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, 1997
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
-------------------------------------------
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
- ------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for at least the
past 90 days. Yes XX . No .
---- ----
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding April 30, 1997
- --------------------------------------- --------------------------
Common stock, par value $0.25 per share 55,087,239 shares
2
HECLA MINING COMPANY and SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
I N D E X*
---------
Page
----
PART I. - Financial Information
Item l - Consolidated Balance Sheets - March 31, 1997
and December 31, 1996 3
- Consolidated Statements of Operations - Three
Months Ended March 31, 1997 and 1996 4
- Consolidated Statements of Cash Flows - Three
Months Ended March 31, 1997 and 1996 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 24
Item 6 - Exhibits and Reports on Form 8-K 28
*Items omitted are not applicable.
-2-
3
PART I - FINANCIAL INFORMATION
HECLA MINING COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except share data)
March 31, December 31,
1997 1996
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 8,031 $ 8,256
Accounts and notes receivable 32,534 24,168
Income tax refund receivable 1,252 1,262
Inventories 23,228 22,879
Other current assets 1,566 2,284
---------- ---------
Total current assets 66,611 58,849
Investments 2,619 1,723
Restricted investments 17,566 20,674
Properties, plants and equipment, net 177,798 177,755
Other noncurrent assets 10,198 9,392
---------- ---------
Total assets $ 274,792 $ 268,393
========== =========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 13,425 $ 17,377
Accrued payroll and related benefits 3,126 3,232
Preferred stock dividends payable 2,012 2,012
Accrued taxes 1,683 1,427
Accrued reclamation and closure costs 9,032 8,664
---------- ---------
Total current liabilities 29,278 32,712
Deferred income taxes 359 359
Long-term debt 27,146 38,208
Accrued reclamation and closure costs 43,428 45,953
Other noncurrent liabilities 6,997 5,653
---------- ---------
Total liabilities 107,208 122,885
---------- ---------
SHAREHOLDERS' EQUITY
Preferred stock, $0.25 par value,
authorized 5,000,000 shares, issued
and outstanding - 2,300,000 shares,
liquidation preference $117,012 575 575
Common stock, $0.25 par value,
authorized 100,000,000 shares;
issued 1997 - 55,149,324;
issued 1996 - 51,199,324 13,787 12,800
Capital surplus 373,973 351,559
Accumulated deficit (215,104) (213,610)
Net unrealized gain (loss) on investments 137 (32)
Foreign currency translation adjustment (4,898) (4,898)
Less treasury stock, at cost;
1997 - 62,085 shares, 1996 - 62,085 shares (886) (886)
---------- ---------
Total shareholders' equity 167,584 145,508
---------- ---------
Total liabilities and shareholders' equity $ 274,792 $ 268,393
========== =========
The accompanying notes are an integral part of the consolidated financial statements.
-3-
4
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars and shares in thousands, except per-share amounts)
Three Months Ended
--------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
Sales of products $ 42,456 $ 42,947
-------- --------
Cost of sales and other direct production costs 33,926 33,553
Depreciation, depletion and amortization 4,352 5,459
-------- --------
38,278 39,012
-------- --------
Gross profit 4,178 3,935
-------- --------
Other operating expenses:
General and administrative 2,560 2,271
Exploration 1,354 803
Depreciation and amortization 79 89
Provision for closed operations and
environmental matters 189 (183)
-------- --------
4,182 2,980
-------- --------
Income (loss) from operations (4) 955
-------- --------
Other income (expense):
Interest and other income 1,151 694
Miscellaneous expense (30) (14)
Gain on investments - - 20
Interest expense:
Interest costs (835) (621)
Less amount capitalized 361 477
-------- --------
647 556
-------- --------
Income before income taxes 643 1,511
Income tax provision (125) (36)
-------- --------
Net income 518 1,475
Preferred stock dividends (2,012) (2,012)
-------- --------
Loss applicable to common shareholders $ (1,494) $ (537)
======== ========
Loss per common share $ (0.03) $ (0.01)
======== ========
Cash dividends per common share $ - - $ - -
======== ========
Weighted average number of common
shares outstanding 53,112 51,130
======== ========
The accompanying notes are an integral part of the consolidated financial statements.
-4-
5
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Three Months Ended
--------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
Operating activities:
Net income $ 518 $ 1,475
Noncash elements included in net income:
Depreciation, depletion and amortization 4,431 5,548
Loss (gain) on disposition of properties,
plants and equipment (70) 59
Gain on sale of investments - - (20)
Provision for reclamation and closure costs 220 1,199
Change in:
Accounts and notes receivable (8,366) (9,127)
Income tax refund receivable 10 (25)
Inventories (349) (389)
Other current assets 718 (424)
Accounts payable and accrued expenses (3,952) 1,532
Accrued payroll and related benefits (106) (651)
Accrued taxes 256 261
Accrued reclamation and closure costs and
other noncurrent liabilities (1,032) 197
--------- --------
Net cash used by operating activities (7,722) (365)
--------- --------
Investing activities:
Additions to properties, plants and equipment (4,542) (7,739)
Proceeds from disposition of properties,
plants and equipment 178 74
Proceeds from sale of investments - - 20
Decrease (increase) in restricted investments 3,108 (104)
Purchase of investments and change in cash
surrender value of life insurance, net (827) (146)
Other, net (847) (502)
--------- --------
Net cash used by investing activities (2,930) (8,397)
--------- --------
Financing activities:
Common stock issuance, net of offering costs 23,401 21,973
Preferred stock dividends (2,012) (2,012)
Borrowings against cash surrender value of
life insurance 100 200
Borrowings on long-term debt 20,500 11,500
Payments on long-term debt (31,562) (21,905)
--------- --------
Net cash provided by financing activities 10,427 9,756
--------- --------
Net increase (decrease) in cash and cash equivalents (225) 994
Cash and cash equivalents at beginning of period 8,256 4,024
--------- --------
Cash and cash equivalents at end of period $ 8,031 $ 5,018
========= ========
The accompanying notes are an integral part of the consolidated financial statements.
