06 per share.

F-47

---

Table of Contents

 

The following summarizes the allocation of purchase price to the fair value of assets acquired and liabilities assumed as of the date of acquisition (in thousands):

 

Consideration:
Cash		$	949
Hecla stock issued (6,252,646 shares at $3.06 per share)			19,133
Total consideration		$	20,082
Fair value of net assets acquired:
Assets:
Cash		$	140
Accounts receivable			137
Inventory - supplies			472
Deferred tax assets			7,193
Property, plants, equipment and mineral interests			17,609
Reclamation insurance			16,800
Other assets			280
Total assets			42,631
Liabilities:
Accounts payable and accrued liabilities			975
Notes payable			4,061
Non-current reclamation liability			17,513
Total liabilities			22,549
Net assets		$	20,082

F-47

---

Table of Contents

 

The $17.6$17.6 million fair value for "Property, plants, equipment, and mineral interests" is comprised of $4.1$4.1 million for plant and equipment, $4.6$4.6 million for land, and $8.9$8.9 million for mineral interests.

 

The $17.5$17.5 million value for "Non-current reclamation liability" represents the present value of estimated costs for reclamation and closure of the Troy mine. Revett held an environmental risk transfer program ("insurance policy") which would have funded costs incurred prior to the expiration date of March 29, 2020 for reclamation at the Troy mine up to a maximum limit of $16.8$16.8 million. We therefore included the $16.8$16.8 million "Reclamation insurance" asset above for the fair value of the insurance policy at the time of acquisition. However, in the third quarter of 2016, we reached a settlement on the insurance policy for cash proceeds to us of $16.0$16.0 million. The $0.7$0.7 million difference between the settlement amount and the asset balance prior to settlement was recorded to expense.

 

The unaudited pro forma financial information below represents the combined results of our operations as if the acquisition had occurred at the beginning of the periods presented. The unaudited pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have occurred if the acquisition had taken place at the beginning of the periods presented, nor is it indicative of future operating results.

		Year Ended December 31,
(in thousands, except per share amounts)		2015				2014
			(unaudited)
Sales of products		$	445,703			$	500,787
Net loss			(89,118	)			(44,099	)
Loss applicable to common stockholders			(89,670	)			(44,651	)
Basic and diluted loss per common share			(0.24	)			(0.12	)

 

F-48

---

Table of Contents

		Year Ended December 31,
(in thousands, except per share amounts)		2015
		(unaudited)
Sales of products		$	445,703
Net loss			(89,118	)
Loss applicable to common stockholders			(89,670	)
Basic and diluted loss per common share			(0.24	)

 

The unaudited pro forma financial information includes adjustments to 1)1) eliminate acquisition-related costs totaling $2.4$2.4 million for the year ended December 31, 2015 which are non-recurring and 2)2) reflect the issuance of Hecla stock as consideration in the acquisition. A net loss by the acquired entities since the acquisition date of $1.7$1.7 million is included in our net loss reported for the year ended December 31, 2015.

Note 16:  Guarantor Subsidiaries

 

Revett’s consolidated statement of operations and comprehensive income for the year ended December 31, 2014 included a $54.7 million expense for impairment of property, plant and equipment. Revett recognized the impairment as of December 31, 2014, with the estimated fair value of long-lived assets based on the merger agreement between Hecla and Revett. The impairment is not eliminated through an adjustment to the unaudited pro forma condensed combined statement of operations. However, it is a nonrecurring item and is not reflective of the operating results for the combined entities after consummation of the merger.

Note 16:  Guarantor Subsidiaries

Presented below are Hecla’sHecla’s condensed consolidating financial statements as required by Rule 3-103-10 of Regulation S-XS-X of the Securities Exchange Act of 1934, as amended, resulting from the guarantees by certain of Hecla's subsidiaries (the "Guarantors") of the Senior Notes (seeNote 6 for more information). The Guarantors consist of the following of Hecla's 100%-owned subsidiaries: Hecla Limited; Silver Hunter Mining Company; Rio Grande Silver, Inc.; Hecla MC Subsidiary, LLC; Hecla Silver Valley, Inc.; Burke Trading, Inc.; Hecla Montana, Inc.; Revett Silver Company; RC Resources, Inc.; Troy Mine Inc.; Revett Exploration, Inc.; Revett Holdings, Inc.; Mines Management, Inc.; Newhi Corp.; Montanore Minerals Corp.; Hecla Alaska LLC; Hecla Greens Creek Mining Company; Hecla Admiralty Company; and Hecla Juneau Mining Company. We completed the initial offering of the Senior Notes on April 12, 2013, and a related exchange offer for virtually identical notes registered with the SEC on January 3, 2014.

