1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
Commission file number 1-8491
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HECLA MINING COMPANY
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 82-0126240
- --------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6500 Mineral Drive
Coeur d'Alene, Idaho 83815-8788
- --------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
208-769-4100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for at least the past 90 days. Yes XX . No .
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding April 30, 2001
- -------------------------- --------------------------
Common stock, par value 66,798,541 shares
$0.25 per share
2
Hecla Mining Company and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2001
I N D E X*
Page
PART I. - Financial Information
Item l - Consolidated Balance Sheets - March 31,
2001 and December 31, 2000 3
- Consolidated Statements of Operations and
Comprehensive Income (Loss) - Three Months
Ended March 31, 2001 and 2000 4
- Consolidated Statements of Cash Flows - Three
Months Ended March 31, 2001 and 2000 5
- Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
PART II. - Other Information
Item 1 - Legal Proceedings 29
Item 6 - Exhibits and Reports on Form 8-K 30
*Items omitted are not applicable.
3
Part I - Financial Information
Hecla Mining Company and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(In thousands, except share data)
March 31, December 31,
2001 2000
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,241 $ 1,373
Accounts and notes receivable 11,684 11,164
Inventories 11,683 11,269
Other current assets 1,403 2,105
Net assets of discontinued operations 2,656 44,057
--------- ---------
Total current assets 30,667 69,968
Investments 223 502
Restricted investments 6,711 6,268
Properties, plants and equipment, net 105,290 108,343
Other noncurrent assets 11,174 9,755
--------- ---------
Total assets $ 154,065 $ 194,836
========= =========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 9,400 $ 7,520
Accrued payroll and related benefits 6,510 4,732
Current portion of long-term debt 3,250 59,274
Accrued taxes 2,385 2,188
Current portion of accrued reclamation and closure costs 8,908 12,060
--------- ---------
Total current liabilities 30,453 85,774
Deferred income taxes 300 300
Long-term debt 10,003 10,041
Accrued reclamation and closure costs 47,525 46,650
Other noncurrent liabilities 6,688 7,326
--------- ---------
Total liabilities 94,969 150,091
--------- ---------
SHAREHOLDERS' EQUITY
Preferred stock, $0.25 par value, authorized 5,000,000
shares; issued and outstanding - 2,300,000 shares,
liquidation preference 2001 - $121,037 and 2000 - $119,025 575 575
Common stock, $0.25 par value, authorized 100,000,000 shares;
issued 2001 and 2000 - 66,859,752 shares 16,715 16,715
Capital surplus 400,236 400,236
Accumulated deficit (356,988) (366,523)
Accumulated other comprehensive loss (42) (4,858)
Less stock held by grantor trust; 2001 and
2000 - 139,467 common shares (514) (514)
Less treasury stock, at cost; 2001 - 62,116 common
shares and 2000 - 62,114 common shares (886) (886)
--------- ---------
Total shareholders' equity 59,096 44,745
--------- ---------
Total liabilities and shareholders' equity $ 154,065 $ 194,836
========= =========
The accompanying notes are an integral part of the consolidated financial statements.
4
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
(Dollars and shares in thousands, except for per-share amounts)
Three Months Ended
-------------------------------
March 31, 2001 March 31, 2000
-------------- --------------
Continuing Operations:
Sales of products $ 16,417 $ 17,628
--------- ---------
Cost of sales and other direct production costs 11,172 14,051
Depreciation, depletion and amortization 4,393 4,721
--------- ---------
15,565 18,772
--------- ---------
Gross profit (loss) 852 (1,144)
--------- ---------
Other operating expenses:
General and administrative 1,514 1,879
Exploration 515 1,619
Depreciation and amortization 68 73
Provision for closed operations and environmental matters 574 866
--------- ---------
2,671 4,437
Loss from operations (1,819) (5,581)
--------- ---------
Other income (expense):
Interest and other income 628 622
Miscellaneous expense (413) (384)
Interest expense, net (2,006) (1,667)
--------- ---------
(1,791) (1,429)
--------- ---------
Loss from continuing operations before income taxes
and extraordinary charge (3,610) (7,010)
Income tax provision - - (9)
--------- ---------
Loss from continuing operations before extraordinary charge (3,610) (7,019)
Discontinued operations:
Income, net of income tax 162 1,124
Gain (loss) on disposal, net of income tax 12,983 (778)
Extraordinary charge, net of income tax - - (647)
--------- ---------
Net income (loss) 9,535 (7,320)
Preferred stock dividends (2,012) (2,012)
--------- ---------
Income (loss) applicable to common shareholders 7,523 (9,332)
--------- ---------
Other comprehensive income (loss), net of income tax:
Cumulative effect of a change in accounting principle (136) - -
Reclassification adjustment of loss included in net income 10 - -
Unrealized holding gains on securities 44 293
Change in foreign currency items 4,898 - -
--------- ---------
Other comprehensive income 4,816 293
--------- ---------
Comprehensive income (loss) applicable to common shareholders $ 12,339 $ (9,039)
========= =========
Basic and diluted income (loss) per common share:
Loss from continuing operations $ (0.09) $ (0.14)
Income from discontinued operations 0.20 0.01
Extraordinary charge - - (0.01)
--------- ---------
Basic and diluted income (loss) per common share $ 0.11 $ (0.14)
========= =========
Weighted average number of common shares outstanding 66,798 66,782
========= =========
The accompanying notes are an integral part of the consolidated financial statements.
5
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended
--------------------------------
March 31, 2001 March 31, 2000
-------------- --------------
Operating activities:
Net income (loss) $ 9,535 $ (7,320)
Noncash elements included in net income (loss):
Depreciation, depletion and amortization 4,461 5,893
Extraordinary charge - - 647
(Gain) loss on sale of discontinued operations (12,983) 778
Gain on disposition of properties, plants and equipment (119) (148)
Provision for reclamation and closure costs 214 277
Change in net assets of discontinued operations 1,393 - -
Change in assets and liabilities:
Accounts and notes receivable (520) (1,972)
Inventories (2,336) (2,229)
Other current and noncurrent assets 12 (1,094)
Accounts payable and accrued expenses 1,754 1,341
Accrued payroll and related benefits 1,778 134
Accrued taxes 197 (35)
Accrued reclamation and closure costs and other noncurrent liabilities (3,129) (1,116)
--------- ---------
Net cash provided (used) by operating activities 257 (4,844)
--------- ---------
Investing activities:
Proceeds from sale of discontinued operations 59,761 8,728
Additions to properties, plants and equipment (2,096) (3,418)
Proceeds from disposition of properties, plants and equipment 177 614
Decrease (increase) in restricted investments (443) (9,983)
Purchase of investments and change in cash surrender value of life insurance, net 323 4
Other, net (87) (35)
--------- ---------
Net cash provided (used) by investing activities 57,635 (4,090)
--------- ---------
Financing activities:
Dividends paid on preferred stock - - (2,012)
Payments for debt issuance costs - - (1,811)
Borrowings on long-term debt 975 76,500
Repayments on long-term debt (56,999) (56,511)
--------- ---------
Net cash provided (used) by financing activities (56,024) 16,166
--------- ---------
Change in cash and cash equivalents:
Net increase in cash and cash equivalents 1,868 7,232
Cash and cash equivalents at beginning of period 1,373 2,719
--------- ---------
Cash and cash equivalents at end of period $ 3,241 $ 9,951
========= =========
The accompanying notes are an integral part of the consolidated financial statements.
