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 June 30, 2003
Commission file number 1-8491
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HECLA MINING COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 82-0126240
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6500 Mineral Drive, Suite 200
Coeur d'Alene, Idaho 83815-9408
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(Address of principal executive offices) (Zip Code)
208-769-4100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for at least the past 90 days.
Yes _XX_. No ____.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
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 Shares Outstanding August 7, 2003
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Common stock, par value 109,761,882
$0.25 per share
Hecla Mining Company and Subsidiaries
Form 10-Q
For the Quarter Ended June 30, 2003
I N D E X*
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Page
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PART I. - Financial Information
Item l - Financial Statements
- Consolidated Balance Sheets -
June 30, 2003 (unaudited) and December 31, 2002 3
- Consolidated Statements of Operations and Comprehensive
Income - Three Months and Six Months Ended
June 30, 2003 and 2002 (unaudited) 4
- Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2003 and 2002 (unaudited) 5
- Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 21
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 41
Item 4 - Controls and Procedures 43
PART II. - Other Information
Item 1 - Legal Proceedings 44
Item 3 - Defaults Upon Senior Securities 44
Item 4 - Submission of Matters to a Vote of Security Holders 44
Item 6 - Exhibits and Report on Form 8-K 44
* Items omitted are not applicable.
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Part I - Financial Information
Hecla Mining Company and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(In thousands, except share data)
June 30, December 31,
2003 2002
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ASSETS
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Current assets:
Cash and cash equivalents $ 113,380 $ 19,542
Accounts and notes receivable 13,164 10,154
Inventories 15,166 14,758
Deferred income taxes 1,350 2,700
Other current assets 1,906 1,780
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Total current assets 144,966 48,934
Investments 275 76
Restricted investments 6,455 6,428
Properties, plants and equipment, net 85,252 86,725
Mineral interests, net 5,194 5,640
Deferred income taxes 300 300
Other noncurrent assets 12,489 12,038
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Total assets $ 254,931 $ 160,141
========= =========
LIABILITIES
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Current liabilities:
Accounts payable and accrued expenses $ 11,311 $ 11,731
Accrued payroll and related benefits 6,399 7,603
Current portion of long-term debt 4,279 7,296
Accrued taxes 2,301 1,572
Current portion of accrued reclamation and closure costs 7,000 7,005
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Total current liabilities 31,290 35,207
Long-term debt 3,271 4,657
Accrued reclamation and closure costs 41,853 42,718
Other noncurrent liabilities 4,851 5,629
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Total liabilities 81,265 88,211
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SHAREHOLDERS' EQUITY
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Preferred stock, $0.25 par value, authorized
5,000,000 shares; issued 2003 - 752,752 shares,
issued 2002 -753,402, liquidation preference 2003 -
$45,580 and 2002 - $44,262 188 188
Common stock, $0.25 par value, authorized 200,000,000 shares;
issued 2003 - 109,490,042 shares, issued 2002 - 86,187,468 shares 27,373 21,547
Capital surplus 492,313 405,959
Accumulated deficit (346,271) (355,544)
Accumulated other comprehensive income (loss) 181 (36)
Less stock held by grantor trust; 2002 - 81,696 common shares -- (66)
Less treasury stock, at cost; 2003 and 2002 - 8,274 common shares (118) (118)
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Total shareholders' equity 173,666 71,930
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Total liabilities and shareholders' equity $ 254,931 $ 160,141
========= =========
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 and Comprehensive Income (Unaudited)
(Dollars and shares in thousands, except for per-share amounts)
Three Months Ended Six Months Ended
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June 30, June 30, June 30, June 30,
2003 2002 2003 2002
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Continuing Operations:
Sales of products $ 30,203 $ 28,663 $ 56,643 $ 52,045
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Cost of sales and other direct production costs 15,335 14,675 29,919 28,766
Depreciation, depletion and amortization 5,222 6,131 10,124 11,689
--------- --------- --------- ---------
20,557 20,806 40,043 40,455
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Gross profit 9,646 7,857 16,600 11,590
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Other operating expenses:
General and administrative 2,222 1,767 4,261 3,645
Exploration 3,638 1,206 5,771 1,730
Depreciation and amortization 171 15 200 67
Provision for closed operations and
environmental matters 123 148 203 257
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6,154 3,136 10,435 5,699
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Income from operations 3,492 4,721 6,165 5,891
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Other income (expense):
Interest and other income 980 685 5,559 1,094
Miscellaneous, net (752) 237 (1,225) 91
Interest expense (323) (473) (682) (937)
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(95) 449 3,652 248
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Income from operations before income taxes,
cumulative effect of change in accounting
principle and discontinued operations 3,397 5,170 9,817 6,139
Income tax provision (857) (112) (1,616) (112)
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Income from continuing operations before
cumulative effect of change in accounting
principle and discontinued operations 2,540 5,058 8,201 6,027
Cumulative effect of change in accounting principle,
net of income tax -- -- 1,072 --
Discontinued operations, net of income tax -- (303) -- (786)
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Net income 2,540 4,755 9,273 5,241
Preferred stock dividends (659) (2,013) (1,318) (4,025)
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Income applicable to common shareholders $ 1,881 $ 2,742 $ 7,955 $ 1,216
========= ========= ========= =========
Net income $ 2,540 $ 4,755 $ 9,273 $ 5,241
Change in derivative contracts -- -- -- (256)
Reclassification adjustment of loss included in
net income 9 10 18 20
Unrealized holding gains on securities 149 36 199 55
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Comprehensive income $ 2,698 $ 4,801 $ 9,490 $ 5,060
========= ========= ========= =========
Basic and diluted income (loss) per common share:
Income from continuing operations after
preferred dividends $ 0.02 $ 0.04 $ 0.06 $ 0.03
Cumulative effect of change in accounting principle -- -- 0.01 --
Loss from discontinued operations -- -- -- (0.01)
--------- --------- --------- ---------
Basic and diluted income per common share $ 0.02 $ 0.04 $ 0.07 $ 0.02
========= ========= ========= =========
Basic weighted average number of common shares outstanding 109,427 75,010 109,374 74,426
========= ========= ========= =========
Diluted weighted average number of common shares outstanding 110,052 75,010 110,173 74,426
========= ========= ========= =========
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)
Six Months Ended
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June 30, June 30,
2003 2002
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Operating activities:
Net income $ 9,273 $ 5,241
Noncash elements included in net income:
Depreciation, depletion and amortization 10,324 11,756
Cumulative effect of change in accounting principle (1,072) --
Gain on disposition of properties, plants and equipment (296) (185)
Provision for reclamation and closure costs 132 751
Deferred income taxes 1,350 --
Change in net assets of discontinued operations -- 858
Change in assets and liabilities:
Accounts and notes receivable (3,010) (6,102)
Inventories (408) (3,420)
Other current and noncurrent assets (577) (886)
Accounts payable and accrued expenses (402) 102
Accrued payroll and related benefits (554) 574
Accrued taxes 729 137
Accrued reclamation and closure costs and other noncurrent liabilities (2,499) (2,247)
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Net cash provided by operating activities 12,990 6,579
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Investing activities:
Proceeds from sale of discontinued operations -- 1,585
Additions to properties, plants and equipment (6,804) (6,070)
Proceeds from disposition of properties, plants and equipment 486 5,622
Increase in restricted investments (27) --
Other, net 78 137
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Net cash provided (used) by investing activities (6,267) 1,274
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Financing activities:
Common stock issued under warrants and stock option plans 248 2,561
Common stock issued, net of offering costs 91,270 --
Borrowings on debt 1,350 3,300
Repayments on debt (5,753) (8,201)
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Net cash provided (used) by financing activities 87,115 (2,340)
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Net increase in cash and cash equivalents 93,838 5,513
Cash and cash equivalents at beginning of period 19,542 7,560
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Cash and cash equivalents at end of period $ 113,380 $ 13,073
========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
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Notes to Consolidated Financial Statements
Note 1. Basis of Preparation of Financial Statements
In the opinion of management, the accompanying unaudited consolidated
balance sheets, consolidated statements of operations and comprehensive income,
consolidated statements of cash flows and notes to consolidated financial
statements contain all adjustments, consisting only of normal recurring
accruals, necessary to present fairly, in all material respects, the financial
position of Hecla Mining Company ("we" or "our"). These unaudited interim
consolidated financial statements should be read in conjunction with our audited
consolidated financial statements and related footnotes as set forth in our
annual report filed on Form 10-K for the year ended December 31, 2002.
Note 2. Discontinued Operations
During 2000, in furtherance of our determination to focus our
operations on silver and gold mining and to raise cash to retire debt and
provide working capital, our board of directors made the decision to sell the
industrial minerals segment. In March 2003, we sold the remaining inventories of
the briquette division of the Colorado Aggregate division ("CAC") of MWCA, Inc.,
and no longer produce or sell any product from our former industrial minerals
segment. The briquette division of CAC represented the remaining portion of our
industrial minerals segment, which reported a loss from operations of
approximately $26,000 and $21,000, respectively, for the second quarter and
first six months of 2003. We did not record any gain or loss from discontinued
operations during the second quarter and first six months of 2003, compared to a
loss of $0.3 million and $0.8 million ($0.01 per common share), respectively,
during the second quarter and first six months of 2002. All activity associated
with the former industrial minerals segment during the second quarter and first
six months of 2003 is considered a general corporate activity and is presented
as "other" where appropriate.
Note 3. Income Taxes
The income tax provision for the first six months of 2003 and 2002
varies from the amount that would have been provided by applying the statutory
rate to the income before income taxes primarily due to the availability and
utilization of net operating losses in Mexico and Venezuela. For the three and
six months ended June 30, 2003, we recorded a $0.9 million and $1.6 million tax
provision, respectively, for foreign income taxes, consisting primarily of
deferred taxes and a current provision for accrued Mexican withholding tax
payable on interest expense. For the three and six months ended June 30, 2002,
we recognized a $0.1 million provision for foreign income taxes due to Mexican
withholding tax payable on interest expense.
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Note 4. Inventories
Inventories consist of the following (in thousands):
June 30, December 31,
2003 2002
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Concentrates, bullion, metals
in transit and other products $ 7,004 $ 7,034
Materials and supplies 8,162 7,724
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$ 15,166 $ 14,758
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At June 30, 2003, we had forward sales contracts through December 31,
2004, for 78,728 ounces of gold at an average price of $288.25 per ounce. These
contracts meet the criteria to be treated as normal sales in accordance with
SFAS 138 and, as a result, these contracts are not required to be accounted for
as derivatives under SFAS 133. These forward sales contracts expose us to
certain losses, generally the amount by which the contract price exceeds the
spot price of a commodity, in the event of nonperformance by the counterparties
to these agreements. The London Final gold price at June 30, 2003 was $346.00
per ounce.
We have a quarterly Gold Lease Rate Swap at a fixed rate of 1.5% on
63,828 ounces of the above gold forward contracts. The ounces covered under the
swap are adjusted each quarter, in accordance with the expiration of the gold
forward contracts. At June 30, 2003, the fair market value of the Gold Lease
Rate Swap was approximately $265,000, which represents the amount the
counterparty would have to pay us if the contract was terminated.
Note 5. Contingencies
Bunker Hill Superfund Site
In 1994, we, as a potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"),
entered into a consent decree with the Environmental Protection Agency ("EPA")
and the State of Idaho, concerning environmental remediation obligations at the
Bunker Hill Superfund site located in Kellogg, Idaho. The 1994 Consent Decree
(the "1994 Decree") settled our response-cost responsibility under CERCLA at the
Bunker Hill 21-square mile site. In August 2000, Sunshine Mining and Refining
Company, which was also a party to the 1994 Decree, filed for Chapter 11
bankruptcy and in January 2001, the Federal District Court approved a new
Consent Decree between Sunshine, the U.S. Government and the Coeur d'Alene
Indian Tribe which settled Sunshine's environmental liabilities in the Coeur
d'Alene Basin lawsuits described below and released Sunshine from further
obligations under the 1994 Decree.