F-48

---

Table of Contents

 

The condensed consolidating financial statements below have been prepared from our financial information on the same basis of accounting as the consolidated financial statements set forth elsewhere in this report. Investments in the subsidiaries are accounted for under the equity method. Accordingly, the entries necessary to consolidate Hecla, the Guarantors, and our non-guarantor subsidiaries are reflected in the intercompany eliminations column. In the course of preparing consolidated financial statements, we eliminate the effects of various transactions conducted between Hecla and its subsidiaries and among the subsidiaries. While valid at an individual subsidiary level, such activities are eliminated in consolidation because, when taken as a whole, they do not represent business activity with third-partythird-party customers, vendors, and other parties. Examples of such eliminations include the following:

 

•

Investments in subsidiaries. The acquisition of a company results in an investment in debt or equity capital on the records of the parent company and a contribution to debt or equity capital on the records of the subsidiary. Such investments and capital contributions are eliminated in consolidation.

 

•

Capital contributions. Certain of Hecla's subsidiaries do not generate cash flow, either at all or sufficient to meet their capital needs, and their cash requirements are routinely met with inter-company advances from their parent companies. On an annual basis, when not otherwise intended as debt, the boards of directors of such parent companies declare contributions of capital to their subsidiary companies, which increase the parents' investment and the subsidiaries' additional paid-in capital. In consolidation, investments in subsidiaries and related additional paid-in capital are eliminated.

 

•

Debt. Inter-company debt agreements have been established between certain of Hecla's subsidiaries and their parents. The related debt liability and receivable balances, accrued interest expense (if any) and income activity (if any), and payments of principal and accrued interest amounts (if any) by the subsidiary companies to their parents are eliminated in consolidation.

 

•

Dividends. Certain of Hecla's subsidiaries which generate cash flow routinely provide cash to their parent companies through inter-company transfers. On at least an annual basis, the boards of directors of such subsidiary companies declare dividends to their parent companies, which reduces the subsidiaries' retained earnings and increases the parents' dividend income. In consolidation, such activity is eliminated.

 

•

Deferred taxes. Our ability to realize deferred tax assets and liabilities is considered on a consolidated basis for subsidiaries within the United States, with all subsidiaries' estimated future taxable income contributing to the ability to realize all such assets and liabilities. However, when Hecla's subsidiaries are viewed independently, we use the separate return method to assess the realizability of each subsidiary's deferred tax assets and whether a valuation allowance is required against such deferred tax assets. In some instances, a parent company or subsidiary may possess deferred tax assets whose realization depends on the future taxable incomes of other subsidiaries on a consolidated-return basis, but would not be considered realizable if such parent or subsidiary filed on a separate stand-alone basis. In such a situation, a valuation allowance is assessed on that subsidiary's deferred tax assets, with the resulting adjustment reported in the eliminations column of the guarantor and parent's financial statements, as is the case in the financial statements set forth below. The separate return method can result in significant eliminations of deferred tax assets and liabilities and related income tax provisions and benefits. Non-current deferred tax asset balances are included in other non-current assets on the consolidating balance sheets and make up a large portion of that item, particularly for the guarantor balances.

 

F-49

---

Table of Contents

Separate financial statements of the Guarantors are not presented because the guarantees by the Guarantors are joint and several and full and unconditional, except for certain customary release provisions, including: (1)(1) the sale or disposal of all or substantially all of the assets of the Guarantor; (2)(2) the sale or other disposition of the capital stock of the Guarantor; (3)(3) the Guarantor is designated as an unrestricted entity in accordance with the applicable provisions of the indenture; (4)(4) Hecla ceases to be a borrower as defined in the indenture; and (5)(5) upon legal or covenant defeasance or satisfaction and discharge of the indenture.

 

F-49

---

Table of Contents

Effective December 31, 2015, Hecla Limited (our wholly owned subsidiary) sold 100% of its ownership of Hecla Alaska LLC (its wholly owned subsidiary) to Hecla Mining Company for consideration totaling approximately $240.8$240.8 million.  The consideration consisted of satisfaction of inter-company debt between Hecla Limited and Hecla Mining Company and an obligation by Hecla Mining Company, under certain circumstances, to fund a limited amount of the capital requirements of Hecla Limited for up to five years.  Hecla Alaska LLC owns a 29.7331% interest in the joint venture which owns the Greens Creek mine. The presentation of condensed consolidating financial statements below reflects the effective date for accounting purposes of January 1, 2016.

 

Condensed Consolidating Balance Sheets

		As of December 31, 2016
		Parent				Guarantors				Non-Guarantors				Eliminations				Consolidated
		(in thousands)
Assets
Cash and cash equivalents		$	113,275			$	24,388			$	32,114			$	—			$	169,777
Other current assets			33,950				65,369				35,524				(1,236	)			133,607
Properties, plants, and equipment - net			2,103				1,258,890				771,692				—				2,032,685
Intercompany receivable (payable)			404,121				(222,072	)			(307,018	)			124,769				—
Investments in subsidiaries			1,496,787				—				—				(1,496,787	)			—
Other non-current assets			4,186				186,988				5,350				(160,916	)			35,608
Total assets		$	2,054,422			$	1,313,563			$	537,662			$	(1,533,970	)		$	2,371,677
Liabilities and Stockholders' Equity
Current liabilities		$	22,401			$	86,730			$	41,348			$	(22,999	)		$	127,480
Long-term debt			500,979				3,065				2,773				—				506,817
Non-current portion of accrued reclamation			—				63,025				16,902				—				79,927
Non-current deferred tax liability			—				14,212				121,600				(14,212	)			121,600
Other non-current liabilities			51,198				5,108				(325	)			28				56,009
Stockholders' equity			1,479,844				1,141,423				355,364				(1,496,787	)			1,479,844
Total liabilities and stockholders' equity		$	2,054,422			$	1,313,563			$	537,662			$	(1,533,970	)		$	2,371,677