-5-
6
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The notes to the consolidated financial statements as of
December 31, 1996, as set forth in the Company's 1996
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, 1996, was derived from
the audited consolidated balance sheet described in
Note 1 above. Certain consolidated financial statement
amounts have been reclassified to conform to the 1997
presentation. These reclassifications had no effect on
the net loss or accumulated deficit as previously
reported.
Note 3. The components of the income tax provision for the three
months ended March 31, 1997 and 1996 are as follows (in
thousands):
1997 1996
------- -------
Current:
State income taxes $ 81 $ 70
Federal income tax benefit - - (34)
Foreign income taxes 44 - -
------- -------
Total current provision 125 36
Deferred provision - - - -
------- -------
Total $ 125 $ 36
======= =======
The Company's income tax provision for the first three
months of 1997 and 1996 varies from the amount that would
have been provided by applying the statutory rate to the
income or loss before income taxes primarily due to
nonutilization and availability of net operating losses.
-6-
7
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Note 4. Inventories consist of the following (in thousands):
March 31, Dec. 31,
1997 1996
--------- --------
Concentrates, bullion, metals
in transit and other products $ 5,607 $ 4,839
Industrial minerals products 8,670 8,902
Materials and supplies 8,951 9,138
-------- --------
$ 23,228 $ 22,879
======== ========
Note 5. Contingencies
Coeur d'Alene River Basin Natural Resource Damage Claims
- Coeur d'Alene Tribe Claims
In July 1991, the Coeur d'Alene Indian Tribe (the Tribe)
brought a lawsuit, under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as
amended, (CERCLA or Superfund), in Idaho Federal District
Court against the Company and a number of other mining
companies asserting claims for damages to natural
resources downstream from the Bunker Hill Superfund Site
located at Kellogg, Idaho (Bunker Hill Site) over which
the Tribe alleges some ownership or control. The Company
has answered the Tribe's complaint denying liability for
natural resource damages. 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
this decision, the Court in the natural resource damage
litigation stayed the court proceedings in the natural
resource damage litigation until a final decision is made
on the question of the Tribe's ownership. On December 9,
1994, the 9th Circuit Court reversed the decision of the
Idaho Federal District Court and remanded the case of the
Tribe's ownership for trial before the Idaho Federal
District Court. Oral arguments have been heard by the
U.S. Supreme Court with respect to the 9th Circuit Court
decision and a decision in the case is expected by June
1997. In July 1994, the United States, as Trustee for
the Coeur d'Alene Tribe, initiated a separate suit in
Idaho Federal District Court seeking
-7-
8
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
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. In October
1996, the legal proceeding related to the Tribe's natural
resource damage claims was consolidated with the United
States Natural Resources Damage litigation described
below.
- U.S. Government Claims
On March 22, 1996, the United States filed a lawsuit in
Idaho Federal District Court against mining companies who
conducted historic mining operations in the Silver Valley
of northern Idaho, including the Company. 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 (the
Basin) in northern Idaho over 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 the Company 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. The Company answered the complaint
on May 17, 1996, denying liability to the United States
under CERCLA and the Clean Water Act and asserted a
counterclaim against the United States for the federal
government's involvement in mining activity in the Basin
which contributed to the releases and damages alleged by
the United States. The Company believes it also has a
number of defenses to the United States' claims. In
October 1996, the Court consolidated the Coeur d'Alene
Tribe Natural Resource Damage litigation with this
lawsuit for discovery and other limited pretrial
purposes.
- State of Idaho Claims
On March 22, 1996, the Company entered into an agreement
(the Agreement) with the State of Idaho pursuant to which
the Company agreed to continue certain financial
contributions to environmental cleanup work in the Basin
being undertaken by a State Trustees group. In return,
the State agreed not to sue the Company for damage to
natural resources for which the State is a trustee for a
-8-
9
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
period of five years, to pursue settlement with the
Company of the State's natural resource damage claims and
to grant the Company credit against any such State claims
for all expenditures made under the Agreement and certain
other Company contributions and expenditures for
environmental cleanup in the Basin.
With respect to the above claims, the Company increased
its accrual for closed operations and environmental
matters by approximately $2.7 million in 1996. At March
31, 1997, the Company's accrual for remediation activity
in the Basin totaled $1.9 million. These expenditures
are anticipated to be made over the next four years.
Depending on the results of the aforementioned lawsuits,
it is reasonably possible that the Company's estimate of
its obligation may change in the near term.
