1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission file number 1-8491
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HECLA MINING COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 82-0126240
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6500 Mineral Drive
Coeur d'Alene, Idaho 83814-8788
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(Address of principal executive offices) (Zip Code)
208-769-4100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for at least the past 90 days. Yes XX . No .
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding April 30, 1995
- --------------------------------------- --------------------------
Common stock, par value $0.25 per share 48,235,388 shares
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HECLA MINING COMPANY and SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
I N D E X
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Page
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PART I. - Financial Information
Item l - Consolidated Balance Sheets - March 31, 1995
and December 31, 1994 3
- Consolidated Statements of Operations - Three
Months Ended March 31, 1995 and 1994 4
- Consolidated Statements of Cash Flows - Three
Months Ended March 31, 1995 and 1994 5
- Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. - Other Information
Item 1 - Legal Proceedings 19
Item 6 - Exhibits and Reports on Form 8-K 19
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PART I - FINANCIAL INFORMATION
HECLA MINING COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(dollars in thousands)
March 31, December 31,
1995 1994
------------- ------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 5,056 $ 7,278
Accounts and notes receivable 28,545 23,516
Income tax refund receivable 249 247
Inventories 18,801 18,616
Other current assets 1,692 1,597
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Total current assets 54,343 51,254
Investments 5,828 6,476
Restricted investments 13,601 13,553
Properties, plants and equipment, net 257,814 257,908
Other noncurrent assets 5,767 5,391
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Total assets $337,353 $ 334,582
======== =========
LIABILITIES
-----------
Current liabilities:
Accounts payable and accrued expenses $ 12,276 $ 13,570
Accrued payroll and related benefits 2,094 2,724
Preferred stock dividends payable 2,012 2,012
Accrued taxes 1,453 925
Accrued reclamation costs 4,272 4,254
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Total current liabilities 22,107 23,485
Deferred income taxes 359 359
Long-term debt 9,076 1,960
Accrued reclamation costs 29,238 27,162
Other noncurrent liabilities 4,901 4,098
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Total liabilities 65,681 57,064
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SHAREHOLDERS' EQUITY
--------------------
Preferred stock, $0.25 par value,
authorized 5,000,000 shares, issued
and outstanding - 2,300,000 shares,
liquidation preference $117,012 575 575
Common stock, $0.25 par value,
authorized 100,000,000 shares;
issued 1995 - 48,297,649;
issued 1994 - 48,144,274 12,074 12,036
Capital surplus 330,165 328,995
Retained deficit (67,913) (63,437)
Net unrealized gain on investments 2,558 3,396
Foreign currency translation adjustment (4,899) (3,158)
Less common stock reacquired at cost;
1995 - 62,261 shares, 1994 - 62,355 shares (888) (889)
-------- ---------
Total shareholders' equity 271,672 277,518
-------- ---------
Total liabilities and shareholders' equity $337,353 $ 334,582
======== =========
The accompanying notes are an integral part of the financial statements.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(dollars and shares in thousands, except for per-share amounts)
Three Months Ended
--------------------------------
March 31, 1995 March 31, 1994
-------------- --------------
Sales of products $35,710 $26,340
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Cost of sales and other direct production costs 30,230 24,671
Depreciation, depletion and amortization 5,642 2,620
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35,872 27,291
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Gross loss (162) (951)
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Other operating expenses:
General and administrative 2,330 4,559
Exploration 1,043 2,108
Depreciation and amortization 83 182
Provision for closed operations and
environmental matters 56 240
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3,512 7,089
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Loss from operations (3,674) (8,040)
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Other income (expense):
Interest and other income 1,443 1,314
Miscellaneous income (expense) (197) - -
Gain on sale of investments 121 1,328
Interest expense:
Total interest cost (165) (1,149)
Less amount capitalized 58 965
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1,260 2,458
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Loss before income taxes (2,414) (5,582)
Income tax provision (50) (68)
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Net loss (2,464) (5,650)
Preferred stock dividends 2,012 2,013
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Net loss applicable to common shareholders $(4,476) $(7,663)
======= =======
Net loss per common share $(0.09) $(0.19)
====== ======
Cash dividends per common share $ - - $ - -
====== ======
Weighted average number of common
shares outstanding 48,107 40,341
