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, 2002
Commission file number 1-8491
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HECLA MINING COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 82-0126240
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6500 Mineral Drive
Coeur d'Alene, Idaho 83815-8788
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(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 .
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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, 2002
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Common stock, par value 74,757,872 shares
$0.25 per share
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Hecla Mining Company and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2002
I N D E X*
Page
PART I. - Financial Information
Item l - Consolidated Balance Sheets - March 31,
2002 and December 31, 2001
- Consolidated Statements of Operations and
Comprehensive Income (Loss) - Three Months
Ended March 31, 2002 and 2001
- Consolidated Statements of Cash Flows - Three
Months Ended March 31, 2002 and 2001
- Notes to Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. - Other Information
Item 1 - Legal Proceedings
Item 6 - Exhibits and Reports on Form 8-K
*Items omitted are not applicable.
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Part I - Financial Information
Hecla Mining Company and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(In thousands, except share data)
March 31, December 31,
2002 2001
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ASSETS
Current assets:
Cash and cash equivalents $ 8,619 $ 7,560
Accounts and notes receivable 9,878 6,648
Inventories 12,037 10,868
Other current assets 2,016 1,426
Net assets of discontinued operations 821 2,714
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Total current assets 33,371 29,216
Investments 85 69
Restricted investments 6,375 6,375
Properties, plants and equipment, net 101,134 104,593
Other noncurrent assets 12,987 12,863
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Total assets $ 153,952 $ 153,116
========== ==========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 7,062 $ 7,938
Accrued payroll and related benefits 8,062 7,832
Current portion of long-term debt 4,283 7,043
Accrued taxes 993 787
Current portion of accrued reclamation and closure costs 6,892 6,026
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Total current liabilities 27,292 29,626
Deferred income taxes 300 300
Long-term debt 14,612 11,948
Accrued reclamation and closure costs 45,432 46,455
Other noncurrent liabilities 6,647 6,823
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Total liabilities 94,283 95,152
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SHAREHOLDERS' EQUITY
Preferred stock, $0.25 par value, authorized 5,000,000 shares; issued
and outstanding - 2,300,000 shares, liquidation preference 2002 - $129,087 and
2001 - $127,075 575 575
Common stock, $0.25 par value, authorized 100,000,000 shares;
issued 2002 - 74,360,980, issued 2001 - 73,068,796 shares 18,590 18,267
Capital surplus 405,450 404,354
Accumulated deficit (363,697) (364,183)
Accumulated other comprehensive income (loss) (55) 173
Less stock held by grantor trust; 2002 - 81,696 common shares,
2001 - 102,114 common shares (264) (330)
Less stock held as unearned compensation; issued 2002 - 57,106 common shares,
2001 - 19,035 common shares (44) (6)
Less treasury stock, at cost; 2002 and 2001 - 62,116 common shares (886) (886)
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Total shareholders' equity 59,669 57,964
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Total liabilities and shareholders' equity $ 153,952 $ 153,116
========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Consolidated Statements of Operations (Unaudited)
(Dollars and shares in thousands, except for per-share amounts)
Three Months Ended
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March 31, 2002 March 31, 2001
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Continuing Operations:
Sales of products $ 23,383 $ 16,417
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Cost of sales and other direct production costs 14,091 11,172
Depreciation, depletion and amortization 5,558 4,393
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19,649 15,565
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Gross profit 3,734 852
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Other operating expenses:
General and administrative 1,877 1,514
Exploration 524 515
Depreciation and amortization 53 68
Provision for closed operations and environmental matters 109 574
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2,563 2,671
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Income (loss) from operations 1,171 (1,819)
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Other income (expense):
Interest and other income 409 628
Miscellaneous expense (146) (413)
Interest expense (464) (2,006)
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(201) (1,791)
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Income (loss)from continuing operations, net of income tax 970 (3,610)
Discontinued operations:
Income (loss), net of income tax (484) 162
Gain on disposal, net of income tax - - 12,983
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Net income 486 9,535
Preferred stock dividends (2,012) (2,012)
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Income (loss) applicable to common shareholders (1,526) 7,523
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Other comprehensive income (loss) per common share:
Change in derivative contracts (256) - -
Cumulative effect of a change in accounting principle - - (136)
Reclassification adjustment of loss included in net income 10 10
Unrealized holding gains on securities 19 44
Change in foreign currency items - - 4,898
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Other comprehensive income (loss) (227) 4,816
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Comprehensive income (loss) applicable to common shareholders $ (1,753) $ 12,339
========== ==========
Basic and diluted income (loss) per common share:
Loss from continuing operations after preferred stock dividends $ (0.01) $ (0.09)
Income (loss) from discontinued operations including, gain on disposal (0.01) 0.20
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Basic and diluted income (loss) per common share $ (0.02) $ 0.11
========== ==========
Weighted average number of common shares outstanding 73,840 66,798
========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended
