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 SEPTEMBER 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 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 83814-8788
- ---------------------------------------- ---------------------
(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 November 10, 1995
- --------------------------------------- -----------------------------
Common stock, par value $0.25 per share 48,254,357 shares
2
HECLA MINING COMPANY and SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
I N D E X
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Page
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PART I. - Financial Information
Item 1 - Consolidated Balance Sheets - September 30,
1995 and December 31, 1994 3
- Consolidated Statements of Operations -
Three Months and Nine Months Ended
September 30, 1995 and 1994 4
- Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1995
and 1994 5
- Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. - Other Information
Item 1 - Legal Proceedings 27
Item 6 - Exhibits and Reports on Form 8-K 30
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PART I - FINANCIAL INFORMATION
HECLA MINING COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(dollars in thousands)
September 30, December 31,
1995 1994
------------- ------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 7,157 $ 7,278
Accounts and notes receivable 31,946 23,516
Income tax refund receivable 250 247
Inventories 18,045 18,616
Other current assets 2,329 1,597
--------- ---------
Total current assets 59,727 51,254
Investments 2,395 6,476
Restricted investments 14,992 13,553
Properties, plants and equipment, net 170,953 257,908
Other noncurrent assets 7,889 5,391
--------- ---------
Total assets $ 255,956 $ 334,582
========= =========
LIABILITIES
-----------
Current liabilities:
Accounts payable and accrued expenses $ 13,958 $ 13,570
Accrued payroll and related benefits 2,561 2,724
Preferred stock dividends payable 2,012 2,012
Accrued taxes 1,586 925
Accrued reclamation costs 2,259 4,254
--------- ---------
Total current liabilities 22,376 23,485
Deferred income taxes 359 359
Long-term debt 31,164 1,960
Accrued reclamation costs 32,206 27,162
Other noncurrent liabilities 4,812 4,098
--------- ---------
Total liabilities 90,917 57,064
--------- ---------
SHAREHOLDERS' EQUITY
--------------------
Preferred stock, $0.25 par value,
authorized 5,000,000 shares, issued
and outstanding - 2,300,000
liquidation preference $117,012 575 575
Common stock, $0.25 par value,
authorized 100,000,000 shares;
issued 1995 - 48,307,629;
issued 1994 - 48,144,274 12,077 12,036
Capital surplus 330,258 328,995
Retained deficit (172,420) (63,437)
Net unrealized gain on investments 336 3,396
Foreign currency translation adjustment (4,898) (3,158)
Less common stock reacquired at cost;
1995 - 62,272 shares, 1994 - 62,355 shares (889) (889)
--------- ---------
Total shareholders' equity 165,039 277,518
--------- ---------
Total liabilities and shareholders' equity $ 255,956 $ 334,582
========= =========
The accompanying notes are an integral part of the 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 Nine Months Ended
----------------------------------- ----------------------------------
Sept. 30, 1995 Sept. 30, 1994 Sept. 30, 1995 Sept. 30, 1994
-------------- -------------- -------------- --------------
Sales of products $ 41,203 $ 35,279 $ 119,154 $ 99,666
Cost of sales and other direct
production costs 32,413 25,216 97,953 80,257
Depreciation, depletion and
amortization 7,015 4,217 18,580 10,493
--------- --------- --------- ---------
39,428 29,433 116,533 90,750
--------- --------- --------- ---------
Gross profit 1,775 5,846 2,621 8,916
--------- --------- --------- ---------
Other operating expenses:
General and administrative 3,106 2,611 7,570 8,950
Exploration 2,671 2,403 4,879 6,502
Depreciation and amortization 97 81 265 443
Reduction in carrying value of
mining properties 97,387 - - 97,387 - -
Provision for closed operations and
environmental matters 4,069 449 4,296 1,073
--------- --------- --------- ---------
107,330 5,544 114,397 16,968
--------- --------- --------- ---------
Income (loss) from operations (105,555) 302 (111,776) (8,052)
--------- --------- --------- ---------
Other income (expense):
Interest and other income 4,185 793 6,476 4,113
Gain (loss) on investments (1,051) 38 2,842 1,129
Foreign exchange gain (loss) (12) - - 150 - -
Interest expense:
Total interest cost (650) (476) (1,236) (2,523)
Less amount capitalized 474 - - 850 1,751
--------- --------- --------- ---------
2,946 355 9,082 4,470
--------- --------- --------- ---------
Income (loss) before income taxes
and extraordinary loss (102,609) 657 (102,694) (3,582)
Income tax (provision) benefit (114) 159 (251) 272
--------- --------- --------- ---------
Income (loss) before extraordinary loss (102,723) 816 (102,945) (3,310)
Extraordinary loss on early retirement
of long-term debt - - (10) - - (833)
--------- --------- --------- ---------
Net income (loss) (102,723) 806 (102,945) (4,143)
Preferred dividends (2,013) (2,013) (6,038) (6,038)
--------- --------- --------- ---------
Net loss applicable to common
shareholders $(104,736) $ (1,207) $(108,983) $ (10,181)
========= ========= ========= =========
Net loss per common share:
Loss applicable to common shareholders
before extraordinary loss $ (2.17) $ (0.03) $ (2.26) $ (0.22)
Extraordinary loss on early retirement
of long-term debt - - - - - - (0.02)
--------- --------- --------- ---------
Net loss per common share $ (2.17) $ (0.03) $ (2.26) $ (0.24)
========= ========= ========= =========
Cash dividends per common share $ - - $ - - $ - - $ - -
========= ========= ========= =========
Weighted average number of common
shares outstanding 48,237 48,075 48,178 42,957
========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)
Nine Months Ended
--------------------------------
Sept. 30, 1995 Sept. 30, 1994
-------------- --------------
Operating activities:
Net loss $(102,945) $ (4,143)
Noncash elements included in net loss:
Depreciation, depletion and amortization 18,845 10,936
(Gain) loss on disposition of properties, plants
and equipment (3,484) 14
Gain on investments (2,842) - -
Extraordinary loss on early retirement of
long-term debt - - 833
Accretion of interest on long-term debt - - 2,000
Reduction in carrying value of mining properties 97,387 - -
Provision for reclamation and closure costs 3,707 905
Change in:
Accounts and notes receivable (7,224) (7,182)
Income tax refund receivable (3) (785)
Inventories 571 300
Other current assets (732) (145)
Accounts payable and accrued expenses 388 (356)
Accrued payroll and related benefits (163) 548
Accrued taxes 661 319
Noncurrent liabilities 56 (181)
--------- ---------
Net cash provided by operating activities 4,222 3,063
--------- ---------
Investing activities:
Additions to properties, plants and equipment (33,083) (57,511)
Proceeds from disposition of properties,
plants and equipment 3,069 13,406
Proceeds from the sales of investments 4,685 3,217
Purchase of investments and increase in cash
surrender value of life insurance (822) (1,926)
Change in funds held in escrow - - (13,497)
Proceeds from maturity of short-term investments - - 27,552
Purchase of restricted investments (1,439) - -
Other, net (1,249) (2,795)
--------- ---------
Net cash applied to investing activities (28,839) (31,554)
--------- ---------
Financing activities:
Proceeds from exercise of stock warrants 1,239 - -
Common stock issued under stock option plans 91 1,726
Dividends on preferred stock (6,038) (6,038)
Issuance of common stock - - 63,499
Early retirement of long-term debt - - (50,169)
Borrowing on long-term debt 41,000 - -
Repayment on long-term debt (11,796) - -
Decrease in deferred revenue - - (36)
--------- ---------
Net cash provided by financing activities 24,496 8,982
--------- ---------
Change in cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents (121) (19,509)
Cash and cash equivalents at beginning of period 7,278 40,031
--------- ---------
Cash and cash equivalents at end of period $ 7,157 $ 20,522
========= =========
Supplemental disclosure of cash flow information:
Cash paid during period for:
Interest (net of amount capitalized) $ 21 $ 16,497
Income tax payments, (net of refunds) $ 169 $ 397
(See Note 8 of Notes to Consolidated Financial Statements for other noncash
investing activity)
The accompanying notes are an integral part of the financial statements.