Insurance Coverage Litigation
In 1991, the Company initiated litigation in the Idaho
State District Court in Kootenai County, Idaho, against a
number of insurance companies 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
for all liabilities and claims asserted against the
Company by the EPA and the Tribe under CERCLA related to
the Bunker Hill Site and the Basin in northern Idaho. In
1992, the Court ruled that the primary insurance
companies had a duty to defend the Company in the Tribe's
lawsuit. During 1995 and 1996, the Company entered into
settlement agreements with a number of the insurance
carriers named in the litigation. The Company 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 continued until the underlying
environmental claims against the Company are resolved or
settled. The remaining insurer is providing the Company
with a partial defense in all Basin environmental
litigation. As of March 31, 1997, the Company had not
reduced its accrual for reclamation and closure costs to
reflect the receipt of any anticipated insurance
proceeds.
-9-
10
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Star Phoenix
In June 1994, a judgment was entered against the Company
in the 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 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. The
District Court also awarded Star Phoenix approximately
$300,000 in attorneys' fees and costs. The judgement was
appealed to the Idaho State Supreme Court. In order to
stay the ability of Star Phoenix to collect on the
judgment during the pendency of the appeal, the Company
has posted an appeal bond in the amount of $27.2 million
representing 136% of the District Court judgment. Post-
judgment interest will accrue during the appeal period.
The Company pledged U.S. Treasury securities totaling
$10.0 million as collateral for the appeal bond. This
collateral amount is included in restricted investments
at March 31, 1997, and December 31, 1996. On April 2,
1997, the Idaho Supreme Court issued its opinion on the
Company's appeal, reversing the trial court's judgment
against the Company and remanding the case to the trial
court with directions to enter judgment in favor of the
Company. The Idaho Supreme Court also awarded the
Company's costs of appeal and attorneys fees. On
April 21, 1997, Star Phoenix filed a motion with the
Idaho Supreme Court requesting a rehearing on certain
portions of the court's April 2, 1997 opinion. A
decision on Star Phoenix's motion for a rehearing is
pending. On May 2, 1997, the Idaho Supreme Court and the
trial court issued orders releasing the Company's $27.2
million appeal bond. The bond was released, and the
Company received its $10 million in collateral from the
bonding company on May 6, 1997.
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
-10-
11
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
aggregate, will not have a material adverse effect on the
results of operations and financial condition of the
Company.
Note 6. At March 31, 1997, there was $27.0 million outstanding
under the Company's revolving and term loan facility
classified as long-term debt.
Note 7. In February 1997, the Company issued 3,950,000 shares of
its common stock realizing proceeds of approximately
$23.4 million, net of issuance costs of approximately
$1.3 million. The Company used $23.0 million of the net
proceeds to pay down debt under its existing revolving
and term loan credit facility.
Note 8. In February 1997, Statement of Financial Accounting
Standards No. 128 (SFAS 128), "Earnings per Share" was
issued. SFAS 128 established standards for computing and
presenting earnings per share (EPS) and simplifies the
existing standards. This standard replaced the
presentation of primary EPS with a presentation of basic
EPS. It also requires the dual presentation of basic and
diluted EPS on the face of the income statement for all
entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of
the diluted EPS computation. SFAS 128 is effective for
financial statements issued for periods ending after
December 15, 1997, including interim periods and requires
restatement of all prior-period EPS data presented. The
Company does not believe the application of this standard
will have a material effect on the presentation of its
earning per share disclosures.
-11-
12
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Hecla Mining Company (Hecla or 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 worldwide forces of
supply and demand for precious and base metals. 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 in descending
order relative to the attribute's importance to the
overall change.
Except for the historical information contained in this
Management's Discussion and Analysis of Financial
Condition and Results of Operations, the matters
discussed below are forward-looking statements that
involve risks and uncertainties, including the timely
development of existing properties and reserves and
future projects, the impact of metals prices and metal
production volatility, changing market conditions and the
regulatory environment and the other risks detailed from
time to time in the Company's Form 10-K and Form 10-Qs
filed with the Securities and Exchange Commission (see
also "Investment Considerations" of Part I, Item 1 of the
Company's 1996 Annual Report on Form 10-K). As a result,
actual results may differ materially from those projected
or implied. These forward-looking statements represent
the Company's judgment as of the date of this filing.
The Company disclaims, however, any intent or obligation
to update these forward-looking statements as
circumstances change or develop.
The Company incurred losses applicable to common
shareholders for each of the past three years in the
period ended December 31, 1996, as well as the quarter
ended March 31, 1997. If the Company's estimates of
market prices of gold, silver, lead, and zinc are
realized in 1997, the Company expects to record income or
(loss) in the range of a $(2.0) million loss to $2.0
-12-
13
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
million income after the expected dividends to preferred
shareholders totaling approximately $8.1 million for the
year ending December 31, 1997. Due to the volatility of
metals prices and the significant impact metals price
changes have on the Company's operations, there can be no
assurance that the actual results of operations for 1997
will be as projected.
The variability of metals prices requires that the
Company, in assessing the impact of prices on
recoverability of its metals segment 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. This evaluation includes a review of
estimated future net cash flows against the carrying
value of the Company's assets. Moreover, a review is
made on a quarterly basis to assess the impact of
significant changes in market conditions and other
factors. Asset write-downs may occur if the Company
determines that the carrying values attributed to
individual assets are not recoverable given reasonable
expectations for future production and market conditions.
