UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(AMENDMENT NO. 1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-8491
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HECLA MINING COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 82-0126240
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6500 Mineral Drive
Coeur d'Alene, Idaho 83814-8788
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(Address of principal executive offices) (Zip Code)
208-769-4100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for at least
the past 90 days. Yes XX . No .
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Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding April 30, 1995
----------------------------------- --------------------------
Common stock, par value 48,235,388 shares
$0.25 per share<PAGE>
HECLA MINING COMPANY AND SUBSIDIARIES
FORM 10-Q/A
(AMENDMENT NO. 1)
FOR THE QUARTER ENDED MARCH 31, 1995
<TABLE>
I N D E X
<CAPTION> Page
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<S> <C>
PART I. - FINANCIAL INFORMATION 3
Item l - Financial Statements
- Consolidated Balance Sheets - March 31, 1995
and December 31, 1994 3
- Consolidated Statements of Operations
- Three Months Ended March 31, 1995 and 1994 4
- Consolidated Statements of Cash Flows - Three
Months Ended March 31, 1995 and 1994 5
- Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. - OTHER INFORMATION 22
Item 1 - Legal Proceedings 22
</TABLE>
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PART I - FINANCIAL INFORMATION
HECLA MINING COMPANY AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<CAPTION>
March 31, December 31,
1995 1994
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ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,056 $ 7,278
Accounts and notes receivable 28,545 23,516
Income tax refund receivable 249 247
Inventories 18,801 18,616
Other current assets 1,692 1,597
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Total current assets 54,343 51,254
Investments 5,828 6,476
Restricted investments 13,601 13,553
Properties, plants and equipment, net 257,814 257,908
Other noncurrent assets 5,767 5,391
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Total assets $ 337,353 $ 334,582
========= =========
<CAPTION>
LIABILITIES
-----------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses 12,276 $ 13,570
Accrued payroll and related benefits 2,094 2,724
Preferred stock dividends payable 2,012 2,012
Accrued taxes 1,453 925
Accrued reclamation costs 4,272 4,254
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Total current liabilities 22,107 23,485
Deferred income taxes 359 359
Long-term debt 9,076 1,960
Accrued reclamation costs 29,238 27,162
Other noncurrent liabilities 4,901 4,098
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Total liabilities 65,681 57,064
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<CAPTION>
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C>
Preferred stock, $0.25 par value, authorized
5,000,000 shares, issued and outstanding
- 2,300,000 shares, liquidation preference
$117,012 575 575
Common stock, $0.25 par value, authorized
100,000,000 shares; issued 1995 -
48,297,649; issued 1994 - 48,144,274 12,074 12,036
Capital surplus 330,165 328,995
Retained deficit (67,913) (63,437)
Net unrealized gain on investments 2,558 3,396
Foreign currency translation adjustment (4,899) (3,158)
Less common stock reacquired at cost;
1995 - 62,261 shares, 1994 - 62,355 shares (888) (889)
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Total shareholders' equity 271,672 277,518
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Total liabilities and
shareholders' equity $ 337,353 $ 334,582
========= =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
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PART I - FINANCIAL INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT FOR PER-SHARE AMOUNTS)
<CAPTION>
Three Months Ended
------------------------------
March 31, 1995 March 31, 1994
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<S> <C> <C>
Sales of products $ 35,710 $ 26,340
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Cost of sales and other direct production costs 30,230 24,671
Depreciation, depletion and amortization 5,642 2,620
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35,872 27,291
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Gross loss (162) (951)
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Other operating expenses:
General and administrative 2,330 4,559
Exploration 1,043 2,108
Depreciation and amortization 83 182
Provision for closed operations and
environmental matters 56 240
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3,512 7,089
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Loss from operations (3,674) (8,040)
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Other income (expense):
Interest and other income 1,443 1,314