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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,
1994, as set forth in the Company's 1994 Annual Report on Form 10-K,
substantially apply to these interim consolidated financial statements
and are not repeated here.
Note 2. The financial information given in the accompanying unaudited interim
consolidated financial statements reflects all adjustments which are,
in the opinion of management, necessary to a fair statement of the
results for the interim periods reported. All such adjustments are of
a normal recurring nature. All financial statements presented herein
are unaudited. However, the balance sheet as of December 31, 1994,
was derived from the audited consolidated balance sheet included in
the consolidated financial statements referred to in Note 1 above.
Note 3. The components of the income tax (provision) benefit for the nine
months ended September 30, 1995 and 1994 are as follows (in
thousands):
1995 1994
------- -------
Current:
State income tax provision $ (251) $ (208)
Federal income tax benefit - - 480
------- -------
Total current (provision) benefit (251) 272
Deferred provision - - - -
------- -------
Total $ (251) $ 272
======= =======
The Company's income tax provision for the nine months of 1995 and
1994 varies from the amount that would have been provided by applying
the statutory rate to the loss before income taxes primarily due to
the non-utilization of net operating losses.
Note 4. Inventories consist of the following (in thousands):
Sept. 30, Dec. 31,
1995 1994
--------- --------
Concentrates and metals in transit
and other products $ 2,093 $ 5,568
Industrial mineral products 6,172 5,995
Materials and supplies 9,780 7,053
-------- --------
$ 18,045 $ 18,616
======== ========
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Note 5. In July 1991, the Coeur d'Alene Indian Tribe (the "Tribe") brought a
lawsuit, under the Comprehensive Environmental Response Liability Act
of 1980 (CERCLA), in Idaho Federal District Court against the Company
and a number of other mining companies asserting claims for damages to
natural resources located downstream from the Bunker Hill Superfund
Site located at Kellogg, Idaho, over which the Tribe alleges some
ownership or control. The Company has answered the Tribe's complaint
denying liability for natural resource damages and asserted a number
of defenses to the Tribe's claims, including a defense that the Tribe
has no ownership or control over the natural resources they assert
have been damaged. In July 1992, in a separate action between the
Tribe and the State of Idaho, the Idaho Federal District Court
determined that the Tribe does not own the beds, banks and waters of
Lake Coeur d'Alene and the lower portion of its tributaries, the
ownership of which is the primary basis for the natural resource
damage claims asserted by the Tribe against the Company. Based upon
the Tribe's appeal of the July 1992 District Court ownership decision
to the 9th Circuit U.S. Court of Appeals, the court in the natural
resource damage litigation issued an order on October 30, 1992,
staying the court proceedings in the natural resource damage
litigation until a final decision is handed down on the question of
the Tribe's title. On December 9, 1994, the 9th Circuit Court
reversed the decision of the Idaho District Court and remanded the
case of the Tribe's ownership for trial before the District Court.
The Company has been advised that the State will seek an appeal of the
9th Circuit Court decision to the U.S. Supreme Court. In July 1994,
the United States, as Trustee for the Coeur d'Alene Tribe, initiated a
separate suit in Idaho Federal District Court seeking a determination
that the Coeur d'Alene Tribe owns approximately the lower one-third of
Lake Coeur d'Alene. The State has denied the Tribe's ownership of any
portion of Lake Coeur d'Alene and its tributaries. The legal
proceedings related to the Tribe's natural resource damages claim
against the Company and other mining companies continue to be stayed.
On July 18, 1995, the Department of Interior (DOI) notified the
Company and six other companies (several with assets and resources
greater than the Company) that the federal natural resource trustees
(Fish and Wildlife Service and U.S. Forest Service) identified the
Company and the other six companies as potentially responsible parties
(PRPs) for damages resulting from injury to federal natural resources
with respect to the Coeur d'Alene River Basin in North Idaho. The DOI
letter further notifies the Company that the federal trustees
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
intend to bring suit against these companies to recover the alleged
damages under CERCLA. In September 1995, the Company, together with
the other PRPs, entered into a tolling agreement with the United
States pursuant to which the United States agreed not to initiate
litigation in this matter until March 8, 1996, so long as the parties
are pursuing settlement opportunities in good faith. In this
connection, the PRPs agreed not to assert the statute of limitation as
a defense if it were to occur during this period.
In 1991, the Company initiated litigation in the Idaho State District
Court in Kootenai County, Idaho, against a number of insurance
carriers which provided comprehensive general liability insurance
coverage to the Company and its predecessors. The Company believes
that the insurance companies have a duty to defend and indemnify the
Company under their policies of insurance relating to claims asserted
against the Company by the Environmental Protection Agency (EPA) and
the Tribe. In two separate decisions issued in August 1992 and March
1993, the court ruled that the primary insurance companies had a duty
to defend the Company in the Tribe's lawsuit, but that no carrier had
a duty to defend the Company in the EPA proceeding. During 1995, the
Company entered into settlement agreements with a number of the
insurance carriers named in the litigation. The Company has received
a total of $2.8 million under the terms of the settlement agreements.
Thirty percent (30%) of these settlements is payable to the EPA to
reimburse the U.S. Government for past costs under the Bunker Hill
Consent Decree. Litigation is still pending against other insurers.
At September 30, 1995, the Company has not reduced its environmental
accrual to reflect any anticipated insurance proceeds.
In June 1994, a judgment was entered against the Company in Idaho
State District Court in the amount of $10.0 million in compensatory
damages and $10.0 million in punitive damages based on a jury verdict
rendered in late May 1994 with respect to a lawsuit previously filed
against the Company by Star Phoenix Mining Company ("Star Phoenix"), a
former lessee of the Star Morning Mine, over a dispute between the
Company and Star Phoenix concerning the Company's November 1990
termination of the Star Phoenix lease of the Star Morning Mine
property. A number of other claims by Star Phoenix and certain
principals of Star Phoenix against the Company in the lawsuit were
dismissed by the State District Court. On May 3, 1995, the District
Court issued its final opinion and order on a number of post-trial
issues pending before the Court. The Opinion and Order included the
Court's
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
denial of the post-trial motions filed by Star Phoenix and certain of
its principals regarding claims which had been previously dismissed by
the Court during trial. The Court also awarded Star Phoenix
approximately $300,000 in attorneys' fees and costs. The Company's
post-trial motions were denied by the State District Court, and the
Company has appealed the District Court judgment to the Idaho State
Supreme Court. Star Phoenix has cross appealed certain trial court
discovery determinations. The Company expects briefing on both
appeals to be completed in November 1995. Post-judgment interest will
accrue during the appeal period; the current interest rate is 10.875%.
