1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended DECEMBER 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ---------------------- to ---------------------
Commission File No. 1-8491
----------------------------------------------------------
HECLA MINING COMPANY
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 82-0126240
- ------------------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6500 Mineral Drive
Coeur d'Alene, Idaho 83814-8788
- ------------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 208-769-4100
---------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which each class is registered
- ------------------------------------------------- ------------------------------
Common Stock, par value 25 cents per share )
Preferred Share Purchase Rights )
Liquid Yield Option Notes Due 2004 ) New York Stock Exchange
------------------------------
Series B Cumulative Convertible Preferred Stock,
par value 25 cents per share )
- -------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Warrants to Purchase Shares of Common Stock, $.25 par value per share
---------------------------------------------------------------------
(Title of Class)
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 the past 90 days. Yes XX . No .
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the Registrant's voting Common Stock held by
non-affiliates was $427,958,537 as of February 25, 1994. There were 34,582,508
shares of the Registrant's Common Stock outstanding as of February 25, 1994.
Documents incorporated by reference herein:
To the extent herein specifically referenced in Part III, the information
contained in the Proxy Statement for the 1994 Annual Meeting of
Shareholders of the Registrant, which will be filed with the Commission
pursuant to Regulation 14A within 120 days of the end of the Registrant's
1993 fiscal year. See Part III.
2
PART I
Item 1. Business1
GENERAL
Hecla Mining Company (the Company), originally incorporated in 1891, is
principally engaged in the exploration, development and mining of precious
and nonferrous metals, including gold, silver, lead and zinc, and certain
industrial minerals. The Company owns or has interests in six precious
and nonferrous metals properties and five industrial minerals businesses.
In 1993, the Company's attributable gold and silver production was 60,715
ounces and 2,974,698 ounces, respectively. The Company also shipped
approximately 888,000 tons of industrial minerals products during this
period, including ball clay, kaolin, feldspar, landscape materials, and
specialty aggregates.
The Company's principal producing metals properties include the La Choya
gold mine, located in Sonora, Mexico, which began operations in January
1994; the Lucky Friday silver mine, located near Mullan, Idaho, which is a
significant primary producer of silver in North America; the Republic gold
mine, located in the state of Washington, historically one of the
lowest-cost gold operations in North America; and the Greens Creek mine,
located near Juneau, Alaska, a large polymetallic mine in which the
Company owns 29.7% interest. In April 1993, operations at the Greens
Creek mine were suspended by the manager of the mine in response to
depressed metals prices.
The Company's industrial minerals businesses consist of Kentucky-Tennessee
Clay Company (Ball Clay and Kaolin Divisions), K-T Feldspar Corporation,
K-T Clay de Mexico, S.A. de C.V., Colorado Aggregate Company of New
Mexico, and Mountain West Bark Products, Inc. The Company's industrial
minerals segment has positioned itself as a leading producer of three of
the four basic ingredients required to manufacture ceramic and porcelain
products, including sanitaryware, pottery, dinnerware, electric
insulators, and tile. At current production rates, the Company has over
20 years of proven and probable reserves of ball clay, kaolin and
feldspar. During 1993, the industrial minerals businesses provided
approximately $6.6 million of cash from operations which served to
partially offset the impact of decreasing gold production from the
Company's metals segment.
On December 29, 1993, the Company, two wholly owned Canadian subsidiaries
of the Company, and Equinox Resources Ltd. (Equinox), a mining,
exploration and development company, incorporated under the laws of the
Province of British Columbia and headquartered in Vancouver, Canada,
executed an Acquisition Agreement providing for the Company's acquisition
of Equinox. Pursuant to the Acquisition Agreement and related Plan of
Arrangement, upon consummation of the transactions contemplated thereby,
(i) Equinox common shareholders will receive 0.3 common share of the
Company (Company common shares), for each outstanding Equinox common
share, (ii) holders of Equinox's Series "A" production participating
preferred shares will receive
- ------------------------
1For definitions of certain mining terms used in this
description, see "Glossary of Certain Mining Terms" at the end of
Item 1, page 27.
-1-
3
newly issued production notes of the Company with the same material terms
and conditions, and (iii) outstanding Equinox options and warrants will
become exercisable for Company common shares. In connection with the
acquisition of Equinox, the Company expects to issue approximately 6.3
million Company common shares, including shares issuable upon exercise of
outstanding options and warrants.
The Board of Directors of the Company and Equinox have each approved the
Acquisition Agreement. On February 25, 1994, the shareholders of Equinox
also approved the Acquisition Agreement. However, the transactions
contemplated by the Acquisition Agreement are subject to a number of
conditions including, without limitation, approval by a Canadian court of
the Plan of Arrangement.
If consummated, the Company will acquire Equinox's primary producing
property, the American Girl gold mine, located in Imperial County,
California, which is operated by its joint venture partner MK Gold
Company. In addition, the Company believes that Equinox's Rosebud gold
property, located in Pershing County, Nevada, has significant exploration
and development potential.
The Company's strategy is to focus its efforts and resources on the
development and construction of the Grouse Creek gold project and to
expand its gold and silver reserves via a combination of acquisition and
exploration efforts. During 1994, the Company's most important priority
will be the timely development and construction of the Grouse Creek gold
project which is expected to commence production during the fourth quarter
of 1994. Additionally, the Company's exploration plan consists primarily
of exploring for additional reserves and mineralization at or in the
vicinity of the Republic and La Choya gold mines, the Lucky Friday and
Greens Creek silver mines and the Grouse Creek gold project. At the same
time, the Company will continue to evaluate acquisition and other
exploration opportunities, primarily in North America, that will
complement its existing operations.
The Company's revenues and profitability are strongly influenced by the
world prices of silver, gold, lead and zinc. Metals prices fluctuate
widely and are affected by numerous factors beyond the Company's control,
including inflation and worldwide forces of supply and demand. The
aggregate effect of these factors is not possible to accurately predict.
Sales of metal concentrates and products are made principally to custom
smelters and metal traders. The percentage of revenue contributed by each
class of product is reflected in the following table:
Years
--------------------------------
Product 1993 1992 1991
----------------- ----- ----- -----
Gold 25.5% 30.8% 43.8%
Silver 8.5 12.0 10.9
Lead 4.4 7.4 6.0
Industrial minerals 54.6 42.5 34.5
All others 7.0 7.3 4.8
-2-
4
Reference is made to Note 1 of Notes to Consolidated Financial Statements
for information with respect to export sales.
The principal executive offices of the Company are located at 6500
Mineral Drive, Coeur d'Alene, Idaho 83814-8788, telephone (208)
769-4100.
METALS SEGMENT
La Choya Gold Mine - Sonora, Mexico
The La Choya gold mine is located 30 miles south of the U.S. border in
the State of Sonora, Mexico, and is the Company's first operation outside
the U.S. and Canada. In May 1992, the Company exercised its option to
purchase the Mexican mineral concessions related to this property, which
includes a land position of over 36,000 acres.
The La Choya gold mine commenced operations in January 1994. The Company
expects to produce approximately 63,000 ounces of gold in each of 1994,
1995 and 1996. Current proven and probable gold reserves at the La Choya
gold mine are expected to be substantially depleted in 1996 or early
1997.
An exploration drilling program is planned for 1994 to attempt to expand
the gold reserves at the La Choya gold mine. The Company believes there
is the potential to discover additional gold reserves within the mining
concessions currently controlled by the Company. The drilling program
will continue with the objective of expanding the current project and
extending the life of the mine.
As of December 31, 1993, the Company has expended approximately $18.8
million (excluding capitalized interest) on the purchase and development
of the La Choya gold mine. Electrical power is provided by on-site
diesel generators. The following table presents the proven and probable
ore reserves for the La Choya gold mine for the periods indicated:
Year Total Gold Gold
Ended Reserves Avg. Grade Content
12/31 (Tons) (oz/ton) (ozs.)
----- -------- ---------- -------
1993 6,138,000 0.037 225,500
1992 4,283,277 0.039 167,000
At December 31, 1993, there were 87 employees at the La Choya gold mine.
The National Union of Mine, Metallurgical and Related Workers of the
Mexican Republic is the bargaining agent for the La Choya gold mine
employees. The current labor agreement expires on September 7, 1994.
Grouse Creek Gold Project - Idaho
The Grouse Creek gold project is located in central Idaho, 27 miles
southwest of the town of Challis in the Yankee Fork Mining District.
Mineral rights comprising the Grouse Creek gold project cover 21.4 square
miles. The Grouse Creek gold project consists of 18 patented lode mining
-3-
5
claims and two patented placer claims, 43 unpatented millsite claims, and
17 unpatented lode claims for which patent applications are pending. With
respect to the 17 unpatented lode claims, the Company has received the
first half of a Mineral Entry Final Certificate. Upon certification by a
United States Federal Mineral Examiner and issuance of patents for these
claims, all of the current proven and probable reserves at the Grouse
Creek gold project will be located within patented mining claims. The
remainder of the mineral rights in the Yankee Fork Mining District consist
of 846 unpatented claims.
The Company acquired these patented and unpatented mining claims as a
result of its acquisition of CoCa Mines Inc. (CoCa) in 1991. During 1989
CoCa purchased the assets of Geodome Resources Limited and its limited
partner interests in the Grouse Creek project. As partial consideration,
CoCa issued 1,023,169 shares of Common Stock valued at $9.5 million and
472,427 warrants to purchase Common Stock valued at $0.2 million. In
addition, CoCa issued promissory notes payable to purchase limited partner
interests in the Grouse Creek property acquired from Geodome Resources
Limited (See Note 7 of Notes to Consolidated Financial Statements).
On February 8, 1994, the Company sold to Great Lakes Minerals, Inc. of
Toronto (Great Lakes) a 20% undivided interest in the Company's Grouse
Creek gold project. Proceeds received from the sale, totaling $13.3
million, represent the sales price of $6.8 million for 20% of the amount
spent by the Company on acquisition, exploration and development of the
project through June 30, 1993, including a fixed premium of $1.25 million,
plus Great Lakes' pro-rata share of construction costs for Grouse Creek
from July 1, 1993 through January 31, 1994. Pursuant to the acquisition
and joint venture agreements, Great Lakes is required to fund its 20%
pro-rata portion of remaining capital expenditures required to bring the
Grouse Creek project to commercial production. In addition, these
agreements provide that Great Lakes has the option, at any time prior to
12 months following the commencement of commercial production at the
Grouse Creek gold project, to purchase up to an additional 10% undivided
interest in the project and fund its increased share of capital
expenditures.
As of December 31, 1993, the Company and its predecessors had expended
approximately $54.0 million (excluding capitalized interest) on the
acquisition, exploration and development of the Grouse Creek project.
Based on the current mine plan, the Company's share of additional capital
costs for the project are expected to total approximately $50.0 million in
1994 and $3.4 million (primarily for equipment) during 1995. The Company
currently estimates that production will commence during the fourth
quarter 1994, with full production achieved in 1995. The Company
estimates, that assuming timely commencement of production during the
fourth quarter, its share of total production at the Grouse Creek gold
project will be approximately 53,000 gold ounces in 1994 and 106,000 gold
ounces in 1995.
Two distinct mineral deposits have been identified at the Grouse Creek
project: the Sunbeam deposit and the Grouse deposit, which includes the
Grouse pit and the Grouse underground high-grade ore zone.
As a result of drilling programs conducted in 1991 and 1992, the Company
discovered the Underground Deposit, a high-grade gold ore zone beneath the
-4-
6
proposed Upper Grouse Pit, approximately 500 feet below the existing
surface. The Underground Deposit is open at depth and has good potential
to contain additional high-grade ore.
The Sunbeam deposit was defined by 721 reverse circulation test holes
totaling 198,097 feet and 22 diamond core drill holes totaling 7,152 feet.
Test-hole drilling has been completed on an approximate 75-foot grid over
the Sunbeam deposit. The deposit is above the water table. The Upper
Grouse Pit has been defined by 416 reverse circulation test holes totaling
175,508 feet and 22 diamond core drill holes totaling 8,488 feet. The
higher sections of the deposit are drilled on an approximate 75- to
100-foot grid. Portions of the Upper Grouse Pit ore body are below the
water table. The deeper high-grade gold ore zone in the Underground
Deposit has been defined by a reverse circulation test-hole grid pattern
on approximately 50-foot centers.
The following table presents the Company's share of the proven and
probable ore reserves for the Grouse Creek gold project for the periods
indicated:
Year Total Gold Gold Silver Silver
End Reserves Avg. Grade Content Avg. Grade Content
12/31 (Tons) (oz./ton) (ozs.) (oz./ton) (ozs.)
----- ---------- ---------- ------- ---------- ---------
1993(1) 12,104,000 0.055 671,200 1.07 12,972,800
----
1992 14,467,000 0.057 831,000 1.21 17,474,000
----
1991 15,018,600 0.048 719,150 1.2 17,276,810
----
-----------------------
(1) 1993 proven and probable ore reserves reflect only the
Company's share (80%) pursuant to the February 8, 1994,
sale of a 20% interest in its Grouse Creek project to
Great Lakes Minerals, Inc. of Toronto, Canada.
Pursuant to the mine plan, the Sunbeam Deposit and the Underground Deposit
are to be mined simultaneously beginning in the fourth quarter of 1994,
followed by the Upper Grouse Pit. The mine plan for the Underground
Deposit proposes a panel cut-and- fill method. The ore zone is
approximately 30-feet thick and will be mined in panels 10-feet high and
20-feet wide. Cemented backfill will be used to obtain nearly 100%
extraction of the underground reserve. Conventional underground mining
equipment will be used for drilling, blasting, loading, and hauling. Both
the Sunbeam Deposit and the Upper Grouse Pit will use conventional surface
mining methods. Blasthole assays will be used to determine ore grade
material. The material will be segregated and hauled by off-highway
trucks to the mill. Waste material will be hauled to a waste storage area
or will be used as construction material in the tailings dam. Both
deposits will mine ore on 20-foot benches. The milling process involves a
6,000-ton-per-day gold recovery facility. The recovery process involves
crushing and grinding of the ore and recovering approximately 50% of the
gold in a gravity circuit. The remaining gold and silver is dissolved in
a weak
-5-
7
sodium cyanide solution and recovered with carbon adsorption and
Merrill-Crowe precipitation. Overall recoveries are currently estimated
at 94% gold and 41% silver for ore from the Sunbeam Deposit, 74% gold and
64% silver for ore from the Upper Grouse Pit and 95% gold and 85% silver
from the Underground Deposit. A refinery on the property will produce
dore that will be further processed by commercial refiners. The tailings
from the cyanide process will be impounded in a 15.5 million ton capacity
double-lined tailings pond. All permits for this facility have been
approved.
The Sunbeam Deposit will be mined at a rate of 7,700 tons of ore per day
at a cut-off grade of 0.020 ounce per ton of gold equivalent and a
stripping ratio of 3.2:1. The Upper Grouse Pit will be mined at
approximately the same rate and will have a cut-off grade of 0.031 ounce
per ton of gold equivalent and a stripping ratio of 5.1:1. Based upon the
information developed to date, the Underground Deposit is expected to
produce 183,000 tons of ore in each of 1994 and 1995 containing
approximately 96,000 ounces of gold and over 400,000 ounces of silver.
The Company is currently developing the Underground Deposit.
Reclamation activities include the partial backfill and revegetation of
the Sunbeam Deposit and the Grouse Deposit and covering, recontouring and
revegetating the tailings surface and construction of a permanent
spillway. The waste dump and haul roads will be recontoured and
revegetated. Process facilities will be removed and foundations will be
buried. Concurrent reclamation practices will be employed whenever
possible. The reclamation plans have been approved by the appropriate
state and federal agencies.
The Company believes that there is excellent potential for extending and
discovering additional gold reserves at the project including a
continuation of the high-grade underground mineralization which remains
unexplored under most of the deposits. To date, the Company has
identified 15 exploration targets. Within the immediate area of the Upper
Grouse Pit, the Company also believes that there could be additional
high-grade zones accessible through the underground operations. An
exploration program will be undertaken during 1994 to begin to evaluate
the economic potential of areas below and adjacent to the Upper Grouse
Pit.
Lucky Friday Mine - Coeur d'Alene Mining District - Idaho
The Lucky Friday, a deep underground silver and lead mine, located in
northern Idaho and 100% owned by the Company, has been a producing mine
for the Company since 1958. The mine operated continuously until low
metals prices and rockburst activity forced the suspension of operations
in April 1986. During the shutdown, the Company's engineers began
converting portions of the mine to a mechanized underhand mining method
designed to increase productivity and reduce rockburst activity.
Production was resumed at the Lucky Friday mine in June 1987 and has
continued uninterrupted since that time.
The ore-bearing structure at the Lucky Friday mine is the Lucky Friday
Vein, a fissure vein typical of many in the Coeur d'Alene Mining District.
The ore body is located in the Revett Formation which is known to provide
excellent host rocks for a number of ore bodies in the Coeur d'Alene
District. The Lucky Friday Vein strikes northeasterly and dips steeply to
-6-
8
the south, with an average width of six to seven feet. The principal ore
minerals are galena and tetrahedrite, with minor amounts of sphalerite and
chalcopyrite. It appears that the ore occurs as a single continuous ore
body in and along the Lucky Friday Vein. The major part of the ore body
has extended from the 1200-foot level to and below the 5660-foot level,
which is currently being developed.
The ore produced from the mine is processed in a 1,000-ton-per-day
conventional flotation mill at a current rate of 700 tons per day at the
Lucky Friday mine site. The flotation process produces both a silver-lead
concentrate and a zinc concentrate. During 1993 approximately 98% of the
silver, 97% of the lead, and 86% of the zinc were recovered. The Company
believes that adequate provision has been made for disposal of mine waste
and mill tailings in a manner which complies with current federal and
state environmental requirements.
The Lucky Friday mine's mill facility and surface and underground
equipment are in good working condition. The mill was originally
constructed approximately 32 years ago. The Company maintains and
modernizes the plant and equipment on an ongoing basis. Significant
improvements to the mill include installation of coarse ore feeder bins in
1982, a new ball mill in 1984, installation in 1989 of a new zinc column
cell to improve the purity of zinc concentrates, and in 1991, upgrading of
tailings pumps. Improvements to the mine include construction of the
Silver Shaft and installation of a new compressor plant during 1980
through 1983; installation of a new ventilation system during 1985; and,
since 1986, construction of a new ore pass system servicing the Silver
Shaft at the deepest levels of the mine. The net book value of the Lucky
Friday mine property and its associated plant and equipment was $28.1
million as of December 31, 1993. Washington Water Power Company supplies
electrical power to the Lucky Friday mine.
The Lucky Friday silver-lead concentrate product is shipped primarily to
the ASARCO smelter at East Helena, Montana. The silver contained in the
concentrates is returned to the Company under a tolling arrangement. The
Company then sells the tolled silver to major metal brokers. The pricing
of the silver is based on worldwide bullion markets. The lead and gold
contained in the concentrates are sold to ASARCO. The Lucky Friday zinc
concentrates are shipped to Cominco's smelter in Trail, British Columbia,
Canada, and are sold under an agreement with Cominco Ltd.
In the event agreements with ASARCO and Cominco are terminated, the
Company believes that new agreements could be negotiated with other
smelters at terms that would not have a material effect upon the overall
results of operations or financial condition of the Company.
Based on the Company's experience in operating deep mines in the Coeur
d'Alene Mining District, where the persistence of mineralization to
greater depths may be reliably inferred from operating experience and
geological data, the Company's policy is to develop new levels at a
minimum rate consistent with the requirements for uninterrupted and
efficient ore production. A new level is developed and brought into
production only to replace diminishing ore reserves from levels being
mined out.
-7-
9
The length and strength of the ore body have not materially diminished on
the lowest developed level of the mine. Based upon this factor, drilling
data and extensive knowledge of the geologic character of the deposit, and
many years of operating experience in the Lucky Friday mine and Coeur
d'Alene Mining District, there are no geologic factors known at present
which appear to prevent the continuation of the Lucky Friday ore body for
a considerable distance below the lowermost working level. Although there
can be no assurance of the extent and quality of the mineralization which
may be developed at greater depths, the existing data and operating
experience justify, in the opinion of the Company's management and based
upon industry standards, the conclusion that the mineralization will
extend well below the 6200-foot level, which is the existing bottom of the
mine's Silver Shaft.
The principal mining method, underhand cut and fill, was piloted in 1985
and 1986, and has since been fully implemented. This method utilizes
mechanized equipment, a ramp system and cemented sand fill. The method
has proven effective in reducing mining costs and limiting rockburst
activity. Without this mining method, the mine would be unworkable in
certain stopes because of the unstable nature of the rock. However,
rockbursting continues to be a concern in the one-mile-deep mine.
Information with respect to production, proven and probable mineral
reserves, and average cost per ounce of silver produced for the past five
years is set forth in the table below:
Years
-----------------------------------------------------------------------
Production (100%) 1993 1992 1991 1990 1989
- ------------------- --------- --------- --------- --------- ---------
Ore milled (tons) 179,579 175,170 152,150 147,671 138,720
Silver (ounces) 2,122,738 2,031,779 1,850,531 1,894,944 1,904,038
Gold (ounces) 972 965 928 916 944
Lead (tons) 19,795 21,336 18,857 17,333 16,094
Zinc (tons) 4,385 4,213 3,164 3,306 3,253
Copper (tons) 339 129 175 49 281
Proven and Probable
Mineral Reserves1
- ----------------
Total tons 414,315 446,105 440,060 527,830 458,800
Silver (oz. per ton) 14.4 14.3 13.6 14.5 16.1
Lead (percent) 14.3 13.4 12.8 13.4 14.4
Zinc (percent) 3.0 2.3 2.8 2.7 2.4
Average Cost per Ounce
of Silver Produced
- ----------------------
Cash Production Costs $ 5.54 $ 4.12 $ 5.01 $ 4.54 $ 4.57
Full Production Cost $ 6.77 $ 5.35 $ 6.20 $ 6.25 $ 6.35
- ------------------------------------
1 Reserves lying above or between developed levels are
classified as proven reserves. Reserves lying below
the lowest developed level,
-8-
10
projected to 100 feet below the lowest level or to one-half
the exposed strike length, whichever is less, are classified
as probable reserves. Mineralization known to exist from
drill-hole intercepts does not meet the Company's current
proven or probable reserve criteria and is excluded from these
reserve categories.
During 1991, the Company discovered several mineralized structures
containing some high-grade silver ores in an area known as the Gold Hunter
property, about 5,000 feet northwest of the existing Lucky Friday
workings. In an extensive exploration program in 1992, the Company
undertook an underground evaluation of the Gold Hunter property
mineralization. The program discovered mineralization containing
significant amounts of silver and lead in an area accessible from the
4050-foot level of the Lucky Friday mine. The exploration program and a
feasibility study were completed during 1993. The Company's decision
regarding development of the Gold Hunter property is pending. The Gold
Hunter property is controlled by the Company under a long-term operating
agreement, which entitles the Company, as operator, to a 79.08% interest
in the net profits from operations from the Gold Hunter properties. The
Company will be obligated to pay a royalty after it has recouped its costs
to explore and develop the properties, which as of December 31, 1993,
totaled approximately $7.9 million. If the Gold Hunter property is
further developed, the Company currently estimates that $10-15 million of
capital expenditures would be required.
