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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-8491
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HECLA MINING COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 82-0126240
- --------------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6500 Mineral Drive
Coeur d'Alene, Idaho 83815-8788
- ---------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
208-769-4100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for at least
the past 90 days. Yes XX . No .
---- ----
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding October 31, 1997
- ---------------------------- ----------------------------
Common stock, par value 55,095,235 shares
$0.25 per share
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HECLA MINING COMPANY and SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
I N D E X*
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Page
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PART I. - Financial Information
Item l - Consolidated Balance Sheets - September 30,
1997 and December 31, 1996 3
- Consolidated Statements of Operations -
Three Months and Nine Months Ended
September 30, 1997 and 1996 4
- Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 1997 and 1996 5
- Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. - Other Information
Item 1 - Legal Proceedings 30
Item 6 - Exhibits and Reports on Form 8-K 33
*Items omitted are not applicable.
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HECLA MINING COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
(In thousands, except share data)
September 30, December 31,
1997 1996
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,310 $ 7,159
Accounts and notes receivable 27,136 24,168
Income tax refund receivable 857 1,262
Inventories 20,319 22,879
Other current assets 1,746 2,284
---------- ----------
Total current assets 55,368 57,752
Investments 2,668 1,723
Restricted investments 7,979 21,771
Properties, plants and equipment, net 178,572 177,755
Other noncurrent assets 8,102 9,392
---------- ----------
Total assets $ 252,689 $ 268,393
========== ==========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 12,738 $ 17,377
Accrued payroll and related benefits 3,020 3,232
Preferred stock dividends payable 2,012 2,012
Accrued taxes 1,646 1,427
Accrued reclamation and closure costs 8,904 8,664
---------- ----------
Total current liabilities 28,320 32,712
Deferred income taxes 359 359
Long-term debt 13,937 38,208
Accrued reclamation and closure costs 36,177 45,953
Other noncurrent liabilities 6,768 5,653
---------- ----------
Total liabilities 85,561 122,885
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SHAREHOLDERS' EQUITY
Preferred stock, $0.25 par value,
authorized 5,000,000 shares, issued
and outstanding - 2,300,000 shares,
liquidation preference $117,012 575 575
Common stock, $0.25 par value,
authorized 100,000,000 shares;
issued 1997 - 55,157,324;
issued 1996 - 51,199,324 13,789 12,800
Capital surplus 373,986 351,559
Accumulated deficit (215,141) (213,610)
Net unrealized loss on investments (297) (32)
Foreign currency translation adjustment (4,898) (4,898)
Less treasury stock, at cost;
1997 - 62,089 shares, 1996 - 62,085 shares (886) (886)
---------- ----------
Total shareholders' equity 167,128 145,508
---------- ----------
Total liabilities and shareholders' equity $ 252,689 $ 268,393
========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars and shares in thousands, except for per-share amounts)
Three Months Ended Nine Months Ended
---------------------------- ------------------------------
Sept 30, 1997 Sept 30, 1996 Sept 30, 1997 Sept 30, 1996
------------- ------------- ------------- -------------
Sales of products $ 41,204 $ 37,662 $ 129,729 $ 121,132
--------- --------- --------- ---------
Cost of sales and other direct production costs 30,032 29,998 98,192 96,623
Depreciation, depletion and amortization 5,734 5,304 15,137 15,186
--------- --------- --------- ---------
35,766 35,302 113,329 111,809
--------- --------- --------- ---------
Gross profit 5,438 2,360 16,400 9,323
--------- --------- --------- ---------
Other operating expenses:
General and administrative 1,951 1,819 5,984 5,643
Exploration 1,738 1,410 5,530 3,400
Depreciation and amortization 76 82 233 256
Reduction in carrying value of
mining properties - - 12,902 - - 12,902
Provision for closed operations
and environmental matters 91 25,492 239 22,691
--------- --------- --------- ---------
3,856 41,705 11,986 44,892
--------- --------- --------- ---------
Income (loss) from operations 1,582 (39,345) 4,414 (35,569)
--------- --------- --------- ---------
Other income (expense):
Interest and other income 739 3,346 3,960 4,754
Miscellaneous expense (383) (503) (1,160) (1,212)
Loss on investments - - (158) - - (28)
Interest expense:
Total interest cost (510) (875) (1,930) (2,224)
Less amount capitalized 132 671 609 1,714
--------- --------- --------- ---------
(22) 2,481 1,479 3,004
--------- --------- --------- ---------
Income (loss) before income taxes 1,560 (36,864) 5,893 (32,565)
Income tax benefit (provision) (625) 99 (1,386) 76
--------- --------- --------- ---------
Net income (loss) 935 (36,765) 4,507 (32,489)
Preferred stock dividends (2,013) (2,013) (6,038) (6,038)
--------- --------- --------- ---------
Loss applicable to common shareholders $ (1,078) $ (38,778) $ (1,531) $ (38,527)
========= ========= ========= =========
Loss per common share $ (0.02) $ (0.76) $ (0.03) $ (0.75)
========= ========= ========= =========
Cash dividends per common share $ - - $ - - $ - - $ - -
========= ========= ========= =========
Weighted average number of common
shares outstanding 55,095 51,137 54,300 51,133
========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Nine Months Ended
------------------------------
Sept 30, 1997 Sept 30, 1996
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Operating activities:
Net income (loss) $ 4,507 $ (32,489)