 

		As of December 31, 2017
		Parent				Guarantors				Non- Guarantors				Eliminations				Consolidated
		(in thousands)
Assets
Cash and cash equivalents		$	103,878			$	31,016			$	51,213			$	—			$	186,107
Other current assets			47,555				47,608				39,630				(575	)			134,218
Properties, plants, and equipment - net			1,946				1,244,161				773,914				—				2,020,021
Intercompany receivable (payable)			287,310				(177,438	)			(341,182	)			231,310				—
Investments in subsidiaries			1,358,025				—				—				(1,358,025	)			—
Other non-current assets			14,409				7,289				9,283				(6,370	)			24,611
Total assets		$	1,813,123			$	1,152,636			$	532,858			$	(1,133,660	)		$	2,364,957
Liabilities and Stockholders' Equity
Current liabilities		$	(226,576	)		$	66,550			$	37,671			$	234,485			$	112,130
Long-term debt			502,229				2,303				3,890				—				508,422
Non-current portion of accrued reclamation			—				67,565				11,801				—				79,366
Non-current deferred tax liability			—				10,120				121,546				(10,120	)			121,546
Other non-current liabilities			53,588				5,185				838				—				59,611
Stockholders' equity			1,483,882				1,000,913				357,112				(1,358,025	)			1,483,882
Total liabilities and stockholders' equity		$	1,813,123			$	1,152,636			$	532,858			$	(1,133,660	)		$	2,364,957

F-50

---

Table of Contents

 

		As of December 31, 2015
		Parent				Guarantors				Non-Guarantors				Eliminations				Consolidated
		(in thousands)
Assets
Cash and cash equivalents		$	94,167			$	42,692			$	18,350			$	—			$	155,209
Other current assets			15,972				58,453				32,273				7,626				114,324
Properties, plants, and equipment - net			2,281				1,147,770				746,760				—				1,896,811
Intercompany receivable (payable)			540,665				(301,291	)			(332,553	)			93,179				—
Investments in subsidiaries			1,252,191				—				—				(1,252,191	)			—
Other non-current assets			2,200				165,080				1,781				(113,480	)			55,581
Total assets		$	1,907,476			$	1,112,704			$	466,611			$	(1,264,866	)		$	2,221,925
Liabilities and Stockholders' Equity
Current liabilities		$	21,087			$	84,559			$	30,636			$	(9,198	)		$	127,084
Long-term debt			499,729				6,128				3,183				—				509,040
Non-current portion of accrued reclamation			—				45,494				29,055				—				74,549
Non-current deferred tax liability			—				3,264				119,836				(3,477	)			119,623
Other non-current liabilities			47,734				5,834				(865	)			—				52,703
Stockholders' equity			1,338,926				967,425				284,766				(1,252,191	)			1,338,926
Total liabilities and stockholders' equity		$	1,907,476			$	1,112,704			$	466,611			$	(1,264,866	)		$	2,221,925

		As of December 31, 2016
		Parent				Guarantors				Non- Guarantors				Eliminations				Consolidated
		(in thousands)
Assets
Cash and cash equivalents		$	113,275			$	24,388			$	32,114			$	—			$	169,777
Other current assets			33,950				52,400				35,537				(573	)			121,314
Properties, plants, and equipment - net			2,103				1,258,890				771,692				—				2,032,685
Intercompany receivable (payable)			404,121				(222,072	)			(307,018	)			124,969				—
Investments in subsidiaries			1,496,787				—				—				(1,496,787	)			—
Other non-current assets			4,186				199,957				5,337				(161,579	)			47,901
Total assets		$	2,054,422			$	1,313,563			$	537,662			$	(1,533,970	)		$	2,371,677
Liabilities and Stockholders' Equity
Current liabilities		$	22,401			$	86,730			$	40,093			$	(22,999	)		$	126,225
Long-term debt			500,979				3,065				2,773				—				506,817
Non-current portion of accrued reclamation			—				63,025				16,902				—				79,927
Non-current deferred tax liability			—				14,212				122,855				(14,212	)			122,855
Other non-current liabilities			51,198				5,108				(325	)			28				56,009
Stockholders' equity			1,479,844				1,141,423				355,364				(1,496,787	)			1,479,844
Total liabilities and stockholders' equity		$	2,054,422			$	1,313,563			$	537,662			$	(1,533,970	)		$	2,371,677

 

F-51

---

Table of Contents

 

