Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

 

[X]           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 20182019

or

[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

 

 

Commission file number

Commission file number1-8491

1-8491

 

HECLA MINING COMPANY

(Exact name of registrant as specified in its charter)

Charter)

 

 

Delaware

 

77-0664171

 
 

(State or other jurisdictionOther Jurisdiction of

 

(I.R.S. Employer

 
 

incorporationIncorporation or organization)Organization

 

Identification No.)

 
     
 

6500 Mineral Drive, Suite 200

   
 

Coeur d'Alene, Idaho

 

83815-9408

 
 

(Address of principal executive offices)Principal Executive Offices

 

(Zip Code)Code

 

208-769-4100

(Registrant's telephone number, including area code)Telephone Number, Including Area Code

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

 Name of each exchange

on which registered

Common Stock, par value $0.25 per share

HL

New York Stock Exchange

Series B Cumulative Convertible Preferred Stock, par value $0.25 per share

HL-PB

New York Stock Exchange

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes XX .    No .

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes XX .    No___.


 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act (check one):Act:

Large Accelerated Filer   XX.  Accelerated Filer .
Non-Accelerated Filer Smaller Reporting Company.
Emerging growth company .

Large accelerated filer   XX.                                    Accelerated filer .

Non-accelerated filer .                       Smaller reporting company.

Emerging growth company .

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. .

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes .    No XX.

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Shares Outstanding November 6, 20185, 2019

Common stock, par value

$0.25 $0.25 per share

 

480,199,378495,540,493

 

 

 

Hecla Mining Company and Subsidiaries

 

Form 10-Q

 

For the Quarter Ended September 30, 20182019

 

INDEX*

 

  

Page

PART I - Financial Information

Item 1 – Condensed Consolidated Financial Statements (Unaudited)

 
   
 

Item 1 – Condensed Consolidated Financial Statements (Unaudited)Balance Sheets - September 30, 2019 and December 31, 2018

3

   
 

Condensed Consolidated Balance Sheets - September 30, 2018 and December 31, 2017

3

Condensed Consolidated Statements of Operations and Comprehensive Loss - Three Months Ended and Nine Months Ended September 30, 20182019 and 20172018

4

5

   
 

Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 20182019 and 20172018

5

7

   
 

Notes to Condensed Consolidated Financial Statements (Unaudited)of Changes in Stockholders' Equity Three Months Ended and Nine Months Ended September 30, 2019 and 2018

6

8

   
 

Notes to Condensed Consolidated Financial Statements (Unaudited)

10

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

42

39

   
 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

75

77

   
 

Item 4. Controls and Procedures

78

79

   

PART II - Other Information

 
   
 

Item 1 – Legal Proceedings

78
Item 1A – Risk Factors78

80

   
 

Item 21AUnregistered Sales of Equity Securities and Use of ProceedsRisk Factors

80

   
 

Item 4 – Mine Safety Disclosures

80

   
 

Item 6 – ExhibitsSignatures

80

86

Signatures

81

 

 

*Items 2, 3 and 5 of Part II are omitted as they are not applicable.

 

2


Table of Contents

 

Part I - Financial Information

 

Item 1. Financial Statements

 

 

Hecla Mining Company and Subsidiaries

 

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except shares)

 

 

September 30,

2018

  

December 31,

2017

 
   Revised  

September 30,

2019

  

December 31,

2018

 

ASSETS

ASSETS

 

ASSETS

 

Current assets:

             

Cash and cash equivalents

 $60,856  $186,107  $32,995  $27,389 

Investments

     33,758 

Accounts receivable:

             

Trade

  12,947   14,805  6,222  4,184 

Taxes

  19,316   10,382  22,902  14,191 

Other, net

  7,612   7,003  8,056  7,443 

Inventories:

             

Concentrates, doré, and stockpiled ore

  42,464   29,366  63,164  53,172 

Materials and supplies

  33,624   26,100  35,087  34,361 

Prepaid taxes

 100  12,231 

Other current assets

  21,510   13,715   10,400   11,179 

Total current assets

  198,329   321,236  178,926  164,150 

Non-current investments

  7,190   7,561  7,349  6,583 

Non-current restricted cash and investments

  1,010   1,032  1,025  1,025 

Properties, plants, equipment and mineral interests, net

  2,487,429   1,999,311  2,455,511  2,520,004 

Operating lease right-of-use assets

 17,313   

Non-current deferred income taxes

  1,601   1,509  3,701  1,987 

Other non-current assets and deferred charges

  14,699   14,509   9,353   10,195 

Total assets

 $2,710,258  $2,345,158  $2,673,178  $2,703,944 

LIABILITIES

LIABILITIES

 

LIABILITIES

 

Current liabilities:

             

Accounts payable and accrued liabilities

 $65,755  $46,549  $57,860  $77,861 

Accrued payroll and related benefits

  29,488   31,259  23,147  30,034 

Accrued taxes

  8,274   5,919  2,160  7,727 

Current portion of capital leases

  6,069   5,608 

Current portion of finance leases

 5,704  5,264 

Current portion of operating leases

 5,864   

Current portion of accrued reclamation and closure costs

  6,621   6,679  7,457  3,410 

Accrued interest

  15,044   5,745  15,039  5,961 
Deferred revenue 20,084   

Other current liabilities

  1,205   10,371   8,528   5,937 

Total current liabilities

  132,456   112,130  145,843  136,194 

Capital leases

  8,638   6,193 

Non-current finance leases

 8,569  7,871 

Non-current operating leases

 11,466   

Accrued reclamation and closure costs

  99,314   79,366  103,821  104,979 

Long-term debt

  534,067   502,229  584,618  532,799 

Non-current deferred tax liability

  164,928   124,352  143,442  173,537 

Non-current pension liability

  44,097   46,628  50,662  47,711 

Other noncurrent liabilities

  4,689   12,983 

Other non-current liabilities

  8,113   9,890 

Total liabilities

  988,189   883,881   1,056,534   1,012,981 

Commitments and contingencies (Notes 3, 5, 8, 10, and 12)

           

SHAREHOLDERS’ EQUITY

SHAREHOLDERS’ EQUITY

 

SHAREHOLDERS’ 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 750,000,000 shares; issued and outstanding 2018 — 479,909,466 shares and 2017 — 399,176,425 shares

  121,283   100,926 

Common stock, $0.25 par value, 750,000,000 authorized shares; issued 2019 — 496,538,038 shares and 2018 — 487,830,728 shares

 124,133  121,956 

Capital surplus

  1,872,946   1,619,816  1,897,363  1,880,481 

Accumulated deficit

  (223,280

)

  (218,089

)

 (343,958

)

 (248,308

)

Accumulated other comprehensive loss

  (28,183

)

  (23,373

)

 (37,958

)

 (42,469

)

Less treasury stock, at cost; 2018 — 5,226,791 and 2017 — 4,529,450 shares issued and held in treasury

  (20,736

)

  (18,042

)

Less treasury stock, at cost; 2019 — 6,287,271 and 2018 — 5,226,791 shares issued and held in treasury

  (22,975

)

  (20,736

)

Total shareholders’ equity

  1,722,069   1,461,277   1,616,644   1,690,963 

Total liabilities and shareholders’ equity

 $2,710,258  $2,345,158  $2,673,178  $2,703,944 

 

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

 

3


Table of Contents

 

 

Hecla Mining Company and Subsidiaries

 

Condensed Consolidated Statements of Operations and Comprehensive (Loss) IncomeLoss (Unaudited)

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

 

 

Three Months Ended

  

Nine Months Ended

  

Three Months Ended

 

Nine Months Ended

 
 

September 30, 2018

  

September 30, 2017

  

September 30, 2018

  

September 30, 2017

  

September 30,

2019

  

September 30,

2018

  

September 30,

2019

  

September 30,

2018

 
     Revised      Revised  

Sales of products

 $143,649  $140,839  $430,617  $417,662  $161,532  $143,649  $448,321  $430,617 

Cost of sales and other direct production costs

  93,609   68,358   246,918   224,537  95,878  93,609  311,202  246,918 

Depreciation, depletion and amortization

  43,464   29,518   103,335   86,986   50,774   43,464   139,038   103,335 

Total cost of sales

  137,073   97,876   350,253   311,523   146,652   137,073   450,240   350,253 

Gross profit

  6,576   42,963   80,364   106,139   14,880   6,576   (1,919

)

  80,364 

Other operating expenses:

                         

General and administrative

  10,327   9,529   27,849   29,044  7,978  10,327  26,855  27,849 

Exploration

  12,411   7,255   27,609   17,622  4,808  12,411  13,556  27,609 

Pre-development

  1,195   1,757   3,615   4,061  881  1,195  2,535  3,615 

Research and development

  1,269   1,130   5,042   2,125  53  1,269  614  5,042 

Other operating expense

  448   134   1,767   1,590  437  448  1,681  1,767 

Gain on disposition of properties, plants, equipment and mineral interests

  (3,208

)

  (4,830

)

  (3,374

)

  (4,924

)

Loss (gain) on disposition of properties, plants, equipment and mineral interests

 24  (3,208

)

 4,666  (3,374

)

Provision for closed operations and reclamation

  1,852   2,940   4,534   5,044  1,907  1,852  3,529  4,534 

Suspension-related costs

  6,519   4,780   18,337   14,385  3,722  6,519  8,766  18,337 

Acquisition costs

  6,139      9,656   25   183   6,139   593   9,656 

Total other operating expense

  36,952   22,695   95,035   68,972   19,993   36,952   62,795   95,035 

Income from operations

  (30,376

)

  20,268   (14,671

)

  37,167 

Income (loss) from operations

  (5,113

)

  (30,376

)

  (64,714

)

  (14,671

)

Other income (expense):

                         

Gain (loss) on derivative contracts

  19,460   (11,226

)

  40,271   (16,548

)

Loss on disposition of investments

  (36

)

     (36

)

  (167

)

Unrealized (loss) gain on investments

  (2,207

)

  (124

)

  (2,461

)

  (73

)

Foreign exchange (loss) gain

  (2,212

)

  (4,917

)

  2,856   (10,258

)

Interest income and other (expense) income

  (346

)

  541   (294

)

  1,185 

Interest expense, net of amount capitalized

  (10,146

)

  (9,358

)

  (30,019

)

  (28,423

)

Total other expense

  4,513   (25,084

)

  10,317   (54,284

)

(Loss) income before income taxes

  (25,863

)

  (4,816

)

  (4,354

)

  (17,117

)

(Loss) gain on derivative contracts

 (4,718

)

 19,460  (2,719

)

 40,271 

Gain (loss) on disposition of investments

 927  (36

)

 927  (36

)

Unrealized loss on investments

 (126

)

 (2,207

)

 (1,159

)

 (2,461

)

Foreign exchange gain (loss)

 773  (2,212

)

 (6,741

)

 2,856 

Other expense

 (1,096

)

 (346

)

 (3,407

)

 (294

)

Interest expense

  (11,777

)

  (10,146

)

  (33,777

)

  (30,019

)

Total other (expense) income

  (16,017

)

  4,513   (46,876

)

  10,317 

Loss before income taxes

 (21,130

)

 (25,863

)

 (111,590

)

 (4,354

)

Income tax benefit

  2,679   5,130   1,484   17,564   1,614   2,679   20,009   1,484 

Net (loss) income

  (23,184

)

  314   (2,870

)

  447 

Net loss

 (19,516

)

 (23,184

)

 (91,581

)

 (2,870

)

Preferred stock dividends

  (138

)

  (138

)

  (414

)

  (414

)

  (138

)

  (138

)

  (414

)

  (414

)

Income applicable to common shareholders

 $(23,322

)

 $176  $(3,284

)

 $33 

Comprehensive income:

                

Net (loss) income

 $(23,184

)

 $314  $(2,870

)

 $447 

Reclassification of loss on disposition or impairment of marketable securities included in net income

           167 

Unrealized loss and amortization of prior service on pension plans

     (16

)

      

Loss applicable to common shareholders

 $(19,654

)

 $(23,322

)

 $(91,995

)

 $(3,284

)

Comprehensive loss:

         

Net loss

 $(19,516

)

 $(23,184

)

 $(91,581

)

 $(2,870

)

Change in fair value of derivative contracts designated as hedge transactions

  3,743   6,760   (3,533

)

  12,068  (3,288

)

 3,743  4,511  (3,533

)

Unrealized holding gains on investments

  3   892   13   1,483      3      13 

Comprehensive (loss) income

 $(19,438

)

 $7,950  $(6,390

)

 $14,165 

Basic (loss) income per common share after preferred dividends

 $(0.05

)

 $  $(0.01

)

 $ 

Diluted (loss) income per common share after preferred dividends

 $(0.05

)

 $  $(0.01

)

 $ 

Comprehensive loss

 $(22,804

)

 $(19,438

)

 $(87,070

)

 $(6,390

)

Basic loss per common share after preferred dividends

 $(0.04

)

 $(0.05

)

 $(0.19

)

 $(0.01

)

Diluted loss per common share after preferred dividends

 $(0.04

)

 $(0.05

)

 $(0.19

)

 $(0.01

)

Weighted average number of common shares outstanding - basic

  452,636   398,848   417,532   396,809   489,971   452,636   486,298   417,532 

Weighted average number of common shares outstanding - diluted

  452,636   401,258   417,532   400,176   489,971   452,636   486,298   417,532 

Cash dividends declared per common share

 $0.0025  $0.0025  $0.0075  $0.0075  $0.0025  $0.0025  $0.0075  $0.0075 

 

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

 

4


Table of Contents

 

Hecla Mining Company and Subsidiaries

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

 

Nine Months Ended

  

Nine Months Ended

 
 

September 30,

2018

  

September 30,

2017

  

September 30,

2019

  

September 30,

2018

 
   Revised  

Operating activities:

             

Net (loss) income

 $(2,870

)

 $447 

Non-cash elements included in net (loss) income:

        

Net loss

 $(91,581

)

 $(2,870

)

Non-cash elements included in net loss:

     

Depreciation, depletion and amortization

  108,814   91,255  143,040  108,814 

Loss on disposition of investments

     167 

Gain on disposition of investments

 (927

)

  

Unrealized loss on investments

  2,461   73  1,159  2,461 

Adjustment of inventory to market value

  7,232     1,399  7,232 

Gain on disposition of properties, plants, equipment, and mineral interests

  (3,374

)

  (4,924

)

Loss (gain) on disposition of properties, plants, equipment, and mineral interests

 4,666  (3,374

)

Provision for reclamation and closure costs

  3,957   3,379  5,298  3,957 

Stock compensation

  4,672   4,943  4,758  4,672 

Deferred income taxes

  (4,637

)

  (23,467

)

 (26,616

)

 (4,637

)

Amortization of loan origination fees

  1,471   1,415  1,919  1,471 

Loss on derivative contracts

  (15,208

)

  16,718 

Foreign exchange (gain) loss

  (2,032

)

  10,520 

Loss (gain) on derivative contracts

 5,824  (15,208

)

Foreign exchange loss (gain)

 6,263  (2,032

)

Other non-cash items, net

  (37

)

  (1

)

   (37

)

Change in assets and liabilities, net of business acquisitions:

             

Accounts receivable

  (4,424

)

  4,903  (10,215

)

 (4,424

)

Inventories

  (18,954

)

  (9,611

)

 (6,501) (18,954

)

Other current and non-current assets

  (5,569

)

  (2,685

)

 14,913  (5,569

)

Accounts payable and accrued liabilities

  12,308   (7,759

)

 5,616

 

 12,308 

Accrued payroll and related benefits

  (4,207

)

  (913

)

 4,506  (4,207

)

Accrued taxes

  845   (4,469

)

 (5,733

)

 845 

Accrued reclamation and closure costs and other non-current liabilities

  (5,238

)

  (5,876

)

  5,821   (5,238

)

Cash provided by operating activities

  75,210   74,115   63,609   75,210 

Investing activities:

             

Additions to properties, plants, equipment and mineral interests

  (83,285

)

  (70,390

)

 (97,338

)

 (83,285

)

Acquisition of Klondex, net of cash and restricted cash acquired

  (139,326

)

      (139,326

)

Proceeds from sale of investments

 1,760   

Proceeds from disposition of properties, plants, equipment and mineral interests

  722   151  86  722 

Insurance proceeds received for damaged property

  4,377   5,628    4,377 

Purchases of investments

  (31,971

)

  (36,916

)

 (389

)

 (31,971

)

Maturities of investments

  64,895   31,169      64,895 

Net cash used in investing activities

  (184,588

)

  (70,358

)

  (95,881

)

  (184,588

)

Financing activities:

             

Proceeds from sale of common stock, net of offering costs

  3,085   9,610    3,085 

Acquisition of treasury shares

  (2,694

)

  (2,993

)

 (2,239

)

 (2,694

)

Dividends paid to common shareholders

  (3,193

)

  (2,978

)

 (3,655

)

 (3,193

)

Dividends paid to preferred shareholders

  (414

)

  (414

)

 (414

)

 (414

)

Credit availability and debt issuance fees

  (2,460

)

  (476

)

 (587

)

 (2,460

)

Borrowings on debt

  78,024     245,000  78,024 

Repayments of debt

  (82,036

)

  (470

)

 (195,000

)

 (82,036

)

Repayments of capital leases

  (5,992

)

  (5,065

)

Net cash used in financing activities

  (15,680

)

  (2,786

)

Repayments of finance leases

  (5,484

)

  (5,992

)

Net cash provided by (used in) financing activities

  37,621   (15,680

)

Effect of exchange rates on cash

  (215

)

  1,051   257   (215

)

Net (decrease) increase in cash, cash equivalents and restricted cash and cash equivalents

  (125,273

)

  2,022 

Net increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents

 5,606  (125,273

)

Cash, cash equivalents and restricted cash and cash equivalents at beginning of period

  187,139   171,977   28,414   187,139 

Cash, cash equivalents and restricted cash and cash equivalents at end of period

 $61,866  $173,999  $34,020  $61,866 

Significant non-cash investing and financing activities:

             

Addition of capital lease obligations

 $7,008  $6,439 

Addition of finance lease obligations

 $6,506  $7,008 

Recognition of operating lease liabilities and right-of-use assets

 $22,365  $ 

Common stock issued for the acquisition of other companies

 $252,544  $  $  $252,544 

Payment of accrued compensation in restricted stock units

 $4,863  $4,240 

Payment of accrued compensation in stock

 $8,274  $4,863 

Marketable equity securities received for sale of mineral interest

 $2,257  $ 

 

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

 

5


Table of Contents

 

 

Hecla Mining Company and Subsidiaries

 Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(Dollars are in thousands, except for share and per share amounts)

  

Three Months Ended September 30, 2019

 
  

Series B

Preferred

Stock

  

Common

Stock

  

Additional

Paid-In

Capital

  

Accumulated

Deficit

  

Accumulated

Other

Comprehensive

Loss, net

  

Treasury

Stock

  

Total

 

Balances, July 1, 2019

 $39  $123,701  $1,895,617  $(323,079

)

 $(34,670

)

 $(22,380

)

 $1,639,228 

Net loss

              (19,516

)

          (19,516

)

Restricted stock units granted

          1,206               1,206 

Restricted stock units distributed (1,164,000 shares)

      291   (291

)

          (595

)

  (595

)

Common stock dividends declared ($0.0025 per common share)

              (1,225

)

          (1,225

)

Series B Preferred Stock dividends declared ($0.875 per share)

              (138

)

          (138

)

Common stock issued for 401(k) match (562,000 shares)

      141   831               972 

Other comprehensive loss

                  (3,288

)

      (3,288

)

Balances, September 30, 2019

 $39  $124,133  $1,897,363  $(343,958

)

 $(37,958

)

 $(22,975

)

 $1,616,644 

  

Three Months Ended September 30, 2018

 
  

Series B

Preferred

Stock

  

Common

Stock

  

Additional

Paid-In

Capital

  

Accumulated

Deficit

  

Accumulated

Other

Comprehensive

Loss, net

  

Treasury

Stock

  

Total

 

Balances, July 1, 2018

 $39  $101,643  $1,628,440  $(198,762

)

 $(31,929

)

 $(20,736

)

 $1,478,695 

Net loss

              (23,184

)

          (23,184

)

Restricted stock units granted

          1,638               1,638 

Common stock issued for cash, net of offering costs (1,026,000 shares)

      256   2,830               3,086 

Common stock dividends declared ($0.0025 per common share)

              (1,196

)

          (1,196

)

Series B Preferred Stock dividends declared ($0.875 per share)

              (138

)

          (138

)

Common stock issued to directors (162,000 shares)

      40   553               593 

Common stock issued to pension plans (1,871,000 shares)

      468   5,032               5,500 

Common stock issued for 401(k) match (226,000 shares)

      57   728               785 

Common stock and warrants issued for purchase of another company (75,276,000 shares)

      18,819   233,725               252,544 

Other comprehensive income

                  3,746       3,746 

Balances, September 30, 2018

 $39  $121,283  $1,872,946  $(223,280

)

 $(28,183

)

 $(20,736

)

 $1,722,069 

6

Table of Contents

  

Nine Months Ended September 30, 2019

 
  

Series B

Preferred

Stock

  

Common

Stock

  

Additional

Paid-In

Capital

  

Accumulated

Deficit

  

Accumulated

Other

Comprehensive

Loss, net

  

Treasury

Stock

  

Total

 

Balances, January 1, 2019

 $39  $121,956  $1,880,481  $(248,308

)

 $(42,469

)

 $(20,736

)

 $1,690,963 

Net loss

              (91,581

)

          (91,581

)

Restricted stock units granted

          4,303               4,303 

Restricted stock units distributed (1,164,000 shares)

      291   (291

)

          (636

)

  (636

)

Common stock dividends declared ($0.0075 per common share)

              (3,655

)

          (3,655

)

Series B Preferred Stock dividends declared ($2.625 per share)

              (414

)

          (414

)

Common stock issued for 401(k) match (1,307,000 shares)

      327   2,425               2,752 

Adjustment to fair value of warrants issued for purchase of another company

          (325

)

              (325

)

Common stock issued for employee incentive compensation (3,597,380 shares)

      899   7,375           (1,603

)

  6,671 

Common stock issued to pension plans (2,384,000 shares)

      597   3,003               3,600 

Common stock issued to directors (253,000 shares)

      63   392               455 

Other comprehensive income

                  4,511       4,511 

Balances, September 30, 2019

 $39  $124,133  $1,897,363  $(343,958

)

 $(37,958

)

 $(22,975

)

 $1,616,644 

  

Nine Months Ended September 30, 2018

 
  

Series B

Preferred

Stock

  

Common

Stock

  

Additional

Paid-In

Capital

  

Accumulated

Deficit

  

Accumulated

Other

Comprehensive

Loss, net

  

Treasury

Stock

  

Total

 

Balances, January 1, 2018

 $39  $100,926  $1,619,816  $(218,089

)

 $(23,373

)

 $(18,042

)

 $1,461,277 

Net loss

              (2,870

)

          (2,870

)

Change in accounting for marketable equity securities

              1,289   (1,289

)

       

Restricted stock units granted

          4,043               4,043 

Restricted stock unit distributions (1,079,000 shares)

      270   (270

)

          (1,386

)

  (1,386

)

Common stock issued to directors (162,000 shares)

      40   553               593 

Common stock dividends declared ($0.0075 per common share)

              (3,196

)

          (3,196

)

Series B Preferred Stock dividends declared ($2.625 per share)

              (414

)

          (414

)

Common stock issued for 401(k) match (778,000 shares)

      195   2,663               2,858 

Common stock issued for cash, net of offering costs (1,026,000 shares)

      256   2,830               3,086 

Common stock issued to pension plans (1,871,000 shares)

      468   5,032               5,500 

Common stock issued for employee incentive compensation 1,237,000 shares)

      309   4,554           (1,308

)

  3,555 

Common stock and warrants issued for purchase of another company (75,276,000 shares)

      18,819   233,725               252,544 

Other comprehensive loss

                  (3,521

)

      (3,521

)

Balances, September 30, 2018

 $39  $121,283  $1,872,946  $(223,280

)

 $(28,183

)

 $(20,736

)

 $1,722,069 

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

7

Table of Contents

Note 1.    Basis of Preparation of Financial Statements

 

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements and notes to the unaudited interim condensed consolidated financial statements contain all adjustments, consisting of normal recurring items and items which are nonrecurring, necessary to present fairly, in all material respects, the financial position of Hecla Mining Company and its consolidated subsidiaries (in this report, "Hecla" or "the Company" or “we” or “our” or “us” refers to Hecla Mining Company and our subsidiaries, unless the context requires otherwise).  These unaudited interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related footnotes as set forth in our annual report filed on Form 10-K10-K for the year ended December 31, 2017,2018, as it may be amended from time to time.

 

The results of operations for the periods presented may not be indicative of those which may be expected for a full year.  The unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC").  Certain information and footnote disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures are adequate for the information not to be misleading.

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting period, and the disclosures of contingent liabilities.  Accordingly, ultimate results could differ materially from those estimates.     

 

On July 20, 2018, we completed the acquisition of Klondex Mines Ltd. ("Klondex"). The unaudited interim condensed consolidated financial statements included herein reflect our ownership of the assets previously held by Klondex as of the July 20, 2018 acquisition date.

In the third quarter of 2018, we identified errors impacting amounts reported for accumulated depreciation, depletion and amortization ("DDA") and DDA expense for our Casa Berardi unit from June 1, 2013 through June 30, 2018. Certain amounts in the condensed consolidated financial statements and notes thereto for the prior period have been revised to correct these errors. See Note 2 for more information on the errors and revisions made to amounts reported for the prior period.

 

Note 2. Revision of Previously Issued Financial Statements for Immaterial Misstatements    Investments

In the third quarter of 2018, we determined accumulated DDA and DDA expense at Casa Berardi, a business unit within our Hecla Quebec Inc. subsidiary, were understated for the periods from June 1, 2013 through June 30, 2018 as a result of errors in calculation from the date of acquisition of Casa Berardi as noted below:

6

i.

understatement of DDA by approximately $35.5 million in the aggregate over 5 1/2 years. The error in calculation resulted from the foreign exchange translation of accumulated DDA and DDA expense from Canadian dollars (“CAD”) to U.S. dollars (“USD”), which was incorrectly set up in the financial reporting system to use the average exchange rate for the respective reporting period, when the historical exchange rate should have been used. The CAD to USD exchange rate at June 1, 2013 was 0.9646 and has subsequently weakened over the intervening periods, resulting in an understatement of accumulated DDA and DDA expense during the periods from June 1, 2013 to June 30, 2018. The adjustments in the third quarter of 2018 to record the cumulative amounts related to this understatement for prior periods through June 30, 2018 were:

Condensed Consolidated Balance Sheet (Unaudited)

 

(in millions)

 

Credit - Accumulated DDA (recorded within properties, plants, equipment and mineral interests, net)

 $(36.2

)

Debit - Inventories: concentrates, doré, and stockpiled ore

  1.1 

Debit - Accumulated deficit

  30.3 
     

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited)

    

Debit - DDA expense

  5.0 

Credit - Net foreign exchange gain (loss)

  (0.2

)

Net increase to net loss for the nine months ended September 30, 2018

  (4.8

)

ii.

overstatement of DDA of approximately $14.2 million in the aggregate over 5 1/2 years related to the accelerated conversion of costs from the mineral interest asset, which represents the value of the undeveloped mineral interest and is not depletable, to the mineral properties asset, which represents the value of proven and probable reserves and is depletable. The error in calculation arose from the incorrect use of fair value information available on the per ounce value at the date of acquisition and resulted in the overstatement of the proven and probable reserves asset, which is subject to depletion, and an understatement of the undeveloped mineral interest asset, both of which are categories reported within properties, plants, equipment and mineral interests, net on the balance sheet. The overstatement of the conversions to the proven and probable reserves asset during the periods from January 1, 2014 through June 30, 2018 resulted in overstatements of accumulated DDA and DDA expense in each of these periods. The adjustments in the third quarter of 2018 to record the cumulative amounts related to this overstatement for prior periods through June 30, 2018 were:

Condensed Consolidated Balance Sheet (Unaudited)

 

(in millions)

 

Debit - Accumulated DDA (recorded within properties, plants, equipment and mineral interests, net)

 $14.2 

Credit - Deferred tax liability

  (3.8

)

Credit - Accumulated deficit

  (7.7

)

     

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited)

    

Credit - DDA expense

  (3.7

)

Debit - Income tax provision (benefit)

  1.0 

Net decrease to net loss for the nine months ended September 30, 2018

  2.7 

We assessed the materiality of the effect of the errors on our prior quarterly and annual financial statements, both quantitatively and qualitatively, in accordance with the SEC’s Staff Accounting Bulletin ("SAB") No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” and concluded the errors were not material to any of our previously issued financial statements. Consequently, we will correct these errors prospectively and revise our financial statements when the consolidated balance sheets, statements of operations and comprehensive income and cash flows for such prior periods are included in future filings (the "Revisions"). The Revisions had no net impact on our sales or net cash provided by operating activities for any period presented.

7

The following tables present a summary of the impact, by financial statement line item, of the Revisions for the three months ended March 31, 2017,  June 30, 2017 and September 30, 2017, the six months ended June 30, 2017, the nine months ended September 30, 2017, as of and for the year ended December 31, 2017, and for the year ended December 31, 2016: 

  

Three Months Ended September 30, 2017

 

(in thousands, except per share amounts)

 

As Previously

Reported

  

Adjustment

  

As Revised

 

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited)

            

Depreciation, depletion and amortization

 $28,844  $674  $29,518 

Total cost of sales

  97,202   674   97,876 

Gross profit

  43,637   (674

)

  42,963 

Income (loss) from operations

  20,942   (674

)

  20,268 

Foreign exchange (loss) gain

  (4,764

)

  (153

)

  (4,917

)

Total other (expense) income

  (24,931

)

  (153

)

  (25,084

)

(Loss) income before income taxes

  (3,989

)

  (827

)

  (4,816

)

Income tax benefit (provision)

  5,401   (271

)

  5,130 

Net income

 $1,412  $(1,098

)

 $314 

Income applicable to common shareholders

 $1,274  $(1,098

)

 $176 

Comprehensive income

  9,048   (1,098

)

  7,950 

Basic income per common share after preferred dividends

 $  $  $ 

Diluted income per common share after preferred dividends

 $  $  $ 

  

Nine Months Ended September 30, 2017

 

(in thousands, except per share amounts)

 

As Previously

Reported

  

Adjustment

  

As Revised

 

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited)

            

Depreciation, depletion and amortization

 $83,365  $3,621  $86,986 

Total cost of sales

  307,902   3,621   311,523 

Gross profit

  109,760   (3,621

)

  106,139 

Income (loss) from operations

  40,788   (3,621

)

  37,167 

Foreign exchange (loss) gain

  (10,909

)

  651   (10,258

)

Total other (expense) income

  (54,935

)

  651   (54,284

)

(Loss) income before income taxes

  (14,147

)

  (2,970

)

  (17,117

)

Income tax benefit (provision)

  18,377   (813

)

  17,564 

Net income

 $4,230  $(3,783

)

 $447 

Income applicable to common shareholders

 $3,816  $(3,783

)

 $33 

Comprehensive income

  17,948   (3,783

)

  14,165 

Basic income per common share after preferred dividends

 $0.01  $(0.01

)

 $ 

Diluted income per common share after preferred dividends

 $0.01  $(0.01

)

 $ 
             

Condensed Consolidated Statements of Cash Flows (Unaudited)

            

Net income

 $4,230  $(3,783

)

 $447 

Depreciation, depletion and amortization

  87,634   3,621   91,255 

Foreign exchange loss (gain)

  11,171   (651

)

  10,520 

Deferred income taxes

  (24,280

)

  813   (23,467

)

Cash provided by operating activities

 $74,115  $  $74,115 

8

  

As of and for the Year Ended December 31, 2017

 

(in thousands)

 

As Previously

Reported

  

Adjustment

  

As Revised

 

Condensed Consolidated Balance Sheet

            

Inventories: Concentrate, doré, and stockpiled ore

 $28,455  $911  $29,366 

Total current assets

  320,325   911   321,236 

Properties, plants, equipment and mineral interests, net

  2,020,021   (20,710

)

  1,999,311 

Total assets

  2,364,957   (19,799

)

  2,345,158 

Deferred tax liability

  121,546   2,806   124,352 

Total liabilities

  881,075   2,806   883,881 

Accumulated deficit

  (195,484

)

  (22,605

)

  (218,089

)

Total shareholders' equity

  1,483,882   (22,605

)

  1,461,277 

Total liabilities and shareholders' equity

  2,364,957   (19,799

)

  2,345,158 
             

Consolidated Statements of Operation and Comprehensive (Loss) Income

            

Depreciation, depletion and amortization

 $116,062  $4,537  $120,599 

Total cost of sales

  420,789   4,537   425,326 

Gross profit

  156,986   (4,537

)

  152,449 

Income (loss) from operations

  64,643   (4,537

)

  60,106 

Foreign exchange (loss) gain

  (10,300

)

  620   (9,680

)

Total other (expense) income

  (68,283

)

  620   (67,663

)

(Loss) income before income taxes

  (3,640

)

  (3,917

)

  (7,557

)

Income tax (provision) benefit

  (19,879

)

  (1,084

)

  (20,963

)

Net (loss) income

 $(23,519

)

 $(5,001

)

 $(28,520

)

(Loss) income applicable to common shareholders

 $(24,071

)

 $(5,001

)

 $(29,072

)

Comprehensive income (loss)

  (12,290

)

  (5,001

)

  (17,291

)

Basic (loss) income per common share after preferred dividends

 $(0.06

)

 $(0.01

)

 $(0.07

)

Diluted (loss) income per common share after preferred dividends

 $(0.06

)

 $(0.01

)

 $(0.07

)

             

Condensed Consolidated Statements of Cash Flows

            

Net (loss) income

 $(23,519

)

 $(5,001

)

 $(28,520

)

Depreciation, depletion and amortization

  121,930   4,537   126,467 

Foreign exchange loss (gain)

  10,828   (620

)

  10,208 

Deferred income taxes

  18,308   1,084   19,392 

Cash provided by operating activities

 $115,878  $  $115,878 

9

  

Three Months Ended March 31, 2017

 

(in thousands)

 

As Previously

Reported

  

Adjustment

  

As Revised

 

Condensed Consolidated Statements of Operation and Comprehensive Income (Loss) (Unaudited)

            

Depreciation, depletion and amortization

 $28,952  $1,483  $30,435 

Total cost of sales

  107,628   1,483   109,111 

Gross profit

  34,916   (1,483

)

  33,433 

Income from operations

  15,871   (1,483

)

  14,388 

Foreign exchange gain (loss)

  (2,262

)

  2   (2,260

)