At December 31, 1993, there were 139 employees at the Lucky Friday mine.
The United Steelworkers of America is the bargaining agent for the Lucky
Friday hourly employees. The current labor agreement expires on June 12,
1996, and will be continued for an additional three years if the Company
develops the Gold Hunter property.
Republic Mine - Republic, Washington
The Company owns and operates the Republic mine located in the Republic
Mining District near Republic, Washington, which consists of several
associated deposits and properties, a mill and ancillary surface plants.
The property is readily accessible year-round by all-weather roads. The
mine produces gold-silver ore which is milled on the property. Products
of the mill are a gold-silver flotation concentrate and a gold-silver
dore.
The Company's land position in the Republic area consists of approximately
five square miles, where the Company is currently focusing exploration
efforts in search of additional gold mineralization. If additional
reserves are not discovered and developed, the Company expects that gold
reserves at the Republic mine will be substantially depleted in early 1995
and mining operations will cease. As further described below, the Company
has undertaken a significant exploration program to determine if there are
additional reserves on the property.
The mine is an underground operation using both conventional and
smaller-scaled mechanized underground mining methods. Access is provided
by shafts and a ramp decline. The ore from the mine is processed in a
325-ton-per-day flotation and cyanidation mill. Combined average recovery
for 1993 in the two mill products (flotation concentrate and dore)
amounted
-9-
11
to 91% of the gold and 80% of the silver contained in the crude ore. The
Company believes that adequate provision has been made for disposal of
mine waste and mill tailings in a manner which complies with current
federal and state environmental requirements.
The Republic mine's mill facility and surface and underground equipment
are in good working condition. The mill was constructed approximately 57
years ago. The Company maintains and modernizes the plant and equipment
on an ongoing basis. Significant improvements include, during 1989
through 1992, expansion of mill capacity, enhanced metals recovery through
installation of a counter-current decantation circuit, a closed ore
crushing circuit, an enhanced metals concentrate leaching and
electrowinning recovery circuit and a small refinery to further enhance
the value of the mine's products prior to shipment. Improvements to the
mine include a decline and development drift which the Company drove
during 1990 to improve access to mineralized areas, as well as allowing
direct underground access by rubber-tired vehicles and improving
ventilation. The net book value of the Republic mine property and its
associated plant and equipment is approximately $11.4 million as of
December 31, 1993. Ferry County P.U.D. supplies electrical power to the
Republic mine.
The mineral-bearing structures in the Republic Mining District are
dominantly quartz fillings in fissure veins. Less commonly,
mineralization is hosted by volcanic and sedimentary wall rocks near the
veins. Principal ore minerals are electrum, native gold and silver with a
variety of sulfosalts and selenides. The mine has been developed on 13
levels from the surface to a vertical depth of 1,750 feet. Since 1984,
the Golden Promise deposit of the mine has been developed on seven levels.
Ongoing exploration and development of the Golden Promise deposit are
complicated by post-ore faulting and by the occurrence of several styles
of mineralization. Development drilling during 1993 located several
ore-grade intercepts 250 feet below the lowest working level of the Golden
Promise (See "Exploration" for additional discussion of the Golden
Promise).
Flotation concentrates produced from the Company's Republic mill are
smelted by ASARCO Incorporated at East Helena, Montana. The silver
contained in the concentrates is sold directly to ASARCO. The dore
product is shipped to Johnson Matthey's refinery at Salt Lake City, Utah,
for further refining. The gold contained in the concentrate and the gold
and silver contained in the dore are then sold by the Company to metal
brokers, primarily under short-term contracts. Pricing of silver and gold
is based on worldwide bullion markets.
If ASARCO or Johnson Matthey should be unable to receive or process the
products, the Company believes that other purchasers or processors for the
products could be found without causing a material effect upon the overall
results of operations or financial condition of the Company.
Information with respect to production, proven and probable mineral
reserves, and average cost per ounce of gold produced for the past five
years is set forth in the table below:
-10-
12
Years
---------------------------------------------------------------------
Production (100%) 1993 1992 1991 1990 1989
- ------------------ ------- ------- ------- ------- -------
Ore milled (tons) 110,846 102,631 96,562 92,843 82,961
Gold (Au) (ounces) 49,601 58,343 77,736 81,397 74,335
Silver (Ag) (ounces) 276,688 299,957 311,445 326,346 301,432
Proven and Probable
Mineral Reserves(1)
- ----------------
Total tons 103,533 269,736 401,318 437,580 412,300
Gold (oz. per ton) 0.43 0.52 0.53 0.65 0.81
Silver (oz. per ton) 2.7 3.2 3.2 3.5 3.3
Average Cost per
Ounce of Gold Produced
- ----------------------
Cash Production Costs $ 207.43 $ 176.47 $ 143.40 $ 127.97 $ 121.02
Full Production Cost $ 261.73 $ 220.64 $ 176.44 $ 142.92 $ 130.32
- -------------------------------
(1) Reserves represent diluted in-place grades and do not reflect losses
in the recovery processes. Dilution was effected through
application of 1.0 feet on either side of the vein for any sample
thicker than 2.1 feet. For samples thinner than 2.1 feet, dilution
was effected with whatever thickness was necessary to equal 4.0
feet. Diluent grades are zero ounces per ton for both gold and
silver.
In 1993 a negative ore reserve adjustment was made totaling approximately
39,000 ounces of gold and 235,000 ounces of silver. Most of the
adjustment was necessary when development encountered erratic
mineralization in an upper level ore zone which was previously estimated
to be continuous reducing the tonnage available for mining by 33,765 tons.
Other various adjustments attributable to the reduction totaled 867 tons.
There were 116 people employed at the Republic mine at December 31, 1993.
Employees at Republic are not represented by a bargaining agent.
Cactus Mine - Mojave, California
The Cactus mine consists of approximately 1,600 acres of leasehold lands,
mining claims and millsites, located approximately 85 miles northeast of
Los Angeles, California, in the Mojave Mining District. The property is
readily accessible year-round by all-weather roads. The Company currently
has a 63.75% effective interest in Cactus Gold Mines Company (Cactus) and
manages Cactus' two open-pit heap leach mines, the Middle Buttes and
Shumake. The Company, as manager of Cactus, receives a management fee
equal to 2% of net revenues of Cactus as defined in the mining venture
agreement and is reimbursed for costs incurred on behalf of Cactus.
-11-
13
The Middle Buttes mine began production in August 1986. During 1991,
operations were completed at the Middle Buttes mine, and the remaining
recoverable gold was processed. Development of the Shumake mine was
completed in November 1988, with commercial production beginning in
December 1988. Mining operations at the Shumake mine were completed in
February 1992. The Company's share of gold recovery from the heap is
estimated to be 3,250 ounces in 1994, which is expected to be the final
year of production. Reclamation efforts are ongoing.
The book value of the Company's interest in the Cactus mine property and
its associated plant and equipment was fully depreciated as of December
31, 1993. Southern CalEdison supplies electrical power to the Cactus
mine.
Cactus is owned 75% by Middle Buttes Partners Limited (MBPL) and 25% by
Compass Mining Inc. MBPL is a limited partnership in which the Company is
both the sole general partner (52.50%) and a limited partner (11.25%).
The Company, as general partner of MBPL, receives 75% of the production
from Cactus subject to payment of 11.25% of the net cash flows to the
other limited partner of MBPL.
The following table sets forth the information with respect to the
Company's share of production, proven and probable mineral reserves, and
average cost per ounce of gold produced for the past five years.
Years
------------------------------------------------------------------------
Production (75%) 19931 19921 1991 1990 1989
------------------- --------- --------- --------- --------- ---------
Ore processed (tons) - - 315,328 1,760,714 1,750,275 1,704,518
Gold (ounces) 7,316 27,212 40,434 45,005 44,567
Silver (ounces) 24,165 114,415 162,760 184,349 199,982
Proven and Probable
Mineral Reserves
-------------------
Total tons - - - - 234,140 1,615,182 3,804,750
Gold (oz. per ton) - - - - 0.04 0.03 0.06
Average Cost per
Ounce of Gold Produced
----------------------
Cash Production Costs $ 242 $ 213 $ 246 $ 226 $ 276
Full Production Cost $ 309 $ 337 $ 437 $ 366 $ 371
-------------------------------
(1) Mining operations were completed in February 1992. Gold recovery
from the heap continued through 1993, but is expected to be
completed in 1994.
Current operations at Cactus include approximately 17 employees. The
employees at Cactus are not represented by a bargaining agent.
-12-
14
Granduc Mines Limited - British Columbia, Canada
On January 24, 1994, the Company sold its entire investment in Granduc by
selling 2,000,000 Granduc common shares to Conwest Exploration Company
Limited and 815,330 Granduc common shares to Jascan Resources Inc., both
of which are Toronto, Ontario, Canada based companies. The Company
recognized a gain on the sale of approximately $1,327,000 in the first
quarter of 1994.
INDUSTRIAL MINERALS SEGMENT
The Company's principal industrial minerals assets are its ball clay
operations in Kentucky, Tennessee, and Mississippi; its kaolin operations
in South Carolina and Georgia; its feldspar operations in North Carolina;
its clay slurry plant in Monterrey, Mexico; its lawn and garden products
operations in southern Idaho and western Montana; and its specialty
aggregate operations (primarily scoria) in southern Colorado and northern
New Mexico. The Company conducts these operations through five wholly
owned subsidiaries: (1) Kentucky-Tennessee Clay Company (K-T Clay),
which operates its Ball Clay and Kaolin Divisions; (2) K-T Feldspar
Corporation (K-T Feldspar), which operates the feldspar business; (3) K-T
Clay de Mexico, S.A. de C.V. (K-T Mexico), which operates the clay slurry
plant business; (4) Mountain West Bark Products, Inc. (Mountain West),
which operates a lawn and garden products business; and (5) Colorado
Aggregate Company (CAC), which operates the Company's specialty aggregate
business.
K-T Clay Ball Clay Division
K-T Clay is one of the nation's major suppliers of premium ball clay.
Ball clay is of sedimentary origin and consists of several basic clay
minerals along with a slight amount of organic content, a combination of
materials that gives ball clay its unique character. The principal use
of ball clay is in the ceramic and porcelain fields, which includes use
for such items as pottery, dinnerware, tile, electrical insulators and
sanitaryware. Ball clay is also used in refractories and abrasives and
has applications in other specialty industries as well.
Mining of ball clay is accomplished through strip mining methods. The
mining activity requires definition drilling and the removal of
overburden in order to expose the clay strata to be mined. Mining
activity is selective based on clay grade and strata control. The clays
are mined with loaders and backhoes, loaded into trucks and hauled to one
of K-T Clay's plants for processing. Processing of ball clay consists of
shredding and classification of clay by various grades, hammer or roller
milling to reduce particle size, drying and packaging. The grades can be
shipped in bulk or blended and bagged in order to meet a particular
customer's requirements. A particular clay or blend of several clays can
also be shipped to customers in slurry form in tanker trucks or rail
cars.
There are many grades of ball clay which K-T Clay mines, processes and
blends to meet the specifications and requirements of its various
customers. Different uses may require mixtures of ball clay having
substantially different physical properties, and K-T Clay, through many
years of experience and ongoing research performed in its laboratories,
-13-
15
possesses the expertise that enables it to respond to changes in customer
requirements with minimal advance notice. The marketing of ball clays is
directed from K-T Clay's headquarters in Mayfield, Kentucky. K-T Clay's
marketing personnel are trained in ceramic engineering or related
technical fields, which also has enabled K-T Clay to respond to changes
in its customer requirements.
K-T Clay mines and processes different grades of ball clays in Kentucky,
Tennessee and Mississippi. K-T Clay has identified or delineated
deposits of ball clay on numerous properties. Such properties are either
owned in fee simple or held under long-term lease. The royalties or
other holding costs of leased properties are consistent with the
industry, and the expiration of any particular lease would not affect K-T
Clay's ability to operate at current levels of operations. K-T Clay has
sufficient reserve positions to maintain current operations in excess of
20 years. K-T Clay is also continuously exploring for new deposits of
ball clay, either to replace certain grades of clay that may become mined
out or to locate new deposits that can be mined at lower cost.
Minimum standards for strip mining reclamation have been established by
various governmental agencies which affect K-T Clay's ball clay mining
operations. The Tennessee Surface Mining Law and the Mississippi
Geological Economics and Topographical Survey, Division of Mining and
Reclamation, require K-T Clay to post a performance bond on acreage to be
disturbed. The release of the bond is dependent on the successful
grading, seeding and planting of spoil areas associated with current
mining operations. In addition, the United States Environmental
Protection Agency has issued guidelines and performance standards which
K-T Clay must meet. K-T Clay may be required to obtain other licenses or
permits from time to time, but it is not expected that any such
requirements will have a material effect upon the Company's results of
operations or financial condition.
There were 166 people employed by K-T Clay at its ball clay operations as
of December 31, 1993. Some of the hourly employees are represented by
the United Steelworkers of America. The three-year labor agreement will
expire on February 8, 1997.
K-T Clay Kaolin Division
K-T Clay acquired the kaolin operations and assets of Cyprus Minerals
Company's clay division on February 17, 1989, including kaolin mines and
plants at Deepstep and Sandersville, Georgia, and Aiken, South Carolina.
Kaolin, or china clay, is a near white clay of sedimentary origin, and is
consumed in a variety of end uses including ceramic whiteware, textile
grade fiberglass, as rubber and paper filler, and in miscellaneous
plastics, adhesives and pigment applications. Kaolin is a unique
industrial mineral because of its wide range of chemical and physical
properties. The Kaolin Division of K-T Clay mines, processes, and blends
numerous grades of clay to meet the specifications and requirements of
its customers.
Markets for K-T Clay's kaolin products are similar to ball clay and
adverse shifts in market demand could occur due to mineral substitution
and
-14-
16
decreased demand for end-use products, which could adversely impact the
demand for kaolin. Kaolin currently competes with minerals such as
calcium carbonate in many filler applications, but the substitution of
other minerals for kaolin in ceramic and fiberglass applications is
limited. The marketing of kaolin to the ceramics industry is carried out
by K-T Clay's sales force. Marketing to other industries is done through
sales and distribution agents.
Mining of kaolin is done by open-pit methods. Ore bodies are identified
and delineated by exploration drilling and overburden is removed by
scrapers down to favorable clay strata. Select mining of clay is then
accomplished by backhoe with over-the- road truck haulage to the
processing and stockpiling facilities. K-T Clay operates kaolin mines in
Georgia, serving its processing plants located at Sandersville and
Deepstep, Georgia. K-T Clay also operates kaolin mines located in South
Carolina, serving a processing plant located in Aiken, South Carolina.
Processing of the clays is completed by the air-floating method where
clay is shredded, dried, ground and separated by particle size at the
Sandersville, Deepstep and Aiken locations. In addition, clay is also
processed into a water slurry mixture at the Sandersville location.
K-T Clay's Kaolin Division holds in excess of 20 years of reserves based
on current sales and product mix. Reserves are held on fee simple and
leased property and K-T Clay plans to continue a very active kaolin
exploration and development program.
The Kaolin Division operates its mines in Georgia and South Carolina
under mine permits issued by the Environmental Protection Division,
Department of Natural Resources of the State of Georgia, and the Land
Resource Conservation Commission, Division of Mining and Reclamation of
the State of South Carolina. All mines and processing plants have
current permit status and are in good standing.
There were 92 people employed by K-T Clay at its Kaolin Division as of
December 31, 1993, with less than 25% of the labor force being
represented by the Cement, Lime, Gypsum and Allied Workers, Division of
International Brotherhood of Boilermakers. The current labor contract at
the Sandersville, Georgia operation expires on March 1, 1995.
Both the Ball Clay and Kaolin Divisions of K-T Clay's plants and
equipment have been operational in excess of 25 years. The Company has
upgraded and modernized these facilities over the years and has a
continuing maintenance program to maintain the plant and equipment in
good physical and operating condition. The net book value of the K-T
Clay property and its associated plant and equipment was $19.1 million as
of December 31, 1993. K-T Clay utilizes power from several public
utilities as well as local utility co-operatives located in the vicinity
of K-T Clay's operating plants.
K-T Feldspar Corporation
The Company acquired the operations and assets of K-T Feldspar on
December 13, 1990, including sodium feldspar mines and a processing plant
located near Spruce Pine, North Carolina. Feldspars are a mineral group
-15-
17
that are the major constituents of igneous rocks and important
constituents of other major rock types. The feldspars are the most
widespread mineral group and make up 60% of the earth's crust.
Chemically the feldspars are aluminosilicates that contain potassium,
sodium and calcium.
K-T Feldspar mines, processes and blends sodium feldspar and
feldspar-silica products. It also produces by-product mica concentrate
and construction sand. K-T Feldspar products are primarily used in the
ceramic whiteware, glass and paint industries.
Markets for feldspar have fluctuated slightly over time as a result of
mature market conditions. However, adverse shifts in market demand could
occur due to mineral substitution and decreased demand for end-use
products. Feldspar currently competes with nepheline syenite in some
market segments and substitution between minerals is linked to economics,
physical-chemical characteristics and supplier reliability. The
marketing of feldspar to the ceramics and filler industries is carried
out by K-T Clay's sales force and through sales and distribution agents.
Feldspar ore is mined by open-pit methods using a 40-foot bench mining
plan. Ore is drilled and blasted, loaded by hydraulic shovel or
front-end loader into off-highway dump trucks and transported to the
processing plant. K-T Feldspar operates several mine locations in the
Spruce Pine, North Carolina area, all serving the centrally located
processing plant. Processing of the feldspar ores consists of crushing,
grinding, density separation, flotation, drying and high intensity
magnetic separation.
K-T Feldspar holds in excess of 20 years of reserves based on current
sales, product mix and lease terms. Reserves are held on fee simple and
leased properties.
K-T Feldspar operates its mines and plant under permits issued by the
North Carolina Department of Natural Resources and Community Development.
All permits are in good standing.
K-T Feldspar's plant and equipment have been operational in excess of 25
years. The Company has upgraded and modernized these facilities over the
years and has a continuing maintenance program to maintain the plant and
equipment in good physical and operating condition. The net book value
of the K-T Feldspar property and its associated plant and equipment was
$5.8 million as of December 31, 1993. Carolina Power & Light Company, a
regulated public utility, provides the electric power utilized for
operations at K-T Feldspar.
There were 44 employees employed by K-T Feldspar as of December 31, 1993;
none of whom are represented by a bargaining agent.
K-T Clay de Mexico, S.A. de C.V.
In 1993, K-T Clay substantially completed construction of its clay slurry
plant in Monterrey, Mexico, which now supplies clay slurry to the Mexican
ceramics industry. Bulk semi-dry clay is shipped by rail from K-T Clay's
domestic operations to the K-T Mexico slurry plant in Monterrey. The
clay
-16-
18
is blended to customer specifications and converted to a slurry form for
final shipment to its customers.
Approximately $5.8 million was expended in constructing the clay slurry
plant. K-T Mexico utilizes electrical power from the local public
utility. There were 14 people employed by K-T Mexico as of December 31,
1993, who are represented by a bargaining agent.
Mountain West Bark Products, Inc.
The Company acquired the operations and assets of Mountain West in
December 1993 (See Note 2 of Notes to Consolidated Financial Statements).
Mountain West's primary business is the purchasing, processing and
marketing of certain waste products from lumber milling operations in the
western intermountain region. These products are sold as organic soil
amendments, organic landscape mulches and organic decorative ground cover
for landscape purposes.
The waste products are purchased by Mountain West and transported by
truck for processing to plants at two locations: Rexburg, Idaho and
Superior, Montana. The plants are located near the sources of supply to
reduce trucking costs. The principal customers are lawn and garden
retail yards, lawn and garden product distributors and discount retail
chain stores. The processing plants are owned by Mountain West and the
sources of waste bark supply are held under contracts.
Most of the annual sales take place in the first six months of the year
due to the seasonality of the market. The plants have operated in excess
of 13 years at Rexburg and five years at Superior. The plants are
maintained and upgraded continually and are in good working order.
The net book value of the associated plant and equipment was
approximately $4.6 million as of December 31, 1993. Utah Power and Light
and Montana Power Company provide electrical power utilized by the
operations at Rexburg and Superior, respectively.
Mountain West employed 68 employees as of December 31, 1993; none of whom
are represented by a bargaining agent.
Colorado Aggregate Company
CAC mines and sells volcanic rock (scoria) for use as briquettes in gas
barbecue grills, as landscaping mulch and decorative ground cover, and as
gravel bedding in aquariums. Volcanic scoria is a lightweight
clinker-like material produced during gaseous volcanic eruptions that
form cinder cones. These cones occur frequently in the geological
environment but are unique by density, texture and color.
The Company operates mines at Mesita, Colorado, and in northern New
Mexico as well as processing plants at San Acacio and Antonito, Colorado.
All mining is open pit with minimal requirements for the removal of
overburden.
The principal customers for scoria briquettes are manufacturers and
retailers of gas barbecue grills. Landscapers, distributors of
landscaping
-17-
19
materials, lawn and garden retailers and discount chain stores are the
principal customers for scoria landscape stone.
The Mesita mine is owned by CAC. Due to the seasonal nature of CAC's
business, it is usually anticipated that most of its annual sales and
profits will be generated in the first two quarters of each calendar
year. The Company has over 20 years of mineral reserves at the Mesita,
Colorado, location and has developed in excess of 15 years of mineral
reserves at the Red Hill mine in northern New Mexico which is under lease
from the Bureau of Land Management.
CAC's plants and equipment have been operational in excess of 20 years.
The Company has upgraded and modernized these facilities over the years
and has a continuing maintenance program to maintain the plant and
equipment in good physical and operating condition. The net book value
of CAC's property and its associated plants and equipment was $4.0
million as of December 31, 1993. Public Service Company of Colorado and
San Luis Valley Electric Co-operative provide the electric power utilized
for operations at CAC.
CAC employed 68 employees as of December 31, 1993; none of whom are
represented by a bargaining agent.
SPECIALTY METALS SEGMENT
Apex Facility - Utah
Acquired in 1989 from Musto Exploration Ltd., of Vancouver, British
Columbia, the Apex facility is located in Washington County approximately
23 miles west of St. George, Utah, on the east flank of the Beaverdam
Mountains at an elevation of 5,600 feet. The mine property consists of
24 patented mining claims and nine unpatented lode mining claims accessed
by year-round all-weathered roads. Two of the unpatented lode mining
claims are leased. The total surface area covered by the mine properties
is approximately 700 acres.
