<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
AMENDMENT NO. 1 TO 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 25c. per share )
Preferred Share Purchase Rights )
Liquid Yield Option Notes Due 2004 ) New York Stock Exchange
Series B Cumulative Convertible Preferred Stock, ------------------------------
par value 25c. 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.
<PAGE> 2
PART I
Item 1. Business(1)
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
____________________
(1)For definitions of certain mining terms used in this
description, see "Glossary of Certain Mining Terms" at the
end of Item 1, page 27.
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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:
<TABLE>
<CAPTION>
Years
-------------------------------------
Product 1993 1992 1991
----------------- ----- ----- -----
<S> <C> <C> <C>
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
</TABLE>
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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:
<TABLE>
<CAPTION>
Year Total Gold Gold
Ended Reserves Avg. Grade Content
12/31 (Tons) (oz/ton) (ozs.)
----- -------- ---------- -------
<S> <C> <C> <C>
1993 6,138,000 0.037 225,500
1992 4,283,277 0.039 167,000
</TABLE>
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
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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
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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:
<TABLE>
<CAPTION>
Year Total Gold Gold Silver Silver
End Reserves Avg. Grade Content Avg. Grade Content
12/31 (Tons) (oz./ton) (ozs.) (oz./ton) (ozs.)
----- ---------- ---------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
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
----
</TABLE>
_______________________
(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
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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 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
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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.
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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:
<TABLE>
<CAPTION>
Years
-----------------------------------------------------------------------
Production (100%) 1993 1992 1991 1990 1989
- - ------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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 Reserves(1)
- - ----------------
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
</TABLE>
- - ------------------------------------
(1) Reserves lying above or between developed levels are classified
as proven reserves. Reserves lying below the lowest developed
level,
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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
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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-
<PAGE> 12
<TABLE>
<CAPTION>
Years
----------------------------------------------------------------
Production (100%) 1993 1992 1991 1990 1989
----------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
-------------------------------
(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-
<PAGE> 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.
<TABLE>
<CAPTION>
Years
------------------------------------------------------------------------
Production (75%) 1993(1) 1992(1) 1991 1990 1989
------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
-------------------------------
(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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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.
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<PAGE> 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-
<PAGE> 22
<TABLE>
<CAPTION>
Years
---------------------------------------------------------------------------------
Production 1993(1)(29.7%) 1992(28%) 1991(28%) 1990(28%) 1989(2)(28%)
- - ----------------- -------------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- - -------------------------------
(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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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).
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<PAGE> 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:
<TABLE>
<CAPTION>
Average Metal Prices
---------------------------------------------------
Silver Gold
Year (per oz.-Handy & Harman) (per oz.-London Final)
---- ------------------------ ----------------------
<S> <C> <C>
1993 $ 4.30 $ 360
1992 $ 3.94 $ 344
1991 $ 4.04 $ 362
1990 $ 4.82 $ 383
1989 $ 5.50 $ 381
</TABLE>
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
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<PAGE> 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.
All of the Company's exploration, development, and production activities
in the United States, Mexico, and Canada are subject to regulation under
one or more of the various environmental laws. These laws address
emissions to the air, discharges to water, management of wastes,
management of hazardous substances, protection of natural resources,
protection of antiquities and reclamation of lands which are disturbed.
The Company believes that it is in substantial compliance with
applicable environmental regulations. Many of the regulations also
require permits to be obtained for the Company's activities; these
permits normally are subject to public review processes resulting in
public approval of the activity. While these laws and regulations
govern how we conduct many aspects of our business, the Company does not
believe that they have a material adverse effect on its results of
-26-
<PAGE> 28
operations or financial condition at this time. The Company's projects
are evaluated considering the cost and impact of environmental regulation
on the proposed activity. New laws and regulations are evaluated as they
develop to determine the impact on, and changes necessary to, our
operations. It is possible that future changes in these laws or
regulations could have a significant impact on some portion of our
business, causing those activities to be economically reevaluated at that
time.
Environmental laws and regulation may also have an indirect impact on the
Company, such as increased cost for electricity due to acid rain
provisions of the Clean Air Act Amendments of 1990. Charges by smelters
to which the Company sells its metallic concentrates and products have
substantially increased over the past several years because of
requirements that smelters meet revised environmental quality standards.