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March 31, 2002 March 31, 2001
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Operating activities:
Net income $ 486 $ 9,535
Noncash elements included in net income:
Depreciation, depletion and amortization 5,611 4,461
Gain on sale of discontinued operations - - (12,983)
Gain on disposition of properties, plants and equipment (122) (119)
Provision for reclamation and closure costs 340 214
Change in net assets of discontinued operations 438 1,393
Change in assets and liabilities:
Accounts and notes receivable (3,230) (520)
Inventories (1,169) (2,336)
Other current and noncurrent assets (839) 12
Accounts payable and accrued expenses (875) 1,754
Accrued payroll and related benefits 669 1,778
Accrued taxes 206 197
Accrued reclamation and closure costs and other noncurrent liabilities (992) (3,129)
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Net cash provided by operating activities 523 257
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Investing activities:
Proceeds from sale of discontinued operations 1,585 59,761
Additions to properties, plants and equipment (2,182) (2,096)
Proceeds from disposition of properties, plants and equipment 138 177
Increase in restricted investments - - (443)
Purchase of investments and change in cash surrender value of life insurance, net - - 323
Other, net 108 (87)
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Net cash provided (used) by investing activities (351) 57,635
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Financing activities:
Common stock issued under warrants and stock option plans 983 - -
Borrowings on debt 3,300 975
Repayments on debt (3,396) (56,999)
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Net cash provided (used) by financing activities 887 (56,024)
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Change in cash and cash equivalents:
Net increase in cash and cash equivalents 1,059 1,868
Cash and cash equivalents at beginning of period 7,560 1,373
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Cash and cash equivalents at end of period $ 8,619 $ 3,241
========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
Note 1.
In the opinion of management, the accompanying unaudited consolidated
balance sheet, consolidated statements of operations and consolidated statements
of cash flows contain all adjustments, consisting only of normal recurring
accruals, necessary to present fairly, in all material respects, the financial
position of Hecla Mining Company (the "Company"). These unaudited interim
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements and related footnotes as set
forth in the Company's annual report filed on Form 10-K for the year ended
December 31, 2001.
Note 2.
On March 5, 2002, Hecla completed the sale of its pet division of the
Colorado Aggregate Division (CAC) of MWCA for $1.6 million in cash. The sale of
the CAC pet division did not result in a gain or loss. Hecla continues to
pursue a sale of the remaining assets of the industrial minerals segment,
although there can be no assurance that a sales transaction will be completed.
At March 31, 2002, the remaining net assets of CAC are approximately $0.8
million. Hecla recorded a loss from discontinued operations of approximately
$0.5 million, or $0.01 per common share, in the first quarter of 2002 compared
to income of approximately $13.1 million, or $0.20 per common share, in the same
period in 2001 due to a $13.0 million gain on the sale of the Kentucky-Tennessee
Clay Company, K-T Feldspar Corporation, K-T Clay de Mexico and certain other
minor inactive industrial minerals companies (collectively the K-T Group).
Note 3.
Hecla's income tax provision for the first three months of 2002 and 2001
varies from the amount that would have been provided by applying the statutory
rate to the income before income taxes primarily due to the availability of net
operating loss carryforwards that can be utilized. During the first quarter of
2002 and 2001, Hecla did not recognize a provision for incomes taxes.
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Note 4.
Inventories consist of the following (in thousands):
March 31, Dec. 31,
2002 2001
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Concentrates, bullion, metals
in transit and other products $ 4,561 $ 4,211
Materials and supplies 7,476 6,657
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$ 12,037 $ 10,868
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At March 31, 2002, Hecla had forward sales commitments through December 31,
2004, for 154,000 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 28, 2002 was $301.40
per ounce.
Note 5. 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.
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.
In response to a request by the Company and ASARCO Incorporated, the United
States Federal District Court in Idaho, having jurisdiction over
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
the 1994 Consent Decree ("1994 Decree") issued an Order in September 2001 that
the 1994 Consent Decree should be modified in light of a significant change in
factual circumstances not reasonably anticipated by the mining companies at the
time they signed the 1994 Decree. In its Order, the Court reserved the final
ruling on the appropriate modification to the 1994 Decree until after the
issuance of the Record of Decision on the Basin-Wide Remedial
Investigation/Feasibility Study. The EPA has indicated that the Record of
Decision will be issued later in 2002. Based on the 2001 Order issued by the
Court, the Company believes it is entitled to relief from the 2002 work program
under the 1994 Decree within the Bunker Hill site. The Company has requested
the Court to grant interim relief reducing the 2002 work program and a hearing
is scheduled for June 2002. Prior to the hearing, the Company has agreed to
negotiate with the EPA and the state of Idaho in an attempt to resolve its 2002
work obligations pending the final determination by the Court on the
modification to the 1994 Decree. As of March 31, 2002, Hecla has estimated and
accrued an allowance for liability for remedial activity costs at the Bunker
Hill site of $9.4 million. These estimated expenditures are anticipated to be
made over the next three to five years. 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.
- 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
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
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. In October 2001, the EPA issued its proposed cleanup plan for the
Basin, and EPA's Record of Decision on the cleanup plan is expected to be issued
by EPA later in 2002.