====== ======
The accompanying notes are an integral part of the financial statements.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)
Three Months Ended
-------------------------------
March 31, 1995 March 31, 1994
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Operating activities:
Net loss $(2,464) $ (5,650)
Noncash elements included in net loss:
Depreciation, depletion and amortization 5,725 2,802
Gain on disposition of properties, plants
and equipment (265) (579)
Gain on sale of investments (121) (1,328)
Accretion of interest on long-term debt - - 999
Provision for reclamation and closure costs - - 123
Change in:
Accounts and notes receivable (5,029) (7,662)
Income tax refund receivable (2) - -
Inventories (185) 1,208
Other current assets (95) (219)
Accounts payable and accrued expenses (1,294) (1,803)
Accrued payroll and related benefits (630) 94
Accrued taxes 528 361
Accrued reclamation and other noncurrent liabilities 2,897 (263)
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Net cash used by operating activities (935) (11,917)
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Investing activities:
Additions to properties, plants and equipment (6,961) (11,510)
Proceeds from disposition of properties,
plants and equipment 314 13,381
Proceeds from the sales and maturity of investments 126 30,470
Purchase of restricted investments (48) - -
Purchase of investments and increase in cash
surrender value of life insurance (195) (1,191)
Other, net (835) (2,634)
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Net cash provided (used) by investing activities (7,599) 28,516
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Financing activities:
Common stock issued under stock option plans - - 1,084
Proceeds from the exercise of stock warrants 1,208 - -
Dividends on preferred stock (2,012) (2,013)
Borrowings on long-term debt 11,000 - -
Payments on long-term debt (3,884) - -
Increase in deferred revenue - - 125
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Net cash provided (used) by financing activities 6,312 (804)
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Increase (decrease) in cash and cash equivalents (2,222) 15,795
Cash and cash equivalents at beginning of period 7,278 40,031
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Cash and cash equivalents at end of period $ 5,056 $ 55,826
======= ========
Supplemental disclosure of cash flow information:
Cash paid during period for:
Interest (net of amount capitalized) $ 47 $ 85
======= ========
Income tax payments (refunds), net $ - - $ 182
======= ========
The accompanying notes are an integral part of the financial statements.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The notes to the consolidated financial statements as of December
31, 1994, as set forth in the Company's 1994 Annual Report on
Form 10-K, substantially apply to these interim consolidated
financial statements and are not repeated here.
Note 2. The financial information given in the accompanying unaudited
interim consolidated financial statements reflects all
adjustments which are, in the opinion of management, necessary to
a fair statement of the results for the interim periods reported.
All such adjustments are of a normal recurring nature. All
financial statements presented herein are unaudited. However,
the balance sheet as of December 31, 1994, was derived from the
audited consolidated balance sheet described in Note 1 above.
Note 3. The components of the income tax provision for the three months
ended March 31, 1995 and 1994 are as follows (in thousands):
1995 1994
---- ----
Current:
State income taxes $ 50 $ 68
Federal income tax provision - - - -
---- ----
Total current provision 50 68
Deferred provision - - - -
---- ----
Total $ 50 $ 68
==== ====
The Company's income tax provision for the first three months of
1995 and 1994 varies from the amount that would have been provided
by applying the statutory rate to the loss before income taxes
primarily due to the non-utilization of net operating losses.
Note 4. Inventories consist of the following (in thousands):
March 31, Dec. 31,
1995 1994
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Concentrates and metals in transit
and other products $ 4,719 $ 5,568
Industrial mineral products 5,780 5,995
Materials and supplies 8,302 7,053
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$18,801 $18,616
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Note 5. In July 1991, the Coeur d'Alene Indian Tribe (the "Tribe")
brought a lawsuit, under CERCLA, in Idaho Federal District Court
against the Company and a number of other mining companies
asserting claims for damages to natural resources located
downstream from the Bunker Hill Superfund Site located at Kellogg,
Idaho, over which the Tribe alleges some ownership or control. The
Company has answered the Tribe's complaint denying liability for
natural resource damages and asserted a number of defenses to the
Tribe's claims, including a defense that the Tribe has no
ownership or control over the natural resources they assert have
been damaged. In July 1992, in a separate action between the
Tribe and the State of Idaho, the Idaho Federal District Court
determined that the Tribe does not own the beds, banks and waters
of Lake Coeur d'Alene and the lower portion of its tributaries,
the ownership of which is the primary basis for the natural
resource damage claims asserted by the Tribe against the Company.