Total other expense

  (18,108

)

  2   (18,106

)

Income (loss) before income taxes

  (2,237

)

  (1,481

)

  (3,718

)

Income tax (provision) benefit

  29,071   (271

)

  28,800 

Net income

 $26,834  $(1,752

)

 $25,082 

Income applicable to common shareholders

 $26,696  $(1,752

)

 $24,944 

Comprehensive income

  30,038   (1,752

)

  28,286 

Basic income per common share after preferred dividends

 $0.07  $  $0.07 

Diluted income per common share after preferred dividends

 $0.07  $  $0.07 
             

Condensed Consolidated Statements of Cash Flows (Unaudited)

            

Net income

 $26,834  $(1,752

)

 $25,082 

Depreciation, depletion and amortization

  29,590   1,483   31,073 

Foreign exchange (gain) loss

  506   (2

)

  504 

Deferred income taxes

  (21,234

)

  271   (20,963

)

Cash provided by operating activities

 $38,285  $  $38,285 

  

Three Months Ended June 30, 2017

 

(in thousands)

 

As Previously

Reported

  

Adjustment

  

As Revised

 

Condensed Consolidated Statements of Operation and Comprehensive Income (Loss) (Unaudited)

            

Depreciation, depletion and amortization

 $25,569  $1,464  $27,033 

Total cost of sales

  103,072   1,464   104,536 

Gross profit

  31,207   (1,464

)

  29,743 

Income from operations

  3,975   (1,464

)

  2,511 

Foreign exchange gain (loss)

  (3,883

)

  803   (3,080

)

Total other income (expense)

  (11,896

)

  803   (11,093

)

Income (loss) before income taxes

  (7,921

)

  (661

)

  (8,582

)

Income tax (provision) benefit

  (16,095

)

  (271

)

  (16,366

)

Net income (loss)

 $(24,016

)

 $(932

)

 $(24,948

)

Income (loss) applicable to common shareholders

 $(24,154

)

 $(932

)

 $(25,086

)

Comprehensive income (loss)

  (21,138

)

  (932

)

  (22,070

)

Basic income (loss) per common share after preferred dividends

 $(0.06

)

 $  $(0.06

)

Diluted income (loss) per common share after preferred dividends

 $(0.06

)

 $  $(0.06

)

10

  

Six Months Ended June 30, 2017

 

(in thousands)

 

As Previously

Reported

  

Adjustment

  

As Revised

 

Condensed Consolidated Statements of Operation and Comprehensive Income (Loss) (Unaudited)

            

Depreciation, depletion and amortization

 $54,521  $2,947  $57,468 

Total cost of sales

  210,700   2,947   213,647 

Gross profit

  66,123   (2,947

)

  63,176 

Income from operations

  19,846   (2,947

)

  16,899 

Foreign exchange gain (loss)

  (6,145

)

  805   (5,340

)

Total other income (expense)

  (30,004

)

  805   (29,199

)

Income (loss) before income taxes

  (10,158

)

  (2,142

)

  (12,300

)

Income tax (provision) benefit

  12,976   (542

)

  12,434 

Net income (loss)

 $2,818  $(2,684

)

 $134 

Income (loss) applicable to common shareholders

 $2,542  $(2,684

)

 $(142

)

Comprehensive income (loss)

  8,900   (2,684

)

  6,216 

Basic income (loss) per common share after preferred dividends

 $0.01  $(0.01

)

 $ 

Diluted income (loss) per common share after preferred dividends

 $0.01  $(0.01

)

 $ 
             

Condensed Consolidated Statements of Cash Flows (Unaudited)

            

Net income

 $2,818  $(2,684

)

 $134 

Depreciation, depletion and amortization

  56,908   2,947   59,855 

Foreign exchange (gain) loss

  5,201   (805

)

  4,396 

Deferred income taxes

  (22,113

)

  542   (21,571

)

Cash provided by operating activities

 $45,821  $  $45,821 

11

  

For the Year Ended December 31, 2016

 

(in thousands)

 

As Previously

Reported

  

Adjustment

  

As Revised

 

Consolidated Statements of Operation and Comprehensive (Loss) Income

            

Depreciation, depletion and amortization

 $116,126  $7,505  $123,631 

Total cost of sales

  454,451   7,505   461,956 

Gross profit

  191,506   (7,505

)

  184,001 

Income (loss) from operations

  116,944   (7,505

)

  109,439 

Foreign exchange (loss) gain

  (2,926

)

  189   (2,737

)

Total other (expense) income

  (19,969

)

  189   (19,780

)

(Loss) income before income taxes

  96,975   (7,316

)

  89,659 

Income tax (provision) benefit

  (27,428

)

  (662

)

  (28,090

)

Net (loss) income

 $69,547  $(7,978

)

 $61,569 

(Loss) income applicable to common shareholders

 $68,995  $(7,978

)

 $61,017 

Comprehensive income (loss)

  67,576   (7,978

)

  59,598 

Basic (loss) income per common share after preferred dividends

 $0.18  $(0.02

)

 $0.16 

Diluted (loss) income per common share after preferred dividends

 $0.18  $(0.02

)

 $0.16 
             

Condensed Consolidated Statements of Cash Flows

            

Net (loss) income

 $69,547  $(7,978

)

 $61,569 

Depreciation, depletion and amortization

  117,413   7,505   124,918 

Foreign exchange loss (gain)

  4,649   (189

)

  4,460 

Deferred income taxes

  2,112   662   2,774 

Cash provided by operating activities

 $225,328  $  $225,328 

Note 3.    Investments

Our current investments, which are classified as "available for sale" and consist of bonds having maturities of greater than 90 days were $33.8 million at December 31, 2017. We held no such investments as of September 30, 2018. During the first nine months of 2018 and 2017, we had purchases of such investments of $31.2 million and $35.3 million, respectively, and maturities of $64.9 million and $31.2 million, respectively. Our current investments at December 31, 2017 consisted of the following (in thousands):

  

December 31, 2017

 
  

Amortized

cost

  

Unrealized+ loss

  

Fair value

 

Corporate bonds

 $33,778  $(20

)

 $33,758 

 

At September 30, 20182019 and December 31, 2017,2018, the fair value of our non-current investments was $7.2$7.3 million and $7.6$6.6 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 $7.9$9.6 million and $5.7$7.7 million at September 30, 20182019 and December 31, 2017,2018, respectively. In the firstnine months of 20182019 and 2017,2018, we acquired marketable equity securities having a cost basis of $2.6 million and $0.8 million, and $1.6respectively. In the firstnine months of 2019, we sold marketable equity securities having a cost basis of $0.9 million respectively.for proceeds of $1.8 million, resulting in a gain of $0.9 million. During the firstnine months of 2019 and 2018, we recognized $1.2 million and $2.5 million, in net unrealized losses in current earnings. During the first nine months of 2017, we recognized $1.5 million in net unrealized gains in other comprehensive income and $0.1 millionrespectively, in net unrealized losses in current earnings.

8

 

Note 4.3.   Income Taxes

 

Major components of our income tax provision (benefit)benefit (provision) for the three and nine months ended September 30, 2018 2019 and 20172018 are as follows (in thousands):

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2018

  

2017

  

2018

  

2017

 

Current:

                

Domestic

 $  $  $1  $(12,797

)

Foreign

  80   (3,959

)

  4,250   17,491 

Total current income tax provision (benefit)

  80   (3,959

)

  4,251   4,694 
                 

Deferred:

                

Domestic

  (3,778

)

  1,980   (3,778

)

  (13,958

)

Foreign

  1,019   (3,151

)

  (1,957

)

  (8,300

)

Total deferred income tax provision (benefit)

  (2,759

)

  (1,171

)

  (5,735

)

  (22,258

)

Total income tax provision (benefit)

 $(2,679

)

 $(5,130

)

 $(1,484

)

 $(17,564

)

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2019

  

2018

  

2019

  

2018

 

Current:

                

Domestic

 $(315

)

 $  $(317

)

 $(1

)

Foreign

  (2,467

)

  (80

)

  (5,260

)

  (4,250

)

Total current income tax benefit (provision)

  (2,782

)

  (80

)

  (5,577

)

  (4,251

)

                 

Deferred:

                

Domestic

  2,652   3,778   10,585   3,778 

Foreign

  1,744   (1,019

)

  15,001   1,957 

Total deferred income tax benefit (provision)

  4,396   2,759   25,586   5,735 

Total income tax benefit (provision)

 $1,614  $2,679  $20,009  $1,484 

 

The current income tax provisionsbenefits (provisions) for the three and nine months ended September 30, 20182019 and 20172018 vary from the amounts that would have resulted from applying the statutory income tax rate to pre-tax income due primarily to the impact of taxation in foreign jurisdictions and a valuation allowance on the majority of U.S. deferred taxes and the impact of the change in accounting method treatment of the #4 Shaft development costs in 2017.tax assets.

 

As of September 30, 2018,2019, we have a net deferred tax liability in the U.S. of $46.7$43.1 million, a net deferred tax liability in Canada of $118.1$100.3 million and a net deferred tax asset in Mexico of $1.9$3.7 million, for a consolidated worldwide net deferred tax liability of $162.9$139.7 million.

 

With the acquisition of Klondex Mines Ltd. ("Klondex") on July 20, 2018 (see(see Note 1413), we acquired a U.S. consolidated tax group (the "Klondex"Nevada U.S. Group") that did not join the existing consolidated U.S. tax group of Hecla Mining Company and subsidiaries (“Legacy Hecla”Hecla U.S.”). Under acquisition accounting, we recorded a net deferred tax liability of $50.1$59.5 million. For the three and nine months ended September 30, 2018,2019, we recorded a tax benefitbenefits of $3.8$2.4 million on a net tax loss of $15.2and $10.3 million, respectively, in the KlondexNevada U.S. group. Net operating losses acquired as of the acquisition date are subject to limitation under Internal Revenue Code Section 382. However, the annual limitation is not expected to have a material impact on our ability to utilize the losses.

 

For Legacy Hecla U.S., we recorded a full valuation allowance in the U.S. in December 2017 as a result of U.S. tax reform. Our circumstances at September 30, 20182019 continued to support a full valuation allowance in the U.S. for Legacy Hecla. In the first quarter of 2017, we received consent from the Internal Revenue Service to permit us to take a different income tax position relating to the timing of deductions for the #4 Shaft development costs at Lucky Friday. This tax accounting method change substantially revised the timing of deductions for these costs for regular tax and Alternative Minimum Tax ("AMT") relative to our projected life of mine and projected taxable income. These timing changes caused us to revise our assessment of the ability to generate sufficient future taxable income to realize our deferred tax assets, resulting in a valuation allowance release of approximately $15 million.Hecla U.S.

 

 

Note 5.4.    Commitments, Contingencies and Obligations

 

General

 

We follow GAAP 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 million. As of September 30, 2018, 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 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 September 30, 2018.

Lucky Friday Water Permit Matters

 

In December 2013, the EPA issued to Hecla Limited a request for information under Section 308 of the Clean Water Act directing Hecla Limited to undertake a comprehensive groundwater investigation of Lucky Friday’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 we cannot predict what further action, if any, the agency may take.

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 and San Mateo Creek Basin, 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 the 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 Mine 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 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 $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 to $221 million. In the EE/CA, Hecla Limited recommended that EPA approve on-site disposal, which is currently estimated to cost $5.6$5.9 million, on the basis that it is the most appropriate response action under CERCLA. In June 2015, October 2019, the EPA approved the EE/CA, with a few minor conditions. The EPA still needs to publishpublished the EE/CA for a 30-day public notice and comment period (which may be extended), and the agency will notis expected to make a final decision on the appropriate response action untilafter 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. In the fourth quarter of 2014, we accrued $5.6 million, which continuesand in October 2019 we increased that amount to be our best estimate of that liability as$5.9 million, with the increase representing estimated costs to begin implementation of the date of this report. There can be no assuranceremedy in 2020. It is possible that Hecla Limited’s liability will not be more than $5.6$5.9 million, or that its ultimateand any increase in liability will notcould have a material adverse effect on Hecla Limited’s or our results of operations or financial position.

 

The Johnny M Mine is in an area known as the San Mateo Creek Basin (“SMCB”), which is an approximately 321 square mile area in New Mexico that contains numerous legacy uranium mines and mills. In addition to Johnny M, Hecla Limited's predecessor was involved at other mining sites within the SMCB. The EPA is considering listing the entire SMCB on CERCLA’s National Priorities List (Superfund) in order to address perceived groundwater issues within the SMCB. The EE/CA discussed above relates primarily to contaminated rock and soil, not groundwater. In the event that the SMCB is listed as a Superfund site, or for other reasons, it is possible that Hecla Limited’s liability at the Johnny M Site, as well asand for any other sitesmine site within the SMCB at which Hecla Limited's predecessor companies of Hecla Limited may have been involved,operated, will be greater than our current accrual of $5.6$5.9 million due to the increased scope of required remediation.

 

In July 2018, the EPA informed Hecla Limited that it and several other potentially responsible parties ("PRPs") may be liable for cleanup of the site or for costs incurred by the EPA in cleaning up the site. The EPA stated it has incurred approximately $9.6 million in response costs to date. 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, including the relative contributions if any, of contamination by the various PRPs.

 

Carpenter Snow Creek 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 site located in Cascade County, Montana. The Carpenter Snow Creek site 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.

 

In June 2011, the EPA informed Hecla Limited that it believes Hecla Limited, amongand several other viable companies, PRPs, 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 letter that it has incurred approximately $4.5 million in response costs and estimated that total remediation costs may exceed $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.site, including the relative contributions of contamination by various other PRPs.

 

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. Hecla Limited submitted a response in April 2017. 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.

 

In August 2018, the EPA informed Hecla Limited that it and several other PRPs may be liable for cleanup of the site or for costs incurred by the EPA in cleaning up the site. The EPA did not include an amount of its alleged response costs to date. 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 past or anticipated future costs at the site and the relative contributions if any, of contamination by the various other PRPs.

 

Claim for Indemnification Against CoCa Mines, Inc.

In 1991, Hecla Limited acquired CoCa Mines, Inc. (“CoCa”) and its subsidiary Creede Resources, Inc. (“CRI”). CoCa and CRI previously operated in the State of Colorado, but presently have limited assets and operations. Between 2014 and 2019, a PRP has alleged that CoCa and CRI are required by a 1989 agreement to indemnify it for certain environmental costs and liabilities it may incur with respect to the Nelson Tunnel/Commodore Waste Rock Pile Superfund site in Creede, Colorado. On October 30, 2019, the PRP filed a lawsuit in Mineral County, Colorado alleging, among other things, that CoCa and CRI are in breach of contract for failure to indemnify the PRP for its liability to the U.S. under CERCLA with respect to the site. In addition, the lawsuit names Hecla Limited as a defendant in its role as the shareholder of CoCa. The PRP seeks in excess of $5 million in damages, including attorneys’ fees and costs. The lawsuit will be vigorously defended and we believe strong defenses exist against all claims made therein and, as noted above, both CoCa and CRI have limited assets with which to satisfy any claim.

Montanore Project

We face several issues in attempting to advance the Montanore project. In October 2018, a court in Lincoln County, Montana found that the adit (which is an underground tunnel) which we intend to use to develop the Montanore project trespassed on certain unpatented mining claims we do not own, but through which the adit passes. In the case, which dates back to 2008, the jury delivered a verdict against certain of our subsidiaries for $3,325,000. The subsidiaries appealed the finding of trespass and the award of damages to the Montana Supreme Court, and we believe there are strong arguments for reversal. There can be no assurance that the appeal will succeed. On May 6, 2019, one of the subsidiaries received a letter from the Montana Department of Environmental Quality ("DEQ") questioning the validity of its operating permit at Montanore in light of the trespass finding. Our subsidiary responded by explaining that we do not believe the two issues are related. There has been no response to date from DEQ. On July 24, 2019, a Montana state court issued an order vacating Montanore's water discharge permit, which was renewed effective as of May 1, 2014, and remanded the matter back to DEQ. That order has been appealed to the Montana Supreme Court. As of September 30,2019, we have accrued $1.1 million for estimated future reclamation costs at the Montanore project, and have surety bonding in place for that amount.

Litigation Related to Klondex Acquisition

 

Following the announcement of our proposed acquisition of Klondex, Klondex and members of the Klondex board of directors were named as defendants in fiveseveral putative stockholder class actions brought by purported stockholders of Klondex challenging the proposed merger. The lawsuits were all filed in the United States District Court for the District of Nevada, but only Nevada. On December 18, 2018, the remaining three cases remain, and they are captioned: Gunderson v. Klondex Mines Ltd., et al., No. 3:18-cv-00256 (D. Nev. May 31, 2018); Nelson Baker v. Klondex Mines Ltd., et al., No. 3:18-cv-00288 (D. Nev. June 15, 2018); andwere consolidated into a single case, Lawson v. Klondex Mines Ltd., et al., No.3:18-cv-0028418-cv-00284 (D. Nev. June 15, 2018). The Gunderson complaint also named Hecla Mining Company and our subsidiary now known as Klondex Mines Unlimited Liability Company (“Merger Sub”) as defendants. The other two lawsuits were subsequently dismissed.

 

The plaintiffs generally claim that Klondex issued a proxy statement that included misstatements or omissions, in violation of sections 14(a)14(a) and 20(a)20(a) of the Securities Exchange Act of 1934, as amended. The Gunderson complaint also asserts a claim that the individual members of the Klondex board of directors breached their fiduciary duties of care, loyalty and good faith by authorizing the merger with Hecla for what the plaintiff asserts is inadequate consideration, an inadequate process, and with inadequate disclosures. The plaintiffs seek, among other things, to enjoin the merger, rescind the transaction or obtain rescissory damages if the merger is consummated, and recover attorneys’ fees and costs.

 

On September 21, 2018, Plaintiffs Baker and Lawson each filed motions to consolidate the remaining cases and be appointed lead plaintiff.

Although it is not possible to predict the outcome of litigation matters with certainty, each of Klondex and its directors Hecla and Merger Sub believe that each of the lawsuits are without merit, and the parties intend to vigorously defend against all claims asserted.

 

In addition, on On September 11, 2018, a lawsuit was filed in the Ontario (Canada) Superior Court of Justice by Waterton Nevada Splitter LLC against Hecla Mining Company, our subsidiary Klondex Mines Unlimited Liability Company and Havilah Mining Corporation, an entity that was formed to own the Canadian assets of Klondex that we did not acquire as part of the Klondex acquisition, in July 2018, and of which we own approximately 13%. The lawsuit alleges that Hecla and Havilah are in breach of contract in connection with the issuance to Waterton of warrants to purchase Hecla common stock and Havilah common shares to replace warrants to purchase Klondex common shares that Waterton owned prior to the July 2018 acquisition. The lawsuit claims Hecla and Havilah issued warrants to Waterton valued at $3.7 million but that Waterton was entitled to warrants valued at $8.9 million. We believe the lawsuit is without merit and will vigorously defend it.

 

On May 24, 2019, a purported Hecla stockholder filed a putative class action lawsuit in U.S. District Court for the Southern District of New York against Hecla and certain of our executive officers, one of whom is also a director. The complaint, purportedly brought on behalf of all purchasers of Hecla common stock from March 19, 2018 through and including May 8, 2019, asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and seeks, among other things, damages and costs and expenses. Specifically, the complaint alleges that Hecla, under the authority and control of the individual defendants, made certain material false and misleading statements and omitted certain material information regarding Hecla’s Nevada Operations unit. The complaint alleges that these misstatements and omissions artificially inflated the market price of Hecla common stock during the class period, thus purportedly harming investors. A second suit was filed on June 19, 2019, alleging virtually identical claims. We cannot predict the outcome of these lawsuits or estimate damages if plaintiffs were to prevail. We believe that these claims are without merit and intend to defend them vigorously.

Related to the above described class action lawsuits, Hecla has been named as a nominal defendant in a shareholder derivative lawsuit which names as defendants members of Hecla’s board of directors and certain officers. The case was filed on July 12, 2019 in the U.S. District Court for the District of Delaware. In general terms, the suit alleges (i) violations of Sections 10(b) and 14(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and (ii) breaches of fiduciary duties by the individual defendants and seeks damages, purportedly on behalf of Hecla.

Debt

 

On As discussed in Note 9, on April 12, 2013, we completed an offering of $500 million aggregate principal amount of 6.875% Senior Notes due 2021 ("Senior Notes").Notes. 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, we 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 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.

 

On March 5, 2018, we entered into a note purchase agreement pursuant to which we issued CAD$40$40 million Canadian dollars ("CAD") (approximately USD$30.8$30.8 million U.S. dollars ("USD") at the time of the transaction) in aggregate principal amount of our Series 2018-A2018-A Senior Notes due May 1, 2021 (the(the “Notes”) to Ressources Québec, a subsidiary of Investissment Québec, a financing arm of the Québec government. The Notes were issued at a discount of 0.58%, and bear interest at a rate of 4.68% per year, payable on May 1 and November 1 of each year, commencing May 1, 2018. The Notes are senior and unsecured and are pari passu in all material respects with the Senior Notes, including with respect to guarantees of the Notes by certain of our subsidiaries. The net proceeds from the Notes are required to be used for development and expansion of our Casa Berardi mine.

 

See Note 109 for more information.

 

Other Commitments

 

Our contractual obligations as of September 30, 20182019 included approximately $1.6$1.3 million for various costs. In addition, our open purchase orders at September 30, 20182019 included approximately $0.4$1.8 million, $2.0$1.4 million, $14.2$4.3 million and $5.3$0.5 million for various capital and non-capital items at the Lucky Friday, Casa Berardi, Greens Creek and Nevada Operations units, respectively. We also have total commitments of approximately $15.7$15.2 million relating to scheduled payments on capitalfinance leases, including interest, primarily for equipment at our Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations units and total commitments of approximately $17.4 million on operating leases (see Note 109 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 September 30, 2018,2019, we had surety bonds totaling $181.6$191.8 million and letters of credit totaling $38.5 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

 

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 have no basis to conclude that any or all of such contingencies will 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 current 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.

 

Note 6.    (Loss) earnings5.    Loss Per Common Share

 

We are authorized to issue 750,000,000 shares of common stock, $0.25 par value per share.  At September 30, 2018,2019, there were 485,136,257496,538,038 shares of our common stock issued and 5,226,7916,287,271 shares issued and held in treasury, for a net of 479,909,466490,250,767 shares outstanding.  Basic and diluted loss per common share, after preferred dividends, was $(0.04) and $(0.19) for the three- and nine-month periods ended September 30,2019, respectively.  Basic and diluted loss per common share, after preferred dividends, was $(0.05) and $(0.01) for the three-three- and nine-monthnine-month periods ended September 30,2018, respectively. Basic and diluted income per common share, after preferred dividends, was $0.00 and $0.00 for the three- and nine-month periods ended September 30, 2017, respectively.

 

Diluted (loss) incomeloss per share for the three and nine months ended September 30, 20182019 and 20172018 excludes the potential effects of outstanding shares of our convertible preferred stock, as their conversion would have no effect on the calculation of dilutive shares.

 

For the three-monththree-month and nine-monthnine-month periods ended September 30,2019 and 2018, all restricted share units, deferred shares and warrants were excluded from the computation of diluted loss per share, as our reported loss for that periodthose periods would cause them to have no effect on the calculation of loss per share. For the three-month and nine-month periods ended September 30, 2017, the calculation of diluted income per share included dilutive (i) restricted stock units that were unvested or which vested in the respective period of 901,047 and 1,857,555, respectively, and (ii) deferred shares of 1,509,159 for each period. There were no warrants outstanding during the three-month and nine-month periods ended September 30, 2017.

 

 

Note 7.6.    Business Segments and Sales of Products

 

We discover, acquire and develop mines and other mineral interests and produce and market concentrates, carbon material and doré containing silver, gold, lead and zinc. We are currently organized and managed in five reporting segments:5 segments, which represent our operating units: the Greens Creek unit, the Lucky Friday unit, the Casa Berardi unit, the San Sebastian unit and the Nevada Operations unit. The Nevada Operations unit was added as a result of our acquisition of Klondex in July 2018 (see(see Note 1413 for more information).

 

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.

 

The following tables present information about our reportable segments for the three and nine months ended September 30, 20182019 and 20172018 (in thousands):

 

  

Three Months Ended
September 30,

  

Nine Months Ended

September 30,

 
  

2018

  

2017

  

2018

  

2017

 

Net sales to unaffiliated customers:

                

Greens Creek

 $65,187  $61,062  $205,642  $191,250 

Lucky Friday

  (11

)

  199   8,253   20,022 

Casa Berardi

  52,850   53,989   164,501   139,524 

San Sebastian

  14,129   25,589   40,727   66,866 

Nevada Operations

  11,494      11,494    
  $143,649  $140,839  $430,617  $417,662 

Income (loss) from operations:

                

Greens Creek

 $10,705  $16,575  $59,373  $46,107 

Lucky Friday

  (5,404

)

  (4,642

)

  (14,811

)

  (8,974

)

Casa Berardi

  (1,146

)

  2,208   3,118   (4,692

)

San Sebastian

  (2,381

)

  17,017   2,275   42,363 

Nevada Operations

  (13,741

)

     (13,741

)

   

Other

  (18,409

)

  (10,890

)

  (50,885

)

  (37,637

)

  $(30,376

)

 $20,268  $(14,671

)

 $37,167 

  

Three Months Ended
September 30,

  

Nine Months Ended

September 30,

 
  

2019

  

2018

  

2019

  

2018

 

Net sales to unaffiliated customers:

                

Greens Creek

 $59,015  $65,187  $194,542  $205,642 

Lucky Friday

  4,017   (11

)

  11,150   8,253 

Casa Berardi

  53,453   52,850   139,015   164,501 

San Sebastian

  15,435   14,129   39,028   40,727 

Nevada Operations

  29,612   11,494   64,586   11,494 
  $161,532  $143,649  $448,321  $430,617 

Income (loss) from operations:

                

Greens Creek

 $17,556  $10,705  $52,130  $59,373 

Lucky Friday

  (3,727

)

  (5,404

)

  (8,779

)

  (14,811

)

Casa Berardi

  (380

)

  (1,146

)

  (26,262

)

  3,118 

San Sebastian

  1,077   (2,381

)

  (2,358

)

  2,275 

Nevada Operations

  (8,346

)

  (13,741

)

  (43,812

)

  (13,741

)

Other

  (11,293

)

  (18,409

)

  (35,633

)

  (50,885

)

  $(5,113

)

 $(30,376

)

 $(64,714

)

 $(14,671

)

 

The following table presents identifiable assets by reportable segment as of September 30, 20182019 and December 31, 20172018 (in thousands):

 

  

September 30, 2019

  

December 31, 2018

 

Identifiable assets:

        

Greens Creek

 $648,420  $637,386 

Lucky Friday

  438,946   437,499 

Casa Berardi

  717,631   754,248 

San Sebastian

  50,549   44,152 

Nevada Operations

  558,219   581,194 

Other

  259,413   249,465 
  $2,673,178  $2,703,944 

  

September 30, 2018

  

December 31, 2017

 

Identifiable assets:

        

Greens Creek

 $651,814  $671,960 

Lucky Friday

  429,334   432,400 

Casa Berardi

  758,415   784,706 

San Sebastian

  47,352   62,198 

Nevada Operations

  539,410    

Other

  283,933   393,894 
  $2,710,258  $2,345,158 

 

Our products consist of both metal concentrates and carbon material, which we sell to custom smelters, brokers and brokers,third-party processors, and unrefined bullion bars (doré), which may be sold as doré or further refined before sale to precious metals traders. Revenue is recognized upon the completion of the performance obligations and transfer of control of the product to the customer.

 

For sales of metals from refined doré, which we currently have at our Casa Berardi, San Sebastian and Nevada Operations units, the performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of control of the agreed-upon metal quantities to the customer by the refiner, and the transaction price is known at that time.refiner. For sales of doré, the performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of title and control of the doré containing the agreed-upon metal quantities to the customer. Refining, selling and shipping costs related to sales of doré and metals from doré are recorded to cost of sales as incurred.

For carbon sales, the performance obligation is met, the transaction price is known, and revenue is recognized generally at the time of arrival at the customer's facility.

 

For concentrate sales, which we currently have at our Greens Creek and Lucky Friday units, the performance obligation is met, the transaction price can be reasonably estimated, and revenue is recognized generally 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. However, there is a period of time between shipment of concentrates from our Greens Creek unit and their physical receipt by the customer, and judgment is required in determining when control has been transferred to the customer for those shipments. We have determined the performance obligation is met and title is transferred to the customer upon shipment of concentrate parcels from Greens Creek because, at that time, 1)1) legal title is transferred to the customer, 2)2) the customer has accepted the parcel and obtained the ability to realize all of the benefits from the product, 3)3) the concentrate content specifications are known, have been communicated to the customer, and the customer has the significant risks and rewards of ownership of it, 4)4) it is very unlikely a concentrate parcel from Greens Creek will be rejected by a customer upon physical receipt, and 5)5) we have the right to payment for the parcel.

 

Judgment is also required in identifying the performance obligations for our concentrate sales. Most of our concentrate sales involve “frame contracts” with smelters that can cover multiple years and specify certain terms under which individual parcels of concentrates are sold. However, some terms are not specified in the frame contracts and/or can be renegotiated as part of annual amendments to the frame contract. We have determined parcel shipments represent individual performance obligations satisfied at a point in time when control of the shipment is transferred to the customer.

 

The consideration we receive for our concentrate sales fluctuates due to changes in metals prices between the time of shipment and final settlement with the customer. 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 previously recorded sales and accounts receivable are adjusted to estimated settlement metals prices until final settlement with the customer. Also, it is unlikely a significant reversal of revenue for any one concentrate parcel will occur. As such, we use the expected value method to price the parcels until the final settlement date occurs, at which time the final transaction price is known. At September 30, 2018,2019, metals contained in concentrates and exposed to future price changes totaled 1.22.9 million ounces of silver, 5,7348,831 ounces of gold, 7,27710,737 tons of zinc, and 2,4476,344 tons of lead.  However, as discussed in Note 1211, we seek to mitigate the risk of negative price adjustments by using financially-settled forward and put option contracts for some of our sales.

 

Sales and accounts receivable for concentrate shipments are recorded net of charges for treatment, refining, smelting losses, and other charges negotiated by us with the customers, which represent components of the transaction price. 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 may include price escalators which allow the customers to participate in the increase of lead and zinc prices above a negotiated baseline. Costs for shipping concentrates to customers are recorded to cost of sales as incurred.

 

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

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2018

  

2017

  

2018

  

2017

 
                 

Greens Creek

  45

%

  43

%

  48

%

  46

%

Lucky Friday

  

%

  

%

  2

%

  5

%

Casa Berardi

  37

%

  38

%

  39

%

  33

%

San Sebastian

  10

%

  19

%

  9

%

  16

%

Nevada Operations

  8

%

  

%

  2

%

  

%

   100

%

  100

%

  100

%

  100

%

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2019

  

2018

  

2019

  

2018

 
                 

Greens Creek

  37

%

  45

%

  44

%

  48

%

Lucky Friday

  2

%

  

%

  2

%

  2

%

Casa Berardi

  33

%

  37

%

  31

%

  39

%

San Sebastian

  10

%

  10

%

  9

%

  9

%

Nevada Operations

  18

%

  8

%

  14

%

  2

%

   100

%

  100

%

  100

%

  100

%

 

Sales of products by metal for the three-three- and nine-monthnine-month periods ended September 30, 20182019 and 20172018 were as follows (in thousands):

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2018

  

2017

  

2018

  

2017

 
                 

Silver

 $38,009  $43,228  $111,656  $140,662 

Gold

  82,628   73,603   233,308   203,279 

Lead

  7,552   6,373   27,469   28,093 

Zinc

  20,990   24,327   78,714   74,692 

Less: Smelter and refining charges

  (5,530

)

  (6,692

)

  (20,530

)

  (29,064

)

Sales of products $143,649  $140,839  $430,617  $417,662 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2019

  

2018

  

2019

  

2018

 
                 

Silver

 $40,588  $38,009  $122,392  $111,656 

Gold

  103,889   82,628   261,734   233,308 

Lead

  7,114   7,552   22,809   27,469 

Zinc

  15,292   20,990   62,995   78,714 

Less: Smelter and refining charges

  (5,351

)

  (5,530

)

  (21,609

)

  (20,530

)

Sales of products

 $161,532  $143,649  $448,321  $430,617 

 

The following is sales information by geographic area based on the location of smelters and brokers (for concentrate shipments) and location of parent companies (for doré sales to metals traders) for the three-three- and nine-monthnine-month periods ended September 30, 20182019 and 20172018 (in thousands):

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2019

  

2018

  

2019

  

2018

 
                 

Canada

 $88,610  $83,723  $258,708  $266,915 

Korea

  33,683   35,796   109,184   110,036 

Japan

  17,339   3,301   34,924   20,971 

Netherlands

  445      16,500    

China

           66 

United States

  20,407   15,807   29,142   24,296 

Total, excluding gains/losses on derivative contracts

 $160,484  $138,627  $448,458  $422,284 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2018

  

2017

  

2018

  

2017

 
                 

Canada

 $83,723  $79,834  $266,915  $263,268 

Korea

  35,796   27,396   110,036   75,339 

Japan

  3,301   14,419   20,971   38,513 

China

     16,695   66   32,047 

United States

  15,807   3,121   24,296   12,407 

Total, excluding gains/losses on forward contracts

 $138,627  $141,465  $422,284  $421,574 

 

Sales by significant product type for the three-three- and nine-monthnine-month periods ended September 30, 20182019 and 20172018 were as follows (in thousands):

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2018

  

2017

  

2018

  

2017

 
                 

Doré and metals from doré

 $83,068  $82,764  $232,085  $219,276 

Lead concentrate

  36,728   31,548   113,211   124,553 

Zinc concentrate

  14,965   21,278   63,197   61,841 

Bulk concentrate

  3,866   5,875   13,791   15,904 

Total, excluding gains/losses on forward contracts

 $138,627  $141,465  $422,284  $421,574 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2019

  

2018

  

2019

  

2018

 
                 

Doré and metals from doré

 $87,525  $80,074  $231,391  $227,812 

Carbon

  17,745   2,994   27,376   4,273 

Lead concentrate

  37,685   36,728   122,727   113,211 

Zinc concentrate

  12,345   14,965   51,876   63,197 

Bulk concentrate

  5,184   3,866   15,088   13,791 

Total, excluding gains/losses on derivative contracts

 $160,484  $138,627  $448,458  $422,284 

 

Sales of products for the three-three- and nine-monthnine-month periods ended September 30,2019 included a net gain of $1.1 million and a net loss of $0.1 million, respectively, on financially-settled forward and put option contracts for silver, gold, lead and zinc contained in our sales. Sales of products for the three- and nine-month periods ended September 30,2018 included net gains of $5.0 million and $8.3 million, respectively, on financially-settled forward contracts for silver, gold, lead and zinc contained in our concentrate sales. Sales of products for the three- and nine-month periods ended September 30, 2017 included net losses of $0.6 million and $3.9 million, respectively, on the forward contracts. See Note 1211 for more information.