6
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
Note 1.
The notes to the consolidated financial statements as of December 31, 2000,
as set forth in Hecla Mining Company's (Hecla) 2000 Annual Report on Form 10-K,
substantially apply to these interim consolidated financial statements and are
not repeated here. For additional information, please refer to such notes.
Note 2.
The financial information given in the accompanying unaudited interim
consolidated financial statements reflects all adjustments which, in the opinion
of management, are necessary to a fair statement of the results for the interim
periods reported. All such adjustments are of a normal recurring nature with
the exception of an adjustment recognized in 2000 for the early extinguishment
of debt as described in Note 7. All financial statements presented are
unaudited. However, the balance sheet as of December 31, 2000, was derived from
the audited consolidated balance sheet referenced in Note 1 above. Certain
consolidated financial statement amounts have been reclassified to conform to
the 2000 presentation. These reclassifications had no effect on the net loss or
accumulated deficit as previously reported.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. In order to provide Hecla additional
liquidity, Hecla is currently evaluating a number of financing alternatives
including debt financing, sale of royalty interest, and equity issuance. Hecla
currently anticipates completing one or more financing alternatives during 2001.
Proceeds from these planned financings will be available for general corporate
purposes. Hecla also continues to pursue the sale of the remaining assets of
the Colorado Aggregate division of MWCA (CAC), which had $2.7 million of net
assets at March 31, 2001. There can be no assurance that Hecla will be
successful in obtaining financing or in completing a sales transaction for the
remaining assets of CAC.
Based upon Hecla's estimate of metals prices and metals production for the
remainder of 2001, Hecla currently believes that its operating cash flows, the
cash proceeds from the sale of Kentucky-Tennessee Clay Company, Kentucky-
Tennessee Feldspar Corporation, Kentucky-Tennessee de Mexico and certain other
minor industrial minerals companies (collectively the K-T Group), proceeds from
potential financings, and the anticipated proceeds from the sale of the
remaining assets of CAC will be adequate to fund anticipated minimum capital
expenditures, idle property expenditures, and exploration expenditures in 2001.
Cash flows from operations, however, could be significantly impacted if the
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
market price of gold, silver, zinc and lead fluctuate. In the event that cash
balances decline to a level that cannot support the operations of the Company,
management will defer certain planned capital and exploration expenditures as
needed to conserve cash for operations. If management's plans are not
successful, operations and liquidity may be adversely affected.
Note 3.
On March 27, 2001, Hecla completed a sale of the K-T Group for $62.5
million subject to customary post-closing adjustments. Hecla recorded a gain on
the sale of the K-T Group of $13.0 million in the first quarter of 2001. The
proceeds from the sale were used to repay a term loan facility of $55.0 million,
and to repay amounts outstanding under a $2.0 million revolving bank agreement.
The remaining net proceeds were available for general corporate purposes. Hecla
also continues to pursue the sale of the remaining assets of CAC, although there
can be no assurance that a sales transaction will be completed. At March 31,
2001, the remaining net assets of CAC are approximately $2.7 million. Including
the gain on sale, Hecla recorded income from discontinued operations of
approximately $13.1 million, or $0.20 per common share, in the first quarter of
2001 compared to income of approximately $0.3 million, or $0.01 per common
share, in the same period in 2000.
Note 4.
Hecla's income tax provision for the first three months of 2001 and 2000
varies from the amount that would have been provided by applying the statutory
rate to the income (loss) before income taxes primarily due to the availability
of net operating loss carryforwards in 2001 that can be utilized and the
inability to use tax losses in 2000. During the first quarter of 2000, Hecla
recognized a $9,000 provision for foreign incomes taxes.
Note 5.
Inventories consist of the following (in thousands):
March 31, Dec. 31,
2001 2000
---------- ---------
Concentrates, bullion, metals
in transit and other products $ 7,220 $ 5,932
Materials and supplies 4,463 5,337
---------- ---------
$ 11,683 $ 11,269
=========== =========
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
At March 31, 2001, Hecla had forward sales commitments through December 31,
2004 for 215,611 ounces of gold at an average price of $288.25 per ounce. Hecla
intends to physically deliver metals in accordance with the terms of the forward
sales contracts. As such, Hecla has elected to designate the contracts as
normal sales in accordance with SFAS 138 and as a result, these contracts are
not required to be accounted for as derivatives under SFAS 133. Hecla is exposed
to certain losses, generally the amount by which the contract price exceeds the
spot price of a commodity, in the event of nonperformance by the counterparties
to these agreements. The London Final gold price at March 30, 2001 was $257.70
per ounce.
Note 6. Contingencies
Bunker Hill Superfund Site
In 1994, Hecla, as a potentially responsible party under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (CERCLA),
entered into a consent decree with the Environmental Protection Agency (EPA) and
the state of Idaho, concerning environmental remediation obligations at the
Bunker Hill Superfund site located at Kellogg, Idaho. The consent decree
settled Hecla's response-cost liability under CERCLA at the Bunker Hill site.
As of March 31, 2001, Hecla has estimated and accrued an allowance for liability
for remedial activity costs at the Bunker Hill site of $10.8 million. These
estimated expenditures are anticipated to be made over the next three to five
years. In August 2000, Sunshine Mining and Refining Company which was also a
party to the 1994 Consent Decree, filed for Chapter 11 bankruptcy and in January
2001, the Federal District Court approved a new Consent Decree between Sunshine,
the U.S. Government and the Coeur d'Alene Indian Tribe which settled Sunshine's
environmental liabilities in the Coeur d'Alene Basin lawsuits described below
and released Sunshine from further obligations under the 1994 Consent Decree.
Although Hecla believes the accrual is adequate based upon current estimates of
aggregate costs, it is reasonably possible that Hecla's estimate of its
obligations may change in the near or longer term.
Coeur d'Alene River Basin Environmental Claims
- Coeur d'Alene Indian Tribe Claims
In July 1991, the Coeur d'Alene Indian Tribe brought a lawsuit, under
CERCLA, in Idaho Federal District Court against Hecla and a number of other
mining companies asserting claims for damages to natural resources downstream
from the Bunker Hill site over which the tribe alleges some ownership or
control. The Tribe's natural resource damage litigation has been consolidated
with the United States' litigation described below.