Based upon the Tribe's appeal of the July 1992 District Court
ownership decision to the 9th Circuit U.S. Court of Appeals, the
court in the natural resource damage litigation issued an order on
October 30, 1992, staying the court proceedings in the natural
resource damage litigation until a final decision is handed down
on the question of the Tribe's title. On December 9, 1994, the
9th Circuit Court reversed the decision of the Idaho District
Court and remanded the case of the Tribe's ownership for trial
before the District Court. The Company has been advised that the
State will seek an appeal of the 9th Circuit Court decision to the
U.S. Supreme Court. In July 1994, the United States, as Trustee
for the Coeur d'Alene Tribe, initiated a separate suit in Idaho
Federal District Court seeking a determination that the Coeur
d'Alene Tribe owns approximately the lower one-third of Lake Coeur
d'Alene. The State has denied the Tribe's ownership of any
portion of Lake Coeur d'Alene and its tributaries. The legal
proceedings related to the Tribe's natural resource damages claim
against the Company and other mining companies continue to be
stayed.
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 the
Tribe. In two separate decisions issued in August 1992 and March
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
1993, the court ruled that the primary insurance companies had a
duty to defend the Company in the Tribe's lawsuit, but that no
carrier had a duty to defend the Company in the EPA proceeding.
In January 1995, the Company entered into settlement agreements
with four of the insurance carriers named in the litigation. The
Company received a total of $2.425 million under the terms of the
settlement agreements. A portion of this settlement amount will
be payable to the EPA to reimburse the U.S. Government for past
costs under the Bunker Hill Consent Decree. The Company has
initiated a separate legal proceeding in Federal District Court
in Idaho seeking a clarification of its obligation to pay a
portion of the insurance proceeds to the EPA. Litigation is
still pending against other insurers. At March 31, 1995, the
Company has not reduced its environmental accrual to reflect any
anticipated additional insurance proceeds.
In December 1993, Industrial Constructors 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. In January 1995, the Company entered into a
settlement of the litigation with ICC pursuant to which the
Company on behalf of the Grouse Creek Joint Venture paid ICC a
total of $3.05 million, of which the Company was responsible for
80%, including approximately $1.0 million in contract retention
(plus interest from January 1, 1995) over a period of three
months ending on April 3, 1995. In April 1995, the Court
dismissed all claims in the litigation.
In June 1994, a judgment was entered against the Company in Idaho
State District Court in the amount of $10.0 million in
compensatory damages and $10.0 million in punitive damages based
on a jury verdict rendered in late May 1994 with respect to a
lawsuit previously filed against the Company by Star Phoenix
Mining Company ("Star Phoenix"), a former lessee of the Star
Morning Mine, over a dispute between the Company and Star Phoenix
concerning the Company's November 1990 termination of the Star
Phoenix lease of the Star Morning Mine property. A number of
other claims by Star Phoenix and certain principals of the Star
Phoenix against the Company in the lawsuit were dismissed by the
State District Court. The Company's post-trial motions were
denied by the State District Court, and the Company has appealed
the District Court judgment to the Idaho State Supreme Court.
Post-judgment interest will accrue during the appeal period; the
current
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
interest rate is 10.5%. In order to stay the ability of Star
Phoenix to collect on the judgment during the pending of the
appeal, the Company has posted an appeal bond in the amount of
$27.2 million representing 136% of the District Court judgment.