Miscellaneous income (expense) (197) - -
Gain on sale of investments 121 1,328
Interest expense:
Total interest cost (165) (1,149)
Less amount capitalized 58 965
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1,260 2,458
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Loss before income taxes (2,414) (5,582)
Income tax provision (50) (68)
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Net loss (2,464) (5,650)
Preferred stock dividends 2,012 2,013
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Net loss applicable to common shareholders $ (4,476) $ (7,663)
========= =========
Net loss per common share $ (0.09) $ (0.19)
========= =========
Cash dividends per common share $ - - $ - -
========= =========
Weighted average number of common
shares outstanding 48,107 40,341
========= =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
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PART I - FINANCIAL INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<CAPTION>
Three Months Ended
------------------------------
March 31, 1995 March 31, 1994
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<S> <C> <C>
Operating activities:
Net loss $ (2,464) $ (5,650)
Noncash elements included in net loss:
Depreciation, depletion and amortization 5,725 2,802
Gain on disposition of properties, plants
and equipment (265) (579)
Gain on sale of investments (121) (1,328)
Accretion of interest on long-term debt - - 999
Provision for reclamation and closure costs - - 123
Change in:
Accounts and notes receivable (5,029) (7,662)
Income tax refund receivable (2) - -
Inventories (185) 1,208
Other current assets (95) (219)
Accounts payable and accrued expenses (1,294) (1,803)
Accrued payroll and related benefits (630) 94
Accrued taxes 528 361
Accrued reclamation and other noncurrent
liabilities 2,897 (263)
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Net cash used by operating activities (935) (11,917)
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Investing activities:
Additions to properties, plants and equipment (6,961) (11,510)
Proceeds from disposition of properties,
plants and equipment 314 13,381
Proceeds from the sales and maturity
of investments 126 30,470
Purchase of restricted investments (48) - -
Purchase of investments and increase in cash
surrender value of life insurance (195) (1,191)
Other, net (835) (2,634)
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Net cash provided (used) by investing
activities (7,599) 28,516
Financing activities:
Common stock issued under stock option plans - - 1,084
Proceeds from the exercise of stock warrants 1,208 - -
Dividends on preferred stock (2,012) (2,013)
Borrowings on long-term debt 11,000 - -
Payments on long-term debt (3,884) - -
Increase in deferred revenue - - 125
Net cash provided (used) by financing
activities 6,312 (804)
Increase (decrease) in cash and
cash equivalents (2,222) 15,795
Cash and cash equivalents at beginning
of period 7,278 40,031
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Cash and cash equivalents at end
of period $ 5,056 $ 55,826
========= =========
Supplemental disclosure of cash flow
information: Cash paid during period for:
Interest (net of amount capitalized) $ 47 $ 85
========= =========
Income tax payments (refunds), net $ - - $ 182
========= =========
The accompanying notes are an integral part of the financial statements.
</TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The notes to the consolidated financial statements as of
December 31, 1994, as set forth in the Company's 1994
Annual Report on Form 10-K/A (Amendment No. 1), substan-
tially apply to these interim consolidated financial
statements and are not repeated here.
Note 2. The financial information given in the accompanying
unaudited interim consolidated financial statements re-
flects all adjustments which are, in the opinion of man-
agement, necessary to a fair statement of the results
for the interim periods reported. All such adjustments
are of a normal recurring nature. All financial state-
ments presented herein are unaudited. However, the bal-
ance sheet as of December 31, 1994, was derived from the
audited consolidated balance sheet described in Note 1
above.
<TABLE>
Note 3. The components of the income tax provision for the three
months ended March 31, 1995 and 1994 are as follows (in
thousands):
<CAPTION>
1995 1994
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<S> <C> <C>
Current:
State income taxes $ 50 $ 68
Federal income tax provision - - - -
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Total current provision 50 68
Deferred provision - - - -
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Total $ 50 $ 68
======= =======
The Company's income tax provision for the first three
months of 1995 and 1994 varies from the amount that
would have been provided by applying the statutory rate
to the loss before income taxes primarily due to the
non-utilization of net operating losses.