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, and was concluded on July 30, 2001. In the first phase of the trial,
the Court has been asked to determine the extent of liability, if any, of the
defendants for the plaintiffs' CERCLA claims. The Court has also been asked to
determine the liability of the United States for its historic involvement in the
Basin. No decision on the issues before the Court in the first phase of the
litigation has been issued. If liability is determined in the first phase, a
second trial will be scheduled for 2002 or 2003 to address damages and remedy
selection. Two of the defendant mining companies, Coeur d'Alene Mines
Corporation and Sunshine Mining and Refining Company, settled their liabilities
under the litigation during the first quarter of 2001. Hecla and ASARCO are the
only defendants remaining in the litigation.
During 2000 and into 2001, 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. On August 16, 2001, the
Company entered into an Agreement in Principle with the United States and the
State of Idaho to settle the governments' claims for natural resource damages
and cleanup costs related to the historic mining practices in the Coeur d'Alene
Basin in northern Idaho. The settlement, if and when finalized in the form of a
Consent Decree, would release the Company from further liability to the
governments for its historic mining practices in the Coeur d'Alene Basin. The
Agreement in Principle caps for a period of ten years the majority of the
cleanup related expenditures the Company is responsible for annually at the
Bunker Hill Superfund Site, the Grouse Creek mine and the Stibnite site in
central Idaho. The Agreement limits these payments to the Government and/or
cleanup obligations at these sites to a fixed annual cap of $5.0 million for
each of the first two years of the Agreement and $6.0 million for each of the
next eight years. Hecla is committed to work and/or make payments of $4.0
million annually
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
for the following 20 years thereafter. In addition, Hecla would either have to
pay or perform clean up obligations amounting to 10% of its operating cash flow
as adjusted for certain exploration expenditures. Hecla would provide a
security interest in assets with a value of $20 million which will decline over
ten years. The Agreement in Principle does not include the Coeur d'Alene Indian
Tribe; however, the Company hopes to be able to include the Tribe as a party to
the settlement under the terms of a final consent decree. Representatives of
the United States, the State of Idaho and the Company continue to work on terms
of a definitive consent decree incorporating the terms of the Agreement in
Principle. However, there are a number of significant issues which will need to
be resolved prior to finalizing the definitive Consent Decree.
As of March 31, 2002, the Company has accrued $42.7 million related to the
properties covered by the Agreement in Principle. The range of liability for
these sites could be up to $138.0 million on an undiscounted basis plus the
percentage of operating cash flow. If, and when, the Agreement in Principle is
finalized in the form of a Consent Decree, if the terms of the obligation are
fixed and determinable, they may be discounted. Hecla has accrued what
management believes is the best estimate of the liability as of March 31, 2002.
However, it is reasonably possible that Hecla's obligation may change in the
near or long term depending on a number of factors, including finalization and
entry of a Consent Decree. In addition, an adverse ruling against Hecla for
liability and damages in this matter could have a material adverse effect on the
Company.
Private Class Action Litigation
On or about January 7, 2002, a class action complaint was filed in this
matter in the Idaho District Court, County of Kootenai, against several
corporate defendants, including the Company. The Company was served with the
Complaint on January 29, 2002. The Complaint seeks certification of three
plaintiff classes of Coeur d'Alene Basin residents and current and former
property owners to pursue three types of relief: various medical monitoring
programs, a real property remediation and restoration programs, and damages for
diminution in property value, plus other damages and costs. The Company
believes the Complaint is subject to challenge on a number of bases and intends
to vigorously defend itself in this litigation. On April 23, 2002, the Company
filed a motion with the Court to dismiss the claims for relief relating to the
medical monitoring programs and the remediation and restoration programs.
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Insurance Coverage Litigation
In 1991, Hecla initiated litigation in the Idaho District Court, County of
Kootenai, 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, 2002, Hecla had not reduced its
accrual for reclamation and closure costs to reflect the receipt of any
potential 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 Townsends, Inc., 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 Archer Daniels
Midland Company, a successor in interest to Quincy Soybean Company, a third
purchaser of ball clay sold by K-T Clay and used in the animal feed industry.
The Townsends and Archer Daniels lawsuits allege damages totaling approximately
$300,000
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
and $1.4 million, respectively. These 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. In August 2001, the Federal
District Court dismissed the Archer Daniels litigation; however, a similar
lawsuit based upon implied warranty was refiled by Archer Daniels against K-T
Clay on October 24, 2001, in Arkansas Federal Court. The defense of the
Townsends lawsuit is being covered by insurance. The Company believes that K-T
Clay's insurance coverage is available to cover the remaining 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.
On November 17, 2000, Hecla entered into an agreement with Zemex U.S.
Corporation guaranteed by its parent, Zemex Corporation of Toronto, Canada, to
sell the stock of K-T Clay and K-T Mexico, which included the ball clay and
kaolin operations, for a price of $68.0 million. On January 18, 2001, Zemex U.S.