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
- U.S. Government Claims
In March 1996, the United States filed a lawsuit in Idaho Federal District
Court against certain mining companies that conducted historic mining operations
in the Silver Valley of northern Idaho, including Hecla. The lawsuit asserts
claims under CERCLA and the Clean Water Act and seeks recovery for alleged
damages to or loss of natural resources located in the Coeur d'Alene River Basin
in northern Idaho for which the United States asserts to be the trustee under
CERCLA. The lawsuit asserts that the defendants' historic mining activity
resulted in releases of hazardous substances and damaged natural resources
within the Basin. The suit also seeks declaratory relief that Hecla and other
defendants are jointly and severally liable for response costs under CERCLA for
historic mining impacts in the Basin outside the Bunker Hill site. Hecla has
asserted a number of defenses to the United States' claims.
In May 1998, the EPA announced that it had commenced a remedial
investigation/feasibility study under CERCLA for the entire Basin, including
Lake Coeur d'Alene, in support of its response cost claims asserted in its March
1996 lawsuit.
The first phase of the trial commenced on the consolidated Coeur d'Alene
Indian Tribe's and The United States' Federal District Court cases on January
22, 2001. In the first phase of the trial, the Court will be asked to determine
the extent of liability, if any, of the defendants for the plaintiffs' CERCLA
claims. If liability is determined in the first phase, a second trial will be
scheduled in late 2001 or early 2002 to address damages and remedy selection.
Two of the defendant mining companies, Coeur d'Alene Mines Corporation and
Sunshine Mining and Refining Company, settled their liabilities under the
litigation during the first quarter of 2001. Hecla and ASARCO are the only
defendants remaining in the litigation.
During 2000, Hecla was involved in settlement negotiations with
representatives of the U.S. government and the Coeur d'Alene Indian Tribe. The
Company also participated with certain of the other defendants in the litigation
in a state of Idaho led settlement effort. Settlement negotiations with the
U.S. government and the Coeur d'Alene Indian Tribe were discontinued in late
2000, but recommenced in March 2001.
As of March 31, 2001, Hecla has not accrued any amounts for potential
liability associated with the Coeur d'Alene River Basin environmental claims as
the amount, if any, is currently not estimable. It is reasonably possible that
Hecla's obligation may change in the near or longer term. An adverse ruling
against Hecla on liability and damages in this matter could have a material
adverse effect on the Company.
10
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Insurance Coverage Litigation
In 1991, Hecla initiated litigation in the Idaho State District Court in
Kootenai County, Idaho, against a number of insurance companies that provided
comprehensive general liability insurance coverage to Hecla and its
predecessors. Hecla believes the insurance companies have a duty to defend and
indemnify Hecla under their policies of insurance for all liabilities and claims
asserted against Hecla by the EPA and the tribe under CERCLA related to the
Bunker Hill site and the Basin in northern Idaho. In 1992, the Idaho State
District Court ruled that the primary insurance companies had a duty to defend
Hecla in the Tribe's lawsuit. During 1995 and 1996, Hecla entered into
settlement agreements with a number of the insurance carriers named in the
litigation. Hecla has received a total of approximately $7.2 million under the
terms of the settlement agreements. Thirty percent of these settlements were
paid to the EPA to reimburse the U.S. government for past costs under the Bunker
Hill site consent decree. Litigation is still pending against one insurer with
trial suspended until the underlying environmental claims against Hecla are
resolved or settled. The remaining insurer in the litigation, along with a
second insurer not named in the litigation, is providing Hecla with a partial
defense in all Basin environmental litigation. As of March 31, 2001, Hecla had
not reduced its accrual for reclamation and closure costs to reflect the receipt
of any anticipated insurance proceeds.
Other Claims
In 1997, Hecla's subsidiary, Kentucky-Tennessee Clay Company (K-T Clay),
terminated shipments (comprising approximately 1% of annual ball clay
production) sold to animal feed producers, when the Food and Drug Administration
determined trace elements of dioxin were present in poultry. Dioxin is
inherently present in ball clays generally. On September 22, 1999, Riceland
Foods (the primary purchaser of ball clay from K-T Clay used in animal feed)
commenced litigation against K-T Clay in State Court in Arkansas to recover its
losses and its insurance company's payments to downstream users of its animal
feed. The complaint alleged negligence, strict liability and breach of implied
warranties and seeks damages in excess of $7.0 million. Legal counsel retained
by the insurance company for K-T Clay had the case removed to Federal Court in
Arkansas. In July 2000, a second complaint was filed against K-T Clay and Hecla
in Arkansas State Court by another purchaser of animal feed containing ball clay
sold by K-T Clay. A third complaint was filed in the United States District
Court in Arkansas on August 31, 2000, by a successor in interest to a third
purchaser of ball clay sold by K-T Clay and used in the animal feed industry.
The two more recent lawsuits together allege damages totaling approximately $1.7
million. These
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
complaints contain similar allegations to the Riceland Foods' case and legal
counsel retained by the insurance carrier is defending K-T Clay and Hecla in
these lawsuits. The Company believes that these claims comprise substantially
all the potential claims related to this matter. In January 2001, Hecla was
dismissed from the only lawsuit in which it had been named as a defendant. In
March 2001, prior to trial, K-T Clay settled the Riceland Foods litigation
against K-T Clay through settlement payment substantially funded by K-T Clay's
insurance carrier. K-T Clay contributed $230,000 toward the Riceland Foods
settlement. The defense of the remaining lawsuits is being covered by insurance.
The Company believes that $11.0 million of insurance coverage is available to
cover all three claims. On March 27, 2001, Hecla sold its interest in K-T Clay.
However, Hecla agreed to indemnify the purchaser of K-T Clay from all liability
resulting from these dioxin claims and litigation to the extent not covered by
insurance. Although the outcome of the remaining litigation or insurance
coverage cannot be assured, Hecla currently believes that there will be no
material adverse effect on Hecla's results of operations, financial condition or
cash flows from this matter.
Hecla is subject to other legal proceedings and claims not disclosed above
which have arisen in the ordinary course of its business and have not been
finally adjudicated. Although there can be no assurance as to the ultimate
disposition of these other matters, it is the opinion of Hecla's management that
the outcome of these other matters will not have a material adverse effect on
the financial condition of Hecla.
Note 7.
As of March 31, 2001, Hecla's wholly owned subsidiary Hecla Resource
Investments Limited (HRIL), had $10.3 million outstanding under a project
financing agreement, nonrecourse to Hecla, that was utilized to acquire the La
Camorra mine in Venezuela. As collateral for the loan, HRIL granted a security
interest over the stock of its Venezuelan subsidiary, certain Venezuelan real
property assets and all cash proceeds of the La Camorra mine. HRIL must
maintain compliance with certain financial and other restrictive covenants
related to the available ore reserves and financial performance of the La
Camorra mine. The project financing agreement is repayable in semiannual
payments ending December 31, 2004.