The Company has no control over the smelters' operations or their
compliance with environmental laws and regulations. If the smelting
capacity of the United States is significantly further reduced because of
environmental requirements, it is possible that the Company's operations
could be adversely affected.
The Company is also subject to regulations under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA or
"superfund") which regulates and establishes liability for the release of
hazardous substances. The Company has been implicated at some superfund
sites (see Note 8 of Notes to Consolidated Financial Statements).
Revisions to CERCLA are being considered by Congress; impact on the
Company is not clear at this time.
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.
-27-
<PAGE> 29
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.
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
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<PAGE> 30
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 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.
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<PAGE> 31
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.
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.
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<PAGE> 32
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.
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<PAGE> 33
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:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
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
</TABLE>
(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.
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<PAGE> 34
Item 6. Selected Financial Data
(dollars in thousands except for per-share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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
payable(1) $ 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
</TABLE>
- - ---------------------------------
(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.
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<PAGE> 35
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 1
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 instances following the
Company's description of changes that are attributable to more than one factor,
the Company presents each attribute describing the change in descending order
relative to the attribute's importance to the overall change.
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) 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;
and (3) depressed gold, silver, lead, and zinc prices. If the current market
prices of gold, silver and lead do not increase and as a result of the
Company's preferred dividend payment requirements, the Company expects to
continue to experience net losses applicable to common shareholders, even with
the planned gold production from the commencement of commercial production at
the Grouse Creek project in late 1994. However, the Company's operating cash
flows are expected to increase subsequent to the commencement of commercial
production at this project even if metals prices remain at current levels. At
present metals prices for 1994, the Company is anticipating a net loss
applicable to common shareholders in the range of $2.9 million to $3.8 million
after the expected dividends to preferred shareholders totaling approximately
$8.0 million for the year ending December 31, 1994. 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, 1994 will be within the anticipated
range of projected net loss.
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.
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, although no such write-downs are currently contemplated
except as described below under "-Financial Condition and Liquidity."
- - -------------------
1 For definitions of certain mining terms used in this description, see
"Glossary of Certain Mining Terms" at the end of Item 1, page 27.
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<PAGE> 36
In 1994, the Company expects to produce approximately 117,000 ounces of gold,
including 50,000 ounces from the La Choya mine, 38,000 ounces from the Republic
mine, 24,000 ounces from the American Girl mine and an additional 5,000 ounces
from other sources. Assuming the timely commencement of production at the
Grouse Creek project in the fourth quarter of 1994, the Company's planned 1994
total gold production could increase by up to 53,000 ounces to 170,000 ounces,
based upon its 80% interest in the project. The Company's expected gold
production increase in 1994 assumes a full year of production at the La Choya
mine and the start-up of production at the Grouse Creek project in the fourth
quarter of 1994, which offsets the decrease in gold production at the Republic
mine. The Company's actual level of gold production for 1994 will depend, in
significant part, upon the timely commencement of production at the Grouse
Creek project.
The Company's share of silver production for 1994 is expected to be 2.7 million
ounces compared to actual 1993 silver production of 3.0 million ounces. The
expected decrease in silver production is primarily due to the suspension of
operations at the Greens Creek mine in April 1993.
In 1993, the Company shipped 888,000 tons of industrial minerals, including
ball clay, kaolin, feldspar, and specialty aggregates. The Company's
production of industrial minerals is expected to increase in 1994 to 945,000
tons, principally due to increased shipments of ball clay and kaolin.
Additionally, the Company expects to ship 591,000 cubic yards of landscape
material from its newly acquired subsidiary, Mountain West Products.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the historical Consolidated
Financial Statements of the Company appearing 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 preferred shareholders of
the Company's Series B Cumulative Convertible Preferred Stock (the "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, the impact of
which totals approximately $10.9 million, 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, the impact of
which totals approximately $9.4 million, 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, the impact of which totals approximately $1.7
million; (4) decreased production of lead at the Lucky Friday mine resulting
from lower lead contained in the ore processed, the impact of which totals
approximately $0.8 million; and (5) decreased sales of ball clay from
Kentucky-Tennessee Clay
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<PAGE> 37
Company; all of which were partially offset by (1) increased revenue from the
Company's Apex facility totaling $1.8 million; (2) increased sales of feldspar
totaling $1.3 million 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 Products, and 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 totaling approximately $9.0 million at the Greens Creek mine due to
suspension of operations in April 1993; (2) decreased operating costs totaling
approximately $6.0 million at the Cactus mine due to the completion of mining
operations in February 1992; (3) decreased operating costs totaling
approximately $1.6 million resulting from the sale of the Company's 25%
interest in the Galena mine in May 1992; (4) decreased operating costs totaling
approximately $1.2 million at the Yellow Pine mine resulting from the
completion of operations during the third quarter of 1992; and (5) decreased
production costs totaling approximately $0.4 million at the Republic mine; all
of which were partially offset by (1) increased operating costs during 1993
totaling approximately $0.3 million 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 totaling approximately $4.5
million associated with the newly acquired Mountain West Products.