The Company pledged certain investments totaling $10.0 million as
collateral for the appeal bond. This collateral amount is
included in restricted investments at December 31, 1994 and March
31, 1995. On May 3, 1995, the District Court issued its final
opinion and order on a number of post-trial issues pending before
the Court. The Opinion and Order including the Court's denial of
the post-trial motions filed by Star Phoenix and certain of its
principals regarding claims which had been previously dismissed
by the Court during trial. The Court also awarded Star Phoenix
approximately $300,000 in attorneys' fees and costs out of the
$1.6 million claimed by the Plaintiffs. Although the ultimate
outcome of the appeal of the judgment is subject to the inherent
uncertainties of any legal proceeding, based upon the Company's
analysis of the factual and legal issues associated with the
proceeding before the Idaho District Court and based on the
opinions of outside counsel, as of the date hereof, it is
management's belief that the Company should ultimately prevail in
this matter, although there can be no assurance in this regard.
Accordingly, the Company has not accrued any liability associated
with this litigation.
On September 15, 1994, the Company intervened in a lawsuit
brought in the U.S. District Court in Idaho by two environmental
groups against the United States Forest Service seeking to halt
current and prospective logging, grazing, road building and
mining operations within six national forests located in Idaho
that may affect endangered salmon. The lawsuit alleges that the
Forest Service failed to comply with certain obligations with
respect to agency consultation for endangered salmon under the
Endangered Species Act in the planning process for these national
forests. The Company's Grouse Creek project is located within
one of the national forests identified in the lawsuit and could
be subject to the relief requested. On January 12, 1995, the
District Court issued an Order granting an injunction against the
Forest Service to halt all ongoing and future mining, timber,
grazing, and road building activity in the six national forests
that may affect the endangered salmon. The Court's Order
provided an exception to the injunction for certain projects,
like the Grouse Creek project, with determinations that the
project would not likely adversely affect the endangered salmon.
The Forest Service is
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
required to seek court approval for all such projects to be
excluded from the injunction. The District Court has stayed the
effectiveness of the injunction to March 15, 1995, to permit the
government to complete the consultation required under the
Endangered Species Act. On March 1, 1995, the government
announced the completion of the required forest planning
consultation and on March 8, 1995, the Court terminated the
injunction. Recent communications between the applicable federal
agencies regarding activities at the project indicate that
additional consultation under the Endangered Species Act will be
necessary for certain aspects of the Company's Grouse Creek
project. Although the ultimate impact on the Grouse Creek project
of any additional consultation under the Endangered Species Act
and the pending lawsuit cannot be predicted, based on a
comprehensive environmental assessment completed with respect to
developing the Company's Grouse Creek project and the completion
of the consultation on March 1, 1995, the Company's management
currently does not anticipate that these matters will have a
material adverse affect on the Company or its financial condition.
The Company is subject to other legal proceedings and claims which
have arisen in the ordinary course of its business and have not
been finally adjudicated. Although the ultimate disposition of
these matters and various other pending legal actions and claims
is not presently determinable, it is the opinion of the Company's
management, based upon the information available at this time,
that the expected outcome of these suits and proceedings will not
have a material adverse effect on the results of operations and
financial condition of the Company and its subsidiaries.
Note 6. At March 31, 1995, there was $8.0 million outstanding under the
Company's revolving and term loan facility classified as
long-term debt.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The Company is primarily involved in the exploration,
development, mining and processing of gold, silver, lead, zinc
and industrial minerals. As such, the Company's revenues and
profitability are strongly influenced by world prices of gold,
silver, lead and zinc, which fluctuate widely and are affected by
numerous factors beyond the Company's control, including
inflation and worldwide forces of supply and demand. The
aggregate effect of these factors is not possible to accurately
predict. In the following descriptions, where there are changes
that are attributable to more than one factor, the Company
presents each attribute in descending order relative to the
attribute's importance to the overall change.
The Company incurred net losses applicable to common shareholders
in the first quarter of 1995 and 1994 totaling $4.5 million and
$7.7 million, respectively. If the average metals prices for the
first quarter remain constant for the balance of the year, the
Company is anticipating net income (loss) applicable to common
shareholders in the range of $(2.0) to $2.0 million after the
expected dividends to preferred shareholders totaling
approximately $8.0 million for the year ending December 31, 1995.