In order to stay the ability of Star Phoenix to collect on the
judgment during the pending of the appeal, the Company has posted an
appeal bond in the amount of $27.2 million representing 136% of the
District Court judgment. The Company pledged U.S. Treasury Notes
totaling $10.0 million as collateral for the appeal bond. This
collateral amount is included in restricted investments at December
31, 1994 and September 30, 1995. The Company intends to vigorously
pursue its appeal to the Idaho Supreme Court and it has been the
Company's position, and at the current time it remains the Company's
position, that it will not enter into a settlement with Star Phoenix
for any material amount. Although the ultimate outcome of the appeal
of the Idaho District Court judgment is subject to the inherent
uncertainties of any legal proceeding, based upon the Company's
analysis of the factual and legal issues associated with the
proceeding before the Idaho District Court and based on the opinions
of outside counsel, as of the date hereof, it is management's belief
that the Company should ultimately prevail in this matter, although
there can be no assurance in this regard. Accordingly, the Company
has not accrued any liability associated with this litigation.
The Company is subject to other legal proceedings and claims 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 matters and the proceedings disclosed
above, it is the opinion of the Company's management, based upon the
information available at this time, that the expected outcome of these
matters, individually or in the aggregate, will not have a material
adverse effect on the results of operations and financial condition of
the Company and its subsidiaries.
Note 6. On October 1, 1995, the Company amended the terms of its August 30,
1994 unsecured revolving and term loan facility. Under the amended
terms, the Company can
10
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
borrow up to $55.0 million. Amounts may be borrowed on a revolving
credit basis through July 31, 1998, and are repayable in eight
quarterly installments beginning on October 31, 1998. The Company may
select a floating rate based on the primary bank's prime interest rate
or fixed interest rates for up to six months. The fixed interest
rates are based on LIBOR or the CD rate and range from LIBOR +.8% or
the CD rate +.8% to LIBOR +1.425% or the CD rate +1.425% depending on
the level of outstanding borrowings. To maintain compliance with the
covenants of the credit facility, the Company must maintain a 1.5 to
1.0 current ratio and a defined fixed charge coverage ratio of 1.5 to
1.0. As of September 30, 1995, the Company was in compliance with all
restrictive covenants of the credit facility. Amounts available under
the facility are based on a debt to cash flow calculation, which must
not exceed a maximum of 4.0 to 1.0. At September 30, 1995 and October
31, 1995, there were $30.0 million and $35.0 million, respectively,
outstanding under the Company's revolving and term loan facility
classified as long-term debt.
As a result of the recent developments at the Grouse Creek mine (see
Note 9 of Notes to Consolidated Financial Statements), the Company
will be meeting with the banks for the credit facility to discuss the
status of the credit facility and consider the possible renegotiation
of certain terms and covenants of the credit facility.
Note 7. In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" (SFAS No. 121). This Statement requires that long-lived
assets and certain identifiable intangibles to be held and used by the
Company be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, the Company
is required to estimate the future cash flows expected to result from
the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges)
is less than the carrying amount of the asset, an impairment loss is
recognized as the amount of the carrying value which is in excess of
discounted future cash flows. The Company has adopted the provisions
of SFAS No. 121 at September 30, 1995. The adoption of the provisions
of SFAS No. 121 had no material affect on the results of operations or
financial condition and liquidity of the Company that would not have
been experienced otherwise regardless of its adoption.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Note 8. On September 27, 1995, the Company sold its Apex Unit processing
facility for $8.0 million, plus certain working capital items totaling
an additional $1.4 million, recognizing a gain on the sale totaling
approximately $3.2 million. Under the terms of the agreement, the
Company received $4.4 million in cash at closing (including the $1.4
million in certain working capital items) and accepted a note
receivable for the remaining $5.0 million. Under the note, $3.0
million, plus accrued interest at NationsBank's published Prime Rate,
is due on September 27, 1996, and the balance of $2.0 million, plus
accrued interest at NationsBank's prime rate plus one percent, is due
on September 27, 1997.
Note 9. Following completion of the Company's third quarter, as a result of
its periodic review of the status of various mining properties, the
Company determined that certain adjustments were required to properly
reflect the estimated net realizable values of such properties. These
adjustments, totaling $97.4 million, consisted of write-downs of
properties, plants and equipment for the Company's interest in the
Grouse Creek mine ($97.0 million) and the Company's interest in the
Consolidated Silver Corporation's Silver Summit mine ($0.4 million).
The Grouse Creek mine carrying value write-down was necessary due to
significantly higher than expected operating costs per gold ounce
which was due to much lower than anticipated gold grades being
realized from the proven and probable ore reserves. The Consolidated
Silver Corporation's Silver Summit mine write-down was necessary due
to the decision by Consolidated Silver Corporation to sell the closed
mine at a price less than the Company's carrying value. Both
adjustments were reported as a reduction in carrying value of mining
properties at September 30, 1995.
Note 10. During its periodic review of environmental litigation during the
third quarter of 1995, the Company increased its liability for
remedial activity costs at the Bunker Hill Superfund Site by $3.4
million due to higher than previously estimated costs. As adjusted at
September 30, 1995, the Company has estimated and established a total
remaining liability at the Bunker Hill Superfund Site for remedial
activity costs of $13.3 million. Concurrently, the Company increased
its estimate of liability for remedial activity costs in the Coeur
d'Alene Mining District by $0.3 million due to higher than previously
estimated costs. Both of these third quarter adjustments totaling
$3.7 million were recorded as a provision for closed operations and
environmental matters at September 30, 1995.
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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
The Company is primarily involved in the exploration, development,
mining and processing of gold, silver, lead, zinc and industrial
minerals. As such, the Company's 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 the
Company's control, including inflation and the worldwide forces of
supply and demand. The aggregate effect of these factors is not
possible to accurately predict. In the following descriptions, where
there are changes that are attributable to more than one factor, the
Company presents each attribute describing the change in descending
order relative to the attribute's importance to the overall change.
The Company incurred net losses applicable to common shareholders in
the third quarter of 1995 and 1994 totaling $104.7 million and $1.2
million, respectively. The results for 1995 include third quarter
write-downs totaling $97.4 million related to the Company's interest in
the Grouse Creek property ($97.0 million), which is discussed further
below, and the Company's interest in the Consolidated Silver
Corporation's Silver Summit mine ($0.4 million).
If the average market prices of metals for the first nine months of
1995 remain constant for the balance of the year, the Company expects
to continue to experience net losses applicable to common shareholders.