Noncash elements included in net income (loss):
Depreciation, depletion and amortization 15,370 15,442
Gain on disposition of properties, plants and equipment (1,125) (731)
Loss on investments - - 28
Reduction in carrying value of mining properties - - 12,902
Provision for reclamation and closure costs 776 27,429
Change in:
Accounts and notes receivable (2,968) (2,695)
Income tax refund receivable 405 (28)
Inventories 2,560 (699)
Other current assets 538 332
Accounts payable and accrued expenses (4,639) 727
Accrued payroll and related benefits (212) (231)
Accrued taxes 219 281
Accrued reclamation and other noncurrent liabilities (9,196) (2,488)
-------- ---------
Net cash provided by operating activities 6,235 17,780
-------- ---------
Investing activities:
Additions to properties, plants and equipment (16,792) (25,596)
Proceeds from disposition of properties, plants and equipment 1,865 3,158
Proceeds from the sale of investments - - 130
Decrease (increase) in restricted investments 13,792 (214)
Purchase of investments and increase in cash surrender value of
life insurance (1,311) (607)
Other, net 1,155 (1,715)
-------- ---------
Net cash used by investing activities (1,291) (24,844)
-------- ---------
Financing activities:
Issuance of common stock, net of offering costs 23,416 22,028
Dividends on preferred stock (6,038) (6,038)
Borrowings, net of repayments, against cash surrender value of
life insurance 100 602
Borrowing on long-term debt 46,300 40,500
Repayment of long-term debt (70,571) (42,913)
-------- ---------
Net cash provided (used) by financing activities (6,793) 14,179
-------- ---------
Net increase (decrease) in cash and cash equivalents (1,849) 7,115
Cash and cash equivalents at beginning of period 7,159 4,024
-------- ---------
Cash and cash equivalents at end of period $ 5,310 $ 11,139
======== =========
The accompanying notes are an integral part of the consolidated financial statements.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. 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 nine
months ended September 30, 1997 and 1996 are as follows
(in thousands):
1997 1996
------ -----
Current:
State $ 229 $(236)
Federal (4) 312
Foreign 1,161 - -
------ ------
Total $1,386 $ 76
====== ======
The Company's income tax provision for the first
nine 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 the nonutilization of net operating
losses.
Note 4. Inventories consist of the following (in thousands):
Sept. 30, Dec. 31,
1997 1996
-------- --------
Concentrates, bullion, metals
in transit and other products $ 4,599 $ 4,839
Industrial mineral products 7,596 8,902
Materials and supplies 8,124 9,138
-------- --------
$ 20,319 $ 22,879
======== ========
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
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 October 1996, following a court imposed
four-year stay of the proceeding, the Tribe's natural
resource damage litigation 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 certain
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
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
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. The case is
proceeding through discovery and the defendant mining
companies have filed a number of summary judgment
motions which are currently pending before the Court.
- 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.
At September 30, 1997, the Company's accrual for
remediation activity in the Basin not including the
Bunker Hill Site totaled $1.0 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
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
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 September 30, 1997, the Company had not reduced
its accrual for reclamation and closure costs to
reflect the receipt of any anticipated insurance
proceeds.
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.
Note 6. On August 11, 1997, the Company entered into a new
revolving and term loan credit facility (Bank
Agreement). The Bank Agreement is similar to the
previous credit facility. Under the terms of the Bank
Agreement, the Company may borrow up to $55.0 million
on a revolving credit basis through July 31, 2000, and
are repayable in eight quarterly installments beginning
October 31, 2000. During the commitment period, the
Company pays an annual facility fee ranging from
$178,750 to $261,250, the amount of which is based on
average quarterly borrowings. The Bank Agreement
includes certain collateral provisions, including the
pledging of the common stock of certain of the
Company's subsidiaries and providing the lenders a
security interest in accounts receivable. Under the
Bank Agreement, the Company is required to maintain
certain financial ratios, and meet certain net worth
and indebtedness tests for which the Company was in
compliance at September 30, 1997. Amounts available
for borrowing under the Bank Agreement are based on a
defined debt to cash flow test. At September 30, 1997,
the Company had borrowings classified as long-term debt
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
of $4.0 million and the ability to borrow an
additional $41.2 million under the Bank Agreement. The
amount available to borrow is reduced by the amount of
tax-exempt solid waste disposal bonds outstanding (see
discussion below).
On July 30, 1997, the Company issued $9.8 million
aggregate principal amount of tax-exempt, solid waste
disposal revenue bonds. The net proceeds of
approximately $9.6 million from the issuance were
initially used to pay down debt under the Company's
existing revolving and term loan credit facility. At
September 30, 1997, there was $9.8 million in revenue
bonds outstanding 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 the normal course of its business, the Company uses
derivative commodity instruments to manage its exposure
to fluctuations in the prices of certain metals which
it produces. The Company does not hold or issue
derivative instruments for trading purposes.