 

Sales of products to significant customers as a percentage of total sales were as follows for the three-three- and nine-monthnine-month periods ended September 30, 20182019 and 2017:2018:

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2018

  

2017

  

2018

  

2017

 
                 

CIBC

  26

%

  23

%

  34

%

  24

%

Scotia

  19

%

  33

%

  13

%

  26

%

Korea Zinc

  15

%

  25

%

  22

%

  20

%

Teck Metals Ltd.

  11

%

  

%

  11

%

  10

%

Trafigura

  10

%

  

%

  3

%

  4

%

Louis Dreyfus

  

%

  12

%

  

%

  4

%

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2019

  

2018

  

2019

  

2018

 
                 

CIBC

  36

%

  26

%

  24

%

  34

%

Scotia

  18

%

  19

%

  26

%

  13

%

Korea Zinc

  9

%

  15

%

  16

%

  22

%

Teck Metals Ltd.

  3

%

  11

%

  7

%

  11

%

Cliveden

  12

%

  

%

  4

%

  

%

Trafigura

  

%

  10

%

  4

%

  3

%

 

Our trade accounts receivable balance related to contracts with customers was $12.9$6.2 million at September 30, 20182019 and 2017 and $14.8$4.2 million at December 31, 2017,2018, and included no0 allowance for doubtful accounts.

 

We have determined our contracts do not include a significant financing component. For doré sales and sales of metal from doré, payment is received at the time the performance obligation is satisfied. Payment for carbon sales is received within a relatively short period of time after the performance obligation is satisfied. The amount of consideration for concentrate sales is variable, and we receive payment for a significant portion of the estimated value of concentrate parcels within a relatively short period of time after the performance obligation is satisfied.

 

We do not incur significant costs to obtain contracts, nor costs toor fulfill contracts which are not addressed by other accounting standards. Therefore, we have not recognized an asset for such costs as of September 30, 20182019 or December 31, 2017.2018.

 

In September 2019, we received $20.1 million in proceeds for two parcels of concentrate at our Greens Creek unit which were not shipped and recognized as revenue until October 2019.  We sold the concentrate in September, but arrival of the ship at the loading facility at Greens Creek was delayed due to weather, which resulted in the loaded ship leaving Greens Creek shortly after September 30.  As of September 30,2019, a current deferred revenue liability was recognized for the $20.1 million in proceeds, and the related cost of sales and other direct production costs of $9.2 million and depreciation, depletion and amortization of $2.6 million were included in inventory.

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 contractthe Company's offer, and on March 13, 2017 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 the firstnine months of 20182019 and 2017,2018, suspension costs not related to production of $13.5$5.7 million and $11.5$13.5 million, respectively, along with $3.7$3.1 million and $2.9$3.7 million, respectively, in non-cash depreciation expense, are reported in a separate line item on our consolidated statements of operations.  In September 2019, a tentative agreement was reached between the Company and the union negotiating committee.  Before the collective bargaining agreement is finalized, it must be ratified by a majority of the union members. If the agreement is voted on and ratified, we would expect the mine to be staffed in stages, and that this would put Lucky Friday on a path back to full production.  We believe it would take approximately one year to return to full production after re-staffing starts.  We cannot predict whether or when the current tentative agreement will be ratified or if an agreement will otherwise be reached, or, if an agreement is not ratified, how long the strike will last or whether an agreementwhen there will be reached.a return to full 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.  If the strike continues for a further extended period or it is determined an eventual resolution is unlikely, it may be appropriate in the future to review the carrying value of properties, plants, equipment and mineral interests at Lucky Friday.  Under such review, if estimated undiscounted cash flows from Lucky Friday were less than its carrying value, an impairment loss would be recognized for the difference between the carrying value and the estimated fair value.  The carrying value of properties, plants, equipment and mineral interests at Lucky Friday as of September 30, 20182019 was approximately $428.8$437.0 million.  However, Lucky Friday has significant identified reserves and mineralized material and a current estimated mine life of approximately 2217 years.

 

On April 30, 2018, we settled with the National Labor Relations Board ("NLRB") an unfair labor practice claim made by the union. As part of the settlement, Hecla Limited rescinded its last, best and final contract offer implemented in March 2017. We do not believe the settlement with the NLRB will resolve any of the key differences in the ongoing labor dispute. On May 4, 2018, we gave notice to the union that the parties to the labor dispute are at impasse, and implemented portions of our revised final offer presented in December 2017.

 

Note 8.7.   Employee Benefit Plans

 

We sponsor defined benefit pension plans covering substantially all U.S. employees.  Net periodic pension cost for the plans consisted of the following for the three and nine months ended September 30, 20182019 and 20172018 (in thousands):

 

 

Three Months Ended

September 30,

  

Three Months Ended

September 30,

 
 

2018

  

2017

  

2019

  

2018

 

Service cost

 $1,252  $1,196  $1,100  $1,252 

Interest cost

  1,377   1,339  1,620  1,377 

Expected return on plan assets

  (1,634

)

  (1,462

)

 (1,496

)

 (1,634

)

Amortization of prior service cost

  15   (84

)

 15  15 

Amortization of net loss

  931   1,033   1,097   931 

Net periodic pension cost

 $1,941  $2,022  $2,336  $1,941 

 

 

Nine Months Ended

September 30,

  

Nine Months Ended

September 30,

 
 

2018

  

2017

  

2019

  

2018

 

Service cost

 $3,756  $3,588  $3,300  $3,756 

Interest cost

  4,131   4,017  4,860  4,131 

Expected return on plan assets

  (4,902

)

  (4,386

)

 (4,488

)

 (4,902

)

Amortization of prior service cost

  45   (252

)

 45  45 

Amortization of net loss

  2,793   3,099   3,291   2,793 

Net periodic pension cost

 $5,823  $6,066  $7,008  $5,823 

 

For the three-three- and nine-monthnine-month periods ended September 30,2019 and 2018, the service cost component of net periodic pension cost is included in the same line items of our condensed consolidated financial statements as other employee compensation costs, and thecosts. The net expense of $0.7 million and $2.1 million, respectively, related to all other components of net periodic pension cost of $1.2 million and $3.7 million, respectively, for the three- and nine-month periods ended September 30,2019, and $0.7 million and $2.1 million, respectively, for the three- and nine-month periods ended September 30,2018, is included in other (expense) income on our condensed consolidated statements of operations and comprehensive income (loss). For the three- and nine-month periods ended September 30, 2017, all components of net periodic pension cost are included in the same line items of our condensed consolidated financial statements as other employee compensation costs.loss.

 

In April 2018 and July 2018, May 2019, we made cash contributions of  $1.3contributed $3.6 million and $1.2 million, respectively,in common stock to our defined benefit plans. In September 2018 we contributed $5.5 million in shares of our common stock. We are plans, and do not required expect to make additional contributions to our defined benefitthe plans in 2018.2019. We expect to contribute approximately $0.5 illion$0.6 million to our unfunded supplemental executive retirement plan during 2018.2019.

 

 

Note 9.8.    Shareholders’ Equity

 

Stock-based Compensation Plans

 

We periodically grant restricted stock unit awards, performance-based share awardsshares and shares of common stock to our employees and directors. We measure compensation cost for restricted stock units and stock grants at the closing price of our stock at the time of grant. We measure compensation cost for performance-based grants using a Monte Carlo simulation to estimate their value at grant date. Restricted stock unit and performance-based share grants vest after a specified period with compensation cost amortized over that period. Although we have no current plans to issue stock options, we may do so in the future.

 

In March 2018, April 2019, the Board of Directors granted 1,237,3693,597,380 shares of common stock to employees for payment of long-term incentive compensation for the period ended December 31, 2017. 2018. The shares were distributed in March 2018, April 2019, and $4.9$8.3 million in expense related to the stock awards was recognized in the periods prior to March 31, 2018.2019.

 

In June and August 2018, 2019, the Board of Directors granted the following restricted stock unit awards to employees resultingwhich will result in a total expense of $7.0$5.9 million:

 

 

1,854,0542,971,188 restricted stock units, with onethird of those vesting in June 2019, 2020, onethird vesting in June 2020, 2021, and onethird vesting in June 2021;2022;

 

96,604165,764 restricted stock units, with one half of those vesting in June 2019 2020 and one-halfone-half vesting in June 2020; 2021; and

 

28,72163,589 restricted stock units that vest in June 2019.2020.

 

An expenseExpense of $2.5$2.1 million related to the unit awards discussed above vesting in 20192020 will be recognized on a straight-line basis over the twelve months following the date of the award. An expenseExpense of $2.4$2.0 million related to the unit awards discussed above vesting in 20202021 will be recognized on a straight-line basis over the twenty-four months following the date of the award. An expenseExpense of $2.2$1.8 million related to the unit awards discussed above vesting in 20212022 will be recognized on a straight-line basis over the thirty-six-monththirty-six-month period following the date of the award.

 

In June 2018, 2019, the Board of Directors granted performance-based share awards to certain executive employees. The value of the awards will be 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 the three-yearthree-year measurement period ending December 31, 2020. 2021. The number of shares to be issued will be based on the value of the awards divided by the share price at grant date. The expense related to the performance-based awards will be recognized on a straight-line base over the thirty months following the date of the award.

 

Stock-based compensation expense for restricted stock unit and performance-based grants to employees and shares issued to nonemployee directors recorded in the firstnine months of 20182019 totaled $4.7$4.8 million, compared to $4.9$4.7 million in the same period last year.

 

In connection with the vesting of restricted stock units and other stock grants, employees have in the past, at their election and when permitted by us, chosen to satisfy their minimum tax withholding obligations through net share settlement, pursuant to which the Company withholds the number of shares necessary to satisfy such withholding obligations and pays the obligations in cash.  As a result, in the firstnine months of 2019 we withheld 1,060,480 shares valued at approximately $2.2 million, or approximately $2.11 per share. In the firstnine months of 2018 we withheld 697,341 shares valued at approximately $2.7 million, or approximately $3.86 per share. In the first nine months of 2017 we withheld 588,240 shares valued at approximately $3.0 million, or approximately $5.09 per share.

 

Common Stock 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 per share of common stock, in each case, payable quarterly, if and 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

  

Annualized 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 

Quarterly average realized silver price per ounce

 

Quarterly dividend per share

 

Annualized 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

 

On November 6, 2018, August 5, 2019, our Board of Directors declared a common stock dividend, pursuant to the minimum annual dividend component of the policy described above, of $0.0025 per share, for a total dividend of approximately $1.2 million payablepaid in December 2018. September 2019. Because the average realized silver price for the thirdsecond quarter of 20182019 was $14.68$15.01 per ounce, below the minimum threshold of $30 according to the policy, no silver-price-linked component was declared or paid. 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, we may issue and sell shares of our common stock from time to time through ordinary broker transactions having an aggregate offering price of up to $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 oura shelf registration statement on Form S-3, which was filed with the SEC on February 23, 2016.S-3. As of September 30, 2018,2019, we had sold 5,634,7587,173,614 shares under the agreement for total proceeds of approximately $20.8$24.5 million, net of commissions of approximately $0.5$0.6 million. WeNaN shares were sold 1,025,911 shares under the agreement during the third quarterfirstnine months of 2018 for total proceeds of $3.1 million, net of commissions of approximately $0.1 million.2019.

 

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. 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. As of September 30, 2018,2019, 934,100 shares havehad been purchased at an average price of $3.99 per share, leaving approximately 19.1 million shares that may yet be purchased under the program. The closing price of our common stock at November 6, 2018,5,2019, was $2.49$2.30 per share. NaN shares were purchased under the program during the firstnine months of 2019.

 

Warrants

 

As discussed in Note 1413, we issued 4,136,000 warrants to purchase one1 share of our common stock to holders of warrants to purchase Klondex common stock under the terms of the Klondex acquisition, and all of the warrants were outstanding as of September 30, 2018.2019. Warrants to purchase 2,068,000 shares of the warrantscommon stock have an exercise price of $8.02 and expire in April 2032. Warrants to purchase 2,068,000 shares of the warrantscommon stock have an exercise price of $1.57 and expire in February 2029.

 

 

Note 10.9.    Debt, Credit Facility and Capital Leases

 

Senior Notes

 

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, and in 2014, an additional $6.5 million aggregate principal amount of the Senior Notes werewas 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 million at the time of the April 2013 issuance and having an unamortized balance of $3.3$2.1 million as of September 30, 2018.2019. 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 each of the nine months-month periods ended September 30, 20182019 and 2017,2018, 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 $27.2 million and $26.3 million, respectively. The interest expense related to the Senior Notes for the nine months ended September 30, 2017 was net of $0.9 million in capitalized interest, primarily related to the #4 Shaft project at our Lucky Friday unit which was completed in January 2017. Interest expense for the nine months ended September 30, 2017 also included $1.1 million in costs related to our private offering of new Senior Notes in June 2017 and concurrent tender offer to purchase our existing Senior Notes, which were not completed.million.

 

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.  As of May 1, 2019, the redemption price is 100% of the outstanding principal amount.

 

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.

 

Ressources Québec Notes

 

On March 5, 2018, we entered into a note purchase agreement pursuant to which we issued CAD$40 million (approximately USD$30.8 million at the time of the transaction) in aggregate principal amount of our Series 2018-A2018-A Senior Notes due May 1, 2021 (the(the “RQ Notes”) to Ressources Québec, a subsidiary of Investissment Québec, a financing arm of the Québec government. Because the RQ Notes are denominated in CAD, the reported USD-equivalent principal balance changes with movements in the exchange rate. The RQ Notes were issued at a discount of 0.58%, or CAD$0.2 million, and bear interest at a rate of 4.68% per year, payable on May 1 and November 1 of each year, commencing May 1, 2018. The RQ Notes are senior and unsecured and are pari passu in all material respects with the Senior Notes, including with respect to guarantees of the RQ Notes by certain of our subsidiaries. The net proceeds from the RQ Notes arewere required to be used for development and expansion of our Casa Berardi mine. During the nine months ended September 30,2019 and 2018, interest expense related to the RQ Notes, including discount and origination fees, totaled $1.1 million.million for each period.

 

Credit FacilitiesFacility

 

In July 2018, we entered into a $200$250 million senior secured revolving credit facility which replaced our previous $100 million credit facility. The facility and has a term ending on June 14, 2022, provided, however, that if we do not refinance our outstanding Senior Notes due May 1, 2021 by on or before November 1, 2020, the term offacility will terminate on November 1, 2020. In July 2019, we entered into an amendment to the credit facility ends on November 1, 2020. The creditto, among other things, change the leverage ratio covenant terms and temporarily reduce the amount available to be borrowed under the facility increasedfrom $250 million to $250$150 million until the earlier of (i) our election to restore the amount available to $250 million following the fiscal quarter ending September 30, 2020 or (ii) our election to restore the amount available to $250 million by demonstrating two consecutive quarters of leverage ratio less than or equal to 4.00:1 beginning in November 2018 upon satisfactionthe third quarter of certain conditions, including adding certain subsidiaries2019. As of Klondex as borrowersSeptember 30, 2019, the maximum leverage ratio in effect under the credit facility was 6.50:1,and pledgingdrops to 6.00:1 for the assetsfourth quarter of those subsidiaries as additional collateral under the credit facility. 2019.

The credit facility is collateralized by the assets of or shares of common stock held in our material domestic subsidiaries, including those owning the Casa Berardi mine and our Nevada operations, and by our joint venture interests inholding 100% ownership of 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.  Below is information on the interest rates, standby fee, and financial covenant terms under our credit facility in place as of September 30, 2018:2019:

 

Interest rates:

          

Spread over the London Interbank Offered Rate

 2.25-3.25% 

Spread over the London Interbank Offer Rate

 2.25-4.00% 

Spread over alternative base rate

 1.25-2.25%  1.25-2.25% 

Standby fee per annum on undrawn amounts

  0.50%   0.50-1.00% 
     

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) (1)

 

not more than 4.50:1

 

Senior leverage ratio (debt secured by liens/EBITDA) (1)

 

not more than 2.50:1

 

Leverage ratio (total debt less unencumbered cash/EBITDA) (2)

 

not more than 6.50:1

 

Interest coverage ratio (EBITDA/interest expense)

 

not less than 3.00:1

  

not less than 3.00:1

 

 

(1)(1) EBITDA is calculated as defined in the credit agreement.

(2) The leverage ratio will change to 4.00:not more than: (i) 6.00:1 as of October 1, effective 2019; (ii) 5.50:1 as of January 1, 2020.

April 1, 2020; and (iv) 4.00:1 as of July 1, 2020.

 

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% of the amount of the letters of credit 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 $3.0$38.5 million in letters of credit outstanding as of September 30, 2018.2019.

 

We believe we were in compliance with all covenants under the credit agreement, and no amounts were outstanding as of September 30, 2018.  We drew $47.0had $50.0 million ondrawn under the facilityagreement, in July 2018 which we repaid in September 2018. Withaddition to the exception of the $3.0$38.5 million in letters of credit outstanding, we did not have a balance drawn on the revolving credit facility as of September 30, 2018.2019.

 

Debt Summary

As a result of September 30,2019,the acquisition of Klondex in July 2018 (see Note 14 for more information), we assumed Klondex's revolving credit facility balance outstanding of $35.0 million. We paid the $35.0 million balance, and the Klondex credit facility was terminated, in July 2018.annual future obligations related to our debt, including interest, were (in thousands):

Twelve-month period ending September 30,

 

Senior Notes

  

RQ Notes

  

Revolving Credit Facility

  

Total

 

2020 (interest and fees only)

 $34,822  $1,414  $219  $36,455 

2021 (principal and interest)

  526,813   31,028      557,841 

2022 (principal)

         50,000   50,000 

Total

  561,635   32,442   50,219   644,296 

Less: interest and fees

  (55,135

)

  (2,238

)

  (219

)

  (57,592

)

Principal

  506,500   30,204   50,000   586,704 

Less: unamortized discount

  (2,086

)

        (2,086

)

Long-term debt

 $504,414  $30,204  $50,000  $584,618 

 

CapitalFinance Leases

 

We have entered into various lease agreements, primarily for equipment at our Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations units, which we have determined to be capitalfinance leases.  At September 30, 2018,2019, the total liability balance associated with capitalfinance leases, including certain purchase option amounts, was $14.7$14.3 million, with $6.1$5.7 million of the liability classified as current and the remaining $8.6 million classified as non-current. At December 31, 2017,2018, the total liability balance associated with capitalfinance leases was $11.8$13.1 million, with $5.6$5.3 million of the liability classified as current and $6.2$7.9 million classified as non-current. The right-of-use assets for our finance leases are recorded in properties, plants, equipment and mineral interests, net, on our condensed consolidated balance sheets and totaled $21.4 million as of September 30,2019 and $20.0 million as of December 31,2018, net of accumulated depreciation. Expense during the firstnine months of 2019 related to finance leases included $5.1 million for amortization of the right-of-use assets and $0.6 million for interest expense. The total obligation for future minimum lease payments was $15.7$15.2 million at September 30, 2018,2019, with $1.0 million attributed to interest. The weighted-average remaining lease term for our finance leases as of September 30,2019 was approximately 1.9 years.

 

At September 30, 2018,2019, the annual maturities of capitalfinance lease commitments, including interest, arewere (in thousands):

 

Twelve-month period ending September 30,

       

2019

 $6,182 

2020

  4,727  $6,283 

2021

  3,543  5,125 

2022

  1,214  2,818 

2023

  9   1,017 

Total

  15,675  15,243 

Less: imputed interest

  (1,019

)

  (968

)

Net capital lease obligation

 $14,656 

Net finance lease obligation

 $14,275 

 

Operating Leases

We have entered into various lease agreements, primarily for equipment, buildings and other facilities, and land at our operating units and corporate offices, which we have determined to be operating leases.  Some of the operating leases allow for extension of the lease beyond the current term at our option. We have considered the likelihood and estimated duration of the extension options in determining the lease term for measurement of the liability and right-of-use asset. For our operating leases as of September 30,2019, we have assumed discount rates of between 5% and 6.5%. At September 30,2019, the total liability balance associated with the operating leases was $17.3 million, with $5.9 million of the liability classified as current and the remaining $11.5 million classified as non-current. The right-of-use assets for our operating leases are recorded as a non-current asset on our condensed consolidated balance sheets and totaled $17.3 million as of September 30,2019. Lease expense on operating leases during the firstnine months of 2019 totaled $5.7 million. The total obligation for future minimum operating lease payments, including assumed extensions beyond the current lease terms, was $17.4 million at September 30,2019. The weighted-average remaining lease term for our operating leases as of September 30,2019 was approximately 4.7 years.

 

At September 30,2019, the annual maturities of undiscounted operating lease payments, including assumed extensions beyond the current lease terms, were (in thousands):

Twelve-month period ending September 30,

    

2020

 $6,570 

2021

  3,629 

2022

  2,808 

2023

  2,250 

2024

  862 

More than 5 years

  1,274 

Total

  17,393 

Effect of discounting

  (63

)

Operating lease liability

 $17,330 

 

Note 11.10.    Developments in Accounting Pronouncements

 

Accounting Standards Updates Adopted

 

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. The new ASU establishes a new five step principles-based framework in an effort to significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. In August 2015, February 2016, the FASB issued ASU No. 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. ASU No. 2015-14 deferred the effective date of ASU No. 2014-09 until annual and interim reporting periods beginning after December 15, 2017. We adopted ASU No. 2014-09 as of January 1, 2018 using the modified-retrospective transition approach. The impact of adoption of the update to our consolidated financial statements for the nine months ended September 30, 2017 would have been a reclassification of $1.2 million in doré refining costs from sales of products to cost of sales and other direct production costs.

We performed an assessment of the impact of implementation of ASU No. 2014-09, and concluded it does 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.

Adoption of ASU No. 2014-09 involves additional disclosures, where applicable, concerning (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. See Note 7 for information on our sales of products.

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 adopted ASU No. 2016-01 as of January 1, 2018 using the modified-retrospective approach, with a cumulative-effect adjustment from accumulated other comprehensive loss to retained deficit on our balance sheet of $1.3 million, net of the income tax effect.

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 adopted this update as of January 1, 2018.

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 adopted this update as of January 1, 2018. Cash, cash equivalents, and restricted cash and cash equivalents on the condensed consolidated statement of cash flows includes restricted cash and cash equivalents of $1.0 million as of September 30, 2018 and December 31, 2017, $1.1 million as of September 30, 2017 and $2.2 million as of December 31, 2016, as well as amounts previously reported for cash and cash equivalents.

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 applied the applicable provisions of the update to our acquisition of Klondex in July 2018 (see Note 14), which was accounted for as a business acquisition, and will apply the applicable provisions of the update to any future acquisitions.

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.

Accounting Standards Updates to Become Effective in Future Periods

In February 2016, the FASB issued ASU No. 2016-0202 Leases (Topic 842)842). The update modifiesmodified the classification criteria and requires lessees to recognize the assets and liabilities on the balance sheet for most leases. The update iswas effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are currently reviewingadopted the guidance effective January 1, 2019, and recognized a liability and right-of-use asset of $22.4 million as of that date for our leases and compilingidentified operating leases. We elected the information requiredtransition option to implementapply the new guidance as of that effective date without adjusting comparative periods presented. In the adoption of ASU No.2016-02, we elected to not assess leases with terms less than twelve months in length. We also elected practical expedients which permitted us to forgo reassessing the following upon adoption: (i) whether any expired or existing contracts are or contain leases, (ii) the classification of leases as operating or capital under the previous accounting guidance, and (iii) treatment of initial indirect costs for any existing leases. In addition, we elected to not reassess whether land easements represent leases, as we did not treat them as leases under the previous guidance. See Note 109 for 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.leases.

 

In August 2017, the FASB issued ASU No. 2017-122017-12 Derivatives and Hedging (Topic 815)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 iswas 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 impactAdoption of implementing this update as of January 1, 2019 did not have a material impact on our consolidated financial statements.

 

In February 2018, the FASB issued ASU No.2018-02 Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in the update allow a reclassification from other comprehensive income to retained earnings for "stranded" tax effects resulting from the reduction in the historical corporate tax rate under the Tax Cuts and Jobs Act enacted in December 2017. The update was effective for fiscal years beginning after December 15, 2018. We elected to not reclassify stranded tax effects, and adoption of this update as of January 1, 2019 did not have a material impact on our consolidated financial statements.

 

In June 2018, the FASB issued ASU No.2018-07 Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The update involves simplification of several aspects of accounting for nonemployee share-based payment transactions by expanding the scope of Topic 718 to include nonemployee awards. The update was effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. Adoption of this update as of January 1, 2019 did not have a material impact on our consolidated financial statements.

Accounting Standards Updates to Become Effective in Future Periods

In August 2018, the FASB issued ASU No.2018-13 Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The update removes, modifies and makes additions to certain disclosure requirements with respect to fair value measurements. The update is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. We are evaluating the impact of this update on our fair value measurement disclosures.

In August 2018, the FASB issued ASU No.2018-14 Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. The update removes several disclosure requirements, adds two new disclosure requirements, and clarifies other disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The update is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We are evaluating the impact of this update on our disclosures involving our defined benefit pension plans.

 

Note 12.11.    Derivative Instruments

 

Foreign Currency

 

Our wholly-owned subsidiaries owning the Casa Berardi and San Sebastian mines are U.S. dollar ("USD")-functionalUSD-functional entities which routinely incur expenses denominated in Canadian dollars ("CAD")CAD and Mexican pesos ("MXN"), respectively, 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 similar program with respect 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 buy CAD and MXN, and each contract is designated as a cash flow hedge. As of September 30, 2018,2019, we had 94135 forward contracts outstanding to buy a total of CAD$225.1300.7 million having a notional amount of US$174.0231.5 million, and 3010 forward contracts outstanding to buy a total of MXN$178.537.3 million having a notional amount of USD$8.81.8 million. The CAD contracts are related to forecasted cash operating costs at Casa Berardi to be incurred from 20182019 through 20222023 and have USD-to-CADCAD-to-USD exchange rates ranging between 1.27291.2702 and 1.3315.1.3332. The MXN contracts are related to forecasted cash operating costs at San Sebastian to be incurred from 20182019 through 2020 and have MXN-to-USD exchange rates ranging between 19.440020.4100 and 20.8550. Our risk management policy provides that up to 75% of our planned cost exposure for five years into the future may be hedged under such programs, and for potential additional programs to manage other foreign currency-related exposure areas.

 

As of September 30, 2018,2019, we recorded the following balances for the fair value of the contracts:

 

 

a current asset of $1.1$0.1 million, which is included in other current assets;

a non-current asset of $0.7 million, which is included in other non-current assets; and

 

a current liability of $0.1$1.4 million, which is included in other current liabilities; and

a non-current liability of $2.9 million, which is included in other non-current liabilities.

 

Net unrealized gainslosses of approximately $1.5$4.3 million related to the effective portion of the hedges were included in accumulated other comprehensive loss as of September 30, 2018.2019. 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 $0.8$1.3 million in net unrealized gainslosses included in accumulated other comprehensive loss as of September 30, 20182019 would be reclassified to current earnings in the next twelve months. Net realized gainslosses of approximately $0.2$1.2 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 for the nine months ended September 30, 2018. Net2019. NaN net unrealized gains of approximately $19 thousandor losses related to ineffectiveness of the hedges were included in gain (loss) on derivatives contracts on our consolidated statements of operations and comprehensive income (loss)current earnings for the nine months ended September 30, 2018.2019.

 

Metals Prices

 

AtWe may 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 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.market prices. 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 hedgedcovered under such programs.programs that would establish a ceiling for prices to be realized on future metals sales. These instruments do, however, expose us to (i) credit risk in the form 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 Greens Creek concentrate shipments between the time of shipment and final settlement. In addition, at times we 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 Greens Creek concentrate shipments. The following tables summarize the quantities of metals committed under forward sales contracts at September 30,2019 and December 31,2018:

September 30, 2019

 

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

                                

2019 settlements

  828   3   16,204   2,921  $18.66  $1,537  $1.09  $0.90 

Contracts on forecasted sales

                                

2019 settlements

           4,409   N/A   N/A   N/A  $0.95 

2020 settlements

           4,960   N/A   N/A   N/A  $0.96 

December 31, 2018

 

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

                                

2019 settlements

  842   4   18,450   2,700  $14.69  $1,260  $1.15  $0.89 

In June 2019, we began using financially-settled put option contracts to manage the exposure of our forecasted future gold and silver sales to potential declines in market prices for those metals. These put contracts give as the option, but not the obligation, to sell quantities of silver and gold in the future at established prices. The following table summarizes the quantities of metals for which we have entered into put contracts and the average exercise prices as of September 30,2019:

September 30, 2019

 

Ounces under contract (in 000's)

  

Average price per ounce

 
  

Silver

  

Gold

  

Silver

  

Gold

 
  

(ounces)

  

(ounces)

  

(ounces)

  

(ounces)

 

Contracts on forecasted sales

                

2019 settlements

  2,493   89  $15.08  $1,400 

2020 settlements

  2,634   51  $15.00  $1,400 

In October 2019, we entered into additional put contracts which establish the minimum prices at which we can sell silver and gold relating to forecasted production for a portion of 2020 at $16.00 and $1,450, respectively, per ounce.  These contracts have total premiums of approximately $3.2 million to be paid upon maturity.

These forward and put option contracts are not designated as hedges and are marked-to-market through earnings each period.

 

As of September 30, 2018, weWe recorded the following balances as of September 30,2019 for the fair value of the contracts:forward and put option contracts held at that time:

 

 

a current asset of $0.3$1.1 million, which is included in other current assets;assets and is net of $0.7 million for contracts in a fair value liability position; and

 

a current liability of $0.6$7.1 million, which is included in other current liabilities and is net of $0.2$0.4 million for contracts in a fair value current asset position.

 

We recognized an $8.3a $0.1 million net gainloss during the firstnine months of 20182019 on the contracts utilized to manage exposure to prices of metals in our concentrate shipments,that have been sold, which is included in sales of products.  The net gainloss recognized on the contracts offsets lossesgains 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.

 

We recognized a $40.3$2.7 million net gain during the firstnine months of 20182019 on the contracts utilized to manage exposure to prices for forecasted future concentrate shipments.sales. The net gain on these contracts is included as a separate line item under other income (expense), as they relate to forecasted future shipments,sales, as opposed to sales that have already taken place but are subject to final pricing as discussed in the preceding paragraph.  The net gain for the firstnine months of 20182019 is the result of decreasing zinc and lead prices, partially offset by increasing gold and silver prices. During the third quarter quarters of 2019 and 2018, we settled, prior to their maturity date, forward contracts in a gain position for cash proceeds to us of approximately $6.7 million and $32.8 million. As a result, there were no metals committed under contracts on forecasted sales as of September 30, 2018. This program,million, respectively. These programs, when utilized isand the contracts are not settled prior to their maturity dates, are designed to mitigate the impact of potential future declines in silver, gold, lead and zinc prices from the price levels established in the contracts (see average price information below)above). When those prices increase compared to the contracts, we incur losses on the contracts.

The following tables summarize the quantities of metals committed under forward sales contracts at September 30, 2018 and December 31, 2017:

September 30, 2018

 

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

  1,221   6   10,362   4,685  $14.56  $1,211  $1.17  $0.94 

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 

 

Credit-risk-related Contingent Features

 

Certain of our derivative contracts contain cross default provisions which provide that a default under our revolving credit agreement would cause a default under the derivative contract. As of September 30, 2018,2019, we have not posted any collateral related to these contracts. The fair value of derivatives in a net liability position related to these agreements was $12.4 million as of September 30,2019,which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $1.0 million as of September 30, 2018.risk. If we were in breach of any of these provisions at September 30, 2018,2019, we could have been required to settle our obligations under the agreements at their termination value of $1.0$12.4 million.

 

 

 

Note 13.12.    Fair Value Measurement

Accounting guidance has established a hierarchy for inputs used to measure assets and liabilities 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; and

Level 3: significant unobservable inputs.

 

The table below sets forth our assets and liabilities 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 (in thousands).

 

Description

 

Balance at

September 30, 2018

  

Balance at

December 31, 2017

 

Input

Hierarchy Level

 

Balance at

September 30, 2019

  

Balance at

December 31, 2018

 

Input

Hierarchy Level

Assets:

               

Cash and cash equivalents:

               

Money market funds and other bank deposits

 $60,856  $186,107 

Level 1

 $32,995  $27,389 

Level 1

Available for sale securities:

               

Debt securities - municipal and corporate bonds

     33,758 

Level 2

Equity securities – mining industry

  7,190   7,561 

Level 1

 7,349  6,583 

Level 1

Trade accounts receivable:

               

Receivables from provisional concentrate sales

  12,947   14,805 

Level 2

 6,222  4,184 

Level 2

Restricted cash balances:

               

Certificates of deposit and other bank deposits

  1,010   1,032 

Level 1

Certificates of deposit and other deposits

 1,025  1,025 

Level 1

Derivative contracts:

               

Foreign exchange contracts

  1,760   4,943 

Level 2

 143  23 

Level 2

Metal forward contracts

  282    

Level 2

Metal forward and put option contracts

  1,092   209 

Level 2

Total assets

 $84,045  $248,206   $48,826  $39,413  
               

Liabilities:

               

Derivative contracts:

               

Foreign exchange contracts

 $136  $ 

Level 2

 $4,240  $8,595 

Level 2

Metal forward contracts

  604   15,531 

Level 2

Metal forward and put option contracts

  7,081   373 

Level 2

Total liabilities

 $740  $15,531   $11,321  $8,968  

 

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.

 

Trade accounts receivable include amounts due to us for shipments of concentrates, doré and metals sold from doré 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 ship loading, or at the time of customer arrival for trucked products).  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 metals 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.

 

 

We use financially-settled forward contracts to manage exposure to changes in the exchange rate between the USD and CAD and MXN, and the impact on CAD- and MXN-denominated operating costs incurred at our Casa Berardi and San Sebastian units (see Note 1211 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 and put option contracts to manage the exposure to changes in prices of silver, gold, zinc and lead contained in our forecasted future concentrate shipmentssales (see Note 1211 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 forward 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. The fair value of each put option contract is measured using the Black-Scholes pricing model, with inputs for the period-end metal price and assumed metal price volatility and discount rate.