Condensed Consolidating Statements of Operations

		Year Ended December 31, 2016
		Parent				Guarantors				Non-Guarantors				Eliminations				Consolidated
		(in thousands)
Revenues		$	(14,237	)		$	369,162			$	291,032			$	—			$	645,957
Cost of sales			—				(203,133	)			(135,850	)			—				(338,983	)
Depreciation, depletion, and amortization			—				(64,374	)			(51,094	)			—				(115,468	)
General and administrative			(23,262	)			(20,425	)			(1,353	)			—				(45,040	)
Exploration and pre-development			(304	)			(6,640	)			(10,913	)			—				(17,857	)
Gain on derivative contracts			4,423				—				—				—				4,423
Acquisition costs			(2,607	)			(34	)			(54	)			—				(2,695	)
Equity in earnings of subsidiaries			94,878				—				—				(94,878	)			—
Other (expense) income			10,656				11,400				(36,074	)			(19,344	)			(33,362	)
(Loss) income before income taxes			69,547				85,956				55,694				(114,222	)			96,975
(Provision) benefit from income taxes			—				(25,334	)			(21,438	)			19,344				(27,428	)
Net (loss) income			69,547				60,622				34,256				(94,878	)			69,547
Preferred stock dividends			(552	)			—				—				—				(552	)
(Loss) income applicable to common stockholders			68,995				60,622				34,256				(94,878	)			68,995
Net (loss) income			69,547				60,622				34,256				(94,878	)			69,547
Changes in comprehensive (loss) income			(1,971	)			8				2,657				(2,665	)			(1,971	)
Comprehensive (loss) income		$	67,576			$	60,630			$	36,913			$	(97,543	)		$	67,576

 

		Year Ended December 31, 2017
		Parent				Guarantors				Non- Guarantors				Eliminations				Consolidated
		(in thousands)
Revenues		$	(5,983	)		$	305,835			$	277,923			$	—			$	577,775
Cost of sales			1,098				(158,135	)			(147,690	)			—				(304,727	)
Depreciation, depletion, and amortization			—				(58,774	)			(57,288	)			—				(116,062	)
General and administrative			(17,693	)			(15,690	)			(2,228	)			—				(35,611	)
Exploration and pre-development			(459	)			(11,600	)			(16,899	)			—				(28,958	)
Research and development			—				(3,276	)			—				—				(3,276	)
Gain on derivative contracts			(21,250	)			—				—				—				(21,250	)
Acquisition costs			(24	)			—				(1	)			—				(25	)
Equity in earnings of subsidiaries			(182,573	)			—				—				182,573				—
Other (expense) income			203,365				(29,735	)			(42,622	)			(202,514	)			(71,506	)
(Loss) income before income taxes			(23,519	)			28,625				11,195				(19,941	)			(3,640	)
(Provision) benefit from income taxes			—				(208,793	)			(13,600	)			202,514				(19,879	)
Net (loss) income			(23,519	)			(180,168	)			(2,405	)			182,573				(23,519	)
Preferred stock dividends			(552	)			—				—				—				(552	)
(Loss) income applicable to common stockholders			(24,071	)			(180,168	)			(2,405	)			182,573				(24,071	)
Net (loss) income			(23,519	)			(180,168	)			(2,405	)			182,573				(23,519	)
Changes in comprehensive (loss) income			11,229				296				2,486				(2,782	)			11,229
Comprehensive (loss) income		$	(12,290	)		$	(179,872	)		$	81			$	179,791			$	(12,290	)

F-52

---

Table of Contents

 

		Year Ended December 31, 2015
		Parent				Guarantors				Non-Guarantors				Eliminations				Consolidated
		(in thousands)
Revenues		$	6,194			$	287,941			$	149,432			$	—			$	443,567
Cost of sales			—				(192,683	)			(100,884	)			—				(293,567	)
Depreciation, depletion, and amortization			—				(67,815	)			(43,674	)			—				(111,489	)
General and administrative			(17,920	)			(14,508	)			(1,773	)			—				(34,201	)
Exploration and pre-development			(627	)			(7,177	)			(14,154	)			—				(21,958	)
Loss on derivative contracts			8,252				—				—				—				8,252
Closed operations			(517	)			(1,645	)			—				—				(2,162	)
Equity in earnings of subsidiaries			49,565				—				—				(49,565	)			—
Other (expense) income			(131,915	)			22,537				36,090				54,188				(19,100	)
Income (loss) before income taxes			(86,968	)			26,650				25,037				4,623				(30,658	)
(Provision) benefit from income taxes			—				(7,251	)			5,129				(54,188	)			(56,310	)
Net income (loss)			(86,968	)			19,399				30,166				(49,565	)			(86,968	)
Preferred stock dividends			(552	)			—				—				—				(552	)
Income (loss) applicable to common stockholders			(87,520	)			19,399				30,166				(49,565	)			(87,520	)
Net income (loss)			(86,968	)			19,399				30,166				(49,565	)			(86,968	)
Changes in comprehensive income (loss)			(600	)			(467	)			259				208				(600	)
Comprehensive income (loss)		$	(87,568	)		$	18,932			$	30,425			$	(49,357	)		$	(87,568	)