The Apex facility was constructed in 1984 by St. George Mining
Corporation, a wholly owned subsidiary of Musto Exploration Ltd. The
plant and equipment are in good working condition and are maintained on
an ongoing basis. Improvements to the plant since the Company acquired
it in 1989 include redesigning the plant flow sheet, increasing metals
leaching capacity, the addition of copper and germanium solvent
extraction circuits, adding copper electrowinning facilities, upgrading
liners and leak detection systems in the tailings ponds, and constructing
a tailings neutralization plant. The net book value of the Apex facility
property and its associated plant and equipment was $3.0 million as of
December 31, 1993. The Apex facility is provided electrical power by
Utah Power and Light Company.
The Company suspended mining operations and processing activities at the
Apex mine in 1990 due to depressed germanium and gallium prices. Based
on its periodic review of the status of various mining properties, the
Company determined in the fourth quarter of 1992 that a write-down of
approximately $13.5 million was necessary to properly reflect the
estimated net
-18-
20
realizable value of the Apex facility. There were 26 employees at the
Apex facility at December 31, 1993; none of whom are represented by a
bargaining agent.
Although the Company's strategy has primarily focused on expanding its
precious metal and industrial mineral operations, the Company continues
to investigate specialty mineral opportunities for its modern processing
facility located in southern Utah. During 1993, the Apex facility
continued production of cobalt chemicals and process trials of
metallurgical residues. The Company believes that it has achieved good
project performance during 1993 and plans to continue to develop the Apex
facility to produce cobalt chemicals and specialty metals assuming
satisfactory economics can be achieved.
PROPERTIES ON STANDBY
General
Various mining operations of the Company have been placed on a standby
basis. Placing a mining property on a standby basis during periods of
depressed metals prices, thereby preserving a depletable asset, is common
in the mining industry. The most important of these properties are
described below.
Greens Creek Mine - Admiralty Island, Alaska
At December 31, 1993, the Company held a 29.7% interest in the Greens
Creek mine, located on Admiralty Island, near Juneau, Alaska, through a
joint venture arrangement with Kennecott Greens Creek Mining Company, the
manager of the mine, a wholly owned subsidiary of Kennecott Corporation,
and CSX Alaska Mining Inc. Greens Creek is a polymetallic deposit
containing silver, zinc, gold, and lead. Effective January 1, 1993, the
Company increased its interest in the Greens Creek joint venture from
28.08% to 29.7% when the Company elected its right, under the joint
venture agreement, to acquire its allocable portion of Exalas Resources
Corporation's 5.54% joint venture interest offered to the other parties.
Greens Creek lies within the Admiralty Island National Monument, an
environmentally sensitive area. The Greens Creek property includes 17
patented lode claims, and one patented millsite claim in addition to
property leased from the U.S. Forest Service. The entire project is
accessed and served by 13 miles of road and consists of an ore
concentrating mill, tailings impoundment, a ship-loading facility and
ferry dock.
In February 1993, as a result of depressed metals prices, the decision
was made by the manager to suspend operations at the Greens Creek mine.
Commercial production ceased in April 1993, and the mine and mill were
placed on a standby basis. Limited mine development activities have
continued at the mine. All operating and environmental permits are being
maintained in anticipation of a resumption of operations once economic
conditions improve.
-19-
21
During operations, ore from the Greens Creek mine, a trackless
underground operation, is milled at a 1,320-ton-per-day mill at the mine
site. The mill produces saleable lead, zinc and bulk lead/zinc
concentrates. The three concentrate products were predominantly sold to
a number of major European and Asian smelters. A lesser amount of the
concentrates was sold to metal merchants under short-term agreements.
The concentrates are shipped from a marine terminal located about nine
miles from the mine site.
The Greens Creek mill plant facility and surface and underground
equipment are in good working condition. The mill was originally
constructed about six years ago. The manager of the joint venture
maintains the plant and equipment on an ongoing basis. Improvements to
the mill during 1992 were directed to increasing mill processing rates
and improving metals separation capability. Specific improvements
included increasing flotation capacity by installing larger float cells
and column cells and increasing grinding capacity by installing two
vertical regrinding mills. The Greens Creek mine uses electrical power
provided by diesel-powered generators located on-site. The net book
value of the Company's interest in the Greens Creek mine property and its
associated plant and equipment was $49.2 million as of December 31, 1993.
The Greens Creek deposit consists of zinc, lead, and iron sulfides and
copper-silver sulfides and sulfosalts with substantial contained gold and
silver values, having a vein-like to blanket-like form of variable
thickness. The ore is thought to have been laid down by an "exhalative"
process (i.e., volcanic-related rifts or vents deposited base and
precious metals onto an ocean floor). Subsequently, the blanket-like
mineralization was severely folded by several generations of tectonic
events.
The estimated mineral reserves for the Greens Creek mine are calculated
by Greens Creek Mining Company's engineering department with support from
Kennecott Corporation's technical staff and are not independently
confirmed by the Company. Information with respect to the Company's
share of production, proven and probable mineral reserves, and average
cost per ounce of silver produced is set forth in the table below:
-20-
22
Years
--------------------------------------------------------------------------------------------------------
Production 19931(29.7%) 1992(28%) 1991(28%) 1990(28%) 19892(28%)
- ----------------- ------------ --------- --------- --------- ----------
Ore milled (tons) 33,638 123,526 120,187 107,445 74,108
Silver (ounces) 551,107 1,959,368 2,178,141 2,144,389 1,446,365
Gold (ounces) 2,826 9,094 10,505 10,705 6,588
Zinc (tons) 3,453 11,385 11,906 10,391 5,559
Lead (tons) 1,298 4,650 4,863 4,698 2,685
Proven and Probable
Mineral Reserves
- -------------------
Total tons 1,911,000 3,422,000 3,876,000 1,776,400 817,000
Silver (ounces per ton) 16.0 12.7 13.3 15.1 21.4
Gold (ounces per ton) 0.14 0.13 0.12 0.13 0.19
Zinc (percent) 14.4 13.2 12.8 12.4 8.4
Lead (percent) 4.7 4.0 4.0 4.2 3.4
Average Cost per
Ounce of Silver Produced
- ------------------------
Cash Production Costs $ 5.11 $ 4.82 $ 3.94 $ 2.52 $ 4.32
Full Production Cost $ 7.16 $ 6.54 $ 5.43 $ 4.69 $ 7.25
- -------------------------------
1 Operations were suspended in April 1993 and placed on a standby
basis.
2 Production commenced in March 1989.
Ore reserve criteria and estimation techniques used for year-end 1993
reserves differed substantially from those used in prior years. Among
these changes were the adoption of block modeling techniques in place of
the sectional methods for a major section of the mine, a reevaluation of
cut-off criteria, and the development of refinements to in-situ net
smelter return estimates involving projected smelting terms and
distribution or recovery of metals in the three concentrate products and
metal price changes. In addition, more rigorous criteria for reserve
classification were applied to the probable reserves category. These
changes and the deduction for production in 1993 resulted in a reduction
in proven and probable mineral reserves from 3.4 million tons at December
31, 1992, to 1.9 million tons at December 31, 1993.
In 1993, drilling in the southwest area of the mine encountered an
additional mineralized zone containing higher than mine average gold and
silver content. The Company's interest in this mineral-bearing material
would amount to approximately 840,000 tons at 33.71 ounces of silver per
ton, 0.27 ounce of gold per ton, 13.36% zinc, and 5.84% lead. Sufficient
drilling in the southwest area has not yet been completed to classify the
mineralized zone as proven and probable mineral reserves. Drilling is
expected to continue in 1994 to define the nature and extent of this
resource.
-21-
23
In January 1994, the manager of the Greens Creek mine initiated a
feasibility study to determine the advisability of placing the mine,
including the mineral-bearing material of the southwest area, back into
production. The feasibility study is expected to be completed during the
fourth quarter of 1994 or the first quarter of 1995.
At December 31, 1993 there were 26 employees at the Greens Creek Joint
Venture. The employees at the Greens Creek Joint Venture are not
represented by a bargaining agent.
Yellow Pine - Idaho
The Yellow Pine gold mine is located in Valley County, Idaho, about 50
miles east of McCall in central Idaho, and is accessed by secondary roads
and air. The property consists of 26 patented claims which are held by
the Company under lease from the Bradley Mining Company of San Francisco,
California, and 57 unpatented claims. The lease provides for production
royalties equal to 6% of net smelter returns plus 10% of cumulative cash
flow, and also provides for a minimum royalty payment of $3,500 per month
reduced by current production royalties. Production from the oxide
mineralization ceased in 1992; the operation has been undergoing
reclamation since that time. Mineralized sulfide material, estimated at
between 15 and 20 million tons containing approximately 0.09 ounce of
gold per ton, is also located on the property. The Company continues to
evaluate the economic feasibility of developing this extensive
gold-bearing deposit.
Hog Heaven - Montana
The Company controls all of the mineral rights and necessary surface
rights to approximately 6,720 acres known as Hog Heaven, located 25 miles
south of Kalispell in northwestern Montana. The property has mineralized
material totaling approximately 3,886,000 tons containing 0.019 ounce of
gold per ton and 6.16 ounces of silver per ton. At present metals
prices, the Company believes it is uneconomical to bring the property
into production.
The Company owns fee simple mineral interests on 6.5 of the 10.5 sections
it controls. Approximately 95% of the project's presently known
mineralization is believed to be contained on those 6.5 sections. The
Company leases the remaining 4 sections which are subject to a 5% royalty
rate. Three of these sections are also subject to annual advance royalty
payments of $12,500 for 1991 through 2007 and the remaining section is
subject to annual rentals of $1,920 per year for 1993-1996.
The property is subject to two noninterest-bearing production payments.
The obligation to Canadian Superior Mining Company (U.S.) (Superior) of
$2,650,000 is payable out of 10% of Hog Heaven net profits after the
return to the Company, with interest, of all funds invested by it
subsequent to May 15, 1982. The second obligation of $1,315,000 payable
to former partners of a predecessor partnership is also payable out of
10% of net profits of Hog Heaven and begins after payment in full to
Superior.
Based on its periodic review of the status of various mining properties,
the Company determined in the fourth quarter of 1992 that a write-down of
-22-
24
approximately $7.0 million was necessary to properly reflect the
estimated net realizable value of the Hog Heaven property.
Escalante Mine - Utah
The Escalante mine is located in Iron County approximately 40 miles west
of Cedar City in southwest Utah. The total surface area covered by the
mine properties is presently about 800 acres. The Company ceased mining
operations at the Escalante mine on December 30, 1988, and the milling of
stockpiled ore was completed in August 1990. The currently known ore
body at the Escalante mine has been mined out and exploration efforts to
discover more ore have not been successful. The mill has been placed on
care-and-maintenance status.
Lisbon Valley Project - Utah
The Company leases a block of property comprising approximately 1,100
acres of private, state and county lands in the Lisbon Valley district
about 30 miles south of Moab in San Juan County, Utah. In 1976, the
Company entered into a joint venture with Union Carbide Corporation (now
succeeded in interest by Umetco Minerals Corporation, a wholly owned
subsidiary of Union Carbide) whereby Union Carbide became the operator of
the property. The joint venture agreement provides for equal sharing of
all costs and production. A second agreement provides for the milling of
the Company's share of production at Union Carbide's mill. In December
1982, the property was placed on a maintenance and standby basis because
of the depressed markets for uranium and vanadium. It is fully developed
and ready for production mining. However, at current metals prices, the
Company believes it is uneconomical to place the property into
production.
Based on its periodic review of the status of various mining properties,
the Company determined in the fourth quarter of 1992 that a write-down of
approximately $3.5 million was necessary to properly reflect the
estimated net realizable value of the Lisbon Valley Project.
OTHER INTERESTS
Uranium Royalties
The Company receives minimum royalties from certain of its uranium
properties located in the Ambrosia District near Grants, New Mexico,
leased by the Company to Rio Algom Corporation, successor to Kerr-McGee
Corporation. The leases covering the properties continue in effect so
long as these royalties are paid, but terminate if defined mining
operations are not conducted on such properties during a continuous
period of 36 months. Although uranium mining operations have been
suspended on the properties, Rio Algom continues to recover uranium from
the underground leach solutions from which the Company will continue to
receive royalties.
The Company also holds a 2% royalty interest from uranium ores mined from
certain other properties in the Ambrosia Lake District, which are owned
by others.
-23-
25
The Company does not have current independent or verified mineral reserve
estimates for any of such properties. In addition, in view of the
severely depressed market price for uranium which now exists, uranium
royalties are immaterial to the operating results of the Company.
Uranium Mill Tailings
The Company has been involved in a number of remediation issues related
to uranium mill tailings located at properties in Colorado and New
Mexico. The Company will reclaim a site located near Naturita, Colorado,
where it processed uranium tailings under a uranium tailings processing
license originally issued to the Company by the State of Colorado. The
Company is currently working with the State of Colorado Department of
Health to develop a reclamation plan for this site. During 1993, the
Nuclear Regulatory Commission terminated the Company's license for a site
in New Mexico (Johnny M) after successfully completing the required
reclamation.
Exploration
The Company conducts exploration activities from its headquarters in
Coeur d'Alene, Idaho. The Company owns or controls patented and
unpatented mining claims, fee land, mineral concessions, and state and
private leases in ten states in the U.S. and two Mexican states. The
Company's strategy regarding reserve replacement is to concentrate its
efforts on (1) existing operations where an infrastructure already
exists, (2) other properties presently being developed and advanced-stage
exploration properties that have been identified as having potential for
additional discoveries, and (3) advanced-stage exploration acquisition
opportunities. The Company is currently concentrating its exploration
activities of existing operations at the Republic and La Choya gold mines
and the Lucky Friday and Greens Creek silver mines. The Company is also
continuing exploration activities at the Grouse Creek gold project. The
Company remains active in other exploration areas and is seeking
advanced-stage acquisition opportunities in the United States, Canada and
Mexico.
As part of its strategy to increase its development and expansion of
currently producing gold properties, the Company continues to focus its
efforts on the exploration (and development) of the Republic mine. With
the completion of the underground decline into the Golden Promise area of
the mine, the Company has secondary access to that area as well as a base
for further exploration. The Company has already identified numerous
gold targets through a surface and underground drilling program and is
currently working to access these targets from the underground decline.
For other activities at the mine see "Metals Segment - Republic Mine -
Republic, Washington."
In February 1992, the Company discovered several mineralized structures
located about 5,000 feet northwest of the existing Lucky Friday mine
workings in an area referred to as the Gold Hunter. An exploration and
development program to determine the size, content and economic
feasibility of mining the mineralization continued during 1992 and was
completed in 1993. The Company's decision regarding development of the
Gold Hunter is pending (See "Metals Segment - Lucky Friday Mine - Coeur
d'Alene Mining District - Idaho" for additional discussion regarding the
Gold Hunter).
-24-
26
Assuming the consummation of the planned acquisition of Equinox in March
1994, the Company believes there are significant exploration and
development opportunities at the Rosebud gold property located in
Pershing County, Nevada. Additionally, the Equinox acquisition will also
bring the American Girl gold mine, located in Imperial County,
California, and a host of other exploration properties.
Properties are continually being added to or dropped from this inventory
as a result of exploration and acquisition activities. Exploration
expenditures for the three years ending December 31, 1993, 1992 and 1991
were approximately $4.4 million, $7.7 million and $5.7 million,
respectively.
INDUSTRY SEGMENTS
Financial information with respect to industry segments is set forth in
Note 11 of Notes to the Consolidated Financial Statements.
COMPETITION
The Company is engaged in the mining and processing of gold, silver and
other nonferrous metals and industrial minerals in the United States.
The Company encounters strong competition from other mining companies in
connection with the acquisition of properties producing, or capable of
producing, gold, silver and industrial minerals. The Company also
competes with other mining companies in connection with the recruiting
and retention of qualified employees knowledgeable in mining operations.
Silver and gold are worldwide commodities and, accordingly, the Company
sells its production at world market prices. The table below reflects
the volatility of silver and gold prices:
Average Metal Prices
--------------------------------------------------------------
Silver Gold
Year (per oz.-Handy & Harman) (per oz.-London Final)
---- ------------------------------ ----------------------
1993 $ 4.30 $ 360
1992 $ 3.94 $ 344
1991 $ 4.04 $ 362
1990 $ 4.82 $ 383
1989 $ 5.50 $ 381
The Company cannot compare sales from its ball clay mining operations with
sales of other ball clay producers because the principal competitors are
either family-owned or divisions of larger, diversified companies, but the
Company believes that K-T Clay is the largest producer of ball clay in the
United States. With the acquisition of kaolin assets from Cyprus Minerals
Company in 1989, the Company has also become an important producer in the
United States of ceramic-grade kaolin. The principal competitors of the
Company in the ball clay industry are H. C. Spinks Clay Company, Watts
Blake Bearne & Company, and Old Hickory Clay Company. The principal
competitors of the Company in the kaolin industry, are Albion Kaolin
Company, Evans Clay Company, JM Huber Corporation, English China Clay
Company and Dry Branch Kaolin Company. The Company, with the acquisition
-25-
27
of Indusmin Incorporated's feldspar assets, is also a major producer and
supplier of sodium feldspar products. The principal competitors of the
Company in the feldspar industry are Feldspar Corporation and Unimin
Corporation.
The Company competes with other producers of scoria and with manufacturers
of ceramic briquettes in the production and sale of briquettes. The
Company has limited information as to the size of the barbecue briquette
industry, but believes that it supplies a major portion of the scoria
briquettes used in gas barbecue grills. Price and natural product
characteristics, such as color, uniformity of size, lack of contained
moisture and density, are important competitive considerations. The
Company believes that it has a significant portion of the landscape scoria
market east of the Continental Divide.
Mountain West competes with other producers of lawn and garden and soil
products, decorative bark products and landscape mulches. The principal
competitors are either privately owned companies or divisions of larger
diversified companies that operate in numerous regional markets. The
Company has limited information about the sales of competing products in
its overall markets but believes it supplies a significant portion of the
market for its product in the intermountain region.
With respect to the acquisition of mineral interests and exploration
activities, which in terms of continuing growth and success may be the
most important area of the Company's activities, the Company competes with
numerous persons and with companies, many of which are substantially
larger than the Company and have considerably greater resources.
SAFETY AND ENVIRONMENTAL REGULATION
The mining operations of the Company are subject to inspection and
regulation by the Mine Safety and Health Administration of the Department
of Labor (MSHA) under provisions of the Federal Mine Safety and Health Act
of 1977. It is the Company's policy to comply with the directives and
regulations of MSHA. In addition, the Company takes such necessary
actions as, in its judgment, are required to provide for the safety and
health of its employees. MSHA directives have had no material adverse
impact on the Company's results of operations or financial condition, and
the Company believes that it is substantially in compliance with the
regulations promulgated by MSHA.
The Company's operations are also subject to regulation under various
federal and state environmental laws and regulations. The most
significant of these laws deal with mined land reclamation, waste water
discharges and solid wastes from mines, mills, and further processing
operations (see Note 8 of Notes to Consolidated Financial Statements).
The Company does not believe that these laws and regulations have a
material adverse effect on its results of operations or financial
condition at this time. However, charges by smelters to which the Company
sells its metallic concentrates and products have substantially increased
over a period of years because of requirements that smelters meet revised
environmental quality standards. Smelters are also subject to
environmental protection laws and regulations. The Company has no control
over the smelters' operations or their
-26-
28
compliance with environmental laws and regulations. If the smelting
capacity of the United States was significantly further reduced because of
environmental requirements, it is possible that the Company's operations
could be adversely affected.
While the Company believes that it is in substantial compliance with
current applicable environmental regulations, changes in federal and state
regulatory policies may, at some future date, impose additional costs and
operating requirements upon the Company. In addition, the future
development of other Company holdings may require the acquisition of
permits from various governmental agencies. Such future changes in
federal and state regulatory policies on the Company's exploration and
development activities could adversely affect the Company.
EMPLOYEES
As of December 31, 1993, the Company and its subsidiaries employed 919
people.
GLOSSARY OF CERTAIN MINING TERMS
BALL CLAY -- A fine-grained, plastic, white firing clay used principally
for bonding in ceramic ware.
CASH PRODUCTION COSTS -- Includes all direct and indirect operating cash
costs incurred at each operating mine.
CASH PRODUCTION COSTS PER OUNCE - Calculated based upon total cash
production costs, as defined herein, net of by-product revenues earned
from all metals other than the primary metal produced at each mine,
divided by the total ounces of the primary metal produced.
DECLINE -- An underground passageway connecting one or more levels in a
mine, providing adequate traction for heavy, self- propelled equipment.
Such underground openings are often driven in an upward or downward
spiral, much the same as a spiral staircase.
DEVELOPMENT -- Work carried out for the purpose of opening up a mineral
deposit and making the actual ore extraction possible.
DORE -- Unparted gold and silver poured into molds when molten to form
buttons or bars. Further refining is necessary to separate the gold and
silver.
EXPLORATION -- Work involved in searching for ore, usually by drilling or
driving a drift.
FELDSPARS -- Aluminosilicates that contain potassium, sodium and calcium.
Feldspar products are primarily used in the ceramic whiteware, glass and
paint industries.
FULL PRODUCTION COSTS -- Includes all cash production costs, as defined,
plus depreciation, depletion and amortization relating to each operating
mine.
-27-
29
FULL PRODUCTION COSTS PER OUNCE - Calculated based upon total full
production costs, as defined, divided by the total ounces of the primary
metal produced.
GRADE -- The average assay of a ton of ore, reflecting metal content.
HEAP LEACHING -- A process involving the percolation of a cyanide solution
through crushed ore heaped on an impervious pad or base to dissolve
minerals or metals out of the ore.
KAOLIN -- A fine, white clay used as a filler or extender in ceramics and
refractories.
MILL -- A processing plant that produces a concentrate of the valuable
minerals or metals contained in an ore. The concentrate must then be
treated in some other type of plant, such as a smelter, to affect recovery
of the pure metal.
MINERAL-BEARING MATERIAL -- Material for which quantitative estimates are
based on inferences from known mineralization, or on drill-hole samples
too few in number to allow for classification as probable reserves.
ORE -- Material that can be mined and processed at a positive cash flow.
PATENTED MINING CLAIM -- A parcel of land originally located on federal
lands as an unpatented mining claim under the General Mining Law, the
title of which has been conveyed from the federal government to a private
party pursuant to the patenting requirements of the General Mining Law.
PROVEN AND PROBABLE MINERAL RESERVES -- Reserves that reflect estimates of
the quantities and grades of mineralized material at the Company's mines
which the Company believes can be recovered and sold at prices in excess
of the cash cost of production. The estimates are based largely on
current costs and on projected prices and demand for the Company's
products. Mineral reserves are stated separately for each of the
Company's mines based upon factors relevant to each mine. Proven and
probable mineral reserves for the Greens Creek mine (in which the Company
owns a 29.7% interest) are based on calculations of reserves provided to
the Company by the operator of such property that have been reviewed but
not independently confirmed by the Company. Greens Creek Mining Company's
estimates of proven reserves and probable reserves at December 31, 1993
and 1992 are based on silver prices of $4.75 and $4.50 per ounce, gold
prices of $350 and $340 per ounce, zinc prices of $0.57 and $0.60 per
pound, and lead prices of $0.28 and $0.33 per pound, respectively.