 

Our Senior Notes, which were recorded at their carrying value, of $503.2 million, net of unamortized initial purchaser discount, of $504.4 million at September 30, 2018 of $3.3 million,2019, had a fair value of $511.4$503.6 million at September 30, 2018.2019. Quoted market prices, which we consider to be Level 1 inputs, are utilized to estimate fair values of the Senior Notes. See Note 109 for more information.

 

Note 14.13. Acquisition of Klondex Mines Ltd.

 

On July 20, 2018, we acquired all of the issued and outstanding common shares of Klondex Mines Ltd. ("Klondex") for consideration valued at $2.24$2.27 per Klondex share (the "Arrangement"). The acquisition resulted in our 100% ownership of three producing land packages in northern Nevada totaling approximately 110 square miles and containing operating or previously-operating mines with a history of high-grade gold mines,production, along with interests in various other gold exploration properties, in northern Nevada. Theproperties. We believe the acquisition is expectedhas the potential to increase our annual gold production, gives us ownership of operating gold mines and identified gold reserves and other mineralized material, and provides access to a large land package with known mineralization.production. Under the terms of the Arrangement, each holder of Klondex common shares had the option to receive either (i) $2.47 in cash per Klondex share (the “Cash Alternative”), (ii) 0.6272 of a Hecla share per Klondex share (the “Share Alternative”), or (iii) US$0.8411 in cash and 0.4136 of a Hecla share per Klondex share (the “Combined Alternative”), subject in the case of the Cash Alternative and the Share Alternative to pro-ration based on a maximum cash consideration of $153.2 million and a maximum number of Hecla shares issued of 75,276,176. Klondex shareholders also received shares of a newly formed company which holds the Canadian assets previously owned by Klondex (Havilah Mining Corporation (“Havilah”("Havilah")). Klondex had 180,499,319 issued and outstanding common shares prior to consummation of the Arrangement. An additional 1,549,626 Klondex common shares were issued immediately prior to consummation of the Arrangement related to conversion of in-the-money Klondex options and certain outstanding restricted share units, resulting in a total of 182,048,945 issued and outstanding Klondex common shares at the time of consummation of the Arrangement. In connection with the Arrangement, we also issued an aggregate of 4,136,000 warrants to purchase one1 share of our common stock (“Hecla Warrants”) to holders of warrants to purchase Klondex common shares. Of the Hecla Warrants, 2,068,000 have an exercise price of $8.02 and expire in April 2032, and 2,068,000 have an exercise price of $1.57 and expire in February 2029. In addition, we settled share-based payment awards held by Klondex directors and employees for cash of $2.0 million. Consideration for the Arrangement was cash of $161.7 million, 75,276,176 shares of our common stock valued at $242.4 million, and issuance of the Hecla Warrants valued at $10.2$9.8 million, for total consideration of $414.2$413.9 million. The Hecla Warrants were valued using the Black-Scholes model and based on the exercise price and term of the warrants, the price of our common stock at the time of issuance of the warrants, and assumptions for the discount rate and volatility and dividend rate of our common stock. The cash consideration includes $7.0 million for our subscription for common shares of Havilah and $1.5 million for settlement of certain equity compensation instruments.

 

 

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 payments

 $161,704  $161,704 

Hecla stock issued (75,276,176 shares at $3.22 per share)

  242,389  242,389 

Hecla warrants issued

  10,155   9,830 

Total consideration

 $414,248  $413,923 
     

Fair value of net assets acquired:

        

Assets:

       

Cash

 $12,874  $12,874 

Accounts receivable

  3,453  3,453 

Inventory - supplies

  6,564  6,565 

Inventory - finished goods, in-process material and stockpiled ore

  10,302  10,075 

Other current assets

  2,583  2,583 

Properties, plants, equipment and mineral interests

  502,285  510,015 

Non-current investments

  1,596  1,596 

Non-current restricted cash and investments

  9,504   9,504 

Total assets

  549,161   556,665 

Liabilities:

       

Accounts payable and accrued liabilities

  17,270  17,799 

Accrued payroll and related benefits

  10,352  8,245 

Accrued taxes

  421  421 

Lease liability

  2,080  2,080 

Debt

  35,086  35,086 

Asset retirement obligation

  19,571  19,571 

Deferred tax liability

  50,133   59,540 

Total liabilities

  134,913   142,742 

Net assets

 $414,248  $413,923 

 

We do not believe there are any specific elements of theThe allocation of purchase price above that are subjectwas finalized in the second quarter of 2019, with adjustments made to change. However, the overallpreviously-reported preliminary allocation is preliminaryto decrease the property, plants, equipment and is subject to change.mineral interests, accrued payroll and related benefits, and deferred tax liability balances by $2.8 million, $2.1 million and $0.7 million, respectively.

 

Our results forIn the nine months ended September 30, 2018 include salessecond quarter of products of $11.5 million and2019, we conducted a net loss of $10.1 million since the acquisition date related to the operations acquired through the Arrangement.

The unaudited pro forma financial information below represents the combined resultsreview of our Nevada operations which resulted in (i) a plan to curtail development and limit near-term mining at Fire Creek to areas where development has already been completed and (ii) suspension of production at Hollister and development of the Hatter Graben project at Hollister, resulting in lower anticipated near-term production and capitalized development costs.  We determined this review and the resulting plans represented a triggering event requiring an assessment of recoverability of the carrying value of our long-lived assets ("carrying value assessment") in Nevada.  In our carrying value assessment, our estimate of undiscounted future cash flows exceeded the carrying value of the Nevada assets, and we concluded impairment was not indicated, as ifof June 30, 2019.  Estimates of undiscounted future cash flows are dependent upon, among other factors, estimates of: (i) metals to be extracted and recovered from proven and probable ore reserves and identified mineralization beyond proven and probable reserves, (ii) future operating and capital costs, and (iii) future metals prices. The carrying value assessment assumed a slow-down and deferral of near-term production over a period of twelve months as we continue to address operational challenges and assess the acquisition had occurredappropriate next steps.  In the assessment, resumption of previously-anticipated production levels is assumed to take place in the first part of 2021; however, this will be contingent upon the resolution of operational issues, including, but not limited to: (i) ore grade control, (ii) mill recoveries and reconciliation, (iii) the potential availability of third-party processing of ore produced at the beginningFire Creek mine, and (iv) availability of sufficient resources (including funding) to resume and complete necessary development work and drilling on a timely basis (collectively 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."Operational Issues").

 

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 

(in thousands, except per share amounts)

 

2018

  

2017

  

2018

  

2017

 

Sales

 $156,731  $182,489  $543,741  $573,950 

Net (loss) income

  (20,735

)

  (8,877

)

  4,694   2,523 

(Loss) income applicable to common shareholders

  (20,873

)

  (9,015

)

  4,280   (2,937

)

Basic and diluted (loss) income per common share

  (0.04

)

  (0.02

)

  0.01   (0.01

)

Our estimates of undiscounted future cash flows for our Nevada assets are most sensitive to (i) changes in metal prices and (ii) the timely resumption of previously-anticipated production levels. Our carrying value assessment assumed a weighted-average gold price of approximately $1,345 per ounce.  A sensitivity analysis was performed, and decreasing the weighted-average gold price assumption to below approximately $1,280 per ounce, with all other variables held constant, would have resulted in estimated undiscounted future cash flows that were less than the carrying value of the Nevada assets as of June 30, 2019.  In the third quarter of 2019, we continued to pursue third-party ore processing arrangements with the potential to reduce transportation and milling costs.  Additionally, we have commenced studies of the assets in order to determine how to mine them with lower costs.  There were no significant events or changes in circumstances during the third quarter of 2019 representing a triggering event requiring a carrying value assessment in Nevada.  However, if events or changes occur in the future that adversely affect our estimate of undiscounted future cash flows from our Nevada assets, including (i) an increase in expected costs, (ii) a sustained decline in gold prices, or (iii) suspension of production and placement of our Nevada operations on care-and-maintenance due to the inability to resolve the Operational Issues identified above in a timely manner, or other factors, we may be required to again perform the carrying value assessment for our Nevada assets.  If a future assessment indicates the carrying value of the assets exceeds the estimated undiscounted future cash flows, an impairment loss, which could be material, would be recognized for the difference between the carrying value and fair value of the assets. The estimate of potential impairment involves significant judgment and assumptions, and no assurance can be given as to whether we will recognize an impairment in the future or the amount of a potential impairment.  The carrying value of our properties, plants, equipment and mineral interests in Nevada as of September 30,2019 was $524.8 million, consisting of the following (in millions):

Value beyond proven and probable reserves

 $382.2 

Mineral properties and development

  57.7 

Mills and tailings facilities

  46.4 

Buildings and equipment

  33.0 

Land

  2.9 

Asset retirement obligation asset

  2.6 

Total

 $524.8 

 

The pro forma financial information includes adjustmentsSee Part II, Item 1A - Risk Factors in our quarterly report on Form 10-Q for the period ended June 30, 2019 for a discussion of certain risks relating to eliminate amounts related toour recent and ongoing analysis of the Canadian assets previously owned by Klondex, which were transferred to Havilah and not acquired by us, and costs related tocarrying value of the acquisition.Nevada assets.

 

 

Note 15.14.    Guarantor Subsidiaries

 

Presented below are Hecla’s unaudited interim 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 and the RQ Notes (see Note 109 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, Inc.; Montanore Minerals Corp.; Hecla Alaska LLC; Hecla Greens Creek Mining Company; Hecla Admiralty Company; and Hecla Juneau Mining Company. By November 30, 2018, we expect to add as Guarantors our new domesticCompany; Klondex subsidiaries.Holdings Inc.; Klondex Gold & Silver Mining Co.; Klondex Midas Holdings Limited; Klondex Aurora Mine Inc.; Klondex Hollister Mine Inc.; and Hecla Quebec, Inc. 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. We issued the RQ Notes in on March 5, 2018.

 

The unaudited interim condensed consolidating financial statements below have been prepared from our financial information on the same basis of accounting as the unaudited interim condensed 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 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 that is sufficient to meet their capital needs, and their cash requirements are routinely met with inter-company advances from their parent companies. On at leastGenerally 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. In consolidation, investments in subsidiaries and related additional paid-in capital are eliminated.

 

 

Debt. Inter-companyAt times, 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 expenseamounts (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, 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 afor two consolidated basis fortax groups of subsidiaries within the United States, withStates: the Nevada U.S. Group and Hecla U.S. group. Within each tax group, all subsidiaries' estimated future taxable income contributingcontributes to the ability of their tax group 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 unaudited interim financial statements set forth below. The separate return method can result in significant eliminations of deferred tax assets withand liabilities and related income tax provisions and benefits. Non-current deferred tax asset balances are included in other non-current assets on the resulting adjustment reported in the eliminations columnconsolidating balance sheets and make up a large portion of that item, particularly for the guarantor and parent's financial statements, as is the case in the unaudited interim 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.

 

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.

 

Unaudited Interim Condensed Consolidating Balance Sheets

  

As of September 30, 2019

 
  

Parent

  

Guarantors

  

Non-Guarantors

  

Eliminations

  

Consolidated

 
  

(in thousands)

 

Assets

                    

Cash and cash equivalents

 $18,983  $9,608  $4,404  $  $32,995 

Other current assets

  7,031   113,542   25,430   (72

)

  145,931 

Properties, plants, equipment and mineral interests - net

  1,913   2,438,137   15,461      2,455,511 

Intercompany receivable (payable)

  143,248   (709,012

)

  149,616   416,148    

Investments in subsidiaries

  1,499,318         (1,499,318

)

   

Other non-current assets

  284,380   25,380   (120,645

)

  (150,374

)

  38,741 

Total assets

 $1,954,873  $1,877,655  $74,266  $(1,233,616

)

 $2,673,178 

Liabilities and Stockholders' Equity

                    

Current liabilities

 $(298,754

)

 $165,564  $10,704  $268,329  $145,843 

Long-term debt

  584,618   19,159   876      604,653 

Non-current portion of accrued reclamation

     95,674   8,147      103,821 

Non-current deferred tax liability

     146,069      (2,627

)

  143,442 

Other non-current liabilities

  52,365   5,393   1,017      58,775 

Shareholders' equity

  1,616,644   1,445,796   53,522   (1,499,318

)

  1,616,644 

Total liabilities and stockholders' equity

 $1,954,873  $1,877,655  $74,266  $(1,233,616

)

 $2,673,178 

  

As of December 31, 2018

 
  

Parent

  

Guarantors

  

Non-Guarantors

  

Eliminations

  

Consolidated

 
     Revised  Revised       
  

(in thousands)

 

Assets

       ��            

Cash and cash equivalents

 $6,266  $17,233  $3,890  $  $27,389 

Other current assets

  6,388   105,900   24,542   (69

)

  136,761 

Properties, plants, equipment and mineral interests, net

  1,913   2,503,467   14,624      2,520,004 

Intercompany receivable (payable)

  171,908   (546,374

)

  152,031   222,435    

Investments in subsidiaries

  1,577,869         (1,577,869

)

   

Other non-current assets

  276,641   10,906   (124,845

)

  (142,912

)

  19,790 

Total assets

 $2,040,985  $2,091,132  $70,242  $(1,498,415

)

 $2,703,944 

Liabilities and Stockholders' Equity

                    

Current liabilities

 $(233,824

)

 $157,640  $7,145  $205,233  $136,194 

Long-term debt

  532,799   143,858   1   (135,988

)

  540,670 

Non-current portion of accrued reclamation

     100,445   4,534      104,979 

Non-current deferred tax liability

     163,328      10,209   173,537 

Other non-current liabilities

  51,047   5,641   913      57,601 

Stockholders' equity

  1,690,963   1,520,220   57,649   (1,577,869

)

  1,690,963 

Total liabilities and stockholders' equity

 $2,040,985  $2,091,132  $70,242  $(1,498,415

)

 $2,703,944 

Unaudited Interim Condensed Consolidating Statements of Operations

  

Three Months Ended September 30, 2019

 
  

Parent

  

Guarantors

  

Non-Guarantors

  

Eliminations

  

Consolidated

 
  

(in thousands)

 

Revenues

 $1,049  $144,999  $15,484  $  $161,532 

Cost of sales

  (472

)

  (85,829

)

  (9,577

)

     (95,878

)

Depreciation, depletion, amortization

     (47,448

)

  (3,326

)

     (50,774

)

General and administrative

  (2,951

)

  (4,722

)

  (305

)

     (7,978

)

Exploration and pre-development

  (3

)

  (4,315

)

  (1,371

)

     (5,689

)

Research and development

     37   (90

)

     (53

)

Loss on derivative contracts

  (4,718

)

           (4,718

)

Foreign exchange gain (loss)

  (3,201

)

  5,129   (1,155

)

     773 

Lucky Friday suspension-related costs

     (3,722

)

        (3,722

)

Acquisition costs

  (100

)

  (83

)

        (183

)

Equity in earnings of subsidiaries

  (6,761

)

        6,761    

Other (expense) income

  (2,359

)

  (9,930

)

  1,606   (3,757

)

  (14,440

)

Income (loss) before income taxes

  (19,516

)

  (5,884

)

  1,266   3,004   (21,130

)

(Provision) benefit from income taxes

     (625

)

  (1,518

)

  3,757   1,614 

Net income (loss)

  (19,516

)

  (6,509

)

  (252

)

  6,761   (19,516

)

Preferred stock dividends

  (138

)

           (138

)

Income (loss) applicable to common shareholders

  (19,654

)

  (6,509

)

  (252

)

  6,761   (19,654

)

Net income (loss)

  (19,516

)

  (6,509

)

  (252

)

  6,761   (19,516

)

Changes in comprehensive income (loss)

  (3,288

)

           (3,288

)

Comprehensive income (loss)

 $(22,804

)

 $(6,509

)

 $(252

)

 $6,761  $(22,804

)

 

Condensed Consolidating Balance Sheets

  

Nine Months Ended September 30, 2019

 
  

Parent

  

Guarantors

  

Non-Guarantors

  

Eliminations

  

Consolidated

 
  

(in thousands)

 

Revenues

 $(136

)

 $409,339  $39,118  $  $448,321 

Cost of sales

  (1,190

)

  (280,397

)

  (29,615

)

     (311,202

)

Depreciation, depletion, amortization

     (132,104

)

  (6,934

)

     (139,038

)

General and administrative

  (12,110

)

  (13,571

)

  (1,174

)

     (26,855

)

Exploration and pre-development

  (22

)

  (10,645

)

  (5,424

)

     (16,091

)

Research and development

     (521

)

  (93

)

     (614

)

Loss on derivative contracts

  (2,719

)

           (2,719

)

Foreign exchange gain (loss)

  7,820   (14,636

)

  75      (6,741

)

Lucky Friday suspension-related costs

     (8,766

)

        (8,766

)

Acquisition costs

  (221

)

  (219

)

  (153

)

     (593

)

Equity in earnings of subsidiaries

  (77,563

)

        77,563    

Other (expense) income

  (5,438

)

  (31,573

)

  2,308   (12,589

)

  (47,292

)

Income (loss) before income taxes

  (91,579

)

  (83,093

)

  (1,892

)

  64,974   (111,590

)

(Provision) benefit from income taxes

  (2

)

  6,864   558   12,589   20,009 

Net income (loss)

  (91,581

)

  (76,229

)

  (1,334

)

  77,563   (91,581

)

Preferred stock dividends

  (414

)

           (414

)

Income (loss) applicable to common shareholders

  (91,995

)

  (76,229

)

  (1,334

)

  77,563   (91,995

)

Net income (loss)

  (91,581

)

  (76,229

)

  (1,334

)

  77,563   (91,581

)

Changes in comprehensive income (loss)

  4,511            4,511 

Comprehensive income (loss)

 $(87,070

)

 $(76,229

)

 $(1,334

)

 $77,563  $(87,070

)

 

  

As of September 30, 2018

 
  

Parent

  

Guarantors

  

Non-Guarantors

  

Eliminations

  

Consolidated

 
  

(in thousands)

 

Assets

                    

Cash and cash equivalents

 $28,081  $6,198  $26,577  $  $60,856 

Other current assets

  15,219   42,515   79,807   (68

)

  137,473 

Properties, plants, and equipment - net

  1,920   1,246,274   1,239,235      2,487,429 

Intercompany receivable (payable)

  256,831   (222,897

)

  (138,477

)

  104,543    

Investments in subsidiaries

  1,767,234         (1,767,234

)

   

Other non-current assets

  149,034   4,390   11,670   (140,594

)

  24,500 

Total assets

 $2,218,319  $1,076,480  $1,218,812  $(1,803,353

)

 $2,710,258 

Liabilities and Stockholders' Equity

                    

Current liabilities

 $(79,535

)

 $77,328  $55,389  $79,274  $132,456 

Long-term debt

  534,067   4,911   137,938   (134,211

)

  542,705 

Non-current portion of accrued reclamation

     67,145   32,169      99,314 

Non-current deferred tax liability

     16,497   159,613   (11,182

)

  164,928 

Other non-current liabilities

  41,718   5,784   1,284      48,786 

Shareholders' equity

  1,722,069   904,815   862,419   (1,767,234

)

  1,722,069 

Total liabilities and stockholders' equity

 $2,218,319  $1,076,480  $1,248,812  $(1,833,353

)

 $2,710,258 

  

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   40,541   (575

)

  135,129 

Properties, plants, and equipment - net

  1,946   1,244,161   753,204      1,999,311 

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  $513,059  $(1,133,660

)

 $2,345,158 

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   124,352   (10,120

)

  124,352 

Other non-current liabilities

  53,588   5,185   838      59,611 

Stockholders' equity

  1,483,882   1,000,913   334,507   (1,358,025

)

  1,461,277 

Total liabilities and stockholders' equity

 $1,813,123  $1,152,636  $513,059  $(1,133,660

)

 $2,345,158 

 

Condensed Consolidating Statements of Operations

  

Three Months Ended September 30, 2018

 
  

Parent

  

Guarantors

  

Non-Guarantors

  

Eliminations

  

Consolidated

 
      

Revised

  

Revised

         
  

(in thousands)

 

Revenues

 $5,020  $124,497  $14,132  $  $143,649 

Cost of sales

  (157

)

  (80,876

)

  (12,576

)

     (93,609

)

Depreciation, depletion, amortization

     (41,669

)

  (1,795

)

     (43,464

)

General and administrative

  (4,802

)

  (5,082

)

  (443

)

     (10,327

)

Exploration and pre-development

  (1

)

  (11,227

)

  (2,378

)

     (13,606

)

Research and development

     (732

)

  (537

)

     (1,269

)

Gain on derivative contracts

  19,460            19,460 

Foreign exchange gain (loss)

  4,640   (7,629

)

  777      (2,212

)

Lucky Friday suspension costs

     (6,519

)

        (6,519

)

Acquisition costs

  (5,741

)

  (386

)

  (12

)

     (6,139

)

Equity in earnings of subsidiaries

  (54,618

)

        54,618    

Other expense

  13,016   (4,756

)

  (262

)

  (19,825

)

  (11,827

)

Income (loss) before income taxes

  (23,183

)

  (34,379

)

  (3,094

)

  34,793   (25,863

)

(Provision) benefit from income taxes

  (1

)

  (17,530

)

  385   19,825   2,679 

Net income (loss)

  (23,184

)

  (51,909

)

  (2,709

)

  54,618   (23,184

)

Preferred stock dividends

  (138

)

           (138

)

Income (loss) applicable to common shareholders

  (23,322

)

  (51,909

)

  (2,709

)

  54,618   (23,322

)

Net income (loss)

  (23,184

)

  (51,909

)

  (2,709

)

  54,618   (23,184

)

Changes in comprehensive income (loss)

  3,746            3,746 

Comprehensive income (loss)

 $(19,438

)

 $(51,909

)

 $(2,709

)

 $54,618  $(19,438

)

 

  

Three Months Ended September 30, 2018

 
  

Parent

  

Guarantors

  

Non-Guarantors

  

Eliminations

  

Consolidated

 
  

(in thousands)

 

Revenues

 $5,020  $60,155  $78,474  $  $143,649 

Cost of sales

  (157

)

  (39,733

)

  (53,719

)

     (93,609

)

Depreciation, depletion, amortization

     (12,427

)

  (31,037

)

     (43,464

)

General and administrative

  (4,802

)

  (4,866

)

  (659

)

     (10,327

)

Exploration and pre-development

  (1

)

  (4,056

)

  (9,549

)

     (13,606

)

Research and development

     (444

)

  (825

)

     (1,269

)

Loss on derivative contracts

  19,460            19,460 

Foreign exchange gain (loss)

  4,640   74   (6,926

)

     (2,212

)

Lucky Friday suspension-related costs

     (5,388

)

  (1,131

)

     (6,519

)

Acquisition costs

  (5,741

)

  (245

)

  (153

)

     (6,139

)

Equity in earnings of subsidiaries

  (54,618

)

        54,618    

Other (expense) income

  13,016   881   (5,900

)

  (19,824

)

  (11,827

)

Income (loss) before income taxes

  (23,183

)

  (6,049

)

  (31,425

)

  34,794   (25,863

)

(Provision) benefit from income taxes

  (1

)

  (18,552

)

  1,408   19,824   2,679 

Net income (loss)

  (23,184

)

  (24,601

)

  (30,017

)

  54,618   (23,184

)

Preferred stock dividends

  (138

)

           (138

)

Income (loss) applicable to common shareholders

  (23,322

)

  (24,601

)

  (30,017

)

  54,618   (23,322

)

Net income (loss)

  (23,184

)

  (24,601

)

  (30,017

)

  54,618   (23,184

)

Changes in comprehensive income (loss)

  3,746      3   (3)  3,746 

Comprehensive income (loss)

 $(19,438

)

 $(24,601

)

 $(30,014

)

 $54,615  $(19,438

)

 

  

Nine Months Ended September 30, 2018

 
  

Parent

  

Guarantors

  

Non-Guarantors

  

Eliminations

  

Consolidated

 
  

(in thousands)

 

Revenues

 $8,332  $205,563  $216,722  $  $430,617 

Cost of sales

  245   (111,923

)

  (135,240

)

     (246,918

)

Depreciation, depletion, amortization

     (35,683

)

  (67,652

)

     (103,335

)

General and administrative

  (13,250

)

  (12,916

)

  (1,683

)

     (27,849

)

Exploration and pre-development

  (128

)

  (9,059

)

  (22,037

)

     (31,224

)

Research and development

     (2,505

)

  (2,537

)

     (5,042

)

Loss on derivative contracts

  40,271            40,271 

Foreign exchange gain (loss)

  (9,795

)

     12,651      2,856 

Lucky Friday suspension-related costs

     (17,206

)

  (1,131

)

     (18,337

)

Acquisition costs

  (9,041

)

  (313

)

  (302

)

     (9,656

)

Equity in earnings of subsidiaries

  (31,105

)

        31,105    

Other (expense) income

  11,602   (2,512

)

  (15,801

)

  (29,026

)

  (35,737

)

Income (loss) before income taxes

  (2,869

)

  13,446   (17,010

)

  2,079   (4,354

)

(Provision) benefit from income taxes

  (1

)

  (27,755

)

  214   29,026   1,484 

Net income (loss)

  (2,870

)

  (14,309

)

  (16,796

)

  31,105   (2,870

)

Preferred stock dividends

  (414

)

           (414

)

Income (loss) applicable to common shareholders

  (3,284

)

  (14,309

)

  (16,796

)

  31,105   (3,284

)

Net income (loss)

  (2,870

)

  (14,309

)

  (16,796

)

  31,105   (2,870

)

Changes in comprehensive income (loss)

  (3,520

)

     41   (41

)

  (3,520

)

Comprehensive income (loss)

 $(6,390

)

 $(14,309

)

 $(16,755

)

 $31,064  $(6,390

)

  

Nine Months Ended September 30, 2018

 
  

Parent

  

Guarantors

  

Non-Guarantors

  

Eliminations

  

Consolidated

 
      

Revised

  

Revised

         
  

(in thousands)

 

Revenues

 $8,332  $381,556  $40,729  $  $430,617 

Cost of sales

  245   (219,497

)

  (27,666

)

     (246,918

)

Depreciation, depletion, amortization

     (99,749

)

  (3,586

)

     (103,335

)

General and administrative

  (13,250

)

  (13,247

)

  (1,352

)

     (27,849

)

Exploration and pre-development

  (128

)

  (22,571

)

  (8,525

)

     (31,224

)

Research and development

     (3,702

)

  (1,340

)

     (5,042

)

Gain/(loss) on derivative contracts

  40,271            40,271 

Foreign exchange gain (loss)

  (9,795

)

  12,230   421      2,856 

Lucky Friday suspension costs

     (18,337

)

        (18,337

)

Acquisition costs

  (9,041

)

  (454

)

  (161

)

     (9,656

)

Equity in earnings of subsidiaries

  (31,105

)

        31,105    

Other (expense) income

  11,602   (19,034

)

  722   (29,027

)

  (35,737

)

Income (loss) before income taxes

  (2,869

)

  (2,805

)

  (758

)

  2,078   (4,354

)

(Provision) benefit from income taxes

  (1

)

  (26,348

)

  (1,194

)

  29,027   1,484 

Net income (loss)

  (2,870

)

  (29,153

)

  (1,952

)

  31,105   (2,870

)

Preferred stock dividends

  (414

)

           (414

)

Income (loss) applicable to common shareholders

  (3,284

)

  (29,153

)

  (1,952

)

  31,105   (3,284

)

Net income (loss)

  (2,870

)

  (29,153

)

  (1,952

)

  31,105   (2,870

)

Changes in comprehensive income (loss)

  (3,520

)

  38      (38

)

  (3,520

)

Comprehensive income (loss)

 $(6,390

)

 $(29,115

)

 $(1,952

)

 $31,067  $(6,390

)

 

 

Unaudited Interim Condensed Consolidating Statements of Cash Flows

  

Nine Months Ended September 30, 2019

 
  

Parent

  

Guarantors

  

Non-Guarantors

  

Eliminations

  

Consolidated

 
  (in thousands) 

Cash flows from operating activities

 $(140,110

)

 $92,042  $(15,242

)

 $126,919  $63,609 

Cash flows from investing activities:

                    

Additions to properties, plants, equipment and mineral interests

     (56,329

)

  (41,009

)

     (97,338

)

Other investing activities, net

  72,128   42   1,415   (72,128

)

  1,457 

Cash flows from financing activities:

                    

Dividends paid to shareholders

  (4,070

)

           (4,070

)

Borrowings on debt

  245,000            245,000 

Payments on debt

  (195,000

)

  (4,965

)

  (519

)

     (200,484

)

Other financing activity, net

  34,769   (38,672

)

  55,869   (54,791

)

  (2,825

)

Effect of exchange rates on cash

     257         257 

Changes in cash, cash equivalents and restricted cash and cash equivalents

  12,717   (7,625

)

  514      5,606 

Beginning cash, cash equivalents and restricted cash and cash equivalents

  6,266   18,258   3,890      28,414 

Ending cash, cash equivalents and restricted cash and cash equivalents

 $18,983  $10,633  $4,404  $  $34,020 

  

Nine Months Ended September 30, 2018

 
  

Parent

  

Guarantors

  

Non-Guarantors

  

Eliminations

  

Consolidated

 
      

Revised

  

Revised

         
  

(in thousands)

 

Cash flows from operating activities

 $(29,868

)

 $88,853  $(40,161

)

 $56,386  $75,210 

Cash flows from investing activities:

                    

Additions to properties, plants, equipment and mineral interests

  20,710   (101,147

)

  (2,848

)

     (83,285

)

Acquisitions of other companies, net of cash acquired

  (139,326

)

            (139,326

)

Other investing activities, net

  (398,101

)

  4,309      431,815   38,023 

Cash flows from financing activities:

                    

Dividends paid to shareholders

  (3,607

)

           (3,607

)

Borrowings on debt

  78,024            78,024 

Payments on debt

  (47,000

)

  (41,028

)

        (88,028

)

Other financing activity, net

  443,372   26,051   16,709   (488,201

)

  (2,069

)

Effect of exchange rates on cash

     (215

)

         (215

)

Changes in cash, cash equivalents and restricted cash and cash equivalents

  (75,796

)

  (23,177

)

  (26,300

)

     (125,273

)

Beginning cash, cash equivalents and restricted cash and cash equivalents

  103,877   46,619   36,643      187,139 

Ending cash, cash equivalents and restricted cash and cash equivalents

 $28,081  $23,442  $10,343  $  $61,866 
  

Three Months Ended September 30, 2017

 
  

Parent

  

Guarantors

  

Non-Guarantors

  

Eliminations

  

Consolidated

 
  

(in thousands)

 

Revenues

 $(626

)

 $61,887  $79,578  $  $140,839 

Cost of sales

  687   (29,320

)

  (39,725

)

     (68,358

)

Depreciation, depletion, amortization

     (12,607

)

  (16,911

)

     (29,518

)

General and administrative

  (4,217

)

  (4,464

)

  (848

)

     (9,529

)

Exploration and pre-development

  (129

)

  (4,339

)

  (4,544

)

     (9,012

)

Research and development

     (1,130

)

        (1,130

)

Gain on derivative contracts

  (11,226

)

           (11,226

)

Foreign exchange gain (loss)

  12,153      (17,070

)

     (4,917

)

Lucky Friday suspension costs

     (4,780

)

        (4,780

)

Equity in earnings of subsidiaries

  (7,369

)

        7,369    

Other expense

  11,041   1,202   (4,676

)

  (14,752

)

  (7,185

)

Income (loss) before income taxes

  314   6,449   (4,196

)

  (7,383

)

  (4,816

)

(Provision) benefit from income taxes

     (1,338

)

  (8,284

)

  14,752   5,130 

Net income (loss)

  314   5,111   (12,480

)

  7,369   314 

Preferred stock dividends

  (138

)

           (138

)

Income (loss) applicable to common shareholders

  176   5,111   (12,480

)

  7,369   176 

Net income (loss)

  314   5,111   (12,480

)

  7,369   314 

Changes in comprehensive income (loss)

  7,636      1,022   (1,022

)

  7,636 

Comprehensive income (loss)

 $7,950  $5,111  $(11,458

)

 $6,347  $7,950 

 

 

  

Nine Months Ended September 30, 2017

 
  

Parent

  

Guarantors

  

Non-Guarantors

  

Eliminations

  

Consolidated

 
  

(in thousands)

 

Revenues

 $(3,912

)

 $215,184  $206,390  $  $417,662 

Cost of sales

  353   (112,908

)

  (111,982

)

     (224,537

)

Depreciation, depletion, amortization

     (41,875

)

  (45,111

)

     (86,986

)

General and administrative

  (16,407

)

  (10,877

)

  (1,760

)

     (29,044

)

Exploration and pre-development

  (439

)

  (8,736

)

  (12,508

)

     (21,683

)

Research and development

     (2,125

)

        (2,125

)

Gain/(loss) on derivative contracts

  (16,548

)

           (16,548

)

Foreign exchange gain (loss)

  22,286   (43

)

  (32,501

)

     (10,258

)

Lucky Friday suspension costs

     (14,385

)

  

 

     (14,385

)

Equity in earnings of subsidiaries

  (9,708

)

        9,708    

Other (expense) income

  24,822   (1,207

)

  (14,146

)

  (38,682

)

  (29,213

)

Income (loss) before income taxes

  447   23,028   (11,618)  (28,974

)

  (17,117

)

(Provision) benefit from income taxes

     (9,239

)

  (11,879

)

  38,682   17,564 

Net income (loss)

  447   13,789   (23,497

)

  9,708   447 

Preferred stock dividends

  (414

)

           (414

)

Income (loss) applicable to common shareholders

  33   13,789   (23,497

)

  9,708   33 

Net income (loss)

  447   13,789   (23,497

)

  9,708   447 

Changes in comprehensive income (loss)

  13,718      1,780   (1,780

)

  13,718 

Comprehensive income (loss)

 $14,165  $13,789  $(21,717

)

 $7,928  $14,165 

Condensed Consolidating Statements of Cash Flows

  

Nine Months Ended September 30, 2018

 
  

Parent

  

Guarantors

  

Non-Guarantors

  

Eliminations

  

Consolidated

 
                     

Cash flows from operating activities

 $(52,473

)

 $63,796  $(15,107

)

 $78,994  $75,210 

Cash flows from investing activities:

                    

Additions to properties, plants, and equipment

     (39,740

)

  (43,545

)

     (83,285

)

Acquisition of Klondex, net of cash acquired

  (139,326

)

            (139,326

)

Other investing activities, net

  (375,495

)

  4,603   (294

)

  409,209   38,023 

Cash flows from financing activities:

                    

Dividends paid to shareholders

  (3,607

)

           (3,607

)

Borrowings on debt

  78,024            78,024 

Proceeds from (payments on) debt

  (47,000

)

  (3,094

)

  (37,934

)

     (88,028

)

Other financing activity, net

  464,080   (50,409

)

  72,463   (488,203

)

  (2,069

)

Effect of exchange rates on cash

        (215

)

     (215

)

Changes in cash, cash equivalents and restricted cash and cash equivalents

  (75,797

)

  (24,844

)

  (24,632

)

     (125,273

)

Beginning cash, cash equivalents and restricted cash and cash equivalents

  103,878   32,048   51,213      187,139 

Ending cash, cash equivalents and restricted cash and cash equivalents

 $28,081  $7,204  $26,581  $  $61,866 

  

Nine Months Ended September 30, 2017

 
  

Parent

  

Guarantors

  

Non-Guarantors

  

Eliminations

  

Consolidated

 
  

(in thousands)

 

Cash flows from operating activities

 $35,764  $41,071  $21,435  $(24,155

)

 $74,115 

Cash flows from investing activities:

                    

Additions to properties, plants, and equipment

     (28,220

)

  (42,170

)

     (70,390

)

Acquisitions of other companies, net of cash acquired

                

Other investing activities, net

  176   5,779   (584

)

  (5,339

)

  32 

Cash flows from financing activities:

                    

Dividends paid to shareholders

  (3,392

)

           (3,392

)

Proceeds from (payments on) debt

     (4,518

)

  (1,017

)

     (5,535

)

Other financing activity, net

  (44,762

)

  (21,500

)

  42,909   29,494   6,141 

Effect of exchange rates on cash

        1,051      1,051 

Changes in cash, cash equivalents and restricted cash and cash equivalents

  (12,214

)

  (7,388

)

  21,624      2,022 

Beginning cash, cash equivalents and restricted cash and cash equivalents

  113,275   26,588   32,114      171,977 

Ending cash, cash equivalents and restricted cash and cash equivalents

 $101,061  $19,200  $53,738  $  $173,999 

 

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Certain statements contained in this Form 10-Q, including in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosure About Market Risk, are intended to be covered by the safe harbor provided for under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Our forward-looking statements include our current expectations and projections about future results, performance, results of litigation, prospects and opportunities, including reserves and other mineralization. We have tried to identify these forward-looking statements by using words such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “feel,” “plan,” “estimate,” “project,” “forecast” and similar expressions.  These forward-looking statements are based on information currently available to us and are expressed in good faith and believed to have a reasonable basis.  However, our forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements.