Corporation failed to close on the transaction, and on January 22, 2001, Hecla
brought suit against the parent, Zemex Corporation, for its subsidiary's failure
to close on the purchase. Hecla is seeking damages from Zemex Corporation for
the failure of its subsidiary to meet its obligations under the November 2000
agreement. Discovery has been completed with a trial expected to be scheduled
later in 2002. At March 31, 2002, Hecla has not recorded any potential gain from
the settlement of this litigation.
In March 2002, Independence Lead Mines Company ("Independence"), the holder
of a net 18.52% interest in the Gold Hunter or DIA unitized area of the Lucky
Friday mine, notified Hecla of certain alleged defaults of Hecla under the 1968
Lease Agreement between the unit owners (Independence and Hecla under the terms
of the 1968 DIA Unitization Agreement) as Lessors and Hecla also as Lessee and
Operator of the properties. Hecla is a net 81.48% interest holder under these
Agreements. Independence alleges that Hecla violated the "prudent operator
obligations" implied under the Lease by undertaking the Gold Hunter project
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
and violated certain other provisions of the Agreement with respect to milling
equipment and calculating net profits and losses. The remedy requested by
Independence is the termination of Hecla's lease of the DIA/Gold Hunter
properties. Under the Lease Agreement, Hecla has the exclusive right to manage,
control and operate the DIA properties, and its decisions with respect to the
character of work are final. It is anticipated that the dispute will proceed
either to arbitration under the Lease Agreement or to Idaho state district court
for resolution. Hecla believes that it has fully complied with all obligations
of the 1968 Lease Agreement and will be able to successfully defend its right to
operate the property under the Lease Agreement.
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 6.
As of March 31, 2002, Hecla's wholly owned subsidiary Hecla Resource
Investments Limited (HRIL), had $6.5 million outstanding under a credit
agreement used to provide project financing at the La Camorra mine. The project
financing agreement is repayable in semiannual payments ending December 31,
2004, and had an interest rate of 4.8% at March 31, 2002.
HRIL must maintain compliance with certain financial and other restrictive
covenants related to the available ore reserves and performance of the La
Camorra mine. The Company is required to maintain hedged gold positions
sufficient to cover all dollar loans, operating expenditures, taxes, royalties
and similar fees projected for the project. At March 31, 2002, there were
154,000 ounces of gold sold forward. The forward sales agreement assumes the
ounces of gold committed to forward sales at the end of each quarter can be
leased at a rate of 1.5% for each following quarter. The Company maintains a
Gold Lease Rate Swap at a fixed rate of 1.5% on the outstanding notional volume
of the flat forward sale, with settlement being made quarterly with the Company
receiving the fixed rate and paying the current floating gold lease rate.
As of March 31, 2002, the Company has outstanding a $3.0 million
subordinated loan due in three equal semiannual payments commencing in June of
2003. The loan agreement gives the Company the option to capitalize interest
payments by adding them to the principal amount of the loan. At March 31, 2002,
the interest amount added to principal was approximately $0.5 million. The
interest rate on the subordinated debt was 6.05% as of March 31, 2002.
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
At March 31, 2002, Hecla's wholly owned subsidiary, Minera Hecla, S.A. de
C.V. (Minera Hecla) had $6.4 million outstanding under a project loan used to
acquire a processing mill at Velardena, Mexico, to process ore to be mined from
the San Sebastian mine near Durango, Mexico. Under the terms of the credit
facility, Minera Hecla will make monthly payments for principal and interest
over 63 months. The loan bears interest at the rate of 13%.
On March 27, 2002, Hecla entered into a $7.5 million revolving bank
agreement due in March of 2004. Amounts under the bank agreement are available
for general corporate purposes and are collateralized by Hecla's interest in the
Greens Creek Joint Venture. At March 31, 2002, $3.0 million was outstanding and
bears an interest rate of 9%.
As of March 31, 2002, the Company had a $3.0 million revolving bank
agreement collateralized by Hecla's headquarters building in Coeur d'Alene,
Idaho. On April 8, 2002, Hecla completed a sales transaction for its
headquarters building, terminating the loan agreement. As of March 31, 2002,
there was no amount outstanding under the revolving bank agreement.
Note 7.
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
undeclared cumulative preferred dividends in arriving at income (loss)
applicable to common shareholders for the three months ended March 31, 2002 and
2001, 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, 2002 and 2001, the $2.0 million dividends below have not been declared
or paid.
15
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Three Months Ended March 31,
--------------------------------------------------------------------------
2002 2001
----------------------------------- ----------------------------------
Net Per-Share Net Per-Share
Loss Shares Amount Loss Shares Amount
-------- ------- ---------- -------- ------- ---------
Income before preferred stock
dividends $ 486 $ 9,535
Less: Preferred stock dividends (2,012) (2,012)
-------- --------
Basic income (loss) per common
share:
Income (loss) applicable to
common shareholders $ (1,526) 73,840 $ (0.02) $ 7,523 66,798 $ 0.11
Effect of dilutive securities - - - - - - - - 350 - -
-------- ------ ------- -------- ------ -------
Diluted income (loss) per
common share $ (1,526) 73,840 $ (0.02) $ 7,523 67,148 $ 0.11
======== ====== ======= ======== ====== =======
These calculations of diluted earnings per share for the three months ended
March 31, 2002 and 2001 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, 2002 and 2001, as their exercise would be
antidilutive, as follows:
Three Months Ended
-----------------------
March 31,
2002 2001
---------- ----------
2,308,000 1,809,500
Note 8.