For 1995, the Company is currently anticipating a net loss applicable
to common shareholders in the range of $108.0 million to $118.0 million
after the expected preferred stock dividends totaling approximately
$8.0 million for the year. However, due to the volatility of metals
prices and the significant impact metal price changes can have on the
Company's operations, there can be no assurance that the actual results
of operations for the year ending December 31, 1995 will be as
forecasted.
The variability of metals prices requires that the Company, in
assessing the impact of prices on recoverability of its assets,
exercise judgment as to whether price changes are temporary or are
likely to persist. The Company performs a comprehensive evaluation of
the recoverability of its assets on a periodic basis. The evaluation
includes a review of estimated future cash
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
flows against the carrying value of the assets. Asset write-downs may
occur from time to time if the Company determines that the carrying
values attributed to individual assets are not recoverable given
reasonable expectations for future market conditions.
During the third quarter of 1995 and continuing into the fourth quarter
1995, the Grouse Creek mine, which began production in December 1994
and in which the Company has an 80% interest, experienced significantly
higher than expected per gold ounce operating costs and significantly
less than expected operating margins resulting from higher than
expected start-up costs and lower than expected gold ore grade. Mining
to date has indicated that mill grade ore occurs in thinner, less
continuous structures than originally interpreted. Based on its
periodic review of the carrying values of the Company's mining
properties, the Company determined that a 1995 third quarter carrying
value adjustment totaling $97.0 million was required to properly
reflect the estimated net realizable value of its interest in the
Grouse Creek Joint Venture. The amount of the adjustment was based on
the Company's carrying value of its interest in the Grouse Creek mine
in excess of estimated discounted future cash flows. A revised life-
of-mine cash flow analysis was developed early in the fourth quarter of
1995 for this purpose which recognizes the geologic complexity of the
Sunbeam deposit as determined from mining experience to date and
includes a revised interpretation of the geologic data. The Company
currently plans to continue mining on the Sunbeam pit through June 1996
and perform further ore confirmation drilling of the Grouse deposit to
evaluate the feasibility of mining operations beyond June 1996.
In 1995, the Company expects to produce approximately 168,000 ounces of
gold compared to 128,000 ounces of gold in 1994. The 1995 production
estimate includes 70,000 ounces from the La Choya mine, 68,000 ounces
from the Company's 80% interest in the Grouse Creek mine, 21,000 ounces
from the Company's interest in the American Girl mine and an additional
9,000 ounces from other sources. The Company's expected increase in
gold production in 1995 compared to 1994 reflects the anticipated
production levels at the Grouse Creek and La Choya Mines, which offset
the decrease in gold production due to the completion of operations at
the Republic mine in February 1995.
The Company's share of silver production for 1995 is expected to be
approximately 2.2 million ounces compared to actual 1994 silver
production of 1.6 million ounces.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
The expected increase in silver production in 1995 compared to 1994 is
primarily due to the new production at the Grouse Creek mine and the
resumption of operations at the Lucky Friday mine in December 1994,
after the ore-conveyance accident suspended operations on August 30,
1994.
The Company's production of industrial minerals is expected to increase
slightly in 1995 to 1,011,000 tons from about 986,000 tons in 1994.
Additionally in 1995, the Company expects to ship approximately 847,000
cubic yards of landscape material from Mountain West Products compared
to 655,000 cubic yards in 1994.
RESULTS OF OPERATIONS
FIRST NINE MONTHS 1995 COMPARED TO FIRST NINE MONTHS 1994
The Company incurred a net loss of approximately $102.9 million ($2.14
per common share) in the first nine months of 1995 compared to a net
loss of approximately $4.1 million ($0.10 per common share) in the same
period of 1994. After $6.0 million in dividends to shareholders of the
Company's Series B Cumulative Preferred Stock, the Company's net loss
applicable to common shareholders for the first nine months of 1995 was
approximately $109.0 million, or $2.26 per common share, compared to
$10.2 million, or $0.24 per common share in the comparable 1994 period.
The increased loss in 1995 compared to the same period in 1994 was due
to a variety of factors, the most significant of which was the write-
down of the Company's interest in the Grouse Creek mine as discussed
above.
Sales of the Company's products increased by approximately $19.5
million, or 19.6%, in the first nine months of 1995 as compared to the
same period of 1994, principally the result of (1) increased product
sales totaling $36.7 million, most notably from the Grouse Creek mine
where production commenced in December 1994 and the La Choya mine, as
well as from the Company's industrial minerals operations. These
factors were partially offset by decreased sales at the other mines in
the metals segment, the impact of which is approximately $18.1 million,
attributable to (1) decreased gold and silver production at the
Republic mine which completed operations in February 1995 and (2)
decreased gold production at the American Girl mine due to the
completion of underground mining operations in January 1995.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Comparing the average metal prices for the nine months of 1995 with the
comparable period for 1994, gold decreased slightly to $383.78 per
ounce from $383.85 per ounce, silver decreased 3% to $5.17 per ounce
from $5.33 per ounce, lead increased by 18.5% to $0.276 per pound from
$0.233 per pound, and zinc increased 8% to $0.471 per pound from $0.436
per pound.
In the first nine months of 1995, cost of sales and other direct
production costs increased approximately $17.7 million, or 22%, from
the comparable 1994 period primarily due to (1) production costs of
$20.4 million incurred at the Grouse Creek mine during 1995 where
production commenced in December 1994; (2) production cost increases at
Mountain West Products ($4.1 million) due principally to increased
production as well as increased freight and raw materials costs (some
of which was passed along to customers); (3) production cost increases
resulting from increased production at Kentucky-Tennessee Clay
Company's (K-T Clay's) Kaolin and Ball Clay divisions totaling
approximately $2.0 million and $1.1 million, respectively; (4)
production cost increases at the La Choya mine and the Apex Unit
totaling approximately $1.9 million and $1.2 million, respectively,
primarily due to increased production at these locations in the 1995
period; and (5) production cost increases at Colorado Aggregate Company
($1.2 million) related principally to a change in product mix
requirements. These increases in cost of sales and other direct
production costs were partially offset by decreases in operating costs
at other operations totaling $14.3 million. These decreases are
primarily due to (1) decreased production costs at the Republic mine
totaling approximately $7.7 million which is the result of the
completion of operations in February 1995; (2) decreased cost of sales
in the 1995 period at the American Girl mine totaling $2.2 million due
to decreased production; (3) decreased standby costs at the Greens
Creek mine totaling $1.8 million in the 1995 period, a direct result of
management's decision to further develop the mine and recommence
production; and (4) decreased production costs at the Lucky Friday mine
totaling approximately $1.8 million due to the receipt of insurance
proceeds and decreased production as the mine ramped back up to normal
production levels in the 1995 period after the temporary suspension of
operations discussed above.
Cost of sales and other direct production costs as a percentage of
sales increased to 82.2% in the first nine months of 1995 from 80.5% in
the comparable 1994 period, primarily due to the increased production
costs at the Grouse Creek mine.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Cash and full production cost per gold ounce increased to $306 and $423
for the first nine months of 1995 from $270 and $331 in the comparable
1994 period, respectively. The increase in both the cash and full
production costs per gold ounce is primarily attributable to increased
per ounce production costs at the Grouse Creek and American Girl mines
during the 1995 period, partially offset by decreased per ounce
production costs at the La Choya mine.