		Year Ended December 31, 2016
		Parent				Guarantors				Non- Guarantors				Eliminations				Consolidated
		(in thousands)
Revenues		$	(14,237	)		$	369,162			$	291,032			$	—			$	645,957
Cost of sales			—				(202,475	)			(135,850	)			—				(338,325	)
Depreciation, depletion, and amortization			—				(65,032	)			(51,094	)			—				(116,126	)
General and administrative			(23,262	)			(20,425	)			(1,353	)			—				(45,040	)
Exploration and pre-development			(304	)			(6,640	)			(10,913	)			—				(17,857	)
Loss on derivative contracts			4,423				—				—				—				4,423
Closed operations			(2,607	)			(34	)			(54	)			—				(2,695	)
Equity in earnings of subsidiaries			94,878				—				��				(94,878	)			—
Other (expense) income			10,656				11,400				(36,074	)			(19,344	)			(33,362	)
Income (loss) before income taxes			69,547				85,956				55,694				(114,222	)			96,975
(Provision) benefit from income taxes			—				(25,334	)			(21,438	)			19,344				(27,428	)
Net income (loss)			69,547				60,622				34,256				(94,878	)			69,547
Preferred stock dividends			(552	)			—				—				—				(552	)
Income (loss) applicable to common stockholders			68,995				60,622				34,256				(94,878	)			68,995
Net income (loss)			69,547				60,622				34,256				(94,878	)			69,547
Changes in comprehensive income (loss)			(1,971	)			8				2,657				(2,665	)			(1,971	)
Comprehensive income (loss)		$	67,576			$	60,630			$	36,913			$	(97,543	)		$	67,576

 

F-53

---

Table of Contents

 

		Year Ended December 31, 2014																				Year Ended December 31, 2015
		Parent				Guarantors				Non-Guarantors				Eliminations				Consolidated				Parent				Guarantors				Non- Guarantors				Eliminations				Consolidated
		(in thousands)																				(in thousands)
Revenues		$	1,473			$	333,460			$	165,848			$	—			$	500,781			$	6,194			$	287,941			$	149,432			$	—			$	443,567
Cost of sales			—				(194,600	)			(109,846	)			—				(304,446	)			—				(191,494	)			(100,884	)			—				(292,378	)
Depreciation, depletion, and amortization			—				(72,937	)			(38,197	)			—				(111,134	)			—				(69,004	)			(43,674	)			—				(112,678	)
General and administrative			(17,667	)			(12,694	)			(1,177	)			—				(31,538	)			(17,920	)			(14,508	)			(1,773	)			—				(34,201	)
Exploration and pre-development			(252	)			(7,088	)			(12,327	)			—				(19,667	)			(627	)			(7,177	)			(14,154	)			—				(21,958	)
Gain on derivative contracts			9,134				—				—				—				9,134				8,252				—				—				—				8,252
Closed operations			—				—				—				—				—				(517	)			(1,645	)			—				—				(2,162	)
Equity in earnings of subsidiaries			72,407				—				—				(72,407	)			—				49,565				—				—				(49,565	)			—
Other (expense) income			(47,271	)			29,753				3,267				(16,295	)			(30,546	)			(131,915	)			22,537				36,090				54,188				(19,100	)
(Loss) income before income taxes			17,824				75,894				7,568				(88,702	)			12,584				(86,968	)			26,650				25,037				4,623				(30,658	)
(Provision) benefit from income taxes			—				(10,565	)			(490	)			16,295				5,240				—				(7,251	)			5,129				(54,188	)			(56,310	)
Net (loss) income			17,824				65,329				7,078				(72,407	)			17,824				(86,968	)			19,399				30,166				(49,565	)			(86,968	)
Preferred stock dividends			(552	)			—				—				—				(552	)			(552	)			—				—				—				(552	)
(Loss) income applicable to common stockholders			17,272				65,329				7,078				(72,407	)			17,272				(87,520	)			19,399				30,166				(49,565	)			(87,520	)
Net (loss) income			17,824				65,329				7,078				(72,407	)			17,824				(86,968	)			19,399				30,166				(49,565	)			(86,968	)
Changes in comprehensive (loss) income			(5,732	)			(1,329	)			1,152				177				(5,732	)			(600	)			(467	)			259				208				(600	)
Comprehensive (loss) income		$	12,092			$	64,000			$	8,230			$	(72,230	)		$	12,092			$	(87,568	)		$	18,932			$	30,425			$	(49,357	)		$	(87,568	)

 

Condensed Consolidating Statements of Cash Flows

 