Hecla is organized and managed primarily on the basis of the principal
products being produced from its operating units. One of the operating units
has been aggregated into the Metals-Gold segment and three of the operating
units have been aggregated into the Metals-Silver segment. General corporate
activities not associated with operating units as well as idle properties are
presented as Other.
16
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
The following tables present information about reportable segments for the
three months ended March 31 (in thousands):
2002 2001
-------- --------
Net sales to unaffiliated customers:
Metals-Gold $ 11,273 $ 6,698
Metals-Silver 12,110 9,719
-------- --------
$ 23,383 $ 16,417
======== ========
2002 2001
-------- --------
Income (loss) from operations:
Metals-Gold $ 2,745 $ 1,270
Metals-Silver 465 (1,000)
Other (2,039) (2,089)
-------- --------
$ 1,171 $ (1,819)
======== ========
The following table presents identifiable assets by reportable segment as
of March 31, 2002, and December 31, 2001 (in thousands):
March 31, December 31,
2002 2001
---------- ----------
Identifiable assets:
Metals-Gold $ 36,739 $ 40,489
Metals-Silver 86,069 84,845
Discontinued operations 821 2,714
Other 30,323 25,068
-------- --------
$153,952 $153,116
======== ========
Note 9.
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations," which amends SFAS No. 19. This Statement addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. This
Statement requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is
17
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
incurred if a reasonable estimate of fair value can be made. The requirements
of this statement must be implemented for fiscal years beginning after June 15,
2002; however, early adoption is encouraged. The Company is currently
evaluating what effect the adoption of this standard will have on the Company's
financial statements.
Note 10.
On April 8, 2002, Hecla completed a sale of its headquarters building in
Coeur d'Alene, Idaho, for $5.6 million in cash. Proceeds from the sale are for
general corporate purposes. Hecla will lease a portion of the building over a
period of five years and will amortize the gain on the sale of $0.6 million over
the lease term. Hecla has agreed to a five-year lease, including leasing
approximately 50% of the building for two years, at which time the Company can
elect to reduce the amount of lease space to 25% for the remaining three years.
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 and zinc. The Company also has an interest
in one remaining industrial minerals subsidiary. 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.
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:
- the timely development of existing properties and reserves and future
projects,
- the impact of metal prices and metal production volatility,
- political risk,
18
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
- changing market conditions and the regulatory environment,
- limited access to capital markets,
- settlement of environmental litigation, and
- 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 2001 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.
Production
- ----------
During the first quarter of 2002, Hecla produced approximately 56,000
ounces of gold compared to approximately 36,000 ounces in the first quarter of
2001. The following table displays the actual gold production (in ounces) by
operation for the three months ended March 31, 2002 and 2001, projected gold
production for the year ending December 31, 2002, and actual gold production for
the year ended December 31, 2001 (in thousands):
Actual Actual Projected Actual
March 31, March 31, Dec. 31, Dec. 31,
Operation 2002 2001 2002 2001
- --------- --------- --------- ------------ ------------
La Camorra 40 28 140 152
Greens Creek(2) 7 7 23 26
San Sebastian(1) 9 1 32 16
Other - - - - - - 1
--------- --------- ------------ ------------
Totals 56 36 195 195
========= ========= ============ ============
(1) Production commenced in May 2001 at the San Sebastian mine.
(2) Reflects Hecla's portion.
19
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
In the first quarter of 2002, Hecla produced approximately 2.0 million
ounces of silver compared to approximately 2.1 million ounces in the first
quarter of 2001. The following table displays the actual silver production (in
ounces) by operation for the three months ended March 31, 2002 and 2001,
projected silver production for the year ending December 31, 2002, and actual
silver production for the year ended December 31, 2001 (in thousands):
Actual Actual Projected Actual
March 31, March 31, Dec. 31, Dec. 31,
Operation 2002 2001 2002 2001
- ----------- --------- --------- ------------ ------------
Lucky Friday 412 1,117 1,700 3,224
Greens Creek 829 967 3,000 3,260
San Sebastian 769 44 2,800 950
--------- --------- ----------- ------------
Totals 2,010 2,128 7,500 7,434
========= ========= ============ ============
Results of Operations
- ---------------------
Hecla recorded income from continuing operations, before a preferred stock
dividend, of approximately $1.0 million, or $0.01 per common share, in the first
quarter of 2002 compared to a loss from continuing operations of approximately
$3.6 million, before a preferred stock dividend, or $0.05 per common share, in
the first quarter of 2001. After recognizing a $0.5 million loss from
discontinued operations and $2.0 million (which has not been declared or paid)
in dividends to holders of Hecla's Series B Cumulative Convertible Preferred
Stock, Hecla's loss applicable to common shareholders for the first quarter of
2002 was approximately $1.5 million, or $0.02 per common share, compared to
income of $7.5 million, or $0.11 per common share in the first quarter of 2001,
after recognizing $13.1 million in income from discontinued operations 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 2002 and 2001, because these dividends are cumulative, the
effects of the undeclared dividends are reflected in the income (loss)
applicable to common shareholders.