Cash and full production cost per silver ounce decreased to $4.73 and
$5.95 in the first nine months of 1995 from $5.73 and $7.00 in the
comparable 1994 period, respectively. The decreases in the cost per
silver ounce are due primarily to decreased production costs in the
1995 period at the Lucky Friday mine.
Depreciation, depletion and amortization increased by approximately
$8.1 million, or 77.1%, in the 1995 period compared to the 1994 period,
primarily the result of (1) production commencing at the Grouse Creek
mine in December 1994, where most depreciable assets are depreciated on
a unit-of-production basis, the impact of which increased depreciation
expense approximately $8.9 million and (2) increased production at the
La Choya mine where significant assets are also depreciated on a unit-
of-production basis, which increased depreciation expense approximately
$0.9 million. These increases in depreciation, depletion and
amortization were partially offset by a decrease in the depreciation
expense at the Republic mine totaling $1.6 million.
Other operating expenses increased by $97.4 million, or 574%, in the
1995 period from the 1994 period, due principally to (1) the reduction
in carrying value of mining properties for the Company's interest in
the Grouse Creek mine ($97.0 million) and the Company's interest in the
Consolidated Silver Corporation's Silver Summit mine ($0.4 million);
and (2) the third quarter adjustment to increase the Company's
allowance for liability for environmental remediation activity costs at
the Bunker Hill Superfund Site ($3.4 million) and the Coeur d'Alene
Mining district ($0.3 million). These increases were partially offset
by (1) decreased exploration expenses totaling approximately $1.6
million and (2) decreased general and administrative expenses totaling
$1.4 million in the 1995 period as a result of 1994 Equinox Resources
Ltd. general and administrative expenses which were nonrecurring in
1995.
Other income was approximately $9.1 million in the 1995 period compared
to $4.5 million in the 1994 period. The
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
increase in other income during 1995 was primarily a result of the $3.4
million gain recognized on the sale of certain common stock investments
and the $3.2 million gain on sale of the Apex processing facility,
partially offset by a $1.1 million write-down for certain common stock
investments. Total interest cost decreased $1.3 million in the 1995
period principally due to the June 1994 retirement of long-term debt,
partially offset by a $0.9 increase in interest expense during 1995
related to new borrowings under the Company's revolving and term credit
facility (described below). The capitalized interest costs decrease of
$0.9 million in the 1995 period principally due to the completion of
the Grouse Creek project was partially offset by increased
capitalization on the Rosebud, Greens Creek, American Girl and the
Lucky Friday-Gold Hunter projects.
THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1994
The Company incurred a net loss of approximately $102.7 million ($2.13
per common share) in the third quarter of 1995 compared to net income
of approximately $0.8 million ($0.02 per common share) in the same
period of 1994. After $2.0 million in dividends to shareholders of the
Company's Series B Cumulative Preferred Stock, the Company's net loss
applicable to common shareholders was approximately $104.7 million
($2.17 per common share) and $1.2 million ($0.03 per common share) for
the third quarter of 1995 and 1994, respectively. The increased loss
in 1995 compared to the same period in 1994 was due to a variety of
factors, the most significant of which was the write-down of the
Company's interest in the Grouse Creek mine discussed above.
Sales of the Company's products increased by approximately $5.9
million, or 16.8%, in the third quarter of 1995 as compared to the same
period of 1994, principally the result of increased product sales
totaling $13.3 million, most notably from the Grouse Creek mine where
production commenced in December 1994 and the La Choya mine, as well as
from the Company's industrial minerals operations. These factors were
partially offset by decreased sales at the other mines in the metals
segment, the impact of which was approximately $7.4 million,
attributable to (1) decreased gold and silver production at the
Republic mine which completed operations in February 1995 and (2)
decreased gold production at the American Girl mine due to the
completion of underground mining operations in January 1995.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Comparing the average metal prices for the third quarter of 1995 with
the comparable period for 1994, gold decreased 0.4% to $384.31 per
ounce from $385.81 per ounce, silver decreased to $5.33 per ounce from
$5.34 per ounce, lead increased by 4.1% to $0.278 per pound from $0.267
per pound, and zinc increased 4.3% to $0.458 per pound from $0.439 per
pound.
Cost of sales and other direct production costs increased approximately
$7.2 million, or 28.5%, from the third quarter of 1994 to the third
quarter of 1995 primarily due to (1) production costs of $5.8 million
incurred at the Grouse Creek mine where production commenced in
December 1994; (2) production cost increases at Mountain West Products
totaling $1.6 million due principally to increased production as well
as increased freight and raw materials costs; (3) increased production
costs at K-T Clay Company's Kaolin division totaling approximately $1.4
million due to increased production during 1995; (4) production cost
increases at the La Choya mine totaling approximately $1.1 million due
to increased production in 1995; (5) production cost increases at Lucky
Friday totaling $0.9 million; and (6) production cost increases at the
Apex Unit due to increased production and sales ($0.7 million). These
increases in cost of sales and other direct production costs were
partially offset by decreases in operating costs at other operations
totaling $4.7 million. These decreases are primarily due to (1)
decreased production costs at the Republic mine totaling approximately
$2.7 million which was the result of the completion of operations in
February 1995; (2) decreased cost of sales in the 1995 period at the
American Girl mine totaling $0.8 million due to decreased production;
and (3) decreased standby costs at the Greens Creek mine totaling $0.7
million in the 1995 period, a direct result of management's decision to
further develop the mine and recommence production.
Cost of sales and other direct production costs as a percentage of
sales increased to 78.7% in the third quarter of 1995 from 71.5% in the
comparable 1994 period, primarily due to the increased production costs
at the Grouse Creek mine.
Cash and full production cost per gold ounce increased to $263 and $383
for the third quarter of 1995 from $213 and $279 in the comparable 1994
period, respectively. The increase in both the cash and full
production costs per gold ounce is primarily attributable to increased
per ounce production costs at the Grouse Creek and American Girl mines
during the 1995 period.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
In the third quarter of 1995, cash production cost per silver ounce
increased to $4.57 from $4.50 in the third quarter of 1994 related
principally to higher cash production costs nearly offset by increased
production and by-product credits for lead and zinc. Full production
cost per silver ounce decreased to $5.71 from $5.84 during the same
period due primarily to increased by-product credits from lead and zinc
attributable to improved prices and production for these products,
partially offset by noncash depreciation charges in the 1995 period as
a result of increased tons of ore mined.
Depreciation, depletion and amortization increased by approximately
$2.8 million, or 66.4%, from the 1994 period to the 1995 period,
primarily the result of (1) production commencing at the Grouse Creek
mine in December 1994 ($2.8 million) and (2) increased production at
the La Choya mine where most assets are depreciated on a unit-of-
production basis, which increased depreciation expense approximately
$0.3 million. These increases in depreciation, depletion and
amortization were partially offset by a decrease in the depreciation
expense at the Republic mine totaling $0.5 million.