Cost of sales and other direct production costs as a percentage of sales from
products increased from 83% in 1992 to 87% in 1993, primarily due to (1)
decreases in the gold grade at the Republic mine which decreased to 0.48 ounces
per ton of ore mined in 1993 from 0.60 ounces per ton of ore mined in 1992; (2)
declining lead and zinc prices which averaged $0.18 and $0.44 in 1993 compared
to $0.25 and $0.56 in 1992, respectively; and (3) the care and maintenance
costs associated with the Greens Creek mine which were recognized in 1993 due
to the suspension of operations in April 1993. Management does not believe
that the Company's cost of sales and other direct production costs are
materially different from industry norms.
Cash and full production cost per gold ounce increased from $188 and $258 in
1992 to $212 and $268 in 1993, respectively. The increases are due principally
to lower-grade ore being processed at the Republic mine resulting in fewer gold
ounces produced. The increase in full cost per gold ounce was partially offset
by decreasing depreciation charges due to the completion of mining operations
at the Cactus mine where depreciable assets were being depreciated primarily on
a unit-of-production basis.
Cash and full production cost per silver ounce increased from $4.51 and $5.89
in 1992 to $5.45 and $6.85 in 1993, respectively, due primarily to lower
average prices in 1993 for lead and zinc. Lead and zinc are by-products, the
revenues from which are netted against production costs in the calculation of
production cost per ounce. Management does not believe that the Company's cost
of sales and other direct production costs are materially different from
industry norms.
Depreciation, depletion and amortization expense decreased by approximately
$3.2 million, or 24%, in 1993 as compared to 1992, primarily as a result of (1)
the suspension of operations at the Greens Creek mine in April 1993, as well as
the
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<PAGE> 38
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 in
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 the 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 mine 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 Common Stock for 60,400
of its outstanding Liquid Yield Option Notes ("LYONs") 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 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.
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<PAGE> 39
1992 vs 1991
The net loss for 1992 was $49.3 million, or $1.60 per common share, compared to
a net loss of $15.4 million, or $0.51 per common 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.
Costs of sales and other direct production costs as a percentage of sales from
products increased to 83% in 1992 from 72% in 1991, primarily as a result of
declining gold and silver prices which averaged $343.73 and $3.94 in 1992
compared to $362.18 and $4.04 in 1991, respectively.
Cash and full production cost per gold ounce decreased from $191 and $279 in
1991 to $188 and $258 in 1992, respectively. The decrease in the full
production cost per gold ounce is due principally to decreasing depreciation
charges resulting from the completion of mining operations at the Cactus mine
where depreciable assets were being depreciated primarily on a
unit-of-production basis, partially offset by lower-grade ore being processed
at the Republic mine resulting in fewer gold ounces produced.
Cash and full production cost per silver ounce increased from $4.50 and $5.67
in 1991 to $4.51 and $5.89 in 1992, respectively. The full production cost per
silver ounce increase was due primarily to higher production costs and fewer
silver ounces produced at the Greens Creek mine in 1992 as compared to 1991 as
well as a lower average price in 1992 for lead. These were offset somewhat by
a higher average price for zinc. 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 decreased by approximately $7.7
million, or 36%, primarily as a result of the completion of mining operations
at the
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<PAGE> 40
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 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 continued 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 Mines, Inc. ("CoCa Mines"),
nonrecurring in 1992; (2) decreased other general and administrative costs
resulting from closing the CoCa Mines 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 LYONs resulting in a gain of approximately $0.5 million and a
reduction of interest expense in 1992; and (4) increased capitalized interest
relating 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
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<PAGE> 41
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 prices 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. 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 December 31, 1993, assets totaled approximately $332.9 million and
shareholders' equity totaled approximately $240.1 million. Cash and 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 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
approximately $8.6 million net cash from operating activities. The major uses
of cash were for (1) the development costs incurred in connection with the
Grouse Creek and La Choya projects (approximately $27.9 million and $12.2
million, respectively); (2) expenditures at the clay slurry facility in Mexico
(approximately $4.4 million); and (3) preferred dividend payments ($4.1
million).