</TABLE>
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PART I - FINANCIAL INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
<TABLE>
Note 4. Inventories consist of the following (in thousands):
<CAPTION>
March 31, December 31,
1995 1994
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<S> <C> <C>
Concentrates and metals
in transit and other
products $ 4,719 $ 5,568
Industrial mineral products 5,780 5,995
Materials and supplies 8,302 7,053
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$ 18,801 $ 18,616
======== ========
Note 5. In July 1991, the Coeur d'Alene Indian Tribe (the
"Tribe") brought a lawsuit, under CERCLA, in Idaho
Federal District Court against the Company and a number
of other mining companies asserting claims for damages
to natural resources located downstream from the Bunker
Hill Superfund Site located at Kellogg, Idaho, over
which the Tribe alleges some ownership or control. The
Company has answered the Tribe's complaint denying
liability for natural resource damages and asserted a
number of defenses to the Tribe's claims, including a
defense that the Tribe has no ownership or control over
the natural resources they assert have been damaged. In
July 1992, in a separate action between the Tribe and
the State of Idaho, the Idaho Federal District Court
determined that the Tribe does not own the beds, banks
and waters of Lake Coeur d'Alene and the lower portion
of its tributaries, the ownership of which is the
primary basis for the natural resource damage claims
asserted by the Tribe against the Company. Based upon
the Tribe's appeal of the July 1992 District Court
ownership decision to the 9th Circuit U.S. Court of
Appeals, the court in the natural resource damage
litigation issued an order on October 30, 1992, staying
the court proceedings in the natural resource damage
litigation until a final decision is handed down on the
question of the Tribe's title. On December 9, 1994, the
9th Circuit Court reversed the decision of the Idaho
District Court and remanded the case of the Tribe's
ownership for trial before the District Court. The
Company has been advised that the State will seek an
appeal of the 9th Circuit Court decision to the U.S.
Supreme Court. In July 1994, the United States, as
Trustee for the Coeur d'Alene Tribe, initiated a
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PART I - FINANCIAL INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
separate suit in Idaho Federal District Court seeking a
determination that the Coeur d'Alene Tribe owns
approximately the lower one-third of Lake Coeur d'Alene.
The State has denied the Tribe's ownership of any
portion of Lake Coeur d'Alene and its tributaries. The
legal proceedings related to the Tribe's natural
resource damages claim against the Company and other
mining companies continue to be stayed.
In 1991, the Company initiated litigation in the Idaho
State District Court in Kootenai County, Idaho, against
a number of insurance carriers which provided
comprehensive general liability insurance coverage to
the Company and its predecessors. The Company believes
that the insurance companies have a duty to defend and
indemnify the Company under their policies of insurance
relating to claims asserted against the Company by the
EPA and the Tribe. In two separate decisions issued in
August 1992 and March 1993, the court ruled that the
primary insurance companies had a duty to defend the
Company in the Tribe's lawsuit, but that no carrier had
a duty to defend the Company in the EPA proceeding. In
January 1995, the Company entered into settlement
agreements with four of the insurance carriers named in
the litigation. The Company received a total of $2.425
million under the terms of the settlement agreements. A
portion of this settlement amount will be payable to the
EPA to reimburse the U.S. Government for past costs
under the Bunker Hill Consent Decree. The Company has
initiated a separate legal proceeding in Federal Dis-
trict Court in Idaho seeking a clarification of its
obligation to pay a portion of the insurance proceeds to
the EPA. Litigation is still pending against other
insurers. At March 31, 1995, the Company has not
reduced its environmental accrual to reflect any
anticipated additional insurance proceeds.
In December 1993, Industrial Constructors Corp. ("ICC")
served the Company with a complaint in Federal District
Court for the District of Idaho alleging that the
Company failed to comply with the terms of the contract
between the Company and ICC relating to the earth moving
work contracted to ICC at the Company's Grouse Creek
gold project. In January 1995, the Company entered into
a settlement of the litigation with ICC pursuant to
which the Company on behalf of the Grouse Creek Joint
Venture paid ICC a total of $3.05 million, of which the
Company was responsible for 80%, including approximately
-8-<PAGE>
PART I - FINANCIAL INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
$1.0 million in contract retention (plus interest from
January 1, 1995) over a period of three months ending on
April 3, 1995. In April 1995, the Court dismissed all
claims in the litigation.