Other operating expenses increased by $101.8 million from the 1994
period to the 1995 period, due principally to (1) the reduction in
carrying value of mining properties for the Company's interest in the
Grouse Creek mine ($97.0 million) and the Company's interest in the
Consolidated Silver Corporation's Silver Summit mine ($0.4 million) and
the third quarter adjustment to increase the Company's liability for
environmental remediation activity costs at the Bunker Hill Superfund
Site ($3.4 million) and the Coeur d'Alene Mining district ($0.3
million).
Other income was approximately $2.9 million in the 1995 period compared
to $0.4 million in the 1994 period. The 1995 period increase was
primarily a result of the $3.2 million gain recognized on the sale of
the Apex processing facility, partially offset by a $1.1 million write-
down for certain common stock investments. Total interest cost
increased $0.2 million in the 1995 period principally due to the
increased borrowings under the Company's revolving and term credit
facility. Capitalized interest costs increased $0.5 million in the
1995 period principally due to the increased capitalization on the
Rosebud, Greens Creek, American Girl and the Lucky Friday-Gold Hunter
projects.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
FINANCIAL CONDITION AND LIQUIDITY
A substantial portion of the Company's revenue is derived from the sale
of products, the prices of which are affected by numerous factors
beyond the Company's control. Prices may change dramatically in short
periods of time and such changes have a significant effect on revenues,
profits and liquidity of the Company. The Company is also subject to
many of the same inflationary pressures as the U.S. economy in general.
The Company continues to implement cost-cutting measures in an effort
to reduce per unit production costs. Management believes, however,
that the Company may not be able to continue to offset the impact of
inflation over the long term through cost reductions alone. However,
the market prices for products produced by the Company have a much
greater impact than inflation on the Company'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 September 30, 1995, assets totaled approximately $256.0 million and
shareholders' equity totaled approximately $165.0 million. Cash and
cash equivalents decreased slightly to $7.2 million at September 30,
1995 from $7.3 million at the end of 1994.
Operating activities provided approximately $4.2 million of cash during
the first nine months of 1995. The primary sources of cash were from
the La Choya mine and the Industrial Minerals segment. Partially
offsetting these primary sources was a $7.2 million increase in
accounts and notes receivable due to (1) the buildup of product
receivables at Lucky Friday during 1995 as the property returned to
normal production levels after the ore-conveyance accident suspended
production in August 1994; (2) the buildup of product receivables at
Grouse Creek due to commencement of operations in December 1994; and
(3) the increases in product receivables at K-T Clay Company's Kaolin
division and Mountain West Products due to the 1995 acquisitions of the
Langley and Western Bark operations. Principal noncash charges
included in operating activities include (1) the carrying value
adjustments of the Company's interest in the Grouse Creek mine and the
Company's interest in the Consolidated Silver Corporation's Silver
Summit mine ($97.4 million) and (2) depreciation, depletion and
amortization of $18.8 million.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
The Company's investing activities used $28.8 million of cash during
the first nine months of 1995. The most significant use of cash was
$33.1 million of property, plant and equipment additions described
below and the transfer of $1.4 million to restricted investments for
additional reclamation bonding requirements related to ongoing
operations. These were partially offset by proceeds from sale of
certain common stock investments ($4.7 million) and proceeds from the
sale of the Apex processing facility and other assets ($3.1 million).
During the first nine months of 1995, the primary additions to
property, plant and equipment were $8.2 million at the K-T Clay Ball
and Kaolin industrial minerals divisions, $7.0 million at the Greens
Creek mine, $5.0 million at the Grouse Creek mine, $2.3 million at the
La Choya mine, $2.2 million at Mountain West Products, $3.2 million at
the Rosebud project, and $1.4 million at the Lucky Friday-Gold Hunter
project. Included in the K-T Clay Ball and Kaolin industrial minerals
additions was the $6.3 acquisition of the property, plant and equipment
of J.M. Huber Corporation's kaolin operation in Langley, South
Carolina. Included in the Mountain West Products amount is the $1.8
million acquisition of the property, plant and equipment of the Western
Bark operations in Idaho and South Dakota.
During the first nine months of 1995, $24.5 million was provided from
financing activities. The major sources of cash were (1) proceeds from
borrowings on the Company's revolving and term loan credit facility
totaling $30 million, net of repayments totaling $11 million and (2)
proceeds from the exercise of stock warrants and options totaling $1.3
million. These were partially offset by payments of preferred stock
dividends of $6.0 million.
The Company estimates that remaining capital expenditures in 1995 will
be approximately $11.3 million. These expenditures consist primarily
of (1) the Company's share of development expenditures at the Greens
Creek project of approximately $3.6 million and (2) additional
development expenditures at the Rosebud project and the Grouse Creek
and American Girl mines totaling approximately $3.0 million, $1.5
million and $1.5 million, respectively.
The Company intends to fund these capital expenditures through a
combination of cash flow from operating activities and borrowings from
its revolving and term credit facility which, subject to certain
conditions, provides for borrowings up to a maximum of $55.0 million.
The Company's estimate of its capital expenditure requirements assume,
with respect to the Greens Creek and
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
American Girl properties, that the Company's joint venture partners
will not default with respect to their respective portions of
development costs and capital expenditures. However, because the
Grouse Creek mine ore grades have fallen far short of expectations as
discussed above, the Company is not certain of its joint venture
partner's, Great Lakes Minerals Inc. (Great Lakes), ability in this
project to fund past due or future cash calls. Great Lakes is in
arrears on funding past joint venture cash calls totaling $2.2 million
through September 30, 1995 and $3.1 million through October 31, 1995.
Great Lakes has recently paid a portion of its past due cash calls
($238,000 received on October 31, 1995) and has verbally agreed to
remit proceeds from its share of future production to the joint
venture, which is expected to cover its share of ongoing operating cash
requirements.
Subject to final approval by the Company's Board of Directors, the
Company estimates that capital expenditures to be incurred in 1996
other than for the Grouse Creek property will be approximately $29.2
million. These expenditures consist primarily of development
expenditures at the Greens Creek mine ($17.9 million), the Rosebud
project ($3.5 million), and the Lucky Friday-Gold Hunter project ($3.1
million), as well as expenditures at other operating locations totaling
$4.7 million. Depending upon the determination to be made with respect
to further development of the Grouse Creek property and the portion of
contribution made by Great Lakes, 1996 capital expenditures are
expected to be between $4.0 million and $11.6 million.
These planned capital expenditures will depend, in large part, on the
Company's ability to obtain the required funds in addition to those
expected to be available from operations and amounts available under
its revolving and term loan credit facility. The expected 1996 capital
expenditures referred to above for the Rosebud project totaling $3.5
million, represent an estimate of costs to maintain the present status
of the project until a decision is made to develop the property.
Construction of the Rosebud project will be deferred until adequate
financing arrangements can be made.
Pursuant to a Registration Statement filed with the Securities and
Exchange Commission in the third quarter of 1995 and declared
effective, the Company can, at its option, offer debt securities,
common shares, preferred shares, or warrants in an amount not to exceed
$100 million in the aggregate, although there can be no assurance that
any financing will be available or that
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
some combination of these financing alternatives will occur.