Due to the volatility of metals prices and the significant impact
metals price changes have on the Company's operations, there can
be no assurance that the actual results of operations for the
year ending December 31, 1995 will be as forecasted.
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. 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 assets. Moreover, a review is
made on a quarterly basis to assess the impact of significant
changes in market conditions and other factors. Asset
write-downs may occur if the Company determines that the carrying
values attributed to individual assets are not recoverable given
reasonable expectations for future market conditions.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
In 1995, the Company expects to produce 190,000 to 200,000 ounces
of gold compared to actual 1994 gold production of 128,000 ounces
of gold. The 1995 estimated production includes 83,000 to 93,000
ounces from the Company's 80% interest in the Grouse Creek mine,
70,000 ounces from the La Choya mine, 30,000 ounces from the
Company's interest in the American Girl mine and an additional
7,000 ounces from other sources. The Company's expected gold
production increase in 1995 assumes anticipated production levels
are achieved at the Grouse Creek and La Choya mines, which
offsets the decrease in gold production due to the completion of
operations at the Republic mine in February 1995.
The Company's share of silver production for 1995 is expected to
be 2.3 million ounces compared to actual 1994 silver production
of 1,643,000 ounces. The expected increase in silver production
is primarily due to new production at the Grouse Creek mine and
resumption of operations at the Lucky Friday mine in December
1994, after the ore-conveyance accident suspended operations
since August 30, 1994.
The Company's production of industrial minerals is expected to
increase slightly in 1995 to 988,000 tons from 986,000 tons in
1994. Additionally, the Company expects to ship 761,000 cubic
yards of landscape material from Mountain West Products compared
to 690,000 cubic yards in 1994.
RESULTS OF OPERATIONS
The Company incurred a net loss of approximately $2.5 million, or
$0.05 per share, in the first three months of 1995 compared to a
net loss of approximately $5.6 million, or $0.14 per share, in
the same period of 1994. After $2.0 million in dividends to
preferred shareholders of the Company's Series B Cumulative
Convertible Preferred Stock, the Company's net loss applicable to
common shareholders for the first quarter of 1995 was $4.5
million, or $0.09 per common share, compared to $7.7 million, or
$0.19 per common share, in the comparable 1994 period. The first
quarter 1995 loss was due to a variety of factors, the most
significant of which are discussed below in descending order of
magnitude.
Sales of the Company's products increased by approximately $9.4
million, or 35.6%, in the first three months of 1995 as compared
to the same period in 1994, principally the result of increased
product sales totaling approximately
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
$13.6 million, most notably from the Grouse Creek mine where
production commenced in December 1994 and the La Choya mine, as
well as from the industrial minerals segment operations. These
factors were partially offset by decreased sales at other mines
in the metals segment, the impact of which is approximately $4.2
million, attributable to (1) decreased gold and silver production
at the Republic mine which completed mining operations in
February 1995; (2) decreased gold production at the American Girl
mine due to the completion of underground mining operations in
January 1995; and (3) decreased production of silver, lead and
zinc at the Lucky Friday mine in the 1995 period. Personnel at
the Lucky Friday mine worked to achieve normal production levels
during the 1995 period, after resuming operations in December
1994 from the temporary suspension of operations that resulted
from the August 30, 1994 ore-conveyance accident.
Comparing the average metal prices for the first quarter of 1995
with the comparable 1994 period, gold decreased by 1.4% to
$379.10 per ounce from $384.30 per ounce, silver decreased by 11%
to $4.70 per ounce from $5.29 per ounce, lead increased by 28% to
$0.277 per pound from $0.216 per pound, and zinc increased by 10%
to $0.485 per pound from $0.439 per pound.