In response to a request by us and ASARCO Incorporated, the United
States Federal District Court in Idaho, having jurisdiction over the 1994
Decree, issued an Order in September
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2001 that the 1994 Decree should be modified in light of a significant change in
factual circumstances not reasonably anticipated by the mining companies at the
time they signed the 1994 Decree. In its Order, the Court reserved the final
ruling on the appropriate modification to the 1994 Decree until after the
issuance by the EPA of a Record of Decision ("ROD") on the Basin-wide Remedial
Investigation/Feasibility Study. The EPA issued the ROD on the Basin in
September 2002, proposing a $359 million Basin clean-up plan to be implemented
over 30 years. The ROD also establishes a review process at the end of the
30-year period to determine if further remediation would be appropriate. Based
on the 2001 Order issued by the Court, in April 2003, we requested the Court to
release Hecla and ASARCO from future work under the 1994 Decree within the
Bunker Hill site. In addition, because we were unsuccessful in negotiating the
2003 work program during the first half of 2003, we have submitted the dispute
between ourselves and the EPA concerning our obligation for 2003 work under the
1994 Decree to the Idaho Federal District Court for final determination. We
expect the work program for 2003 will be subject to a final decision on
modification of the 1994 Decree by the Court.
On February 2, 2003, ASARCO entered into a Consent Decree with the
United States relating to a transfer of certain assets to its parent
corporation, Grupo de Mexico, S.A. de C.V. The Consent Decree also addresses
ASARCO's environmental liabilities on a number of sites in the United States,
including the Bunker Hill site. The provisions of the Consent Decree could limit
ASARCO's annual obligation at the Bunker Hill site for 2003 to 2005. In
addition, in February 2003, we were advised that ASARCO had reached an agreement
with the Coeur d'Alene Indian Tribe settling the Tribe's claims against ASARCO
for damages to natural resources. We believe the settlement will have no
material effect on any liability we may have for the Tribe's claims.
As of June 30, 2003, we have estimated and accrued a liability for
remedial activity costs at the Bunker Hill site of $8.3 million, which are
anticipated to be made over the next three to five years. Although we believe
the accrual is adequate based upon our current estimates of aggregate costs, it
is reasonably possible that our estimate may change in the future due to the
assumptions and estimates inherent in the accrual.
Coeur d'Alene River Basin Environmental Claims
Coeur d'Alene Indian Tribe Claims
In July 1991, the Coeur d'Alene Indian Tribe brought a lawsuit, under
CERCLA, in Idaho Federal District Court against us, ASARCO and a number of other
mining companies asserting claims for damages to natural resources downstream
from the Bunker Hill site over which the Tribe alleges some ownership or
control. In February 2003, ASARCO reached an agreement with the Coeur d'Alene
Tribe settling the Tribe's claim against ASARCO. The Tribe's natural resource
damage litigation has been consolidated with the United States' litigation
described below.
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U.S. Government Claims
In March 1996, the United States filed a lawsuit in Idaho Federal
District Court against certain mining companies that conducted historic mining
operations in the Silver Valley of northern Idaho, including us. The lawsuit
asserts claims under CERCLA and the Clean Water Act and seeks recovery for
alleged damages to or loss of natural resources located in the Coeur d'Alene
River Basin in northern Idaho for which the United States asserts it is the
trustee under CERCLA. The lawsuit claims 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 we 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. We
have asserted a number of defenses to the United States' claims.
As discussed above, in May 1998, the EPA announced that it had
commenced a Remedial Investigation/Feasibility Study under CERCLA for the entire
Basin, including Lake Coeur d'Alene, in support of its response cost claims
asserted in its March 1996 lawsuit. In October 2001, the EPA issued its proposed
clean-up plan for the Basin. The EPA issued the ROD on the Basin in September
2002, proposing a $359 million Basin clean-up plan to be implemented over 30
years. The ROD also establishes a review process at the end of the 30-year
period to determine if further remediation would be appropriate.
The first phase of the trial commenced on the consolidated Coeur
d'Alene Indian Tribe's and the United States' claims on January 22, 2001, and
was concluded on July 30, 2001. In the first phase of the trial, the Court has
been requested to determine the extent of liability, if any, of the defendants
for the plaintiffs' CERCLA claims. The Court was also asked to determine the
liability of the United States for its historic involvement in the Basin. No
decision on the issues before the Court in the first phase of the litigation has
been issued. If liability is determined in the first phase, a second trial is
anticipated to be scheduled at a later date to address damages and remedy
selection. Two of the defendant mining companies, Coeur d'Alene Mines
Corporation and Sunshine Mining and Refining Company, settled their liabilities
under the litigation during the first quarter of 2001. We and ASARCO are the
only defendants remaining in the United States' litigation.
During 2000 and into 2001, we were involved in settlement negotiations
with representatives of the U.S. Government and the Coeur d'Alene Indian Tribe.
We also participated with certain of the other defendants in the litigation in a
State of Idaho-led settlement effort. On August 16, 2001, we entered into a now
terminated Agreement in Principle with the United States and the State of Idaho
to settle the governments' claims for natural resource damages and clean-up
costs related to the historic mining practices in the Coeur d'Alene Basin in
northern Idaho. In August 2002, because the parties were making no progress
toward a final settlement under the terms of the Agreement in Principle, the
United States, the State of Idaho and we agreed to discontinue utilizing the
Agreement in Principle as a settlement vehicle. However, we may participate in
further settlement negotiations with the United States, the State of Idaho and
the Coeur d'Alene Indian Tribe in the future. Due to a number of
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uncertainties related to this matter, including the outcome of pending
litigation and the result of any settlement negotiations, we do not have the
ability to estimate what, if any, liability we may have related to the Coeur
d'Alene Basin at this time.
It is reasonably possible that our ability to estimate what, if any,
liability we may have relating to the Coeur d'Alene Basin may change in the near
or long term depending on a number of factors. In addition, an adverse ruling
against us for liability and damages in this matter could have a material
adverse effect on us.
Class Action Litigation
On or about January 7, 2002, a class action complaint was filed in the
Idaho District Court, County of Kootenai, against several corporate defendants,
including Hecla. We were served with the complaint on January 29, 2002. The
complaint seeks certification of three plaintiff classes of Coeur d'Alene Basin
residents and current and former property owners to pursue three types of
relief: various medical monitoring programs, real property remediation and
restoration programs, and damages for diminution in property value, plus other
damages and costs. On April 23, 2002, we filed a motion with the Court to
dismiss the claims for relief relating to any medical monitoring programs and
the remediation and restoration programs. At a hearing before the Idaho District
Court on our and other defendants' motions held October 16, 2002, the Judge
struck the complaint filed by the plaintiffs in January 2002 and instructed the
plaintiffs to re-file the complaint limiting the relief requested by the
plaintiffs to wholly private damages. The Court also dismissed the medical
monitoring claim as a separate cause of action and stated that any requested
remedy that encroached upon the EPA's cleanup in the Silver Valley would be
precluded by the pending Federal Court case described above. The plaintiffs
re-filed their amended complaint on January 9, 2003. As ordered by the Court,
the amended complaint omits any cause of action for medical monitoring and no
longer requests relief in the form of real property remediation or restoration
programs. At a hearing on May 7, 2003, the Court vacated the entire amended
complaint, issued sanctions against Plaintiffs' counsel for noncompliance with
Idaho law, and gave Plaintiffs' counsel until June 30, 2003, to re-file an
amended complaint that complies with Idaho law. Plaintiffs submitted a second
amended complaint on June 9, 2003, which we have answered. We believe the claims
alleged against us are subject to challenge on a number of bases and intend to
vigorously defend this litigation.
Insurance Coverage Litigation
In 1991, we initiated litigation in the Idaho District Court, County of
Kootenai, against a number of insurance companies that provided comprehensive
general liability insurance coverage to us and our predecessors. We believe the
insurance companies have a duty to defend and indemnify us under their policies
of insurance for all liabilities and claims asserted against us by the EPA and
the Tribe under CERCLA related to the Bunker Hill site and the Basin in northern
Idaho. In 1992, the Idaho State District Court ruled that the primary insurance
companies had a duty to defend us in the Tribe's lawsuit. During 1995 and 1996,
we entered into settlement agreements with a number of the insurance carriers
named in the litigation. We have
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received a total of approximately $7.2 million under the terms of the settlement
agreements. Thirty percent of these settlements were paid to the EPA to
reimburse the U.S. government for past costs under the Bunker Hill site Consent
Decree. Litigation is still pending against one insurer with trial suspended
until the underlying environmental claims against us are resolved or settled.
The remaining insurer in the litigation, along with a second insurer not named
in the litigation, is providing us with a partial defense in all Basin
environmental litigation. As of June 30, 2003, we have not reduced our accrual
or recorded a receivable for reclamation and closure costs to reflect the
receipt of any potential insurance proceeds.
Other Claims
On November 17, 2000, we entered into an agreement with Zemex U.S.
Corporation guaranteed by its parent, Zemex Corporation of Toronto, Canada, to
sell the stock of K-T Clay and K-T Mexico, which included the ball clay and
kaolin operations, for a price of $68.0 million. On January 18, 2001, Zemex U.S.
Corporation failed to close on the transaction, and on January 22, 2001, we
brought suit in the United States District Court for the Northern District of
Illinois, Eastern Division, against the parent, Zemex Corporation, under its
guarantee for its subsidiary's failure to close on the purchase and meet its
obligations under the November 2000 agreement. In January 2003, the parties
reached an agreement to settle our claims in full for $3,950,000. The payment
was recorded as other income during the first quarter of 2003.
In March 2002, Independence Lead Mines Company ("Independence"), the
holder of a net 18.52% interest in the Gold Hunter or DIA unitized area of the
Lucky Friday mine, notified us of certain alleged defaults by us under the 1968
Lease Agreement between the unit owners (Independence and us under the terms of
the 1968 DIA Unitization Agreement) as lessors and defaults by us as lessee and
operator of the properties. We are a net 81.48% interest holder under these
Agreements. Independence alleges that we violated the "prudent operator
obligations" implied under the lease by undertaking the Gold Hunter project and
violated certain other provisions of the Agreement with respect to milling
equipment and calculating net profits and losses. Under the Lease Agreement, we
have the exclusive right to manage, control and operate the DIA properties, and
our decisions with respect to the character of work are final. On June 17, 2002,
Independence filed a lawsuit in Idaho State District Court seeking termination
of the Lease Agreement and requesting unspecified damages. On March 18, 2003,
Independence filed a motion for partial summary judgment or in the alternative,
for preliminary injunction ("Motion"). The Motion requests that the Court
terminate our leasehold interest in property owned by Independence within the
DIA area, rule that we have committed waste while mining ore within property
owned by Independence, and prohibit us from any further mining within property
owned by Independence. We filed our response to the Motion on May 28, 2003. A
hearing was held in July 2003 on the Motion and we expect a decision sometime in
August 2003. We believe that we have fully complied with all obligations of the
1968 Lease Agreement and intend to defend our right to operate the property
under the Lease Agreement.
In Mexico, our subsidiary, Minera Hecla, S.A. de C.V. ("Minera Hecla"),
is involved in litigation in Mexico City concerning a lien on certain major
components of the Velardena mill at
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the San Sebastian mine that predated the sale of the mill to Minera Hecla. The
unpaid amount of the lien is in dispute. At the time of the purchase, the lien
amount was believed to be approximately $590,000 and that amount was deposited
by us with the Court. The lien holder now alleges the amount owed is
approximately $2,017,000, plus accrued interest. The lien holder has tried with
limited success to remove the mill components subject to the lien. On January
23, 2003, Minera Hecla deposited $145,000, which represented the amount of
accrued interest since the date of sale and Minera Hecla requested that the
Court cancel the lien. The lien holder opposed the request made by Minera Hecla.
On February 19, 2003, the Court in Mexico City issued a decision that the lien
was fully satisfied with the deposit made by Minera Hecla on January 23, 2003,
and the Court cancelled the lien. On February 24, 2003, the lien holder appealed
that decision. On May 22, 2003 the Superior Court in Mexico affirmed the lower
court decision to cancel the lien. On June 5, 2003, the lien holder filed an
action in a federal court in Mexico that challenges the prior decision by the
Superior Court in Mexico City. We believe that the lien has been fully satisfied
and intend to continue to defend the suit.