The loss in 2002 compared to the income in the same period of 2001 was
attributable to a variety of factors, the most significant of which are
discussed below.
Hecla recorded a loss from discontinued operations of approximately $0.5
million, or $0.01 per common share, in the first quarter of 2002 compared to
income of approximately $13.1 million, or $0.20 per common share, in the same
period in 2001.
20
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
On March 27, 2001, Hecla completed a sale of 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) and recorded a gain of $13.0 million in the first
quarter of 2001. On March 4, 2002, Hecla completed a sale of the pet operations
of Colorado Aggregate division (CAC) of MWCA, a wholly owned subsidiary of
Hecla, for $1.6 million in cash. The sale of the pet operations did not result
in a gain or loss.
Sales of products increased by approximately $7.0 million, or 42%, in the
first quarter of 2002 compared to the first quarter of 2001 primarily due to:
- increased sales of $4.6 million from gold operations principally as a
result of increased production at the La Camorra mine ($4.5 million),
and
- increased sales of $2.4 million from silver operations primarily due
to the San Sebastian mine ($5.4 million), which commenced operations in
May 2001, partly offset by lower production at the Lucky Friday mine
($3.4 million).
The following table compares the average metal prices for the first quarter
of 2002 with the comparable 2001 period:
Metal 2002 2001 $ Change % Change
------------------ -------- -------- -------- --------
Gold-Realized ($/oz.) $ 296 $ 279 $ 17 6%
Gold-London Final ($/oz.) 290 263 27 10
Silver-Handy & Harman ($/oz.) 4.51 4.56 (0.05) (1)
Lead-LME Cash ($/pound) 0.223 0.223 0 0
Zinc-LME Cash ($/pound) 0.360 0.462 (0.102) (22)
Cost of sales and other direct production costs increased approximately
$2.9 million, or 26%, in the first quarter of 2002 compared to the first quarter
of 2001 primarily due to increased cost of sales at the San Sebastian mine ($3.4
million), due to the commencement of operations in May 2001, increased cost of
sales from the La Camorra mine ($2.3 million), due to increased production and
decreased cost of sales at the Lucky Friday mine ($3.2 million), resulting from
decreased production of silver and lead.
Cost of sales and other direct production costs as a percentage of sales
from products decreased to 60.3% in the first quarter of 2002 from 68.1% in the
first quarter of 2001. The change was primarily due to increased margins from
silver operations due to the San Sebastian mine, which commenced operations in
May 2001.
21
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Cash operating, total cash and production cost per gold ounce decreased to
$137, $137 and $207, respectively, in the first quarter of 2002 from $146, $146
and $215 in the first quarter of 2001, respectively. The decreases in costs per
gold ounce were primarily attributable to increased production at the La Camorra
mine.
Cash operating, total cash and total production cost per silver ounce
decreased to $2.29, $2.36 and $3.91, respectively, in the first quarter of 2002
from $3.31, $3.32, and $4.61 in the first quarter of 2001, respectively. The
decreases in the costs per silver ounce were due primarily to the addition of
the low-cost San Sebastian mine, which commenced operations in May 2001, and to
reduced production at the higher cost Lucky Friday mine. During the first
quarter of 2002, approximately $0.2 million of costs were classified as care-
and-maintenance costs and excluded in the determination of the cost per ounce at
Lucky Friday. Including the $0.2 million in costs, the cash operating, total
cash and total production costs per ounce total $2.39, $2.47 and $4.02,
respectively, for 2002.
Depreciation, depletion, and amortization increased $1.2 million, or 27%,
in the first quarter of 2002 from the first quarter of 2001 principally due to
increased depreciation from the La Camorra mine, due to increased production
($0.9 million), increased depreciation from the San Sebastian mine ($0.7
million), due to the commencement of operations in May 2001, and decreased
depreciation at the Lucky Friday mine ($0.4 million).
Interest expense decreased $1.5 million, or 77%, in the first quarter of
2002, compared to the first quarter of 2001, primarily the result of repayment
of a $55.0 million term loan facility in March 2001.
Hecla's provision for closed operations and environmental matters decreased
$0.5 million, or 81%, in the first quarter of 2002, compared to the first
quarter of 2001 principally due to decreased expenditures relating to the Coeur
d'Alene Basin Litigation ($0.3 million).