Changes in reserves represent general indicators of the results of efforts
to develop additional reserves as existing reserves are depleted through
production. Grades of ore fed to process may be different from stated
reserve grades because of variation in grades in areas mined from time to
time, mining dilution and other factors. Reserves should not be
interpreted as assurances of mine life or of the profitability of current
or future operations. The Company's estimates of proven reserves and
probable reserves at December 31, 1993 and 1992 are based on gold prices
of $375 and $350 per ounce, silver prices of $4.50 and $4.00 per ounce,
lead
-28-
30
prices of $0.23 and $0.30 per pound, and zinc prices of $0.44 and $0.55
per pound, respectively.
PROBABLE RESERVES -- Resources for which tonnage and grade and/or quality
are computed primarily from information similar to that used for proven
reserves, but the sites for inspection, sampling and measurement are
farther apart or are otherwise less adequately spaced. The degree of
assurance, although lower than that for proven reserves, is high enough to
assume continuity between points of observation.
PROVEN RESERVES -- Resources for which tonnage is computed from dimensions
revealed in outcrops, trenches, workings or drill holes and for which the
grade and/or quality is computed from the results of detailed sampling.
The sites for inspection, sampling and measurement are spaced so closely
and the geologic character is so well defined that size, shape, depth and
mineral content of reserves are well established. The computed tonnage
and grade are judged to be accurate, within limits which are stated, and
no such limit is judged to be different from the computed tonnage or grade
by more than 20%.
RESERVES -- That part of a mineral deposit which could be economically and
legally extracted or produced at the time of the reserve determination.
Reserves are customarily stated in terms of "Ore" when dealing with
metalliferous minerals.
ROCKBURST -- Explosive rock failures caused by the pressure exerted by
rock adjacent to mine openings far below the surface.
SAND FILL -- The coarser fraction of concentrator tailings, which is
conveyed as a slurry in underground pipes to support cavities left by
extraction of ore.
SHAFT -- A vertical or steeply inclined excavation for the purpose of
opening and servicing a mine. It is usually equipped with a hoist at the
top which lowers and raises a conveyance for handling personnel and
materials.
STOPE -- An underground excavation from which ore has been extracted
either above or below mine level.
TROY OUNCE -- Unit of weight measurement used for all precious metals.
The familiar 16-ounce avoirdupois pound equals 14.583 Troy Ounces.
UNDERHAND MINING -- The primary mining method employed in the Lucky Friday
mine utilizing mechanized equipment, a ramp system and cemented sand fill.
The method has proven effective in reducing mining cost and rockburst
activity.
UNPATENTED MINING CLAIM -- A parcel of property located on federal lands
pursuant to the General Mining Law and the requirements of the state in
which the unpatented claim is located, the paramount title of which
remains with the federal government. The holder of a valid, unpatented
lode mining claim is granted certain rights including the right to explore
and mine such claim under the General Mining Law.
-29-
31
VEIN -- A mineralized zone having a more or less regular development in
length, width and depth which clearly separates it from neighboring rock.
WASTE -- Barren rock in a mine, or mineralized material that is too low in
grade to be mined and milled at a profit.
Item 2. Properties
The Company's principal mineral properties are described in Item 1 above.
The Company also has interests in other mineral properties in the United
States and Mexico. Although some of such properties are known to contain
significant quantities of mineralization, they are not considered material
to the Company's operations at the present time. Encouraging results from
further exploration or increases in the market prices of certain metals
could, in the future, make such properties considerably more important to
the business of the Company taken as a whole.
The general corporate office of the Company is located in Coeur d'Alene,
Idaho, on a tract of land containing approximately 13 acres. The Company
also owns and plans to subdivide and sell approximately 70 adjacent acres.
The administrative offices of the Company's ball clay, kaolin and feldspar
operations are located five miles southwest of Mayfield, Kentucky.
Additionally, there are general offices and laboratory facilities at each
operating location. The Company also owns approximately 1,600 acres of
land principally for use in connection with milling and storage
operations.
The general offices of the scoria operations are located in Alamosa,
Colorado. The Company owns a parcel of land of approximately 20 acres in
the vicinity of Blanca, Colorado, on which are located building, storage
and shipping facilities utilized in its scoria business, and a bagging
plant for landscape scoria. An additional bagging facility, utilized for
scoria briquettes, is located at San Acacio, Colorado.
The general offices of Mountain West Bark Products, Inc. are located in
Rexburg, Idaho. Processing facilities are located in both Rexburg, Idaho
and Superior, Montana.
Item 3. Legal Proceedings
Reference is made to Note 8 of the Notes to Consolidated Financial
Statements included in this report for information regarding legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
-30-
32
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
(a) (i) Shares of the Common Stock, par value $.25 per share of the
Company (the Common Stock), are traded on the New York Stock
Exchange, Inc., New York, New York.
(ii) The price range of the Common Stock on the New York Stock
Exchange for the past two years was as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1993 - High $ 10.38 $ 14.50 $ 15.25 $ 11.88
- Low 7.38 9.88 9.13 9.63
1992 - High $ 12.00 $ 10.75 $ 10.38 $ 8.88
- Low 10.00 9.13 8.88 7.38
(b) As of December 31, 1993, there were 13,549 holders of record of the
Common Stock.
(c) There were no Common Stock cash dividends paid in 1993 or 1992. The
amount and frequency of cash dividends are significantly influenced
by metals prices, operating results and the Company's cash
requirements.
-31-
33
Item 6. Selected Financial Data
(dollars in thousands except for per-share amounts)
Years Ended December 31,
-----------------------------------------------------------------------
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
Total revenue $ 84,812 $ 113,079 $ 119,787 $ 162,669 $ 122,216
========= ========= ========= ========= =========
Income (loss) before cumulative effect of
changes in accounting principles $ (11,735) $ (49,186) $ (15,430) $ 6,711 $ (20,449)
Cumulative effect of changes in accounting
principles - - (103) - - - - - -
--------- --------- --------- --------- ---------
Net income (loss) (11,735) (49,289) (15,430) 6,711 (20,449)
Preferred stock dividends (4,070) - - - - - - - -
--------- --------- --------- --------- ---------
Net income (loss) applicable to
common shareholders $ (15,805) $ (49,289) $ (15,430) $ 6,711 $ (20,449)
========= ========= ========= ========= =========
Income (loss) per common share before
cumulative effect of changes in
accounting principles and after
preferred stock dividends $ (0.48) $ (1.59) $ (0.51) $ 0.22 $ (0.68)
========= ========= ========= ========= =========
Net income (loss) per common share $ (0.48) $ (1.60) $ (0.51) $ 0.22 $ (0.68)
========= ========= ========= ========= =========
Total assets $ 332,878 $ 222,443 $ 258,121 $ 270,085 $ 261,624
========= ========= ========= ========= =========
Long-term debt - Notes and contracts
payable1 $ 49,489 $ 70,382 $ 76,866 $ 71,062 $ 67,009
========= ========= ========= ========= =========
Cash dividends per common share $ - - $ - - $ - - $ 0.05 $ 0.05
========= ========= ========= ========= =========
Cash dividends per preferred share $ 1.77 $ - - $ - - $ - - $ - -
========= ========= ========= ========= =========
Common shares issued 34,644,734 31,651,192 30,308,680 30,118,729 30,093,642
Shareholders of record 13,549 14,859 17,127 18,032 18,863
Employees 919 826 911 981 999
- ---------------------------------
1 Includes $94,000, $181,000 and $260,000, for 1991, 1990 and 1989,
respectively, of long-term debt which is recorded in other
noncurrent liabilities.
-32-
34
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations1
INTRODUCTION
The Company is primarily involved in the exploration, development, mining, and
processing of gold, silver, lead, zinc, and industrial minerals. As such, the
Company's revenues and profitability are strongly influenced by world prices of
gold, silver, lead, and zinc, which fluctuate widely and are affected by
numerous factors beyond the Company's control, including inflation and
worldwide forces of supply and demand. The aggregate effect of these factors
is not possible to accurately predict.
The Company recorded net losses applicable to common shareholders for each of
the past three years ended December 31, 1993, primarily as a result of: (1) a
reduction in carrying values of certain mining properties, losses on
investments and provisions for closed operations and environmental matters
totaling $2.7 million in 1993, $42.7 million in 1992 and $3.6 million in 1991;
(2) depressed gold, silver, lead, and zinc prices; and (3) decreased gold
production due to the depletion of oxide ore reserves at the Cactus and Yellow
Pine mines and the decline in ore grade at the Republic mine.
The volatility of metals prices requires that the Company, in assessing the
impact of prices on recoverability of its assets, exercise judgment as to
whether price changes are temporary or are likely to persist (See "Competition
- - Average Metal Prices"). The Company performs a comprehensive evaluation of
the recoverability of its assets on a periodic basis. The evaluation includes
a review of future cash flows against the carrying value of the asset. Asset
write-downs may occur if the Company determines that the carrying values
attributed to project assets are not recoverable given reasonable expectations
for future market conditions.
In 1994, the Company expects to produce approximately 106,000 ounces of gold,
including 63,000 ounces from the La Choya gold mine, 38,000 ounces of gold from
the Republic mine and an additional 5,000 ounces of gold from other sources.
Assuming the timely commencement of production at the Grouse Creek gold project
in the fourth quarter of 1994, the Company's planned 1994 total gold production
could increase by up to 53,000 ounces to 159,000 ounces, based upon its 80%
interest in the project. Assuming the consummation of the planned acquisition
of Equinox Resources Limited (Equinox) in March 1994, the Company's planned
1994 gold production is expected to increase 25,000 ounces to 184,000 ounces,
principally resulting from Equinox's interest in the American Girl mine (See
Note 2 of Notes to Consolidated Financial Statements). The Company's gold
production increase in 1994 is based upon assuming a full year of production at
the La Choya mine and the start-up of production at the Grouse Creek gold
project in the fourth quarter of 1994, which offsets the expected decrease in
gold production at the Republic mine. The Company's level of gold production
for 1994 will depend, in part, upon the timely commencement of production at
the Grouse Creek property.
- ------------------------
1For definitions of certain mining terms used in this
description, see "Glossary of Certain Mining Terms" at the end of
Item 1, page 27.
-33-
35
The Company's share of silver production for the year ended December 31, 1993,
was 3.0 million ounces. Estimated silver production for 1994 is 2.7 million
ounces. The decrease in estimated silver production in 1994 compared to 1993
is principally due to the suspension of operations at Greens Creek which
commenced in April 1993.
During the year ended December 31, 1993, the Company shipped 888,000 tons of
industrial minerals including ball clay, kaolin, feldspar, and specialty
aggregates. The Company currently estimates that it will ship 945,000 tons of
industrial minerals during 1994. Additionally, the Company expects to ship
591,000 cubic yards of landscape material in 1994 from its newly acquired
subsidiary, Mountain West.
The Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company's historical
Consolidated Financial Statements set forth elsewhere herein.
Results of Operations
1993 vs 1992
A net loss of approximately $11.7 million, or $0.36 per common share, was
incurred in 1993 compared to a net loss of $49.3 million, or $1.60 per common
share, in 1992. After $4.1 million in dividends to holders of the Company's
Series B Cumulative Convertible Preferred Stock (Series B Preferred Stock), the
Company's net loss applicable to common shareholders for 1993 was $15.8
million, or $0.48 per common share. The 1993 loss was due to a variety of
factors, the most significant of which are discussed below.
Sales of products decreased by $18.8 million, or 19%, in 1993 as compared to
1992, principally the result of (1) decreased gold production due to the
winding down of operations at the Cactus mine, lower-grade ore being mined and
processed at the Republic mine, and the completion of operations at the Yellow
Pine mine during the third quarter of 1992; (2) decreased silver, lead, and
zinc production due to suspension of operations at the Greens Creek mine in
April 1993, and the sale of the Company's 25% interest in the Galena mine in
May 1992; (3) decreases in the average prices of lead and zinc in 1993 compared
to 1992; (4) decreased production of lead at the Lucky Friday mine resulting
from lower lead contained in the ore processed; and (5) decreased sales of ball
clay from Kentucky-Tennessee Clay Company; all of which were partially offset
by (1) increased revenue from the Company's Apex facility; (2) increased sales
of feldspar from K-T Feldspar Corporation, clay slurry products from the
recently completed slurry plant in Monterrey, Mexico, landscape products from
the newly acquired Mountain West, and specialty aggregate products from
Colorado Aggregate Company; and (3) increases in the average prices of gold and
silver in 1993 compared to 1992.
Cost of sales and other direct production costs decreased by $12.2 million, or
15%, in 1993 as compared to 1992, primarily a result of (1) decreased operating
costs at the Greens Creek mine due to suspension of operations in April 1993;
(2) decreased operating costs at the Cactus mine due to the completion of
mining operations in February 1992; (3) decreased operating costs resulting
from the sale of the Company's 25% interest in the Galena mine in May 1992; (4)
decreased operating costs at the Yellow Pine mine resulting from the completion
of operations during the third quarter of 1992; and (5) decreased cost of
production
-34-
36
at the Republic mine; all of which were partially offset by (1) increased
operating costs during 1993 at the Apex facility, K-T Feldspar Corporation,
Kentucky-Tennessee Clay Company's Ball Clay Division, and Colorado Aggregate
Company; and (2) operating costs in 1993 associated with the newly acquired
Mountain West.
Depreciation, depletion and amortization expense decreased by approximately
$3.2 million, or 24%, in 1993 as compared to 1992, primarily a result of (1)
the suspension of operations at the Greens Creek mine in April 1993, as well as
the completion of mining operations at the Cactus mine in February 1992 and the
Yellow Pine mine during the third quarter of 1992, where depreciable assets
were depreciated primarily on a unit-of-production basis, and (2) significant
assets at Kentucky-Tennessee Clay Company's Ball Clay Division reaching the end
of their depreciable lives. Both were partially offset by increased
depreciation expense due to increased ore tons mined during 1993 at the Lucky
Friday and Republic mines where significant depreciable assets are depreciated
on a unit-of-production basis.
Other operating expenses decreased by $44.4 million, or 75%, in 1993 as
compared to 1992, primarily the result of (1) the 1992 reduction in carrying
value of mining properties totaling $27.9 million, nonrecurring in 1993,
including (a) a $13.5 million write-down to reflect the estimated net
realizable value of the Company's interest in the Apex facility; (b) a $9.0
million write-down of the Consolidated Silver property in northern Idaho and
the Hog Heaven property in northwest Montana due to depressed silver prices;
(c) a $3.5 million write-down to reflect the estimated net realizable value of
the Company's interest in the Lisbon Valley project in Utah; and (d) a $1.9
million write-down of the Creede and Hardscrabble gold and silver properties
located in Colorado due to depressed precious metals prices; (2) the 1992
provision for closed operations and environmental matters totaling $12.7
million, nonrecurring in 1993, which consisted principally of an $8.5 million
increase in the allowance for the Bunker Hill Superfund Site remediation costs
and additional idle property reclamation and closure costs accruals of $3.3
million as further described in Note 8 of Notes to Consolidated Financial
Statements; (3) decreased domestic exploration expenditures mainly at the
Republic mine in 1993; (4) foreign exploration expenditures in Chile during
1992, nonrecurring in 1993; (5) reduced general and administrative costs in
1993 principally due to staff reductions and other cost-cutting measures at
corporate headquarters; and (6) research expenditures incurred at the Apex
facility during 1992, nonrecurring in 1993.
Other income (expense) netted to income of approximately $1.4 million in 1993
compared to income of $5.5 million in 1992. The decrease is primarily due to
(1) the sale of surface and timber rights on various nonoperating Company-owned
properties in 1992 resulting in a gain of approximately $9.0 million,
nonrecurring in 1993, and (2) the sale of the Company's 25% interest in the
Galena Unit and adjacent properties in May 1992 resulting in a gain of
approximately $1.2 million, nonrecurring in 1993. Both of these items were
partially offset by (1) decreased interest expense in 1993 resulting from (a)
the April 29, 1993, issuance of 2.2 million shares of the Company's Common
Stock for 60,400 of its outstanding Liquid Yield Option Notes as described in
Note 7 of Notes to Consolidated Financial Statements, and (b) increased
capitalized interest related to the Grouse Creek and La Choya projects; (2) the
$2.1 million write-down in 1992 of the Company's Common Stock investment in
Granduc Mines Limited to reflect the apparent other- than-temporary decline in
market value of
-35-
37
the investment, nonrecurring in 1993; and (3) increased interest income earned
in 1993 on the investment of the proceeds from the Company's public offering of
2.3 million shares of Series B Preferred Stock as described in Note 10 of Notes
to Consolidated Financial Statements.
Income taxes reflect a benefit of $0.9 million in 1993 compared to a $0.3
million benefit in 1992. The benefit in both periods reflects the carryback of
1993 and 1992 net operating losses to reduce income taxes previously provided.
Results of Operations
1992 vs 1991
The net loss for 1992 was $49.3 million, or $1.60 per share, compared to a net
loss of $15.4 million, or $0.51 per share, for 1991.
Sales of products decreased by $16.9 million, or 14%, from 1991 to 1992,
principally as a result of (1) decreased gold production at the Republic and
Cactus mines due to lower-grade ore mined and processed, and the completion of
operations at the Yellow Pine mine in August 1992; (2) decreases in the average
prices of gold, silver, and lead in 1992 compared to 1991; (3) decreased silver
production resulting from the 1992 sale of the Company's 25% interest in the
Galena mine; and (4) decreased silver, zinc, lead and gold production at the
Greens Creek mine due to lower-grade ore mined and processed; all of which were
partially offset by (1) increased silver, lead and zinc production at the Lucky
Friday mine; (2) increased sales of specialty aggregates from Colorado
Aggregate Company during 1992; (3) increases in the average price of zinc; (4)
increased sales of feldspar from K-T Feldspar Corporation during 1992; and (5)
increased sales from the Kaolin Division of Kentucky-Tennessee Clay Company
during 1992.
Cost of sales and other direct production costs decreased $1.6 million, or 2%,
from 1991 to 1992 primarily due to (1) decreased operating costs resulting from
the completion of operations at the Yellow Pine mine in August 1992; (2)
decreased operating costs at the Cactus mine due to the completion of mining
operations in February 1992; (3) decreased operating costs incurred resulting
from the sale of the Company's 25% interest in the Galena mine; and (4)
decreased operating costs at the Republic and Lucky Friday mines; all of which
were partially offset by (1) increased operating costs at the Greens Creek mine
and (2) increased operating costs at Colorado Aggregate Company,
Kentucky-Tennessee Clay Company, and K-T Feldspar Corporation.
Depreciation, depletion and amortization decreased by approximately $7.7
million, or 36%, primarily as a result of the completion of mining operations
at the Cactus mine in February 1992 where depreciation was based on ore tons
mined, and to a lesser extent by (1) the completion of mining operations at the
Yellow Pine mine in August 1992 and (2) the sale of the Company's 25% interest
in the Galena mine; all of which were partially offset by increased ore tons
mined at the Lucky Friday mine where significant depreciable assets are being
depreciated based on ore tons mined.
Other operating expenses increased by $33.3 million, or 130%, due principally
to (1) the reduction in carrying value of mining properties totaling $27.9
million including (a) a $13.5 million write-down to reflect the estimated net
realizable value of the Company's interest in the Apex facility, a
hydrometallurgical
-36-
38
processing plant near St. George, Utah; (b) a $9.0 million write-down of the
Consolidated Silver property in northern Idaho and the Hog Heaven property in
northwest Montana due to depressed silver prices; (c) a $3.5 million write-down
to reflect the estimated net realizable value of the Company's interest in the
Lisbon Valley project in Utah, a joint venture project fully developed for
uranium and vanadium production; and (d) a $1.9 million write-down of the
Creede and Hardscrabble gold and silver properties located in Colorado due to
depressed precious metals prices; (2) the provision for closed operations and
environmental matters totaling $12.7 million which consisted principally of an
$8.5 million 1992 increase in the allowance for the Bunker Hill Superfund Site
remediation costs and additional idle property reclamation and closure costs
accruals of $3.3 million, as further described in Note 8 of Notes to
Consolidated Financial Statements; and (3) increased exploration expenditures
at the Republic and Lucky Friday mines during 1992; all of which were partially
offset by decreased general and administrative costs principally due to (1)
1991 expenses incurred in connection with the June 26, 1991, merger of CoCa,
nonrecurring in 1992; (2) decreased other general and administrative costs
resulting from closing the CoCa office; and (3) other general and
administrative cost reduction efforts.
Other income (expense) changed from expense of $3.9 million in 1991 to income
of $5.5 million in 1992, primarily a result of (1) the sale of surface and
timber rights on various nonoperating Company-owned properties in 1992
resulting in a gain of approximately $9.0 million; (2) the 1992 sale of the
Company's 25% interest in the Galena mine and adjacent properties located in
northern Idaho, resulting in a gain of about $1.2 million; (3) the exchange of
1,120,125 shares of the Company's Common Stock for 30,900 of the Company's
outstanding Liquid Yield Option Notes resulting in a gain of approximately $0.5
million and a reduction of interest expense in 1992; and (4) increased
capitalized interest related to the Grouse Creek and La Choya projects in 1992;
all of which were partially offset by the $2.1 million write-down of the
Company's Common Stock investment in Granduc Mines Limited to reflect the
apparent other-than-temporary decline in the market value of the investment.
Income taxes reflect a benefit of $0.3 million in 1992 compared to a $2.6
million benefit in 1991. The benefit in both periods reflects the carryback of
1992 and 1991 net operating losses to reduce income taxes previously provided.
In 1992, the Company changed its method of accounting for income taxes and
postretirement benefits other than pensions. The adoption of SFAS No. 109,
"Accounting for Income Taxes," resulted in a $1.5 million benefit as of January
1, 1992. The effect of adopting SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," resulted in an additional expense
of $1.6 million as of January 1, 1992. The net cumulative effect of both of
these accounting changes was to increase the 1992 loss by $0.1 million.
Financial Condition and Liquidity
A substantial portion of the Company's revenue is derived from the sale of
products, the prices of which are affected by numerous factors beyond the
Company's control. Prices may change dramatically in short periods of time and
such changes have a significant effect on revenues, profits and liquidity of
the Company. The Company is subject to many of the same inflationary pressures
as the U.S. economy in general. To date, the Company has been successful in
implementing cost-cutting measures which have reduced per unit production
costs.
-37-
39
Management believes, however, that the Company may not be able to continue to
offset the impact of inflation over the long term through cost reductions
alone. However, the market prices for products produced by the Company have a
much greater impact than inflation on the Company's revenues and profitability.
Moreover, the discovery, development and acquisition of mineral properties are,
in many instances, unpredictable events. Future metals prices, the success of
exploration programs and other property transactions can have a significant
impact on the Company's need for capital.