In June 1994, a judgment was entered against the Company
in Idaho State District Court in the amount of $10.0
million in compensatory damages and $10.0 million in
punitive damages based on a jury verdict rendered in
late May 1994 with respect to a lawsuit previously filed
against the Company by Star Phoenix Mining Company
("Star Phoenix"), a former lessee of the Star Morning
Mine, over a dispute between the Company and Star
Phoenix concerning the Company's November 1990
termination of the Star Phoenix lease of the Star
Morning Mine property. A number of other claims by Star
Phoenix and certain principals of Star Phoenix
against the Company in the lawsuit were dismissed by the
State District Court. The Company's post-trial motions
were denied by the State District Court, and the Company
has appealed the District Court judgment to the Idaho
State Supreme Court. Post-judgment interest will accrue
during the appeal period; the current interest rate is
10.5%. In order to stay the ability of Star Phoenix to
collect on the judgment during the pending of the
appeal, the Company has posted an appeal bond in the
amount of $27.2 million representing 136% of the
District Court judgment. The Company pledged U.S.
Treasury Notes totaling $10.0 million as collateral for
the appeal bond. This collateral amount is included in
restricted investments at December 31, 1994 and March
31, 1995. On May 3, 1995, the District Court issued its
final opinion and order on a number of post-trial issues
pending before the Court. The Opinion and Order
included the Court's denial of the post-trial motions
filed by Star Phoenix and certain of its principals
regarding claims which had been previously dismissed by
the Court during trial. The Court also awarded Star
Phoenix approximately $300,000 in attorneys' fees and
costs out of the $1.6 million claimed by the Plaintiffs.
The Company intends to vigorously pursue its appeal to
the Idaho Supreme Court and it has been the Company's
position, and at the current time it remains the
Company's position, that it will not enter into a
settlement with Star Phoenix for any material amount.
Although the ultimate outcome of the appeal of the
judgment is subject to the inherent uncertainties of any
legal proceeding, based upon the Company's analysis of
-9-<PAGE>
PART I - FINANCIAL INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
the factual and legal issues associated with the
proceeding before the Idaho District Court and based on
the opinions of outside counsel, as of the date hereof,
it is management's belief that the Company should
ultimately prevail in this matter, although there can be
no assurance in this regard. Accordingly, the Company
has not accrued any liability associated with this
litigation.
On September 15, 1994, the Company intervened in a
lawsuit brought in the U.S. District Court in Idaho by
two environmental groups against the United States
Forest Service seeking to halt current and prospective
logging, grazing, road building and mining operations
within six national forests located in Idaho that may
affect endangered salmon. The lawsuit alleges that the
Forest Service failed to comply with certain obligations
with respect to agency consultation for endangered
salmon under the Endangered Species Act in the planning
process for these national forests. The Company's
Grouse Creek project is located within one of the
national forests identified in the lawsuit and could be
subject to the relief requested. On January 12, 1995,
the District Court issued an Order granting an injunc-
tion against the Forest Service to halt all ongoing and
future mining, timber, grazing, and road building
activity in the six national forests that may affect the
endangered salmon. The Court's Order provided an
exception to the injunction for certain projects, like
the Grouse Creek project, with determinations that the
project would not likely adversely affect the endangered
salmon. The Forest Service is required to seek court
approval for all such projects to be excluded from the
injunction. The District Court has stayed the ef-
fectiveness of the injunction to March 15, 1995, to
permit the government to complete the consultation
required under the Endangered Species Act. On March 1,
1995, the government announced the completion of the
required forest planning consultation and on March 8,
1995, the Court terminated the injunction. Recent
communications between the applicable federal agencies
regarding activities at the project indicate that
additional consultation under the Endangered Species Act
will be necessary for certain aspects of the Company's
Grouse Creek project. Although the ultimate impact on
the Grouse Creek project of any additional consultation
under the Endangered Species Act and the pending lawsuit
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PART I - FINANCIAL INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
cannot be predicted, based on a comprehensive environ-
mental assessment completed with respect to developing
the Company's Grouse Creek project and the completion of
the consultation on March 1, 1995, the Company's
management currently does not anticipate that these
matters will have a material adverse affect on the
Company or its financial condition.
The Company is subject to other legal proceedings and
claims which have arisen in the ordinary course of its
business and have not been finally adjudicated.
Although there can be no assurance as to the ultimate
outcome of these matters and the proceedings disclosed
above, it is the opinion of the Company's management,
based upon the information available at this time, that
the expected outcome of these matters, individually or
in the aggregate, will not have a material adverse
effect on the results of operations and financial condi-
tion of the Company and its subsidiaries.