The HRIL project financing agreement requires the Company to maintain
hedged gold positions sufficient to cover all dollar loans, operating
expenditures, taxes, royalties and similar fees projected for the project
through December 31, 2004. At March 31, 2001, there were 215,611 ounces of gold
sold forward at $288.25
12
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
per ounce. Portions of these forward contracts mature quarterly from June 2001
through December 2004. The forward sales agreement assumes the ounces of gold
committed to forward sales at the end of each quarter can be leased at a rate of
1.5% for each following quarter. As part of the original forward sales
contracts, the Company entered into a quarterly Gold Lease Rate Swap at a fixed
rate of 1.5% on the outstanding notional volume of the flat forward sale.
Settlement is made quarterly with the Company receiving the fixed rate and
paying the current floating gold lease rate. All settlements are made by
delivering gold.
As of March 31, 2001, the Company has outstanding a $3.0 million
subordinated loan which is due in three equal semiannual payments commencing in
June of 2003.
The interest rates for borrowings under the project financing and
subordinated debt agreements were 8.04% and 10.21%, respectively, as of March
31, 2001. The interest rates are based on LIBOR rates.
On April 16, 2001, Hecla entered into a new $1.5 million revolving bank
agreement due on June 16, 2001. Amounts available under the bank agreement are
available for general corporate purposes. As collateral for the loan, Hecla
pledged its corporate office building and related property located in Coeur
d'Alene, Idaho. The interest rate is based on the prime lending rate plus
1.25%.
On April 30, 2001, Hecla's wholly owned subsidiary, Minera Hecla, S.A. de
C.V. acquired a processing mill at Velardena, Mexico, to process ore to be mined
from the San Sebastian project on the Saladillo mining concessions located near
Durango, Mexico. The purchase price of $7.4 million was financed by a credit
facility between Minera Hecla, S.A. de C.V. and the lender. The credit facility
is nonrecourse to Hecla. Under the terms of the credit facility, Minera Hecla,
S.A. de C.V. will make monthly payments for principal and interest over 63
months. The loan is collateralized by the mill at Velardena and the Saladillo,
Saladillo 1 and Saladillo 5 concessions.
On May 7, 2001, Hecla's wholly owned subsidiary, Minera Hecla, S.A. de C.V.
entered into a $700,000 short-term loan to finance the working capital of the
San Sebastian project. The loan requires monthly interest payments with a final
principal payment due on November 7, 2001. The loan in nonrecourse to Hecla and
is unsecured.
13
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Note 8.
The following table presents a reconciliation of the numerators (net income
(loss)) and denominators (shares) used in the basic and diluted income (loss)
per common share computations. Also shown is the effect that has been given to
declared and undeclared cumulative preferred dividends in arriving at income
(loss) applicable to common shareholders for the three months ended March 31,
2001 and 2000, in computing basic and diluted income (loss) per common share
(dollars and shares in thousands, except per-share amounts). For the three
months ended March 31, 2001, the $2.0 million dividend below has not been
declared or paid.
Three Months Ended March 31,
----------------------------------------------------------------
2001 2000
------------------------------ ------------------------------
Net Per-Share Net Per-Share
Loss Shares Amount Loss Shares Amount
-------- ------ ------ -------- ------ -------
Income (loss) before extraordinary charge $ 9,535 $ (6,673)
Extraordinary charge, net of income tax - - (647)
-------- --------
Income (loss) before preferred stock
dividends 9,535 (7,320)
Less: Preferred
stock dividends (2,012) (2,012)
-------- --------
Basic income (loss) per common share:
Income (loss) applicable to common
shareholders 7,523 66,798 $ 0.11 (9,332) 66,782 $ (0.14)
Effect of dilutive securities - - 350 - - - - - - - -
-------- ------ ------- -------- ------ -------
Diluted income (loss) per common share $ 7,523 67,148 $ 0.11 $ (9,332) 66,782 $ (0.14)
======== ====== ======= ======== ====== =======
These calculations of diluted earnings per share for the three months ended
March 31, 2001 and 2000 exclude the effects of $115,000,000 of convertible
preferred stock as such conversion would be antidilutive. Also excluded from
these calculations are the effects of common stock issuable upon exercise of
stock options as of March 31, 2001 and 2000, as their exercise would be
antidilutive, as follows:
Three Months Ended
-----------------------
March 31,
2001 2000
---------- ----------
1,809,500 2,124,000
14
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Note 9.
Hecla is organized and managed primarily on the basis of the principal
products being produced from its operating units. One operating unit has been
aggregated into the Metals-Gold segment, two of the operating units have been
aggregated into the Metals-Silver segment, and five operating units have been
aggregated as part of the Industrial Minerals segment. During November 2000,
the industrial minerals segment was designated as a discontinued operation. On
March 27, 2001, Hecla sold the K-T Group which consisted of four operating
units. Following the sale of the K-T Group, discontinued operations consisted
of one operating unit. General corporate activities not associated with
operating units as well as idle properties are presented as Other.
The following tables present information about reportable segments for the
three months ended March 31 (in thousands):
2001 2000
-------- --------
Net sales to unaffiliated customers:
Metals-Gold $ 6,698 $ 6,329
Metals-Silver 9,719 11,299
-------- --------
$ 16,417 $ 17,628
======== ========
2001 2000
-------- --------
Income (loss) from operations:
Metals-Gold $ 1,270 $ (2,306)
Metals-Silver (1,000) (457)
Other (2,089) (2,818)
-------- --------
$ (1,819) $ (5,581)
======== ========
15
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
The following table presents identifiable assets by reportable segment as of
March 31, 2001, and December 31, 2000 (in thousands):
March 31, December 31,
2001 2000
--------- ------------
Identifiable assets:
Metals-Gold $ 41,490 $ 42,667
Metals-Silver 81,358 81,572
Discontinued operations 2,656 44,057
Other 28,561 26,540
--------- ---------
$ 154,065 $ 194,836
========= =========
Note 10.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 was amended in June 2000 with the
issuance of SFAS 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities." SFAS 133, which Hecla adopted effective January 1, 2001,
requires that derivatives be recognized as assets or liabilities and be measured
at fair value. Gains or losses resulting from changes in the fair value of
derivatives in each period are to be accounted for either in current earnings or
other comprehensive income (loss) depending on the use of the derivatives and
whether they qualify for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in the fair value or cash flows of the hedging
instruments and the hedged items.
At March 31, 2001, Hecla's hedging contracts, used to reduce exposure to
precious metal prices, consisted of forward sales contracts and a gold lease
rate swap. Hecla intends to physically deliver metals in accordance with the
terms of the forward sales contracts, as such Hecla has elected to designate the
contracts as normal sales in accordance with SFAS 138, and as a result these
contracts are not required to be accounted for as derivatives under SFAS 133.
Hecla recorded a cumulative effect of a change in accounting principle in other
comprehensive income of approximately $0.1 million loss related to the gold
lease rate swap upon adoption of SFAS 133 on January 1, 2001.