At December 31, 1993, assets totaled approximately $332.9 million and
shareholders' equity totaled approximately $240.1 million. Cash, cash
equivalents and short-term investments increased by $62.1 million to $65.4
million at December 31, 1993, from $3.3 million at the end of 1992. The major
sources of cash and short-term investments were the $110.3 million net proceeds
received from the June 29, 1993, issuance of 2.3 million shares of Series B
Preferred Stock as described further in Note 10 of Notes to Consolidated
Financial Statements and proceeds of approximately $1.1 million from the
issuance of Common Stock under stock option plans. Other major sources of cash
were from operations at the Republic and Cactus mines, Kentucky-Tennessee Clay
Company's Ball Clay and Kaolin Divisions, K-T Feldspar Corporation, and
Colorado Aggregate Company. The major uses of cash were for (1) the
development costs incurred in connection with the Grouse Creek and La Choya
projects; (2) property, plant and equipment expenditures at the clay slurry
plant in Mexico, Kentucky-Tennessee Clay Company's Kaolin Division and Colorado
Aggregate Company; (3) general and administrative expenses; (4) exploration
costs; (5) idle property expenditures including environmental costs; and (6)
operations at the Lucky Friday mine, the Apex facility, and Mountain West.
The Company estimates that capital expenditures to be incurred in 1994 will be
approximately $62.2 million. The estimated capital expenditures for 1994
reflect the sale of a 20% ownership interest in the Company's Grouse Creek
project as described in Note 5 of Notes to Consolidated Financial Statements.
The Company's 1994 capital expenditures are expected to consist primarily of
(1) development expenditures at the Grouse Creek project totaling approximately
$50.0 million; (2) further development expenditures at the Greens Creek mine
totaling approximately $3.4 million; and (3) assuming completion of the
acquisition of Equinox as described below, development expenditures at
Equinox's Rosebud and Oro Cruz projects totaling approximately $3.7 million and
$1.3 million, respectively. The Company intends to finance these capital
expenditures through a combination of (1) existing cash, cash equivalents and
short-term investments; (2) proceeds from the sale of a minority joint venture
interest in the Grouse Creek project as described in Note 5 of Notes to
Consolidated Financial Statements; and (3) cash flow from operating activities.
In addition, the Company may borrow additional funds under its revolving credit
facility which, subject to certain conditions, provides for borrowings up to a
maximum of $30.0 million, as described further in Note 7 of Notes to
Consolidated Financial Statements. Moreover, to the extent the Company is able
to complete a securities offering, as described below, excess proceeds, if any,
may be used for these capital expenditures.
As further described in Note 2 of Notes to Consolidated Financial Statements,
the Company has entered into an Acquisition Agreement to acquire Equinox. The
Company's 1994 expenditures on the Rosebud and Oro Cruz projects are contingent
upon the Company's successful consummation of the acquisition of Equinox.
-38-
40
The Company's planned environmental and reclamation expenditures for 1994 are
expected to be approximately $6.6 million, principally for environmental and
reclamation activities at the Bunker Hill and California Gulch Superfund Sites
and at the Yellow Pine, Escalante and Durita properties.
Exploration expenditures for 1994 are estimated to be approximately $6.2
million. The Company's exploration strategy is to focus further exploration at
or in the vicinity of its currently owned properties. Accordingly, 1994
exploration expenditures will be incurred principally at the Republic, Grouse
Creek and La Choya properties.
As described in Note 7 of Notes to Consolidated Financial Statements, the
Company has a secured reducing revolving credit facility which provides for
credit advances of up to $30.0 million. The availability of advances under
this facility reduces commencing December 31, 1995, and is subject to certain
other limitations, with the balance due at maturity on December 31, 1996.
Borrowings under the facility are secured by the accounts receivable,
inventories, and specified marketable securities. As of December 31, 1993, the
Company had no outstanding borrowings under the revolving credit facility.
As further described in Note 7 of Notes to Consolidated Financial Statements,
on April 23, 1993, the Company exchanged 2.2 million shares of its common stock
for 60,400 outstanding Liquid Yield Option Notes in a noncash transaction.
The Company currently has outstanding $109,950,000 aggregate principal amount
of Liquid Yield Option Notes (LYONs) due 2004, which are currently convertible
into 20.824 shares of common stock per $1,000 principal amount of LYONs.
Pursuant to the terms of the indenture governing the LYONs, on June 14, 1994,
holders of LYONs may require the Company to purchase LYONs held by them (the
Put Feature) at a purchase price of $456.39 per $1,000 principal amount of
LYONs. The purchase price may be paid, at the option of the Company, in cash,
in shares of common stock (valued at the market price of the common stock) or
in the Company's Subordinated Extension Notes due 2004; but because of the
Company's need to utilize cash for planned capital expenditures, it is probable
that, absent any action by the Company, it will pay for any LYONs delivered to
it pursuant to the Put Feature by issuing common stock. The Company is unable
to predict how many LYONs it may be required to purchase pursuant to the Put
Feature, and the Company cannot predict what effect the Put Feature will have
on the market price of its common stock.
The Company is currently considering several alternatives with respect to the
Put Feature. One of the alternatives being examined by the Company is the sale
of additional shares of common stock (or other Company securities) with the
proceeds of such an offering being used to pay cash for LYONs delivered to the
Company pursuant to the Put Feature (and any remaining proceeds would be used
for capital expenditures). The Company is also considering amending certain
terms of the LYONs in order to make it less likely that the Put Feature will be
exercised on June 14, 1994, including changing the conversion ratio to increase
the number of shares of common stock that would be issuable for each LYON. If
either of these alternatives is pursued, then additional shares of common stock
could be issued, although the Company's intent with respect to these
alternatives is to issue less shares of common stock (other than any securities
sold to raise additional funds for capital expenditures) than would be the case
if the Company was required to repurchase all of the outstanding LYONs pursuant
to the Put Feature on June 14,
-39-
41
1994. If the Company takes no action with respect to the Put Feature and is
required to purchase all of the outstanding LYONs on June 14, 1994, based upon
year end market prices ($11.63 on December 31, 1993), the Company would have to
issue approximately 4,300,000 shares of common stock. There can be no
assurance that the Company will determine to pursue, or be successful in
pursuing, any alternative (including and in addition to the alternatives
discussed above) to reduce the likelihood that the Put Feature will result in
the issuance of a significant amount of the Company's common stock.
In December 1993, the Company acquired all of the issued and outstanding common
stock of Mountain West through the issuance of 655,000 shares of the Company's
common stock with an estimated value of $6,305,000. Mountain West is engaged
primarily in the mining and processing of scoria, specialty aggregates and
landscaping products. The transaction has been accounted for as a purchase.
As further described in Note 8 of Notes to Consolidated Financial Statements,
the Company has been notified by the United States Environmental Protection
Agency (EPA) that it has been designated by the EPA as a potentially
responsible party with respect to several Superfund sites. At December 31,
1993, the Company's allowance for Superfund site remedial action costs was
approximately $10.7 million, which the Company believes is adequate based on
current estimates of aggregate costs. Although the ultimate disposition of
these and various other pending legal actions and claims is not presently
determinable, it is the opinion of the Company's management, based upon the
information available at this time, that the outcome of these suits and
proceedings will not have a material adverse effect on the consolidated results
of operations and financial condition of the Company.
Other
In November 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS No. 112). This statement requires companies to
recognize the obligation to provide postemployment benefits if the obligation
is attributable to employees' services already rendered, employees' rights to
those benefits have accumulated or vested, payment of the benefits is probable
and the amount of the benefits can be reasonably estimated. The statement
requires the Company to make the necessary changes in accounting for these
postemployment benefits effective January 1, 1994. It is the opinion of the
Company's management that the adoption of SFAS No. 112 will not have a material
effect on the consolidated results of operations or financial condition of the
Company.
-40-
42
Item 8. Financial Statements and Supplementary Data
See Item 14 of this Report for information with respect to the financial
statements filed as a part hereof, including financial statements filed
pursuant to the requirements of this Item 8.
SELECTED QUARTERLY DATA
-----------------------
(dollars in thousands except for per-share amounts)
First Second Third Fourth
1993: Quarter Quarter Quarter Quarter Total
---- --------- --------- --------- --------- ---------
Sales of products $ 20,869 $ 23,085 $ 19,542 $ 18,351 $ 81,847
Gross profit (loss) $ (1,068) $ 1,003 $ 956 $ (445) $ 446
Net loss $ (4,771) $ (2,012) $ (1,134) $ (3,818) (11,735)
Preferred stock dividends - - - - $ (2,057) $ (2,013) (4,070)
Net loss applicable to common
shareholders $ (4,771) $ (2,012) $ (3,191) $ (5,831) $ (15,805)
Net loss per common share $ (0.15) $ (0.06) $ (0.09) $ (0.17) $ (0.48)
1992:
----
Sales of products $ 29,171 $ 26,926 $ 26,136 $ 18,418 $ 100,651
Gross profit (loss) $ 2,484 $ 1,706 $ 2,380 $ (2,700) $ 3,870
Income (loss) before cumulative
effect of changes in accounting
principles $ 6,073 $ (1,103) $ (3,025) $(51,131) $(49,186)
Cumulative effect of changes in
accounting principles (103) - - - - - - (103)
-------- -------- -------- -------- --------
Net income (loss) $ 5,970 $ (1,103) $ (3,025) $(51,131) $(49,289)
======== ======== ======== ======== ========
Net income (loss) per
common share:
Income (loss) before
cumulative effect of
changes in accounting
principles $ 0.20 $ (0.04) $ (0.10) $ (1.65) $ (1.59)
Cumulative effect of changes
in accounting principles (0.01) - - - - - - (0.01)
-------- -------- -------- -------- --------
Net income (loss) per common share $ 0.19 $ (0.04) $ (0.10) $ (1.65) $ (1.60)
======== ======== ======== ======== ========
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
-41-
43
PART III
Item 10. Directors and Executive Officers of the Registrant
Reference is made to the information with respect to the directors of the
Company set forth under the caption "Election of Directors" in the
Company's proxy statement to be filed pursuant to Regulation 14A for the
annual meeting scheduled to be held on May 6, 1994 (the Proxy Statement),
which information is incorporated herein by reference. Information with
respect to executive officers of the Company is set forth as follows:
Age at
May 6,
Name 1994 Position and Term Served
------------------- ------ --------------------------------------------
Arthur Brown 53 Chairman since June 1987; Chief Executive Officer since May 1987;
President since May 1986; Chief Operating Officer from May 1986 to May
1987; Executive Vice President from May 1985 to May 1986; held various
positions as an officer since 1980; employed by the Company since 1967.
Joseph T. Heatherly 63 Vice President - Controller since May 1989; Controller from May 1987 to
May 1989; various administrative functions with the Company since May
1983.
J. Gary Childress 46 Vice President - Industrial Minerals since February 1994; President and
General Manager of Kentucky-Tennessee Clay Company from 1987 to 1994;
Senior Vice President of Kentucky-Tennessee Clay Company from 1986 to
1987.
Ralph R. Noyes 46 Vice President - Metal Mining since May 1988; Manager Metal Mining from
June 1987 to May 1988; prior thereto, since 1976, held various
administrative positions with the Company and Day Mines, Inc.
John P. Stilwell 41 Treasurer since June 1991; held various administrative positions with
the Company since May 1985.
Michael B. White 43 Vice President - General Counsel and Secretary since May 1992;
Secretary since November 1991; Assistant Secretary from March 1981 to
November 1991; General Counsel since June 1986; various administrative
positions since 1980.
There are no family relationships between any of the executive officers.
-42-
44
Item 11. Executive Compensation
Reference is made to the information set forth under the caption
"Compensation of Executive Officers" in the Proxy Statement (except the
Report on the Compensation Committee on Executive Compensation set forth
herein) to be filed pursuant to Regulation 14A, which information is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Reference is made to the information set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement to be filed pursuant to Regulation 14A, which
information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Reference is made to the information set forth under the caption "Other
Transactions" in the Proxy Statement to be filed pursuant to Regulation
14A, which information is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements
See Index to Financial Statements on Page F-1
(a)(2) Financial Statement Schedules
See Index to Financial Statements on Page F-1
(a)(3) Exhibits
See Exhibit Index following the financial statements
(b) Reports on Form 8-K
Report on Form 8-K dated December 1, 1993, related to the
acquisition of all the outstanding capital stock of Mountain
West Bark Products, Inc.
Report on Form 8-K dated December 29, 1993, related to the
Acquisition Agreement with Equinox Resources Ltd.
Report on Form 8-K dated January 24, 1994, related to the sale
of the Company's holdings in Granduc Mines Limited.
Report on Form 8-K dated February 3, 1994, related to fourth
quarter report to shareholders
Report on Form 8-K dated February 8, 1994, related to
Acquisition Agreement with Great Lakes Minerals Inc.
Report on Form 8-K dated February 16, 1994, related to
information provided to Equinox Resources Ltd.
-43-
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report to
be signed on its behalf by the undersigned, thereunto duly authorized, on
March 2, 1994.
HECLA MINING COMPANY
By /s/ Arthur Brown
---------------------------
Arthur Brown, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Arthur Brown 3/2/94 /s/ Leland O. Erdahl 3/2/94
- --------------------------------- --------------------------------
Arthur Brown Date Leland O. Erdahl Date
Chairman and Director Director
(principal executive officer)
/s/ J. T. Heatherly 3/2/94 /s/ William A. Griffith 3/2/94
- --------------------------------- --------------------------------
J. T. Heatherly Date William A. Griffith Date
Vice President - Controller Director
(principal accounting officer)
/s/ John P. Stilwell 3/2/94 /s/ Charles L. McAlpine 3/2/94
- --------------------------------- --------------------------------
John P. Stilwell Date Charles L. McAlpine Date
Treasurer Director
(principal financial officer)
/s/ John E. Clute 3/2/94 /s/ Paul A. Redmond 3/2/94
- --------------------------------- --------------------------------
John E. Clute Date Paul A. Redmond Date
Director Director
/s/ Joe Coors, Jr. 3/2/94 /s/ Richard J. Stoehr 3/2/94
- --------------------------------- --------------------------------
Joe Coors, Jr. Date Richard J. Stoehr Date
Director Director
-44-
46
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements
- --------------------
Report of Independent Accountants F-2
Consolidated Balance Sheets at December 31, 1993 and 1992 F-3
Consolidated Statements of Operations for the
Years Ended December 31, 1993, 1992 and 1991 F-4
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1993, 1992 and 1991 F-5
Consolidated Statement of Changes in Shareholders' Equity
for the Years Ended December 31, 1993, 1992 and 1991 F-6
Notes to Consolidated Financial Statements F-7-F-30
Financial Statement Schedules*
- -----------------------------
Report of Independent Accountants on
Financial Statement Schedules F-31
V. Property, Plant and Equipment F-32
VI. Accumulated Depreciation, Depletion, and
Amortization of Property, Plant and Equipment F-33
X. Supplementary Income Statement Information F-34
*Other financial statement schedules
have been omitted as not applicable
F-1
47
Letterhead of Coopers & Lybrand
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Hecla Mining Company
We have audited the accompanying consolidated balance sheets of Hecla Mining
Company and subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of operations, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1993.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Hecla
Mining Company and subsidiaries as of December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993 in conformity with
generally accepted accounting principles.
As discussed in Notes 6 and 9 to the consolidated financial statements, the
Company changed its method of accounting for income taxes and postretirement
benefits other than pensions in 1992.
/s/Coopers & Lybrand
COOPERS & LYBRAND
Spokane, Washington
February 3, 1994, except for
Note 5, as to which the
date is February 8, 1994
F-2
48
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
December 31,
-----------------------------
1993 1992
--------- ---------
Current assets:
Cash and cash equivalents $ 37,891 $ 3,287
Short-term investments 27,540 - -
Accounts and notes receivable 16,859 15,290
Income tax refund receivable - - 390
Inventories 13,022 12,652
Other current assets 1,915 1,349
--------- ---------
Total current assets 97,227 32,968
--------- ---------
Investments 6,211 4,822
Properties, plants and equipment, net 222,870 179,827
Other noncurrent assets 6,570 4,826
--------- ---------
Total assets $ 332,878 $ 222,443
========= =========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 14,610 $ 9,003
Accrued payroll and related benefits 2,056 2,139
Preferred stock dividends payable 2,012 - -
Accrued taxes 928 1,271
Current portion of deferred income taxes - - 285
--------- ---------
Total current liabilities 19,606 12,698
--------- ---------
Deferred income taxes 359 1,038
Long-term debt 49,489 70,382
Accrued reclamation costs 19,503 20,108
Other noncurrent liabilities 3,858 3,723
--------- ---------
Total liabilities 92,815 107,949
--------- ---------
Minority interest in consolidated subsidiary - - 775
--------- ---------
Commitments and contingencies (Notes 2, 3 and 8)
SHAREHOLDERS' EQUITY
Preferred stock, 25 cents par value,
authorized 5,000,000 shares,
issued and outstanding 1993 - 2,300,000,
liquidation preference $117,012 575 - -
Common stock, 25 cents par value, authorized 100,000,000 shares;
issued 1993 - 34,644,734, issued 1992 - 31,651,192 8,661 7,912
Capital surplus 238,601 97,806
Retained earnings (deficit) (6,878) 8,927
Net unrealized loss on marketable
equity securities (8) (16)
Less common stock reacquired, at cost;
1993 - 62,226 shares, 1992 - 63,753 shares (888) (910)
--------- ---------
Total shareholders' equity 240,063 113,719
--------- ---------
Total liabilities and shareholders' equity $ 332,878 $ 222,443
========= =========
The accompanying notes are an integral part of the financial statements.
F-3
49
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars and shares in thousands, except per-share amounts)
Year Ended December 31,
----------------------------------------------
1993 1992 1991
--------- --------- ---------
Sales of products $ 81,847 $ 100,651 $ 117,568
--------- --------- ---------
Cost of sales and other direct production costs 71,109 83,288 84,853
Depreciation, depletion and amortization 10,292 13,493 21,161
--------- --------- ---------
81,401 96,781 106,014
--------- --------- ---------
Gross profit 446 3,870 11,554
--------- --------- ---------
Other operating expenses:
General and administrative 6,961 8,520 14,054
Exploration 4,353 7,659 5,693
Research - - 1,317 1,538
Depreciation and amortization 669 819 692
Provision for closed operations and environmental matters 2,307 12,670 3,638
Reduction in carrying value of mining properties 200 27,928 - -
--------- --------- ---------
14,490 58,913 25,615
--------- --------- ---------
Loss from operations (14,044) (55,043) (14,061)
--------- --------- ---------
Other income (expense):
Interest and other income 2,965 12,428 2,219
Other expense (3) (61) (17)
Gain (loss) on investments (144) (2,115) 229
Minority interest in net loss of consolidated subsidiary 43 95 484
Interest expense:
Total interest cost (5,023) (6,905) (6,985)
Less amount capitalized 3,533 2,070 145
--------- --------- ---------
1,371 5,512 (3,925)
--------- --------- ---------
Loss before income taxes and cumulative effect of changes
in accounting principles (12,673) (49,531) (17,986)
Income tax benefit 938 345 2,556
--------- --------- ---------
Loss before cumulative effect of changes in
accounting principles (11,735) (49,186) (15,430)
Cumulative effect of changes in accounting principles - - (103) - -
--------- --------- ---------
Net loss (11,735) (49,289) (15,430)
Preferred stock dividends (4,070) - - - -
--------- --------- ---------
Net loss applicable to common shareholders
$ (15,805) $ (49,289) $ (15,430)
========= ========= =========
Net loss per common share:
Loss before cumulative effect of changes in
accounting principles and after preferred stock dividends $(0.48) $(1.59) $(0.51)
Cumulative effect of changes in accounting principles - - (0.01) - -
------ ------ ------
$(0.48) $(1.60) $(0.51)
====== ====== ======
Cash dividends per common share $ - - $ - - $ - -
====== ====== ======
Weighted average number of common shares outstanding 32,915 30,866 30,094
====== ====== ======
The accompanying notes are an integral part of the financial statements.
F-4
50
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Year Ended December 31,
-----------------------------------------
1993 1992 1991
--------- --------- ---------
Operating activities:
Net loss $ (11,735) $ (49,289) $ (15,430)
Noncash elements included in net loss:
Depreciation, depletion and amortization 10,961 14,312 21,853
Deferred income tax benefit (964) (120) (1,429)
Loss (gain) on disposition of properties, plants and equipment 1,300 (9,628) (1,865)
(Gain) loss on investments 144 2,115 (229)
Accretion of interest on long-term debt 4,349 5,602 5,891
Provision for reclamation and closure costs 1,635 12,305 2,898
Reduction in carrying value of mining properties 200 27,928 - -
Gain on retirement of long-term debt (323) (510) - -
Minority interest in net loss of consolidated subsidiary 43 95 484
Change in:
Accounts and notes receivable (1,569) 5,869 (844)
Income tax refund receivable 390 - - - -
Inventories (370) 4,162 (3,047)
Other current assets (566) 849 (920)
Accounts payable and accrued expenses 5,607 188 (2,808)
Accrued payroll and related benefits (83) (443)
Preferred stock dividends payable 2,012 - - - -
Accrued taxes (343) (1,770) 359
Noncurrent liabilities (2,105) (2,184) (160)
--------- --------- ---------
Net cash provided by operating activities 8,583 9,481 4,753
--------- --------- ---------
Investing activities:
Purchase of investments and increase in cash surrender value
of life insurance (554) (117) (219)
Purchase of short-term investments, net (27,540) - - - -
Proceeds from sale of investments and subsidiary 273 - - 738
Additions to properties, plants and equipment (52,671) (23,176) (18,885)
Proceeds from disposition of properties, plants and equipment 1,282 11,493 1,036
Other, net (2,105) (272) 1,012
--------- --------- ---------
Net cash applied to investing activities (81,315) (12,072) (16,318)
--------- --------- ---------
Financing activities:
Repayment on gold loan - - - - (1,387)
Common stock issued under stock option plans 1,060 296 1,500
Preferred stock issuance, net of issuance costs 110,346 - - - -
Acquisition of treasury stock - - - - (4)
Preferred stock dividends (4,070) - - - -
--------- --------- ---------
Net cash provided by financing activities 107,336 296 109
--------- --------- ---------
Change in cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents 34,604 (2,295) (11,456)
Cash and cash equivalents at beginning of year 3,287 5,582 17,038
--------- --------- ---------
Cash and cash equivalents at end of year $ 37,891 $ 3,287 $ 5,582
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest (net of amount capitalized) $ 318 $ 159 $ 182
========= ========= =========
Income tax payments, net $ 49 $ 222 $ 171
========= ========= =========
See Notes 2, 5, and 7 for noncash investing and financing activities.
The accompanying notes are an integral part of the financial statements.