		Year Ended December 31, 2016																				Year Ended December 31, 2017
		Parent				Guarantors				Non-Guarantors				Eliminations				Consolidated				Parent				Guarantors				Non- Guarantors				Eliminations				Consolidated
		(in thousands)																				(in thousands)
Cash flows from operating activities		$	85,665			$	82,778			$	76,491			$	(19,606	)		$	225,328			$	(134,900	)		$	(98,046	)		$	120,027			$	228,797			$	115,878
Cash flows from investing activities:
Additions to properties, plants, and equipment			(348	)			(93,541	)			(70,899	)			—				(164,788	)			—				(46,570	)			(51,468	)							(98,038	)
Purchase of other companies, net of cash acquired			(3,931	)			—				—				—				(3,931	)
Other investing activities, net			(29,383	)			(896	)			333				—				(29,946	)			132,118				9,287				—				(138,762	)			2,643
Cash flows from financing activities:
Dividends paid to stockholders			(4,419	)			—				—								(4,419	)			(4,528	)			—				—								(4,528	)
Payments on debt			—				(10,174	)			(982	)			—				(11,156	)			—				(5,242	)			(1,744	)							(6,986	)
Other financing activity			(28,476	)			3,529				8,895				19,606				3,554				(2,087	)			147,199				(48,811	)			(90,035	)			6,266
Effect of exchange rate changes on cash			—				—				(74	)			—				(74	)			—				—				1,095				—				1,095
Changes in cash and cash equivalents			19,108				(18,304	)			13,764				—				14,568				(9,397	)			6,628				19,099				—				16,330
Beginning cash and cash equivalents			94,167				42,692				18,350				—				155,209				113,275				24,388				32,114				—				169,777
Ending cash and cash equivalents		$	113,275			$	24,388			$	32,114			$	—			$	169,777			$	103,878			$	31,016			$	51,213			$	—			$	186,107

F-54

---

Table of Contents

 

 

		Year Ended December 31, 2016
		Parent				Guarantors				Non- Guarantors				Eliminations				Consolidated
		(in thousands)
Cash flows from operating activities		$	85,665			$	82,778			$	76,491			$	(19,606	)		$	225,328
Cash flows from investing activities:																			—
Additions to properties, plants, and equipment			(348	)			(93,541	)			(70,899	)			—				(164,788	)
Purchase of other companies, net of cash acquired			(3,931	)			—				—				—				(3,931	)
Other investing activities, net			(29,383	)			(896	)			333				—				(29,946	)
Cash flows from financing activities:
Dividends paid to stockholders			(4,419	)			—				—								(4,419	)
Payments on debt			—				(10,174	)			(982	)			—				(11,156	)
Other financing activity			(28,476	)			3,529				8,895				19,606				3,554
Effect of exchange rate changes on cash			—				—				(74	)			—				(74	)
Changes in cash and cash equivalents			19,108				(18,304	)			13,764				—				14,568
Beginning cash and cash equivalents			94,167				42,692				18,350				—				155,209
Ending cash and cash equivalents		$	113,275			$	24,388			$	32,114			$	—			$	169,777

		Year Ended December 31, 2015
		Parent				Guarantors				Non- Guarantors				Eliminations				Consolidated
		(in thousands)
Cash flows from operating activities		$	(56,036	)		$	101,254			$	63,856			$	(2,629	)		$	106,445
Cash flows from investing activities:																			—
Additions to properties, plants, and equipment			(1,355	)			(97,684	)			(38,404	)			—				(137,443	)
Other investing activities			(748	)			637				(1,052	)			—				(1,163	)
Cash flows from financing activities:																			—
Dividends paid to stockholders			(4,291	)			—				—				—				(4,291	)
Payments on debt			—				(12,405	)			1,554				—				(10,851	)
Other financing activity			9,712				17,066				(31,408	)			2,629				(2,001	)
Effect of exchange rates on cash			—				—				(5,152	)			—				(5,152	)
Changes in cash and cash equivalents			(52,718	)			8,868				(10,606	)			—				(54,456	)
Beginning cash and cash equivalents			146,885				33,824				28,956				—				209,665
Ending cash and cash equivalents		$	94,167			$	42,692			$	18,350			$	—			$	155,209

F-54

F-55

---

Table of Contents

 

 

		Year Ended December 31, 2015
		Parent				Guarantors				Non-Guarantors				Eliminations				Consolidated
		(in thousands)
Cash flows from operating activities		$	(56,036	)		$	101,254			$	63,856			$	(2,629	)		$	106,445
Cash flows from investing activities:																			—
Additions to properties, plants, and equipment			(1,355	)			(97,684	)			(38,404	)			—				(137,443	)
Other investing activities, net			(748	)			637				(1,052	)			—				(1,163	)
Cash flows from financing activities:																			—
Dividends paid to stockholders			(4,291	)			—				—				—				(4,291	)
Payments on debt			—				(12,405	)			1,554				—				(10,851	)
Other financing activity			9,712				17,066				(31,408	)			2,629				(2,001	)
Effect of exchange rate changes on cash			—				—				(5,152	)			—				(5,152	)
Changes in cash and cash equivalents			(52,718	)			8,868				(10,606	)			—				(54,456	)
Beginning cash and cash equivalents			146,885				33,824				28,956				—				209,665
Ending cash and cash equivalents		$	94,167			$	42,692			$	18,350			$	—			$	155,209