We are subject to other legal proceedings and claims not disclosed
above which have arisen in the ordinary course of our business and have not been
finally adjudicated. Although there can be no assurance as to the ultimate
disposition of these other matters, it is the opinion of our management that the
outcome of these other proceedings will not have a material adverse effect on
our financial condition.
Note 6. Long-Term Debt and Credit Agreements
As of June 30, 2003, our wholly owned subsidiary, Hecla Resources
Investments Limited ("HRIL"), had $2.0 million outstanding under a credit
agreement used to provide project financing at the La Camorra mine. The project
financing agreement is repayable in semiannual payments ending June 30, 2004,
and had an interest rate of 3.6% at June 30, 2003.
HRIL must comply with financial and other restrictive covenants related
to the available ore reserves and performance of the La Camorra mine. We are
required to maintain hedged gold positions sufficient to cover all dollar loans,
operating expenditures, taxes, royalties and similar fees projected for the
project. At June 30, 2003, we had forward sales contracts for 78,728 ounces of
gold. The forward sales contracts assume the ounces of gold committed to forward
sales at the end of each quarter can be leased at a rate of 1.5% for each
following quarter. We maintain a Gold Lease Rate Swap at a fixed rate of 1.5% on
the outstanding notional volume of the flat forward sale, with settlement being
made quarterly with us receiving the fixed rate and paying the current floating
gold lease rate.
In connection with the project financing agreement, we have outstanding
a $2.0 million subordinated loan agreement, repayable in equal installments on
December 31, 2003, and June 30, 2004. The loan agreement gives us the option to
capitalize interest payments by adding them to the principal amount of the loan.
At June 30, 2003, the interest amount added to principal was
-12-
approximately $0.7 million and is included in accrued expenses on our
consolidated balance sheets. The interest rate under the subordinated loan
agreement was 5.3% as of June 30, 2003.
At June 30, 2003, our wholly owned subsidiary, Minera Hecla, S.A. de
C.V. ("Minera Hecla"), had $3.6 million outstanding under a project loan used to
acquire a processing mill at Velardena, Mexico, to process ore mined from the
San Sebastian mine near Durango, Mexico. The credit facility is nonrecourse to
us. Under the terms of the credit facility, Minera Hecla will make monthly
payments for principal and interest over 63 months at a fixed interest rate
equal to 13%. The loan is collateralized by the mill at Velardena and the
Saladillo, Saladillo 1 and Saladillo 5 mining concessions.
In March 2003, we canceled a $7.5 million revolving bank agreement
established in March 2002. At the time of cancellation, no amount was
outstanding under the agreement.
Note 7. Income per Common Share
The following table presents a reconciliation of the numerators and
denominators used in the basic and diluted income per common share computations.
Also shown is the effect that has been given to cumulative preferred dividends
in arriving at the income applicable to common shareholders for the three months
and six months ended June 30, 2003 and 2002, in computing basic and diluted
income per common share (dollars and shares in thousands, except per-share
amounts).
Three Months Ended Six Months Ended
----------------------- -----------------------
June 30, June 30,
2003 2002 2003 2002
--------- --------- --------- ---------
Income from continuing operations before cumulative
effect of change in accounting principle,
discontinued operations and preferred stock dividends $ 2,540 $ 5,058 $ 8,201 $ 6,027
Cumulative effect of change in accounting principle,
net of income tax -- -- 1,072 --
Discontinued operations -- (303) -- (786)
Preferred stock dividends (659) (2,013) (1,318) (4,025)
--------- --------- --------- ---------
Basic income applicable to common shareholders $ 1,881 $ 2,742 $ 7,955 $ 1,216
Basic weighted average number of common shares outstanding 109,427 75,010 109,374 74,426
--------- --------- --------- ---------
Basic income per common share $ 0.02 $ 0.04 $ 0.07 $ 0.02
========= ========= ========= =========
Basic weighted average number of common shares outstanding 109,427 75,010 109,374 74,426
Effect of dilutive stock options 559 -- 627 --
Effect of dilutive warrants 66 -- 172 --
--------- --------- --------- ---------
Diluted weighted average number of common shares 110,052 75,010 110,173 74,426
========= ========= ========= =========
Basic and diluted income per common share $ 0.02 $ 0.04 $ 0.07 $ 0.02
========= ========= ========= =========
These calculations of diluted income per share for the three months and
six months ended June 30, 2003 and 2002 exclude the effects of convertible
preferred stock ($37.6 million in 2003 and $115.0 million in 2002), as well as
common stock issuable upon the exercise of various stock options as their
conversion and exercise would be antidilutive. For the three months ended June
30, 2003 and 2002, 1,689,167 and 1,034,500 stock options, respectively, were
excluded in
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
the calculation of diluted income per share. For the six months ended June 30,
2003 and 2002, 1,328,500 and 1,034,500 stock options, respectively, were
excluded.
Note 8. Business Segments
We are organized and managed primarily on the basis of the principal
products being produced from our operating units. Three of our operating units
have been aggregated into the silver segment and one into the gold segment.
General corporate activities not associated with operating units, as well as
idle properties, are presented as "other."
The following tables present information about reportable segments for
the three months and six months ended June 30, 2003 and 2002 (in thousands):
Three Months Ended Six Months Ended
--------------------- ---------------------
June 30, June 30,
2003 2002 2003 2002
-------- -------- -------- --------
Net sales to unaffiliated customers:
Silver $ 19,272 $ 16,626 $ 36,195 $ 28,735
Gold 10,935 12,037 19,911 23,310
Other (4) -- 537 --
-------- -------- -------- --------
$ 30,203 $ 28,663 $ 56,643 $ 52,045
======== ======== ======== ========
Income (loss) from operations:
Silver $ 2,691 $ 2,187 $ 6,223 $ 2,651
Gold 3,195 4,464 4,479 7,209
Other (2,394) (1,930) (4,537) (3,969)
-------- -------- -------- --------
$ 3,492 $ 4,721 $ 6,165 $ 5,891
======== ======== ======== ========
The following table presents identifiable assets by reportable segment
as of June 30, 2003 and December 31, 2002 (in thousands):
June 30, December 31,
2003 2002
-------- --------
Identifiable assets:
Silver $ 85,361 $ 82,522
Gold 35,347 40,004
Other 134,223 37,615
-------- --------
$254,931 $160,141
======== ========
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Note 9. Shareholders' Equity
In January 2003, we completed an underwritten public offering of 23.0
million shares of our common stock. The public offering also included 2.0
million shares offered by the Hecla Mining Company Retirement Plan and the Lucky
Friday Pension Plan ("the benefit plans"). We received net proceeds from the
offering totaling approximately $91.2 million, which will be used to fund future
exploration and development, working capital requirements, capital expenditures,
possible future acquisitions and for other general corporate purposes. Our
benefit plans realized net proceeds of approximately $8.0 million from the sale
of the 2.0 million shares included in the public offering.
We also filed a Registration Statement with the Securities and Exchange
Commission covering 1,394,883 shares of our common stock offered by the benefit
plans and 2.0 million shares of our common stock issuable upon exercise of a
warrant issued to Great Basin Gold Ltd. ("Great Basin") pursuant to an Earn-in
Agreement concerning exploration, development and production in an area of Great
Basin's Hollister Development Block gold property, located on the Carlin Trend
in Nevada. The Registration Statement became effective in January 2003.
In July 2002, 1,546,598 preferred shares were exchanged for shares of
our common stock (each preferred share was exchanged for seven shares of our
common stock) in an exchange offering meant to reduce cumulative preferred
dividends that are included in the calculation of earnings applicable to common
shareholders. As of June 30, 2003, 752,752 shares of preferred stock remain
outstanding and we have not declared or paid $7.9 million in cumulative
preferred dividends. We are currently not planning to reinstate the preferred
stock dividend.
Note 10. Stock-Based Plans
At June 30, 2003, executives, key employees and directors had been
granted options to purchase our common shares or were credited with common
shares under the stock-based plans below. We have adopted the disclosure-only
provisions of SFAS No. 123. No compensation expense was recognized during the
three and six months ended June 30, 2003 and 2002 for unexercised options
related to the stock-based plans. Had compensation expense for our stock-based
plans been determined based on the fair market value at the grant date for
awards during these periods consistent with the provisions of SFAS No. 123, our
income and per share income applicable to common shareholders would have been
decreased to the pro forma amounts indicated below (in thousands, except per
share amounts):
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
------- ------- ------- -------
Income (loss) applicable to common shareholders
As reported $ 1,881 $ 2,742 $ 7,955 $ 1,216
Stock-based employee compensation expense
included in reported income 206 88 591 607
Total stock-based employee compensation
expense determined under fair value
based methods for all awards (1,142) (1,327) (2,195) (1,927)
------- ------- ------- -------
Pro forma $ 945 $ 1,503 $ 6,351 $ (104)
======= ======= ======= =======
Income applicable to common shareholders per common share:
As reported $ 0.02 $ 0.04 $ 0.07 $ 0.02
Pro forma $ 0.01 $ 0.02 $ 0.06 $ 0.00
Note 11. Asset Retirement Obligations
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations," which amends SFAS No. 19, and establishes a uniform
methodology for accounting for estimated reclamation and abandonment costs. This
statement requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. Subsequently, reclamation costs will be
allocated to expense over the life of the related assets and will be adjusted
for changes resulting from the passage of time and changes to either the timing
or amount of the original fair value estimate underlying the obligation. The
statement was required to be adopted by January 1, 2003.
Upon initial application of SFAS No. 143, we recorded the following:
1. An increase of approximately $0.7 million to accrued reclamation and
closure costs to reflect the estimated present value of reclamation
liabilities based on the discounted fair market value of future cash
flows to settle the obligation;
2. An increase to the carrying amounts of the associated long-lived
assets of approximately $3.3 million to capitalize the present value
of the liabilities as of the date the obligation occurred, offset by
$1.5 million of accumulated depletion through January 1, 2003; and
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
3. A cumulative effect of change in accounting principle of $1.1 million
(gain), reflecting the difference between those amounts and amounts
previously recorded in our consolidated financial statements at
January 1, 2003.
The sum of our estimated reclamation and abandonment costs was
discounted using a credit adjusted, risk-free interest rate of 6% from the time
we expect to pay the retirement obligation to the time we incurred the
obligation.
The following is a reconciliation of the total liability for asset
retirement obligations (in thousands):
Balance January 1, 2003 $ 6,053
Accretion expense 197
Cash payments (148)
----------
Balance June 30, 2003 $ 6,102
==========
There are no assets legally restricted for purposes of settling asset
retirement obligations at June 30, 2003.
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
The following table presents the pro forma effects of the application
of SFAS No. 143 for the three and six months ended June 30, 2002, as if the
Statement had been in effect for those periods (in thousands, except per share
data):
Three Months Six Months
Ended Ended
June 30, June 30,
2002 2002
------- -------
Net income $ 4,755 $ 5,241
Cost of sales and other direct production
costs 295 542
Depreciation, depletion and amortization (139) (260)
------- -------
Pro forma $ 4,911 $ 5,523
======= =======
Basic and diluted earnings per share:
As reported $ 0.04 $ 0.02
Pro forma $ 0.04 $ 0.02
Note 12. New Accounting Pronouncements
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" (SFAS No. 145). SFAS No. 145 updates, clarifies and simplifies
existing accounting pronouncements, by rescinding SFAS No. 4, which required all
gains and losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a
result, the criteria in Accounting Principles Board Opinion No. 30 will now be
used to classify those gains and losses. Additionally, SFAS No. 145 amends SFAS
No. 13 to require that certain lease modifications that have economic effects
similar to sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. Finally, SFAS No. 145 also makes technical
corrections to existing pronouncements. While those corrections are not
substantive in nature, in some instances, they may change accounting practice.