On January 31, 1997, Great Lakes Minerals Inc. (Great
Lakes) and the Company entered into a letter agreement
terminating the Grouse Creek joint venture and conveying
Great Lakes' approximate 20% interest in the Grouse Creek
project to Hecla. Great Lakes retained a 5% defined net
proceeds interest in the project. The Company has
assumed 100% of the interests and obligations associated
with the property. As a result of the termination of the
Grouse Creek joint venture, approximately $4.5 million in
restricted cash was released and made available for
general corporate purposes in the first quarter of 1997.
At the Grouse Creek mine, mining and milling activities
were completed by the end of April 1997. The mill will
be decommissioned by the end of June 1997, and mine and
mill facilities will be placed on a care-and-maintenance
status, with some limited reclamation activities
commencing in the fall of 1997.
On April 2, 1997, the Idaho State Supreme Court reversed
the previous decision by the Idaho District Court in the
Star Phoenix Mining Company lawsuit which had found the
Company liable for $10.0 million in compensatory damages
and $10.0 million in punitive damages. As a result of
-13-
14
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
the Supreme Court's decision, restricted investments
totaling $10.0 million were released on May 6, 1997. At
March 31, 1997, the $10.0 million was reflected as
restricted investments pending actual release of the
funds, which occurred on May 6, 1997. (See also Note 5
of Notes to Consolidated Financial Statements)
At the Rosebud project, in which the Company has a 50%
interest and Santa Fe Pacific Gold Corporation (Santa Fe,
which is now a wholly owned subsidiary of Newmont Gold
Company) holds the other 50% interest, the Company
announced that mine design production capacity of 750
tons per day was achieved in the second half of March
1997. Ore processing at Santa Fe's Twin Creeks Pinion
mill is now in the start-up phase. The mine is expected
to produce approximately 50,000 ounces of gold annually
for the Company's account over an estimated five years.
During the first quarter of 1997, the Company produced
approximately 44,000 ounces of gold compared to
approximately 47,000 ounces of gold production in the
first quarter of 1996. The Company's gold production in
the first quarter of 1997 was from the following sources:
the La Choya mine - approximately 20,000 ounces; the
Grouse Creek mine - approximately 18,000 ounces; the
Greens Creek mine - approximately 4,000 ounces; and an
additional 2,000 ounces from other sources. For the year
ending December 31, 1997, the Company expects to produce
between 150,000 and 161,000 ounces of gold compared to
actual 1996 gold production of approximately 169,000
ounces of gold. The 1997 estimated gold production
includes 69,000 to 72,000 ounces from the Company's La
Choya mine, 38,000 to 43,000 ounces from the Company's
interest in the Rosebud mine, 24,000 to 25,000 ounces
from the Company's Grouse Creek mine, and 19,000 to
21,000 ounces from the Company's interest in the Greens
Creek mine and other sources.
In the first quarter of 1997, the Company produced
approximately 1,244,000 ounces of silver compared to 1996
first quarter silver production of 536,000 ounces. The
Company's silver production in the first quarter of 1997
was principally from the Greens Creek mine -
approximately 701,000 ounces, the Lucky Friday mine -
approximately 460,000 ounces, the Grouse Creek mine -
approximately 80,000 ounces, and approximately 3,000
ounces from other sources. The Company's share of silver
production for 1997 is expected to be between 5.7 and 6.2
-14-
15
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
million ounces compared to 1996 production of
approximately 3.0 million ounces. The 1997 estimated
silver production includes 2.1 to 2.3 million ounces from
the Lucky Friday mine, 3.4 to 3.7 million ounces from the
Company's interest in the Greens Creek mine and an
additional 0.2 million ounces from other sources.
In 1996, the Company shipped approximately 1,072,000 tons
of industrial minerals, including ball clay, kaolin,
feldspar, and specialty aggregates. The Company's
shipments of industrial minerals are expected to decrease
slightly in 1997 to approximately 1,061,000 tons.
Additionally, the Company expects to ship approximately
911,000 cubic yards of landscape material from its
Mountain West Products operation in 1997 compared to
996,000 cubic yards in 1996.
RESULTS OF OPERATIONS
The Company recorded net income of approximately $0.5
million, or $0.01 per common share, in the first three
months of 1997 compared to net income of approximately
$1.5 million, or $0.03 per common share, in the same
period of 1996. After $2.0 million in dividends to
holders of the Company's Series B Cumulative Convertible
Preferred Stock, the Company's loss applicable to common
shareholders for the first quarter of 1997 was
approximately $1.5 million, or $0.03 per common share,
compared to a loss of $0.5 million, or $0.01 per common
share, in the comparable 1996 period.
Sales of the Company's products decreased by
approximately $0.5 million, or 1.1%, in the first three
months of 1997 as compared to the same period in 1996,
principally the result of decreased product sales
totaling approximately $5.6 million, most notably from
the American Girl mine where operations were suspended in
the fourth quarter of 1996, the Grouse Creek mine
principally due to decreased gold and silver prices,
Mountain West Products due to decreased yards sold, the
La Choya mine primarily due to the decreased gold price,
and the Lucky Friday mine due to decreased lead
production and decreased lead and silver prices. These
factors were partially offset by increased sales of $5.1
million most notably at the Greens Creek mine where
operations recommenced in July 1996 and at K-T Clay de
Mexico.