The Company uses forward sales and commodity put
and call options to hedge anticipated sales of certain
metal products it produces. The Company also utilizes
forward contracts to sell its unhedged production of
metal products.
The Company accounts for commodity put and call
options by deferring any gains and losses, and the
related costs paid or premium received, for contracts
which hedge the sales prices of commodities until the
hedged position is settled. Gains and losses, and the
related costs paid or premiums received are included in
sales at the time of settlement. The Company
recognizes revenue on forward sales contracts
designated as hedges at the time the Company matches
specific production to a forward contract, or upon
settlement of the net position in cash. In the case of
matching specific production to a contract, the revenue
may be recognized in a period prior to the receipt of
cash, in which case a receivable is established for the
expected receipt, although this time period is
typically less than two months. Specific criteria
required for commodity put
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
and call options and forward sales contracts
accounting include the Company's ability to produce the
underlying commodity prior to the contract settlement
date, the existence of price risk associated with the
underlying commodity, the designation of the
transaction at the time the contract is entered into as
a hedge against price volatility, and whether this type
of transaction effectively reduces the price risk
associated with the underlying commodity.
The Company also uses forward contracts as a means
to sell available production. Revenue from these
contracts is recognized at the time the contracts are
entered into, with a corresponding receivable, as the
commodity has already been produced and is available
for delivery. Upon delivery of the underlying
commodity on the settlement date, cash is received from
the sale. The only criteria for utilizing this method
is the availability of produced metal at the time the
contract is entered into.
Note 9. 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.
In June 1997, Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Comprehensive Income,"
was issued. SFAS 130 establishes standards for
reporting and display of comprehensive income and its
components in a full set of general purpose financial
statements. SFAS 130 is effective for fiscal years
beginning after December 15, 1997, and requires
restatement of earlier periods presented. The Company
does not believe the application of this standard will
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
have a material effect on the results of operations
or financial condition of the Company.
In June 1997, Statement of Financial Accounting
Standards No. 131 (SFAS 131), "Disclosures about
Segments of an Enterprise and Related Information" was
issued. SFAS 131 establishes standards for the way
that a public enterprise reports information about
operating segments in annual financial statements and
requires that those enterprises report selected
information about operating segments in interim
financial reports issued to shareholders. SFAS 131 is
effective for fiscal years beginning after December 15,
1997, and requires restatement of earlier periods
presented. The Company does not believe the
application of this standard will have a material
effect on the results of operations or financial
condition of the Company.
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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
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. If the Company's
estimates of market prices of gold, silver, lead, and
zinc are realized in 1997, the Company expects to
record a loss in the range of $3.0 million to $6.0
million after the expected dividends to preferred
shareholders totaling approximately $8.1 million for
the year ending December 31, 1997. Due to the
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
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.
During the first nine months of 1997, the Company
produced approximately 130,000 ounces of gold compared
to approximately 122,000 ounces of gold production in
the first nine months of 1996. The Company's gold
production in the first nine months of 1997 was from
the following sources: the La Choya mine -
approximately 58,000 ounces; the Rosebud mine -
approximately 29,000 ounces; the Grouse Creek mine -
approximately 27,000 ounces; the Greens Creek mine -
approximately 12,000 ounces; and an additional 4,000
ounces from other sources. For the year ending
December 31, 1997, the Company expects to produce
between 165,000 and 169,000 ounces of gold compared to
actual 1996 gold production of approximately 169,000
ounces of gold. The 1997 estimated gold production
includes 73,000 to 74,000 ounces from the Company's La
Choya mine, 44,000 to 46,000 ounces from the Company's
interest in the Rosebud mine, 27,000 ounces from the
Company's Grouse Creek mine, and 21,000 to 22,000
ounces from the Company's interest in the Greens Creek
mine and other sources.
In the first nine months of 1997, the Company
produced approximately 3.9 million ounces of silver
compared to the first nine months of 1996 silver
production of 1.8 million ounces. The Company's silver
production in the first nine months of 1997 was
principally from the Greens Creek mine - approximately
2.2 million ounces,
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
the Lucky Friday mine - approximately 1.4 million
ounces, the Grouse Creek mine - approximately 0.1
million ounces, the Rosebud mine - approximately 0.1
million ounces, and approximately 0.1 million ounces
from other sources. The Company's share of silver
production for 1997 is expected to be between 5.0
million and 5.3 million ounces compared to 1996
production of approximately 3.0 million ounces. The
1997 estimated silver production includes 1.8 million
to 2.0 million ounces from the Lucky Friday mine, 2.8
million to 2.9 million ounces from the Company's
interest in the Greens Creek mine and an additional 0.4
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 1,038,000
tons. Additionally, the Company expects to ship
approximately 869,000 cubic yards of landscape material
from its Mountain West Products operation in 1997
compared to 996,000 cubic yards in 1996.