16
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
Hecla Mining Company is involved in the exploration, development, mining
and processing of gold, silver, lead, zinc and industrial minerals. Hecla's
gold and silver segment revenues and profitability are strongly influenced by
world prices of gold, silver, lead and zinc, which fluctuate widely and are
affected by numerous factors beyond Hecla's control, including inflation and
worldwide forces of supply and demand for precious and base metals. The
aggregate effect of these factors is not possible to accurately predict. On
February 27, 2001, Hecla signed an agreement to sell the Kentucky-Tennessee Clay
Company, Kentucky-Tennessee Feldspar Corporation, Kentucky-Tennessee Clay de
Mexico and certain other minor inactive industrial minerals companies
(collectively the K-T Group). The sales transaction closed on March 27, 2001.
Hecla also intends to sell the remaining assets of the Colorado Aggregate
division of MWCA (CAC), which is a wholly owned subsidiary of Hecla. As a
result of Hecla's decision to sell the industrial minerals segment in 2000, it
is now accounted for as discontinued operations. In the following descriptions,
where there are changes that are attributable to more than one factor, Hecla
presents each attribute in descending order relative to the attribute's
importance to the overall change.
Except for the historical information contained in this Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
matters discussed below are forward-looking statements that involve risks and
uncertainties, including:
- potential asset sales,
- ability to repay indebtedness,
- the timely development of existing properties and reserves and future
projects,
- the impact of metal prices and metal production volatility,
- changing market conditions and the regulatory environment,
- limited access to capital markets, and
17
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
- other risks detailed from time to time in Hecla's Form 10-K and Form
10-Q's filed with the Securities and Exchange Commission (see also
"Investment Considerations" of Part I, Item 1 of Hecla's 2000 Form
10-K).
As a result of the above factors and potentially others, actual results may
differ materially from those projected, forecasted or implied. These forward-
looking statements represent Hecla's judgment as of the date of this filing.
Hecla disclaims, however, any intent or obligation to update these forward-
looking statements as circumstances may change or develop.
On April 30, 2001, Hecla's wholly owned subsidiary, Minera Hecla, S.A. de
C.V. acquired a processing mill at Velardena, Mexico, to process ore to be mined
from the San Sebastian project on the Saladillo mining concessions located near
Durango, Mexico. The purchase price of $7.4 million was financed by a credit
facility between Minera Hecla, S.A. de C.V. and the lender. The credit facility
is nonrecourse to Hecla. Ore mined from the San Sebastian project will be
trucked approximately 100 kilometers to the processing mill. The mill has a
rated capacity of 500 tonnes per day and produces a silver/gold precipitate
which is to be sold to a precious metals refiner. Milling operations commenced
in early May, and production from Sebastian is anticipated to be between 1.0
million and 1.5 million ounces of silver, and 25,000 to 30,000 ounces of gold in
2001.
During the first quarter of 2001, Hecla produced approximately 36,000
ounces of gold compared to approximately 32,000 ounces in the first quarter of
2000. The following table displays the actual gold production (in ounces) by
operation for the three months ended March 31, 2001 and 2000, projected gold
production for the year ending December 31, 2001, and actual gold production for
the year ended December 31, 2000:
Actual Actual Projected Actual
March 31, March 31, Dec. 31, Dec. 31,
Operation 2001 2000 2001 2000
- --------- --------- --------- ---------------- ---------
La Camorra 28,000 19,000 100,000-110,000 93,000
Greens Creek(3) 7,000 6,000 22,000-24,000 25,000
Rosebud(1)(3) - - 6,000 - - 24,000
San Sebastian 1,000 - - 25,000-29,000 3,000
Other(2) - - 1,000 0-1,000 1,000
--------- --------- ---------------- ---------
Totals 36,000 32,000 147,000-164,000 146,000
========= ========= ================ =========
18
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
(1) The Rosebud mine completed operations in the third quarter of
2000.
(2) Includes production from the San Sebastian project (formerly referred
to as the Saladillo property), the La Choya mine, which completed
mining in December 1998, and other sources.
(3) Reflects Hecla's portion.
In the first quarter of 2001, Hecla produced approximately 2.1 million
ounces of silver compared to approximately 2.2 million ounces in the first
quarter of 2000. The following table displays the actual silver production (in
ounces) by operation for the three months ended March 31, 2001 and 2000,
projected silver production for the year ending December 31, 2001, and actual
silver production for the year ended December 31, 2000 (in thousands):
Actual Actual Projected Actual
March 31, March 31, Dec. 31, Dec. 31,
Operation 2001 2000 2001 2000
- --------- --------- --------- -------------- ---------
Lucky Friday 1,117 1,455 4,700-5,100 5,012
Greens Creek 967 743 2,800-3,200 2,754
Rosebud - - 22 - - 56
San Sebastian 44 - - 1,000-1,500 177
--------- --------- -------------- ---------
Totals 2,128 2,220 8,500-9,800 7,999
========= ========= ============== =========
In 2000, Hecla shipped approximately 1,078,000 tons from the K-T Group,
which included ball clay, kaolin and feldspar, as well as approximately 61,000
tons of specialty aggregates from CAC and 130,000 cubic yards of landscape
material from the Mountain West Products division of MWCA. During the first
quarter of 2001, Hecla shipped approximately 248,000 tons from the industrial
minerals group, including 7,000 tons from CAC. On March 27, 2001, Hecla
completed a sale of the K-T Group for $62.5 million subject to customary post-
closing adjustments. Hecla recorded a gain on the sale of the K-T Group of
$13.0 million in the first quarter of 2001. The proceeds were used to repay a
term loan facility of $55.0 million and to repay amounts outstanding under a
$2.0 million revolving bank agreement. The remaining net proceeds were
available for general corporate purposes. Hecla continues to pursue a sale of
the remaining assets of CAC, although there can be no assurance that Hecla will
complete a sales transaction.
19
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
During 2000, Hecla sold substantially all of the assets of its Mountain West
Products division of MWCA and the landscape operations of the Colorado Aggregate
division of MWCA.
Results of Operations
Hecla recorded a loss from continuing operations, before a preferred stock
dividend, of approximately $3.6 million, or $0.05 per common share, in the first
quarter of 2001 compared to a loss from continuing operations of approximately
$7.0 million, before an extraordinary charge and preferred stock dividend, or
$0.11 per common share, in the first quarter of 2000. After recognizing $13.1
million in income from discontinued operations and $2.0 million (which has not
been declared or paid) in dividends to holders of the Hecla's Series B
Cumulative Convertible Preferred Stock, Hecla's income applicable to common
shareholders for the first quarter of 2001 was approximately $7.5 million, or
$0.11 per common share, compared to a loss of $9.3 million, or $0.14 per common
share in the first quarter of 2000, after recognizing $0.3 million in income
from discontinued operations, a $0.6 million extraordinary charge for the write-
off of debt issuance costs related to extinguished debt and $2.0 million in
dividends to holders of Hecla's Series B Cumulative Convertible Preferred Stock.