		Year Ended December 31, 2014
		Parent				Guarantors				Non-Guarantors				Eliminations				Consolidated
		(in thousands)
Cash flows from operating activities		$	38,270			$	61,900			$	58,277			$	(75,323	)		$	83,124
Cash flows from investing activities:																			—
Additions to properties, plants, and equipment			(1,336	)			(68,859	)			(52,342	)			—				(122,537	)
Other investing activities			—				417				3,765				—				4,182
Cash flows from financing activities:																			—
Dividends paid to stockholders			(4,099	)			—				—				—				(4,099	)
Payments on debt			—				(9,137	)			—				—				(9,137	)
Other financing activity			(12,221	)			9,494				(22,856	)			75,323				49,740
Effect of exchange rates on cash			—				—				(3,783	)			—				(3,783	)
Changes in cash and cash equivalents			20,614				(6,185	)			(16,939	)			—				(2,510	)
Beginning cash and cash equivalents			126,271				40,009				45,895				—				212,175
Ending cash and cash equivalents		$	146,885			$	33,824			$	28,956			$	—			$	209,665

 

F-55

---

Table of Contents

HeclaMining Company and Wholly Owned Subsidiaries

Form 10-K – December 31, 20162017

Index to Exhibits

 

3.1	Restated Certificate of Incorporation of the Registrant.*
3.2	Bylaws of the Registrant as amended to date.  Filed as exhibit 3.1 to Registrant’s Current Report on Form 8-K filed on December 12,August 22, 2014 (File No. 1-8491), and incorporated herein by reference.
3.24.1	Bylaws of the Registrant as amended to date.  Filed as exhibit 3.2 to Registrant’s Current Report on Form 8-K filed on December 8, 2016 (File No. 1-8491), and incorporated herein by reference.
4.1(a)	Certificate of Designations, Preferences and Rights of Series A Junior ParticipatingB Cumulative Convertible Preferred Stock of the Registrant.  Filed  Included as Annex II to Restated Certificate of Incorporation of Registrant filed as exhibit 3.1 to Registrant’s Form 10-Q for the quarter ended June 30, 20102017 (File No. 1-8491), and incorporated herein by reference.
4.1(b)	Certificate of Designations, Preferences and Rights of Series B Cumulative Convertible Preferred Stock of the Registrant.  Filed as exhibit 3.1 to Registrant’s Form 10-Q for the quarter ended June 30, 2010 (File No. 1-8491), and incorporated herein by reference.
4.2(a)	Registration Rights Agreement, dated as of January 14, 2015, among Hecla Mining Company, as Issuer, Hecla Mining Company Retirement Plan Trust, which is the funding vehicle for the Hecla Mining Company Retirement Plan, a tax-qualified employee benefit pension plan sponsored by Hecla Mining Company, and the Lucky Friday Pension Plan Trust, which is the funding vehicle for the Lucky Friday Pension Plan. Filed as exhibit 4.3 to Registrant’s Registration Statement on Form S-3ASR filed on January 14, 2015 (Registration No. 333-201520), and incorporated herein by reference.
4.2(b)	Indenture, dated as of April 12, 2013, among Hecla Mining Company, as Issuer, certain subsidiaries of Hecla Mining company, as Guarantors thereto, and The Bank of New York Mellon Trust Company, N.A., as Trustee. Filed as exhibit 10.1 to Registrant’sRegistrant’s Current Report on Form 8-K filed on April 15, 2013 (File No. 1-8491), and incorporated herein by reference.
4.2(c)4.2(b)	Supplemental Indenture, dated as of April 14, 2014, among Hecla Mining Company, as Issuer, certain subsidiaries of Hecla Mining Company, as Guarantors thereto, and The Bank of New York Mellon Trust Company, N.A., as Trustee. Filed as exhibit 4.2 to Registrant’sRegistrant’s Registration Statement on Form S-3ASR filed on April 14, 2014 (Registration No. 333-195246), and incorporated herein by reference.
4.2(d)4.2 (c)	Supplemental Indenture dated August 5, 2015, among Revett Mining Company, Inc., Revett Silver Company, Troy Mine, Inc., RC Resources, Inc., Revett Exploration, Inc., and Revett Holdings, Inc., as Guaranteeing Subsidiaries, and The Bank of New York Mellon Trust Company, N.A., as Trustee. Filed as exhibit 4.2 (d) to Registrant's Form 10-K for the year ended December 31, 2015 (File No. 1-8491), and incorporated herein by reference.
4.2(e)4.2(d)	Supplemental Indenture, dated October 26, 2016, among Mines Management Inc., Newhi Inc., and Montanore Minerals Corp., as Guaranteeing Subsidiaries, and The Bank of New York Mellon Trust, N.A., as Trustee. *Filed as exhibit 4.2 (e) to Registrant's Form 10-K for the year ended December 31, 2016 (File No. 1-8491), and incorporated herein by reference.
10.1	Fourth Amended and Restated Credit Agreement dated as of May 20, 2016, by and among Hecla Mining Company, Hecla Limited, Hecla Alaska LLC, Hecla Greens Creek Mining Company, and Hecla Juneau Mining Company, as the Borrowers, The Bank of Nova Scotia, as the Administrative Agent for the Lenders, and various Lenders. Filed as exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on May 25, 2016 (File No.1-8491)No. 1-8491), and incorporated herein by reference.
10.2	Equity DistributionFirst Amendment to Fourth Amended and Restated Credit Agreement dated as of February 23, 2016,effective July 14, 2017, by and among Hecla Mining companyCompany, Hecla Limited, Hecla Alaska LLC, Hecla Greens Creek Mining Company, and BMO Capital Markets Corp.Hecla Juneau Mining Company, as the Borrowers, The Bank of Nova Scotia, as the Administrative Agent for the Lenders, and various Lenders. Filed as exhibit 1.110.2 to Registrant’s Current Report onRegistrant’s Form 8-K filed on February 23, 201610-Q for the quarter ended June 30, 2017 (File No. 1-8491), and incorporated herein by reference.
10.3	Form of Change of Control Agreement entered into on March 5, 2015, between Registrant and each of Phillips S. Baker, Jr., Lawrence P. Radford, Dean W.A. McDonald and David C. Sienko, on February 19, 2016 with Robert D. Brown, and on July 18, 2016 with Lindsay A. Hall. Filed as exhibit 10.2 to Registrant’sRegistrant’s Form 10-K for the year ended December 31, 2015 (File No. 1-8491), and incorporated herein by reference. (1)
10.4	Hecla Mining Company Key Employee Deferred Compensation Plan. (1) *
10.5	Hecla Mining Company 2010 Stock Incentive Plan. (1) *
10.6	Hecla Mining Company Amended Annual Incentive Plan. Filed as exhibit 10.310.2 to Registrant’sRegistrant’s Form 10-K10-Q for the yearquarter ended DecemberMarch 31, 20152017 (File No. 1-8491), and incorporated herein by reference. (1)
10.6	Hecla Mining Company 2010 Stock Incentive Plan. Filed as exhibit 10.4 to Registrant’s Form 10-K for the year ended December 31, 2015 (File No. 1-8491), and incorporated herein by reference. (1)
10.7	Hecla Mining Company Annual Incentive Plan. Filed as exhibit 10.5 to Registrant’s Form 10-K for the year ended December 31, 2015 (File No. 1-8491), and incorporated herein by reference. (1)
10.8	Hecla Mining Company Executive and Senior Management Long-Term Performance Payment Plan.Plan (as Amended and Restated Effective January 1, 2017). Filed as exhibit 10.610.3 to Registrant’sRegistrant’s Form 10-K10-Q for the yearquarter ended DecemberMarch 31, 20152017 (File No. 1-8491), and incorporated herein by reference. (1)