-15-
16
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Comparing the average metal prices for the first quarter
of 1997 with the comparable 1996 period, gold decreased
12% to $351 per ounce from $400 per ounce, silver
decreased 9% to $5.02 per ounce from $5.54 per ounce,
lead decreased 11% to $.309 per pound from $0.347 per
pound, and zinc increased 13% to $.532 per pound from
$0.472 per pound. During the first quarter of 1997, the
Company's realized gold price per ounce decreased 6.5%
from $401 per ounce in the first quarter of 1996 to $375
per ounce in 1997.
Cost of sales and other direct production costs increased
approximately $0.4 million, or 1.1%, from the first three
months of 1996 to the comparable 1997 period primarily
due to (1) increased production costs at the Greens Creek
mine totaling approximately $3.2 million due to the start
up of operations in July 1996; and (2) other increased
costs at various other operations totaling approximately
$0.8 million. These cost increases were partly offset by
decreased production costs from (1) the American Girl
mine totaling approximately $2.1 million due to the
suspension of operations in the fourth quarter of 1996;
(2) decreased costs at Mountain West Products of $0.6
million primarily due to a decrease in sales; (3)
decreased costs at the K-T Clay Kaolin division of $0.5
million due to a decrease in tons mined and purchased as
well as decreased transportation costs on products sold
from the Company's Italy warehouse; and (4) other cost
decreases at various operations totaling approximately
$0.4 million.
Cost of sales and other direct production costs as a
percentage of sales from products increased from 78% in
the first quarter of 1996 to 80% in the comparable 1997
period, primarily due to the impact of decreased precious
metals and lead prices on sales revenues.
Depreciation, depletion, and amortization decreased $1.1
million, or 20.3%, from the first quarter of 1996 to the
first quarter of 1997 principally due to (1) decreased
depreciation at the La Choya mine ($1.6 million) the
result of a lower depreciation rate in 1997 attributable
to the 1996 increase in total recoverable ounces from the
mine; (2) decreased depreciation at the Grouse Creek mine
($0.9 million) due to the third quarter 1996 write-down
of the remaining property, plant, and equipment carrying
value balance; (3) decreased depreciation at the American
Girl mine ($0.5 million), due to the third quarter 1996
-16-
17
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
write-down of the remaining property, plant, and
equipment carrying value balance; and (4) other decreases
at other operations ($0.1 million). These decreases were
partly offset by increased depreciation, depletion, and
amortization at (1) the Greens Creek mine ($1.8 million)
where operations recommenced in July 1996; and (2) other
increases at various operations ($0.1 million).
Cash operating, total cash, and total production cost per
gold ounce decreased from $260, $260, and $353 for the
first quarter of 1996 to $204, $205, and $246 for the
first quarter of 1997, respectively. The decrease in the
cash operating, total cash, and total production cost per
gold ounce is primarily attributable to the shutdown of
the American Girl mine in the fourth quarter of 1996, and
the planned suspension of operations at the Grouse Creek
mine in the second quarter of 1997. The total production
cost per ounce was also favorably impacted by the
decreased depreciation rate per ounce at the La Choya
mine in 1997 compared to 1996.
Cash operating, total cash, and total production cost per
silver ounce decreased from $4.66, $4.66 and $5.89 in the
first quarter of 1996 to $3.33, $3.33, and $5.47 in the
first quarter of 1997, respectively. The decreases in
the cost per silver ounce are due primarily to the
recommencement of operations at the Greens Creek mine,
partly offset by increased cost per ounce amounts at the
Lucky Friday mine resulting from decreased lead by-
product credits in the first quarter of 1997. Gold,
lead, and zinc are by-products of the Company's silver
production, the revenues from which are netted against
production costs in the calculation of production cost
per ounce of silver.
Other operating expenses increased by $1.2 million, or
40.3%, from the 1996 period to the 1997 period, due
principally to (1) increased exploration costs totaling
approximately $0.6 million relating principally to
increased expenditures at the La Jojoba and El Porvenir
Mexican exploration properties; (2) increased provision
for closed operations and environmental matters of
approximately $0.4 million principally due to the
nonrecurring 1996 receipt of insurance proceeds relating
to the Bunker Hill Superfund site of $0.7 million and
increased expenses associated with the idle Cactus mine
of $0.2 million, partially offset by the nonrecurring
1996 provision for environmental matters relating to the
-17-
18
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Coeur d'Alene Basin area totaling approximately $0.5
million; and (3) increased general and administrative
expenses of approximately $0.3 million.
Other income was approximately $0.7 million in the 1997
period compared to $0.6 million in the 1996 period. The
$0.1 million increase was principally due to increased
interest and other income of approximately $0.5 million,
partially offset by increased net interest expense of
$0.3 million. Total interest cost increased
approximately $0.2 million due to increased borrowing on
the Company's revolving and term loan facility. Interest
cost capitalized decreased approximately $0.1 million
principally due to decreased capitalized interest costs
associated with the Greens Creek development and the
American Girl mine, both of which were completed in 1996,
partially offset by increased capitalized interest at the
Rosebud project and the Lucky Friday expansion project.