Note 6. At March 31, 1995, there was $8.0 million outstanding
under the Company's revolving and term loan facility
classified as long-term debt.
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PART I - FINANCIAL INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
INTRODUCTION
------------
The Company is primarily involved in the exploration,
development, mining and processing of gold, silver,
lead, zinc and industrial minerals. As such, the
Company's revenues and profitability are strongly
influenced by world prices of gold, silver, lead and
zinc, which fluctuate widely and are affected by
numerous factors beyond the Company's control, including
inflation and worldwide forces of supply and demand.
The aggregate effect of these factors is not possible to
accurately predict. In the following descriptions,
where there are changes that are attributable to more
than one factor, the Company presents each attribute in
descending order relative to the attribute's importance
to the overall change.
The Company incurred net losses applicable to common
shareholders in the first quarter of 1995 and 1994
totaling $4.5 million and $7.7 million, respectively.
If the average metals prices for the first quarter
remain constant for the balance of the year, the Company
is anticipating net income (loss) applicable to common
shareholders in the range of $(2.0) to $2.0 million
after the expected dividends to preferred shareholders
totaling approximately $8.0 million for the year ending
December 31, 1995. Due to the volatility of metals
prices and the significant impact metals price changes
have on the Company's operations, there can be no
assurance that the actual results of operations for the
year ending December 31, 1995 will be as forecasted.
The volatility of metals prices requires that the
Company, in assessing the impact of prices on re-
coverability of its assets, exercise judgment as to
whether price changes are temporary or are likely to
persist. The Company performs a comprehensive
evaluation of the recoverability of its assets on a
periodic basis. The evaluation includes a review of
future cash flows against the carrying value of the
assets. Moreover, a review is made on a quarterly basis
to assess the impact of significant changes in market
conditions and other factors. Asset write-downs may
occur if the Company determines that the carrying values
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PART I - FINANCIAL INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
attributed to individual assets are not recoverable
given reasonable expectations for future market
conditions.
In 1995, the Company expects to produce 190,000 to
200,000 ounces of gold compared to actual 1994 gold
production of 128,000 ounces of gold. The 1995
estimated production includes 83,000 to 93,000 ounces
from the Company's 80% interest in the Grouse Creek
mine, 70,000 ounces from the La Choya mine, 30,000
ounces from the Company's interest in the American Girl
mine and an additional 7,000 ounces from other sources.
The Company's expected gold production increase in 1995
assumes anticipated production levels are achieved at
the Grouse Creek and La Choya mines, which offsets the
decrease in gold production due to the completion of
operations at the Republic mine in February 1995.
The Company's share of silver production for 1995 is
expected to be 2.3 million ounces compared to actual
1994 silver production of 1,643,000 ounces. The
expected increase in silver production is primarily due
to new production at the Grouse Creek mine and
resumption of operations at the Lucky Friday mine in
December 1994, after the ore-conveyance accident
suspended operations since August 30, 1994.
The Company's production of industrial minerals is
expected to increase slightly in 1995 to 988,000 tons
from 986,000 tons in 1994. Additionally, the Company
expects to ship 761,000 cubic yards of landscape
material from Mountain West Products compared to 690,000
cubic yards in 1994.
RESULTS OF OPERATIONS
The Company incurred a net loss of approximately $2.5
million, or $0.05 per share, in the first three months
of 1995 compared to a net loss of approximately $5.6
million, or $0.14 per share, in the same period of 1994.
After $2.0 million in dividends to preferred
shareholders of the Company's Series B Cumulative
Convertible Preferred Stock, the Company's net loss
applicable to common shareholders for the first quarter
of 1995 was $4.5 million, or $0.09 per common share,
compared to $7.7 million, or $0.19 per common share, in
the comparable 1994 period. The first quarter 1995 loss
was due to a variety of factors, the most significant of
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PART I - FINANCIAL INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
which are discussed below in descending order of
magnitude.