RESULTS OF OPERATIONS
FIRST NINE MONTHS 1997 COMPARED TO FIRST NINE MONTHS
1996
The Company reported net income of approximately
$4.5 million, or $0.08 per share, in the first nine
months of 1997 compared to a net loss of approximately
$32.5 million, or $0.64 per share, in the same period
of 1996. After $6.0 million in dividends to
shareholders of the Company's Series B Cumulative
Convertible Preferred Stock, the Company's loss
applicable to common shareholders for the first nine
months of 1997 was $1.5 million, or $0.03 per common
share, compared to a loss of $38.5 million, or $0.75
per common share, in the comparable 1996 period. The
change in income in the first nine months of 1997 was
attributable to a variety of factors, the most
significant of which were 1996 adjustments, totaling
$35.7 million for severance, holding, reclamation,
closure costs, and carrying value adjustments at the
Grouse Creek mine and the American Girl mine.
Comparing the average metal prices for the nine months
of 1997 with the comparable 1996 period, gold decreased
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
by 14% to $339 per ounce from $392 per ounce, silver
decreased by 10% to $4.77 per ounce from $5.29
per ounce, and lead decreased by 19% to $0.292 per
pound from $0.360 per pound, while zinc increased by
33% to $0.617 per pound from $0.464 per pound. During
the first nine months of 1997, the Company's realized
gold price per ounce decreased 8% from $397 per ounce
in the first nine months of 1996 to $366 per ounce in
1997.
Sales of the Company's products increased by
approximately $8.6 million, or 7%, in the first nine
months of 1997 as compared to the same period in 1996,
principally the result of increased product sales
totaling approximately $27.7 million, most notably from
the Greens Creek mine, where operations recommenced in
July 1996, and the Rosebud mine where operations
commenced in April 1997. These factors were partially
offset by decreased sales of $19.1 million principally
at the Grouse Creek mine where operations were
completed in April 1997, decreased sales at the
American Girl mine where operations were suspended in
the fourth quarter of 1996, decreased sales at MWCA-
Mountain West Products Division primarily due to
unfavorable weather conditions and resulting
competitive pricing pressures in the 1997 period,
decreased sales at the La Choya mine resulting from
decreased gold prices and a 3% decrease in gold
production, decreased sales at the Lucky Friday mine
principally due to decreased silver and lead prices,
decreased sales at the K-T Clay Kaolin division due to
a decrease in volume shipped, and decreased sales from
K-T Feldspar.
Cost of sales and other direct production costs
increased approximately $1.6 million, or 2%, from the
first nine months of 1996 to the comparable 1997 period
primarily due to (1) increased production costs of
$11.0 million at the Greens Creek mine where operations
recommenced in July 1996, (2) increased production
costs at the Rosebud mine, where operations commenced
in April 1997, of $4.6 million, (3) production cost
increases of $0.7 million at K-T Clay de Mexico due to
increased sales, (4) increased production costs at
other K-T Clay operations of $0.9 million, (5)
production cost increases at the Lucky Friday mine
totaling approximately $0.6 million due to increased
production levels, and (6) increased costs at MWCA-
Colorado Aggregate division of $0.2 million associated
with increased sales. These increases in cost of sales
and other direct production costs were partially offset
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
by decreases in operating costs at other operations
totaling approximately $16.4 million. These
decreases are primarily due to (1) decreased production
costs at the American Girl mine totaling approximately
$7.5 million due to the suspension of operations in the
fourth quarter of 1996, (2) decreased production costs
at the Grouse Creek mine of $7.0 million due to the
completion of operations in April 1997, (3) decreased
production costs at the K-T Clay Kaolin Division of
$0.9 million resulting from decreased sales, and a
decrease in costs associated with sales of product in
Italy, (4) decreased costs at MWCA-Mountain West
Products division of $0.6 million associated with the
decrease in sales, (5) decreased costs at K-T Feldspar
of $0.2 million associated with decreased sales, and
(6) decreased costs at the La Choya mine ($0.2
million).
Cost of sales and other direct production costs as a
percentage of sales decreased from 79.8% in the first
nine months of 1996 to 75.7% in the comparable 1997
period. The decrease is primarily due to the shutdown
of the higher cost American Girl mine in 1996, and the
suspension of operations at the higher cost Grouse
Creek mine in April 1997, as well as the addition of
the lower cost Rosebud and Greens Creek mines.
Depreciation, depletion and amortization decreased
slightly from the first nine months of 1996 to the
comparable 1997 period primarily due to (1) decreased
depreciation at the La Choya mine ($4.5 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 ($2.2 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 ($1.3
million), due to third quarter 1996 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 of $4.6 million where
operations recommenced in July 1996, (2) the Rosebud
mine of $3.0 million where operations commenced in
April 1997, and (3) other increases at other operations
of $0.4 million.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Cash operating cost, total cash cost and total
production cost per gold ounce decreased from $273,
$277 and $375 for the first nine months of 1996 to
$167, $175 and $237 for the comparable 1997 period,
respectively. The decrease in the cash operating cost,
total cash cost, 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 shutdown of the Grouse Creek mine in April of 1997,
as well as the commencement of production at the
Rosebud mine in April 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 cost, total cash cost and total
production cost per silver ounce decreased from $4.07,
$4.07 and $5.30 in the first nine months of 1996 to
$3.36, $3.36 and $5.23 in the comparable 1997 period,
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 nine months 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 decreased $32.9 million, or
73.3%, from the 1996 period to the 1997 period, due
principally to (1) a decreased provision for closed
operations and environmental matters of approximately
$22.5 million consisting of the Company's 1996
provision for the Grouse Creek mine totaling
approximately $22.5 million, the 1996 provision for
remediation and future costs associated with the Coeur
d'Alene River Basin of $2.7 million, the American Girl
closure cost accrual of $0.3 million in 1996, decreased
costs at the closed Republic mine of $0.3 million, and
other net decreases of $0.2 million, partly offset by
increases, primarily the result of 1996 net insurance
proceeds of $2.6 million in excess of the then current
estimated liability for remediation efforts at the
Bunker Hill superfund site in 1996, and 1996 timber
sales proceeds from the closed Star Unit area of $0.9
million, (2) a decreased reduction in carrying value of
mining properties of $12.9 million, consisting of the
Company's 1996 reduction in carrying value of the
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Company's interest in the American Girl mine ($7.6
million) and the Grouse Creek mine ($5.3 million).