 

These risks, uncertainties and other factors include, but are not limited to, those set forth under Part I, Item 1A. – Business1A – Risk Factors in our annual report filed on Form 10-K for the year ended December 31, 2017,2018, as updated in Part II, Item 1A - Risk Factors in this quarterly report and in our quarterly reports on Form 10-Q for the quarters ended March 31, 20182019 and June 30, 2018.2019. Given these risks and uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements.  All subsequent written and oral forward-looking statements attributable to Hecla Mining Company or to persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.  Except as required by federal securities laws, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

 

Overview

 

Hecla Mining Company and our subsidiaries have provided precious and base metals to the U.S. and worldwide since 1891. We discover, acquire and develop mines and other mineral interests and produce and market concentrates, carbon material and doré containing silver, gold, lead and zinc.

 

We produce lead, zinc and bulk concentrates and carbon material, which we sell to custom smelters, brokers and brokers,third-party processors, and unrefined doré containing gold and silver, which areis sold to refiners or further refined before sale of the metals to precious metals traders.  We are organized into five segments that encompass our operating and development units:  Greens Creek, Lucky Friday, Casa Berardi, San Sebastian and Nevada Operations. The map below shows the locations of our operating units, our exploration and pre-development projects, as well as our corporate offices located in Coeur d'Alene, Idaho and Vancouver, British Columbia.

 

40

 

Our current business strategy is to focus our financial and human resources in the following areas:

 

 

operating our properties safely, in an environmentally responsible manner, and cost-effectively;

 

fully integratingintegrate the acquisition in July 2018 of Klondex Mines Ltd. ("Klondex") discussed further below, which gives us ownership of a mill,two mills, operating mines and other mineral interests in northern Nevada;

 

continuing to optimize and improve operations at our units, which includes incurring research and development expenditures that may not result in tangible benefits;

 

expanding our proven and probable reserves and production capacity at our units;

 

conducting our business with financial stewardship to preserve our financial position in varying metals price environments;

 

advanceadvancing permitting of the Rock Creek and Montanore projects;

 

maintaining and investing in exploration and pre-development projects in the vicinities of seven mining districts and projects, most of which we believe to be under-explored andor under-invested: North Idaho's Silver Valley in the historic Coeur d'Alene Mining District; our Greens Creek unit on Alaska's Admiralty Island located near Juneau; the silver-producing district near Durango, Mexico; the Abitibi region of northwestern Quebec, Canada; our newly-acquired projects in northern Nevada; the Rock Creek and Montanore projects in northwestern Montana; and the Creede district of southwestern Colorado; and

 

continuing to seek opportunities to acquire or invest in mining properties and companies.

continuing to seek opportunities to acquire or invest in mining properties and companies.

 

A number of key factors may impact the execution of our strategy, including metals prices and regulatory issues and metals prices.issues. Metals prices can be very volatile. As discussed in the Critical Accounting Estimates section below, metals prices are influenced by a number of factors beyond our control. Average market prices of gold,silver, lead and zinc in the first nine months of 20182019 were higherlower than their levels from the comparable period last year, with the average silvergold price lower,higher, as illustrated by the table in Results of Operations below. While we believe current 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. However, as discussed in Item 3. Quantitative and Qualitative Disclosures About Market Risk below, we utilize financially-settled forward and put option contracts to manage our exposure to changes in prices for the metals we produce.

 

The total principal amount of our Senior Notes due May 1, 2021 is $506.5 million and they bear interest at a rate of 6.875% per year. The net proceeds from the Senior Notes were primarily used for the acquisition of Aurizon in June 2013. In addition, in March 2018 we entered into a note purchase agreement pursuant to which we issued CAD$40 million (approximately USD$30.8 million at the time of the transaction) in aggregate principal amount of our Series 2018-A Senior Notes due May 1, 2021 (the “RQ Notes”) to Ressources Québec which have an annual coupon rate of 4.68%. The net proceeds from the RQ Notes are required to bewere used for development and expansion of our Casa Berardi unit. Also, we had $50.0 million drawn on our revolving credit facility as of September 30, 2019. See Note 109 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information on our debt arrangements. As discussed in the Financial Liquidity and Capital Resources section below, we believe that we will be able to meet the obligations associated with the Senior Notes, RQ Notes and RQ Notes;amounts drawn on our revolving credit facility; however, a number of factors could impact our ability to meet the debt obligations and fund our other projects.

 

On July 20, 2018, we completed the acquisition of all of the issued and outstanding common shares of Klondex for total consideration valued at approximately $414.2$413.9 million at the time of consummation of the acquisition. See Note 1413 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information. As a result of the acquisition, we own 100% of three producing gold mines, along with interests in various gold exploration properties,land packages in northern Nevada.Nevada totaling approximately 110 square miles and containing operating or previously-operating mines with a history of high-grade gold production, which we believe to be prospective and under-explored. The acquired properties include the Hatter Graben development project near the Hollister mine, where we have started construction of an access drift, the Fire Creek mine, which we believe has been under-developed and has the potential for continued production, and various other gold properties. The acquisition is expected to increasehas increased our annual gold production gives us ownership of operating gold mines and identified gold reserves and other mineralized material, and provides accesshas the potential to a large land package with known mineralization.continue to do so. We are faced with the challenge of integrating the acquisition and assuming operating responsibility for Klondex's mines and other operations. See Part II, Item 1A – Risk Factors – Operating, Development, Exploration and Acquisition Risks in our annual report filed on Form 10-K for the year ended December 31, 2018, as updated in Part II,Item 1A - Risk Factors in our quarterly reportreports filed on Form 10-Q for the quarterquarters ended March 31, 20182019 and June 30, 2019 for risks associated with our acquisition of Klondex. Because total production and capital costs have exceeded sales at our Nevada operations since the acquisition, we conducted a review of our Nevada operations during the second quarter of 2019. The review resulted in a plan for lower anticipated near-term production and capitalized development costs there. See The Nevada Operations section below for more information.

 

On June 15, 2015, we completed the acquisition of Revett Mining Company, 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, Inc., giving us 100% ownership of the Montanore project, another significant undeveloped silver and copper deposit located approximately 10 miles from our Rock Creek project. Development of Rock Creek and Montanore has been challenged by non-governmental organizations and governmental agenciesmultiple parties at various times, including a recent (i) court order finding a trespass over unpatented mining claims not owned by us at Montanore, (ii) questioning of the validity of the operating permit at Montanore by the Montana Department of Environmental Quality, and (iii) court decision vacating Montanore's most recent water discharge permit renewal. In addition, a State court remanded back to the Montana Department of Natural Resources and Conservation for further consideration a water right permit it had issued for the Rock Creek project. Thus, there can be no assurance that we will be able to obtain the permits required to develop or otherwise move forward with these exploration projects. SeeNote 4 of Notes to Condensed Consolidated Financial Statements (Unaudited) and Part II, Item 1A – Risk Factors in our quarterly report filed on Form 10-Q for the quarter ended March 31, 2019 for more information.

 

As further discussed in the Lucky Friday Segment section below, the union employees at Lucky Friday have been on strike since March 13, 2017. Production at Lucky Friday was suspended from the start of the strike until July 2017, with limited production by salaried employees commencing at that time. In September 2019, a tentative agreement was reached between the Company and the union negotiating committee. Before the collective bargaining agreement is finalized, it must be ratified by a majority of the union members. If the agreement is voted on and ratified, we would expect the mine to be staffed in stages, and that this would put Lucky Friday on a path back to full production. We believe it would take approximately one year to return to full production after re-staffing starts. We cannot predict whether or when the current tentative agreement will be ratified or if an agreement will otherwise be reached, or, if an agreement is not ratified, how long the strike will last or whether an agreementwhen there will be reached.a return to full production. We expect cash expenditures of about $1.5approximately $1.0 million to $2.0$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.

 

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’s CORESafety program. We attempt to implement reasonable best practices with respect to mine safety and emergency preparedness. We work with the Mine Safety and Health Administration (“MSHA”) to address issues outlined in its investigations and inspections and continue to evaluate our safety practices.

 

Another challenge for us is the risk associated with environmental litigation and ongoing reclamation activities. As described in Part I, Item 1A – Risk Factors of our annual report filed on Form 10-K for the year ended December 31, 20172018 and above in Note 54 of Notes to Condensed Consolidated Financial Statements (Unaudited), it is possible that our estimate of these liabilities (and our ability to estimate liabilities in general) may change in the future, affecting our strategic plans.  We are involved in various environmental legal matters and the estimate of our environmental liabilities and liquidity needs, as well as our strategic plans, may 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 terms as favorable to us as possible.

 

Results of Operations

 

Sales of products by metal for the three- and nine-month periods ended September 30, 20182019 and 20172018 were as follows:

 

  

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

 

(in thousands)

 

2018

  

2017

  

2018

  

2017

 

Silver

 $38,009  $43,228  $111,656  $140,662 

Gold

  82,628   73,603   233,308   203,279 

Lead

  7,552   6,373   27,469   28,093 

Zinc

  20,990   24,327   78,714   74,692 

Less: Smelter and refining charges

  (5,530

)

  (6,692

)

  (20,530

)

  (29,064

)

Sales of products

 $143,649  $140,839  $430,617  $417,662 

  

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

 

(in thousands)

 

2019

  

2018

  

2019

  

2018

 

Silver

 $40,588  $38,009  $122,392  $111,656 

Gold

  103,889   82,628   261,734   233,308 

Lead

  7,114   7,552   22,809   27,469 

Zinc

  15,292   20,990   62,995   78,714 

Less: Smelter and refining charges

  (5,351

)

  (5,530

)

  (21,609

)

  (20,530

)

Sales of products

 $161,532  $143,649  $448,321  $430,617 

 

 

The $2.8 million and $13.0 million increasesfluctuations in sales of products in the third quarter and first nine months of 2018, respectively,2019 compared to the same periods of 20172018 are primarily due to:

 

 

For the third quarter of 2018,Higher sales quantities for silver, gold and lead and zinc were higher than the same period of 2017. Forin the first nine months of 2018,2019 compared to the same period of 2018.  In the third quarter of 2019, gold sales quantities were higher, gold and zinc volumes were partially offset by lowerwith silver and lead volumes.lower, compared to the third quarter of 2018.  Zinc sales quantities were lower in both the third quarter and first nine months of the year, versus the comparable periods of 2018.  See the The Greens Creek Segment, The Lucky Friday Segment, The Casa Berardi Segment, The San Sebastian Segment and The Nevada Operations 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:

 

   

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

 
   

2018

  

2017

  

2018

  

2017

 

Silver -

Ounces produced

  2,523,691   3,323,157   7,654,118   9,500,058 
 

Payable ounces sold

  2,588,478   2,540,817   6,993,695   8,098,652 

Gold -

Ounces produced

  72,995   63,046   191,116   171,720 
 

Payable ounces sold

  68,568   57,380   183,050   161,921 

Lead -

Tons produced

  4,238   5,370   15,387   18,426 
 

Payable tons sold

  3,986   2,936   12,599   13,612 

Zinc -

Tons produced

  12,795   14,497   42,312   43,000 
 

Payable tons sold

  9,282   8,444   30,072   29,269 

   

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

 
   

2019

  

2018

  

2019

  

2018

 

Silver -

Ounces produced

  3,251,350   2,523,691   9,193,246   7,654,118 
 

Payable ounces sold

  2,232,691   2,588,478   7,549,360   6,993,695 

Gold -

Ounces produced

  77,311   72,995   198,100   191,116 
 

Payable ounces sold

  69,760   68,568   189,823   183,050 

Lead -

Tons produced

  6,107   4,238   17,406   15,387 
 

Payable tons sold

  3,817   3,986   12,628   12,599 

Zinc -

Tons produced

  15,413   12,795   42,672   42,312 
 

Payable tons sold

  7,878   9,282   27,234   30,072 

 

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.

 

Lower average silver, gold, lead and zinc prices in the third quarter of 2018 compared to the same period in 2017. For the first nine months of 2018, average gold, lead and zinc prices were higher, while average silver prices were lower, compared to the same period of 2017. These price variances are illustrated in the table below.

Higher average realized silver and gold prices, and lower average realized lead and zinc prices, in the third quarter and first nine months of 2019 compared to the same periods in 2018. These price variances are illustrated in the table below.

 

  

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

   

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 
  

2018

  

2017

  

2018

  

2017

   

2019

  

2018

  

2019

  

2018

 

Silver –

London PM Fix ($/ounce)

 $14.99  $16.83  $16.10  $17.17 

London PM Fix ($/ounce)

 $17.02  $14.99  $15.83  $16.10 

Realized price per ounce

 $14.68  $17.01  $15.97  $17.37 

Realized price per ounce

 $18.18  $14.68  $16.21  $15.97 

Gold –

London PM Fix ($/ounce)

 $1,213  $1,278  $1,283  $1,251 

London PM Fix ($/ounce)

 $1,474  $1,213  $1,363  $1,283 

Realized price per ounce

 $1,205  $1,283  $1,275  $1,255 

Realized price per ounce

 $1,475  $1,205  $1,374  $1,275 

Lead –

LME Final Cash Buyer ($/pound)

 $0.95  $1.06  $1.06  $1.02 

LME Final Cash Buyer ($/pound)

 $0.92  $0.95  $0.90  $1.06 

Realized price per pound

 $0.95  $1.09  $1.09  $1.03 

Realized price per pound

 $0.93  $0.95  $0.90  $1.09 

Zinc –

LME Final Cash Buyer ($/pound)

 $1.15  $1.34  $1.37  $1.26 

LME Final Cash Buyer ($/pound)

 $1.06  $1.15  $1.18  $1.37 

Realized price per pound

 $1.13  $1.44  $1.31  $1.28 

Realized price per pound

 $0.97  $1.13  $1.16  $1.31 

 

Average realized prices typically differ from average market prices primarily because Greens Creek 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 the customers, we must estimate the prices at which sales of our metals will be settled.  Previously recorded sales are adjusted to estimated settlement metals prices each period through final settlement.  For the third quarter and first nine months of 2018,2019, we recorded net price adjustments to provisional settlements of positive $0.6 million and negative $0.1 million, respectively, compared to net negative price adjustments to provisional settlements of $0.6 million and $3.3 million, respectively, compared to positive price adjustments to provisional settlements of $1.2 million and $0.6 million, respectively, in the third quarter and first nine months of 2017.2018. The price adjustments related to silver, gold, lead and zinc contained in our concentrate shipments were largely offset by gains and losses on forward contracts for those metals for each period. See Note 1211of Notes to Condensed Consolidated Financial Statements (Unaudited) 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 third quarter and first nine months of 2018,2019, we recorded losses applicable to common shareholders of $19.7 million ($0.04 per basic common share) and $92.0 million ($0.19 per basic common share), respectively, compared to losses applicable to common shareholders of $23.3 million ($0.05 per basic common share) and $3.3 million ($0.01 per basic common share), respectively, compared to income applicable to common shareholders of $0.2 million ($0.00 per basic common share) and $0.0 million ($0.00 per basic common share), respectively, for the third quarter and first nine months of 2017.2018, respectively.  The following factors impacted the results for the third quarter and first nine months of 20182019 compared to the same periods in 2017:2018:

 

 

LowerVariances in gross profit for the third quarter and first nine months of 2018 compared to the same periods in 2017(loss) at our San Sebastian unit by $19.1 million and $38.9 million, respectively, and at our Lucky Friday unit by $0.2 million and $3.1 million, respectively; and a gross loss at our newly-acquired Nevada Operations unit of $7.8 million in the third quarter. Gross profit at our Greens Creek unit was lower by $6.1 million for the third quarter of 2018, but higher by $12.9 million for the first nine month of 2018, compared to the same periods of 2017. Gross profit for the third quarter of 2018 was also lower at our Casa Berardi unit compared to 2017 by $3.1 million; however, it was higher by $11.2 million for the first nine months of 2018 compared to the same period of 2017. operating units as follows (in millions):

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2019

  

2018

  

Variance

  

2019

  

2018

  

Variance

 

Greens Creek

 $18.5  $13.0  $5.5  $54.3  $63.9  $(9.6

)

Lucky Friday

              2.4   (2.4

)

Casa Berardi

  0.4   1.6   (1.2

)

  (18.2

)

  12.4   (30.6

)

San Sebastian

  2.6   (0.2

)

  2.8   2.7   9.6   (6.9

)

Nevada Operations

  (6.7

)

  (7.8

)

  1.1   (40.7

)

  (7.8

)

  (32.9

)

Total gross profit

 $14.8  $6.6  $8.2  $(1.9

)

 $80.5  $(82.4

)

See The Greens Creek Segment, The Lucky Friday Segment, The Casa Berardi Segment, The San Sebastian Segment, and The Nevada Operations Segment sections below.

 

Income tax benefitsLosses on metal derivatives contracts of $4.7 million and $2.7 million in the third quarter and $1.5first nine months of 2019, respectively, compared to gains of $19.5 million and $40.3 million in the third quarter and first nine months of 2018, respectively. During the third quarters of 2019 and 2018, we settled, prior to their maturity date, contracts in a gain position for cash proceeds to us of approximately $6.7 million and $32.8 million, respectively. See Note 11 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information.

Losses on disposition of properties, plants, equipment and mineral interests of $24 thousand and $4.7 million in the third quarter and first nine months of 2019, respectively, compared to benefitsgains of $5.1$3.2 million of $17.6and $3.4 million respectively, in the comparable 2017 periods.third quarter and first nine months of 2018, respectively. The benefit forloss in 2019 was related to disposition of our interest in the Fayolle exploration project in Quebec.

Foreign exchange net gain of $0.8 million in the third quarter of 2019 and net loss of $6.7 million in the first nine months of 2017 includes2019 versus a benefit from a changenet loss of $2.2 million in income tax position recognizedthe third quarter of 2018 and gain of $2.9 million in the first quarternine months of 2017 relating2018. The variances are primarily related to the timingimpact of deduction for #4 Shaftchanges in the CAD-to-USD exchange rate on the remeasurement of our net monetary liabilities in Quebec. During the first nine months of 2019, the applicable CAD-to-USD exchange rate decreased from 1.3643 to 1.3243, compared to an increase in the rate from 1.2545 to 1.2945 during the first nine months of 2018.

Lower research and development costs at Lucky Friday, as further discussedexpense by $1.2 million and $4.4 million in Corporate Matters below.the third quarter and first nine months of 2019, respectively, compared to the same periods of 2018 due to capitalization and completion of fabrication of the remote vein miner, a new technology we are developing.

Lower general and administrative expense by $2.3 million and $1.0 million in the third quarter and first nine months of 2019, respectively, compared to the same periods of 2018.

 

Costs of $6.1 million and $9.7 million for the third quarter and first nine months of 2018, respectively, related to the acquisition of Klondex completed in July 2018.

 

Exploration and pre-development expense increaseddecreased by $4.6$7.9 million and $9.5$15.1 million respectively, in the third quarter and first nine months of 20182019, respectively, compared to the same periods in 2017.2018. In 2018,2019, we have continued exploration work at our Greens Creek, San Sebastian, and Casa Berardi units, and at our other projects in Quebec, Canada, and began exploration at our Nevada Operations unit acquired in July 2018.units, but at lower spending levels. "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 expense of $1.2 million and $3.6 million in the third quarter2019 and first nine months of 2018 respectively,periods was related to advancement of our Montanore and Rock Creek projects.

 

Foreign exchange net loss in the third quarter of 2018 of $2.2Lower suspension costs by $2.8 million and a net gain of $2.9 million in the first nine months of 2018 versus net losses of $4.9 million and $10.3$9.6 million in the third quarter and first nine months of 2017, respectively. The variances are primarily related2019, respectively, compared to the impactsame periods of changes2018 due to increased production, as discussed in the CAD-to-USD exchange rate on the remeasurement of our net monetary liabilities in Quebec. During the first nine months of 2018, the applicable CAD-to-USD exchange rate increased from 1.2545 to 1.2945, compared to a decrease in the rate from 1.3426 to 1.2480 during the first nine months of 2017.Lucky Friday Segment section below.

 

Suspension costsIncome tax benefits of $6.5$1.6 million and $18.3$20.0 million in the third quarter and first nine months of 2018,2019, respectively, compared to $4.8benefits of $2.7 million and $14.4of $1.5 million, respectively, in the third quartercomparable 2018 periods. The benefits are primarily the result of losses in Nevada and first nine months of 2017, respectively. The costs for the third quarter and first nine months of 2018 include $5.4 million and $17.2 million, respectively, related to suspension at the Lucky Friday mine resulting from the strike, which started in March 2017, and include non-cash depreciation expense of $1.4 million and $3.7 million, respectively. The costs for the 2018 periods also include $1.1 million related to curtailment of production at the Midas mine. All of the costs for the third quarter and first nine months of 2017 related to Lucky Friday and include $1.1 million and $3.3 million, respectively, for non-cash depreciation.Quebec.

Research and development expense of $1.3 million and $5.0 million in the third quarter and first nine months of 2018, respectively, compared to $1.1 million and $2.1 million in the third quarter and first nine months of 2017, respectively, related to evaluation and development of technologies that would be new to our operations.

Higher interest expense by $0.8 million and $1.6 million in the third quarter and first nine months of 2018. respectively, compared to the same periods of 2017. Interest expense in the first nine months of 2017 was net of $0.9 million in capitalized interest primarily related to the #4 Shaft project, which was completed in January 2017.

Gains on base metal derivatives contracts of $19.5 million and $40.3 million in the third quarter and first nine months of 2018, respectively, compared to losses of $11.2 million and $16.5 million in the third quarter and first nine months of 2017, respectively. During the third quarter of 2018, we settled, prior to their maturity date, contracts in a gain position for cash proceeds to us of approximately $32.8 million. See Note 12 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information.

 

The Greens Creek Segment

 

Dollars are in thousands (except per ounce and per ton amounts)

 

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

  

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 
 

2018

  

2017

  

2018

  

2017

  

2019

  

2018

  

2019

  

2018

 

Sales

 $65,187  $61,062  $205,642  $191,250  $59,015  $65,187  $194,542  $205,642 

Cost of sales and other direct production costs

  (39,735

)

  (29,320

)

  (106,883

)

  (100,799

)

 (31,467

)

 (39,735

)

 (108,009

)

 (106,883

)

Depreciation, depletion and amortization

  (12,428

)

  (12,607

)

  (34,880

)

  (39,442

)

  (9,008

)

  (12,428

)

  (32,228

)

  (34,880

)

Cost of sales and other direct production costs and depreciation, depletion and amortization

  (52,163

)

  (41,927

)

  (141,763

)

  (140,241

)

  (40,475

)

  (52,163

)

  (140,237

)

  (141,763

)

Gross profit

 $13,024  $19,135  $63,879  $51,009  $18,540  $13,024  $54,305  $63,879 

Tons of ore milled

  213,037   219,983   632,876   627,900  213,557  213,037  629,752  632,876 

Production:

                         

Silver (ounces)

  1,876,417   2,344,315   5,789,440   6,205,659  2,544,018  1,876,417  7,149,035  5,789,440 

Gold (ounces)

  11,559   12,563   38,396   39,289  13,684  11,559  41,269  38,396 

Zinc (tons)

  12,695   14,325   41,673   40,697  15,073  12,695  41,330  41,673 

Lead (tons)

  4,026   4,851   14,352   14,080  5,258  4,026  14,668  14,352 

Payable metal quantities sold:

                         

Silver (ounces)

  1,928,858   1,569,092   5,113,799   4,930,946  1,565,873  1,928,858  5,545,422  5,113,799 

Gold (ounces)

  11,613   7,862   33,402   30,920  9,863  11,613  32,466  33,402 

Zinc (tons)

  9,282   8,445   29,232   27,582  7,218  9,282  26,213  29,232 

Lead (tons)

  3,986   2,935   11,169   10,015  3,045  3,986  10,199  11,169 

Ore grades:

                         

Silver ounces per ton

  11.65   13.65   11.94   12.84  15.01  11.65  14.28  11.94 

Gold ounces per ton

  0.09   0.09   0.09   0.10  0.10  0.09  0.10  0.09 

Zinc percent

  6.87   7.47   7.58   7.49  7.70

%

 6.87

%

 7.28

%

 7.58

%

Lead percent

  2.40   2.77   2.84   2.83  3.00

%

 2.40

%

 2.86

%

 2.84

%

Mining cost per ton

 $68.76  $69.46  $69.19  $69.64  $81.16  $68.76  $80.15  $69.19 

Milling cost per ton

 $31.97  $31.01  $32.73  $32.38  $36.67  $31.97  $35.89  $32.73 

Total Cash Cost, After By-product Credits, Per Silver Ounce (1)

 $1.92  $(0.15

)

 $(2.22

)

 $0.73  $2.05  $1.92  $1.67  $(2.22

)

All-In Sustaining Costs ("AISC"), After By-Product Credits, per Silver Ounce (1)

 $9.20  $4.47  $4.71  $5.60  $6.05  $9.20  $5.28  $4.71 

 

 

(1)

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 CashAll-In Sustaining 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 $6.1$5.5 million decreaseincrease in gross profit in the third quarter of 20182019 compared to the same period in 20172018 is due to lowerhigher realized prices for all four payable metals produced,silver and gold, partially offset by higherlower sales volumes.volumes due to the timing of shipments and lower zinc and lead prices.  The $12.9$9.6 million increasedecrease in gross profit during the first nine months of 20182019 compared to the same 20172018 period was primarily a result of higher metals sales volumes due to the timing of concentrate shipmentscosts and higher gold,lower zinc and lead prices, partially offset by lowerhigher realized silver and gold prices.

 

2019 and by 16% and 10%, respectively, for the first nine months of 2019 compared to the same periods of 2018. The increases were mainly due to higher costs for labor, power and consumables, with the variances for the nine-month period also due to lower ore tonnage.

 

The chart below illustrates the factors contributing to the variances in Cash Cost, After By-product Credits, Per Silver Ounce for the third quarter and first nine months of 20182019 versus the same periods in 2017:2018:

 

 

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

 

  

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

 
  

2018

  

2017

  

2018

  

2017

 

Cash Cost, Before By-product Credits, per Silver Ounce

 $22.67  $20.75  $23.27  $22.94 

By-product credits

  (20.75

)

  (20.90

)

  (25.49

)

  (22.21

)

Cash Cost, After By-product Credits, per Silver Ounce

 $1.92  $(0.15

)

 $(2.22

)

 $0.73 

  

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

 
  

2019

  

2018

  

2019

  

2018

 

Cash Cost, Before By-product Credits, per Silver Ounce

 $20.77  $22.67  $20.99  $23.27 

By-product credits

  (18.72

)

  (20.75

)

  (19.32

)

  (25.49

)

Cash Cost, After By-product Credits, per Silver Ounce

 $2.05  $1.92  $1.67  $(2.22

)

 

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

 

 

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

  

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 
 

2018

  

2017

  

2018

  

2017

  

2019

  

2018

  

2019

  

2018

 

AISC, Before By-product Credits, per Silver Ounce

 $29.95  $25.37  $30.20  $27.81  $24.77  $29.95  $24.60  $30.20 

By-product credits

  (20.75

)

  (20.90

)

  (25.49

)

  (22.21

)

  (18.72

)

  (20.75

)

  (19.32

)

  (25.49

)

AISC, After By-product Credits, per Silver Ounce

 $9.20  $4.47  $4.71  $5.60  $6.05  $9.20  $5.28  $4.71 

 

The increase in Cash Cost, After By-product Credits, per Silver Ounce for the third quarter and first nine months of 20182019 was due to lower silver production. The increase in AISC, After By-Product Credits,by-product credits per Silver Ounce in the third quarter of 2018 was due to lower silver production and higher capital spending. The decrease in Cash Cost, After By-product Credits, per Silver Ounce in the first nine months of 2018 was primarily the result of higher by-product credits,ounce, partially offset by lower silver production.mining, milling and other costs on a per ounce basis. The decrease in AISC, After By-Product Credits, per Silver Ounce in the third quarter of 20182019 was due to the same factors,lower capital and exploration spending and lower production costs on a per ounce basis, partially offset by higherlower by-product credits. The increase in AISC, After By-Product Credits, per Silver Ounce in the first nine months of 2019 was due to lower by-product credits, partially offset by lower capital spending.and exploration spending and lower production costs on a per ounce basis.

 

Mining and milling costs increaseddecreased in the third quarter and first nine months of 20182019 compared to 20172018 on a per-ounce basis due primarily to lowerhigher silver production resulting from reducedincreased silver grades.

 

Other cash costs per ounce for the third quarter and first nine months of 20182019 were higherlower compared to 20172018 on a per-ounce basis due to the effect of lowerhigher silver production.

 

Treatment costs per ounce were lowerhigher in the third quarter andof 2019 compared to 2018 due to higher silver prices, partially offset by higher silver production. Treatment costs per ounce were lower in first nine months of 20182019 compared to 20172018 as a result of improved payment terms from smelters, partially offset by lowerhigher silver production. Treatment costs were alsoare impacted by lower silver prices, 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.

 

By-product credits per ounce were lowerincreased in the third quarter of 2019 compared to the third quarter of 2018, but were lower on a per-silver ounce basis due to the impact of higher silver production. By-product credits decreased in the first nine months of 2019 compared to the same period of 20172018 due to lower gold,lead and zinc and lead prices, and production. By-product creditshigher silver production also reduced the credit per ounce were higher in the first nine months of 2018 compared to 2017 due to higher gold, zinc and lead prices.silver ounce.

 

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 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.

 

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 have not consistently received 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.

 

The Lucky Friday Segment

 

Dollars are in thousands (except per ounce and per ton amounts)

 

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

 
  

2018

  

2017

  

2018

  

2017

 

Sales

 $(11

)

 $199  $8,253  $20,022 

Cost of sales and other direct production costs

  (1

)

     (5,041

)

  (12,109

)

Depreciation, depletion and amortization

        (803

)

  (2,433

)

Cost of sales and other direct production costs and depreciation, depletion and amortization

  (1

)

     (5,844

)

  (14,542

)

Gross profit (loss)

 $(12

)

 $199  $2,409  $5,480 

Tons of ore milled

  3,006   7,302   16,012   64,371 

Production:

                

Silver (ounces)

  31,639   88,298   156,015   769,080 

Lead (tons)

  212   518   1,035   4,346 

Zinc (tons)

  100   172   639   2,303 

Payable metal quantities sold:

                

Silver (ounces)

        232,867   641,004 

Lead (tons)

        1,430   3,596 

Zinc (tons)

        840   1,688 

Ore grades:

                

Silver ounces per ton

  11.41   12.87   11.06   12.45 

Lead percent

  8.06   7.68   7.21   7.12 

Zinc percent

  3.64   3.21   4.28   3.90 

Mining cost per ton

 $  $150.89  $87.79  $112.60 

Milling cost per ton

 $  $13.15  $14.26  $22.93 

Cash Cost, After By-product Credits, per Silver Ounce (1)

 $  $11.60  $  $6.58 

AISC, After By-product Credits, per Silver Ounce (1)

 $  $13.37  $  $12.21 

(1)

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).

Gross profit decreased by $0.2 million and $3.1 million in the third quarter and first nine months of 2018, respectively, compared to the same periods in 2017. The variances are primarily due to the low level of metal production in the third quarter of 2018 as a result of the ongoing strike by unionized employees starting in mid-March 2017, discussed further below, and the lack of concentrate shipments during the quarter. Silver production was also impacted by lower ore grades in the third quarter and first nine months of 2018. Gross profit for the first nine months of 2018 was also impacted by lower silver prices, partially offset by higher lead and zinc prices.

Mining and milling cost per ton were lower by 22% and 38%, respectively, in the first nine months of 2018 compared to the same period in 2017, as costs not directly related to mining and processing ore have been classified as suspension costs during the strike period and excluded from the calculations of mining and milling cost per ton. Mining and milling cost per ton during the strike period are not indicative of future operating results under full production.