The provisions of SFAS No. 145 that amend SFAS No. 13 were effective for
transactions occurring after May 15, 2002, with all other provisions of SFAS No.
145 being required to be adopted by us in January 2003. The adoption of SFAS No.
145 did not have a material impact on our consolidated financial statements.
-18-
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
On July 30, 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing or other exit or disposal activity. SFAS
No. 146 replaces the prior guidance that was provided by EITF Issue No. 94-3
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS
No. 146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The adoption of SFAS No. 146 did not have a material
impact on our consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148 "Accounting for
Stock-Based Compensation, Transition and Disclosure, an amendment of FASB
Statement No. 123." SFAS No. 148 provides alternative methods of transition for
an entity that voluntarily changes to the fair value based method of accounting
for stock-based employee compensation. It also amends the disclosure provisions
of SFAS No. 123 to require prominent disclosure about the effects of reported
net income of an entity's accounting policy decisions with respect to
stock-based employee compensation. Finally, this statement amends APB Opinion
No. 28, "Interim Financial Reporting," to require disclosure about those effects
in interim financial information. The amendments to SFAS No. 123, which provides
alternative methods of transition for an entity that voluntarily changes to the
fair value based method of accounting for stock-based employee compensation is
effective for financial statements for fiscal years ending after December 15,
2002. The amendment to SFAS No. 123 relating to disclosures and the amendment to
Opinion 28 is effective for financial reports containing condensed financial
statements for interim periods beginning after December 15, 2002. We have
adopted the disclosure-only provisions of SFAS No. 123 and do not intend to
adopt the fair value accounting provisions of SFAS No. 123. The adoption of SFAS
No. 148 did not have a material impact on our consolidated financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46)
"Consolidation of Variable Interest Entities, an interpretation of Accounting
Research Bulletin (ARB) No. 51, Consolidated Financial Statements." FIN 46
clarifies the application of ARB No. 51 to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. The
adoption of FIN 46 did not have a material effect on our consolidated financial
statements.
In April 2003, the FASB issued SFAS No. 149 "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial
-19-
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under FASB Statement No. 133 "Accounting
for Derivative Instruments and Hedging Activities." SFAS No. 149 is effective
for all contracts created or modified after June 30, 2003. We do not believe the
adoption of this standard will have a material effect on our consolidated
financial statements.
In May 2003, the FASB issued SFAS No. 150 "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS
No. 150 establishes standards on the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. The
provisions of SFAS No. 150 are effective for financial instruments entered into
or modified after May 31, 2003, and to all other instruments that exist as of
the beginning of the first interim financial reporting period beginning after
June 15, 2003. We do not believe the adoption of SFAS No. 150 will have a
material effect on our consolidated financial statements.
-20-
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
CERTAIN STATEMENTS CONTAINED IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK ARE FORWARD-LOOKING STATEMENTS THAT REFLECT OUR
CURRENT EXPECTATIONS AND PROJECTIONS ABOUT OUR FUTURE RESULTS, PERFORMANCE,
PROSPECTS AND OPPORTUNITIES. WE HAVE TRIED TO IDENTIFY THESE FORWARD-LOOKING
STATEMENTS BY USING WORDS SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE,"
"BELIEVE," "INTEND," "PLAN," "ESTIMATE" AND SIMILAR EXPRESSIONS. THESE
FORWARD-LOOKING STATEMENTS ARE BASED ON INFORMATION CURRENTLY AVAILABLE TO US
AND ARE SUBJECT TO A NUMBER OF RISKS, UNCERTAINTIES AND OTHER FACTORS THAT COULD
CAUSE OUR ACTUAL RESULTS, PERFORMANCE, PROSPECTS OR OPPORTUNITIES TO DIFFER
MATERIALLY FROM THOSE EXPRESSED IN, OR IMPLIED BY, THESE FORWARD-LOOKING
STATEMENTS. THESE RISKS, UNCERTAINTIES AND OTHER FACTORS INCLUDE, BUT ARE NOT
LIMITED TO, THOSE SET FORTH UNDER ITEM 1 - BUSINESS - RISK FACTORS IN OUR ANNUAL
REPORT FILED ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2002.
OTHER MATTERS, INCLUDING UNANTICIPATED EVENTS AND CONDITIONS, ALSO MAY
CAUSE OUR ACTUAL FUTURE RESULTS TO DIFFER MATERIALLY FROM THESE FORWARD-LOOKING
STATEMENTS. THERE CAN BE NO ASSURANCE THAT OUR EXPECTATIONS WILL PROVE TO BE
CORRECT AND UNDUE RELIANCE SHOULD NOT BE PLACED ON THESE FORWARD-LOOKING
STATEMENTS. ALL OF THESE FORWARD-LOOKING STATEMENTS ARE BASED ON OUR
EXPECTATIONS AS OF THE DATE OF THIS FILING. EXCEPT AS REQUIRED BY FEDERAL
SECURITIES LAWS, WE DO NOT INTEND TO UPDATE OR REVISE ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
A 112-year-old company, we have long been known as a precious metals
producer and are principally engaged in the exploration, development, mining and
processing of silver, gold, lead and zinc. We are operated and organized into
two segments, silver and gold, with three operating properties included in the
silver segment (San Sebastian, Greens Creek and Lucky Friday) and one in the
gold segment (La Camorra). The following maps indicate the locations of our
operations:
-21-
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
[MAP]
NAME OF MINE CITY, STATE, COUNTRY
------------- ------------------------
SILVER (AG): LUCKY FRIDAY MULTAN, IDAHO*
SAN SEBASTIAN DURANGO, MEXICO
GREENS CREEK JUNEAU, ALASKA
GOLD (AU): LA CAMORRA BOLIVAR STATE, VENEZUELA
*CORPORATE OFFICE
We also own or have interests in a number of other precious and
nonferrous metals properties. Our strategy for growth is to focus our efforts
and resources on expanding our precious metals reserves through exploration
efforts, primarily on properties we currently own. We will also consider
acquisition opportunities as a component of our growth strategy.
RESULTS OF OPERATIONS
In January 2003, we completed an underwritten public offering of 23.0
million shares of our common stock, resulting in net cash proceeds totaling
approximately $91.2 million to be used to fund future exploration and
development, working capital requirements, capital expenditures, possible future
acquisitions and for other general corporate purposes. For additional
information regarding the public offering, see Note 9 of Notes to Consolidated
Financial Statements.
During the second quarter and first six months of 2003, we recorded
income applicable to common shareholders of approximately $1.9 million and $8.0
million, or $0.02 and $0.07 per common share, respectively, compared to income
applicable to common shareholders of $2.7 million and $1.2 million, or $0.04 and
$0.02 per common share, respectively, during the second quarter and first six
months of 2002. Included in the income applicable to common shareholders were
undeclared and unpaid preferred stock dividends of $0.7 million and $1.3
million, respectively, during the second quarter and first six months of 2003,
compared to dividends of $2.0
-22-
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
million and $4.0 million, respectively, during the same periods in 2002. The
variance in preferred stock dividends during the 2003 and 2002 comparative
periods is due to a preferred stock exchange offer completed during the third
quarter of 2002, pursuant to which 67.2% of the preferred shares outstanding at
the time (2.3 million) were exchanged for shares of common stock (seven shares
of common for every share of preferred).
Included in income for the six months ended June 30, 2003, is a $4.0
million cash settlement received from Zemex Corporation during the first quarter
of 2003 for its subsidiary's failure to close on its agreement to purchase the
Kentucky-Tennessee Clay Company, Kentucky-Tennessee Clay de Mexico and certain
other minor inactive industrial minerals companies (collectively the K-T Group)
in January 2001. In November 2000, we entered into an agreement with Zemex U.S.
Corporation, guaranteed by its parent, Zemex Corporation, to sell the stock of
the K-T Group for a price of $68.0 million. For additional information on the
settlement from Zemex Corporation, see Note 5 of Notes to Consolidated Financial
Statements.
Also included in income for the six months ended June 30, 2003 is a
positive cumulative effect of a change in accounting principle of $1.1 million
relating to the adoption of SFAS No. 143 "Accounting for Asset Retirement
Obligations." This statement was adopted on January 1, 2003, and required that
the fair value of a liability for an asset retirement obligation be recognized
in the period in which it is incurred. The gain of $1.1 million recognized
represents the difference between the amounts determined under SFAS No. 143 and
amounts previously recorded in our consolidated financial statements. For
additional information, see Note 11 of Notes to Consolidated Financial
Statements.
Reflected in the income applicable to common shareholders during the
second quarter and first six months of 2002 is a loss from discontinued
operations of $0.3 million and $0.8 million, respectively. In March 2003, we
sold the remaining inventories of the briquette division of the Colorado
Aggregate division ("CAC") of MWCA, Inc., and no longer produce or sell any
product from our former industrial minerals segment. The briquette division of
CAC represented the remaining portion of our industrial minerals segment, which
reported a loss from operations of approximately $26,000 and $21,000,
respectively, for the second quarter and first six months of 2003. All activity
associated with the former industrial minerals segment during the second quarter
and first six months of 2003 is considered a general corporate activity and is
presented as "other" where appropriate. For additional information, see Note 2
of Notes to Consolidated Financial Statements.
Silver Operations and Production
For the three months and six months ended June 30, 2003, the silver
segment reported income from
-23-
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
operations of $2.7 million and $6.2 million, respectively, compared to income
from operations of $2.2 million and $2.7 million, respectively, during the same
periods in 2002. Sales of products increased by $2.6 million and cost of sales
and other direct production costs as a percentage of sales from products
decreased to 59.6% in the second quarter of 2003, from 65.0% in the second
quarter of 2002. During the six-month period, sales of products increased by
$7.5 million and cost of sales and other direct production costs as a percentage
of sales from products decreased to 60.0% in 2003 from 67.5% in the first six
months of 2002. Factors contributing to these changes for both the second
quarter and six-month periods are discussed by each operating property following
the table below.
Silver production during the second quarter and first six months of
2003 totaled 2.4 million ounces and 4.8 million ounces, respectively, compared
to 2.3 million ounces and 4.3 million ounces, respectively, during the same
periods in 2002. The average total cash cost decreased 24.4%, from $2.09 per
silver ounce during the second quarter of 2002 to $1.58 per silver ounce during
the second quarter of 2003. During the first six months of 2003, the average
total cash cost decreased 28.3% compared to the same period in 2002, from $2.26
per silver ounce during the first six months in 2002 to $1.62 per silver ounce
in 2003. Gold produced at our silver operations had a significant impact on our
average total cash cost. Because it is considered a by-product, it contributed
to the decrease in average total cash costs during the comparable periods due
primarily to a higher average gold price, as well as increased gold production.
The following table presents total production, total cash costs, total
production costs and average metals prices as they pertain to our silver
operations for the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2003 2002 2003 2002
------------------- -------------------
Silver ounces produced (in thousands):
San Sebastian 1,010 881 2,032 1,649
Greens Creek 833 859 1,573 1,688
Lucky Friday 602 594 1,237 1,006
Gold ounces produced:
San Sebastian 11,505 10,754 23,059 19,816
Greens Creek 8,107 8,639 14,955 15,715
Lead produced (tons):
Greens Creek 2,124 2,408 4,111 4,354
Lucky Friday 3,283 2,890 6,923 4,965
Zinc produced (tons):
Greens Creek 6,736 6,412 12,818 12,191
Lucky Friday 584 640 1,187 1,176
-24-
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2003 2002 2003 2002
------------------- -------------------
1.58 2.09 1.62 2.26
Total cash costs per ounce ($/oz.) (1,2)
Total production costs per ounce ($/oz.) (1,2) 2.84 3.52 2.83 3.75
Average Metals Prices:
Silver-Handy & Harman ($/oz.) 4.62 4.75 4.66 4.63
Gold-London Final ($/oz.) 347 313 349 302
Lead-LME Cash ($/pound) 0.207 0.216 0.207 0.214
Zinc-LME Cash ($/pound) 0.352 0.363 0.354 0.357
(1) Includes by-product credits from gold, lead and zinc production and
are calculated pursuant to standards of the Gold Institute.