Cost of sales and other direct production costs increased
approximately $5.6 million, or 22.5%, from the first three months
of 1994 to the comparable 1995 period primarily due to (1)
production costs incurred at the Grouse Creek mine where
production commenced in December 1994 totaling approximately $7.4
million; (2) production cost increases at Colorado Aggregate and
Mountain West Products totaling approximately $831,000 and
$492,000, respectively, due to increased production in 1995; (3)
production cost increases at the La Choya mine totaling
approximately $476,000 in relation to increased production in
1995 (the La Choya mine was in a start-up mode during the 1994
period); and (4) increases in operating costs at various other
operations totaling approximately $0.5 million. These increases
in cost of sales and other direct production costs were partially
offset by decreases in operating costs at other operations
totaling $4.1 million. These decreases are primarily due to (1)
decreased production costs at the Republic mine totaling
approximately $2.3 million which is the result of the completion
of operations in February 1995 and (2) decreased production costs
incurred at the Lucky Friday mine totaling approximately $1.1
million due to decreased production as the mine ramped back up to
normal production
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
levels in the 1995 period after the temporary suspension of
operations as discussed above.
Cost of sales and other direct production costs as a percentage
of sales from products decreased from 94% in the first quarter of
1994 to 85% in the comparable 1995 period, primarily due to
increased sales and production at the La Choya mine (the La Choya
mine was in a start-up mode during the 1994 period).
Cash and full production cost per gold ounce decreased from $373
and $422 for the first quarter of 1994 to $312 and $416 for the
first quarter of 1995, respectively. The decrease in both the
cash and full production cost per gold ounce is primarily
attributable to increased gold production at the La Choya mine
and decreased costs at the Republic mine in the 1995 period.
Cash and full production cost per silver ounce decreased from
$6.52 and $7.79 in the first quarter of 1994 to $4.74 and $6.00
in the first quarter of 1995, respectively. The decreases in the
cost per silver ounce are due primarily to decreased production
costs from the Lucky Friday mine and to an increase in the
average price of lead in the 1995 period. Lead and zinc are
by-products, the revenues from which are netted against
production costs in the calculation of production cost per ounce.
Depreciation, depletion and amortization increased by
approximately $3.0 million, or 115.3%, from the 1994 period to
the 1995 period, primarily the result of (1) production
commencing at the Grouse Creek mine in December 1994, where
significant depreciable assets are depreciated on a
units-of-production basis, the impact of which increased
depreciation expense approximately $3.0 million and (2) increased
production at the La Choya mine where significant depreciable
assets are depreciated on a units-of-production basis, which
increased depreciation expense by approximately $789,000. These
increases in depreciation, depletion, and amortization were
partially offset by a decrease in the depreciation expense at the
Republic mine. Republic mine assets were written down to their
net realizable value at December 31, 1994 due to the closure of
the mine in February 1995.
Other operating expenses decreased by $3.6 million, or 50.5%,
from the 1994 period to the 1995 period, due principally to (1)
decreased general and administrative costs of $2.2 million
attributable primarily to nonrecurring costs totaling
approximately $2.2 million
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
incurred in connection with the March 11, 1994 acquisition of
Equinox and (2) decreased exploration expenses totaling
approximately $1.1 million relating principally to the Rosebud
project and Republic mine.
Net other income reported was approximately $1.3 million in the
1995 period compared to $2.5 million in the 1994 period primarily
a result of the $1.3 million nonrecurring gain recognized on the
sale of the Company's common stock investment in Granduc Mines
Ltd. in January 1994. Total interest cost decreased $984,000 in
the 1995 period principally due to the June 1994 retirement of
long-term debt. Interest cost capitalized decreased $907,000 in
the 1995 period due to the completion of the Grouse Creek project
and the lower debt level.
FINANCIAL CONDITION AND LIQUIDITY
A substantial portion of the Company's revenue is derived from
the sale of products, the prices of which are affected by
numerous factors beyond the Company's control. Prices may change
dramatically in short periods of time and such changes have a
significant effect on revenues, profits and liquidity of the
Company. The Company is subject to many of the same inflationary
pressures as the U.S. economy in general. The Company continues
to implement cost-cutting measures in an effort to reduce per
unit production costs. Management believes, however, that the
Company may not be able to continue to offset the impact of
inflation over the long term through cost reductions alone.
However, the market prices for products produced by the Company
have a much greater impact than inflation on the Company's
revenues and profitability. Moreover, the discovery, development
and acquisition of mineral properties are in many instances
unpredictable events. Future metals prices, the success of
exploration programs, changes in legal and regulatory
requirements, and other property transactions can have a
significant impact on the need for capital.