Dollars are in thousands (except per ounce and per ton amounts)

 

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

 
  

2019

  

2018

  

2019

  

2018

 

Sales

 $4,017  $(11

)

 $11,150  $8,253 

Cost of sales and other direct production costs

  (3,718

)

  (1

)

  (10,258

)

  (5,041

)

Depreciation, depletion and amortization

  (300

)

     (891

)

  (803

)

Cost of sales and other direct production costs and depreciation, depletion and amortization

  (4,018

)

  (1

)

  (11,149

)

  (5,844

)

Gross profit (loss)

 $(1

)

 $(12

)

 $1  $2,409 

Tons of ore milled

  13,254   3,006   40,754   16,012 

Production:

                

Silver (ounces)

  115,682   31,639   416,456   156,015 

Lead (tons)

  849   212   2,738   1,035 

Zinc (tons)

  340   100   1,342   639 

Payable metal quantities sold:

                

Silver (ounces)

  107,992      372,103   232,867 

Lead (tons)

  771      2,428   1,430 

Zinc (tons)

  660      1,021   840 

Ore grades:

                

Silver ounces per ton

  9.33   11.41   10.95   11.06 

Lead percent

  7.01

%

  8.06

%

  7.40

%

  7.21

%

Zinc percent

  3.13

%

  3.64

%

  3.91

%

  4.28

%

 

 

The chart below illustratesGross profit decreased by $2.4 million in the factors contributing to the variances in Cash Cost, After By-product Credits, Per Silver Ounce for the third quarter and first nine months of 2017. Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce, are not presented for the third quarter and first nine months of 2018, as production was limited due2019 compared to the strike and results are not comparable to those from the third quarter and first nine months of 2017, and are not indicative of future operating results under full production.

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

  

Three Months Ended

  

Nine Months Ended

 
  

September 30, 2017

 

Cash Cost, Before By-product Credits, per Silver Ounce

 $27.44  $23.42 

By-product credits

  (15.84

)

  (16.84

)

Cash Cost, After By-product Credits, per Silver Ounce

 $11.60  $6.58 

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

  

Three Months Ended

  

Nine Months Ended

 
  

September 30, 2017

 

AISC, Before By-product Credits, per Silver Ounce

 $29.21  $29.05 

By-product credits

  (15.84

)

  (16.84

)

AISC, After By-product Credits, per Silver Ounce

 $13.37  $12.21 

Similarsame period in 2018 due primarily to the Greens Creek segment,classification of the difference between what we reportmargin on sales as “production” and “payable metal quantities sold” is due essentially to the difference between the quantities of metals containedoffsetting suspension costs 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.

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;

the Lucky Friday unit is situated in a mining district long associated with silver production; and

the Lucky Friday unit generally utilizes selective mining methods to target silver production.

Likewise, we believe the identification of 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 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.

2019 period.  Many of the employees at our Lucky Friday unit are represented by a union, and the most recent collective bargaining agreement with the union expired on April 30, 2016.  On February 19, 2017, the unionized employees voted against our contractthe Company's offer, and on March 13, 2017 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 and certain hourly personnel who are working despite the strike have continued to perform limited production and capital improvements.  Suspension costs during the strike totaled $13.5$5.7 million and $11.5$13.5 million in the first nine months of 20182019 and 2017,2018, respectively, which are combined with non-cash depreciation expense of $3.1 million and $3.7 million, and $2.9 million, respectively for those periods, in a separate line item on our consolidated statements of operations.  These suspension costs are excluded from the calculation of gross profit (to the extent not offset as described above), Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce, when presented.  In September 2019, a tentative agreement was reached between the Company and the union negotiating committee.  Before the collective bargaining agreement is finalized, it must be ratified by a majority of the union members. If the agreement is voted on and ratified, we would expect the mine to be staffed in stages, and that this would put Lucky Friday on a path back to full production.  We believe it would take approximately one year to return to full production after re-staffing starts.  We cannot predict whether or when the current tentative agreement will be ratified or if an agreement will otherwise be reached, or, if an agreement is not ratified, how long the strike will last or whether an agreementwhen there will be reached.a return to full 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.  If the strike continues for a further extended period or it is determined an eventual resolution is unlikely, it may be appropriate in the future to review the carrying value of properties, plants, equipment and mineral interests at Lucky Friday.  Under such review, if estimated undiscounted cash flows from Lucky Friday were less than its carrying value, an impairment loss would be recognized for the difference between the carrying value and the estimated fair value.  The carrying value of properties, plants, equipment and mineral interests at Lucky Friday as of September 30, 20182019 was approximately $428.8$437.0 million.  However, Lucky Friday has significant identified reserves and mineralized material and a current estimated mine life of approximately 2217 years.

 

On April 30, 2018, we settled with the National Labor Relations Board ("NLRB") an unfair labor practice claim made by the union. As part of the settlement, Hecla Limited rescinded its last, best and final contract offer implemented in March 2017. On May 4, 2018, we gave notice to the union that the parties to the labor dispute are at impasse, and implemented portions of our revised final offer presented in December 2017.

 

See Note 54 of Notes to Condensed Consolidated Financial Statements (Unaudited) for contingenciesa contingency related to various events occurringgroundwater monitoring at the Lucky Friday mine in prior periods.

 

 

The Casa Berardi Segment

 

Dollars are in thousands (except per ounce and per ton amounts)

 

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

  

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 
 

2018

  

2017

  

2018

  

2017

  

2019

  

2018

  

2019

  

2018

 

Sales

 $52,850  $53,989  $164,501  $139,524  $53,453  $52,850  $139,015  $164,501 

Cost of sales and other direct production costs

  (31,213

)

  (32,999

)

  (97,271

)

  (95,288

)

 (33,916

)

 (31,213

)

 (103,433

)

 (97,271

)

Depreciation, depletion and amortization

  (20,054

)

  (16,270

)

  (54,879

)

  (43,075

)

  (19,090

)

  (20,054

)

  (53,806

)

  (54,879

)

Cost of sales and other direct production costs and depreciation, depletion and amortization

  (51,267

)

  (49,269

)

  (152,150

)

  (138,363

)

  (53,006

)

  (51,267

)

  (157,239

)

  (152,150

)

Gross profit (loss)

 $1,583  $4,720  $12,351  $1,161  $447  $1,583  $(18,224

)

 $12,351 

Tons of ore milled

  353,840   326,145   1,052,326   949,946  337,351  353,840  1,014,698  1,052,326 

Production:

                       �� 

Gold (ounces)

  43,981   44,141   126,880   113,209  36,547  43,981  99,616  126,880 

Silver (ounces)

  9,559   9,659   30,748   26,681  6,637  9,559  21,041  30,748 

Payable metal quantities sold:

                         

Gold (ounces)

  43,682   42,053   128,327   111,046  35,811  43,682  101,071  128,327 

Silver (ounces)

  9,026   8,725   31,530   26,952  7,190  9,026  20,552  31,530 

Ore grades:

                         

Gold ounces per ton

  0.140   0.153   0.138   0.137  0.128  0.140  0.120  0.138 

Silver ounces per ton

  0.03   0.03   0.03   0.03  0.02  0.03  0.03  0.03 

Mining cost per ton

 $65.97  $82.95  $72.15  $81.95  $80.67  $65.97  $80.97  $72.15 

Milling cost per ton

 $15.05  $16.19  $15.91  $16.28  $18.39  $15.05  $17.50  $15.91 

Cash Cost, After By-product Credits, per Gold Ounce (1)

 $686  $750  $760  $858  $966  $686  $1,055  $760 

AISC, After By-product Credits, per Gold Ounce (1)

 $896  $1,091  $1,004  $1,226  $1,348  $896  $1,373  $1,004 

 

 

(1)

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).

 

Gross profit decreased by $3.1$1.1 million and increased by $11.2$30.6 million for the third quarter and first nine months of 2018,2019, respectively, compared to the same periods in 2017.2018. The decrease for the third quarter wasdecreases were primarily due to lower gold production due tovolume resulting from reduced mill throughput, average gold grades and recoveries. The lower gold prices. The increasegrades were as expected, and the decrease in gross profit for the first nine months of 2018 compared to 2017 was primarily due to higher gold production, due to increased mill throughput and recoveries resulted from planned adjustments to a number of mill components to accommodate a higher gold prices.throughput, and the requirement for a new carbon-in-leach tank drivetrain, which was installed in May 2019. We anticipate increased production in the fourth quarter of 2019.

 

Mining costs per ton were lowerhigher by 20%22% and 12% and milling unit costs decreased by 7% and 2%, respectively, in the third quarter and first nine months of 2018,2019, and milling costs were higher by 22% and 10% in the third quarter and first nine months of 2019, respectively, compared to the same periods in 2017,2018. The increases were due primarily to higherlower ore production.

 

 

The chart below illustrates the factors contributing to Cash Cost, After By-product Credits, Per Gold Ounce for the third quarter and first nine months of 20182019 and 2017:2018:

 

 

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

 

  

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

 
  

2018

  

2017

  

2018

  

2017

 

Cash Cost, Before By-product Credits, per Gold Ounce

 $689  $754  $764  $862 

By-product credits

  (3

)

  (4

)

  (4

)

  (4

)

Cash Cost, After By-product Credits, per Gold Ounce

 $686  $750  $760  $858 

  

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

 
  

2019

  

2018

  

2019

  

2018

 

Cash Cost, Before By-product Credits, per Gold Ounce

 $969  $689  $1,058  $764 

By-product credits

  (3

)

  (3

)

  (3

)

  (4

)

Cash Cost, After By-product Credits, per Gold Ounce

 $966  $686  $1,055  $760 

 

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

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2018

  

2017

  

2018

  

2017

 

AISC, Before By-product Credits, per Gold Ounce

 $899  $1,095  $1,008  $1,230 

By-product credits

  (3

)

  (4

)

  (4

)

  (4

)

AISC, After By-product Credits, per Gold Ounce

 $896  $1,091  $1,004  $1,226 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2019

  

2018

  

2019

  

2018

 

AISC, Before By-product Credits, per Gold Ounce

 $1,351  $899  $1,376  $1,008 

By-product credits

  (3

)

  (3

)

  (3

)

  (4

)

AISC, After By-product Credits, per Gold Ounce

 $1,348  $896  $1,373  $1,004 

 

The decreaseincrease in Cash Cost, After By-product Credits, per Gold Ounce for the third quarter and first nine months of 20182019 compared to the same periods of 20172018 was primarily due to lower stripping costs, with the nine-month period also impacted by higher gold production. The same factors, along with lower capital and exploration spending, resultedincrease in AISC, After By-product Credits, per Gold Ounce that was alsodue to lower in the third quartergold production and first nine months of 2018 compared to the same periods of 2017.higher capital spending, which included a tailings dam raise project, partially offset by lower exploration spending.

 

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.

 

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.

 

 

The San Sebastian Segment

 

Dollars are in thousands (except per ounce and per ton amounts)

 

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

  

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 
 

2018

  

2017

  

2018

  

2017

  

2019

  

2018

  

2019

  

2018

 

Sales

 $14,129  $25,589  $40,727  $66,866  $15,435  $14,129  $39,028  $40,727 

Cost of sales and other direct production costs

  (12,530

)

  (6,039

)

  (27,591

)

  (16,341

)

 (9,516

)

 (12,530

)

 (29,404

)

 (27,591

)

Depreciation, depletion and amortization

  (1,795

)

  (641

)

  (3,586

)

  (2,036

)

  (3,326

)

  (1,795

)

  (6,934

)

  (3,586

)

Cost of sales and other direct production costs and depreciation, depletion and amortization

  (14,325

)

  (6,680

)

  (31,177

)

  (18,377

)

  (12,842

)

  (14,325

)

  (36,338

)

  (31,177

)

Gross profit

 $(196

)

 $18,909  $9,550  $48,489  $2,593  $(196

)

 $2,690  $9,550 

Tons of ore milled

  39,739   36,482   111,916   111,623  45,232  39,739  135,576  111,916 

Production:

                         

Silver (ounces)

  521,931   880,885   1,593,770   2,498,638  541,636  521,931  1,446,450  1,593,770 

Gold (ounces)

  3,666   6,342   12,051   19,222  4,699  3,666  11,776  12,051 

Payable metal quantities sold:

                         

Silver (ounces)

  606,550   963,000   1,571,455   2,499,750  514,900  606,550  1,453,160  1,571,455 

Gold (ounces)

  4,240   7,465   12,288   19,955  4,442  4,240  11,582  12,288 

Ore grades:

                         

Silver ounces per ton

  14.16   25.48   15.36   23.71  13.36  14.16  11.78  15.36 

Gold ounces per ton

  0.11   0.18   0.12   0.18  0.12  0.11  0.10  0.12 

Mining cost per ton

 $171.87  $35.69  $157.21  $38.70  $102.94  $171.87  $112.17  $157.21 

Milling cost per ton

 $65.98  $69.42  $66.16  $66.64  $62.85  $65.98  $62.16  $66.16 

Cash Cost, After By-product Credits, per Silver Ounce (1)

 $12.02  $(3.12

)

 $8.28  $(3.23

)

 $3.70  $12.02  $7.77  $8.28 

AISC, After By-product Credits, per Silver Ounce (1)

 $16.95  $(0.83

)

 $13.34  $(0.14

)

 $7.21  $16.95  $12.14  $13.34 

 

 

(1)

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 CashAll-In Sustaining 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 $19.1$2.8 million and $38.9 million decreasesincrease in gross profit for the third quarter of 2019 compared to the third quarter of 2018 was primarily due to higher average silver and gold prices. The $6.9 million decrease in gross profit for the first nine months of 2018, respectively,2019 compared to the same periodsperiod of 2017 were primarily2018 was mainly due to lower silver and gold production due toas a result of lower ore grades, partially offset by higher mining costsaverage silver and lower silvergold prices. The third quarter was also impacted by lower gold prices and recoveries compared the third quarter of 2017. The lower grades and higher costs are the result of transitioning from open pit to underground mining. The ore processed in the thirdfirst quarter and first nine months of 20172018 came from higher grade deposits mined from shallow open pits. Production from the existing open pits was substantially completedended in December 2017; however, during the first halfquarter of 2018, a portion of the mill throughput primarily came from the ore stockpiled from the open pits and smaller-scale, open pit production.pits. In AprilJanuary 2017, we started development of a new underground portal and work to rehabilitaterehabilitation of historic underground infrastructure which allows us to mine deeper portions of the deposits at San Sebastian. Limited orefacilitate underground production. Ore production from underground began in Januaryin the first quarter of 2018 and has continued to increase during the year.since that time. The underground ore production is expected to havehas lower grades and involve higher mining costs than the open pit.

 

Mining and milling cost per ton were higherlower by 382%40% and by 306% for5%, respectively, in the third quarter of 2019 and by 29% and 6%, respectively, for the first nine months of 2018, respectively,2019 compared to the same periods of 2017, while there2018. The decreases were minor variances for milling costs compared to the prior year periods. The large increase in mining cost per ton wasmainly due to the transitionhigher ore tonnage.

 

The chart below illustrates the factors contributing to Cash Cost, After By-product Credits, Per Silver Ounce for the third quarter and first nine months of 20182019 and 2017:2018:

 

 

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

 

  

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

 
  

2018

  

2017

  

2018

  

2017

 

Cash Cost, Before By-product Credits, per Silver Ounce

 $20.55  $6.07  $18.01  $6.39 

By-product credits

  (8.53

)

  (9.19

)

  (9.73

)

  (9.62

)

Cash Cost, After By-product Credits, per Silver Ounce

 $12.02  $(3.12

)

 $8.28  $(3.23

)

  

Three Months Ended
September 30,

  

Nine Months Ended
September 30,

 
  

2019

  

2018

  

2019

  

2018

 

Cash Cost, Before By-product Credits, per Silver Ounce

 $16.54  $20.55  $18.97  $18.01 

By-product credits

  (12.84

)

  (8.53

)

  (11.20

)

  (9.73

)

Cash Cost, After By-product Credits, per Silver Ounce

 $3.70  $12.02  $7.77  $8.28 

 

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

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2018

  

2017

  

2018

  

2017

 

AISC, Before By-product Credits, per Silver Ounce

 $25.48  $8.36  $23.07  $9.48 

By-product credits

  (8.53

)

  (9.19

)

  (9.73

)

  (9.62

)

AISC, After By-product Credits, per Silver Ounce

 $16.95  $(0.83

)

 $13.34  $(0.14

)

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2019

  

2018

  

2019

  

2018

 

AISC, Before By-product Credits, per Silver Ounce

 $20.05  $25.48  $23.34  $23.07 

By-product credits

  (12.84

)

  (8.53

)

  (11.20

)

  (9.73

)

AISC, After By-product Credits, per Silver Ounce

 $7.21  $16.95  $12.14  $13.34 

 

The increasedecrease in Cash Cost, After By-product Credits, per Silver Ounce in the third quarter and first nine months of 20182019 compared to the same periods of 20172018 was primarily the result of higher by-product credits on a per-ounce basis. The reduction in the third quarter was also due to lower silver production and higher mining costs due to the transition from open pit to underground mining.on a per-ounce basis. The same factors along with lower exploration spending, partially offset by higher exploration andsustaining capital, spending, resulted in the increasesdecrease in AISC, After By-product Credits, per Silver Ounce for the third quarter and first nine months of 20182019 compared to 2017.

2018.

 

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.

 

We periodically review our revenues to ensure that reporting of primary products and by-products is appropriate. 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. 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.

 

The Nevada Operations Segment

 

On July 20, 2018, we completed the acquisition of all of the issued and outstanding common shares of Klondex for total consideration of $414.2$413.9 million. See Note 1413 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information. The acquisition gives us 100% ownership of the Fire Creek, Midas and Hollister mines, where gold is the primary metal produced, the Midas and Aurora mill,mills, and interests in various gold exploration properties, all located in northern Nevada. The tabular information below reflects our ownership of the Nevada Operations commencing on July 20, 2018.

 

Dollars are in thousands (except per ounce and per ton amounts)

 

Three and Nine Months Ended
September 30,

 
  

2018

 

Sales

 $11,494 

Cost of sales and other direct production costs

  (10,132

)

Depreciation, depletion and amortization

  (9,187

)

Cost of sales and other direct production costs and depreciation, depletion and amortization

  (19,319

)

Gross profit (loss)

 $(7,825

)

Tons of ore milled

  55,899 

Production:

    

Gold (ounces)

  13,789 

Silver (ounces)

  84,145 

Payable metal quantities sold:

    

Gold (ounces)

  9,033 

Silver (ounces)

  44,044 

Ore grades:

    

Gold ounces per ton

  0.288 

Silver ounces per ton

  2.05 

Mining cost per ton

 $186.12 

Milling cost per ton

 $70.39 

Cash Cost, After By-product Credits, per Gold Ounce (1)

 $1,179 

AISC, After By-product Credits, per Gold Ounce (1)

 $1,932 

Dollars are in thousands (except per ounce and per ton amounts)

 

Three Months Ended

September 30,

  

Nine Months Ended
September 30,

 
  

2019

  

2018

  

2019

  

2018

 

Sales

 $29,612  $11,494  $64,586  $11,494 

Cost of sales and other direct production costs

  (17,261

)

  (10,132

)

  (60,098

)

  (10,132

)

Depreciation, depletion and amortization

  (19,050

)

  (9,187

)

  (45,179

)

  (9,187

)

Cost of sales and other direct production costs and depreciation, depletion and amortization

  (36,311

)

  (19,319

)

  (105,277

)

  (19,319

)

Gross profit (loss)

 $(6,699

)

 $(7,825

)

 $(40,691

)

 $(7,825

)

Tons of ore milled

  63,954   55,899   163,736   55,899 

Production:

                

Gold (ounces)

  22,381   13,789   45,439   13,789 

Silver (ounces)

  43,377   84,145   160,264   84,145 

Payable metal quantities sold:

                

Gold (ounces)

  19,644   9,033   44,704   9,033 

Silver (ounces)

  36,736   44,044   158,123   44,044 

Ore grades:

                

Gold ounces per ton

  0.389   0.288   0.320   0.288 

Silver ounces per ton

  1.54   2.05   1.81   2.05 

Mining cost per ton

 $149.16  $186.12  $158.25  $186.12 

Milling cost per ton

 $67.66  $70.39  $81.73  $70.39 

Cash Cost, After By-product Credits, per Gold Ounce (1)

 $817  $1,179  $1,165  $1,179 

AISC, After By-product Credits, per Gold Ounce (1)

 $992  $1,932  $1,841  $1,932 

 

 

(1)

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 CashAll-In Sustaining 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).

 

2019 compared to the same period of 2018 was due to higher costs and higher depreciation, depletion and amortization, partially offset by higher gold and silver production and prices. Cost of sales and other direct production costs for the third quarter and first nine months of 2019 includes write-downs totaling approximately $4.6 million and $32.9 million, respectively, of the values of stockpile, in-process and finished goods inventory to their net realizable value. Cost of sales and other direct production costs for the period from July 20 to September 30, 2018 includes write-downs$7.2 million in such write-downs.

Mining costs per ton were lower by 20% and 15% for the valuesthird quarter and first nine months of stockpile, in-process2019, respectively, compared to the same periods of 2018 due to higher tonnage and finished goods inventorylower costs for labor, contractors and consumables. Milling costs per ton were lower by 4% for the third quarter of 2019 compared to their net realizable value, totaling $7.2 million.the third quarter of 2018 due to higher tonnage. Milling costs per ton were higher by 16% for the first nine months of 2019 compared to the same period of 2018 due to higher labor costs, partially offset by higher tonnage.

 

The chart below illustrates the factors contributing to Cash Cost, After By-product Credits, Per Gold Ounce for the third quarter and first nine months of 2019 and 2018:

 

 

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

 

 

Three and Nine Months Ended
September 30,

 

Nine Months Ended
September 30,

 
 

Three and Nine Months Ended
September 30, 2018

  

2019

  

2018

  

2019

  

2018

 

Cash Cost, Before By-product Credits, per Gold Ounce

 $1,268  $851  $1,268  $1,221  $1,268 

By-product credits

  (89

)

  (34

)

  (89

)

  (56

)

  (89

)

Cash Cost, After By-product Credits, per Gold Ounce

 $1,179  $817  $1,179  $1,165  $1,179 

 

 

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

 

 

Three and Nine Months Ended
September 30,

 

Nine Months Ended

September 30,

 
 

Three and Nine Months Ended
September 30, 2018

  

2019

  

2018

  

2019

  

2018

 

AISC, Before By-product Credits, per Gold Ounce

 $2,021  $1,026  $2,021  $1,897  $2,021 

By-product credits

  (89

)

  (34

)

  (89

)

  (56

)

  (89

)

AISC, After By-product Credits, per Gold Ounce

 $1,932  $992  $1,932  $1,841  $1,932 

The decrease in Cash Cost, Before By-product Credits, per Gold Ounce in the third quarter and first nine months of 2019 compared to the same periods of 2018 is due to lower mining and milling costs on a per-ounce basis, due primarily to increased gold production resulting from higher ore grades and mill throughput. The same factors, along with lower exploration spending, resulted in the decrease in AISC, After By-product Credits, per Gold Ounce in the third quarter and first nine months of 2019 compared to the same periods of 2018. The lower AISC, After By-product Credits, per Gold Ounce, for the third quarter of 2019 was also due to lower capital spending, while capital spending was higher, on a per ounce basis, in the first nine months of 2019, compared to the same periods of 2018.

 

We believe the identification of silver as a by-product credit is appropriate at Nevada Operations 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 Nevada Operations to warrant classification of such as a co-product. Because we consider silver to be a by-product of our gold production at Nevada Operations, 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.

 

Transition and improvement activities since our acquisition of the Nevada Operations have included an increase in underground development and rehabilitation at the Fire Creek mine, progress on construction of a new tailings dam, and work to installinstallation of a carbon-in-leach circuit in order to improve recoveries at the Midas mill, where ore from each of the mines is processed. In addition,processed, and start of development of a new drift to the Hatter Graben area at Hollister.

Because total production and capital costs have exceeded sales since acquisition, we decidedconducted a review of our Nevada operations during the second quarter of 2019. The review resulted in (i) a plan to curtaillimit near-term mining at Fire Creek to areas where development has already been completed and (ii) suspension of production at the Midas mine,Hollister and are utilizing somedevelopment of the equipment and employees from that location forHatter Graben project at Hollister, resulting in lower anticipated near-term production and capitalized development costs. We determined this review and the resulting plans represented a triggering event requiring an assessment of recoverability of the carrying value of our long-lived assets ("carrying value assessment") in Nevada.  In our carrying value assessment, our estimate of undiscounted future cash flows exceeded the carrying value of the Nevada assets, and we concluded impairment was not indicated, as of June 30, 2019.  Estimates of undiscounted future cash flows are dependent upon, among other factors, estimates of: (i) metals to be extracted and recovered from proven and probable ore reserves and identified mineralization beyond proven and probable reserves, (ii) future operating and capital costs, and (iii) future metals prices. The carrying value assessment assumed a slow-down and deferral of near-term production over a period of twelve months as we continue to address operational challenges and assess the appropriate next steps.  In the assessment, resumption of previously-anticipated production levels is assumed to take place in the first part of 2021; however, this will be contingent upon the resolution of operational issues, including, but not limited to: (i) ore grade control, (ii) mill recoveries and reconciliation, (iii) the potential availability of third-party processing of ore produced at the Fire Creek mine, and Hollister mines.(iv) availability of sufficient resources (including funding) to resume and complete necessary development work and drilling on a timely basis (collectively the "Operational Issues").

 

Our estimates of undiscounted future cash flows for our Nevada assets are most sensitive to (i) changes in metal prices and (ii) the timely resumption of previously-anticipated production levels. Our carrying value assessment assumed a weighted-average gold price of approximately $1,345 per ounce.  A sensitivity analysis was performed, and decreasing the weighted-average gold price assumption to below approximately $1,280 per ounce, with all other variables held constant, would have resulted in estimated undiscounted future cash flows that were less than the carrying value of the Nevada assets as of June 30, 2019.  In the third quarter of 2019, we continued to pursue third-party ore processing arrangements with the potential to reduce transportation and milling costs.  Additionally, we have commenced studies of the assets in order to determine how to mine them with lower costs.  There were no significant events or changes in circumstances during the third quarter of 2019 representing a triggering event requiring a carrying value assessment in Nevada.  If events or changes occur that adversely affect our estimate of undiscounted future cash flows from our Nevada assets, including (i) an increase in expected costs, (ii) a sustained decline in gold prices, or (iii) suspension of production and placement of our Nevada operations on care-and-maintenance due to the inability to resolve the Operational Issues identified above in a timely manner, or other factors, we may be required to again perform the carrying value assessment for our Nevada assets.  If a future assessment indicates the carrying value of the assets exceeds the estimated undiscounted future cash flows, an impairment loss, which could be material, would be recognized for the difference between the carrying value and fair value of the assets. The estimate of potential impairment involves significant judgment and assumptions, and no assurance can be given as to whether we will recognize an impairment in the future or the amount of a potential impairment.  The carrying value of our properties, plants, equipment and mineral interests in Nevada as of September 30, 2019 was $524.8 million, consisting of the following (in millions):

Value beyond proven and probable reserves

 $382.2 

Mineral properties and development

  57.7 

Mills and tailings facilities

  46.4 

Buildings and equipment

  33.0 

Land

  2.9 

Asset retirement obligation asset

  2.6 

Total

 $524.8 

See Part II, Item 1A - Risk Factors in our quarterly report on Form 10-Q for the quarter ended June 30, 2019 for a discussion of certain risks relating to our recent and ongoing analysis of the carrying value of the Nevada assets.

 

Corporate Matters

 

Employee Benefit Plans

 

Our defined benefit pension plans provide a significant benefit to our employees, but also represent a significant liability to us. The liability recorded for the funded status of our plans was $44.6$51.3 million and $47.1$48.3 million as of September 30, 20182019 and December 31, 2017,2018, respectively. In April 2018 and July 2018, we made cash contributions of  $1.3 million and $1.2 million, respectively, to our defined benefit plans. In September 2018May 2019, we contributed $5.5a total of approximately $3.6 million in shares of our common stock. We arestock to our defined benefit plans, and do not requiredexpect to make additional contributions to our defined benefitthe plans in 2018.2019. While the economic variables which will determine future funding requirements are uncertain, we expect contributions to continue to be required in future years under current plan provisions, and we periodically examine the plans for affordability and competitiveness. See Note 8 7 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information.

 

Income Taxes

 

On July 20, 2018, we acquired all of the issued and outstanding common shares of Klondex in a taxable stock acquisition. Klondex was a Canadian holding company which was amalgamated into our Canadian acquisition entity to form Klondex Mines Unlimited Liability Company (“KMULC”), a Canadian unlimited liability company. KMULC is the Canadian parent of a U.S. consolidated group located in Nevada.Nevada (the "Nevada U.S. Group"). We filed an election to treat KMULC as a corporation. As a result of the Canadian parent U.S. corporate status, the Nevada U.S. consolidated groupGroup did not join the existing U.S. consolidated tax group for Hecla Mining Company and subsidiaries (“Legacy Hecla”Hecla U.S.”). A net deferred tax liability of $50.1$59.5 million was recorded for the fair market value of assets acquired in excess of carryover tax basis. See Note 1413 of Notes to Condensed Consolidated Financial Statements (Unaudited) for additional information regarding the acquisition.

 

Each reporting period we assess our deferred tax balance based on a review of long-range forecasts and quarterly activity.  We recognized a full valuation allowance on our Legacy Hecla U.S. net deferred tax assets at the end of 2017 based on results of tax law changes and maintain a full valuation allowance on Legacy Hecla U.S. net deferred tax assets at September 30, 2018. .2019.

 

OnOur net U.S. deferred tax liability for the Nevada U.S. Group at September 30, 2019 was $43.1 million compared to the $63.2 million net deferred tax liability at December 22, 2017,31, 2018. The $20.1 million decrease includes $9.8 million related to an adjustment to the United States enacted tax reform legislation known as H.R. 1, commonly referredpurchase price allocation for the July 2018 acquisition of Klondex (see Note 13 of Notes to as the “Tax Cuts and Jobs Act” (the “Act”), resulting in significant modifications to prior law. Among other changes, the Act repealed corporate Alternative Minimum Tax ("AMT"Condensed Consolidated Financial Statements (Unaudited)) and reduced$10.3 million for current period activity in Nevada. The deferred tax liability is primarily related to the U.S. corporate income tax rate to 21 percent. As a resultexcess of the Act, our AMT credit carryforwardcarrying value of $9.4 million became partially refundable through 2020 and fully refundable in 2021. Due to our U.Sthe mineral resource assets over the tax loss position, the AMT refund is classified as a long-term receivable.bases of those assets for U.S. tax reporting.

 

Our net Canadian deferred tax liability at September 30, 20182019 was $118.1$100.3 million, a decrease of $3.4$10.0 million from the $121.5$110.3 million net deferred tax liability at December 31, 2017.2018. The deferred tax liability is primarily related to the excess of the carrying value of the mineral resource assets over the tax bases of those assets for Canadian tax reporting.

 

Our Mexican net deferred tax asset at September 30, 20182019 was $1.9$3.7 million, an increase of $0.1$1.7 million from the net deferred tax asset of $1.8$2.0 million at December 31, 2017.2018. A $1.6$2.1 million valuation allowance remains on deferred tax assets in Mexico.

 

the Tax Cuts and Jobs Act enacted in December 2017, our Alternative Minimum Tax ("AMT") credit carryforward of $11.9 million became partially refundable through 2020 and fully refundable in 2021. In December 2018, the U.S. government determined refunds of AMT credit carried forward will not be subject to sequestration; therefore, the valuation allowance was removed for $0.6 million. $6.9 million of the AMT credit carry forward is classified as a current receivable and $5.0 million is classified as a long-term receivable.

 

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 tables below present reconciliations between the most comparable GAAP measure of cost of sales and other direct production costs and depreciation, depletion and amortization to the non-GAAP measures of (i) Cash Cost, Before By-product Credits, (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, Casa Berardi and Nevada Operations units and for the Company for the three- and nine-month periods ended September 30, 20182019 and 2017.2018.

 

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 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. We have recently started reportinguse 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 includes 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 silver and gold mining company, we also use these statistics on an aggregate basis - aggregating the Greens Creek, Lucky Friday and San Sebastian mines to compare our performance with that of other silver mining companies, and aggregating Casa Berardi and Nevada Operations for comparison towith other gold mining companies. Similarly, these statistics are useful in identifying acquisition and investment opportunities as they provide a common tool for measuring the financial performance of other mines with varying geologic, metallurgical and operating characteristics.

 

Cash Cost, Before By-product Credits and 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.

 

In addition to the uses described above, Cash Cost, After By-product Credits, per Ounce and 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. We also use these measurements for the comparative monitoring of performance of our mining operations period-to-period from a cash flow perspective.

 

The Casa Berardi, Nevada Operations and combined gold properties information below reports Cash Cost, After By-product Credits, per Gold Ounce and AISC, After By-product Credits, per Gold Ounce for the production of gold, their primary product, and by-product revenues earned from silver, which is a by-product at Casa Berardi and Nevada Operations. 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 and Nevada Operations units is not included as a by-product credit when calculating Cash Cost, 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 and Nevada Operations.