F-5
51
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1993, 1992 and 1991
(dollars and shares in thousands)
Preferred Stock Common Stock Retained Net Unrealized Loss
----------------- ---------------- Capital Earnings Treasury on Marketable
Shares Amount Shares Amount Surplus (Deficit) Stock Equity Securities
------ ------ ------ ------- --------- ---------- -------- -------------------
Balances, December 31, 1990 $ 30,119 $ 7,530 $ 83,397 $ 73,646 $ (906) $ (13)
Net loss (15,430)
Net change in unrealized loss
on marketable equity
securities (3)
Stock issued under stock option
plans
Hecla 26 6 141
CoCa 130 32 1,147
Stock issued under CoCa employee
stock ownership plan 34 9 165
Acquisition of treasury stock (4)
------ ------- ------ ------ --------- -------- -------- ---------
Balances, December 31, 1991 30,309 7,577 84,850 58,216 (910) (16)
Net loss (49,289)
Stock issued under stock option
plans
Hecla 17 4 117
CoCa 20 5 170
Stock issued for Mexican mineral
concessions 185 46 1,748
Stock issued to retire long-term
debt 1,120 280 10,921
------ ------- ------ ------ --------- -------- -------- ---------
Balances, December 31, 1992 31,651 7,912 97,806 8,927 (910) (16)
Net loss (11,735)
Preferred stock dividends
($1.77 per share) (4,070)
Stock issued under stock option
plans
Hecla 87 22 590
CoCa 52 13 435
Net change in unrealized loss
on marketable equity securities 8
Treasury stock issued net of
purchase (12) 22
Stock issued for Mountain West
Products 655 164 6,141
Preferred stock issuance, net of
issuance costs 2,300 575 109,771
Stock issued to retire long-term
debt 2,200 550 23,870
------ ------- ------ ------ --------- -------- -------- ---------
Balances, December 31, 1993 2,300 $ 575 34,645 $8,661 $ 238,601 $ (6,878) $ (888) $ (8)
====== ======= ====== ====== ========= ======== ======== =========
The accompanying notes are an integral part of the financial statements.
F-6
52
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note l: Summary of Significant Accounting Policies
A. COMPANY'S BUSINESS AND CONCENTRATIONS OF CREDIT RISK - Hecla
Mining Company and its subsidiaries (the Company) are engaged in mining
and mineral processing. Sales of metals products are made principally to
domestic and foreign custom smelters and metal traders. Industrial
minerals are sold principally to domestic manufacturers and wholesalers.
Sales to significant metals customers, as a percentage of total sales of
metals products, were as follows:
1993 1992 1991
---- ---- ----
Custom smelters 27.3% 37.5% 26.9%
Custom metal traders:
Customer A 17.1% 21.3% 15.2%
Customer B 16.8% 16.5% 21.8%
Customer C 15.5% 14.0% 11.8%
Customer D 13.3% 7.7% 13.7%
During 1993, 1992 and 1991, the Company sold 19%, 26%, and 17% of its
products to companies in foreign countries, respectively.
The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. The Company places its cash
and temporary cash investments with high credit worthy institutions. At
times such investments may be in excess of the FDIC insurance limit. The
Company routinely assesses the financial strength of its customers and, as
a consequence, believes that its trade accounts receivable credit risk
exposure is limited.
B. BASIS OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company, its majority-owned subsidiaries and
its proportionate share of the accounts of the joint ventures in which it
participates. All significant intercompany transactions and accounts are
eliminated.
C. INVENTORIES - Inventories are stated at the lower of average cost
or estimated net realizable value.
D. INVESTMENTS - The Company follows the equity method of accounting
for investments in common stock of operating companies 20% to 50% owned.
Investments in nonoperating companies that are not intended for resale or
are not readily marketable are valued at the lower of cost or net
realizable value. The carrying value of marketable equity securities is
based on the lower of aggregate cost or quoted market value. The cost of
investments sold is determined by specific identification.
F-7
53
Short-term investments represent investments in certificates of
deposits, commercial paper and U.S. Treasury Notes recorded at amortized
cost, plus accrued interest, which approximates market value.
E. PROPERTIES, PLANTS AND EQUIPMENT - Properties, plants and
equipment are stated at the lower of cost or estimated net realizable
value. Maintenance, repairs and renewals are charged to operations.
Betterments of a major nature are capitalized. When assets are retired or
sold, the costs and related allowances for depreciation and amortization
are eliminated from the accounts and any resulting gain or loss is
reflected in operations. Idle facilities, placed on a standby basis, are
carried at the lower of net book value or estimated net realizable value.
Management of the Company reviews the net carrying value of all
facilities, including idle facilities, on a regular, periodic basis.
These reviews consider, among other factors, (1) the net realizable value
of each major type of asset, on a property-by-property basis, to reach a
judgment concerning possible permanent impairment of value and any need
for a write-down in asset value, (2) the ability of the Company to fund
all care, maintenance and standby costs, (3) the status and usage of the
assets, while in a standby mode, to thereby determine whether some form of
amortization is appropriate, and (4) current projections of metal prices
that affect the decision to reopen or make a disposition of the assets.
Depreciation is based on the estimated useful lives of the assets and
is computed using straight-line, declining-balance, and unit-of-production
methods. Depletion is computed using the unit-of-production method.
F. MINE EXPLORATION AND DEVELOPMENT - Exploration costs are charged
to operations as incurred, as are normal development costs at operating
mines. Major mine development expenditures at operating properties and at
new mining properties not yet producing are capitalized.
G. RECLAMATION OF MINING AREAS - Minimum standards for mine
reclama-tion have been established by various governmental agencies which
affect certain operations of the Company. A reserve for mine reclamation
costs has been established for restoring certain abandoned and currently
disturbed mining areas based upon estimates of cost to comply with
existing reclamation standards. Mine reclamation costs for operating
properties are accrued using the unit-of-production method.
H. INCOME TAXES - In the fourth quarter of 1992, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109), retroactive to January 1,
1992. SFAS No. 109 requires a company to recognize deferred tax
liabilities and assets for the expected future income tax consequences of
events that have been recognized in a company's financial statements.
Under this method, deferred tax liabilities and assets are determined
based on the temporary differences between the financial statement
carrying amounts and tax bases of assets and liabilities using enacted tax
rates in effect in the years in which the temporary differences are
expected to reverse. In 1991, the Company utilized the liability method
of accounting for income taxes as required by Statement of Financial
Accounting Standards No. 96.
I. NET LOSS PER COMMON SHARE - Net loss per common share is computed
by adding preferred stock dividends to net loss and dividing the result by
the weighted average number of shares of common stock and common stock
F-8
54
equivalents (stock options) outstanding during each reporting period
unless the common stock equivalents are anti-dilutive. Due to the net
losses in 1993, 1992 and 1991, common stock equivalents are anti-dilutive
and therefore have been excluded from the computation.
J. REVENUE RECOGNITION - Sales of metal products sold directly to
smelters are recorded when they are received by the smelter, at estimated
metal prices. Recorded values are adjusted periodically and upon final
settlement. Metal in products tolled (rather than sold to smelters) is
sold under contracts for future delivery; such sales are recorded at
contractual amounts when products are available to be processed by the
smelter or refinery. Sales of industrial minerals are recognized as the
minerals are delivered.
K. INTEREST EXPENSE - Interest costs incurred during the
construction of qualifying assets are capitalized as part of the asset
cost.
L. CASH EQUIVALENTS - The Company considers cash equivalents to
consist of highly liquid investments with a remaining maturity of three
months or less when purchased. For investments characterized as cash
equivalents, the carrying value is a reasonable estimate of fair value.
M. FOREIGN CURRENCY TRANSLATION - All assets and liabilities of the
Company's Canadian and Mexican operations are translated to U. S. dollars
using the exchange rate at the balance sheet date. Income and expense
items are translated using average exchange rates. Gains and losses from
foreign currency transactions are included in operations.
Note 2: Business Combinations
Equinox Resources Limited
On December 29, 1993, the Company, two wholly owned Canadian
subsidiaries of the Company, and Equinox Resources Ltd. (Equinox), a
mining, exploration and development company, incorporated under the laws
of the Province of British Columbia and headquartered in Vancouver,
Canada, executed an Acquisition Agreement providing for the Company's
acquisition of Equinox. Pursuant to the Acquisition Agreement and related
Plan of Arrangement, upon consummation of the transactions contemplated
thereby, (i) Equinox common shareholders will receive 0.3 common share of
the Company (Company common shares), for each outstanding Equinox common
share, (ii) holders of Equinox's Series "A" production participating
preferred shares will receive newly issued production notes of the Company
with the same material terms and conditions, and (iii) outstanding Equinox
options and warrants will become exercisable for Company common shares.
In connection with the acquisition of Equinox, the Company expects to
issue approximately 6.3 million Company common shares, including shares
issuable upon exercise of outstanding options and warrants.
The Board of Directors of the Company and Equinox have each approved
the Acquisition Agreement. However, the transactions contemplated by the
Acquisition Agreement are subject to a number of conditions including,
without limitation, approval by Equinox shareholders, and approval by a
Canadian court of the Plan of Arrangement.
Assuming the transaction is consummated as planned, the acquisition
will be treated as a pooling-of-interests, and accordingly, the
F-9
55
consolidated financial statements will be restated to reflect the accounts
of Equinox.
Pro forma unaudited results of operations assuming the merger had
occurred on January 1, 1991, are as follows (in thousands except per-share
data):
1993 1992 1991
--------- ---------- ----------
Net sales $ 93,760 $ 101,621 $ 117,568
Net loss applicable to
common shareholders (18,180) (55,276) (15,521)
Net loss per common share (0.60) (1.59) (0.46)
The pro forma information above includes adjustments related to
conforming Equinox's accounting policies for income taxes, reclamation,
asset recoverability, and exploration costs to those of the Company.
Mountain West Bark Products, Inc.
In December 1993, the Company acquired all of the issued and
outstanding common stock of Mountain West Bark Products, Inc. (Mountain
West) through the issuance of 655,000 shares of the Company's common
stock. Mountain West is engaged primarily in the purchasing, processing
and marketing of certain waste products from lumber milling operations in
the western intermountain region. These products are sold as soil
amendments, landscape mulches and decorative ground cover for landscape
purposes. The transaction has been accounted for as a purchase and,
accordingly, the acquired assets and liabilities have been recorded at
their estimated fair value at December 1, 1993, the date of the
acquisition. Mountain West's operating results have been included in the
consolidated financial statements since that date and were immaterial to
the Company. Results of operations of Mountain West prior to December 1,
1993, were not material and, therefore, are not presented. The value of
the Company's common shares issued in this transaction was approximately
$6,305,000. Goodwill of $1,733,000 was recorded in the transaction and is
being amortized straight-line over 15 years.
F-10
56
Note 3: Inventories
Inventories consist of the following (in thousands):
December 31,
-----------------------
1993 1992
-------- --------
Concentrates and metals in transit
and other products $ 1,189 $ 1,779
Industrial minerals products 5,260 4,192
Materials and supplies 6,573 6,681
-------- --------
$ 13,022 $ 12,652
======== ========
At December 31, 1993, the Company had forward sales commitments for
4,500 ounces of gold at an average price of $363 per ounce. The
commitments are for delivery in February 1994. There is no silver
committed to forward sales at December 31, 1993. The Company purchased
options to put 41,880 ounces of gold to the counterparties at an average
price of $385 per ounce. Concurrently, the Company sold options to allow
the counterparties to call 41,880 ounces of gold from the Company at an
average price of $453 per ounce. There was no net cost associated with
the purchase and sale of these options.
Note 4: Investments
Investments consist of the following components (in thousands):
Carrying Market
Value Cost Value
------ -------- --------
December 31, 1993
-----------------
Marketable equity securities $ 23 $ 31 $ 23
Other investments 6,188 6,188
-------- --------
$ 6,211 $ 6,219
======== ========
December 31, 1992
-----------------
Marketable equity securities $ 16 $ 32 $ 16
Other investments 4,806 4,806
-------- --------
$ 4,822 $ 4,838
======== ========
At December 31, 1993, the portfolio of noncurrent marketable equity
securities includes gross unrealized gains of approximately $9,000 and
gross unrealized losses of approximately $17,000. The other investments
are principally large blocks of common and preferred stock in several
mining companies, investments in various ventures, and cash surrender
value of life insurance policies. The securities are generally
restricted as to trading or marketability, although some are traded on
various exchanges.
At December 31, 1993, other investments with a carrying value of
$5,430,632 had an estimated fair value of $7,689,811 based on the quoted
market price for such securities and cash values of life insurance
policies. For the remaining other investments, for which there are no
reliable quoted market prices, a reasonable estimate of fair value could
not be made without incurring excessive costs.
F-11
57
During the fourth quarter of 1992, the Company wrote down its common
stock investment in Granduc Mines Limited (Granduc) to current estimated
market value. The $2.1 million write-down of this investment was
recorded to reflect the apparent other- than-temporary decline in market
value of the common stock investment due to continued depressed metal
prices. At December 31, 1993, the Company's carrying value of its
Granduc common stock investment was approximately $1,488,000.
On January 24, 1994, the Company sold its entire investment in
Granduc by selling 2,000,000 Granduc common shares to Conwest Exploration
Company Limited and 815,330 Granduc common shares to Jascan Resources
Inc., both of which are Toronto, Ontario, Canada based companies. The
Company recognized a gain on the sale of approximately $1,327,000 in the
first quarter of 1994.
On June 30, 1993, the Company sold substantially all of its interest
in Acadia Mineral Ventures Limited, a previously consolidated subsidiary,
to Kingswood Resources, Inc., a Canadian exploration and development
company, for (C)$350,000 cash, plus 5,000,000 Kingswood Resources, Inc.
common shares. The Company recognized a loss on the sale of
approximately $120,000 in the second quarter of 1993.
Note 5: Properties, Plants and Equipment
The major components of properties, plants and equipment are (in
thousands):
December 31,
----------------------------
1993 1992
--------- ---------
Mining properties $ 54,984 $ 39,811
Deferred development costs 154,005 127,529
Plants and equipment 178,640 167,873
Land 6,163 6,176
--------- ---------
393,792 341,389
Less accumulated depreciation,
depletion and amortization 170,922 161,562
--------- ---------
Net carrying value $ 222,870 $ 179,827
========= =========
Based on its periodic reviews of the status of various mining
properties and investments, the Company determined in the fourth quarter
of 1992 that certain adjustments were appropriate to properly reflect
estimated net realizable values. These adjustments consisted primarily
of the write-downs of various properties, plants and equipment totaling
approximately $28.0 million. The major portion of the adjustments
related to the $13.5 million write-down of the Company's interest in the
Apex Unit, a hydrometallurgical processing plant near St. George, Utah.
The Company continues to evaluate the feasibility of custom recoveries of
specialty metals and chemical products. Also in 1992, due to depressed
silver prices, the Company recorded write-downs of approximately $9.0
million related to the Consolidated Silver and Hog Heaven silver
properties, located in North Idaho and northwest Montana, respectively.
The Lisbon Valley Project in Utah, a joint venture which is fully
developed for uranium and vanadium production, was also written down in
1992 by approximately $3.5 million to its estimated net realizable value.
Included in the 1992 write-downs were approximately $1.5 million and $0.4
million
F-12
58
related to the Company's interests in the Creede and Hardscrabble gold
and silver properties, respectively, both located in Colorado.
On May 19, 1992, the Company acquired interests in a number of
Mexican mineral concessions for approximately $2.9 million. The purchase
consideration included the issuance of 184,862 shares of the Company's
common stock valued at $1.8 million.
The net carrying values of the major mining properties of the
Company that were on a standby or idle basis at December 31, 1993 and
1992 were approximately $55.3 million and $5.3 million, respectively.
Operations at the Greens Creek mine, with a net carrying value of $49.2
million at December 31, 1993, were suspended in April 1993 pending
improvement in lead, zinc and silver prices.
On February 8, 1994, the Company sold a 20 percent interest in its
Grouse Creek gold project to Great Lakes Minerals Inc. of Toronto,
Ontario. The purchase price of $6.8 million represents 20 percent of the
amount spent by the Company on acquisition, exploration and development
of the project through June 30, 1993, including a fixed premium of $1.25
million. In addition, Great Lakes will fund its pro-rata share of the
total construction cost for Grouse Creek from July 1, 1993 to the
completion of the project which is currently estimated at $90.0 million,
and has the option to increase its ownership to a maximum of 30 percent
by contributing additional funds on a proportional basis.
Note 6: Income Taxes
Major components of the Company's income tax provision (benefit) are
as follows (in thousands):
1993 1992 1991
------- ------- -------
Current:
Federal $ (200) $ (390) $(1,375)
State 226 165 248
------- ------- -------
Total current 26 (225) (1,127)
------- ------- -------
Deferred:
Federal (728) (17) (1,390)
State (236) (103) (39)
------- ------- -------
Total deferred (964) (120) (1,429)
------- ------- -------
Income tax benefit $ (938) $ (345) $(2,556)
======= ======= =======
F-13
59
Effective January 1, 1992, the Company adopted the provisions of
SFAS No. 109. As of January 1, 1992, the Company recorded a tax benefit
of approximately $1.5 million ($0.049 per common share), which represents
the net decrease in the deferred tax liability as of that date. This has
been reflected in the consolidated statement of operations as a component
of the cumulative effect of changes in accounting principles.
In 1992 and 1991, for income tax purposes, the Company carried back
current operating losses to offset income recorded in prior years and
recorded income tax refunds of approximately $390,000 and $2.2 million,
respectively.
The sources of significant temporary differences which gave rise to
the deferred tax provision (benefit) and their effects were as follows
(in thousands):
1993 1992 1991
---- ---- ----
Depreciation, depletion, deferred
development and exploration costs $ 5,739 $ 196 $ 311
Utilization of capital losses (941) 2,428 (1,740)
Reclamation costs 476 (3,457) (87)
Reduction in carrying values of
mining properties, plants and
equipment - - (8,826) - -
Gain on sale of mineral property - - - - (466)
Unrealized losses on marketable
equity securities (84) (1,491) 580
Increase of investment tax credits
available to reduce deferred taxes - - - - (109)
Change in valuation allowance
associated with the ability to
use net operating losses (6,361) 11,168 - -
Postretirement benefits (3) (543) - -
Alternative minimum tax credit
carryforward
156 390 - -
Other, net 54 15 82
------- ------- -------
$ (964) $ (120) $(1,429)
======= ======= =======
F-14
60
The components of the net deferred tax liability as of December 31,
1993 and 1992, were as follows (in thousands):
1993
-----------------------------------------
Deferred Tax
--------------------------
Assets Liabilities Total
-------- ----------- --------
Accrued reclamation costs $ 5,739 $ 5,739
Investment valuation differences 1,754 1,754
Miscellaneous 2,039 2,039
Postretirement benefits
other than pensions 742 742
Other liabilities 188 188
Deferred compensation 406 406
Accounts receivable 456 456
Properties, plants and equipment $(19,309) (19,309)
Deferred income (440) (440)
Pension costs (477) (477)
Deferred state income taxes, net (2,271) (2,271)
-------- -------- --------
Total temporary difference 11,324 (22,497) (11,173)
-------- -------- --------
Mexican net operating losses 1,280 1,280
Federal net operating losses 55,598 55,598
State net operating losses 4,359 4,359
Tax credit carryforwards 1,626 1,626
-------- --------
Total net operating losses
and tax credits 62,863 62,863
-------- --------
Valuation allowance (52,049) (52,049)
-------- -------- --------
Net deferred tax assets
and liabilities $ 22,138 $(22,497) $ (359)
======== ======== ========
F-15
61
1992
---------------------------------------
Deferred Tax
-----------------------
Assets Liabilities Total
------- ----------- --------
Accrued reclamation costs $ 5,833 $ 5,833
Investment valuation differences 1,670 1,670
Miscellaneous 1,236 1,236
Postretirement benefits
other than pensions 738 738
Other liabilities 698 698
Deferred compensation 532 532
Accounts receivable 456 456
Properties, plants and equipment $(13,570) (13,570)
Deferred income (516) (516)
Pension costs (315) (315)
Deferred state income taxes, net (1,153) (1,153)
-------- -------- --------
Total temporary difference 11,163 (15,554) (4,391)
-------- -------- --------
Federal net operating losses 46,645 46,645
State net operating losses 3,248 3,248
Tax credit carryforwards 1,630 1,630
Alternative minimum tax
credit carryforwards 156 156
-------- --------
Total net operating losses
and tax credits 51,679 51,679
-------- --------
Valuation allowance (48,611) (48,611)
-------- -------- --------
Net deferred tax assets
and liabilities $ 14,231 $(15,554) $ (1,323)
======== ======== ========
The Company has recorded a valuation allowance to reflect the
estimated amount of deferred tax assets which may not be realized
principally due to expiration of net operating losses and tax credit
carryforwards. The change in the valuation allowance is as follows (in
thousands):
1993 1992
--------- ---------
Balance at beginning of year $(48,611) $(26,148)
Net increase in allowance related
to uncertainty of recovery of
net operating loss carryforwards (3,438) (24,891)
Utilization of capital loss
carryforwards - - 2,428
-------- -------
Balance at end of year $(52,049) $(48,611)
======== ========
F-16
62
The annual tax benefit is different from the amount which would be
provided by applying the statutory federal income tax rate to the
Company's pretax loss. The reasons for the difference are as follows (in
thousands):
1993 % 1992 % 1991 %
-------- --- ------- --- -------- ---
Computed "statutory"
benefit $(4,309) (34) $(16,841) (34) $(6,115) (34)
Effect of adjustments
associated with the
alternative minimum tax - - - - - - - - 3,594 20
Investment and foreign tax credits - - - - - - - - (202) (1)
Nonutilization of net
operating losses 3,508 28 16,455 33 - - - -
State income taxes, net of
federal tax benefit (137) (1) 41 - - 167 1
------- --- ------- ---- ------- ---
Income tax benefit $ (938) (7) $ (345) (1) $(2,556) (14)
======= === ======= ==== ======= ===
Certain of the Company's net operating loss carryovers are
attributed to preference related items, and therefore are not available
to offset alternative minimum taxable income. However, they are
available to offset future regular taxable income. At December 31, 1993,
the Company had tax basis net operating loss carryovers available to
offset future regular and alternative minimum taxable income. These
carryovers expire as follows (in thousands):
Regular Tax Net Alternative Minimum Tax
Operating Losses Net Operating Losses
---------------- -----------------------
1994 $ 11,009
1995 12,590 $ 5
1996 268 268
1997 2,020 695
1998 11,005 308
1999 6,235 1,199
2000 3,089 789
2001 4,538 1,683
2002 1,359 346
2003 1,150 623
2004 13,131 532
2005 17,201 878
2006 25,000 3,105
2007 27,088 17,414
2008 27,840 22,731
-------- -------
$163,523 $50,576
======== =======
In addition to the above, the Company had Mexican tax net operating
loss carryovers totaling $1,280,000, which expire in 1998.
During 1992, the Company used prior year capital loss carryovers of
approximately $7.4 million to offset 1992 capital gains. At December 31,
1993, for income tax purposes, the Company had approximately $6.0 million
of alternative minimum tax net operating losses generated by CoCa Mines
Inc. prior to its merger with the Company in 1991. Due to the merger,
F-17
63
there are limitations on the amount of these net operating losses that
can be utilized in any given year to reduce certain future taxable
income.