These decreases were partly offset by (1) increased
exploration expenditures of $2.1 million, most notably
at the La Jojoba gold property in Mexico ($1.5
million), the El Porvenir gold property in Mexico ($0.9
million), partly offset by other net decreases of $0.4
million, and (2) increased general and administrative
expenses of $0.3 million.
Other income was $1.5 million in the first nine
months of 1997 compared to $3.0 million in the
comparable 1996 period. The $1.5 million decrease was
primarily due to (1) a $0.8 million decrease in
interest and other income, resulting primarily from the
1996 gain on sale of the Apex Mine ($1.0 million), the
1996 gain on sale of an interest in the Golden Eagle
Joint Venture ($0.7 million), decreased interest income
of $0.3 million, partly offset by a gain on sale of an
8% interest in the Buckhorn Joint Venture, in Nevada,
of $1.1 million, and other net increases of $0.1
million, (2) increased net interest cost of $0.8
million. These decreases were partly offset by
decreased miscellaneous expense of $0.1 million. Total
interest cost decreased approximately $0.3 million due
to lower borrowings under the Company's revolving and
term loan facility. Capitalized interest costs
decreased $1.1 million principally due to decreased
capitalized interest costs associated with the Greens
Creek mine, the American Girl mine, and at the Rosebud
project which was completed in March 1997, partly
offset by increased capitalized interest at the Lucky
Friday expansion project.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1996
The Company had net income of approximately $0.9
million, or $0.02 per share, in the third quarter of
1997 compared to a net loss of approximately $36.8
million, or $0.72 per share, in the same period of
1996. After $2.0 million in dividends to shareholders
of the Company's Series B Cumulative Convertible
Preferred Stock, the Company's net loss applicable to
common shareholders for the third quarter of 1997 was
$1.1 million, or $0.02 per common share, compared to
$38.8 million, or $0.76 per common share, in the
comparable 1996 period. The change in net income in
the third quarter of 1997 was attributable to a variety
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
of factors, the most significant of which were 1996
adjustments, totaling $35.7 million for severance,
holding, reclamation, closure costs, and carrying value
adjustments at the Grouse Creek mine and the American
Girl mine.
Sales of the Company's products increased by
approximately $3.5 million, or 9%, in the third quarter
of 1997 as compared to the same period in 1996,
principally the result of increased product sales of
$12.7 million, most notably from (1) the Greens Creek
mine where operations recommenced in July 1996, (2) the
Rosebud mine where operations commenced in April 1997,
and (3) increased sales at MWCA-Colorado Aggregate
Division, K-T Clay de Mexico, and K-T Clay Ball Clay
Division. These increases were partially offset by
decreased sales at other operations, the impact of
which is approximately $9.2 million, attributable to
(1) completion of operations at the Grouse Creek mine
in April 1997, (2) suspension of operations at the
American Girl mine in the fourth quarter of 1996, (3)
decreased sales at MWCA-Mountain West Products division
due to unfavorable weather conditions and resulting
competitive pricing pressures in the 1997 period, (4)
decreased sales volume at K-T Feldspar, (5) decreased
sales at the K-T Clay Kaolin division, and (6)
decreased sales at the Lucky Friday mine due to
decreased silver and lead prices.
Comparing the average metals prices for the third
quarter of 1997 with the comparable 1996 period, gold
decreased by 16% to $324 per ounce from $385 per ounce,
silver decreased by 10% to $4.53 per ounce from $5.05
per ounce, lead decreased by 22% to $0.284 per pound
from $0.362 per pound, and zinc increased by 60% to
$0.728 per pound from $0.455 per pound. During the
third quarter of 1997, the Company's realized gold
price per ounce decreased 10% from $391 per ounce in
the third quarter of 1996 to $352 per ounce in 1997.
Cost of sales and other direct production costs
increased slightly from the third quarter of 1996 to
the comparable 1997 period primarily due to (1)
increased production costs at the Greens Creek mine due
to the recommencement of operations in July 1996 ($4.1
million), (2) increased costs at the Rosebud mine where
operations commenced in April 1997 ($2.8 million), (3)
increased costs at K-T Clay Ball Clay division due to
increased sales ($0.4 million), (4) inceased costs at
the Lucky Friday mine ($0.2 million), (5) increased
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
costs at K-T Clay de Mexico ($0.2 million), and
(6) MWCA-Colorado Aggregate division ($0.2 million).