 

 

In thousands (except per ounce amounts)

 

Three Months Ended September 30, 2018

  

Three Months Ended September 30, 2019

 
 

Greens Creek

  

Lucky Friday(2)

  

San Sebastian

  

Corporate(3)

  

Total Silver

  

Greens

Creek

  

Lucky

Friday(2)

  

San

Sebastian

  

Corporate(3)

  

Total Silver

 

Cost of sales and other direct production costs and depreciation, depletion and amortization

 $52,163   (1) $14,325      $66,487  $40,475  4,018  $12,842     $57,335 

Depreciation, depletion and amortization

  (12,428

)

     (1,795

)

      (14,223

)

 (9,008

)

 (300

)

 (3,326

)

    (12,634

)

Treatment costs

  8,267   134   205       8,606  13,003  500  63     13,566 

Change in product inventory

  (4,480

)

     (1,549

)

      (6,029

)

 8,456  (134

)

 (335

)

    7,987 

Reclamation and other costs

  (965

)

  103   (458

)

      (1,320

)

 (92

)

   (294

)

    (386

)

Exclusion of Lucky Friday costs

     (236

)

         (236

)

     (4,084

)

        (4,084

)

Cash Cost, Before By-product Credits (1)

  42,557      10,728       53,285  52,834    8,950     61,784 

Reclamation and other costs

  849      105       954  737    123     860 

Exploration

  1,771      1,982   473   4,226  465    1,252  167  1,884 

Sustaining capital

  11,029      486   704   12,219  8,966    528    9,494 

General and administrative

              10,327   10,327              7,978   7,978 

AISC, Before By-product Credits (1)

  56,206      13,301       81,011  63,002    10,853     82,000 

By-product credits:

                               

Zinc

  (20,674

)

             (20,674

)

 (22,452

)

        (22,452

)

Gold

  (12,229

)

     (4,450

)

      (16,679

)

 (17,517

)

   (6,946

)

    (24,463

)

Lead

  (6,041

)

             (6,041

)

  (7,649

)

            (7,649

)

Total By-product credits

  (38,944

)

     (4,450

)

      (43,394

)

  (47,618

)

     (6,946

)

     (54,564

)

Cash Cost, After By-product Credits

 $3,613  $  $6,278      $9,891  $5,216  $  $2,004     $7,220 

AISC, After By-product Credits

 $17,262  $  $8,851      $37,617  $15,384  $  $3,907     $27,436 

Divided by silver ounces produced

  1,876      522       2,398  2,544    541     3,085 

Cash Cost, Before By-product Credits, per Silver Ounce

 $22.67  $  $20.55      $22.22  $20.77  $  $16.54     $20.03 

By-product credits per ounce

  (20.75

)

     (8.53

)

      (18.10

)

  (18.72

)

     (12.84

)

     (17.69

)

Cash Cost, After By-product Credits, per Silver Ounce

 $1.92  $  $12.02      $4.12  $2.05  $  $3.70     $2.34 

AISC, Before By-product Credits, per Silver Ounce

 $29.95  $  $25.48      $33.78  $24.77  $  $20.05     $26.58 

By-product credits per ounce

  (20.75

)

     (8.53

)

      (18.10

)

  (18.72

)

     (12.84

)

     (17.69

)

AISC, After By-product Credits, per Silver Ounce

 $9.20  $  $16.95      $15.68  $6.05  $  $7.21     $8.89 

 

 

In thousands (except per ounce amounts)

 

Three Months Ended September 30, 2018

  

Three Months Ended September 30, 2019

 
 

Casa Berardi

  

Nevada

Operations (4)

  

Total Gold

  

Casa Berardi

  

Nevada

Operations (4)

  

Total Gold

 

Cost of sales and other direct production costs and depreciation, depletion and amortization

 $51,267  $19,319  $70,586  $53,006  $36,311  $89,317 

Depreciation, depletion and amortization

  (20,054

)

  (9,187

)

  (29,241

)

 (19,090

)

 (19,050

)

 (38,140

)

Treatment costs

  535   42   577  561  45  606 

Change in product inventory

  (1,303

)

  7,311   6,008  1,070  2,118  3,188 

Reclamation and other costs

  (140

)

     (140

)

  (129

)

  (377

)

  (506

)

Cash Cost, Before By-product Credits (1)

  30,305   17,485   47,790  35,418  19,047  54,465 

Reclamation and other costs

  138      138  130  378  508 

Exploration

  854   3,322   4,176  603  1,232  1,835 

Sustaining capital

  8,244   7,061   15,305   13,237   2,305   15,542 

General and administrative

         

AISC, Before By-product Credits (1)

  39,541   27,868   67,409  49,388  22,962  72,350 

By-product credits:

                   

Silver

  (142

)

  (1,232

)

  (1,374

)

  (111

)

  (755

)

  (866

)

Total By-product credits

  (142

)

  (1,232

)

  (1,374

)

  (111

)

  (755

)

  (866

)

Cash Cost, After By-product Credits

 $30,163  $16,253  $46,416  $35,307  $18,292  $53,599 

AISC, After By-product Credits

 $39,399  $26,636  $66,035  $49,277  $22,207  $71,484 

Divided by gold ounces produced

  44   14   58  37  22  59 

Cash Cost, Before By-product Credits, per Gold Ounce

 $689  $1,268  $827  $969  $851  $924 

By-product credits per ounce

  (3

)

  (89

)

  (24

)

  (3

)

  (34

)

  (15

)

Cash Cost, After By-product Credits, per Gold Ounce

 $686  $1,179  $803  $966  $817  $909 

AISC, Before By-product Credits, per Gold Ounce

 $899  $2,021  $1,167  $1,351  $1,026  $1,228 

By-product credits per ounce

  (3

)

  (89

)

  (24

)

  (3

)

  (34

)

  (15

)

AISC, After By-product Credits, per Gold Ounce

 $896  $1,932  $1,143  $1,348  $992  $1,213 

 

 

In thousands (except per ounce amounts)

 

Three Months Ended September 30, 2018

  

Three Months Ended September 30, 2019

 
 

Total Silver

  

Total Gold

  

Total

  

Total

Silver

  

Total Gold

  

Total

 

Cost of sales and other direct production costs and depreciation, depletion and amortization

 $66,487   70,586  $137,073  $57,335  89,317  $146,652 

Depreciation, depletion and amortization

  (14,223

)

  (29,241

)

  (43,464

)

 (12,634

)

 (38,140

)

 (50,774

)

Treatment costs

  8,606   577   9,183  13,566  606  14,172 

Change in product inventory

  (6,029

)

  6,008   (21

)

 7,987  3,188  11,175 

Reclamation and other costs

  (1,320

)

  (140

)

  (1,460

)

 (386

)

 (506

)

 (892

)

Exclusion of Lucky Friday costs

  (236

)

     (236

)

  (4,084

)

     (4,084

)

Cash Cost, Before By-product Credits (1)

  53,285   47,790   101,075  61,784  54,465  116,249 

Reclamation and other costs

  954   138   1,092  860  508  1,368 

Exploration

  4,226   4,176   8,402  1,884  1,835  3,719 

Sustaining capital

  12,219   15,305   27,524  9,494  15,542  25,036 

General and administrative

  10,327      10,327   7,978      7,978 

AISC, Before By-product Credits (1)

  81,011   67,409   148,420  82,000  72,350  154,350 

By-product credits:

                   

Zinc

  (20,674

)

     (20,674

)

 (22,452

)

   (22,452

)

Gold

  (16,679

)

     (16,679

)

 (24,463

)

   (24,463

)

Lead

  (6,041

)

     (6,041

)

 (7,649

)

   (7,649

)

Silver

      (1,374

)

  (1,374

)

      (866

)

  (866

)

Total By-product credits

  (43,394

)

  (1,374

)

  (44,768

)

  (54,564

)

  (866

)

  (55,430

)

Cash Cost, After By-product Credits

 $9,891  $46,416  $56,307  $7,220  $53,599  $60,819 

AISC, After By-product Credits

 $37,617  $66,035  $103,652  $27,436  $71,484  $98,920 

Divided by ounces produced

  2,398   58      3,085  59    

Cash Cost, Before By-product Credits, per Ounce

 $22.22  $827      $20.03  $924    

By-product credits per ounce

  (18.10

)

  (24

)

      (17.69

)

  (15

)

   

Cash Cost, After By-product Credits, per Ounce

 $4.12  $803      $2.34  $909    

AISC, Before By-product Credits, per Ounce

 $33.78  $1,167      $26.58  $1,228    

By-product credits per ounce

  (18.10

)

  (24

)

      (17.69

)

  (15

)

   

AISC, After By-product Credits, per Ounce

 $15.68  $1,143      $8.89  $1,213    

 

 

In thousands (except per ounce amounts)

 

Three Months Ended September 30, 2017

  

Three Months Ended September 30, 2018

 
 

Greens Creek

  

Lucky Friday(2)

  

San Sebastian

  

Corporate(3)

  

Total Silver

  

Casa Berardi (Gold)

  

Total

  

Greens

Creek

  

Lucky

Friday(2)

  

San

Sebastian

  

Corporate(3)

  

Total

Silver

 

Cost of sales and other direct production costs and depreciation, depletion and amortization

 $41,927  $  $6,680      $48,607  $49,269  $97,876  $52,163  $(1

)

 $14,325     $66,487 

Depreciation, depletion and amortization

  (12,607

)

     (641

)

      (13,248

)

  (16,270

)

  (29,518

)

 (12,428

)

   (1,795

)

    (14,223

)

Treatment costs

  12,067   440   422       12,929   682   13,611  8,267  134  205     8,606 

Change in product inventory

  7,675   1,960   (627

)

      9,008   (288

)

  8,720  (4,480

)

   (1,549

)

    (6,029

)

Reclamation and other costs

  (394

)

  18   (494

)

      (870

)

  (124

)

  (994

)

 (965

)

 103  (458

)

    (1,320

)

Exclusion of Lucky Friday costs

     (236

)

        (236

)

Cash Cost, Before By-product Credits (1)

  48,668   2,418   5,340       56,426   33,269   89,695  42,557    10,728     53,285 

Reclamation and other costs

  666   38   117       821   123   944  849    105     954 

Exploration

  1,944   (2

)

  1,495   477   3,914   1,161   5,075  1,771    1,982  473  4,226 

Sustaining capital

  8,210   119   402   1,105   9,836   13,775   23,611  11,029    486  704  12,219 

General and administrative

              9,529   9,529       9,529              10,327   10,327 

AISC, Before By-product Credits (1)

  59,488   2,573   7,354       80,526   48,328   128,854  56,206    13,301     81,011 

By-product credits:

                                       

Zinc

  (27,046

)

  (293)          (27,339

)

      (27,339

)

 (20,674

)

        (20,674

)

Gold

  (13,907

)

     (8,088

)

      (21,995

)

      (21,995

)

 (12,229

)

   (4,450

)

    (16,679

)

Lead

  (8,067

)

  (1,102)          (9,169

)

      (9,169

)

  (6,041

)

            (6,041

)

Silver

                      (161

)

  (161

)

Total By-product credits

  (49,020

)

  (1,395)  (8,088

)

      (58,503

)

  (161

)

  (58,664

)

  (38,944

)

     (4,450

)

     (43,394

)

Cash Cost, After By-product Credits

 $(352

)

 $1,023  $(2,748

)

     $(2,077

)

 $33,108  $31,031  $3,613  $  $6,278     $9,891 

AISC, After By-product Credits

 $10,468  $1,178  $(734

)

     $22,023  $48,167  $70,190  $17,262  $  $8,851     $37,617 

Divided by ounces produced

  2,344   88   880       3,312   44      1,876    522     2,398 

Cash Cost, Before By-product Credits, per Ounce

 $20.75  $27.44  $6.07      $17.03  $754      $22.67  $  $20.55     $22.22 

By-product credits per ounce

  (20.90

)

  (15.84

)

  (9.19

)

      (17.66

)

  (4

)

      (20.75

)

     (8.53

)

     (18.10

)

Cash Cost, After By-product Credits, per Ounce

 $(0.15

)

 $11.60  $(3.12

)

     $(0.63

)

 $750      $1.92  $  $12.02     $4.12 

AISC, Before By-product Credits, per Ounce

 $25.37  $29.21  $8.36      $24.31  $1,095      $29.95  $  $25.48     $33.78 

By-product credits per ounce

  (20.90

)

  (15.84

)

  (9.19

)

      (17.66

)

  (4

)

      (20.75

)

     (8.53

)

     (18.10

)

AISC, After By-product Credits, per Ounce

 $4.47  $13.37  $(0.83

)

     $6.65  $1,091      $9.20  $  $16.95     $15.68 

 

 

In thousands (except per ounce amounts)

 

Nine Months Ended September 30, 2018

  

Three Months Ended September 30, 2018

 
 

Greens Creek

  

Lucky Friday(2)

  

San Sebastian

  

Corporate(3)

  

Total Silver

  

Casa Berardi

  

Nevada

Operations (4)

  

Total Gold

 

Cost of sales and other direct production costs and depreciation, depletion and amortization

 $141,763  $5,844  $31,177      $178,784  $51,267  $19,319  $70,586 

Depreciation, depletion and amortization

  (34,880

)

  (803

)

  (3,586

)

      (39,269

)

 (20,054

)

 (9,187

)

 (29,241

)

Treatment costs

  29,136   761   627       30,524  535  42  577 

Change in product inventory

  995   (2,182

)

  1,858       671  (1,303

)

 7,311  6,008 

Reclamation and other costs

  (2,323

)

     (1,374

)

      (3,697

)

  (140

)

     (140

)

Exclusion of Lucky Friday costs

     (3,620

)

          (3,620

)

Cash Cost, Before By-product Credits (1)

  134,691      28,702       163,393  30,305  17,485  47,790 

Reclamation and other costs

  2,548      314       2,862  138    138 

Exploration

  2,909      6,628   1,351   10,888  854  3,322  4,176 

Sustaining capital

  34,694      1,119   1,338   37,151   8,244   7,061   15,305 

General and administrative

              27,849   27,849 

AISC, Before By-product Credits (1)

  174,842      36,763       242,143  39,541  27,868  67,409 

By-product credits:

                           

Zinc

  (80,308

)

             (80,308

)

Gold

  (43,237

)

      (15,505

)

      (58,742

)

Lead

  (24,037

)

             (24,037

)

Silver

  (142

)

  (1,232

)

  (1,374

)

Total By-product credits

  (147,582

)

     (15,505

)

      (163,087

)

  (142

)

  (1,232

)

  (1,374

)

Cash Cost, After By-product Credits

 $(12,891

)

 $  $13,197      $306  $30,163  $16,253  $46,416 

AISC, After By-product Credits

 $27,260  $  $21,258      $79,056  $39,399  $26,636  $66,035 

Divided by silver ounces produced

  5,789      1,594       7,383 

Cash Cost, Before By-product Credits, per Silver Ounce

 $23.27  $  $18.01      $22.14 

Divided by ounces produced

 44  14  58 

Cash Cost, Before By-product Credits, per Ounce

 $689  $1,268  $827 

By-product credits per ounce

  (25.49

)

     (9.73

)

      (22.09

)

  (3

)

  (89

)

  (24

)

Cash Cost, After By-product Credits, per Silver Ounce

 $(2.22

)

 $  $8.28      $0.05 

AISC, Before By-product Credits, per Silver Ounce

 $30.20  $  $23.07      $32.80 

Cash Cost, After By-product Credits, per Ounce

 $686  $1,179  $803 

AISC, Before By-product Credits, per Ounce

 $899  $2,021  $1,167 

By-product credits per ounce

  (25.49

)

     (9.73

)

      (22.09

)

  (3

)

  (89

)

  (24

)

AISC, After By-product Credits, per Silver Ounce

 $4.71  $  $13.34      $10.71 

AISC, After By-product Credits, per Ounce

 $896  $1,932  $1,143 

 

 

In thousands (except per ounce amounts)

 

Nine Months Ended September 30, 2018

  

Three Months Ended September 30, 2018

 
 

Casa Berardi

  

Nevada

Operations (4)

  

Total Gold

  

Total

Silver

  

Total Gold

  

Total

 

Cost of sales and other direct production costs and depreciation, depletion and amortization

 $152,150  $19,319  $171,469  $66,487  70,586  $137,073 

Depreciation, depletion and amortization

  (54,879

)

  (9,187

)

  (64,066

)

 (14,223

)

 (29,241

)

 (43,464

)

Treatment costs

  1,628   42   1,670  8,606  577  9,183 

Change in product inventory

  (1,482

)

  7,311   5,829  (6,029

)

 6,008  (21

)

Reclamation and other costs

  (421

)

     (421

)

 (1,320

)

 (140

)

 (1,460

)

Exclusion of Lucky Friday costs

  (236

)

     (236

)

Cash Cost, Before By-product Credits (1)

  96,996   17,485   114,481  53,285  47,790  101,075 

Reclamation and other costs

  421      421  954  138  1,092 

Exploration

  3,374   3,322   6,696  4,226  4,176  8,402 

Sustaining capital

  27,120   7,061   34,181  12,219  15,305  27,524 

General and administrative

           10,327      10,327 

AISC, Before By-product Credits (1)

  127,911   27,868   155,779  81,011  67,409  148,420 

By-product credits:

                   

Zinc

 (20,674

)

   (20,674

)

Gold

 (16,679

)

   (16,679

)

Lead

 (6,041

)

   (6,041

)

Silver

  (491

)

  (1,232

)

  (1,723

)

      (1,374

)

  (1,374

)

Total By-product credits

  (491

)

  (1,232

)

  (1,723

)

  (43,394

)

  (1,374

)

  (44,768

)

Cash Cost, After By-product Credits

 $96,505  $16,253  $112,758  $9,891  $46,416  $56,307 

AISC, After By-product Credits

 $127,420  $26,636  $154,056  $37,617  $66,035  $103,652 

Divided by gold ounces produced

  127   14   141 

Cash Cost, Before By-product Credits, per Gold Ounce

 $764  $1,268  $814 

Divided by ounces produced

 2,398  58    

Cash Cost, Before By-product Credits, per Ounce

 $22.22  $827    

By-product credits per ounce

  (4

)

  (89

)

  (12

)

  (18.10

)

  (24

)

   

Cash Cost, After By-product Credits, per Gold Ounce

 $760  $1,179  $802 

AISC, Before By-product Credits, per Gold Ounce

 $1,008  $2,021  $1,107 

Cash Cost, After By-product Credits, per Ounce

 $4.12  $803    

AISC, Before By-product Credits, per Ounce

 $33.78  $1,167    

By-product credits per ounce

  (4

)

  (89

)

  (12

)

  (18.10

)

  (24

)

   

AISC, After By-product Credits, per Gold Ounce

 $1,004  $1,932  $1,095 

AISC, After By-product Credits, per Ounce

 $15.68  $1,143    

 

 

In thousands (except per ounce amounts)

 

Nine Months Ended September 30, 2018

  

Nine Months Ended September 30, 2019

 
 

Total Silver

  

Total Gold

  

Total

  

Greens

Creek

  

Lucky

Friday(2)

  

San

Sebastian

  

Corporate(3)

  

Total Silver

 

Cost of sales and other direct production costs and depreciation, depletion and amortization

 $178,784   171,469  $350,253  $140,237  $11,149  $36,338     $187,724 

Depreciation, depletion and amortization

  (39,269

)

  (64,066

)

  (103,335

)

 (32,228

)

 (891

)

 (6,934

)

    (40,053

)

Treatment costs

  30,524   1,670   32,194  34,319  1,834  432     36,585 

Change in product inventory

  671   5,829   6,500  9,168  708  (1,378

)

    8,498 

Reclamation and other costs

  (3,697

)

  (421

)

  (4,118

)

 (1,439

)

   (1,030

)

    (2,469

)

Exclusion of Lucky Friday costs

  (3,620

)

     (3,620

)

     (12,800

)

         (12,800

)

Cash Cost, Before By-product Credits (1)

  163,393   114,481   277,874  150,057    27,428     177,485 

Reclamation and other costs

  2,862   421   3,283  2,212    369     2,581 

Exploration

  10,888   6,696   17,584  625    4,452  1,105  6,182 

Sustaining capital

  37,151   34,181   71,332  22,943    1,496  73  24,512 

General and administrative

  27,849      27,849              26,855   26,855 

AISC, Before By-product Credits (1)

  242,143   155,779   397,922  175,837    33,745     237,615 

By-product credits:

                       

Zinc

  (80,308

)

     (80,308

)

 (67,957

)

        (67,957

)

Gold

  (58,742

)

     (58,742

)

 (49,385

)

    (16,193

)

    (65,578

)

Lead

  (24,037

)

     (24,037

)

  (20,764

)

            (20,764

)

Silver

      (1,723

)

  (1,723

)

Total By-product credits

  (163,087

)

  (1,723

)

  (164,810

)

  (138,106

)

     (16,193

)

     (154,299

)

Cash Cost, After By-product Credits

 $306  $112,758  $113,064  $11,951  $  $11,235     $23,186 

AISC, After By-product Credits

 $79,056  $154,056  $233,112  $37,731  $  $17,552     $83,316 

Divided by ounces produced

  7,383   141     

Cash Cost, Before By-product Credits, per Ounce

 $22.14  $814     

Divided by silver ounces produced

 7,149    1,446     8,595 

Cash Cost, Before By-product Credits, per Silver Ounce

 $20.99  $  $18.97     $20.65 

By-product credits per ounce

  (22.09

)

  (12

)

      (19.32

)

     (11.20

)

     (17.95

)

Cash Cost, After By-product Credits, per Ounce

 $0.05  $802     

AISC, Before By-product Credits, per Ounce

 $32.80  $1,107     

Cash Cost, After By-product Credits, per Silver Ounce

 $1.67  $  $7.77     $2.70 

AISC, Before By-product Credits, per Silver Ounce

 $24.60  $  $23.34     $27.65 

By-product credits per ounce

  (22.09

)

  (12

)

      (19.32

)

     (11.20

)

     (17.95

)

AISC, After By-product Credits, per Ounce

 $10.71  $1,095     

AISC, After By-product Credits, per Silver Ounce

 $5.28  $  $12.14     $9.70 

 

 

In thousands (except per ounce amounts)

 

Nine Months Ended September 30, 2017

  

Nine Months Ended September 30, 2019

 
 

Greens Creek

  

Lucky Friday(2)

  

San Sebastian

  

Corporate(3)

  

Total

Silver

  

Casa Berardi (Gold)

  

Total

  

Casa Berardi

  

Nevada

Operations (4)

  

Total Gold

 

Cost of sales and other direct production costs and depreciation, depletion and amortization

 $140,241  $14,542  $18,377      $173,160  $138,363  $311,523  $157,239  $105,277  $262,516 

Depreciation, depletion and amortization

  (39,442

)

  (2,433

)

  (2,036

)

      (43,911

)

  (43,075

)

  (86,986

)

 (53,806

)

 (45,179

)

 (98,985

)

Treatment costs

  37,621   4,257   906       42,784   1,774   44,558  1,429  119  1,548 

Change in product inventory

  5,398   1,811   (192

)

      7,017   881   7,898  971  (3,097

)

 (2,126

)

Reclamation and other costs

  (1,474

)

  (163

)

  (1,089

)

      (2,726

)

  (354

)

  (3,080

)

  (385

)

  (1,641

)

  (2,026

)

Cash Cost, Before By-product Credits (1)

  142,344   18,014   15,966       176,324   97,589   273,913  105,448  55,479  160,927 

Reclamation and other costs

  1,999   217   351       2,567   353   2,920  386  1,134  1,520 

Exploration

  3,339   (1

)

  4,984   1,307   9,629   3,029   12,658  2,890  2,048  4,938 

Sustaining capital

  24,895   4,109   2,379   2,275   33,658   38,245   71,903   28,360   27,565   55,925 

General and administrative

              29,044   29,044       29,044 

AISC, Before By-product Credits (1)

  172,577   22,339   23,680       251,222   139,216   390,438  137,084  86,226  223,310 

By-product credits:

                                   

Zinc

  (72,472

)

  (4,353

)

          (76,825

)

      (76,825

)

Gold

  (42,675

)

      (24,032

)

      (66,707

)

      (66,707

)

Lead

  (22,696

)

  (8,599

)

      ��   (31,295

)

      (31,295

)

Silver

                      (450

)

  (450

)

  (328

)

  (2,551

)

  (2,879

)

Total By-product credits

  (137,843

)

  (12,952

)

  (24,032

)

      (174,827

)

  (450

)

  (175,277

)

  (328

)

  (2,551

)

  (2,879

)

Cash Cost, After By-product Credits

 $4,501  $5,062  $(8,066

)

     $1,497  $97,139  $98,636  $105,120  $52,928  $158,048 

AISC, After By-product Credits

 $34,734  $9,387  $(352

)

     $76,395  $138,766  $215,161  $136,756  $83,675  $220,431 

Divided by ounces produced

  6,206   769   2,498       9,473   113     

Cash Cost, Before By-product Credits, per Ounce

 $22.94  $23.42  $6.39      $18.62  $862     

Divided by gold ounces produced

 100  45  145 

Cash Cost, Before By-product Credits, per Gold Ounce

 $1,058  $1,221  $1,109 

By-product credits per ounce

  (22.21

)

  (16.84

)

  (9.62

)

      (18.46

)

  (4

)

      (3

)

  (56

)

  (20

)

Cash Cost, After By-product Credits, per Ounce

 $0.73  $6.58  $(3.23

)

     $0.16  $858     

AISC, Before By-product Credits, per Ounce

 $27.81  $29.05  $9.48      $26.52  $1,230     

Cash Cost, After By-product Credits, per Gold Ounce

 $1,055  $1,165  $1,089 

AISC, Before By-product Credits, per Gold Ounce

 $1,376  $1,897  $1,540 

By-product credits per ounce

  (22.21

)

  (16.84

)

  (9.62

)

      (18.46

)

  (4

)

      (3

)

  (56

)

  (20

)

AISC, After By-product Credits, per Ounce

 $5.60  $12.21  $(0.14

)

     $8.06  $1,226     

AISC, After By-product Credits, per Gold Ounce

 $1,373  $1,841  $1,520 

 

In thousands (except per ounce amounts)

 

Nine Months Ended September 30, 2019

 
  

Total

Silver

  

Total Gold

  

Total

 

Cost of sales and other direct production costs and depreciation, depletion and amortization

 $187,724   262,516  $450,240 

Depreciation, depletion and amortization

  (40,053

)

  (98,985

)

  (139,038

)

Treatment costs

  36,585   1,548   38,133 

Change in product inventory

  8,498   (2,126

)

  6,372 

Reclamation and other costs

  (2,469

)

  (2,026

)

  (4,495

)

Exclusion of Lucky Friday costs

  (12,800

)

     (12,800

)

Cash Cost, Before By-product Credits (1)

  177,485   160,927   338,412 

Reclamation and other costs

  2,581   1,520   4,101 

Exploration

  6,182   4,938   11,120 

Sustaining capital

  24,512   55,925   80,437 

General and administrative

  26,855      26,855 

AISC, Before By-product Credits (1)

  237,615   223,310   460,925 

By-product credits:

            

Zinc

  (67,957

)

     (67,957

)

Gold

  (65,578

)

     (65,578

)

Lead

  (20,764

)

     (20,764

)

Silver

      (2,879

)

  (2,879

)

Total By-product credits

  (154,299

)

  (2,879

)

  (157,178

)

Cash Cost, After By-product Credits

 $23,186  $158,048  $181,234 

AISC, After By-product Credits

 $83,316  $220,431  $303,747 

Divided by ounces produced

  8,595   145     

Cash Cost, Before By-product Credits, per Ounce

 $20.65  $1,109     

By-product credits per ounce

  (17.95

)

  (20

)

    

Cash Cost, After By-product Credits, per Ounce

 $2.70  $1,089     

AISC, Before By-product Credits, per Ounce

 $27.65  $1,540     

By-product credits per ounce

  (17.95

)

  (20

)

    

AISC, After By-product Credits, per Ounce

 $9.70  $1,520     

In thousands (except per ounce amounts)

 

Nine Months Ended September 30, 2018

 
  

Greens

Creek

  

Lucky

Friday(2)

  

San

Sebastian

  

Corporate(3)

  

Total

Silver

 

Cost of sales and other direct production costs and depreciation, depletion and amortization

 $141,763  $5,844  $31,177      $178,784 

Depreciation, depletion and amortization

  (34,880

)

  (803

)

  (3,586

)

      (39,269

)

Treatment costs

  29,136   761   627       30,524 

Change in product inventory

  995   (2,182

)

  1,858       671 

Reclamation and other costs

  (2,323

)

     (1,374

)

      (3,697

)

Exclusion of Lucky Friday costs

     (3,620

)

         (3,620

)

Cash Cost, Before By-product Credits (1)

  134,691      28,702       163,393 

Reclamation and other costs

  2,548      314       2,862 

Exploration

  2,909      6,628   1,351   10,888 

Sustaining capital

  34,694      1,119   1,338   37,151 

General and administrative

              27,849   27,849 

AISC, Before By-product Credits (1)

  174,842      36,763       242,143 

By-product credits:

                    

Zinc

  (80,308

)

             (80,308

)

Gold

  (43,237

)

     (15,505

)

      (58,742

)

Lead

  (24,037

)

             (24,037

)

Total By-product credits

  (147,582

)

     (15,505

)

      (163,087

)

Cash Cost, After By-product Credits

 $(12,891

)

 $  $13,197      $306 

AISC, After By-product Credits

 $27,260  $  $21,258      $79,056 

Divided by ounces produced

  5,789      1,594       7,383 

Cash Cost, Before By-product Credits, per Ounce

 $23.27  $  $18.01      $22.14 

By-product credits per ounce

  (25.49

)

     (9.73

)

      (22.09

)

Cash Cost, After By-product Credits, per Ounce

 $(2.22

)

 $  $8.28      $0.05 

AISC, Before By-product Credits, per Ounce

 $30.20  $  $23.07      $32.80 

By-product credits per ounce

  (25.49

)

     (9.73

)

      (22.09

)

AISC, After By-product Credits, per Ounce

 $4.71  $  $13.34      $10.71 

In thousands (except per ounce amounts)

 

Nine Months Ended September 30, 2018

 
  

Casa Berardi

  

Nevada

Operations (4)

  

Total Gold

 

Cost of sales and other direct production costs and depreciation, depletion and amortization

 $152,150  $19,319  $171,469 

Depreciation, depletion and amortization

  (54,879

)

  (9,187

)

  (64,066

)

Treatment costs

  1,628   42   1,670 

Change in product inventory

  (1,482

)

  7,311   5,829 

Reclamation and other costs

  (421

)

     (421

)

Cash Cost, Before By-product Credits (1)

  96,996   17,485   114,481 

Reclamation and other costs

  421      421 

Exploration

  3,374   3,322   6,696 

Sustaining capital

  27,120   7,061   34,181 

AISC, Before By-product Credits (1)

  127,911   27,868   155,779 

By-product credits:

            

Silver

  (491

)

  (1,232

)

  (1,723

)

Total By-product credits

  (491

)

  (1,232

)

  (1,723

)

Cash Cost, After By-product Credits

 $96,505  $16,253  $112,758 

AISC, After By-product Credits

 $127,420  $26,636  $154,056 

Divided by ounces produced

  127   14   141 

Cash Cost, Before By-product Credits, per Ounce

 $764  $1,268  $814 

By-product credits per ounce

  (4

)

  (89

)

  (12

)

Cash Cost, After By-product Credits, per Ounce

 $760  $1,179  $802 

AISC, Before By-product Credits, per Ounce

 $1,008  $2,021  $1,107 

By-product credits per ounce

  (4

)

  (89

)

  (12

)

AISC, After By-product Credits, per Ounce

 $1,004  $1,932  $1,095 

In thousands (except per ounce amounts)

 

Nine Months Ended September 30, 2018

 
  

Total

Silver

  

Total Gold

  

Total

 

Cost of sales and other direct production costs and depreciation, depletion and amortization

 $178,784   171,469  $350,253 

Depreciation, depletion and amortization

  (39,269

)

  (64,066

)

  (103,335

)

Treatment costs

  30,524   1,670   32,194 

Change in product inventory

  671   5,829   6,500 

Reclamation and other costs

  (3,697

)

  (421

)

  (4,118

)

Exclusion of Lucky Friday costs

  (3,620

)

     (3,620

)

Cash Cost, Before By-product Credits (1)

  163,393   114,481   277,874 

Reclamation and other costs

  2,862   421   3,283 

Exploration

  10,888   6,696   17,584 

Sustaining capital

  37,151   34,181   71,332 

General and administrative

  27,849      27,849 

AISC, Before By-product Credits (1)

  242,143   155,779   397,922 

By-product credits:

            

Zinc

  (80,308

)

     (80,308

)

Gold

  (58,742

)

     (58,742

)

Lead

  (24,037

)

     (24,037

)

Silver

      (1,723

)

  (1,723

)

Total By-product credits

  (163,087

)

  (1,723

)

  (164,810

)

Cash Cost, After By-product Credits

 $306  $112,758  $113,064 

AISC, After By-product Credits

 $79,056  $154,056  $233,112 

Divided by ounces produced

  7,383   141     

Cash Cost, Before By-product Credits, per Ounce

 $22.14  $814     

By-product credits per ounce

  (22.09

)

  (12

)

    

Cash Cost, After By-product Credits, per Ounce

 $0.05  $802     

AISC, Before By-product Credits, per Ounce

 $32.80  $1,107     

By-product credits per ounce

  (22.09

)

  (12

)

    

AISC, After By-product Credits, per Ounce

 $10.71  $1,095     

 

(1)

Includes all direct and indirect operating costs related 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, before 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)

The unionized employees at Lucky Friday have been on strike since March 13, 2017, and production at Lucky Friday has been limited since that time. For the first nine months of 20182019 and 2017,2018, costs related to suspension of full production totaling approximately $13.5$5.7 million and $11.5$13.5 million, respectively, along with $3.7$3.1 million and $2.9$3.7 million, respectively, in non-cash depreciation expense for those periods, have been excluded from the calculations of 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.

(4)

The Nevada Operations were acquired on July 20, 2018 as a result of the acquisition of Klondex (see Note 14 of Notes to Condensed Consolidated Financial Statement (Unaudited) for more information). Costs related to curtailment of production at the Midas mine of $1.1 million are excluded from the calculationscalculation of 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 the first quarterour consolidated silver properties includes corporate costs for general and first nine months of 2018.administrative expense, exploration and sustaining capital.

(4)

The Nevada Operations were acquired on July 20, 2018 as a result of the acquisition of Klondex (see Note 13 of Notes to Condensed Consolidated Financial Statement (Unaudited) for more information).

 

 

Financial Liquidity and Capital Resources

 

Our liquid assets include (in millions):

 

 

September 30, 2018

  

December 31, 2017

  

September 30,

2019

  

December 31,

2018

 

Cash and cash equivalents held in U.S. dollars

 $42.8  $168.0  $23.7  $15.7 

Cash and cash equivalents held in foreign currency

  18.1   18.1   9.3   11.7 

Total cash and cash equivalents

  60.9   186.1  33.0  27.4 

Marketable debt securities - current

     33.8 

Marketable equity securities - non-current

  7.2   7.6   7.3   6.6 

Total cash, cash equivalents and investments

 $68.1  $227.5  $40.3  $34.0 

 

Cash and cash equivalents decreasedincreased by $125.2$5.6 million in the first nine months of 2018.2019. Cash held in foreign currencies represents balances in Canadian dollars and Mexican pesos, with the balance remaining consistent during$2.4 million decrease in the first nine months of 2018. Current marketable debt securities decreased by $33.8 million (discussed below) and2019 resulting from decreases in both currencies held. The value of non-current marketable equity securities decreasedincreased by $0.4$0.7 million (see Note 32 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information).

 

As further discussed in Note 1413 of Notes to Condensed Consolidated Financial Statements (Unaudited), on July 20, 2018, we completed the acquisition of Klondex for total consideration of approximately $414.2$413.9 million, consisting of $252.6$252.2 million for the issuance ofin shares of our common stock and warrants to purchase shares of our common stock and $161.7 million in cash. Klondex had cash, cash equivalents and restricted cash and cash equivalents not relating to their Canadian assets of approximately $22.4 million and $35.0 million drawn on their revolving credit facility at the time of the acquisition. We paid off the amount drawn on the Klondex revolving credit facility in July 2018.