Note 7: Long-Term Debt and Credit Agreement
Long-term debt at December 31, 1993 and 1992, consisted of the
following (in thousands):
1993 1992
-------- --------
Zero coupon convertible notes $ 48,433 $ 69,376
Notes payable 962 917
Other long-term debt 94 89
-------- --------
$ 49,489 $ 70,382
======== ========
Zero Coupon Convertible Notes
During 1989, the Company issued subordinated zero coupon convertible
notes, due June 14, 2004, with a face value at maturity of $201,250,000.
These Liquid Yield Option Notes (LYONs) were issued at 30.832% of their
face value at maturity which results in an 8% yield compounded
semiannually to maturity. These notes are carried net of original issue
discount, which is being amortized by the interest method over the life
of the issue. The outstanding balances at December 31, 1993 and 1992,
include the accrued original issue discount. The noteholder, at his
option, may convert each note with a face value of $1,000 into 20.824
shares of the Company's common stock. The notes are redeemable in cash
at any time at the option of the Company, in whole or in part, at
redemption prices equal to the issue price plus original issue discount
to the date of redemption. The Company will purchase any note with a
face value of $1,000 at the option of the holder on June 14, 1994 (Put
Feature), at a purchase price of $456.39 (issue price plus original issue
discount to such date). The Company, at its option, may pay such
purchase price in cash, shares of common stock or extension notes, but
not in any combination thereof. However, because of the Company's need
to utilize cash for planned capital expenditures, absent any action by
the Company, it will pay for any LYONs delivered to it pursuant to the
Put Feature by issuing Company common stock. The Company is unable to
predict how many LYONs it may be required to purchase pursuant to the Put
Feature and cannot predict what effect the Put Feature will have on the
market price of Company common stock.
The Company is currently considering several alternatives with
respect to the Put Feature. Among the alternatives being examined by the
Company is the sale of additional shares of the Company's common stock
(or other Company securities) with the proceeds of such an offering being
used to pay cash for LYONs delivered to the Company pursuant to the Put
Feature (and any remaining proceeds would be used for the Company's
capital expenditures). The Company is also considering amending certain
terms of the LYONs in order to make it less likely that the Put Feature
will be exercised on June 14, 1994, including changing the conversion
ratio to increase the number of shares of the Company's common stock that
would be issuable for each LYON. If either of these alternatives is
pursued, then additional shares of Company common stock could be issued,
although the Company's intent with respect to these alternatives is to
issue less shares of Company common stock (other than any securities sold
to raise additional funds for capital expenditures) than would be the
case if the Company was
F-18
64
required to repurchase all of the outstanding LYONs pursuant to the Put
Feature on June 14, 1994. However, if the Company takes no action with
respect to the Put Feature and is required to purchase all of the
outstanding LYONs on June 14, 1994, based upon year end market prices
($11.63 on December 31, 1993), the Company would have to issue
approximately 4,300,000 shares of Company common stock. There can be no
assurance that the Company will determine to pursue, or be successful in
pursuing, any alternative (including and in addition to the alternatives
discussed above) to reduce the likelihood that the Put Feature will
result in the issuance of a significant amount of the Company's common
stock.
At December 31, 1993, remaining deferred debt issuance costs of
approximately $1.4 million incurred in connection with the issuance of
this debt is being amortized using the interest method over the life of
the issue.
On May 19, 1992, the Company exchanged 1,120,125 shares of its
common stock for 30,900 outstanding LYONs. In the noncash transaction,
the Company recorded the issuance of common stock totaling approximately
$11.2 million and the reduction of long- term debt and deferred issuance
costs totaling approximately $12.0 million and $0.3 million,
respectively, recognizing a gain totaling approximately $0.5 million.
On April 29, 1993, the Company exchanged 2.2 million shares of its
common stock for 60,400 outstanding LYONs. The Company recorded the
issuance of common stock totaling approximately $24.4 million and the
reduction of long-term debt and deferred issuance costs totaling
approximately $25.2 million and $0.5 million, respectively, recognizing a
gain from this transaction of approximately $0.3 million. The market
value of the outstanding LYONs at December 31, 1993, is $48.4 million
based on quoted market prices for the debt.
Notes Payable
The notes are noninterest-bearing, discounted at 15% and payable in
three annual equal amounts from the date of commercial production of the
Grouse Creek property which is currently estimated to be October 1994.
The fair value of these notes payable approximates the carrying value at
December 31, 1993.
Revolving Credit Agreement
On January 25, 1993, the Company entered into a secured reducing
revolving credit facility. The agreement provided for reducing revolving
credit advances of up to $24.0 million. On November 11, 1993, the
Company amended this agreement to provide for reducing revolving credit
advances of up to $30.0 million. There were no outstanding borrowings
under this agreement at December 31, 1993. Pursuant to the amended
agreement, the availability under the facility reduces as follows:
Scheduled Base Commitment Base Commitment
Reduction Date Reduction Available
----------------- --------------- ----------------
December 31, 1995 $ 3,750,000 $26,250,000
March 31, 1996 3,750,000 22,500,000
June 30, 1996 3,750,000 18,750,000
September 30, 1996 3,750,000 15,000,000
December 31, 1996 15,000,000 - -
F-19
65
Commitment fees are 1/2 of 1 percent on the average daily unused
portion of the base commitment. The interest rate options are a
specified bank's reference rate plus 1/2 percent, a CD Rate plus 1 5/8
percent or the Offshore Rate plus 1 1/2 percent. No compensating
balances are required. Borrowings under the agreement are collateralized
by the Company's accounts receivable, inventories, and specified
marketable securities. The agreement contains restrictive covenants,
among others, concerning the maintenance of a minimum net worth, current
ratio, leverage ratio, and fixed charge coverage ratio.
Note 8: Contingencies
The Company has received notices from the United States
Environmental Protection Agency (EPA) that it and numerous other parties
are potentially responsible to remediate alleged hazardous substance
releases at several sites under the Comprehensive Environmental Response
Compensation and Liability Act of 1980 (CERCLA or Superfund). In
addition, in January of 1985, the Company was named, along with a number
of other parties, as a third-party defendant in a suit initially brought
by the State of Colorado against ASARCO Inc. in December 1983 in Colorado
Federal District Court under CERCLA to recover natural resource damages
allegedly caused by releases of hazardous substances into the environment
from the Yak Tunnel, located near Leadville, Colorado (Leadville Site).
The third-party complaint seeks contribution from the third-party
defendants for damages which ASARCO may be held liable for in the primary
action. In August 1986, the Company was named a defendant in a lawsuit
brought in Colorado Federal District Court by the United States of
America against the Company and a number of other parties seeking to
recover the United States' response costs under CERCLA incurred or to be
incurred at the Leadville Site covered by the State of Colorado lawsuit
filed previously. The state and federal government CERCLA litigation
related to the Leadville Site was consolidated into a single lawsuit on
February 2, 1987. In September 1991, the Company entered into an Order
on Consent with the EPA and the Department of Justice pursuant to which
the Company and the federal government agreed to a three-step process for
settling the Company's liability to the federal government at the
Leadville Site. As a step in the three-step settlement process, on
January 6, 1993, the Colorado Federal District Court entered a Partial
Consent Decree between the United States and the Company which resolves
all issues concerning the Company's alleged liability to the United
States for response costs at the site, except for response costs related
to certain mill tailings impoundments located at the Leadville Site. The
Company paid the United States $450,000 under the decree. The other two
steps in the settlement process at the site relate to the Company
finalizing a study of any environmental impacts associated with the
tailings impoundments and implementing the appropriate response activity
to address these impacts. In July 1993, the Company completed and
delivered to EPA the study report analyzing the environmental impacts
associated with the tailings impoundments. Based on that study report,
EPA has selected a response action for the tailings impoundments which
requires capping and providing of vegetation cover for the tailings
impoundments. The Company has recently finalized the terms of a consent
decree with the federal government providing for the payment by the
Company of $516,000 to cover a portion of EPA's past costs at the site
and a portion of the costs of the selected response action for the
tailings impoundments. The consent decree is in the process of being
signed by all parties and must also be approved by the Colorado Federal
District Court. Upon final approval of the consent decree, the Company
will be released from liability for response costs for
F-20
66
the entire Leadville Site. In November 1991, the Company finalized a
settlement with two primary liability insurers concerning insurance
coverage for the Company's environmental liability at the Leadville Site.
The monies received in the insurance settlement in November 1991 are
sufficient to cover the Company's CERCLA liability at the site.
In October 1989, and again in February 1990, the Company was
notified by the EPA that the EPA considered the Company a Potentially
Responsible Party (PRP) at the Bunker Hill Superfund Site located at
Kellogg, Idaho (Bunker Hill Site). The EPA has also notified a number of
other companies involved in mining or smelting activities in the site
area that the EPA has determined they are also PRPs at the site. The EPA
has asserted that all PRPs, including the Company, are responsible for
the EPA's response costs and for remediating the Bunker Hill Site as a
result of the parties' release of hazardous substances at or into the
site. In August 1991, the EPA issued a Record of Decision regarding the
remedial action plan for the populated areas of the site. During the
summers of 1990, 1991, 1992, and 1993, the Company participated, along
with a number of other PRPs at the site, in a number of Orders on Consent
pursuant to which the participating PRPs agreed to undertake certain
limited remedial activities related to the populated areas of the site.
The Company has also participated with Gulf USA Corporation, one of the
PRPs at the site, in an Order on Consent with the EPA pursuant to which
the Company and Gulf USA agreed to undertake certain remedial activity
with regard to the hillsides located within the site. The EPA's Record
of Decision covering the nonpopulated areas of the site was issued on
September 22, 1992. On November 4, 1992, the EPA issued special notice
letters under CERCLA to the Company and a number of other PRPs at the
site demanding reimbursement of the federal government's past response
costs and implementation of the remedial activity covered by the two
previous Records of Decision issued for the site. In November 1992, the
major PRPs at the site, including the Company, agreed to an allocation of
most of the future remedial activity at the site under the Records of
Decision. The allocation is between two PRP groups. One PRP group is
principally made up of mining companies who operated upstream from the
site, and the second PRP group is made up of Gulf USA and other companies
who had mining, smelting, or related operations within the site. The
allocation for remedial activity among the two PRP groups is based upon a
number of factors, including each PRP's level of activity affecting the
site and an estimate of the costs to implement the various portions of
the site remediation. On January 11, 1993, the Company and certain other
PRPs who had received the special notice letters submitted to the EPA an
offer which the PRPs deemed should satisfy the government's requirements
under CERCLA for a good-faith offer. Under the terms of the offer, the
Company and a subset of the participating PRPs would assume
responsibility for most residential and commercial soils remediation and
other incidental and related activities. A different PRP sub-group, of
which the Company is not a member but which includes Gulf USA, would be
responsible for implementing most of the remaining site's remedial
activities. The responsibility of each PRP group would be several from
the responsibilities of the other group, but would be joint and several
among the PRPs within each group. The Company estimates most of the
proposed remedial activity at the site will be undertaken over a period
of five to seven years. The PRPs' good-
F-21
67
faith offer did not include payment of any of the government's past
response costs. In October 1993, Gulf USA filed voluntary bankruptcy
under Chapter 11 of the United States Bankruptcy Code. Notwithstanding
Gulf's bankruptcy filing, the PRP group including the Company has
recently finalized the terms of a consent decree with the federal
government generally along the allocation of liability set forth in the
PRP's good-faith offer. The Company and the other PRPs participating in
the consent decree have also agreed to an allocation of costs to
implement the work at the Bunker Hill Site under the terms of the consent
decree. The consent decree at the Bunker Hill Site is in the process of
being executed by all parties and will also be subject to Idaho Federal
District Court approval.
In July 1991, the Coeur d'Alene Indian Tribe brought a lawsuit,
under CERCLA, in Idaho Federal District Court against the Company and a
number of other mining companies asserting claims for damages to natural
resources located downstream from the Bunker Hill Site over which the
Tribe alleges some ownership or control. The Company has answered the
Tribe's complaint denying liability for natural resource damages and
asserted a number of defenses to the Tribe's claims, including a defense
that the Tribe has no ownership or control over the natural resources
they assert have been damaged. In July 1992, the Idaho Federal District
Court, in a separate action, determined that the Coeur d'Alene Indian
Tribe does not own the beds, banks and waters of Lake Coeur d'Alene and
the lower portion of its tributaries, the ownership of which is the
primary basis for the natural resource damage claims asserted by the
Coeur d'Alene Indian Tribe against the Company. Based upon the Tribe's
appeal of the July 1992 district court ownership decision to the 9th
Circuit U.S. Court of Appeals, the court in the natural resource damage
litigation issued an order on October 30, 1992, staying the court
proceedings in the natural resource damage litigation until a final
decision is handed down on the question of the Tribe's title.
In 1991, the Company initiated litigation in the Idaho State
District Court in Kootenai County, Idaho, against a number of insurance
carriers which provided comprehensive general liability insurance
coverage to the Company and its predecessors. The Company believes that
the insurance companies have a duty to defend and indemnify the Company
under their policies of insurance relating to claims asserted against the
Company by the EPA and by the Coeur d'Alene Indian Tribe. In two
separate decisions issued in August 1992 and in March 1993, the court
ruled that the named primary insurance companies had a duty to defend the
Company in the Tribe's lawsuit, but that no carrier had a duty to defend
the Company in the EPA proceeding. The Company has not reduced its
environmental accrual to reflect any anticipated insurance proceeds.
The Records of Decision with respect to both the populated and
nonpopulated areas for the Bunker Hill Site indicate that future
remediation costs total approximately $93.0 million. Additionally, the
federal government has asserted that they have incurred approximately
$17.0 million in past costs at the site. Because CERCLA assigns joint
and several liability among the PRPs, any one of the PRPs, including the
Company, could be assessed the entire cost of remediation. However,
based upon the terms of the consent decrees and related agreements for
the Bunker Hill and Leadville Sites, as described above, the Company has
accrued an amount for the Company's share of such remediation and other
costs that management presently believes is the most likely amount that
the Company will be required to fund. Based upon this analysis, in the
fourth quarter of 1993, the Company increased its allowance for CERCLA
Superfund Site remedial action costs at the Bunker Hill and Leadville
Sites by approximately $0.2 million and $0.3 million, respectively. The
total allowance for liability for remedial activity costs at the Bunker
Hill and Leadville Sites is $10.2 million and $0.5 million, respectively,
as of December 31, 1993. Other than consulting work necessary for the
implementation of the Company's allocated portion of the remedial
activity at these sites, the Company's accruals do not include any future
legal or
F-22
68
consulting costs. The Company does not believe that these costs will be
material. In addition, the Company has not included any amounts for
unasserted claims at these or any other sites because the Company's
potential liability has not been asserted or established and amounts, if
any, of potential liability are impossible to determine. During 1993,
1992 and 1991, the Company expensed approximately $0.8 million, $8.6
million and $2.8 million, respectively, in connection with the Superfund
Sites.
In December 1993, Industrial Contractors Corp. (ICC) served the
Company with a complaint in Federal District Court for the District of
Idaho alleging that the Company failed to comply with the terms of the
contract between the Company and ICC relating to the earth moving work
contracted to ICC at the Company's Grouse Creek gold project. ICC has
alleged that the Company owes ICC in excess of $5.0 million not
previously paid, including an approximate $1.0 million retention
currently held by the Company under the terms of the contract. The
Company terminated ICC's work at the Grouse Creek gold project effective
November 26, 1993, pursuant to its rights in the contract and is
proceeding to rebid the second season of work originally contracted to
ICC. The Company has answered the complaint denying the allegations of
ICC and has filed a counterclaim against ICC in excess of $2.0 million
for damages incurred by the Company as a result of ICC's failure to
comply with the terms of the contract. The litigation is in the early
stages of discovery; however, the Company hopes to be able to mediate the
dispute with ICC prior to proceeding to trial.
A jury trial is scheduled to commence in March 1994 in Idaho State
District Court with respect to a lawsuit previously filed against the
Company by Star Phoenix Mining Company (Star Phoenix), a former lessee of
the Star-Morning Mine, over a dispute between the Company and Star
Phoenix with respect to the Company's November 1990 termination of Star
Phoenix's lease of the Star-Morning Mine property. Star Phoenix, which
is in bankruptcy, alleges the Company wrongfully terminated the lease
agreement and interfered the Star Phoenix's contractual relationship with
a major vendor and the purchase of concentrates for the Star Phoenix
operations. In addition, certain principals of Star Phoenix who
guaranteed a portion of the Star Phoenix obligations have made similar
claims against the Company. In each case the plaintiffs have asserted
that they have incurred damages amounting to millions of dollars as a
result of the Company's actions. It is the Company's position that the
plaintiffs' claims are without merit and that the Company terminated the
lease agreement in accordance with the terms of the agreement. The
Company believes it has sufficient defenses to all the plaintiffs'
claims, and that the Company will ultimately prevail in this litigation.
The Company is subject to other legal proceedings and claims which
have arisen in the ordinary course of its business and have not been
finally adjudicated. These actions when ultimately concluded and
determined and any remaining unaccrued potential liability at the
Superfund sites addressed above, will not, in the opinion of management,
have a material effect on results of operations or the financial
condition of the Company and its subsidiaries.
Note 9: Employee Benefit Plans
The Company and certain subsidiaries have pension plans covering
substantially all employees. One plan covering eligible salaried and
hourly employees provides retirement benefits and is based on the
employee's compensation during the highest 36 months of the last 120
months
F-23
69
before retirement. Three other pension plans covering eligible hourly
employees provide benefits of stated amounts for each year of service.
It is the Company's policy to make contributions to these plans
sufficient to meet the minimum funding requirements of applicable laws
and regulations, plus such additional amounts, if any, as the Company and
its actuarial consultants consider appropriate. Contributions are
intended to provide not only for benefits attributed to service to date,
but also for those expected to be earned in the future. Plan assets for
these plans consist principally of equity securities, insurance contracts
and corporate and U.S. government obligations.
Net periodic pension cost (income) for the plans consisted of the
following in 1993, 1992 and 1991 (in thousands):
1993 1992 1991
------- ------- -------
Service cost $ 961 $ 872 $ 665
Interest cost 1,899 1,732 1,735
Return on plan assets (2,924) (2,849) (2,265)
Amortization of transition asset (434) (434) (443)
Amortization of unrecognized
prior service cost 45 45 45
Amortization of unrecognized net
(gain) loss from earlier periods 6 (305) - -
------- ------- -------
Net pension income $ (447) $ (939) $ (263)
======= ======= =======
F-24
70
The following table sets forth the funded status of the plans and
amounts recognized in the Company's consolidated balance sheets at
December 31, 1993 and 1992 (in thousands):
1993 1992
-------- --------
Actuarial present value of
benefit obligations:
Vested benefits $ 27,771 $ 26,171
Nonvested benefits 764 395
-------- --------
Accumulated benefit obligations 28,535 26,566
Effect of projected future salary
and wage increases 2,205 1,701
-------- --------
Projected benefit obligations $ 30,740 $ 28,267
======== ========
Plan assets $ 35,135 $ 35,299
Projected benefit obligations (30,740) (28,267)
-------- --------
Plan assets in excess of projected
benefit obligations 4,395 7,032
Unrecognized net gain (253) (2,643)
Unrecognized prior service cost 778 519
Unrecognized net asset
at January 1 (3,515) (3,950)
-------- --------
Pension asset recognized in
consolidated balance sheets $ 1,405 $ 958
======== ========
The projected benefit obligation was calculated applying the
following average rates:
1993 1992
------ ------
Discount rate 6.50% 7.00%
Long-term compensation increase 5.00% 6.00%
Long-term rate of return on
plan assets 8.50% 8.50%
In 1988, 1991 and again in 1992, the Company offered a special early
retirement option to participants in the Hecla retirement plan with no
actuarial reduction in their accrued benefit for early retirement. The
costs associated with the 1988 special early retirement program were
accrued in 1988 and are being funded out of general corporate funds until
the participant reaches normal retirement age or age 60 with 30 years of
service, at which time payments will be made by the related pension
trust. The 1991 and 1992 special early retirement programs are being
funded out of the related pension trust.
The Company provides certain postretirement benefits, principally
health care and life insurance benefits for qualifying retired employees.
The costs of these benefits are being funded out of general corporate
funds. Prior to 1992, the cost of some of these benefits was expensed
when payments were made. Other health care and life insurance benefits
had been previously accrued. Effective January 1, 1992, the Company
adopted Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (SFAS No.
106), which
F-25
71
requires that these postretirement benefits be accrued over the period in
which active employees provide services to the Company. At January 1,
1992, the cumulative effect of recording these postretirement benefits
was to increase the 1992 net loss by $1.6 million or $0.051 per share.
Net periodic postretirement benefit cost for 1993 and 1992 included
the following components (in thousands):
1993 1992
---- ----
Service cost $ 28 $ 22
Interest cost 164 179
---- ----
Net postretirement benefit cost $192 $201
==== ====
Postretirement benefit costs under the previous method were $40,000
in 1991.
The following table sets forth the status of the postretirement
benefits programs (other than pensions) and amounts recognized in the
Company's consolidated balance sheets at December 31, 1993 and 1992 (in
thousands):
1993 1992
------- -------
Accumulated postretirement benefit obligation:
Retirees $(1,569) $(2,011)
Fully eligible, active plan participants (355) (113)
Other active plan participants (242) (220)
------- -------
(2,166) (2,344)
Unrecognized net (gain) loss (191) 50
------- -------
Accumulated postretirement benefit obligation
recognized in consolidated balance sheet $(2,357) $(2,294)
======= =======
The actuarial assumptions used in determining the Company's
accumulated postretirement benefit obligation are provided in the table
below. Due to the short period which the Company provides medical
benefits to its retirees, the increases in medical costs are assumed to
be 6% in each year. A 1% change in the assumed health care cost trend
rate would not have a significant impact on the accumulated
postretirement benefit obligation or the aggregate of service and
interest cost for 1993 or 1992.
1993 1992
----- -----
Discount rate 6.50% 7.00%
Trend rate for medical benefits 6.00% 6.00%
The Company has a Deferred Compensation Plan which permits eligible
officers and directors to defer a portion of their compensation. The
deferred compensation, which together with Company matching amounts and
accumulated interest is accrued but unfunded, is distributable in cash
after retirement or termination of employment, and at December 31, 1993
and 1992, amounted to approximately $1.2 million. The Company has
insured the lives of certain officers, who participate in the deferred
compensation program, to assist in the funding of the deferred
compensation liability. The Company is the owner and beneficiary of the
insurance policies. At
F-26
72
December 31, 1993, the cash surrender value of these policies was $2.4
million, which is net of $2.2 million of policy loans.