At March 31, 1995, assets totaled approximately $337.4 million
and shareholders' equity totaled approximately $271.7 million.
Cash and cash equivalents decreased by $2.2 million to $5.1
million at March 31, 1995 from $7.3 million at the end of 1994.
The major sources of cash during this period were (1) proceeds
totaling approximately $11.0 million from borrowing on long-term
debt and (2) proceeds totaling approximately $1.2 million from
the exercise of stock warrants. The primary uses of cash were
(1) approximately $7.0 million expended for
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
properties, plants and equipment consisting of: a) construction
in progress for the Greens Creek mine totaling approximately $1.5
million, b) plants and equipment principally for ongoing
development of the Grouse Creek and La Choya projects totaling
$1.4 million and $1.3 million, respectively, and c) expenditures
for the development of K-T Ball and Kaolin industrial minerals
projects totaling $1.0 million; (2) approximately $3.9 million
expended for repayments on long-term debt; (3) preferred dividend
payments totaling approximately $2.0 million; and (4) cash used
by operations totaling approximately $1.0 million.
The Company estimates that remaining capital expenditures to be
incurred in the balance of 1995 will be approximately $30.9
million. These expenditures consist primarily of (1) the
Company's share of development expenditures at the Greens Creek
project expected to total approximately $11.5 million (subject to
final approval); (2) development expenditures at the Rosebud
project and the Grouse Creek and American Girl mines totaling
approximately $5.1 million, $3.8 million and $3.0 million,
respectively; and (3) the purchase of Western Bark, Inc. for
approximately $2.0 million. The Company intends to finance these
capital expenditures through a combination of (1) existing cash
and cash equivalents and (2) cash flow from operating activities.
In addition, the Company may borrow funds from its revolving and
term credit facility (described below) which, subject to certain
conditions, provides for borrowings up to a maximum of $40.0
million. The Company had $8.0 million outstanding at March 31,
1995 under the facility. The Company's estimate of its capital
expenditure requirements assume, with respect to the Grouse
Creek, Greens Creek and Oro Cruz properties, that the Company's
joint venture partners do not default with respect to their
obligations to contribute their respective portions of
development costs and capital expenditures.
The Company's planned environmental and reclamation expenditures
for the balance of 1995 are expected to be approximately $8.3
million, principally for environmental and reclamation activities
at the Bunker Hill Superfund Site, Durita mine, Republic mine,
and the Coeur d'Alene River Basin.
Exploration expenditures for the balance of 1995 are estimated to
be approximately $5.9 million. The Company's exploration
strategy is to focus further exploration at or in the vicinity of
its currently owned properties.
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Accordingly, these exploration expenditures will be incurred
principally at Rosebud, Grouse Creek, American Girl, Lucky
Friday, and Mexican exploration targets.
Exploration efforts at the Republic gold mine have been
unsuccessful to date in extending ore reserves. The Republic
mine completed operations in February 1995.
In the normal course of its business, the Company uses forward
sales commitments and commodity put and call option contracts to
manage its exposure to fluctuations in the prices of certain
metals which it produces. Contract positions are designed to
ensure that the Company will receive a defined minimum price for
certain quantities of its production. Gains and losses, and the
related costs paid or premium received, for contracts which hedge
the sales prices of commodities are deferred and included in
income as part of the hedged transaction. Revenues from the
aforementioned contracts are recognized at the time contracts are
closed out by delivery of the underlying commodity or settlement
of the net position in cash. The Company is exposed to certain
losses, generally the amount by which the contract price exceeds
the spot price of a commodity, in the event of nonperformance by
the counterparties to these agreements. At March 31, 1995, the
Company had forward sales commitments through May 31, 1995 for
3,500 ounces of gold at an average price of $378 per ounce. The
Company has also purchased options to put 89,460 ounces of gold
to the counterparties at an average price of $390 per ounce.