(2) Cash costs per ounce of silver or gold represent non-U.S. Generally
Accepted Accounting Principles (GAAP) measurements that management
uses to monitor and evaluate the performance of its mining operations.
We believe cash costs per ounce of silver or gold provide an indicator
of profitability and efficiency at each location and on a consolidated
basis, as well as providing a meaningful basis to compare our results
to those of other mining companies and other mining operating
properties. A reconciliation of this non-GAAP measure to cost of sales
and other direct production costs, the most comparable GAAP measure,
can be found below.
San Sebastian
- -------------
For the second quarter and first six months of 2003, the San Sebastian
mine, located in the State of Durango, Mexico, reported sales of $8.4 million
and $16.8 million, respectively, compared to $6.7 million and $12.1 million,
respectively, during the same periods in 2002. These increases are primarily due
to increased production resulting from significantly higher gold and silver ore
grades, combined with higher average gold prices. San Sebastian commenced mining
operations in May 2001 and reached full capacity during the second quarter of
2002.
The grade of silver ore at San Sebastian improved to approximately 28
ounces per ton during the second quarter of 2003, compared to 22 ounces per ton
during the second quarter of 2002, and to approximately 30 ounces per ton during
the first six months of 2003, compared to approximately 24 ounces per ton during
the first six months of 2002. San Sebastian had an average grade of 0.32 ounce
of gold per ton during the second quarter of 2003 and an average grade of 0.35
ounce of gold per ton during the first six months of 2003, a 15% and 21%
increase, respectively, over the same periods in 2002.
The total cash cost at San Sebastian decreased by approximately 84% and
95%, respectively, from the second quarter and first six months of 2002, to
$0.20 and $0.07 per silver ounce during the second quarter and first six months
of 2003, primarily due to significant
-25-
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
by-product credits from increased gold production and a higher average gold
price. Silver and gold production at San Sebastian is estimated to be
approximately 3.8 million ounces and 40,000 ounces, respectively, for the year
ended December 31, 2003.
Greens Creek
- ------------
The Greens Creek mine, a 29.73%-owned joint-venture arrangement with
Kennecott Greens Creek Mining Company located on Admiralty Island, near Juneau,
Alaska, reported sales of $7.9 million and $13.4 million, respectively, for our
account during the second quarter and first six months of 2003, as compared to
$7.0 million and $11.7 million, respectively, during the same periods in 2002.
The increase in sales is primarily due to lower smelter treatment and freight
costs and a higher average gold price, partially offset by lower production of
other metals due to lower ore grades.
Despite lower production during the 2003 periods, the total cash costs
per silver ounce decreased by approximately 31% and 22%, respectively, from
$1.45 and $1.68 per silver ounce during the second quarter and first six months
of 2002, to $1.00 and $1.31 per silver ounce, respectively, during the second
quarter and first six months of 2003. The decreases in costs per ounce are
primarily due to the increased by-product credits from a higher average gold
price and lower smelter treatment and freight costs during 2003. For the year
ending December 31, 2003, production is forecasted to total approximately 3.3
million silver ounces, 30,000 ounces of gold and 8,000 and 24,000 tons of lead
and zinc, respectively.
Lucky Friday
- ------------
The Lucky Friday mine, located in northern Idaho and a producing mine
for Hecla since 1958, reported sales of approximately $3.0 million and $6.1
million, respectively, during the second quarter and first six months of 2003,
compared to $3.0 million and $4.9 million, respectively, during the same periods
in 2002. The increase in sales during the first six months of 2003 compared with
2002 is primarily due to increased silver production during the first quarter of
2003, the result of a change in mine plan during January 2002 that caused a
short-term increase in development and a resultant drop in ore tons mined during
the 2002 period, as well as a 14% increase in silver ore grade during the first
six months of 2003. For the second quarter and first six months of 2003, the
total cash costs per silver ounce were $4.68 and $4.57, respectively, compared
to $4.25 and $4.70 per silver ounce during the same periods in 2002. For the
year ending December 31, 2003, production is forecasted to total approximately
1.9 million silver ounces and 14,000 tons of lead.
The following tables present reconciliations between non-GAAP total
cash costs to cost of sales and other direct production costs (GAAP) for our
silver operations in total, as well as for each individual operating property,
for the three months and six months ended June 30, 2003 and 2002 (in thousands,
except costs per ounce). We believe cash costs per ounce of silver or gold
provide an
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
indicator of profitability and efficiency at each location and on a consolidated
basis, as well as providing a meaningful basis to compare our results to those
of other mining companies and other mining operating properties. Cost of sales
and other direct production costs is the most comparable financial measure
calculated in accordance with GAAP to total cash costs. The sum of the cost of
sales and other direct production costs for our gold and silver segments is
presented in our Consolidated Statement of Operations and Comprehensive Income.
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2003 2002 2003 2002
-------- -------- -------- --------
TOTAL SILVER SEGMENT
Total cash costs $ 3,850 $ 4,880 $ 7,854 $ 9,832
Divided by silver ounces produced 2,444 2,334 4,842 4,344
-------- -------- -------- --------
Total cash cost per ounce produced $ 1.58 $ 2.09 $ 1.62 $ 2.26
======== ======== ======== ========
Reconciliation to GAAP:
Total cash costs 3,850 4,880 7,854 9,832
Treatment & freight costs (4,602) (4,886) (9,255) (9,289)
By-product credits 11,331 10,297 22,222 18,854
Change in product inventory
878 217 628 (619)
Reclamation and other costs
40 302 273 569
-------- -------- -------- --------
COST OF SALES AND OTHER DIRECT
PRODUCTION COSTS (GAAP) $ 11,497 $ 10,810 $ 21,722 $ 19,347
======== ======== ======== ========
SAN SEBASTIAN
Total cash costs $ 202 $ 1,110 $ 134 $ 2,270
Divided by silver ounces produced 1,010 881 2,032 1,649
-------- -------- -------- --------
Total cash cost per ounce produced $ 0.20 $ 1.26 $ 0.07 $ 1.38
======== ======== ======== ========
Reconciliation to GAAP:
Total cash costs
202 1,110 134 2,270
Treatment & freight costs
(506) (638) (1,016) (1,183)
By-product credits
3,979 3,366 8,036 6,005
Change in product inventory
(243) (20) (225) 20
Reclamation and other costs
(11) 121 141 220
-------- -------- -------- --------
COST OF SALES AND OTHER DIRECT
PRODUCTION COSTS (GAAP) $ 3,421 $ 3,939 $ 7,070 $ 7,332
======== ======== ======== ========
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2003 2002 2003 2002
-------- -------- -------- --------
GREENS CREEK
Total cash costs $ 833 $ 1,245 $ 2,068 $ 2,829
Divided by silver ounces produced 833 859 1,573 1,688
-------- -------- -------- --------
Total cash cost per ounce produced $ 1.00 $ 1.45 $ 1.31 $ 1.68
======== ======== ======== ========
Reconciliation to GAAP:
Total cash costs 833 1,245 2,068 2,829
Treatment & freight costs (3,079) (3,315) (6,068) (6,409)
By-product credits 6,170 5,930 11,687 11,005
Change in product inventory 1,081 136 789 (757)
Reclamation and other costs 41 153 113 300
-------- -------- -------- --------
COST OF SALES AND OTHER DIRECT
PRODUCTION COSTS (GAAP) $ 5,046 $ 4,149 $ 8,589 $ 6,968
======== ======== ======== ========
LUCKY FRIDAY
Total cash costs $ 2,815 $ 2,525 $ 5,652 $ 4,733
Divided by silver ounces produced 602 594 1,237 1,006
-------- -------- -------- --------
Total cash cost per ounce produced $ 4.68 $ 4.25 $ 4.57 $ 4.70
======== ======== ======== ========
Reconciliation to GAAP:
Total cash costs 2,815 2,525 5,652 4,733
Treatment & freight costs (1,017) 933 (2,171) (1,697)
By-product credits 1,182 1,001 2,499 1,844
Change in product inventory 40 101 64 118
Reclamation and other costs 10 28 19 49
-------- -------- -------- --------
COST OF SALES AND OTHER DIRECT
PRODUCTION COSTS (GAAP) $ 3,030 $ 2,722 $ 6,063 $ 5,047
======== ======== ======== ========
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Gold Operations and Production
We currently operate the La Camorra mine, located in the eastern
Venezuelan State of Bolivar, approximately 120 miles southeast of Puerto Ordaz.
At the present time, La Camorra is our sole gold operating unit.
Sales of product decreased by $1.1 million (9%) and $3.4 million (15%),
respectively, during the second quarter and first six months of 2003, compared
with the same periods in 2002, primarily due to decreases in gold ounces
produced (30% and 22%, respectively), offset by increases in the realized price
of gold, which increased 4% and 7%, respectively, during the quarter and
six-month comparative periods.
During the second quarter and first six months of 2003, La Camorra
produced approximately 32,000 and 67,000 gold ounces, respectively, at a total
cash cost of $139 and $138 per ounce, compared to approximately 46,000 and
86,000 gold ounces, respectively, at total cash costs of $131 and $134 per ounce
during the same periods in 2002. During 2002, La Camorra had an average grade of
0.93 ounce of gold per ton during the second quarter and 0.88 ounce of gold per
ton in the first six months and produced over 167,000 ounces of gold for the
year ended December 31, 2002. In 2003, gold production is projected to reach
approximately 145,000 to 150,000 ounces at an average grade of 0.74 ounce of
gold per ton for the year ending December 31, 2003. La Camorra had an average
grade of 0.68 ounce of gold per ton during the second quarter of 2003, with an
average grade of 0.75 ounce of gold per ton for the first six months of 2003.
Tons milled have also been affected by reduced equipment availability and
blasting issues, as well as, lower ore to waste ratios in sublevel developments,
during the second quarter and first six months of 2003, when compared to the
same periods in 2002, reporting a 5% and 8% decrease, respectively.
While sales decreased during the second quarter and first six-month
periods in 2003, cost of sales and other direct production costs as a percentage
of sales from products increased to 35.0% during the second quarter of 2003,
from 32.2% during the second quarter of 2002, and decreased to 38.4% during the
first six months of 2003, from 40.2% during the same period in 2002. We have
been able to maintain similar costs during 2003 as compared to 2002 despite
lower production levels, in part due to the weakening of the Venezuelan
currency, the bolivar. As described below, the Venezuelan government has fixed
the exchange rate of the bolivar to the U.S. dollar at 1,597 to 1; however,
markets outside of Venezuela reflect a devaluation of the Venezuelan currency at
approximately 40%, which has benefited our cost structure despite the lower
production levels during the first half of 2003.
Beginning late in the fourth quarter of 2002, Venezuela experienced a
general strike that ended in February 2003. The result of the strike included
shortages of oil and gas supplies in Venezuela and a severe economic downturn.
We continued to operate the La Camorra mine
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
during the general strike and were able to obtain adequate supplies, including
oil and gas for our operations. Although we believe we will be able to manage
and operate our La Camorra mine and related exploration projects successfully,
due to the continued political, regulatory and economic uncertainty and its
ramifications on exchange controls, labor stoppages and supplies of oil, gas and
other products, there can be no assurance we will be able to operate without
interruptions to our operations.
Following the general strike in Venezuela, the Venezuelan government
announced its intent to implement exchange controls on foreign currency
transactions. Rules and regulations regarding the implementation of exchange
controls in Venezuela have not been finalized. Since February 2003, the
Venezuelan government-fixed exchange rate has been 1,597 bolivares to one U.S.
dollar, which is the exchange rate we have utilized to translate the financial
statements of our Venezuelan subsidiary, which is included in our consolidated
financial statements. Although management is actively monitoring the
implementation of exchange controls in Venezuela, there can be no assurance that
the exchange controls will not affect our operations in Venezuela in the future.