Miscellaneous expense decreased $0.3 million, or 65%, in the first quarter
of 2002, compared to the first quarter of 2001, primarily due to a foreign
exchange gain ($0.2 million) in 2002.
General and administrative expense increased $0.4 million, or 24%, in the
first quarter of 2002, compared to the first quarter of 2001, primarily due to
increased compensation accruals.
22
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Financial Condition and Liquidity
- ---------------------------------
At March 31, 2002, cash and cash equivalents total $8.6 million, an
increase of $1.1 million from cash and cash equivalents as of December 31, 2001.
Operating Activities
- --------------------
Operating activities provided approximately $0.5 million of cash during the
first quarter of 2002. Significant sources of cash included cash provided by La
Camorra and San Sebastian and increased accrued payroll and related benefits of
$0.7 million. Significant uses of cash included increased accounts and notes
receivable ($3.2 million), increased inventories ($1.2 million), cash required
for reclamation activities and other noncurrent liabilities ($1.0 million),
decreased accounts payable and accrued expenses ($0.9 million) and decreased
other current and noncurrent assets ($0.8 million). Principal noncash elements
included charges for depreciation, depletion and amortization of $5.6 million.
Investing Activities
- --------------------
Investing activities used $0.4 million of cash during the first quarter of
2002. The major use of cash was additions to properties, plants and equipment
($2.2 million), primarily at the La Camorra, Greens Creek and San Sebastian
mines. The addition to properties, plants and equipment is partly offset by the
sale of the pet operations of CAC for $1.6 million in cash.
Hecla currently anticipates that capital expenditures for the remainder of
2002 will be in the range of $10.0 million to $12.0 million, principally for
expenditures at the La Camorra, Greens Creek and San Sebastian mines.
On April 8, 2002, Hecla completed the sale of its headquarters building in
Coeur d'Alene, Idaho, for $5.6 million. The Company continues to pursue the
sale of CAC and has a signed letter of intent to sell the briquette division,
although there can be no assurance a sales transaction will take place.
Financing Activities
- --------------------
During the first quarter of 2002, financing activities provided
approximately $0.9 million of cash. Major sources of cash included borrowings
of $3.3 million and proceeds of $1.0 million for common stock issued for
outstanding warrants. These sources were partly offset by the repayment of debt
of $3.4 million.
23
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
As of March 31, 2002, Hecla had outstanding debt of $18.9 million,
including $4.3 million due to be repaid in the next twelve months. The
outstanding debt included project financing facilities for the La Camorra mine
in Venezuela ($6.5 million) and the San Sebastian mill in Mexico ($6.4 million),
a $3.0 million subordinated loan and $3.0 million outstanding under a $7.5
million revolving credit facility.
Environmental
- -------------
As of March 31, 2002, the Company has accrued $42.7 million related to the
properties covered by the Agreement in Principle reached in August 2001 with the
United States and the State of Idaho to settle the governments' claims for
natural resource damages and cleanup costs related to historic mining practices
in the Coeur d'Alene Basin in northern Idaho. Hecla has accrued what management
believes is the best estimate of the liability as of March 31, 2002, however, it
is reasonably possible that Hecla's obligation may change in the near or long
term depending on a number of factors, including finalization and entry of a
Consent Decree. In addition, an adverse ruling against Hecla for liability and
damages in this matter could have a material adverse effect on the Company.
Reserves for closure costs, reclamation and environmental matters totaled
$52.3 million at March 31, 2002. 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.
Expenditures for environmental remediation and reclamation for the
remainder of 2002 are estimated in the range of $6.0 to $7.0 million,
principally for activities at the Grouse Creek property and the Bunker Hill
Superfund site.
Exploration
- -----------
Hecla estimates that exploration expenditures for the remainder of 2002
will be in the range of $3.5 to $4.5 million at or in the vicinity of the San
Sebastian, Greens Creek and La Camorra mines.
24
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Other
- -----
At March 31, 2002, Hecla had outstanding 300,000 warrants to purchase Hecla
common stock. Each warrant entitles the holder to purchase one share of common
stock at an exercise price equal to the lesser of (i) $3.19, and (ii) 102% of
the volume of weighted average price on the NYSE for each trading day during the
ten consecutive trading days immediately preceding the date notice is given to
Hecla. The warrants are exercisable until May 11, 2002. Prior to May 11,
300,000 warrants were exercised and Hecla issued 300,000 shares of its common
stock. Proceeds of $0.8 million were realized from the exercise of the
warrants.
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 cumulative cash dividends at the annual rate of $3.50 per
share payable quarterly, when and if declared by the Board of Directors and have
voting rights related to certain amendments to Hecla's Articles of
Incorporation. As of April 30, 2002, Hecla has not declared and paid the
equivalent of seven quarterly dividends, entitling holders of the Preferred
Shares to elect two directors at Hecla's annual shareholders' meeting. On May
10, 2002, holders of the Preferred Shares, voting as a class, elected two
additional directors. Reduction or elimination of the Preferred Shares would
reduce or eliminate the impact from Preferred Share dividends on the Company's
income statement. Hecla has considered several options with regard to the
Preferred Stock, including private and public exchange offers for the Preferred
Shares and merger transactions, where the Preferred Shares could be converted
into Hecla Common Stock, cash and/or other securities. Certain options would
not require approval by holders of Preferred Shares.