On October 1, 1995, the Company amended the terms of its August 30,
1994 unsecured revolving and term loan facility. Under the amended
terms, the Company can borrow up to $55.0 million. Amounts may be
borrowed on a revolving credit basis through July 31, 1998, and are
repayable in eight quarterly installments beginning on October 31,
1998. The Company may select a floating rate based on the primary
bank's prime interest rate or fixed interest rates for up to six
months. The fixed interest rates are based on LIBOR or the CD rate and
range from LIBOR +.8% or the CD rate +.8% to LIBOR +1.425% or the CD
rate +1.425% depending on the level of outstanding borrowings. To
maintain compliance with the covenants of the credit facility, the
Company must maintain a 1.5 to 1.0 current ratio and a defined fixed
charge coverage ratio of 1.5 to 1.0. As of September 30, 1995, the
Company was in compliance with all restrictive covenants of the credit
facility. Amounts available under the facility are based on a debt to
cash flow calculation, which must not exceed a maximum of 4.0 to 1.0.
At September 30, 1995 and October 31, 1995, there were $30.0 million
and $35.0 million, respectively, outstanding under the Company's
revolving and term loan facility classified as long-term debt.
As a result of the recent developments at the Grouse Creek mine, the
Company will be meeting with banks for the credit facility to discuss
the status of the credit facility and consider the possible
renegotiation of certain terms and covenants of the credit facility.
The Company's planned environmental and reclamation expenditures for
the balance of 1995 are estimated to be approximately $2.2 million,
principally for activities at the Bunker Hill Superfund Site, Durita
mine, the Coeur d'Alene River Basin, and the Republic mine.
Exploration expenditures for the balance of 1995 are expected to be
approximately $1.2 million. The Company's exploration strategy is to
focus further exploration at or in the vicinity of its currently owned
properties. Accordingly, these expenditures will be incurred
principally at Rosebud, Grouse Creek, American Girl, Lucky Friday, and
Mexican exploration targets.
In the normal course of its business, the Company uses forward sales
commitments and commodity put and call option contracts to manage its
exposure to fluctuations in
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
the prices of certain metals which it produces. Contract positions are
designed to ensure that the Company will receive a defined minimum
price for certain quantities of its production. Gains and losses, and
the related costs paid or premiums received, for contracts which hedge
the sales prices of commodities are deferred and included in income as
part of the hedged transaction. Revenues from the aforementioned
contracts are recognized at the time contracts are closed out by
delivery of the underlying commodity or settlement of the net position
in cash. The Company 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. At September 30, 1995, the Company had forward sales
commitments through January 1997 for 17,500 ounces of gold at an
average price of $409.95 per ounce. The Company has also purchased
options to put 63,900 ounces of gold to the counterparties at an
average price of $389.24 per ounce. Concurrently, the Company sold
options to allow the counterparties to call 63,900 ounces of gold from
the Company at an average price of $466.38 per ounce. There was no net
cost associated with the purchase and sale of these options which
expire, in tandem, on a monthly basis through December 1997. At
September 30, 1995 the estimated fair value of the Company's purchased
gold put options was approximately $521,000. If the Company chooses to
close its offsetting short gold call option positions, it would incur a
liability of approximately $82,000. The London Final gold price at
September 30, 1995 was $384.00. In addition, at September 30, 1995,
the Company had sold forward 1,350 metric tons of lead at an average
price of $683.50 per metric ton, or $0.31 per pound. These commitments
extend over the period October 1995 to December 1995. The estimated
value of these lead forward sales contracts is not significant. The
nature and purpose of these forward sales contracts does not presently
expose the Company to any significant net loss. All of the
aforementioned contracts are designated as hedges at September 30,
1995.
The decline of the peso during the last year has not and is not
expected to significantly impact results at the La Choya mine or K-T
Clay de Mexico, S.A. de C.V. as both funding for operations and sales
are denominated in dollars. In the first nine months of 1995, a net
foreign exchange gain totaling $0.2 million has been recorded relating
to both of the Company's Mexican operations. Continued declines in the
Mexican peso, however, could adversely impact the Company's Mexican
operations.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
As described in Note 5 of Notes to Consolidated Financial Statements,
the Company is a defendant in a legal action filed in November 1990 by
Star Phoenix and certain principals of Star Phoenix, asserting that the
Company breached the terms of Star Phoenix's lease agreement for the
Company's Star Morning mine and that the Company interfered with
certain contractual relationships of Star Phoenix relating to the
Company's 1990 termination of such lease agreement. In June 1994,
judgment was entered by the Idaho State District Court against the
Company in the legal proceeding in the amount of $10.0 million in
compensatory damages and $10.0 million in punitive damages based on a
jury verdict rendered in the case in late May 1994. The Company's
post-trial motions were denied by the District Court, and the Company
has appealed the judgment to the Idaho State Supreme Court. Post-
judgment interest will accrue during the appeal period. In order to
stay the ability of Star Phoenix to collect on the judgment during the
pending of the appeal, the Company posted an appeal bond in the amount
of $27.2 million representing 136% of the District Court judgment. The
Company pledged U.S. Treasury Notes totaling $10.0 million as
collateral for the $27.2 million bond. The Company intends to
vigorously pursue its appeal to the Idaho Supreme Court and it has been
the Company's position, and at the current time it remains the
Company's position, that it will not enter into a settlement with Star
Phoenix for any material amount. Although the ultimate outcome of the
appeal of the judgment is subject to the inherent uncertainties of any
legal proceeding, based on the Company's analysis of the factual and
legal issues associated with the proceeding before the District Court
and based upon the opinions of outside counsel, as of the date hereof,
it is management's belief that the Company should ultimately prevail in
this matter, although there can be no assurance in this regard.
Although there can be no assurance as to the ultimate outcome of these
matters and the proceedings disclosed above, it is the opinion of the
Company's management, based upon the information available at this
time, that the outcome of these matters, individually, or, in the
aggregate, will not have a material adverse effect on the results of
operations and financial condition of the Company and its subsidiaries.
OTHER
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of" (SFAS No. 121). This Statement
requires that long-lived assets and certain identifiable intangibles to
be held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. In performing the review for
recoverability, the Company is required to estimate the future cash
flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is recognized as the amount of
the carrying value which is in excess of discounted future cash flows.
The Company has adopted the provisions of SFAS No. 121 at September 30,
1995. The adoption of the provisions of SFAS No. 121 had no material
affect on the results of operations or financial condition and
liquidity of the Company that would not have been experienced otherwise
regardless of its adoption.