These increases in cost of sales and other direct
production costs were partially offset by decreases in
operating costs at other operations totaling $8.2
million. These decreases are primarily attributable to
(1) decreased production costs at the Grouse Creek mine
of $5.6 million due to the completion of operations in
April 1997, (2) decreased costs at the American Girl
mine of $2.0 million due to suspension of operations in
the fourth quarter of 1996, (3) decreased production
costs at the La Choya mine of approximately $0.4
million due to lower production levels, and (4)
decreased costs at K-T Feldspar of approximately $0.3
million due to decreased sales volume.
Cost of sales and other direct production costs as
a percentage of sales from products decreased from
79.7% in the third quarter of 1996 to 72.9% in the
comparable 1997 period, primarily due to the shutdown
of the American Girl and Grouse Creek mines, and the
opening of the Rosebud and Greens Creek mines.
Depreciation, depletion and amortization increased
by approximately $0.4 million, or 8%, from the 1996
period to the 1997 period, primarily the result of
increased depreciation, depletion, and amortization at
(1) the Greens Creek mine ($1.7 million), (2) the
Rosebud mine ($1.6 million) due to the commencement of
operations in April 1997, and (3) increased
depreciation at the Lucky Friday mine ($0.1 million).
These increases were partially offset by decreases in
depreciation, depletion, and amortization at (1) the La
Choya mine of $1.5 million the result of a lower
depreciation rate in 1997 attributable to the 1996
increase in total recoverable ounces from the mine, (2)
the Grouse Creek mine of $1.1 million due to the
completion of operations at Grouse Creek in April 1997,
and (3) the American Girl mine of $0.3 million due to
the suspension of operations in the fourth quarter of
1996.
Cash operating cost, total cash cost and total
production cost per gold ounce decreased from $284,
$288 and $389 for the third quarter of 1996 to $160,
$171 and $239 for the third quarter of 1997,
respectively. The decrease in the cash operating,
total cash and total production cost per gold ounce is
mainly attributed to the suspension of operations at
the American Girl mine and the Grouse Creek mine, as
well as the commencement of production at the Rosebud
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
mine. 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 and total cash cost per silver
ounce decreased from $3.37 and $3.37 in the third
quarter of 1996 to $3.21 and $3.21 in the third quarter
of 1997, respectively. The decreases in the cash cost
per silver ounce are due primarily to recommencement of
operations at the Greens Creek mine in July 1996,
partially offset by increased per ounce costs at the
Lucky Friday mine resulting from decreased lead by-
product credits in the 1997 period. Total production
cost per silver ounce increased from $4.55 in the third
quarter of 1996 to $5.06 in the third quarter of 1997
principally due to increased per ounce costs at the
Lucky Friday mine in the 1997 period resulting from
decreased lead by-product credits in the 1997 period.
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 decreased by $37.8
million, or 91%, from the 1996 period to the 1997
period, due principally to (1) a decrease in the
provision for closed operations and environmental
matters totaling approximately $25.4 million,
consisting of the Company's 1996 provision for the
Grouse Creek mine totaling approximately $22.5 million,
the 1996 provision for remediation and future costs
associated with the Coeur d'Alene River Basin of $2.3
million, the 1996 American Girl closure cost accrual of
$0.3 million, the 1996 provision for the Yellow
Pine/Stibnite area of $0.2 million, and other increases
($0.2 million), (2) a decreased reduction in carrying
value of mining properties of $12.9 million, consisting
of the Company's 1996 reduction in carrying value of
the Company's interest in the American Girl mine ($7.6
million) and the Grouse Creek mine ($5.3 million).
These decreases were partly offset by increased (1)
exploration expenditures of $0.3 million mainly due to
expenditures at the El Porvenir gold property in
Mexico, and (2) increased general and administrative
expenses of $0.1 million.
Other income was nil in the 1997 period compared to
$2.5 million in the 1996 period. The $2.5 million
decrease was primarily due to (1) decreased interest
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
and other income ($2.6 million), most notably due to
the gain on sale of the Apex Mine in 1996 ($1.0
million) and a decreased gain on sale of an interest in
the Golden Eagle joint venture of $0.7 million, and
other decreases of approximately $0.6 million, and (2)
decreased net interest cost of $0.2 million. These
decreases were partly offset by (1) decreased losses on
investments of $0.2 million, and (2) decreased
miscellaneous expense of $0.1 million. Total interest
cost decreased $0.4 million due to lower borrowing in
1997 under the Company's revolving and term loan
facility than in 1996. Capitalized interest costs
decreased $0.5 million principally due to decreased
capitalized interest costs associated with the Greens
Creek development, the Rosebud project, and development
at the American Girl's Oro Cruz ore body, partially
offset by increased capitalized interest at 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 September 30, 1997, assets totaled approximately
$252.7 million and shareholders' equity totaled
approximately $167.1 million. Cash and cash equi-
valents decreased by $1.9 million to $5.3 million at
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
September 30, 1997 from $7.2 million at the end of
1996.