The following table presents a reconciliation between non-GAAP total
cash costs to cost of sales and other direct production costs (GAAP) for the La
Camorra mine for the three months and six months ended June 30, 2003 and 2002
(in thousands, except costs per ounce). We believe cash costs per ounce of
silver or gold provide an indicator of profitability and efficiency at each
location and on a consolidated basis, as well as providing a meaningful basis to
compare our results to those of other mining companies and other mining
operating properties. The sum of the cost of sales and other direct production
costs for our gold and silver segments is presented in our Consolidated
Statement of Operations and Comprehensive Income (Loss).
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2003 2002 2003 2002
-------- -------- -------- --------
Total cash costs $ 4,455 $ 6,029 $ 9,240 $ 11,556
Divided by gold ounces produced
32 46 67 86
-------- -------- -------- --------
Total cash cost per ounce produced $ 139 $ 131 $ 138 $ 134
======== ======== ======== ========
Reconciliation to GAAP:
Total cash costs 4,455 6,029 9,240 11,556
Treatment & freight costs (458) (513) (805) (892)
Change in product inventory (183) (1,750) (842) (1,502)
Reclamation and other costs 9 106 61 204
-------- -------- -------- --------
COST OF SALES AND OTHER DIRECT
PRODUCTION COSTS (GAAP) $ 3,823 $ 3,872 $ 7,654 $ 9,366
======== ======== ======== ========
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Corporate Matters
Interest and other income increased $4.5 million during the first six
months of 2003, compared to the same period in 2002, primarily due to a cash
settlement from Zemex Corporation during the first quarter of 2003 for its
subsidiary's failure to close on the sale of the K-T Group in 2001 ($4.0
million), interest income generated from an increased cash balance due to the
public offering in January 2003 ($0.5 million), as well interest income received
during the second quarter of 2003 from the Mexican government for interest on
unpaid value-added tax receivables ($0.3 million). Lower mark to market
adjustments on our outstanding gold lease rate swap offset the positive variance
described above during the first six months of 2003 ($0.4 million). Interest and
other income increased $0.3 million during the second quarter of 2003 when
compared to the second quarter of 2002.
Exploration expense increased $2.4 million and $4.0 million,
respectively, during the second quarter and first six months of 2003, compared
to the same periods in 2002, primarily due to increased exploration expenditures
in Mexico on the Don Sergio vein ($0.6 million and $0.9 million, respectively)
and other areas at or near the San Sebastian mine ($0.6 million and $0.6
million, respectively); in Venezuela on the Block B concessions ($0.4 million
and $0.9 million, respectively) and the Canaima resource ($0.3 million and $0.5
million, respectively), offset by lower expenditures at or near the La Camorra
mine ($0.3 million and $0.2 million, respectively); and at the Hollister
Development Block in Nevada ($0.6 million and $1.0 million, respectively). Also
included in the increased exploration expenditures during the first six months
of 2003 are other project evaluation costs ($0.3 million and $0.4 million,
respectively).
We estimate that exploration expenditures for the remainder of 2003
will be in the range of $6.0 million to $9.0 million, principally for continued
drilling in Venezuela and Mexico and permitting activities at the Hollister
Development Block in Nevada. In Venezuela, exploration will focus on the Block B
concessions, Canaima and the Main and Betzy veins, all within trucking distance
of the La Camorra mill. In Mexico, exploration will focus on the Don Sergio vein
and other targets surrounding the San Sebastian mine. As previously announced,
development of a ramp at the Don Sergio vein in Mexico has commenced. By the end
of 2003, providing favorable outcomes from feasibility studies and permitting,
we could also begin underground ramp development at Block B, Canaima and the
Hollister Development Block, as well as construction of a shaft to the Main and
Betsy veins at La Camorra.
Provision for income taxes increased $0.7 million and $1.5 million,
respectively, during the second quarter and first six months of 2003, compared
to the same periods in 2002, primarily a result of utilization of deferred tax
assets in Mexico and accrued Mexican withholding tax payable on interest
expense. For further information see Note 3 of Notes to Consolidated Financial
Statements.
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Miscellaneous expense increased $1.0 million and $1.3 million,
respectively, during the second quarter and first six months of 2003, compared
to the same periods in 2002, primarily due to a foreign exchange gain in 2002
due to the devaluation of the Venezuelan bolivar ($1.3 million and $1.4 million,
respectively), foreign exchange variances in Mexico ($0.1 million and $0.4
million, respectively) and increased corporate insurance expense ($0.1 million
and $0.2 million, respectively), offset by accruals for tax offset bonuses on
employee stock option plans ($0.4 million and $0.7 million, respectively).
General and administrative expenses increased $0.5 million and $0.6
million, respectively, during the second quarter and first six months of 2003,
compared to the same periods in 2002, primarily due to accruals for employee
incentive compensation during 2003.
Interest expense decreased $0.2 million and $0.3 million, respectively,
during the second quarter and first six months of 2003, compared to the same
periods in 2002, principally due to lower average borrowings and lower interest
rates on debt.
FINANCIAL CONDITION AND LIQUIDITY
Our financial condition has improved considerably since the beginning
of 2003 due to operating performance and the completion of an underwritten
public offering of 23.0 million shares of our common stock in January 2003,
which resulted in net cash proceeds of approximately $91.2 million. At June 30,
2003, we held cash and cash equivalents of $113.4 million (compared to $19.5
million at December 31, 2002), with a current ratio of 4.6 to 1. For additional
information regarding the public offering, see Note 9 of Notes to Consolidated
Financial Statements.
We believe cash requirements over the next twelve months will be funded
through a combination of current cash, future cash flows from operations and/or
future debt or equity security issuances. Although we believe existing cash and
cash equivalents are adequate, we cannot project the cash impact of possible
future investment opportunities or acquisitions, and our operating properties
may require more cash than forecasted.
Contractual Obligations and Contingent Liabilities and Commitments
The table below presents our contractual obligations and commitments
primarily with regards to payment of debt, certain capital expenditures and
lease arrangements (in thousands). For additional information on outstanding
debt, see Note 6 of Notes to Consolidated Financial Statements.
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Payments Due By Period
--------------------------------------------------------------
Contractual obligations 2003 2004 2005 2006 2007 Total
------- ------- ------- ------- ------- -------
Debt $ 2,893 $ 2,332 $ 1,366 $ 959 $ -- $ 7,550
Capital expenditure commitments 1,898 -- -- -- -- 1,898
Operating lease commitments 304 534 506 482 117 1,943
------- ------- ------- ------- ------- -------
Total contractual cash obligations $ 5,095 $ 2,866 $ 1,872 $ 1,441 $ 117 $11,391
======= ======= ======= ======= ======= =======
We maintain reserves for costs associated with mine closure,
reclamation of land and other environmental matters. At June 30, 2003, our
reserves for these matters totaled $48.9 million, for which no contractual or
commitment obligations exist. Future expenditures related to closure,
reclamation and environmental expenditures are difficult to estimate, although
we anticipate we will make expenditures relating to these reserves over the next
five to ten years. During 2003, expenditures for environmental remediation and
reclamation are estimated to be in the range of $6.0 million and $8.0 million.
For additional information relating to our environmental obligations, see Notes
5 and 11 of Notes to Consolidated Financial Statements.
Operating Activities
Operating activities provided approximately $13.0 million in cash
during the first six months of 2003, primarily from cash provided by La Camorra,
San Sebastian and Greens Creek. Net cash provided by operating activities was
negatively affected by increases in accounts and notes receivable ($3.0
million), cash required for reclamation activities and other noncurrent
liabilities ($2.5 million), reductions in accrued payroll ($0.6 million),
changes in other current and noncurrent assets ($0.6 million), reductions in
accounts payable and other accrued expenses ($0.4 million) and increases in
inventories ($0.4 million), offset by an increase in accrued taxes payable ($0.7
million). Principal noncash elements included charges for depreciation,
depletion and amortization ($10.3 million) and a change in deferred income taxes
($1.4 million), offset by a gain on the disposition of fixed assets ($0.3
million) and a cumulative effect of change in accounting principle upon adoption
of SFAS No. 143 ($1.1 million).
Beginning late in the fourth quarter of 2002, Venezuela experienced a
general strike that ended in February 2003. The result of the strike included
shortages of oil and gas supplies in Venezuela and a severe economic downturn.
We continued to operate the La Camorra mine during the general strike and were
able to obtain adequate supplies, including oil and gas for our operations.
Although we believe we will be able to manage and operate our La Camorra mine
and related exploration projects successfully, due to the continued political,
regulatory and economic uncertainty and its ramifications on exchange controls,
labor stoppages and supplies of
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
oil, gas and other products, there can be no assurance we will be able to
operate without interruptions to our operations.
Following the general strike in Venezuela, the Venezuelan government
announced its intent to implement exchange controls on foreign currency
transactions. Rules and regulations regarding the implementation of exchange
controls in Venezuela have not been finalized. Since February 2003, the
Venezuelan government-fixed exchange rate has been 1,597 bolivares to one U.S.
dollar, which is the exchange rate we utilized to translate the financial
statements of our Venezuelan subsidiary, which is included in our consolidated
financial statements. Although management is actively monitoring the
implementation of exchange controls in Venezuela, there can be no assurance that
the implementation of exchange controls will not affect our operations in
Venezuela in the future.
Investing Activities
Investing activities required $6.3 million in cash during the first six
months of 2003 primarily for additions to properties, plants and equipment of
($6.8 million), consisting of additions at the La Camorra mine ($3.5 million),
the San Sebastian mine ($2.7 million) and the Greens Creek mine ($0.6 million),
offset by proceeds received on the sale of fixed assets of $0.5 million.
In 2003, we estimate our capital expenditures will be in the range of
$19.0 to $24.0 million. The lower end of the range of capital expenditures in
2003 represents sustaining capital at our existing operations, equipment
acquisitions at the San Sebastian mine in Mexico and at the Hollister
Development Block in Nevada, development expenditures at the Don Sergio vein in
Mexico and a custom milling project at the La Camorra mine in Venezuela. The
upper end of the estimate includes other possible capital projects, including
commencement of a project to construct a shaft at the La Camorra mine and for
equipment and development at the Block B concessions in Venezuela. In March, we
made a payment of $1.3 million due pursuant to our acquisition of the Block B
lease in Venezuela during 2002, and anticipate making the final $1.0 million
payment in September 2003. There can be no assurance that our estimated capital
expenditures for 2003 will be in the range we have projected.
Financing Activities
During the first six months of 2003, financing activities generated
approximately $87.1 million in cash due to the public offering in January for
$91.2 million and short-term borrowings on a line of credit for national
currency in Venezuela ($1.4 million), offset slightly by the repayment of
project financing debt ($5.8 million), including the line of credit in
Venezuela.
-34-
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make a wide variety
of estimates and assumptions that affect (i) the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements, and (ii) the reported amounts of revenues and
expenses during the reporting periods covered by the financial statements. Our
management routinely makes judgments and estimates about the effect of matters
that are inherently uncertain. As the number of variables and assumptions
affecting the future resolution of the uncertainties increases, these judgments
become even more subjective and complex. We have identified certain accounting
policies that are most important to the portrayal of our current financial
condition and results of operations.
Revenue Recognition
Sales of metals products sold directly to smelters are recorded when
title and risk of loss transfer to the smelter at current spot metals prices.
Due to the time elapsed from the transfer to the smelter and the final assay
settlement with the smelter (generally three months), we must estimate the price
at which our metals will be sold in reporting our profitability and cash flow.
Recorded values are adjusted monthly until final settlement at month-end metals
prices. If there was a significant variance in estimated metals prices or assays
compared to the final actual metals prices and assays, our monthly results of
operations could be affected. Sales of metal in products tolled, rather than
sold to smelters, are recorded at contractual amounts when title and risk of
loss transfer to the buyer.
Changes in the market price of metals significantly affect our
revenues, profitability and cash flow. Metals prices can and often do fluctuate
widely and are affected by numerous factors beyond our control, such as
political and economic conditions, demand, forward selling by producers,
expectations for inflation, central bank sales, the relative exchange rate of
the U.S. dollar, purchases and lending, investor sentiment, and global mine
production levels. The aggregate effect of these factors is impossible to
predict. Because a significant portion of our revenues is derived from the sale
of silver, gold, lead and zinc, our earnings are directly related to the prices
of these metals. If the market price for these metals falls below our total
production costs, we will experience losses on such sales.