Although Hecla has elected not to declare the dividend for the first quarter of
2001, because these dividends are cumulative, the effects of the undeclared
dividends are reflected in the income applicable to common shareholders.
The decreased loss in 2001 compared to the same period in 2000 was
attributable to a variety of factors, the most significant of which are
discussed below.
Sales of products decreased by approximately $1.2 million, or 6.9%, in the
first quarter of 2001 compared to the first quarter of 2000 primarily due to:
- decreased sales totaling $1.6 million from silver operations primarily
resulting from lower zinc and silver prices, partly offset by higher
lead prices, the timing of lead concentrate shipments at the Greens
Creek mine and reduced hedging activities in the 2001 period, and
- increased sales totaling $0.4 million from gold operations, primarily
resulting from increased production and sales at the La Camorra mine
($2.2 million), partly offset by decreased sales at Rosebud ($1.8
million), a result of the completion of mining activity in the third
quarter of 2000.
20
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
The following table compares the average metal prices for the first quarter
of 2001 with the comparable 2000 period:
Metal 2001 2000 $ Change % Change
-------------------- -------- -------- ---------- ----------
Gold-Realized ($/oz.) $ 279 $ 290 $ (11) (4)%
Gold-London Final ($/oz.) 263 290 (27) (9)
Silver-Handy & Harman ($/oz.) 4.56 5.21 (0.65) (12)
Lead-LME Cash ($/pound) 0.223 0.206 0.017 8
Zinc-LME Cash ($/pound) 0.462 0.512 (0.05) (10)
Cost of sales and other direct production costs decreased approximately
$2.9 million, or 20.5%, in the first quarter of 2001 compared to the first
quarter of 2000 primarily due to:
- decreased cost of sales at the Rosebud mine ($2.4 million) due to the
completion of mining in the third quarter of 2000,
- decreased cost of sales at the Greens Creek mine ($1.1 million)
primarily due to a decrease in lead concentrate shipments during the
first quarter of 2001, and
- increased cost of sales from the La Camorra mine ($0.5 million) as a
result of increased production.
Cost of sales and other direct production costs as a percentage of sales
from products decreased to 68.1% in the first quarter of 2001 from 79.7% in the
first quarter of 2000. The change was due to increased margins from the gold
segment resulting from increased production and better efficiencies at the La
Camorra mine, decreased production and sales at the Rosebud mine due to the
completion of mining activity in 2000, partly offset by lower hedging revenues
and lower margins from the silver segment due to lower silver and zinc prices.
Depreciation, depletion, and amortization decreased $0.3 million, or 6.9%,
in the first quarter of 2001 from the first quarter of 2000 principally due to:
- decreased depreciation at the Rosebud mine ($0.9 million) due to
completion of mining activity in the third quarter of 2000,
- decreased depreciation at the Lucky Friday mine ($0.5 million),
due to the write-down of assets in December 2000, and
21
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
- increased depreciation from the La Camorra mine due to increased
production ($0.9 million).
General and administrative expense decreased $0.3 million, or 19.4%, in the
first quarter of 2001, compared to the first quarter of 2000, primarily due to
reduced spending at the corporate level during 2001, as well as reduced staffing
levels.
Exploration expense decreased $1.1 million, or 68.2%, in the first quarter
of 2001, compared to the first quarter of 2000, principally due to reduced
expenditures at Rosebud due to completion of operations in the third quarter of
2000 ($0.6 million) and reduced exploration activity in Mexico ($0.4 million).
Hecla's provision for closed operations and environmental matters decreased
$0.3 million in the first quarter of 2001, compared to the first quarter of
2000, principally due to a decreased provision at Grouse Creek ($0.5 million),
partially offset by increased expenditures relating to the Coeur d'Alene Basin
Litigation ($0.2 million).
Interest expense increased $0.3 million in the first quarter of 2001
compared to the first quarter of 2000, due to increased borrowings.
Hecla recorded income from discontinued operations of approximately $13.1
million, or $0.20 per common share, in the first quarter of 2001 compared to
income of approximately $0.3 million, or $0.01 per common share, in the same
period in 2000. On March 27, 2001, Hecla completed a sale of the K-T Group for
$62.5 million, subject to customary post-closing adjustments, and recorded a
gain of $13.0 million in the first quarter of 2001. Other factors contributing
to the change include:
- decreased sales totaling approximately $4.8 million, principally the
result of decreased shipments at the MWCA group ($3.4 million) after the
sale of the Mountain West Products division of MWCA in March 2000 and the
landscape operation of Colorado Aggregate in June 2000, as well as
decreased sales at the K-T Group ($1.4 million),
- a loss of $0.8 million on the sale of the Mountain West Products division
of MWCA in 2000,
- decreased cost of sales of $3.8 million, principally due to the partial
sale of MWCA and lower sales at the K-T Group, and
- decreased depreciation, depletion and amortization of $0.2 million,
primarily due to the partial sale of MWCA.
22
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
An extraordinary charge of $0.6 million was recorded in 2000 to write off
previously unamortized debt issuance costs associated with the extinguishment of
debt.
Cash operating, total cash, and production cost per gold ounce decreased to
$146, $146 and $215, respectively, in the first quarter of 2001 from $246, $249
and $328 in the first quarter of 2000, respectively. The decreases in costs per
gold ounce were primarily attributable to increased production at the La Camorra
mine, as well as the completion of mining activity in the third quarter of 2000
at the Rosebud mine.
Cash operating, total cash, and total production cost per silver ounce
decreased to $3.31, $3.32 and $4.61, respectively, in the first quarter of 2001
from $3.68, $3.69, and $5.02 in the first quarter of 2000, respectively. The
decreases in the costs per silver ounce were due primarily to the positive
impacts of Greens Creek's increased silver production resulting from 20% higher
silver grade and increased tons mined. The full cost per ounce was also
positively impacted by decreased per ounce depreciation at the Lucky Friday mine
due to the write-down of the majority of property, plant and equipment in the
fourth quarter of 2000.
Financial Condition and Liquidity
A substantial portion of Hecla's revenue is derived from the sale of
products, the prices of which are affected by numerous factors beyond Hecla's
control. Prices may change dramatically in short periods of time and such
changes have a significant effect on revenues, profits and liquidity of Hecla.
Hecla is subject to many of the same inflationary pressures as the U.S. economy
in general. Hecla continues to seek and implement cost-cutting measures in an
effort to reduce per unit production costs. Management believes, however, that
Hecla may not be able to continue to offset the impact of inflation over the
long term through cost reductions alone. Market prices for products produced by
Hecla have a much greater impact than inflation on Hecla's revenues and
profitability. Moreover, the discovery, development and acquisition of mineral
properties are in many instances unpredictable events. Future metals prices, the
success of exploration programs, changes in legal and regulatory requirements,
and other property transactions can have a significant impact on the need for
capital.
At March 31, 2001, assets totaled approximately $154 million and
shareholders' equity totaled approximately $59 million. Cash and cash
equivalents increased by $1.8 million to $3.2 million at March 31, 2001 from
$1.4 million at December 31, 2000.