The Company has an employees' Capital Accumulation Plan (Plan) which
is available to all salaried and certain hourly employees after
completion of one year of service. Employees may contribute from 2% to
10% of their compensation to the Plan. Effective January 1, 1993,
nonhighly compensated employees may contribute up to 15%. The Company
makes a matching contribution of 25% of an employee's contribution up to,
but not exceeding, 5% of the employee's earnings. The Company's
contributions for both 1993 and 1992 were approximately $158,000 and
$149,000 for 1991.
Note 10: Shareholders' Equity
Preferred Stock
In June 1993, the Company completed a public offering of 2.3 million
shares of Series B Cumulative Convertible Preferred Stock, par value
$0.25 per share (the Preferred Shares). The shares were sold for $50
each and the Company received net proceeds of $110,346,000 from the
offering. 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.
The Preferred Shares are convertible in whole or in part at the
option of the holders thereof, into shares of common stock at an initial
conversion price of $15.55 per share of common stock. The Preferred
Shares are not redeemable by the Company prior to July 1, 1996. After
such date, the shares will be redeemable at the option of the Company at
any time, in whole or in part, initially at $52.45 per share and
thereafter at prices declining ratably on each July 1 to $50 per share on
or after July 1, 2003.
Holders of the Preferred Shares have no voting rights except if the
Company fails to pay the equivalent of six quarterly dividends. If these
dividends are not paid, the holders of Preferred Shares, voting as a
class, shall be entitled to elect two additional directors. The holders
of Preferred Shares also have voting rights related to certain amendments
to the Company's Articles of Incorporation.
The Preferred Shares rank senior to the common stock and any
outstanding shares of Series A Preferred Shares. The Preferred Shares
have a liquidation preference of $50 per share plus all accrued and
unpaid dividends.
Shareholder Rights Plan
In 1986, the Company adopted a Shareholder Rights Plan. Pursuant to
this plan, holders of common stock received one preferred share purchase
right for each common share held. The plan was amended effective
November 9, 1990. The rights will be triggered once an Acquiring Person,
as defined, acquires 15% or more of the Company's outstanding common
shares. The 15% triggering threshold may be reduced by the Board of
Directors to not less than 10%. When exercisable, the right would,
subject to certain adjustments and alternatives, entitle rightholders,
other than the Acquiring Person or group, to purchase common stock of the
Company or the acquiring company having a market value of twice the
$47.50 exercise price of the right. The rights are nonvoting, may be
redeemed at any time
F-27
73
at a price of 5 cents per right prior to the tenth day after an Acquiring
Person acquires 15% of the Company's common stock, and expire in 1996.
Additional details are set forth in the Rights Agreement filed with the
Securities and Exchange Commission on May 19, 1986, and in the amendments
dated November 29, 1990 and September 30, 1991.
Stock Option Plans
In connection with the Company's 1991 acquisition of CoCa Mines Inc.
(CoCa), the Company assumed three preexisting CoCa employee stock option
plans (CoCa Plans), and converted all options then outstanding under the
CoCa Plans into options to acquire shares of the Company's common stock.
No further options will be granted under these CoCa Plans.
The Company adopted a nonstatutory stock option plan in 1987. The
plan provides that options may be granted to certain officers and key
employees to purchase common stock at a price of not less than 50% of the
fair market value at the date of grant. The plan also provides that
options may be granted with a corresponding number of stock appreciation
rights and/or tax offset bonuses to assist the optionee in paying the
income tax liability that may exist upon exercise of the options. All of
the outstanding stock options under the 1987 plan were granted at an
exercise price equal to the fair market value at the date of grant and
with an associated tax offset bonus. Outstanding options under the 1987
plan are immediately exercisable for periods up to ten years. At
December 31, 1993 and 1992, there were 129,148 and 101,748 shares,
respectively, available for grant in the future under the plan. The plan
expires in 1997.
The Company had an incentive stock option plan under which options
were granted to purchase common stock at a price not less than the fair
market value at date of grant. This plan expired in 1992.
The aggregate amounts charged (credited) to operations in connection
with the plans were $309,000, $(165,000) and $170,000 in 1993, 1992 and
1991, respectively.
F-28
74
Transactions concerning stock options are summarized as follows:
Incentive Nonstatutory Stock
Stock Option Plan Option Plan
---------------------- --------------------- Total
Shares Price Shares Price Shares
-------- ------------ ------- ------------ -------
Outstanding, December 31, 1990 151,606 $8.54-10.87 424,281 $ 7.12-18.26 575,887
Year ended December 31, 1991:
Exercised (104,980) 8.54-10.87 (38,653) 7.12- 8.54 (143,633)
-------- -------- --------
Outstanding, December 31, 1991 46,626 8.54-10.87 385,628 7.12-18.26 432,254
Year ended December 31, 1992:
Granted - - - - 66,000 10.50 66,000
Exercised - - - - (37,525) 7.12- 8.54 (37,525)
Expired (46,626) 8.54-10.87 (7,500) 10.37 (54,126)
-------- -------- --------
Outstanding, December 31, 1992 - - - - 406,603 7.12-18.26 406,603
Year ended December 31, 1993:
Granted - - - - - -
Exercised - - (86,443) 7.12-12.25 (86,443)
Expired - - (18,500) 10.38-12.25 (18,500)
-------- -------- --------
Outstanding, December 31, 1993 - - 301,660 $ 7.12-18.26 301,660
======== ======== ========
At December 31, 1993, the Company has outstanding 459,433 warrants
to acquire the Company's common stock at an exercise price of $17.81 and
12,859 warrants to acquire the Company's common stock at an exercise
price of $12.42. The warrants outstanding are exercisable until May 5,
1994. However, such warrants will expire if, at any time after May 15,
1990, upon 60 calendar days prior notice, the Company's common stock has
had an average per share closing public market price of not less than
$22.24 for at least 60 consecutive trading days prior to such expiration
notice.
F-29
75
Note 11: Business Segments (in thousands)
1993 1992 1991
-------- -------- --------
Net sales to unaffiliated customers:
Metals $ 34,851 $ 57,420 $ 77,044
Industrial minerals 44,953 43,231 40,524
Specialty metals 2,043 - - - -
-------- -------- --------
$ 81,847 $100,651 $117,568
======== ======== ========
Gross profit (loss):
Metals $ (4,088) $ (1,142) $ 5,339
Industrial minerals 5,038 5,012 6,215
Specialty metals (504) - - - -
-------- -------- --------
$ 446 $ 3,870 $ 11,554
======== ======== ========
Capital expenditures:
Metals (including $12,826 in
Mexico in 1993) $ 44,821 $ 19,815 $ 14,527
Industrial minerals (including
$5,800 in Mexico in 1993) 11,938 3,203 3,401
Specialty metals - - - - - -
General corporate assets 548 158 957
-------- -------- --------
$ 57,307 $ 23,176 $ 18,885
======== ======== ========
Depreciation, depletion and amortization:
Metals $ 6,818 $ 9,305 $ 16,847
Industrial minerals 3,718 4,188 4,314
Specialty metals 33 - - - -
General corporate assets 392 819 692
-------- -------- --------
$ 10,961 $ 14,312 $ 21,853
======== ======== ========
Identifiable assets:
Metals (including $21,028 in
Mexico in 1993) $126,912 $127,833 $167,794
Industrial minerals (including
$7,054 in Mexico in 1993) 68,068 46,488 47,452
Specialty metals 4,197 - - - -
General corporate assets 78,431 42,850 32,996
Idle facilities 55,270 5,272 9,879
-------- -------- --------
$332,878 $222,443 $258,121
======== ======== ========
Net sales, costs and identifiable assets of each segment are those
that are directly identified with those operations. General corporate
assets consist primarily of cash, receivables, investments and corporate
property, plant and equipment. As a result of depressed metals prices,
operations were suspended at the Greens Creek mine in April 1993 and the
property was placed on a care-and-maintenance basis pending resumptions
of operations. At December 31, 1993, the Company's recorded net book
value of identifiable assets of the Greens Creek mine was approximately
$50.3 million. This amount has been classified in the Idle Facilities
category at December 31, 1993.
F-30
76
Letterhead of Coopers & Lybrand
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Shareholders
Hecla Mining Company
Our report on the consolidated financial statements of Hecla Mining Company
and subsidiaries is included in this Form 10-K and covers the financial
statements listed under Item 14(a) of this Form 10-K. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedules listed under Item 14(a)(2) of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/Coopers & Lybrand
COOPERS & LYBRAND
Spokane, Washington
February 3, 1994, except for
Note 5, as to which the
date is February 8, 1994
F-31
77
SCHEDULE V
HECLA MINING COMPANY and SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT - For the Years Ended December 31, 1993, 1992 and
1991
(dollars in thousands)
Column A Column B Column C Column D Column E Column F
- ---------------------------------------- ---------- ---------- ----------- ---------------- --------------
Balance at
Beginning Additions Other Change Balance at End
Classification of Period at Cost(1) Retirements Add (Deduct)(2) of Period
- ---------------------------------------- ---------- ---------- ----------- ---------------- --------------
Year ended December 31, 1993:
Mining properties $ 39,811 $ 2,067 $ 20 $ 13,126 $ 54,984
Deferred development costs 127,529 40,336 317 (13,543) 154,005
Plants and equipment 167,873 15,615 5,421 573 178,640
Land 6,176 721 800 66 6,163
--------- --------- --------- --------- ---------
$ 341,389 $ 58,739(3) $ 6,558 $ 222 $ 393,792
========= ========= ========= ========= =========
Year ended December 31, 1992:
Mining properties(5) $ 36,105 $ 3,057 $ 7 $ 656 $ 39,811
Deferred development costs 128,858 12,326 1,644 (12,011) 127,529
Plants and equipment 182,468 7,620 5,083 (17,132) 167,873
Land 5,667 173 - - 336 6,176
--------- --------- --------- --------- ---------
$ 353,098 $ 23,176(3) $ 6,734 $ (28,151)(4) $ 341,389
========= ========= ========= ========= =========
Year ended December 31, 1991:
Mining properties(5) $ 35,455 $ 650 $ - - $ - - $ 36,105
Deferred development costs 117,701 11,442 436 151 128,858
Plants and equipment 177,887 7,265 2,533 (151) 182,468
Land 5,550 117 - - - - 5,667
--------- --------- --------- --------- ---------
$ 336,593 $ 19,474(3) $ 2,969 $ - - $ 353,098
========= ========= ========= ========= =========
Notes:
(1) See Note 1 of Notes to Consolidated Financial Statements
for a description of the Company's depreciation,
depletion and amortization policies. The amounts in 1993
include the acquisition of Mountain West Bark Products,
Inc. for the issuance of 655,000 shares of the Company's
common stock valued at $6.3 million, of which $4.6
million was allocated to property, plant and equipment.
The amounts in 1992 include the acquisition of mineral
concessions for the issuance of 184,862 shares of the
Company's common stock valued at $1.8 million.
(2) Reclassifications primarily to other asset accounts and
transfers between plants and equipment and deferred
development costs.
(3) See "Management's Discussions and Analysis" for major
capital expenditures.
(4) Represents the write-down of the Company's interest in
several mining properties. See Note 5 of Notes to
Consolidated Financial Statements for discussion.
(5) Reflects reclassification made in 1992 of the Company's
investment in the mining properties of Consolidated
Silver Corporation from other investments to mining
properties.
F-32
78
SCHEDULE VI
HECLA MINING COMPANY and SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION and AMORTIZATION OF PROPERTY, PLANT AND
EQUIPMENT
For the Years Ended December 31, 1993, 1992 and 1991
(dollars in thousands)
Column A Column B Column C Column D Column E Column F
- --------------------------------------- ---------- --------- ----------- --------------- --------------
Balance at
Beginning Additions Other Change Balance at End
Description of Period At Cost Retirements Add (Deduct)(1) of Period
- --------------------------------------- ---------- --------- ----------- --------------- --------------
Year ended December 31, 1993:
Mining properties $ 8,406 $ 2,004 $ 20 $ (910) $ 9,480
Deferred development costs 52,909 2,919 2,028 (217) 53,583
Plants and equipment 100,247 7,246 757 1,123 107,859
--------- --------- --------- --------- ---------
$ 161,562 $ 12,169 $ 2,805 $ (4) $ 170,922
========= ========= ========= ========= =========
Year ended December 31, 1992:
Mining properties $ 6,268 $ 691 $ - - $ 1,447 $ 8,406
Deferred development costs 50,439 6,617 2,076 (2,071) 52,909
Plants and equipment 97,375 6,565 4,147 454 100,247
--------- --------- --------- --------- ---------
$ 154,082 $ 13,873 $ 6,223 $ (170) $ 161,562
========= ========= ========= ========= =========
Year ended December 31, 1991:
Mining properties $ 6,214 $ 54 $ - - $ - - $ 6,268
Deferred development costs 43,197 7,242 - - - - 50,439
Plants and equipment 85,704 13,210 1,539 - - 97,375
--------- --------- --------- --------- ---------
$ 135,115 $ 20,506 $ 1,539 $ - - $ 154,082
========= ========= ========= ========= =========
(1) Other change due to reclassification between categories
of accumulated depreciation, depletion and amortization
of property, plant and equipment.
F-33
79
SCHEDULE X
HECLA MINING COMPANY and SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
For the Years Ended December 31, 1993, 1992 and 1991
(dollars in thousands)
Column A Column B
- ----------------------------------------------- -----------------------------
Item Note (2) Charged to Costs and Expenses
- ----------------------------------------------- -----------------------------
Year ended December 31-1993:
1. Maintenance and repairs Note (1)
3. Taxes, other than payroll and income $ 1,132
taxes (principally property taxes)
4. Royalties paid $ 685
Year ended December 31-1992:
1. Maintenance and repairs Note (1)
3. Taxes, other than payroll and income $ 2,457
taxes (principally property taxes)
4. Royalties paid $ 628
Year ended December 31-1991:
1. Maintenance and repairs Note (1)
3. Taxes, other than payroll and income $ 2,523
4. Royalties paid $ 1,055
Notes:
(1) The accounts of the Company do not segregate the amounts of
maintenance and repairs, and it is not practicable to obtain
the information.
(2) Items where no information is provided were less than 1% of
total sales and revenues.
F-34
80
HECLA MINING COMPANY and WHOLLY OWNED SUBSIDIARIES
FORM 10-K - December 31, 1993
INDEX TO EXHIBITS
Sequential
Page
Number and Description of Exhibits Number1
---------------------------------- -----------
3.1(a) Certificate of Incorporation of the
Registrant as amended to date.3
3.1(b) Certificate of Amendment of Certificate
of Incorporation of the Registrant,
dated as of May 16, 1991.
3.1(c) Certificate of Designations, Preferences
and Rights of Series A Junior
Participating Preferred Stock of the
Registrant.3
3.1(d) Certificate of Designations, Preferences
and Rights of Series B Cumulative Convertible
Preferred Stock of the Registrant.3
3.2 By-Laws of the Registrant as amended
to date.3
4.1(a) Rights Agreement dated as of May 9, 1986
between Hecla Mining Company and Manufac-
turers Hanover Trust Company, which
includes the form of Certificate of
Designation setting forth the terms of the
Series A Junior Participating Preferred
Stock of Hecla Mining Company as Exhibit A,
the form of Right Certificate as Exhibit B
and the summary of Rights to Purchase
Preferred Shares as Exhibit C.3
4.1(b) Amendment, dated as of November 9, 1990
to the Rights Agreement dated as of May 9,
1986 between Hecla Mining Company and
Manufacturers Hanover Trust Company.3
4.1(c) Second Amendment to Rights Agreement dated
September 30, 1991, between Hecla Mining
Company and Manufacturers Hanover Trust
Company.
81
INDEX TO EXHIBITS (continued)
Sequential
Page
Number and Description of Exhibits Number1
---------------------------------- -----------
4.1(d) Hecla Mining Company Notice Letter to
Shareholders, being holders of Rights
Certificates, appointing American Stock
Transfer & Trust Company as Rights Agent,
successor to Manufacturers Hanover Trust
Company, effective September 30, 1991,
pursuant to Section 21 of the Rights
Agreement.
4.2 Form of Certificate for Liquid Yield
Option(TM) Note3
4.3 Form of Indenture dated as of June 1, 1989,
between Hecla Mining Company and Manufacturers
Hanover Trust Company, as Trustee, related to
Liquid Yield Option(TM) Notes due 2004 (Zero
Coupon - Subordinated)3
4.4 Form of Extension Indenture between Hecla
Mining Company and Manufacturers Hanover
Trust Company, as Trustee, related to
Subordinated Extension Notes due 20043
10.1(a) Credit Agreement dated as of January 25, 1993,
among the Registrant and certain of Registrant's
subsidiaries, and Mase Westpac Limited, New York
Branch, Nations Bank of Texas, Bank of America
National Trust and Savings Association, West One
Bank, Idaho, N.A., and Seattle-First
National Bank.3
10.1(b) First Amendment to Credit Agreement dated as of
April 12, 1993, among the Registrant and certain
of Registrant's subsidiaries, and Mase Westpac
Limited, as Agent for the Banks participating
therein.
10.1(c) Second Amendment to Credit Agreement dated as of 97-106
August 11, 1993, among the Registrant and certain
of Registrant's subsidiaries, and Mase Westpac
Limited, as Agent for the Banks participating
therein.
10.1(d) Third Amendment to Credit Agreement dated as of 107-114
November 9, 1993, among the Registrant and
certain of Registrant's subsidiaries, and Mase
Westpac Limited, as Agent for the Banks
participating therein.
82
INDEX TO EXHIBITS (continued)
Sequential
Page
Number and Description of Exhibits Number1
---------------------------------- -----------
10.2 Employment agreement dated November 10, 1989
between Hecla Mining Company and Arthur Brown.
(Registrant has substantially identical agree-
ments with each of Messrs. Joseph T. Heatherly,
Roger A. Kauffman, Ralph R. Noyes, John P.
Stilwell, and Michael B. White. Such
substantially identical agreements are not
included as separate Exhibits.)2,3
10.3(a) Form of Deferred Compensation Plan Agreement
for Officers of the Registrant, as amended
February 12, 1988.2,3
10.3(b) Form of Deferred Compensation Plan Agreement
for Directors of the Registrant, as amended
November 8, 1985.2,3
10.4 1987 Nonstatutory Stock Option Plan of the
Registrant.2,3
10.5(a) Hecla Mining Company Retirement Plan for
Employees and Supplemental Retirement and
Death Benefit Plan.2,3
10.5(b) Supplemental Retirement Benefit Plan.2,3
10.6 Form of Indemnification Agreement dated
May 27, 1987 between Hecla Mining Company
and each of its Directors and Officers.2,3
10.7(a) Purchase and Sale Agreement between Registrant
as "Purchaser" and Amselco Minerals Inc. as
"Seller" and Greens Creek Mining Company and
Hawk Inlet Company, dated March 17, 1987,
together with Assignment of Interest in Joint
Venture Agreement dated May 29, 1987.3
10.7(b) Joint Venture Agreement between the Registrant,
Greens Creek Mining Company, Hawk Inlet
Company, Amselco Minerals Inc., Exalas Resources
Corporation and CSX Oil & Gas Corporation, as
last amended June 2, 1987 by Fifth Amendment.3
10.8 Purchase Agreement dated October 26, 1993, 115-186
among Registrant as Purchaser and Gerald and Gae
Taylor, Frank J. and Sharon D. Daniels, Dee R.
and Donna Thueson, Clair O. and Ann B. Thueson
and Neil H. and Linda J. Knudsen as Sellers.
83
INDEX TO EXHIBITS (continued)
Sequential
Page
Number and Description of Exhibits Number1
---------------------------------- -----------
10.9 Acquisition Agreement dated as of December 29,
1993, by and among Registrant and B.P.Y.A.
1193 Holdings Ltd., 1057451 Ontario Limited
and Equinox Resources Ltd.3
10.10(a) Acquisition Agreement - Grouse Creek Project,
dated January 21, 1994, among Registrant,
Great Lakes Idaho Inc. and Great Lakes
Minerals Inc.3
10.10(b) Mining Venture Agreement dated as of February 8,
1994, between Registrant and Great Lakes Idaho
Inc.3
11. Computation of weighted average number of 187
common shares outstanding.
22. List of subsidiaries of the registrant. 189
24. Consent of Coopers & Lybrand to incorpor- 191
ation by reference of their report dated
February 3, 1994, on the Consolidated
Financial Statements of the Registrant
in the Registrant's Registration Statements
on Form S-3, No. 33-72834, Form S-8,
No. 33-7833, No. 33-41833, No. 33-14758
and No. 33-40691.
- ------------------------
1. This information appears only in the manually signed, original,
sequentially numbered copy of this report.
2. Indicates a management contract or compensatory plan or arrangement.
3. These exhibits were filed as indicated on the following page and are
incorporated herein by this reference thereto:
84
Corresponding Exhibit in Annual Report on
Form 10-K, Quarterly Report on Form 10-Q,
Exhibit in Current Report on Form 8-K, Proxy Statement
this Report or Registration Statement, as Indicated
- ----------- ---------------------------------------
3.1(a) & (b) 3.1 (10-K for 1987 - File No. 1-8491)
3.1(c) & (d) 4.1(d)(c) and 4.5 (Quarterly Report on
Form 10-Q dated June 30, 1993)
3.2 2 (Current Report on Form 8-K dated
November 9, 1990 - File No. 1-8491)
4.1(a) 1 (Current Report on Form 8-K dated
May 23, 1986 - File No. 1-8491)
4.1(b) 1 (Current Report on Form 8-K dated
November 9, 1990 - File No. 1-8491)
4.1(c) 4.1(c)(10-K for 1991 - File No. 1-8491)
4.1(d) 4.1(d)(10-K for 1991 - File No. 1-8491)
4.2 4.1 (Registration Statement No. 33-28648)
4.3 4.2 (Registration Statement No. 33-28648)
4.4 4.4 (Registration Statement No. 33-28648)
10.1(a) 10.1(10-K for 1992 - File No. 1-8491)
10.1(b) 10.1(b)(Quarterly Report on Form 10-Q
dated June 30, 1993)
10.2 10.2(b) (10-K for 1989 - File No. 1-8491)
10.3(a) 10.7(a) (10-K for 1988 - File No. 1-8491)
10.3(b) 10.9(b) (10-K for 1985 - File No. 1-8491)
10.4 B (Proxy Statement dated March 20, 1987 -
File No. 1-8491)
10.5(a) 10.11(a) (10-K for 1985 - File No. 1-8491)
10.5(b) 10.11(b) (10-K for 1985 - File No. 1-8491)
10.6 10.15 (10-K for 1987 - File No. 1-8491)
10.7(a) 10.16(a) (10-K for 1987 - File No. 1-8491)
10.7(b) 10.16(b) (10-K for 1987 -File No. 1-8491)
10.9 Exhibit 2 (Schedule 13D dated January 7,
1993 - filed by Registrant with respect
to Equinox Resources Ltd.
10.10(a) (c)1(Current Report on Form 8-K dated
February 10, 1994 - File No. 1-8491)
10.10(b) (c)2(Current Report on Form 8-K dated
February 10, 1994 - File No. 1-8491)