The Company estimates that capital expenditures to be incurred in 1994 will be
approximately $62.2 million, after giving effect to the sale of 20% of the
Company's interest in the Grouse Creek project, which was completed in February
1994. These expenditures are expected to consist primarily of (1) the
Company's share of further development expenditures at the Grouse Creek project
totaling approximately $50.0 million; (2) the Company's share of further
development expenditures at the Greens Creek mine totaling approximately $3.4
million; and (3) development expenditures at Equinox's Rosebud and Oro Cruz
projects totaling approximately $3.7 million and $1.3 million, respectively.
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
Resources Ltd. ("Equinox"). 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; (3) cash flow from operating activities; and
(4) the net proceeds of the Offering described below following redemption of
the LYONs. In addition, the Company may borrow additional funds under its
revolving credit facility which,
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<PAGE> 42
subject to certain conditions, provides for borrowings up to a maximum of $30.0
million as further described in Note 7 of Notes to Consolidated Financial
Statements. The Company's estimates of its capital expenditures 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 1994 are
expected to be approximately $7.4 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 and at certain sites
expected to be acquired in the Equinox acquisition.
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 further described in Note 7 of Notes to Consolidated Financial Statements,
the Company has a secured reducing revolving credit facility that provides for
credit advances of up to $30.0 million. The availability of advances under
this facility reduce beginning 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 Company's accounts receivable,
inventories, specified marketable securities, and certain cash equivalents. As
of December 31, 1993, the Company had no outstanding borrowings under the
revolving credit facility.
The Company currently has outstanding $109,950,000 aggregate principal amount
of LYONs, which are currently convertible into 20.824 shares of the 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, pursuant
to the Put Feature, require the Company to purchase LYONs held by them 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 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 the Common Stock.
The Company is currently considering several alternatives with respect to the
Put Feature. Among the alternatives being examined by the Company is an equity
offering ("the Offering") with a portion of the proceeds being used to pay cash
to redeem the LYONs (and any remaining proceeds would be used for Company
capital expenditures). Alternatively, 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
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<PAGE> 43
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, 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 4.3 million 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 Common
Stock.
In December 1993, the Company acquired all of the issued and outstanding common
stock of Mountain West Products through the issuance of 655,000 shares of
Common Stock. Mountain West Products is engaged primarily in the acquisition,
mining and processing of decorative bark, scoria and specialty aggregates. The
transaction has been accounted for as a purchase. See Note 2 of Notes to
Consolidated Financial Statements for additional information.
As further described in Note 8 of Notes to Consolidated Financial Statements,
the Company has been notified by the 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.
In addition, as described in Note 8 of Notes to Consolidated Financial
Statements, the Company is a defendant in two other significant actions. The
first action was filed in November 1990 by Star Phoenix Mining Company ("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. The plaintiffs in the Star Phoenix litigation have
asserted that they have incurred damages amounting to approximately $20.0
million as a result of the Company's actions. The jury trial in the litigation
commenced in May 1994. Although the verdict in the litigation is subject to
the inherent uncertainties of a jury decision, it is the Company's belief that
it has sufficient defenses to the plaintiff's claims and that the Company will
ultimately prevail in the litigation. The second action was filed by
Industrial Constructors Corp. ("ICC") in December 1993 alleging that the
Company failed to comply with the terms of a contract between the Company and
ICC related to the Company's Grouse Creek gold project. ICC is claiming
damages in excess of $5 million including a $1 million retention held by the
Company under the contract. The Company has answered the complaint denying
ICC's allegations and has filed a counterclaim against ICC asserting damages in
excess of $2 million.
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 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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<PAGE> 44
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 results of operations or financial condition of the
Company and its subsidiaries.