Proven and Probable Ore Reserves
On a periodic basis, management reviews the reserves that reflect
estimates of the quantities and grades of ore at our mines which management
believes can be recovered and sold at prices in excess of the total cost
associated with extraction and processing the ore. Management's calculations of
Proven and Probable ore reserves are based on in-house
-35-
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
engineering and geological estimates using current operating costs, metals
prices and demand for our products. Periodically, management obtains external
determinations of reserves.
Reserve estimates will change as existing reserves are depleted through
production, as well as changes in estimates caused by changing production cost
and/or metals prices. Changes in reserves may also reflect that actual grades of
ore processed may be different from stated reserve grades because of variation
in grades in areas mined, mining dilution and other factors. Reserves estimated
for properties that have not yet commenced production may require revision based
on actual production experience.
Declines in the market price of metals, as well as increased production
or capital costs or reduced recovery rates, may render ore reserves uneconomic
to exploit unless the utilization of forward sales contracts or other hedging
techniques is sufficient to offset such effects. If our realized price for the
metals we produce, including hedging benefits, were to decline substantially
below the levels set for calculation of reserves for an extended period, there
could be material delays in the development of new projects, net losses, reduced
cash flow, restatements or reductions in reserves and asset write-downs in the
applicable accounting periods. Reserves should not be interpreted as assurances
of mine life or of the profitability of current or future operations. No
assurance can be given that the estimate of the amount of metal or the indicated
level of recovery of these metals will be realized.
Depreciation and Depletion
Depreciation is based on the estimated useful lives of the assets and
is computed using straight-line and unit-of-production methods. Depletion is
computed using the unit-of-production method. The unit-of-production method is
based on Proven and Probable ore reserves. As discussed above, our estimates of
Proven and Probable ore reserves may change, possibly in the near term,
resulting in changes to depreciation, depletion, amortization and reclamation
accrual rates in future reporting periods.
Impairment of Long-Lived Assets
Management reviews the net carrying value of all facilities, including
idle facilities, on a periodic basis. We estimate the net realizable value of
each property based on the estimated undiscounted future cash flows that will be
generated from operations at each property, the estimated salvage value of the
surface plant and equipment and the value associated with property interests.
These estimates of undiscounted future cash flows are dependent upon the future
metals price estimates over the estimated remaining mine life. If undiscounted
cash flows are less than the carrying value of a property, an impairment loss is
recognized based upon the estimated expected future cash flows from the property
discounted at an interest rate commensurate with the risk involved.
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Management's estimates of metals prices, recoverable Proven and
Probable ore reserves, and operating, capital and reclamation costs are subject
to risks and uncertainties of change affecting the recoverability of our
investment in various projects. Although management believes it has made a
reasonable estimate of these factors based on current conditions and
information, it is reasonably possible that changes could occur in the near term
which could adversely affect management's estimate of net cash flows expected to
be generated from our operating properties and the need for asset impairment
write-downs.
Environmental Matters
On January 1, 2003, we adopted SFAS No. 143 "Accounting for Asset
Retirement Obligations," which requires that the fair value of a liability for
an environmental remediation obligation, or an asset retirement obligation
(ARO), at our operating properties be recognized in the period in which it is
incurred. Reclamation costs are allocated to expense over the life of the
related assets and will be adjusted for changes resulting from the passage of
time and changes to either the timing or amount of the original present value
estimate underlying the obligation.
At our non-operating properties, we accrue costs associated with
environmental remediation obligations when it is probable that such costs will
be incurred and they are reasonably estimable. Accruals for estimated losses
from environmental remediation obligations have historically been recognized no
later than completion of the remedial feasibility study for such facility and
are charged to provision for closed operation and environmental matters.
We periodically review our accrued liabilities for remediation costs as
evidence becomes available indicating that our remediation liabilities have
potentially changed. Such costs are based on management's current estimate of
amounts expected to be incurred when the remediation work is performed within
current laws and regulations. Recoveries of environmental remediation costs from
other parties are recorded as assets when their receipt is deemed probable.
Future closure, reclamation and environment-related expenditures are
difficult to estimate in many circumstances due to the early stages of
investigation, uncertainties associated with defining the nature and extent of
environmental contamination, the uncertainties relating to specific reclamation
and remediation methods and costs, application and changing of environmental
laws, regulations and interpretations by regulatory authorities and the possible
participation of other potentially responsible parties. Reserves for closure
costs, reclamation and environmental matters totaled $48.9 million at June 30,
2003. We anticipate that expenditures relating to these reserves will be made
over the next five to ten years. It is reasonably possible that the ultimate
cost of remediation could change in the future and that changes to these
estimates could have a material effect on future operating results as new
information becomes known.
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
NEW ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations," which amends SFAS No. 19, and establishes a uniform
methodology for accounting for estimated reclamation and abandonment costs. The
statement was required to be adopted by January 1, 2003. For information
regarding the impact to our consolidated financial statements upon adoption, see
Note 11 of Notes to Consolidated Financial Statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" (SFAS No. 145). SFAS No. 145 updates, clarifies and simplifies
existing accounting pronouncements, by rescinding SFAS No. 4, which required all
gains and losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a
result, the criteria in Accounting Principles Board Opinion No. 30 will now be
used to classify those gains and losses. Additionally, SFAS No. 145 amends SFAS
No. 13 to require that certain lease modifications that have economic effects
similar to sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. Finally, SFAS No. 145 also makes technical
corrections to existing pronouncements. While those corrections are not
substantive in nature, in some instances, they may change accounting practice.
The provisions of SFAS No. 145 that amend SFAS No. 13 were effective for
transactions occurring after May 15, 2002, with all other provisions of SFAS No.
145 being required to be adopted by us in January 2003. The adoption of SFAS No.
145 did not have a material impact on our consolidated financial statements.
On July 30, 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing or other exit or disposal activity. SFAS
No. 146 replaces the prior guidance that was provided by EITF Issue No. 94-3
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS
No. 146 is to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The adoption of SFAS No. 146 did not have a material
impact on our consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148 "Accounting for
Stock-Based Compensation, Transition and Disclosure, an amendment of FASB
Statement No. 123." SFAS No. 148 provides alternative methods of transition for
an entity that voluntarily changes to the fair value based method of accounting
for stock-based employee compensation. It also amends
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
the disclosure provisions of SFAS No. 123 to require prominent disclosure about
the effects of reported net income of an entity's accounting policy decisions
with respect to stock-based employee compensation. Finally, this statement
amends APB Opinion No. 28, "Interim Financial Reporting," to require disclosure
about those effects in interim financial information. The amendments to SFAS No.
123, which provides alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for stock-based
employee compensation is effective for financial statements for fiscal years
ending after December 15, 2002. The amendment to SFAS No. 123 relating to
disclosures and the amendment to Opinion 28 is effective for financial reports
containing condensed financial statements for interim periods beginning after
December 15, 2002. We have adopted the disclosure-only provisions of SFAS No.
123 and do not intend to adopt the fair value accounting provisions of SFAS No.
123. The adoption of SFAS No. 148 did not have a material impact on our
consolidated financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46)
"Consolidation of Variable Interest Entities, an interpretation of Accounting
Research Bulletin (ARB) No. 51, Consolidated Financial Statements." FIN 46
clarifies the application of ARB No. 51 to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. The
adoption of FIN 46 did not have a material effect on our consolidated financial
statements.
In April 2003, the FASB issued SFAS No. 149 "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 149 is effective for all contracts created or modified
after June 30, 2003. We do not believe the adoption of this standard will have a
material effect on our consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150 "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS
No. 150 establishes standards on the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. The
provisions of SFAS No. 150 are effective for financial instruments entered into
or modified after May 31, 2003, and to all other instruments that exist as of
the beginning of the first interim financial reporting period beginning after
June 15, 2003. We do not believe the adoption of SFAS No. 150 will have a
material effect on our consolidated financial statements.
-39-
Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
OTHER
Holders of the preferred shares are entitled to receive cumulative cash
dividends at the annual rate of $3.50 per share payable quarterly, when and if
declared by the board of directors and have voting rights related to certain
amendments to our Certificate of Incorporation. As of January 31, 2002, we had
not declared and paid the equivalent of six quarterly dividends, entitling
holders of the preferred shares to elect two directors at our annual
shareholders' meeting. On May 10, 2002, holders of the preferred shares, voting
as a class, elected two additional directors. One of the two directors elected
by holders of Series B preferred stock resigned from our board of directors in
October 2002 to avoid any appearance of conflict of interest as a result of a
new position as a research analyst. In order to fill the resulting vacancy, the
remaining director elected by the holders of Series B preferred stock will name
a new director, currently anticipated to be named during 2003.
As of June 30, 2003, we have not declared or paid $7.9 million of
Series B preferred stock dividends. We have no current intent to pay the
preferred stock dividend.
We filed a Registration Statement with the Securities and Exchange
Commission (SEC) covering 1,394,883 shares of our common stock held by the Hecla
Mining Company Retirement Plan and the Lucky Friday Pension Plan (the "benefit
plans") and 2.0 million shares of our common stock issuable upon exercise of a
warrant issued to Great Basin Gold Ltd. (Great Basin) pursuant to an Earn-in
Agreement concerning exploration, development and production in an area of Great
Basin's Hollister Development Block gold property, located on the Carlin Trend
in Nevada. The Registration Statement became effective in January 2003. For
additional information, see Note 9 of Notes to Consolidated Financial
Statements.
For information on hedged positions and derivative instruments, see
Item 3 "Quantitative and Qualitative Disclosure About Market Risk."
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The following discussion about our risk-management activities includes
forward-looking statements that involve risk and uncertainties, as well as
summarizes the financial instruments and derivative instruments held by us at
June 30, 2003, which are sensitive to changes in interest rates and commodity
prices and are not held for trading purposes. Actual results could differ
materially from those projected in the forward-looking statements. We believe
there has not been a material change in our market risk since the end of our
last fiscal year. In the normal course of business, we also face risks that are
either nonfinancial or nonquantifiable (See Part I, Item 1 - Risk Factors in our
2002 Annual Report on Form 10-K).
Interest-Rate Risk Management
At June 30, 2003, our debt was subject to changes in market interest
rates and was sensitive to those changes. We currently have no derivative
instruments to offset the risk of interest rate changes. We may choose to use
derivative instruments in the future, such as interest rate swaps, to manage the
risk associated with interest rate changes.
The following table presents principal cash flows (in thousands) for
debt outstanding at June 30, 2003, by maturity date and the related average
interest rate. The variable rates are estimated based on implied forward rates
in the yield curve at the reporting date.
Expected Maturity Date
--------------------------------------------- Fair
2003 2004 2005 2006 2007 Total Value
---------------------------------------------------------- ------
Subordinated debt $1,000 $1,000 -- -- -- $2,000 $2,000
Average interest rate 5.1% 5.6% -- -- --
Project financing debt $1,500 $ 500 -- -- -- $2,000 $2,000
Average interest rate 3.6% 4.1% -- -- --
Project financing debt $ 393 $ 832 $1,366 $ 959 -- $3,550 $3,550
Average interest rate 13% 13% 13% 13% --
Commodity-Price Risk Management
We use commodity forward sales commitments, commodity swap contracts
and commodity put and call option contracts to manage our exposure to
fluctuation in the prices of certain metals which we produce. Contract positions
are designed to ensure that we will receive a defined minimum price for certain
quantities of our production. We use these instruments to reduce risk by
offsetting market exposures. We are exposed to certain losses, generally the
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
amount by which the contract price exceeds the spot price of a commodity, in the
event of nonperformance by the counterparties to these agreements. The
instruments held by us are not leveraged and are held for purposes other than
trading. These contracts meet the criteria to be treated as normal sales in
accordance with SFAS No. 138 and as a result, these contracts are not required
to be accounted for as derivatives under SFAS No. 133.
The following table provides information about our forward sales
contracts at June 30, 2003. The table presents the notional amount in ounces,
the average forward sales price and the total-dollar contract amount expected by
the maturity dates, which occur between September 30, 2003, and December 31,
2004.