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 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 March 31, 1997, assets totaled approximately $274.8
million and shareholders' equity totaled approximately
$167.6 million. Cash and cash equivalents decreased by
$0.3 million to $8.0 million at March 31, 1997 from $8.3
million at the end of 1996.
-18-
19
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
During the first three months of 1997, approximately
$10.4 million in cash was provided by financing
activities. The major sources of cash were (1) net
proceeds totaling approximately $23.4 million from the
issuance of 3.95 million common shares in a public
offering completed in February 1997; (2) proceeds
totaling $20.5 million from borrowing on the revolving
and term loan facility; and (3) proceeds totaling $0.1
million from borrowings against the cash surrender value
of life policies. The primary uses of cash were (1)
repayments on long-term debt totaling approximately $31.6
million and (2) preferred dividend payments totaling
approximately $2.0 million.
Operating activities required approximately $7.7 million
of cash during the first three months of 1997. The
primary sources of cash were from the La Choya mine, K-T
Kaolin division, and the K-T Ball Clay division.
Additionally, decreases in other current assets and
increases in accrued taxes provided $0.7 million and $0.3
million in cash, respectively. Partially offsetting
these primary sources were (1) an $8.4 million increase
in accounts and notes receivable due to (a) the buildup
of receivables at Colorado Aggregate and Mountain West
Products of approximately $2.9 million and $2.1 million,
respectively, principally due to the seasonal nature of
sales at these operations; (b) increased receivables at
the La Choya mine of $2.1 million due to timing of sales;
(c) increased receivables at Greens Creek of
approximately $0.9 million due to increased product
shipments; and (d) other net increases of $0.3 million;
(2) a decrease in accounts payable and accrued expenses
of $4.0 million due to decreased accounts payable at the
majority of the Company's operations; and (3) a decrease
in accrued reclamation and closure costs and other
noncurrent liabilities of $1.0 million principally for
expenditures at closed operations. Principal noncash
charges included in operating activities include
depreciation, depletion, and amortization of
approximately $4.4 million and a $0.2 million provision
for reclamation and closure costs.
The Company's investing activities used $2.9 million of
cash during the first three months of 1997. The most
significant uses of cash were approximately $4.5 million
of property, plant, and equipment additions consisting
of: 1) construction in progress at the Rosebud project
and the Lucky Friday expansion project totaling
-19-
20
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
approximately $2.2 million and $1.1 million,
respectively, and 2) capital expenditures at other
operations totaling $0.8 million and capitalized interest
of approximately $0.4 million. Additional uses of cash
were for purchase of investments and change in cash
surrender value of life insurance totaling approximately
$0.8 million, and other net changes of $0.8 million.
These uses of cash were partially offset by the $3.1
million net decrease in restricted investments primarily
related to the release of restricted investments at
Grouse Creek resulting from the termination of the Grouse
Creek joint venture, and proceeds from the sales of
properties, plants, and equipment totaling approximately
$0.2 million.
The Company currently estimates that remaining capital
expenditures to be incurred in the balance of 1997 will
be in the range of $15.5 million to $28.4 million,
including $0.4 million of capitalized interest. These
expenditures, excluding capitalized interest, consist
primarily of (1) the Company's share of development
expenditures at the Rosebud project ($7.0-$8.0 million),
the Lucky Friday expansion project ($2.8-$14.0 million),
industrial minerals capitalized expenditures ($2.0-$2.3
million), Greens Creek mine capitalized expenditures
($2.5-$2.7 million); and (2) expenditures at other
operating locations ($0.8-$1.0 million). The high end of
the estimates with respect to the Lucky Friday expansion
project expenditures are subject to preparation of a
final feasibility study, final engineering estimates, as
well as Board of Directors approval. These planned
capital expenditures are anticipated to be funded from
operating activities, and amounts available under its
revolving and term loan credit facility. There can be no
assurance that actual capitalized expenditures will be as
projected based upon the uncertainties associated with
the estimates for development of the Lucky Friday
expansion project and the Company's ability to generate
adequate funding for the projected capital expenditures.
The Company's estimate of its capital expenditure
requirements assumes, with respect to the Greens Creek
property, that the Company's joint venture partner will
not default with respect to its portion of development
costs and capital expenditures.
Pursuant to a Registration Statement filed with the
Securities and Exchange Commission and declared effective
-20-
21
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
in the third quarter of 1995, the Company 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. In February 1997, the Company
issued 3.95 million common shares to facilitate the
funding of the Company's capital expenditures in 1997.
To date, the Company has issued $48.4 million of the
Company's common shares under the Registration Statement.
The Company used $23.0 million of the February 1997 net
proceeds of approximately $23.4 million from the sale of
its common shares to initially pay down debt under its
existing revolving and term loan credit facility thus
increasing its borrowing capacity under the facility. As
of March 31, 1997, a total of $28.0 million remained
available under the bank facility.
The Company's planned environmental and reclamation
expenditures for the balance of 1997 are expected to be
approximately $7.8 million, principally for environmental
and reclamation activities at the Bunker Hill Superfund
Site, Republic mine, Coeur d'Alene River Basin, American
Girl mine, and the Cactus mine.
Exploration expenditures for the balance of 1997 are
estimated to be approximately $5.5 to $6.5 million. The
Company's exploration strategy is to focus further
exploration at or in the vicinity of its currently owned
domestic and foreign properties. Accordingly, domestic
exploration expenditures will be incurred principally at
the Rosebud, Greens Creek, and Lucky Friday properties.