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<PAGE> 45
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.
<TABLE>
<CAPTION>
SELECTED QUARTERLY DATA
-----------------------
(dollars in thousands except for per-share amounts)
First Second Third Fourth
1993: Quarter Quarter Quarter Quarter Total
---- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
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)
======== ======== ======== ======== ========
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
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<PAGE> 46
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:
<TABLE>
<CAPTION>
Age at
May 6,
Name 1994 Position and Term Served
------------------- ------ ---------------------------------------------------------------------------------
<S> <C> <C>
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.
</TABLE>
There are no family relationships between any of the executive officers.
-45-
<PAGE> 47
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 23, 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.
-46-
<PAGE> 48
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment on Form 10-K/A to be signed on its
behalf by the undersigned, thereunto duly authorized.
HECLA MINING COMPANY
(Registrant)
Dated: May 27, 1994 By /s/ Michael B. White
--------------------------
Michael B. White
Vice President - General Counsel
and Secretary
-47-
<PAGE> 49
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
</TABLE>
*Other financial statement schedules
have been omitted as not applicable
F-1
<PAGE> 50
[COOPERS & LYBRAND LETTERHEAD]
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
<PAGE> 51
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
December 31,
----------------------------
1993 1992
--------- ---------
<S> <C> <C>
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, 25c. par value,
authorized 5,000,000 shares;
issued and outstanding 1993 - 2,300,000,
liquidation preference $117,012 575 - -
Common stock, 25c. 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
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 52
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars and shares in thousands, except per-share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 53
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
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
========= ========= =========
</TABLE>
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
<PAGE> 54
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)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Retained Net Unrealized Loss
----------------- ---------------- Capital Earnings Treasury on Marketable
Shares Amount Shares Amount Surplus (Deficit) Stock Equity Securities
------ ------ ------ ------- --------- ---------- -------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
====== ======= ====== ====== ========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 55
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: 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:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
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%
</TABLE>
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
F-7
<PAGE> 56
based on the lower of aggregate cost or quoted market value. The cost
of investments sold is determined by specific identification.
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. The Company estimates the net realizable
value of each property based on the estimated undiscounted future cash
flows that will be generated from operations at each property, the
estimated salvage value of the surface plant, equipment and the value
associated with property interests. These estimates of undiscounted
future cash flows are dependent upon estimates of metal to be recovered
from proven and probable ore reserves and, where appropriate, from the
continuity of existing, developed ore bodies, future production costs
and future metal prices over the estimated remaining mine life.
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.
F-8
<PAGE> 57
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 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
F-9
<PAGE> 58
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 Equinox 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 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):
<TABLE>
<CAPTION>
1993 1992 1991
--------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 92,888 $ 101,621 $ 117,568
Net loss applicable to
common shareholders (21,852) (55,276) (15,521)
Net loss per common share (0.57) (1.59) (0.46)
</TABLE>
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,
F-10
<PAGE> 59
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.
Note 3: Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------
1993 1992
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
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):
<TABLE>
<CAPTION>
Carrying Market
Value Cost Value
-------- -------- --------
<S> <C> <C> <C>
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
======== ========
</TABLE>
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
F-11
<PAGE> 60
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.
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):
<TABLE>
<CAPTION>
December 31,
----------------------------
1993 1992
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>
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
F-12
<PAGE> 61
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 processing facility, 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 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 ("Great Lakes"). 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):
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
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)
======= ======= =======
</TABLE>
F-13
<PAGE> 62
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):
<TABLE>
<CAPTION>
1993 1992 1991
-------- ------- -------
<S> <C> <C> <C>
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)
======= ======= =======
</TABLE>
F-14
<PAGE> 63
The components of the net deferred tax liability as of December
31, 1993 and 1992, were as follows (in thousands):
<TABLE>
<CAPTION>
1993
-------------------------------------
Deferred Tax
------------------------
Assets Liabilities Total
-------- ----------- --------
<S> <C> <C> <C>
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)
======== ======== ========
</TABLE>
F-15
<PAGE> 64
<TABLE>
<CAPTION>
1993
-------------------------------------
Deferred Tax
------------------------
Assets Liabilities Total
-------- ----------- --------
<S> <C> <C> <C>
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)
======== ======== ========
</TABLE>
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):
<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
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)
======== ========
</TABLE>
F-16
<PAGE> 65
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):
<TABLE>
<CAPTION>
1993 % 1992 % 1991 %
-------- --- ------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C>
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)
======= === ======= ==== ======= ===
</TABLE>
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):
<TABLE>
<CAPTION>
Regular Tax Net Alternative Minimum Tax
Operating Losses Net Operating Losses
---------------- -----------------------
<S> <C> <C>
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
======== =======
</TABLE>
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,
F-17
<PAGE> 66
1993, for income tax purposes, the Company had approximately $6.0
million of alternative minimum tax net operating losses generated by
CoCa Mines Inc. ("CoCa") prior to its merger with the Company in 1991.