Expected Maturity Date Estimated
------------------------ Fair
2003 2004 Value
--------- --------- ---------
Forward contracts:
Gold sales (ounces) 29,800 48,928
Future price (per ounce) $ 288 $ 288
Contract amount (in $000's) $ 8,590 $ 14,103 $ (4,710)
Estimated % of annual production
committed to contracts 25% 25%
In addition to the above contracts, we have a quarterly Gold Lease Rate
Swap at a fixed rate of 1.5% on 63,828 ounces of the above gold forward
contracts. The ounces covered under the swap are adjusted each quarter, in
accordance with the expiration of the gold forward contracts. At June 30, 2003,
the fair market value of the Gold Lease Rate Swap was approximately $265,000,
which represents the amount the counterparty would have to pay us if the
contract was terminated.
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Part I - Financial Information (Continued)
Hecla Mining Company and Subsidiaries
Item 4. Controls and Procedures
An evaluation was performed under the supervision and with the
participation of the Company's management, including the Chief Executive Officer
("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design
and operation of the Company's disclosure controls and procedures. Based on that
evaluation, the Company's management, including the CEO and CFO, concluded the
Company's disclosure controls and procedures were effective as of June 30, 2003,
in ensuring that all material information required to be filed in this quarterly
report has been made known to them in a timely fashion.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to June 30, 2003.
-43-
Part II - Other Information
Hecla Mining Company and Subsidiaries
Item 1. Legal Proceedings
For information concerning legal proceedings, refer to Note 5 of Notes
to Consolidated Financial Statements.
Item 3. Defaults Upon Senior Securities
As of June 30, 2003, we have not declared or paid $7.9 million of
Series B Convertible Preferred stock dividends.
Item 4. Submission of Matters to Vote of Security Holders
At the annual meeting of shareholders held on May 9, 2003, the
following matters were voted on by Hecla's shareholders:
Election of Three Directors:
Votes Votes
For Withheld
---------- --------
Arthur Brown 92,792,083 930,798
John E. Clute 92,793,238 969,290
Joe Coors, Jr. 92,753,591 929,643
Approval of selection of BDO Seidman, LLP as Hecla's auditors for 2003:
Votes Votes
For Withheld Abstenions
---------- -------- ----------
92,839,108 579,968 303,805
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See the exhibit index to this Form 10-Q for the list of exhibits.
(b) Reports on Form 8-K filed during the quarter ended June 30, 2003
Form 8-K dated May 1, 2003, announcing first quarter 2003 earnings
in a news release.
Items 2 and 5 of Part II are not applicable and are omitted from this report.
-44-
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: August 8, 2003 By /s/ Phillips S. Baker, Jr.
Phillips S. Baker, Jr., President,
Chief Executive Officer and Director
Date: August 8, 2003 By /s/ Lewis E. Walde
Lewis E. Walde, Vice President and
Chief Financial Officer
Exhibit Index
3.1 Certificate of Incorporation of the Registrant as amended to
date.*
3.2 By-Laws of the Registrant as amended to date. Filed as exhibit
3(ii) to Registrant's Current Report on Form 8-K dated
November 13, 1998 (File No. 1-8491) and incorporated herein by
reference.
4.1(a) Certificate of Designations, Preferences and Rights of Series
A Junior Participating Preferred Stock of the Registrant.
Filed as exhibit 4.1(d)(e) to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993 (File No.
1-8491) and incorporated herein by reference.
4.1(b) Certificate of Designations, Preferences and Rights of Series
B Cumulative Convertible Preferred Stock of the Registrant.
Filed as exhibit 4.5 to Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1993 (File No. 1-8491) and
incorporated herein by reference.
4.2 Rights Agreement dated as of May 10, 1996, between Hecla
Mining Company and American Stock Transfer & Trust Company,
which includes the form of Rights Certificate of Designation
setting forth the terms of the Series A Junior Participating
Preferred Stock of Hecla Mining Company as Exhibit A and the
summary of Rights to Purchase Preferred Shares as Exhibit B.
Filed as exhibit 4 to Registrant's Current Report on Form 8-K
dated May 10, 1996 (File No. 1-8491) and incorporated herein
by reference.
4.3 Stock Purchase Agreement dated as of August 27, 2001, between
Hecla Mining Company and Copper Mountain Trust. Filed as
exhibit 4.3 to Registrant's Registration Statement on Form S-1
filed on October 7, 2002 (File No. 333 - 100395) and
incorporated herein by reference.
4.4 Warrant Agreement dated August 2, 2002, between Hecla Mining
Company and Great Basin Gold Ltd. Filed as exhibit 4.4 to
Registrant's Registration Statement on Form S-1 filed on
October 7, 2002 (File No. 333 - 100395) and incorporated
herein by reference.
4.5 Registration Rights Agreement dated August 2, 2002, between
Hecla Mining Company and Great Basin Gold Ltd. Filed as
exhibit 4.5 to Registrant's Registration Statement on Form S-1
filed on October 7, 2002 (File No. 333 - 100395) and
incorporated herein by reference.
Certain instruments defining the rights of holders of
long-term debt of the Registrant and its consolidated
subsidiaries, where the total amount of
securities authorized under any such instrument does not
exceed 10% of the Registrant's consolidated total assets, are
not filed herewith pursuant to Item 601(b)(ii)(A) of
Regulation S-K. The Registrant agrees to furnish a copy of any
such instrument to the Commission upon request.
10.2 Employment agreement dated November 6, 2001, between Hecla
Mining Company and Phillips S. Baker, Jr. (Registrant has
substantially identical agreements with each of Messrs. Thomas
F. Fudge, Jr., Michael H. Callahan, Ronald W. Clayton, Lewis
E. Walde and Ms. Vicki Veltkamp. Such substantially identical
agreements are not included as separate exhibits.)*
10.3(a) Form of Executive Deferral Plan Master Document, as amended,
effective November 13, 1993. Filed as exhibit 10.3(a) to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 1-8491) and incorporated herein by
reference.
10.3(b) Form of Director Deferral Plan Master Plan Document effective
January 1, 1995. Filed as exhibit 10.3(b) to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1994 (File No. 1-8491) and incorporated herein by reference.
10.4(a) 1987 Nonstatutory Stock Option Plan of the Registrant. Filed
as exhibit B to Registrant's Proxy Statement dated March 20,
1987 (File No. 1-8491) and incorporated herein by reference.
10.4(b) Hecla Mining Company 1995 Stock Incentive Plan, as amended.
Filed as exhibit 99.1 to Registrant's Preliminary Proxy
Statement dated April 8, 2002 (File No. 1-8491) and
incorporated herein by reference.
10.4(c) Hecla Mining Company Stock Plan for Nonemployee Directors, as
amended. Filed as exhibit 99.1 to Registrant's Preliminary
Proxy Statement dated April 8, 2002 (File No. 1-8491) and
incorporated herein by reference.
10.4(d) Hecla Mining Company Key Employee Deferred Compensation Plan.
Filed as exhibit 4.3 to Registrant's Registration Statement on
Form S-8 filed on July 24, 2002 (File No. 333-96995) and
incorporated herein by reference.
10.5(a) Hecla Mining Company Retirement Plan for Employees and
Supplemental Retirement and Death Benefit Plan. Filed as
exhibit 10.11(a) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1985 (File No. 1-8491) and
incorporated herein by reference.
10.5(b) Supplemental Excess Retirement Master Plan Documents. Filed as
exhibit 10.5(b) to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994 (File No. 1-8491) and
incorporated herein by reference.
10.5(c) Hecla Mining Company Nonqualified Plans Master Trust
Agreement. Filed as exhibit 10.5(c) to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 (File
No. 1-8491) and incorporated herein by reference.
10.6 Form of Indemnification Agreement dated May 27, 1987, between
Hecla Mining Company and each of its Directors and Officers.
Filed as exhibit 10.15 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1987 (File No. 1-8491)
and incorporated herein by reference.
10.7 Summary of Short-term Performance Payment Plan. Filed as
exhibit 10.7 to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994 (File No. 1-8491) and
incorporated herein by reference.
10.8(a) Amended and Restated Golden Eagle Earn-in Agreement between
Echo Bay Mines Ltd. (successor in interest to Newmont Mining
Corp./Santa Fe Pacific Gold Corp.) and Hecla Mining Company
dated September 6, 1996. Filed as exhibit 10.11(a) to
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 (File No. 1-8491) and incorporated
herein by reference.
10.8(b) Golden Eagle Operating Agreement between Echo Bay Mines Ltd.
(successor in interest to Newmont Mining Corp./Santa Fe
Pacific Gold Corp.) and Hecla Mining Company dated
September 6, 1996. Filed as exhibit 10.11(b) to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1996 (File No. 1-8491) and incorporated herein by
reference.
10.8(c) First Amendment to the Amended and Restated Golden Eagle
Earn-in Agreement effective September 5, 2002, by and between
Echo Bay Mines Ltd. and Hecla Mining Company. Filed as exhibit
10.6(c) to Registrant's Registration Statement on Form S-1
filed on October 7, 2002, (File No. 333 - 100395) and
incorporated herein by reference.
10.10 Restated Mining Venture Agreement among Kennecott Greens Creek
Mining Company, Hecla Mining Company and CSX Alaska Mining
Inc. dated May 6, 1994. Filed as exhibit 99.A to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994 (File No. 1-8491) and incorporated herein by reference.
10.11 Credit Agreement dated as of June 25, 1999, among Monarch
Resources Investments Limited as Borrower, Monarch Minera
Suramericana, C.A. as an additional obligor and Standard Bank
of London Limited as Collateral and Administrative Agent.
Filed as exhibit 10.3 to Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999 (File No. 1-8491) and
incorporated herein by reference.
10.12 Subordinated Loan Agreement dated as of June 25, 1999, among
Hecla Mining Company as Borrower and Standard Bank of London
Limited as Initial Lender, Collateral and Administrative
Agent. Filed as exhibit 10.4 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1999 (File No.
1-8491) and incorporated herein by reference.
10.13 Subordination Agreement dated as of June 25, 1999, among
NationsBank, N.A. as Senior Creditor, Standard Bank of London
Limited as Subordinated Creditor and Hecla Mining Company.
Filed as exhibit 10.5 to Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999 (File No. 1-8491) and
incorporated herein by reference.
10.14 Subordinated Loan Agreement dated June 29, 2000, among Hecla
Mining Company as Borrower and Standard Bank of London Limited
as Lender. Filed as exhibit 10.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000 (File
No. 1-8491) and incorporated herein by reference.
10.15 Subordination Agreement dated June 29, 2000, among Hecla
Mining Company and Standard Bank of London Limited as Senior
Creditor and Subordinated Creditor. Filed as exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000 (File No. 1-8491) and incorporated herein
by reference.
10.16 Stock Purchase Agreement dated February 27, 2001, between
Hecla Mining Company and IMERYS USA, Inc. Filed as exhibit 99
to Registrant's Current Report on Form 8-K dated March 27,
2001 (File No. 1-8491) and incorporated herein by reference.
10.19 Real Estate Purchase and Sale Agreement between Hecla Mining
Company and JDL Enterprises, LLC, dated October 19, 2001.
Filed as exhibit 10.21 to Registrant's Annual Report on Form
10-K for the year ended December 31, 2001 (File No. 1-8491)
and incorporated herein by reference.
10.21 Earn-in Agreement dated August 2, 2002, between Hecla Ventures
Corp. and Rodeo Creek Gold Inc. Filed as exhibit 10.19 to
Registrant's
Registration Statement on Form S-1 filed on October 7, 2002
(File No. 333 - 100395) and incorporated herein by reference.
10.22 Lease Agreement dated September 5, 2002 between Hecla Mining
Company and CVG-Minerven. Filed as exhibit 10.20 to
Registrant's Registration Statement on Form S-1 filed on
October 7, 2002 (File No. 333 - 100395) and incorporated
herein by reference.
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
- --------------------------------------------------------------------------------
* Filed herewith.