Foreign exploration efforts will center primarily on
targets in Mexico.
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 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 premiums paid or received, for option 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, when the Company matches specific
production to a contract, or upon settlement of the net
position in cash. The Company is exposed to certain
-21-
22
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
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.
As of March 31, 1997, the Company has purchased options
to put 25,830 ounces of gold to counterparties to such
options at an average price of $396 per ounce.
Concurrently, the Company sold options to allow
counterparties to such options to call 25,830 ounces of
gold from the Company at an average price of $461 per
ounce. There was no net cost associated with the
purchase and sale of these options which expire on a
monthly basis through December 1997. The London Final
gold price at March 31, 1997, was $348. At March 31,
1997, the estimated fair value of the Company's purchased
gold put options was approximately $1.0 million. If the
Company had chosen to close its offsetting short call
option position, it would have incurred a liability of
approximately $1,000. Additionally, the Company has
entered into spot deferred sales commitments for 8,400
ounces of gold at $386 per ounce. The nature and purpose
of the forward sales and option contracts, however, do
not presently expose the Company to any significant net
loss. All of the aforementioned contracts were
designated as hedges as of March 31, 1997.
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, a 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 May 1994. The Company appealed the judgment to
the Idaho State Supreme Court. In order to stay the
ability of Star Phoenix to collect on the judgment during
the pendency of the appeal, the Company posted an appeal
bond in the amount of $27.2 million representing 136% of
the District Court judgment. Post-judgment interest will
accrue during the appeal period. The Company pledged
U.S. Treasury Securities totaling $10.0 million as
collateral for the appeal bond. On April 2, 1997, the
-22-
23
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Idaho Supreme Court issued its opinion on the Company's
appeal, reversing the trial court's judgment against the
Company and remanding the case to the trial court with
directions to enter judgment in favor of the Company.
The Idaho Supreme Court also awarded the Company's costs
of appeal and attorneys fees. On April 21, 1997, Star
Phoenix filed a motion with the Idaho Supreme Court
requesting a rehearing on certain portions of the court's
April 2, 1997 opinion. A decision on Star Phoenix's
motion for a rehearing is pending. On May 2, 1997, the
Idaho Supreme Court and the trial court issued orders
releasing the Company's $27.2 million appeal bond. The
bond was released, and the Company received its $10
million in collateral from the bonding company on May 6,
1997.
Although the ultimate disposition of this matter and
various other pending legal actions and claims is not
presently determinable, it is the opinion of the
Company's management, based upon the information
available at this time, that the outcome of these suits
and proceedings will not have a material adverse effect
on the results of operations and financial condition of
the Company and its subsidiaries.
In February 1997, Statement of Financial Accounting
Standards No. 128 (SFAS 128), "Earnings per Share" was
issued. SFAS 128 established standards for computing and
presenting earnings per share (EPS) and simplifies the
existing standards. This standard replaced the
presentation of primary EPS with a presentation of basic
EPS. It also requires the dual presentation of basic and
diluted EPS on the face of the income statement for all
entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of
the diluted EPS computation. SFAS 128 is effective for
financial statements issued for periods ending after
December 15, 1997, including interim periods and requires
restatement of all prior-period EPS data presented. The
Company does not believe the application of this standard
will have a material effect on the presentation of its
earning per share disclosures.
-23-
24
PART II - OTHER INFORMATION
HECLA MINING COMPANY and SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
Coeur d'Alene River Basin Natural Resource Damage Claims
- Coeur d'Alene Tribe Claims
In July 1991, the Coeur d'Alene Indian Tribe (the Tribe)
brought a lawsuit, under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as
amended, (CERCLA or Superfund), in Idaho Federal District
Court against the Company and a number of other mining
companies asserting claims for damages to natural
resources downstream from the Bunker Hill Superfund Site
located at Kellogg, Idaho (Bunker Hill Site) over which
the Tribe alleges some ownership or control. The Company
has answered the Tribe's complaint denying liability for
natural resource damages. 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
this decision, the Court in the natural resource damage
litigation stayed the court proceedings in the natural
resource damage litigation until a final decision is made
on the question of the Tribe's ownership. On December 9,
1994, the 9th Circuit Court reversed the decision of the
Idaho Federal District Court and remanded the case of the
Tribe's ownership for trial before the Idaho Federal
District Court. Oral arguments have been heard by the
U.S. Supreme Court with respect to the 9th Circuit Court
decision and a decision in the case is expected by June
1997. 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. In October 1996, the legal
proceeding related to the Tribe's natural resource damage
claims was consolidated with the United States Natural
Resources Damage litigation described below.
-24-
25
PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
- U.S. Government Claims
On March 22, 1996, the United States filed a lawsuit in
Idaho Federal District Court against mining companies who
conducted historic mining operations in the Silver Valley
of northern Idaho, including the Company. 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 (the
Basin) in northern Idaho over 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 the Company 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. The Company answered the complaint
on May 17, 1996, denying liability to the United States
under CERCLA and the Clean Water Act and asserted a
counterclaim against the United States for the federal
government's involvement in mining activity in the Basin
which contributed to the releases and damages alleged by
the United States. The Company believes it also has a
number of defenses to the United States' claims. In
October 1996, the Court consolidated the Coeur d'Alene
Tribe Natural Resource Damage litigation with this
lawsuit for discovery and other limited pretrial
purposes.