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,
2002, Hecla has issued $62.2 million of Hecla's common shares and warrants under
the Registration Statement. Due to the nonpayment by the Company of certain
dividends on its Series B Convertible Preferred Stock, there can be no assurance
as to the availability of this Registration Statement.
For information on hedged positions and derivative instruments, see Item 3
"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
25
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Proceedings and Note 5 of Notes to Consolidated Financial Statements). The
ultimate disposition of these matters and various other pending legal actions
and claims is 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.
Conclusion
- ----------
Hecla believes cash requirements over the remainder of 2002 will be funded
through a combination of current cash, future cash flows from operations,
amounts available under existing loan agreements, proceeds from asset sales
including the sale of the Company's headquarters building completed in April
2002 and/or future debt or equity security issuances. Hecla's ability to raise
capital is highly dependent upon the commercial viability of its projects and
the associated prices of metals Hecla produces. Because of the significant
impact that changes in the prices of gold, silver, zinc and lead have on Hecla's
financial condition, declines in these metals prices may negatively impact
short-term liquidity and Hecla's ability to raise additional funding for
long-term projects. In the event that cash balances decline to a level that
cannot support the operations at Hecla, management will defer certain planned
capital expenditures and exploration expenditures as needed to conserve cash for
operations. 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.
Item 3. 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, as well as
summarize the financial instruments and derivative instruments held by Hecla at
March 31, 2002, which are sensitive to changes in interest rates and commodity
prices. Actual results could differ materially from those projected in the
forward-looking statements. Hecla believes 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
2001 Annual Report on Form 10-K).
Interest-Rate Risk Management
At March 31, 2002, Hecla's debt was subject to changes in market interest
rates and was sensitive to those changes. Hecla
26
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
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, 2002, 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)
Fair
2002 2003 2004 2005 Thereafter Total Value
------- ------- ------- ------- ---------- ------- -------
Subordinated debt $ - - $ 2,000 $ 1,000 $ - - $ - - $ 3,000 $ 3,000
Average interest rate 6.8% 9.1% 10.0% 10.4%
Project financing debt $ 3,000 $ 3,000 $ 500 $ - - $ - - $ 6,500 $ 6,500
Average interest rate 5.3% 7.6% 8.5% 8.9%
Project financing debt $ 947 $ 2,283 $ 837 $ 1,368 $ 960 $ 6,395 $ 6,395
Average interest rate 13% 13% 13% 13% 13%
Revolving credit facility $ - - $ 3,000 $ - - $ - - $ - - $ 3,000 $ 3,000
Average interest rate 9% 9% 9% 9%
Commodity-Price Risk Management
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.
The following table provides information about Hecla's forward sales
contracts at March 31, 2002. The table presents the notional amount in ounces,
the average forward sales price and the
27
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
total-dollar contract amount expected by the maturity dates, which occur between
June 28, 2002, and December 31, 2004. As of March 31, 2002, the mark to market
value of the contracts was $3.9 million. Hecla is subject to a margin free
limit of $10.0 million. At March 28, 2002, the London Final gold price was
$301.40.
Expected Expected Expected Estimated
Maturity Maturity Maturity Fair
2002 2003 2004 Value
-------- -------- -------- ---------
Forward contracts:
Gold sales (ounces) 45,270 59,802 48,928
Future price (per ounce) $ 288 $ 288 $ 288
Contract amount (in $000's) $ 13,049 $ 17,238 $ 14,103 $ (3,857)
In addition to the above contracts, Hecla has a quarterly Gold Lease Rate
Swap at a fixed rate of 1.5% on 154,000 ounces of the above gold forward
contracts. The ounces covered under the swap are adjusted each quarter, in
accordance with the expiration of the gold forward contracts. To close out the
Gold Lease Rate Swap at March 31, 2002, the estimated income to the Company was
approximately $42,000.
28
Part II - Other Information
Hecla Mining Company and Subsidiaries
Item 1. Legal Proceedings
- ------ -----------------
For information concerning legal proceedings, refer to Note 5 to
Consolidated Financial Statements of this Form 10-Q.
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 April 9, 2002, related to a news release
announcing Hecla Mining Company had completed the sale of its
corporate headquarters building in Coeur d'Alene, Idaho, to JDL
Enterprises of Bellevue, Washington.
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.
29
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 13, 2002 By /s/ Arthur Brown
-------------------------------------------
Arthur Brown, Chairman and
Chief Executive Officer
Date: May 13, 2002 By /s/ Lewis E. Walde
-------------------------------------------
Lewis E. Walde, Vice President - Controller
(Chief Accounting Officer)
30
Exhibit Index
-------------
Exhibit No. Description
- ----------- ------------------
12 Fixed Charge Coverage Ratio Calculation