Operating activities provided approximately $6.2
million of cash during the first nine months of 1997.
The primary sources of cash were from the La Choya
mine, Rosebud mine, Greens Creek mine, the K-T Clay
operations, and MWCA-Colorado Aggregate division.
Additionally, (1) decreases in inventories provided
cash of $2.6 million, principally at MWCA - Mountain
West Products division, MWCA - Colorado Aggregate
division, K-T Kaolin division, and the Grouse Creek
Mine, and (2) a decrease in other current assets
provided $0.5 million in cash. Partially offsetting
these sources were (1) decreases, totaling $9.2
million, in accrued reclamation and other noncurrent
liabilities principally for reclamation and closure
activities at Grouse Creek, the Bunker Hill Superfund
site, the Coeur d'Alene River Basin, the Republic mine,
and the Durita site, (2) a $4.6 million decrease in
accounts payable and accrued expenses, most notably at
Grouse Creek, K-T Kaolin, and MWCA-Mountain West
Products division, and (3) a $3.0 million increase in
accounts receivable most notably at the La Choya mine,
the Rosebud mine due to the commencement of operations
in April 1997, and the Greens Creek mine. Principal
noncash charges included depreciation, depletion, and
amortization of approximately $15.4 million and
provision for reclamation and closure costs of $0.8
million.
The Company's investing activities used $1.3 million
of cash during the first nine months of 1997.
The most significant uses of cash were (1) additions to
properties, plants, and equipment totaling $16.8
million, including significant additions at the Rosebud
project totaling $5.9 million, the Lucky Friday mine of
$5.8 million, the Greens Creek mine of $1.4 million,
industrial minerals capitalized expenditures of $2.4
million, and other additions, including capitalized
interest of $1.4 million, (2) the purchase of
investments and increase in cash surrender value of
life insurance required cash of approximately $1.3
million. These uses of cash were partly offset by (1)
restricted investments that were released during the
first nine months of 1997 totaling approximately $13.8
million, including the $10.0 million surety collateral
on the Star Phoenix judgement which was reversed in
1997, and the release of restricted investments at
Grouse Creek resulting from the termination of the
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Grouse Creek joint venture, and (2) additional cash was
provided from proceeds on disposition of properties,
plants, and equipment totaling approximately $1.9
million, principally due to the sale of an 8% interest
in the Buckhorn Joint Venture.
During the first nine months of 1997, approximately
$6.8 million of cash was used by financing activities.
The major uses of cash were repayments of long-term
debt of $70.6 million and payment of the preferred
stock dividend of $6.0 million. These uses were
partially offset by sources of cash, including proceeds
from borrowings on long-term debt of $46.3 million,
proceeds totaling approximately $23.4 million from the
issuance of 3.950 million common shares in an
underwritten offering completed in February 1997, and
proceeds, net of repayments, of $0.1 million on
borrowings against the cash surrender value of life
insurance.
The Company estimates that capital expenditures to be
incurred during the fourth quarter of 1997 will be
approximately $9.4 million including capitalized
interest costs of $0.2 million. These capital
expenditures, excluding capitalized interest, consist
primarily of (1) development expenditures at the Lucky
Friday expansion project expected to total
approximately $6.1 million, (2) the Company's share of
development expenditures at the Rosebud mine totaling
approximately $1.3 million, (3) capitalized
expenditures at the Greens Creek mine totaling
approximately $1.1 million, and (4) capitalized
expenditures at the Company's Industrial Mineral
operations totaling approximately $0.7 million. These
planned capital expenditures are anticipated to be
funded from operating activities, and amounts available
under the revolving term loan credit facility.
The Company's estimate of its capital expenditure
requirements assumes, with respect to the Greens Creek
and Rosebud properties, that the Company's joint
venture partners will not default with respect to their
portion of development costs and capital expenditures.
Pursuant to a Registration Statement filed with the
Securities and Exchange Commission and declared
effective 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
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
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.
On July 30, 1997, the Company issued $9.8 million
aggregate principal amount of tax-exempt, solid waste
disposal revenue bonds. The net proceeds of
approximately $9.6 million from the issuance were
initially used to pay down debt under the Company's
existing revolving and term loan credit facility.
On August 11, 1997, the Company entered into a new
revolving and term loan credit facility (Bank
Agreement). The Bank Agreement is similar to the
previous credit facility. Under the terms of the Bank
Agreement, the Company may borrow up to $55.0 million
on a revolving credit basis through July 31, 2000, and
are repayable in eight quarterly installments beginning
October 31, 2000. During the commitment period, the
Company pays an annual facility fee ranging from
$178,750 to $261,250, the amount of which is based on
average quarterly borrowings. The Bank Agreement
includes certain collateral provisions, including the
pledging of the common stock of certain of the
Company's subsidiaries and providing the lenders a
security interest in accounts receivable. Under the
Bank Agreement, the Company is required to maintain
certain financial ratios, and meet certain net worth
and indebtedness tests, for which the Company was in
compliance at September 30, 1997. Amounts available
under the Bank agreement are based on a defined debt to
cash flow test. At September 30, 1997, a total of
$41.2 million remained available under the Bank
Agreement.