- State of Idaho Claims
On March 22, 1996, the Company entered into an agreement
(the Agreement) with the State of Idaho pursuant to which
the Company agreed to continue certain financial
contributions to environmental cleanup work in the Basin
being undertaken by a State Trustees group. In return,
the State agreed not to sue the Company for damage to
natural resources for which the State is a trustee for a
period of five years, to pursue settlement with the
Company of the State's natural resource damage claims and
to grant the Company credit against any such State claims
for all expenditures made under the Agreement and certain
other Company contributions and expenditures for
environmental cleanup in the Basin.
With respect to the above claims, the Company increased
its accrual for closed operations and environmental
-25-
26
PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
matters by approximately $2.7 million in 1996. At
March 31, 1997, the Company's accrual for remediation
activity in the Basin totaled $1.9 million. These
expenditures are anticipated to be made over the next
four years. Depending on the results of the
aforementioned lawsuits, it is reasonably possible that
the Company's estimate of its obligation may change in
the near term.
Insurance Coverage Litigation
In 1991, the Company initiated litigation in the Idaho
State District Court in Kootenai County, Idaho, against a
number of insurance companies 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
for all liabilities and claims asserted against the
Company by the EPA and the Tribe under CERCLA related to
the Bunker Hill Site and the Basin in northern Idaho. In
1992, the Court ruled that the primary insurance
companies had a duty to defend the Company in the Tribe's
lawsuit. During 1995 and 1996, the Company entered into
settlement agreements with a number of the insurance
carriers named in the litigation. The Company 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 continued until the underlying
environmental claims against the Company are resolved or
settled. The remaining insurer is providing the Company
with a partial defense in all Basin environmental
litigation. As of March 31, 1997, the Company had not
reduced its accrual for reclamation and closure costs to
reflect the receipt of any anticipated insurance
proceeds.
Star Phoenix
In June 1994, a judgment was entered against the Company
in the 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 May
1994 with respect to a lawsuit previously filed against
the Company by Star Phoenix Mining Company (Star
-26-
27
PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
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. The
District Court also awarded Star Phoenix approximately
$300,000 in attorneys' fees and costs. The judgement was
appealed to the Idaho State Supreme Court. In order to
stay the ability of Star Phoenix to collect on the
judgment during the pendency of the appeal, the Company
has posted an appeal bond in the amount of $27.2 million
representing 136% of the District Court judgment. Post-
judgment interest will accrue during the appeal period.
The Company pledged U.S. Treasury securities totaling
$10.0 million as collateral for the appeal bond. This
collateral amount is included in restricted investments
at March 31, 1997, and December 31, 1996. On April 2,
1997, the Idaho Supreme Court issued its opinion on the
Company's appeal, reversing the trial court's judgment
against the Company and remanding the case to the trial
court with directions to enter judgment in favor of the
Company. The Idaho Supreme Court also awarded the
Company's costs of appeal and attorneys fees. On
April 21, 1997, Star Phoenix filed a motion with the
Idaho Supreme Court requesting a rehearing on certain
portions of the court's April 2, 1997 opinion. A
decision on Star Phoenix's motion for a rehearing is
pending. On May 2, 1997, the Idaho Supreme Court and the
trial court issued orders releasing the Company's $27.2
million appeal bond. The bond was released, and the
Company received its $10 million in collateral from the
bonding company on May 6, 1997.
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.
-27-
28
PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12 - Statement of Computation of Ratio of
Earnings to Fixed Charges
13 - First Quarter Report to Shareholders for the
quarter ended March 31, 1997, for release
dated April 30, 1997
27 - Financial Data Schedule
(b) Reports on Form 8-K
Report on Form 8-K dated February 14, 1997, related
to Fourth Quarter and Year-end Results for
December 31, 1996, released February 6, 1997.
(Items 5 and 7)
Report on Form 8-K dated February 18, 1997, related
to Engagement Agreement and Indemnification
Agreement between Muzinich & Co. and Hecla Mining
Company. (Items 5 and 7)
Report on Form 8-K dated February 18, 1997, related
to Subscription Agreement between certain entities
and Hecla Mining Company. (Items 5 and 7)
Report on Form 8-K dated February 19, 1997, related
to the Company's Management Discussion and Analysis
for December 31, 1996, and Audited Consolidated
Financial Statements for December 31, 1996 and 1995.
(Items 5 and 7)
Items 2, 3, 4 and 5 of Part II are omitted from this report as
inapplicable.
-28-
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 8, 1997 By /s/ Arthur Brown
-------------------------------------
Arthur Brown, Chairman, President
and Chief Executive Officer
Date: May 8, 1997 By /s/ Stanley E. Hilbert
-------------------------------------
Stanley E. Hilbert,
Corporate Controller
(Chief Accounting Officer)
-29-
30
EXHIBIT INDEX
Exhibit
No. Description
- -------- -----------------------
12 Statement of Computation of Ratio of Earnings to
Fixed Charges
13 First Quarter Report to Shareholders for the
quarter ending March 31, 1997, for release dated
April 30, 1997
27 Financial Data Schedule
-30-