23
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Hecla's investing activities provided $57.6 million of cash during the
first quarter of 2001. The major source of cash was from the sale of the K-T
Group ($59.8 million), partly offset by additions to properties, plants and
equipment ($2.1 million), primarily at the La Camorra and Greens Creek mines.
Operating activities provided approximately $0.3 million of cash during the
first quarter of 2001. Significant sources of cash included increased accrued
payroll and related benefits of $1.8 million and increased accounts payable and
accrued expenses of $1.6 million. Significant uses of cash included (1) cash
required for reclamation activities and other noncurrent liabilities of $3.1
million; (2) increases in inventories of $2.3 million primarily due to increases
at the Greens Creek and La Camorra mines; and (3) increases in accounts and
notes receivable of $0.5 million. Principal noncash elements included a $13.0
million gain on the sale of the K-T Group, partly offset by charges for
depreciation, depletion and amortization of $4.5 million.
During the first quarter of 2001, financing activities used approximately
$56.0 million of cash. The major use of cash was repayment of long-term debt of
$57.0 million including the Company's $55.0 million term loan facility which was
due to be repaid on April 10, 2001, partly offset by borrowings of $1.0 million.
At March 31, 2001, Hecla's wholly owned subsidiary, HRIL, had $10.3 million
outstanding under a credit agreement utilized to finance the acquisition of the
La Camorra gold mine in Venezuela. At March 31, 2001, HRIL was in compliance
with restrictive covenants related to the available ore reserves and financial
performance of the La Camorra mine. At March 31, 2001, $7.0 million of the
project financing debt was classified as long-term debt, with the remaining $3.3
million classified as current portion of long-term debt.
On April 16, 2001, Hecla entered into a new $1.5 million revolving bank
agreement due on June 16, 2001. Amounts available under the bank agreement are
available for general corporate purposes. As collateral for the loan, Hecla
pledged its corporate office building and related property located in Coeur
d'Alene, Idaho. The interest rate is based on the prime lending rate plus
1.25%.
On April 30, 2001, Hecla's wholly owned subsidiary, Minera Hecla, S.A. de
C.V. acquired a processing mill at Velardena, Mexico, to process ore to be mined
from the San Sebastian project on the Saladillo mining concessions located near
Durango, Mexico. The purchase price of $7.4 million was financed by a credit
24
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
facility between Minera Hecla, S.A. de C.V. and the lender. The credit facility
is nonrecourse to Hecla. Under the terms of the credit facility, Minera Hecla,
S.A. de C.V. will make monthly payments for principal and interest over 63
months, including payments of $170,000 a month for the remaining eight months in
2001. The loan is collateralized by the mill at Velardena and the Saladillo,
Saladillo 1 and Saladillo 5 concessions.
On May 7, 2001, Hecla's wholly owned subsidiary, Minera Hecla, S.A. de C.V.
entered into a $700,000 short-term loan to finance the working capital of the
San Sebastian project. The loan requires monthly interest payments with a final
principal payment due on November 7, 2001. The loan is nonrecourse to Hecla and
is unsecured.
Hecla currently estimates that capital expenditures for the remainder of
2001, including the acquisition of the Velardena mill, will be in the range of
$14.0 to $16.0 million, principally for expenditures at the San Sebastian
project, the Greens Creek mine and the La Camorra mine. Expenditures for
environmental remediation and reclamation for the remainder of 2001 are
estimated in the range of $9.0 to $11.0 million, principally for activities at
the Grouse Creek property and the Bunker Hill Superfund site. Hecla also
estimates that exploration expenditures for the remainder of 2001 will be in the
range of $1.5 to $2.5 million for expenditures at the San Sebastian project in
Mexico and at the Greens Creek and La Camorra mines. These expenditures will be
dependent upon Hecla's ability to generate sufficient operating cash flows,
proceeds from potential debt financings, proceeds generated from the potential
sale of assets and possible offerings of equity and/or debt securities. There
can be no assurance that Hecla will be successful in generating adequate funding
for planned capital expenditures, environmental remediation and reclamation
expenditures and for exploration expenditures.
Reserves for closure costs, reclamation and environmental matters totaled
$56.4 million at March 31, 2001. Hecla anticipates that expenditures relating
to these reserves will be made over the next several years. Although Hecla
believes the allowance is adequate based on current estimates of aggregate
costs, Hecla plans to periodically reassess its environmental and reclamation
obligations as new information is developed. Depending on the results of the
reassessment, it is reasonably possible that Hecla's estimate of its obligations
may change in the near term.
Hecla has 2.3 million shares of Series B Cumulative Convertible Preferred
Stock (the Preferred Shares) outstanding. Holders of the Preferred Shares are
entitled to receive
25
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
cumulative cash dividends at the annual rate of $3.50 per share payable
quarterly, when and if declared by the Board of Directors. As of April 30,
2001, Hecla has not declared and paid the equivalent of three quarterly
dividends. Holders of the Preferred Shares have no voting rights except if
Hecla does not declare and pay the equivalent of six quarterly dividends. If
these dividends are not paid, the holders of Preferred Shares, voting as a
class, shall be entitled to elect two additional directors. The holders of
Preferred Shares also have voting rights related to certain amendments to
Hecla's Articles of Incorporation.
Hecla brought suit in January 2001 against Zemex Corporation of Toronto,
Canada, under its guarantee for its subsidiary Zemex U.S. Corporation's failure
to close on the sale of K-T Clay and K-T Mexico. Hecla had announced the agreed
upon sale in November 2000 for $68.0 million and is seeking damages incurred by
Zemex U.S. Corporation's failure to purchase K-T Clay and K-T Mexico as agreed.
On August 21, 2000, Hecla was notified by the New York Stock Exchange
(NYSE) that Hecla had fallen below NYSE listing criteria because the common
stock price had been under $1.00 per share for more than 30 days, and that Hecla
had six months to increase the stock price of its common stock to above $1.00
per share. Hecla's stock price did not increase to an average closing price of
$1.00 or more per share for a 30-day period at the end of the six-month
notification period. Hecla notified the NYSE that it will be seeking
shareholders' approval of a reverse split of common stock at the next annual
meeting to give Hecla the option to increase its common stock price to meet
NYSE's requirement and remain on the NYSE. Due to other NYSE listing criteria,
there can be no assurance that Hecla will be able to maintain the listing of its
common stock on the NYSE.
Pursuant to a Registration Statement filed with the Securities and Exchange
Commission and declared effective in the third quarter of 1995, Hecla can, at
its option, issue debt securities, common shares, preferred shares or warrants
in an amount not to exceed $100.0 million in the aggregate. As of March 31,
2001, Hecla has issued $62.2 million of Hecla's common shares and warrants under
the Registration Statement. Due to the current market capitalization of Hecla,
there can be no assurance as to the availability of this Registration Statement.