The Company's planned environmental and reclamation
expenditures during the fourth quarter of 1997
are expected to be approximately $5.0 to $6.0
million, principally for environmental and reclamation
activities at the Bunker Hill Superfund site, the
Republic mine, the Grouse Creek mine, the Coeur d'Alene
River Basin, the American Girl mine, the Durita
property, and the Cactus mine.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Exploration expenditures during the fourth quarter of
1997 are estimated to be approximately $1.8 to $2.2
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, these exploration expenditures will be
incurred principally at Greens Creek, Rosebud, 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 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 premium 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, when the Company matches specific production
to a contract, or upon 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, 1997, the Company had forward
sales commitments through June 30, 1999 for 21,000
ounces of gold at an average price of $354 per ounce.
The estimated fair value of these forward sales
commitments was $189,000 as of September 30, 1997. The
Company has also purchased options to put 8,610 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 8,610 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 September 30, 1997, was
$332. At September 30, 1997, the estimated fair value
of the Company's purchased gold put options was
approximately $530,000. If the Company had chosen to
close its offsetting short call option position, it
would not have incurred any notable liability. The
nature and
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
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 September 30,
1997.
In early July, the Company's wholly owned subsidiary,
Kentucky-Tennessee Clay Company (K-T Clay), voluntarily
suspended shipments of ball clay to all animal feed
manufacturers. A small amount of K-T Clay's ball clay
is used by animal feed producers to prevent animal feed
from clumping. K-T Clay ships about 1% of its annual
production for this use. The action was taken as a
result of discovery by the Food and Drug Administration
of trace levels of dioxin of approximately three parts
per trillion, found in a limited sampling of chickens.
The source of the dioxin was traced to ball clay in
feed. The FDA determined that there is no health risk
but as a precaution halted shipments to poultry
producers and egg producers until they certify the
products were essentially dioxin-free. The Mine Safety
Health Administration has also cleared the Company from
any issues associated with exposure to its employees at
its plants. The Company's initial investigation
indicates that dioxin may be an inherent characteristic
of ball clays in general. The Company is cooperating
fully with the federal agencies in this matter, and the
Company does not believe there will be any long-term
material impact on the Company or to K-T Clay's
business from this matter.
The Company is subject to legal proceedings and claims
which have arisen in the ordinary course of its
business and have not been finally adjudicated (see
Item 1. Legal Proceedings). Although the ultimate
disposition of these matters 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
expected 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
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
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.
In June 1997, Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Comprehensive Income,"
was issued. SFAS 130 establishes standards for
reporting and display of comprehensive income and its
components in a full set of general purpose financial
statements. SFAS 130 is effective for fiscal years
beginning after December 15, 1997, and requires
restatement of earlier periods presented. The Company
does not believe the application of this standard will
have a material effect on the results of operations or
financial condition of the Company.
In June 1997, Statement of Financial Accounting
Standards No. 131 (SFAS 131), "Disclosures about
Segments of an Enterprise and Related Information" was
issued. SFAS 131 establishes standards for the way
that a public enterprise reports information about
operating segments in annual financial statements and
requires that those enterprises report selected
information about operating segments in interim
financial reports issued to shareholders. SFAS 131 is
effective for fiscal years beginning after December 15,
1997, and requires restatement of earlier periods
presented. The Company does not believe the
application of this standard will have a material
effect on the results of operations or financial
condition of the Company.
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30
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 October 1996, following a court imposed
four-year stay of the proceeding, the Tribe's natural
resource damage litigation 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 certain
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
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31
PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
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. The case is
proceeding through discovery and the defendant mining
companies have filed a number of summary judgment
motions which are currently pending before the Court.
- 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.
At September 30, 1997, the Company's accrual for
remediation activity in the Basin not including the
Bunker Hill Site totaled $1.0 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
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32
PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
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 September 30, 1997, the Company had not reduced
its accrual for reclamation and closure costs to
reflect the receipt of any anticipated insurance
proceeds.
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.
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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 - Credit Agreement dated as of August 11,
1997, among Registrant and Certain
Subsidiaries and NationsBank of Texas,
N.A., as Agent, and Certain Banks as
Lenders.
12 - Fixed Charge Coverage Ratio Calculation
13 - Third Quarter Report to Shareholders for
the quarter ended September 30, 1997, for
release dated October 31, 1997.
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
Items 2, 3, 4, and 5 of Part II are omitted from this report as
inapplicable.
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34
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 10, 1997 By /s/ Arthur Brown
--------------------------------
Arthur Brown, Chairman, President
and Chief Executive Officer
Date: November 10, 1997 By /s/ Stanley E. Hilbert
-------------------------------
S. E. Hilbert,
Corporate Controller
(Chief Accounting Officer)
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35
EXHIBIT INDEX
Exhibit
No. Description
- -------- ------------------------
10.1 Credit Agreement dated as of August 11, 1997,
among Registrant and Certain Subsidiaries and
NationsBank of Texas, N.A., as Agent, and Certain
Banks as Lenders.
12 Fixed Charge Coverage Ratio Calculation
13 Third Quarter Report to Shareholders for the
quarter ended September 30, 1997, for release
dated October 31, 1997
27 Financial Data Schedule
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