Concurrently, the Company sold options to allow the
counterparties to call 89,460 ounces of gold from the Company at
an average price of $464 per ounce. There was no net cost
associated with the purchase and sale of these options which
expire on a monthly basis through December 1997. The London
Final gold price at March 31, 1995 was $392.00. It is not
practicable for the Company to obtain or calculate the estimated
fair value of these option contracts at March 31, 1995, due to
the cost of obtaining the data. The nature and purpose of the
contracts, however, do not presently expose the Company to any
significant net loss. In addition, at March 31, 1995, the
Company has sold forward 3,600 metric tons of lead at an average
price of $684 per metric ton, or $0.31 per pound. These
commitments extend over the period June 1995 to January 1996.
All of the aforementioned contracts are designated as hedges at
March 31, 1995.
The recent decline of the Mexican peso has not and is not
expected to significantly impact results at the La Choya mine as
both funding for operations and gold sales are denominated in
dollars. However, at the Company's K-T
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PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Mexico clay slurry plant, sales are denominated in pesos. At
March 31, 1995, the Company has reflected a foreign currency
translation adjustment (component of shareholders' equity)
totaling $4.9 million which relates to operations at K-T Mexico.
Foreign exchange losses totaling $0.2 million have been recorded
relating to operations at the La Choya mine. Continued declines
in the Mexican peso could further adversely impact the Company's
Mexico operations.
As described in Note 5 of Notes to Consolidated Financial
Statements, the Company is a defendant in a legal action filed in
November 1990 by Star Phoenix and certain principals of Star
Phoenix, asserting that the Company breached the terms of Star
Phoenix's lease agreement for the Company's Star Morning Mine and
that the Company interfered with certain contractual
relationships of Star Phoenix relating to the Company's 1990
termination of such lease agreement. In June 1994, judgment was
entered by the Idaho State District Court against the Company in
the legal proceeding in the amount of $10.0 million in
compensatory damages and $10.0 million in punitive damages based
on a jury verdict rendered in the case in late May 1994. The
Company's post-trial motions were denied by the District Court,
and the Company has appealed the judgment to the Idaho State
Supreme Court. Post-judgment interest will accrue during the
appeal period; the current interest rate is 10.5%. In order to
stay the ability of Star Phoenix to collect on the judgment
during the pending of the appeal, the Company posted an appeal
bond in the amount of $27.2 million representing 136% of the
District Court judgment. The Company pledged cash and cash
equivalents totaling $10.0 million as collateral for the $27.2
million bond. Although the ultimate outcome of the appeal of the
judgment is subject to the inherent uncertainties of any legal
proceeding, based on the Company's analysis of the factual and
legal issues associated with the proceeding before the District
Court and based upon the opinions of outside counsel, as of the
date hereof, it is management's belief that the Company should
ultimately prevail in this matter, although there can be no
assurance in this regard.
Although the ultimate disposition of this matter and various
other pending legal actions and claims is not presently
determinable, it is the opinion of the Company's management,
based upon the information available at this time, that the
outcome of these suits and proceedings will not have a material
adverse effect on the results of operations and financial
condition of the Company and its subsidiaries.
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PART II - OTHER INFORMATION
HECLA MINING COMPANY and SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Note 5 of Notes to Consolidated Financial
Statements in Part I.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
13.1 - First Quarter Report to Shareholders for the quarter
ending March 31, 1995, for release dated May 3, 1995
27 - Financial Data Schedule
(b) Reports on Form 8-K
Report on Form 8-K dated March 27, 1995 (Item 5), related
to Order Dissolving Preliminary Injunction in the United
States District Court.
Items 2, 3, 4 and 5 of Part II are omitted from this report as inapplicable.
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HECLA MINING COMPANY and CONSOLIDATED SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HECLA MINING COMPANY
------------------------------------
(Registrant)
Date: May 11, 1995 By /s/ ARTHUR BROWN
---------------------------------
Arthur Brown, Chairman, President
and Chief Executive Officer
Date: May 11, 1995 By /s/ J. T. HEATHERLY
---------------------------------
J. T. Heatherly,
Vice President - Controller
(Chief Accounting Officer)
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EXHIBIT INDEX
-------------
Exhibit
No. Description
- ------- -----------
13.1 First Quarter Report to Shareholders for the
quarter ending March 31, 1995, for release
dated May 3, 1995
27 Financial Data Schedule