As of March 31, 2001, Hecla's unrestricted cash balance totaled $3.2
million. In order to provide additional liquidity, Hecla is currently
evaluating a number of financing alternatives including additional debt
financing, asset sales, hedging, sale of royalty interest and equity issuance.
Hecla currently
26
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
anticipates completing one or more financing alternatives during 2001. Proceeds
from possible financings will be available for general corporate purposes.
Hecla also continues to pursue the sale of the remaining assets of CAC. There
can be no assurance that Hecla will be successful in obtaining additional
financing or in completing a sales transaction for the remaining assets of CAC.
Based upon Hecla's estimate of metals prices and metals production for
2001, Hecla currently believes that its operating cash flows, proceeds from
possible financings and the anticipated proceeds from the sale of the remaining
assets of CAC will be adequate to fund anticipated minimum capital expenditures,
idle property expenditures and exploration expenditures in 2001. There can be
no assurance that Hecla will be successful in its efforts to complete any other
financing or in its ability to sell the remaining assets of CAC.
For information on hedged positions and derivative instruments, see Item 7A
"Quantitative and Qualitative Disclosure About Market Risk."
Hecla is subject to legal proceedings and claims that have not been finally
adjudicated (see Part II. Item 1. Legal Proceedings and Note 6 of Notes to
Consolidated Financial Statements). The ultimate disposition of these matters
and various other pending legal actions and claims are not presently
determinable. However, an adverse determination in certain of these matters may
have a material adverse effect on the financial position of Hecla and its
subsidiaries.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
The following discussion about Hecla's risk-management activities includes
"forward-looking statements" that involve risk and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements.
The following tables summarize the financial instruments and derivative
instruments held by Hecla at March 31, 2001, which are sensitive to changes in
interest rates and commodity prices. Hecla believes that there has not been a
material change in its market risk since the end of its last fiscal year. In
the normal course of business, Hecla also faces risks that are either
nonfinancial or nonquantifiable (See "Investment Considerations" of Part I, Item
1 of Hecla's 2000 Annual Report on Form 10-K).
27
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Interest-Rate Risk Management
At March 31, 2001, Hecla's debt was subject to changes in market interest
rates and was sensitive to those changes. Hecla currently has no derivative
instruments to offset the risk of interest rate changes. Hecla may choose to
use derivative instruments, such as interest rate swaps to manage the risk
associated with interest rate changes.
The following table presents principal cash flows for debt outstanding at
March 31, 2001, by maturity date and the related average interest rate. The
variable rates are estimated based on implied forward rates in the yield curve
at the reporting date.
(in thousands)
2001 2002 2003 2004 Total Value
-------- -------- -------- -------- -------- --------
Subordinated debt $ - - $ - - $ 2,000 $ 1,000 $ 3,000 $ 3,000
Average interest rate 8.46% 8.92% 9.55% 9.87%
Project financing debt $ 3,250 $ 3,000 $ 3,000 $ 1,000 $ 10,250 $ 10,250
Average interest rate 6.96% 7.42% 8.05% 8.37%
Commodity-Price Risk Management
Hedging
Hecla uses commodity forward sales commitments, commodity swap contracts,
and commodity put and call option contracts to manage its exposure to
fluctuation in the prices of certain metals which it produces. Contract
positions are designed to ensure that Hecla will receive a defined minimum price
for certain quantities of its production. Hecla uses these instruments to
reduce risk by offsetting market exposures. Hecla is exposed to certain losses,
generally the amount by which the contract price exceeds the spot price of a
commodity, in the event of nonperformance by the counterparties to these
agreements. The instruments held by Hecla are not leveraged and are held for
purposes other than trading. Hecla intends to physically deliver metals in
accordance with the terms of the forward sales contracts. As such, Hecla has
elected to designate the contracts as normal sales in accordance with SFAS 138
and as a result, these contracts are not required to be accounted for as
derivatives under SFAS 133.
28
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
The following table provides information about Hecla's forward sales
contracts at March 31, 2001. The table presents the notional amount in ounces,
the average forward sales price, and the total-dollar contract amount expected
by the maturity dates, which occur between June 29, 2001, and December 31, 2004.
Expected Expected Expected Expected Estimated
Maturity Maturity Maturity Maturity Fair
2001 2002 2003 2004 Value
-------- -------- -------- -------- ---------
Forward contracts:
Gold sales (ounces) 46,453 60,428 59,802 48,928
Future price (per ounce) $ 288 $ 288 $ 288 $ 288
Contract amount (in $000's) $ 13,390 $ 17,418 $ 17,238 $ 14,103 $ 2,877
In addition to the above contracts, Hecla has a quarterly Gold Lease Rate
Swap at a fixed rate of 1.5% on 200,054 ounces of the above gold forward
contracts. The ounces covered under the swap are adjusted each quarter,
commencing June 30, 2000, in accordance with the expiration of the gold forward
contracts. The estimated cost to close out the Gold Lease Rate Swap at March 31,
2001 was $288,317.
29
Part II - Other Information
Hecla Mining Company and Subsidiaries
Item 1. Legal Proceedings
For information concerning legal proceedings, refer to Note 6 to
Consolidated Financial Statements of this Form 10-Q.
30
Part II - Other Information (Continued)
Hecla Mining Company and Subsidiaries
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits*
12 - Fixed Charge Coverage Ratio Calculation
(b) Reports on Form 8-K
Form 8-K dated January 22, 2001, related to a news release
announcing Hecla Mining Company had brought suit against Zemex
Corporation of Toronto, Canada
Form 8-K dated February 27, 2001, related to a news release
announcing Hecla Mining Company had entered into a Stock Purchase
Agreement with IMERYS USA, Inc., for the sale of Kentucky-Tennessee
Clay Company and K-T Feldspar
Form 8-K dated March 27, 2001, related to the Stock Purchase
Agreement between Hecla Mining Company and IMERYS USA, Inc., dated
February 27, 2001, and the Company's Pro Forma Financial Statements
for the year ended December 31, 2000
Items 2, 3, 4, and 5 of Part II are omitted from this report as inapplicable.
__________________________
*Certain long-term debt instruments of the registrant or its subsidiaries, the
authorized principal amount of which does not exceed 10 percent of the
registrant's consolidated assets, are not filed pursuant to Item
601(b)(4)(iii)(A) of Regulation S-K. The registrant agrees to furnish a copy of
any such instrument to the Commission upon request.
31
Hecla Mining Company and Subsidiaries
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HECLA MINING COMPANY
-----------------------------------
(Registrant)
Date: May 14, 2001 By /s/ Arthur Brown
---------------------------------
Arthur Brown, Chairman, President
and Chief Executive Officer
Date: May 14, 2001 By /s/ Lewis E. Walde
---------------------------------
Lewis E. Walde, Controller
(Chief Accounting Officer)
32
Exhibit Index
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Exhibit No. Description
- ----------- -----------------
12 Fixed Charge Coverage Ratio Calculation