Due to the merger, 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):
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Zero coupon convertible notes $ 48,433 $ 69,376
Notes payable 962 917
Other long-term debt 94 89
-------- --------
$ 49,489 $ 70,382
======== ========
</TABLE>
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
F-18
<PAGE> 67
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 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
F-19
<PAGE> 68
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:
<TABLE>
<CAPTION>
Scheduled Base Commitment Base Commitment
Reduction Date Reduction Available
----------------- --------------- ----------------
<S> <C> <C>
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 - -
</TABLE>
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,
F-20
<PAGE> 69
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 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
F-21
<PAGE> 70
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-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 ("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
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 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.
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
F-22
<PAGE> 71
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 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
F-23
<PAGE> 72
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 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):
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
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)
======= ======= =======
</TABLE>
F-24
<PAGE> 73
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):
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
The projected benefit obligation was calculated applying the
following average rates:
<TABLE>
<CAPTION>
1993 1992
------ ------
<S> <C> <C>
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%
</TABLE>
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
F-25
<PAGE> 74
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 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):
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Service cost $ 28 $ 22
Interest cost 164 179
---- ----
Net postretirement benefit cost $192 $201
==== ====
</TABLE>
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):
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
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)
======= =======
</TABLE>
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.
<TABLE>
<CAPTION>
1993 1992
----- -----
<S> <C> <C>
Discount rate 6.50% 7.00%
Trend rate for medical benefits 6.00% 6.00%
</TABLE>
F-26
<PAGE> 75
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 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.
F-27
<PAGE> 76
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 at a price of 5c. 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, 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
<PAGE> 77
Transactions concerning stock options are summarized as follows:
<TABLE>
<CAPTION>
Incentive Nonstatutory Stock
Stock Option Plan Option Plan Total
--------------------------- ---------------------------
Shares Price Shares Price Shares
-------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C>
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
======== ======== ========
</TABLE>
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
<PAGE> 78
Note 11: Business Segments (in thousands)
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
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
======== ======== ========
Income (loss) from operations:
Metals $(10,359) $(34,992) $ (3,153)
Industrial minerals 4,449 4,620 5,842
Specialty metals (504) (15,332) (2,004)
General corporate (7,630) (9,339) (14,746)
-------- -------- --------
$(14,044) $(55,043) $(14,061)
======== ======== ========
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
======== ======== ========
</TABLE>
Net sales 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
<PAGE> 79
[COOPERS & LYBRAND LETTERHEAD]
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
<PAGE> 80
SCHEDULE V
HECLA MINING COMPANY and SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT - For the Years
Ended December 31, 1993, 1992 and 1991
(dollars in thousands)
<TABLE>
<CAPTION>
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
- - ---------------------------------------- ---------- ---------- ----------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
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
========= ========= ========= ========= =========
</TABLE>
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
<PAGE> 81
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)
<TABLE>
<CAPTION>
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
- - --------------------------------------- ---------- --------- ----------- --------------- --------------
<S> <C> <C> <C> <C> <C>
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
========= ========= ========= ========= =========
</TABLE>
(1) Other change due to reclassification between categories of accumulated
depreciation, depletion and amortization of property, plant and
equipment.
F-33
<PAGE> 82
SCHEDULE X
HECLA MINING COMPANY and SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
For the Years Ended December 31, 1993, 1992 and 1991
(dollars in thousands)
<TABLE>
<CAPTION>
Column A Column B
- - ----------------------------------------------- -----------------------------
Item Note (2) Charged to Costs and Expenses
- - ----------------------------------------------- -----------------------------
<S> <C>
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
</TABLE>
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