 

As discussed in Note 109 of Notes to Condensed Consolidated Financial Statements (Unaudited), 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 September 30, 20182019. 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.  In addition, in March 2018 we entered into a note purchase agreement pursuant to which we issued our Series 2018-A Senior Notes due May 1, 2021 (the “RQ Notes”) for total principal of CAD$40 million (approximately USD$30.8 million at the time of the transaction) to Ressources Québec. The RQ Notes bear interest at a rate of 4.68% per year. Interest on the Senior Notes and RQ Notes is payable on May 1 and November 1 of each year, commencing November 1, 2013 and May 1, 2018, respectively, and we have made all interest payments payable to date. Also, in July 2018 we entered into a new $200$250 million revolving credit facility, which increasedwas amended in July 2019 to, among other things, lower the amount available to be borrowed under it to $150 million until the earlier of (i) our election to restore the amount available to $250 million following the fiscal quarter ending September 30, 2020 or (ii) our election to restore the amount available to $250 million by demonstrating two consecutive quarters of leverage ratio less than or equal to 4.00:1 beginning in November upon meeting certain conditions, including adding certain subsidiariesthe third quarter of Klondex as borrowers under the credit facility and pledging the assets of those subsidiaries as additional collateral under the credit facility.2019. Interest is payable on amounts drawn from the revolving credit facility at a rate of between 2.25% and 3.25% over the London Interbank Offered Rate, or between 1.25% and 2.25% over an alternative base rate, with interest payable on March 31, June 30, September 30, and December 31 of each year. There were no amountswas $50.0 million drawn on the credit facility as of September 30, 2018.2019. We frequently use surety bonds provided by a third-party surety for required financial assurance. In addition to paying them a fee, the surety may demand that we post collateral. Such demands could be for material amounts, and could negatively impact our available liquidity. We have utilized letters of credit under the revolving credit facility for such collateral and other financial assurances, and there was a total of $38.5 million in letters of credit outstanding as of September 30, 2019.

 

As further discussed in the Lucky Friday Segment section above, the union employees at Lucky Friday have been on strike since March 13, 2017, and production at Lucky Friday has been limited since that time. In September 2019, a tentative agreement was reached between the Company and the union negotiating committee. Before the collective bargaining agreement is finalized, it must be ratified by a majority of the union members. If the agreement is voted on and ratified, we would expect the mine to be staffed in stages, and that this would put Lucky Friday on a path back to full production. We believe it would take approximately one year to return to full production after re-staffing starts. We cannot predict whether or when the current tentative agreement will be ratified or if an agreement will otherwise be reached, or, if an agreement is not ratified, how long the strike will last or whether an agreementwhen there will be reached.a return to full 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 in Note 98 of Notes to Condensed Consolidated Financial Statements (Unaudited), 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 haveare in possession of any material insidenon-public information, and the agreement can be terminated by us at any time. As of September 30, 2018,2019, we had sold 5,634,7587,173,614 shares through this program for net proceeds of $20.8 million, including 1,025,911$24.5 million. There were no shares sold under the equity distribution agreement during the third quarterfirst nine months of 2018 for net proceeds of $3.1 million.2019.

 

Pursuant to our common stock dividend policy described in Note 98 of Notes to Condensed Consolidated Financial Statements (Unaudited), our Board of Directors declared and paid dividends on common stock totaling $3.2$3.7 million and $3.0$3.2 million in the first nine months of 20182019 and 2017,2018, respectively. On November 6, 2018,August 5, 2019, our Board of Directors declared a dividend on common stock totaling $1.2 million payablepaid in December 2018.September 2019. 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. As of September 30, 2018,2019, 934,100 shares havehad 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 November 6, 2018,5, 2019, was $2.49$2.30 per share. No shares were purchased under the program during the first nine months of 2019.

 

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 current and projected availability of approximately $247 million of our $250 million revolving credit facility, we believe our cash, cash equivalents, investments, projected cash from operations, and availability of financing (including equity issuances), if needed,we will be adequateable 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, RQ Notes and revolving credit facility, (if amounts are drawn),principal payments under our revolving credit facility, 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.  Throughout the second half of 2018 and the first nine months of 2019, we borrowed and repaid amounts under our revolving credit facility in order to meet our ongoing working capital requirements, with $50.0 million outstanding as of September 30, 2019. We anticipate continued borrowing and repayments under our credit facility during the rest of 2019. We currently estimate that in 2018, a total of between $140 million and $145approximately $138 million will be spent on capital expenditures in 2019, including $97.3 million incurred in the first nine months of 2019, primarily for equipment, infrastructure, and development at our mines,mines.  We also estimate exploration and pre-development expenditures will total approximately $17.5 million in 2019, including $83.3$16.1 million incurred in the first nine months of 2018.  We also estimate that exploration and pre-development expenditures will total approximately $40 million in 2018, including $31.2 million already incurred as of September 30, 2018. In addition, we expect research and development2019. Our expenditures for these items and our current projects in 2018 to total between $6 million and $10 million, including $5.0 million already incurred as of September 30, 2018. However, capital, exploration, pre-development expenditures, and research and developmentrelated plans for 2019 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 revenues and costs, sources of liquidity available to us, including the revolving credit facility, and other factors. A sustained downturn in metals prices, or significant increase in operational or capital costs or other uses of cash, our inability to access the credit facility or other sources of liquidity discussed above, or other factors beyond our control could impact our plans. See Part II, Item 1A - Risk Factors - An extended decline in metals prices, an increase in operating or capital costs, mine accidents or closures, increasing environmental obligations, or our inability to convert exploration potential to reserves may cause us to record write-downs, which could negatively impact our results of operations in our quarterly report on 10-Q for the quarter ended June 30, 2019. Also, see Part I, Item 1A - Risk Factors - 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 in our annual report on Form 10-K for the year ended December 31, 2018.

 

  

Nine Months Ended

 
  

September 30, 2018

  

September 30, 2017

 

Cash provided by operating activities (in millions)

 $75.2  $74.1 
  

Nine Months Ended

 
  

September 30,

2019

  

September 30,

2018

 

Cash provided by operating activities (in millions)

 $63.6  $75.2 

 

Cash provided by operating activities in the first nine months of 2018 increased2019 decreased by $1.1$11.6 million compared to the same period in 20172018 due to a lower decrease in cash from working capital and other asset and liability changes, partially offset by lowernet income, as adjusted for non-cash items.items, partially offset by the impact of working capital and other operating asset and liability changes.  Working capital and other operating asset and liability changes resulted in a net cash flow increase of $8.4 million in the first nine months of 2019 compared to a net decrease of $25.2 million in the first nine months of 2018 compared to a net decrease of $26.4 million in the first nine months of 2017.2018.  The $1.2$33.6 million variance in working capital changes is primarily attributable to higher accounts payable due to the addition of the Nevada Operations and various projectslower prepaid taxes in progress thereMexico, reduced accruals for incentive compensation, and lower estimated income tax payments in Mexico. Those factors wereproduct inventories, partially offset by higher accounts receivable balances at San Sebastian and Greens Creek. The reduction in income, as adjusted for non-cash items, resulted primarily from reduced gross profit at our San Sebastian unitlower accounts payable and a gross loss at our Nevada Operations unit since its acquisition in July, partially offset by proceeds of $32.8 million from the early settlement of base metals derivatives (see Note 12 of Notes to Condensed Consolidated Financial Statements (Unaudited)).accrued taxes balances.

 

  

Nine Months Ended

 
  

September 30, 2018

  

September 30, 2017

 

Cash used in investing activities (in millions)

 $(184.6

)

��$(70.4

)

  

Nine Months Ended

 
  

September 30,

2019

  

September 30,

2018

 

Cash used in investing activities (in millions)

 $(95.9

)

 $(184.6

)

 

We had a cash outflow of $139.3 million for the acquisition of Klondex, net of their cash balance acquired, in July 2018. During the first nine months of 2018,2019, we invested $83.3$97.3 million in capital expenditures, not including $7.0$6.5 million in non-cash capital lease additions, an increase of $12.9$14.1 million compared to the same period in 20172018. The increase was primarily due to capital projects at the newly-acquiredaddition of the Nevada Operations.Operations unit acquired in July 2018.  In the first nine months of 2018, and 2017, we purchased bonds having maturities of greater than 90 days and less than 365 days with a cost basis of $31.2 million, and $35.3 million, respectively, and bonds valued at $64.9 million and $31.2 million matured during the first nine months of 2018, and 2017, respectively.with no such activity during the first nine months of 2019. We purchased marketable equity securities having a cost basis of $0.8$0.4 million and $1.6$0.8 million during the first nine months of 2019 and 2018, respectively, and 2017, respectively.sold marketable equity securities for proceeds of $1.8 million in the 2019 period. During the first nine months of 2018, and 2017, we received $4.4 million and $5.6 million, respectively, in insurance proceeds related to the collapse of the mill building at the Troy mine in February 2017 due to snow.

 

  

Nine Months Ended

 
  

September 30, 2018

  

September 30, 2017

 

Cash used in financing activities (in millions)

 $(15.7

)

 $(2.8

)

  

Nine Months Ended

 
  

September 30,

2019

  

September 30,

2018

 

Cash used in financing activities (in millions)

 $37.6  $(15.7

)

 

In the first nine months of 2019 and 2018 we had draws of $245.0 million and $47.0 million, respectively, and made repayments of $195.0 million and $47.0 million, respectively, on our revolving credit facility. We also had borrowings $30.8 million for the issuance of the RQ Notes in March 2018, and in July 2018 we repaid the $35.0 million revolving credit facility balance assumed in the acquisition of Klondex. During the first nine months of 2018, and 2017, we received $3.1 million and $9.6 million, respectively, in net proceeds from the sale of shares of our common stock under the equity distribution agreement discussed above. We had borrowings totaling $78.0 in the first nine months of 2018, including $47 million drawn on our revolving credit facility in July 2018, which was repaid in September 2018, and $30.8 million for the issuance of the RQ Notes in March 2018. In addition to repayment of our revolving credit facility balance, in July 2018 we repaid the $35.0 million revolving credit facility balance assumed in the acquisition of Klondex. We made repayments on our capital leases of $6.0$5.5 million and $5.1$6.0 million in the nine-month periods ended September 30, 20182019 and 2017,2018, respectively. During the first nine months of 20182019 and 2017,2018, we paid cash dividends on our common stock totaling $3.2$3.7 million and $3.0$3.2 million, respectively, and cash dividends of $0.4 million in each period on our Series B Preferred Stock.Stock in each of those periods. We acquired treasury shares for $2.7$2.2 million and $3.0$2.7 million in the first nine months of 2019 and 2018, and 2017, respectively, resulting fromas a result of our employees' elections to utilize net share settlement to satisfy their tax withholding obligations related to incentive compensation paid in stock and vesting of restricted stock units through net share settlement.units. See Note 98 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information.

Exchange rate fluctuations between the U.S. dollar and the Canadian dollar and Mexican peso resulted in a decrease in our cash balance of $0.2 million during the nine months ended September 30, 2018 and an increase of $1.1 million during the nine months ended September 30, 2017, respectively.

 

Contractual Obligations, Contingent Liabilities and Commitments

 

The table below presents our fixed, non-cancelable contractual obligations and commitments primarily related to our Senior Notes, RQ Notes, outstanding purchase orders, certain capital expenditures, our credit facility and lease arrangements as of September 30, 20182019 (in thousands):

 

  

Payments Due By Period

 
  

Less than 1 year

  

1-3 years

  

4-5 years

  

More than

5 years

  

Total

 

Purchase obligations (1)

 $21,891  $  $  $  $21,891 

Commitment fees (2)

  1,000   2,000   708      3,708 

Contractual obligations (3)

  1,593            1,593 

Capital lease commitments (4)

  6,182   8,270   1,223      15,675 

Operating lease commitments (5)

  3,615   6,173   3,307      13,095 

Supplemental executive retirement plan (6)

  526   1,453   1,929   4,801   8,709 

Senior Notes (7)

  34,822   561,635         596,457 

RQ Notes (8)

  1,446   33,190         34,636 

Total contractual cash obligations

 $71,075  $612,721  $7,167  $4,801  $695,764 

  

Payments Due By Period

 
  

Less than 1

year

  

1-3 years

  

3-5 years

  

More than

5 years

  

Total

 

Purchase obligations (1)

 $7,975  $  $  $  $7,975 

Contractual obligations (2)

  1,287            1,287 

Finance lease commitments (3)

  6,283   7,943   1,017      15,243 

Operating lease commitments (4)

  6,570   6,437   3,112   1,274   17,393 

Supplemental executive retirement plan (5)

  738   1,757   2,377   5,421   10,293 

Revolving credit facility (6)

  1,274   52,135         53,409 

Senior Notes (7)

  34,822   526,813         561,635 

RQ Notes (8)

  1,414   31,028         32,442 

Total contractual cash obligations

 $60,363  $626,113  $6,506  $6,695  $699,677 

 

 

(1)

Consists of open purchase orders of approximately $14.2$4.3 million at the Greens Creek unit, $0.4$1.8 million at the Lucky Friday unit, $2.0$1.4 million at the Casa Berardi unit and $5.3$0.5 million at the Nevada Operations unit.

 

 

(2)

We have a $250 million revolving credit agreement under which we are required to pay a standby fee of 0.5% per annum on undrawn amounts under the revolving credit agreement. With the exception of $3.0 million in letters of credit outstanding, there was no amount drawn under the revolving credit agreement as of September 30, 2018. The amounts above assume no amounts will be due during the agreement's term.  For more information on our credit facility, see Note 10 of Notes to Condensed Consolidated Financial Statements (Unaudited).

(3)

As of September 30, 2018,2019, we were committed to approximately $0.6 million and $1.0$1.3 million for various items at Greens Creek and Nevada Operations, respectively.Creek.

 

 

(4)(3)

Includes scheduled capitalfinance lease payments of $7.2$10.6 million, $1.6$0.8 million, $4.8$2.6 million and $2.1$1.3 million (including interest), respectively, for equipment at our Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations units, respectively.units.  These leases have fixed payment terms and contain bargain purchase options at the end of the lease periods (see Note 109 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information).

 

(4)

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.

 

(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)

These amounts represent our estimate of the future funding requirements for the supplemental executive retirement plan.  We believe we will also have funding requirements related to our defined benefit plans in future years; however, such obligations are not fixed in nature and are difficult to estimate, as they involve significant assumptions. See Note 87 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information.

(6)

We have a $250 million revolving credit agreement under which we are required to pay a standby fee of between 0.5% and 1.0% per annum on undrawn amounts under the revolving credit agreement.  There was $50.0 million drawn under the revolving credit agreement as of September 30, 2019, which accrues interest at a rate of between 2.25% and 4.00% over the London Interbank Offer Rate.  Because we do not know with any degree of certainty future borrowing needs, there are no additional amounts reflecting future potential obligations to repay borrowings under the credit agreement or related interest or standby fee charges.  However, we may have additional amounts drawn under the credit agreement in the future, and the related obligations may differ from the amounts above.   In July 2019, we amended the credit facility to, among other things, lower the amount available to be borrowed under it to $150 million until the earlier of (i) our election to restore the amount available to $250 million following the fiscal quarter ending September 30, 2020 or (ii) our election to restore the amount available to $250 million by demonstrating two consecutive quarters of leverage ratio less than or equal to 4.00:1 beginning in the third quarter of 2019.  For more information on our credit facilities, see Note 9 of Notes to Condensed Consolidated Financial Statements (Unaudited) 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. The Senior Notes bear interest at a rate of 6.875% per year from the original date of issuance or 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 plan. See Note 109 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information.

 

 

(8)

On March 5, 2018, we entered into a note purchase agreement pursuant to which we issued the RQ Notes in the principal amount of CAD$40 million (approximately USD$30.8 million at the time of the transaction) in aggregate principal amount of our Series 2018-A Senior Notes due May 1, 2021 (the “RQ Notes”) to Ressources Québec, a subsidiary of Investissment Québec, a financing arm of the Québec government.. The RQ Notes bear interest at a rate of 4.68% per year, payable on May 1 and November 1 of each year, commencing May 1, 2018, and we have made all interest payments payable to date. See Note 9 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information.

 

We record liabilities for costs associated with mine closure, reclamation of land and other environmental matters.  At September 30, 2018,2019, our liabilities for these matters totaled $105.9$111.3 million.  Future expenditures related to closure, reclamation and environmental expenditures at our 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, see Note 54 of Notes to Condensed Consolidated Financial Statements (Unaudited).

 

Off-Balance Sheet Arrangements

 

At September 30, 2018,2019, 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 are material to investors.

 

Critical Accounting Estimates

 

Our significant accounting policies are described in Part IV, Note 1 of Notes to Consolidated Financial Statements in our annual report filed on Form 10-K for the year ended December 31, 20172018. As described in Note 1 of our annual report, 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 are highly uncertain at the time the accounting estimates are 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, equipment and mineral interests, deferred tax assets, and certain accounts receivable. Metals prices are also an important component in the estimation of reserves. As shown under Part I, Item 1. – Business in our annual report filed on Form 10-K for the year ended December 31, 2017,2018, 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 can be influenced by several factors, including: the value of the U.S. dollar 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 political environment in the U.S., Britain's exit from the European Union, U.S. and global trading policies (including tariffs), 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 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.

 

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 (see Mineral 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 (see Business Combinations below).

 

 Sales of concentrates sold directly to customers are recorded as revenues when titleupon completion of the performance obligation and risktransfer of loss transfercontrol of the product to the customer (generally at the time of shipment) using estimated forward metals prices for the estimated month of settlement. Due to the time elapsed between 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 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 of Note 16 of Notes to Condensed Consolidated Financial Statements (Unaudited)in our annual report filed on Form 10-K for the year ended December 31, 2017..

 

We utilize financially-settled forward and put option contracts to manage our exposure to changes in prices for silver, gold, zinc and lead.  See Item 3. – 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.

 

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 in Part I, Item 2. – Properties in our annual report filed on Form 10-K for the year ended December 31, 2017.2018. Our assessment of reserves occurs at least annually, and periodically utilizes external audits.

 

Reserves are a key component in the valuation of our properties, plants, equipment and mineral interests. 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 acquisitions. 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 (see Business 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.

 

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 reserve). These estimates include 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 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.

 

 

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

 

The following discussion about our exposure to market risks and risk management activities includes forward-looking statements that involve risks and uncertainties, as well as summarizes the financial instruments held by us at September 30, 2018,2019, 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 (See Part I, Item 1A.1A – Risk Factors of our annual report filed on Form 10-K for the year ended December 31, 2017,2018, as updated in Part II, Item 1A - Risk Factors in our quarterly reports filed on Form 10-Q for the periods ended March 31, 20182019 and June 30, 2018 and this quarterly report filed on Form 10-Q for the period ended September 30, 2018)2019).

 

Metals Prices

Changes in the market prices of silver, gold, lead and zinc can significantly affect our profitability and cash flow. As discussed in Item 2. Management's Discussion and Analysis - Critical Accounting Estimates, metals prices can fluctuate due to numerous factors beyond our control. As discussed below, we utilize financially-settled forward and put option contracts to manage our exposure to changes in prices for silver, gold, zinc and lead.

Provisional Sales

 

Sales of all metals products sold directly to customers, including by-product metals, are recorded as revenues when all performance obligations have been completed and the transaction price can be determined or reasonably estimated. 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 metals 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 (see Part I, Item 1A.1A – Risk Factors – A substantial or extended decline in metals prices would have a material adverse effect on us in our annual report filed on Form 10-K for the year ended December 31, 2017)2018).  At September 30, 2018,2019, metals contained in concentrates and exposed to future price changes totaled approximately 1.22.9 million ounces of silver, 5,7348,831 ounces of gold, 7,27710,737 tons of zinc, and 2,4476,344 tons of lead.  If the price for each metal were to change by 10%, the change in the total value of the concentrates sold would be approximately $4.6$9.9 million.  However, as discussed in Commodity-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.

 

Commodity-Price Risk Management

 

AtWe may 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 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 market prices. Our risk management policy allowsprovides for up to 75% of our planned metals price exposure for five years into the future, with certain other limitations, to be hedgedcovered under such programs.programs that would establish a ceiling for prices to be realized on future metals sales. These instruments do, however, expose us to (i) credit risk in the form 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 Greens Creek concentrate shipments between the time of shipment and final settlement. In addition, at times we useare 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 Greens Creek concentrate shipments. The following tables summarize the quantities of metals committed under forward sales contracts at September 30, 2019 and December 31, 2018:

September 30, 2019

 

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

                                

2019 settlements

  828   3   16,204   2,921  $18.66  $1,537  $1.09  $0.90 

Contracts on forecasted sales

                                

2019 settlements

           4,409   N/A   N/A   N/A  $0.95 

2020 settlements

           4,960   N/A   N/A   N/A  $0.96 

December 31, 2018

 

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

                                

2019 settlements

  842   4   18,450   2,700  $14.69  $1,260  $1.15  $0.89 

In June 2019, we began using financially-settled put option contracts to manage the exposure of our forecasted future gold and silver sales to potential declines in market prices for those metals. These put contracts give as the option, but not the obligation, to sell quantities of silver and gold in the future at established prices. The following table summarizes the quantities of metals for which we have entered into put contracts and the average exercise prices as of September 30, 2019:

September 30, 2019

 

Ounces under

contract (in 000's)

  

Average price per

ounce

 
  

Silver

  

Gold

  

Silver

  

Gold

 
  

(ounces)

  

(ounces)

  

(ounces)

  

(ounces)

 

Contracts on forecasted sales

                

2019 settlements

  2,493   89  $15.08  $1,400 

2020 settlements

  2,634   51  $15.00  $1,400 

In October 2019, we entered into additional put contracts which establish the minimum prices at which we can sell silver and gold relating to forecasted production for a portion of 2020 at $16.00 and $1,450, respectively, per ounce.  These contracts have total premiums of approximately $3.2 million to be paid upon maturity.

These forward and put option contracts do not qualify for hedge accounting and are marked-to-market through earnings each period.

 

AsWe recorded the following balances as of September 30, 2018, we recorded the following balances2019 for the fair value of the contracts:forward and put option contracts held at that time:

 

 

a current asset of $0.3$1.1 million, which is included in other current assets;assets and is net of $0.7 million for contracts in a fair value liability position; and

 

a current liability of $0.6$7.1 million, which is included in other current liabilities and is net of $0.2$0.4 million for contracts in a fair value current asset position.

 

We recognized an $8.3a $0.1 million net gainloss during the first nine months of 20182019 on the contracts utilized to manage exposure to prices of metals in our concentrate shipments,that have been sold, which is included in sales of products.  The net gainloss recognized on the contracts offsets lossesgains 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.

 

We recognized a $40.3$2.7 million net gain during the first nine months of 20182019 on the contracts utilized to manage exposure to prices for forecasted future concentrate shipments.sales. The net gain on these contracts is included as a separate line item under other income (expense), as they relate to forecasted future shipments,sales, as opposed to sales that have already taken place but are subject to final pricing as discussed in the preceding paragraph.  The net gain for the first nine months of 20182019 is the result of a decline in zinc and lead prices, partially offset by increasing silver and gold prices. During the third quarterquarters of 2019 and 2018, we settled, prior to their maturity date, contracts in a gain position for cash proceeds to us of approximately $6.7 million and $32.8 million. As a result, there were no metals committed under contracts on forecasted sales as of September 30, 2018. This program,million, respectively. These programs, when utilized isand the contracts are not settled prior to their maturity dates, are designed to mitigate the impact of potential future declines in silver, gold, lead and zinc prices from the price levels established in the contracts (see average price information below)above). When those prices increase compared to the contract prices, we incur losses on the contracts.

The following tables summarize the quantities of metals committed under forward sales contracts at September 30, 2018 and December 31, 2017:

September 30, 2018

 

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

  1,221   6   10,362   4,685  $14.56  $1,211  $1.17  $0.94 

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  $1.30  $1.09 

2020 settlements

          3,307   2,866   N/A   N/A  $1.27  $1.08 

 

Foreign Currency

 

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")., respectively. We have determined 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 nine months ended September 30, 2018,2019, we recognized a net foreign exchange gainloss of $2.9$6.7 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 September 30, 20182019 would have resulted in a change of approximately $11.8$10.6 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 September 30, 20182019 would have resulted in a change of approximately $0.6$1.0 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 buy CAD and MXN, and each contract is designated as a cash flow hedge. As of September 30, 2018,2019, we had 94135 forward contracts outstanding to buy a total of CAD$225.1300.7 million having a notional amount of US$174.0231.5 million, and 3010 forward contracts outstanding to buy a total of MXN$178.537.3 million having a notional amount of USD$8.81.8 million. The CAD contracts are related to forecasted cash operating costs at Casa Berardi to be incurred from 20182019 through 20222023 and have CAD-to-USD exchange rates ranging between 1.27291.2702 and 1.3315.1.3332. The MXN contracts are related to forecasted cash operating costs at San Sebastian to be incurred from 20182019 through 2020 and have MXN-to-USD exchange rates ranging between 19.440020.4100 and 20.8550. Our risk management policy allows forprovides that up to 75% of our planned cost exposure for five years into the future tomay be hedged under such programs, and for potential additional programs to manage other foreign currency-related exposure areas.

 

As of September 30, 2018,2019, we recorded the following balances for the fair value of the contracts:

 

 

a current asset of $1.1$0.1 million, which is included in other current assets;

a non-current asset of $0.7 million, which is included in other non-current assets; and

 

a current liability of $0.1$1.4 million, which is included in other current liabilities.liabilities; and

a non-current liability of $2.9 million, which is included in other non-current liabilities.

 

Net unrealized gainslosses of approximately $1.5$4.3 million related to the effective portion of the hedges were included in accumulated other comprehensive loss as of September 30, 2018.2019. 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 $0.8$1.3 million in net unrealized gainslosses included in accumulated other comprehensive loss as of September 30, 20182019 would be reclassified to current earnings in the next twelve months. Net realized gains of approximately $0.2$1.2 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 for the nine months ended September 30, 2018. Net2019. No net unrealized gains of approximately $19 thousandor losses 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 nine months ended September 30, 2018.2019.

 

 

Item 4.    Controls and Procedures

 

An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures as required by Securities Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the 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 September 30, 2018,2019, 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. There were no changes in our internal control over financial reporting during the quarter ended September 30, 20182019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Internal control systems, no matter how well designed and operated, have inherent limitations. Therefore, even a system which is determined to be effective cannot provide absolute assurance that all control issues have been detected or prevented. Our systems of internal controls are designed to provide reasonable assurance with respect to financial statement preparation and presentation.

 

 

Part II - Other Information

 

 

Item 1.    Legal Proceedings

 

For information concerning legal proceedings, refer to Note 54 of Notes to Condensed Consolidated Financial Statements (Unaudited), which is incorporated by reference into this Item 1..

 

Item 1A.    Risk Factors

 

Part I, Item 1A.1A – Risk Factors of our annual report filed on Form 10-K for the year ended December 31, 2017,2018, as updated in Part II, Item 1A.1A – Risk Factors in our quarterly reports on Form 10-Q for the periods ended March 31, 20182019 and June 30, 2018,2019, sets forth information relating to important risks and uncertainties that could materially adversely affect our business, financial condition or operating results.  Those risk factors continue to be relevant to an understanding of our business, financial condition and operating results. Certain of those risk factors have been updated in this Form 10-Q, as set forth below.

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, 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, which SEIS was posted to the Federal Register on July 20, 2018. 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 our Rock Creek project, 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 with respect to our Montanore project was issued in December 2015 by the USFS and Montana Department of Environmental Quality, and each agency issued a 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 the Court's 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, in October 2018, a court in Lincoln County, Montana found that the adit (which is an underground tunnel) which we had intended to use to develop the Montanore project trespassed on certain unpatented mining claims we do not own but which the adit goes through. In the case, which dates back to 2008, the jury delivered a verdict against certain of our subsidiaries for $3,325,000. We plan to appeal the finding of trespass and the award of damages, and we believe there are strong arguments for reversal. There can be no assurance that the appeal will succeed, or that we will remain able to use the portion of the adit that travels beneath the surface of the unpatented claims we do not currently own. As a result, our ability to access, develop or operate the Montanore project is at risk.

Recent events in the State of Montana create additional risks with respect to permitting of the Rock Creek and Montanore projects. In March 2018, each of Hecla Mining Company and our CEO was notified by the Montana Department of Environmental Quality (“DEQ”) of alleged violations of Montana’s mine reclamation statutes and related regulations due to our CEO’s prior role as an officer of a mining company when it declared bankruptcy, together with the fact that subsequently, proceeds from that company's sureties were insufficient to fully fund reclamation at the company’s mine sites in Montana. To date, no enforcement action has been taken to revoke or deny any permits held by our subsidiaries, however, those subsidiaries have commenced litigation challenging the DEQ’s assertion. The DEQ in turn has attempted to initiate litigation against Hecla Mining Company and our CEO. It is possible that the DEQ may bring an enforcement action in the future, or the litigation may be resolved unfavorably, either of which could have the effect of delaying, increasing the costs of, or preventing exploration and development efforts at the two projects.

On November 6, 2018, voters in Montana rejected a ballot initiative (“I-186”) that would have required the DEQ to deny a permit for any new hardrock mines in Montana unless the reclamation plan provides clear and convincing evidence that the mine will not require perpetual treatment of water polluted by acid mine drainage or other contaminants.  Although the election results eliminate this risk in the near term, it is possible that a similar initiative will arise in the future, in Montana or other jurisdictions where we operate.

Item 2. Unregistered Sales of Securities and Use of Proceeds

On September 12, 2018, we issued 1,870,749 unregistered shares of our common stock in a private placement to the Hecla Mining Company Retirement Plan Trust in order to satisfy the funding requirements for that defined benefit pension plan. The private placement was 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 September 12, 2018. We did not receive any cash proceeds from the issuance of the shares. The shares had a value of approximately $5.0 million at the time of issuance.

 

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 Quarterly Report.

 

Item 6.    Exhibits

 

Hecla Mining Company and Wholly Owned Subsidiaries

Form 10-Q – September 30, 20182019

Index to Exhibits

 

2.1

Amending Agreement dated as of July 5, 2018, by and among Hecla Mining Company, its wholly-owned subsidiary, 1156291 B.C. Unlimited Liability Company, and Klondex Mines Ltd. Filed as exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on July 6, 2018 (File No. 1-8491) and incorporated herein by reference.

3.1

Restated Certificate of Incorporation of the Registrant.Registrant, as amended. Filed as exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the quarterperiod ended March 31, 2018 (File No. 1-8491), and incorporated herein by reference.

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 August 22, 2014 (File No. 1-8491), and incorporated herein by reference.

4.1

Designations, Preferences and Rights of Series B Cumulative Convertible Preferred Stock of the Registrant. Included as Annex II to Restated Certificate of Incorporation of Registrant. FiledRegistrant filed as exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the quarterperiod ended March 31, 2018 (File No. 1-8491), and incorporated herein by reference.

4.2(a)

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’s Current Report on Form 8-K filed on April 15, 2013 (File No. 1-8491), and incorporated herein by reference.

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’s Registration Statement on Form S-3ASR filed on April 14, 2014 (Registration No. 333-195246), and incorporated herein by reference.

4.2(c)

Supplemental Indenture dated August 5, 2015, among HeclaRevett Mining Company, Inc., Revett Silver Company, Troy Mine, Inc., RC Resources, Inc., Revett Exploration, Inc., and Revett Holdings, Inc., as Issuer, certain subsidiariesGuarantees Subsidiaries, and The Bank of Hecla MiningNew York Mellon Trust Company, N.A., as Guarantors thereto,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(d)

Supplemental Indenture dated October 26, 2016, among Mines Management In., Newhi, Inc., Montanore Minerals Corp., as Guaranteeing Subsidiaries, and The Bank of New York Mellon Trust, N.A., as Trustee. Filed as exhibit 4.2(d)4.2(e) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 20152016 (File No. 1-8491), and incorporated herein by reference.

4.2(e)

4.2(d)

Supplemental Indenture dated October 26, 2016,as of November 30, 2018, among Hecla Mining Company, as Issuer, certain subsidiaries of Hecla Mining Company, as Guarantors thereto, and The Bank of New York Mellon Trust, N.A., as Trustee. Filed as exhibit 4.2(e) to Registrant’s Annual Report on Form 10-K for the year ended December 31, 20162018 (File No. 1-8491) and incorporated herein by reference.

4.2(e)4.2(f)

Registration Rights Agreement,Supplemental Indenture dated September 12, 2018,16, 2019, among Hecla MiningQuebec, Inc., as Guaranteeing Subsidiary, and The Bank of New York Mellon Trust Company, N.A., as sponsor of the Hecla Mining Company Retirement Plan and U.S. Bank National Association, as trustee of the Hecla Retirement Plan. Filed as exhibit 4.1 to Registrant’s S-3ASR filed September 12, 2018 (Registration No. 333-227309), and incorporated herein by reference.Trustee. *

10.1

Second Amendment to Fifth Amended and Restated Credit Agreement dated as of July 16, 2018,15, 2019, by and among Hecla Mining Company, certain subsidiaries of 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 10.110.3 to Registrant’s Current Report on Form 8-K filed on July 17, 201818, 2019 (File No.No 1-8491), and incorporated herein by reference.

10.2

Third Amendment to Fifth Amended and Restated Credit Agreement dated as of August 23, 2019, by and among Hecla Mining Company, certain subsidiaries of Hecla Mining Company, the Bank of Nova Scotia, as the Administrative Agent for the Lenders, and various Lenders. *

 

 

10.3

Form of Indemnification Agreement, dated August 5, 2019, between Registrant and Lauren Roberts. Filed as exhibit 10.7 to Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2006 (File No. 1-8491), and incorporated herein by reference. (1)

10.4

Form of Change in Control Agreement, dated August 5, 2019, between Registrant and Lauren Roberts. Filed as exhibit 10.2 to Registrant’s Form 10-K for the year ended December 31, 2015 (File No. 1-8491), and incorporated herein by reference. (1)

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

95

Mine safety information listed in Section 1503 of the Dodd-Frank Act. *

101.SCH

99.1Defined Contribution Basic Plan Document for the Hecla Mining Company Capital Accumulation Plan (401(k) Plan). *
101.INS  XBRL Instance. **
101.SCH 

Inline XBRL Taxonomy Extension Schema.**

101.CAL

101.CAL

Inline XBRL Taxonomy Extension Calculation.**

101.DEF

101.DEF 

Inline XBRL Taxonomy Extension Definition.**

101.LAB

101.LAB

Inline XBRL Taxonomy Extension Labels.**

101.PRE

101.PRE

Inline XBRL Taxonomy Extension Presentation.**

104

Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

___________________

 

*   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.

 

Items 2, 3 and 5 of Part II are not applicable and are omitted from this report.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

  

HECLA MINING COMPANY

  

    (Registrant)

    

Date:

November 8, 20187, 2019   

By:

/s/ Phillips S. Baker, Jr.

   

Phillips S. Baker, Jr., President,

   

Chief Executive Officer and Director

    

Date:

November 8, 20187, 2019   

By:

/s/ Lindsay A. Hall

   

Lindsay A. Hall, Senior Vice President and

   

Chief Financial Officer

 

86

81