 

F-56

---

Table of Contents

 

10.910.8	Form of Indemnification Agreement dated November 8, 2006, between Registrant and Phillips S. Baker, Jr., Dean McDonald, Ted Crumley, George R. Nethercutt, Jr., and Anthony P. Taylor.  Identical Indemnification Agreements were entered into between the Registrant and Charles B. Stanley and Terry V. Rogers on May 4, 2007, David C. Sienko on January 29, 2010, Lawrence P. Radford on October 19, 2011, Robert D. Brown on January 4, 2016, Lindsay A. Hall on July 18, 2016, and Catherine J. Boggs on January 1, 2017.  Filed as exhibit 10.7 to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (File No. 1-8491), and incorporated herein by reference. (1)
10.1010.9	Hecla Mining Company Stock Plan for Nonemployee Directors, as amended. Filed as exhibit 10.610.3 to Registrant’sRegistrant’s Form 10-K10-Q for the periodquarter ended December 31, 2012June 30, 2017 (File No. 1-8491), and incorporated herein by reference. (1)
10.1110.10	Hecla Mining Company Retirement Plan for Employees and Supplemental Retirement and Death Benefit Plan.  Filed as exhibit 10.17(a) to Registrant’s Form 10-K for the year ended December 31, 2008 (File No. 1-8491), and incorporated herein by reference. (1)
10.1210.11	Supplemental Excess Retirement Master Plan Documents.  Filed as exhibit 10.5(b) to Registrant’s Annual Report on Form 10-K/A-1 for the year ended December 31, 1994 (File No. 1-8491), and incorporated herein by reference. (1)
10.1310.12	Hecla Mining Company Nonqualified Plans Master Trust Agreement.  Filed as exhibit 10.5(c) to Registrant’s Annual Report on Form 10-K/A-1 for the year ended December 31, 1994 (File No. 1-8491), and incorporated herein by reference. (1)
12.1	Computation of Ratio of Earnings to Fixed Charges.*
21	List of subsidiaries of Registrant.*
23.1	Consent of BDO USA, LLP.*
23.2	Consent of Amec Foster Wheeler E&C Services, Inc.*
23.3	Consent of Roscoe Postle Associates Inc.*
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.*
95	Mine safety information listed in Section 1503 of the Dodd-Frank Act. *
101.INS	XBRL Instance. **
101.SCH	XBRL Taxonomy Extension Schema.**
101.CAL	XBRL Taxonomy Extension Calculation.**
101.DEF	XBRL Taxonomy Extension Definition.**
101.LAB	XBRL Taxonomy Extension Labels.**
101.PRE	XBRL Taxonomy Extension Presentation.**

 

___________________

 

(1)

Indicates a management contract or compensatory plan or arrangement.

 

*    Filed herewith

 

**  XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

F-57