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PART II - OTHER INFORMATION
HECLA MINING COMPANY and SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
In July 1991, the Coeur d'Alene Indian Tribe (the "Tribe") brought a
lawsuit, under the Comprehensive Environmental Response Liability Act
of 1980 (CERCLA), in Idaho Federal District Court against the Company
and a number of other mining companies asserting claims for damages to
natural resources located downstream from the Bunker Hill Superfund
Site located at Kellogg, Idaho, over which the Tribe alleges some
ownership or control. The Company has answered the Tribe's complaint
denying liability for natural resource damages and asserted a number of
defenses to the Tribe's claims, including a defense that the Tribe has
no ownership or control over the natural resources they assert have
been damaged. In July 1992, in a separate action between the Tribe and
the State of Idaho, the Idaho Federal District Court determined that
the Tribe does not own the beds, banks and waters of Lake Coeur d'Alene
and the lower portion of its tributaries, the ownership of which is the
primary basis for the natural resource damage claims asserted by the
Tribe against the Company. Based upon the Tribe's appeal of the July
1992 District Court ownership decision to the 9th Circuit U.S. Court of
Appeals, the court in the natural resource damage litigation issued an
order on October 30, 1992, staying the court proceedings in the natural
resource damage litigation until a final decision is handed down on the
question of the Tribe's title. On December 9, 1994, the 9th Circuit
Court reversed the decision of the Idaho District Court and remanded
the case of the Tribe's ownership for trial before the District Court.
The Company has been advised that the State will seek an appeal of the
9th Circuit Court decision to the U.S. Supreme Court. In July 1994,
the United States, as Trustee for the Coeur d'Alene Tribe, initiated a
separate suit in Idaho Federal District Court seeking a determination
that the Coeur d'Alene Tribe owns approximately the lower one-third of
Lake Coeur d'Alene. The State has denied the Tribe's ownership of any
portion of Lake Coeur d'Alene and its tributaries. The legal
proceedings related to the Tribe's natural resource damages claim
against the Company and other mining companies continue to be stayed.
On July 18, 1995, the Department of Interior (DOI) notified the Company
and six other companies (several with assets and resources greater than
the Company) that the federal natural resource trustees (Fish and
Wildlife Service and U.S. Forest Service) identified the Company and
the other six companies as potentially responsible parties (PRPs) for
damages resulting from injury to
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PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
federal natural resources with respect to the Coeur d'Alene River Basin
in North Idaho. The DOI letter further notifies the Company that the
federal trustees intend to bring suit against these companies to
recover the alleged damages under CERCLA. In September 1995, the
Company, together with the other PRPs, entered into a tolling agreement
with the United States pursuant to which the United States agreed not
to initiate litigation in this matter until March 8, 1996, so long as
the parties are pursuing settlement opportunities in good faith. In
this connection, the PRPs agreed not to assert the statute of
limitation defense if it were to occur during this period.
In 1991, the Company initiated litigation in the Idaho State District
Court in Kootenai County, Idaho, against a number of insurance carriers
which provided comprehensive general liability insurance coverage to
the Company and its predecessors. The Company believes that the
insurance companies have a duty to defend and indemnify the Company
under their policies of insurance relating to claims asserted against
the Company by the Environmental Protection Agency (EPA) and the Tribe.
In two separate decisions issued in August 1992 and March 1993, the
court ruled that the primary insurance companies had a duty to defend
the Company in the Tribe's lawsuit, but that no carrier had a duty to
defend the Company in the EPA proceeding. During 1995, the Company
entered into settlement agreements with a number of the insurance
carriers named in the litigation. The Company has received a total of
$2.8 million under the terms of the settlement agreements. Thirty
percent (30%) of these settlements is payable to the EPA to reimburse
the U.S. Government for past costs under the Bunker Hill Consent
Decree. Litigation is still pending against other insurers. At
September 30, 1995, the Company has not reduced its environmental
accrual to reflect any anticipated insurance proceeds.
In June 1994, a judgment was entered against the Company in Idaho State
District Court in the amount of $10.0 million in compensatory damages
and $10.0 million in punitive damages based on a jury verdict rendered
in late May 1994 with respect to a lawsuit previously filed against the
Company by Star Phoenix Mining Company ("Star Phoenix"), a former
lessee of the Star Morning Mine, over a dispute between the Company and
Star Phoenix concerning the Company's November 1990 termination of the
Star Phoenix lease of the Star Morning Mine property. A number of
other claims by Star Phoenix and certain principals of Star Phoenix
against the Company in the lawsuit were
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29
PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
dismissed by the State District Court. On May 3, 1995, the District
Court issued its final opinion and order on a number of post-trial
issues pending before the Court. The Opinion and Order included the
Court's denial of the post-trial motions filed by Star Phoenix and
certain of its principals regarding claims which had been previously
dismissed by the Court during trial. The Court also awarded Star
Phoenix approximately $300,000 in attorneys' fees and costs. The
Company's post-trial motions were denied by the State District Court,
and the Company has appealed the District Court judgment to the Idaho
State Supreme Court. Star Phoenix has cross appealed certain trial
court discovery determinations. The Company expects briefing on both
appeals to be completed in November 1995. Post-judgment interest will
accrue during the appeal period; the current interest rate is 10.875%.
In order to stay the ability of Star Phoenix to collect on the judgment
during the pending of the appeal, the Company has posted an appeal bond
in the amount of $27.2 million representing 136% of the District Court
judgment. The Company pledged U.S. Treasury Notes totaling $10.0
million as collateral for the appeal bond. This collateral amount is
included in restricted investments at December 31, 1994 and September
30, 1995. The Company intends to vigorously pursue its appeal to the
Idaho Supreme Court and it has been the Company's position, and at the
current time it remains the Company's position, that it will not enter
into a settlement with Star Phoenix for any material amount. Although
the ultimate outcome of the appeal of the Idaho District Court judgment
is subject to the inherent uncertainties of any legal proceeding, based
upon the Company's analysis of the factual and legal issues associated
with the proceeding before the Idaho District Court and based on the
opinions of outside counsel, as of the date hereof, it is management's
belief that the Company should ultimately prevail in this matter,
although there can be no assurance in this regard. Accordingly, the
Company has not accrued any liability associated with this litigation.
The Company is subject to other legal proceedings and claims 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 matters and the proceedings disclosed above, it is
the opinion of the Company's management, based upon the information
available at this time, that the expected outcome of these matters,
individually or in the aggregate, will not have a material adverse
effect on the results of operations and financial condition of the
Company and its subsidiaries.
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PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1(b) - First Amendment to Credit Agreement dated October 1,
1995
12 - Fixed Charge Coverage Ratio Calculation for the nine
months ended September 30, 1994 and 1995
13.1 - Third Quarter Report to Shareholders for the quarter
ending September 30, 1995, for release dated November
10, 1995
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
Items 2, 3 and 5 of Part II are omitted from this report as inapplicable.
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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: November 14, 1995 By /s/ ARTHUR BROWN
----------------------------------
Arthur Brown, Chairman, President
and Chief Executive Officer
Date: November 14, 1995 By /s/ S. E. Hilbert
----------------------------------
S. E. Hilbert
Assistant Controller
(Chief Accounting Officer)
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EXHIBIT INDEX
-------------
Exhibit
No. Description
- -------- -----------------------
10.1(b) First Amendment to Credit Agreement dated October 1, 1995
12 Fixed Charge Coverage Ratio Calculation for the nine months
ended September 30, 1994 and 1995
13.1 Third Quarter Report to Shareholders for the quarter ending
September 30, 1995, for release dated November 10, 1995
27 Financial Data Schedule
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