Sales of the Company's products increased by ap-
proximately $9.4 million, or 35.6%, in the first three
months of 1995 as compared to the same period in 1994,
principally the result of increased product sales
totaling approximately $13.6 million, most notably from
the Grouse Creek mine where production commenced in
December 1994 and the La Choya mine, as well as from the
industrial minerals segment operations. These factors
were partially offset by decreased sales at other mines
in the metals segment, the impact of which is ap-
proximately $4.2 million, attributable to (1) decreased
gold and silver production at the Republic mine which
completed mining operations in February 1995; (2) de-
creased gold production at the American Girl mine due to
the completion of underground mining operations in
January 1995; and (3) decreased production of silver,
lead and zinc at the Lucky Friday mine in the 1995
period. Personnel at the Lucky Friday mine worked to
achieve normal production levels during the 1995 period,
after resuming operations in December 1994 from the tem-
porary suspension of operations that resulted from the
August 30, 1994 ore-conveyance accident.
Comparing the average metal prices for the first quarter
of 1995 with the comparable 1994 period, gold decreased
by 1.4% to $379.10 per ounce from $384.30 per ounce,
silver decreased by 11% to $4.70 per ounce from $5.29
per ounce, lead increased by 28% to $0.277 per pound
from $0.216 per pound, and zinc increased by 10% to
$0.485 per pound from $0.439 per pound.
Cost of sales and other direct production costs
increased approximately $5.6 million, or 22.5%, from the
first three months of 1994 to the comparable 1995 period
primarily due to (1) production costs incurred at the
Grouse Creek mine where production commenced in December
1994 totaling approximately $7.4 million; (2) production
cost increases at Colorado Aggregate and Mountain West
Products totaling approximately $831,000 and $492,000,
respectively, due to increased production in 1995; (3)
production cost increases at the La Choya mine totaling
approximately $476,000 in relation to increased
production in 1995 (the La Choya mine was in a start-up
mode during the 1994 period); and (4) increases in
operating costs at various other operations totaling
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PART I - FINANCIAL INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
approximately $0.5 million. These increases in cost of
sales and other direct production costs were partially
offset by decreases in operating costs at other
operations totaling $4.1 million. These decreases are
primarily due to (1) decreased production costs at the
Republic mine totaling approximately $2.3 million which
is the result of the completion of operations in
February 1995 and (2) decreased production costs
incurred at the Lucky Friday mine totaling approximately
$1.1 million due to decreased production as the mine
ramped back up to normal production levels in the 1995
period after the temporary suspension of operations as
discussed above.
Cost of sales and other direct production costs as a
percentage of sales from products decreased from 94% in
the first quarter of 1994 to 85% in the comparable 1995
period, primarily due to increased sales and production
at the La Choya mine (the La Choya mine was in a start-
up mode during the 1994 period).
Cash and full production cost per gold ounce decreased
from $373 and $422 for the first quarter of 1994 to $312
and $416 for the first quarter of 1995, respectively.
The decrease in both the cash and full production cost
per gold ounce is primarily attributable to increased
gold production at the La Choya mine and decreased costs
at the Republic mine in the 1995 period.
Cash and full production cost per silver ounce decreased
from $6.52 and $7.79 in the first quarter of 1994 to
$4.74 and $6.00 in the first quarter of 1995,
respectively. The decreases in the cost per silver
ounce are due primarily to decreased production costs
from the Lucky Friday mine and to an increase in the
average price of lead in the 1995 period. Lead and zinc
are by-products, the revenues from which are netted
against production costs in the calculation of
production cost per ounce.
Depreciation, depletion and amortization increased by
approximately $3.0 million, or 115.3%, from the 1994
period to the 1995 period, primarily the result of (1)
production commencing at the Grouse Creek mine in
December 1994, where significant depreciable assets are
depreciated on a units-of-production basis, the impact
of which increased depreciation expense approximately
$3.0 million and (2) increased production at the La
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PART I - FINANCIAL INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
Choya mine where significant depreciable assets are
depreciated on a units-of-production basis, which
increased depreciation expense by approximately
$789,000. These increases in depreciation, depletion,
and amortization were partially offset by a decrease in
the depreciation expense at the Republic mine. Republic
mine assets were written down to their net realizable
value at December 31, 1994 due to the closure of the
mine in February 1995.
Other operating expenses decreased by $3.6 million, or
50.5%, from the 1994 period to the 1995 period, due
principally to (1) decreased general and administrative
costs of $2.2 million attributable primarily to
nonrecurring costs totaling approximately $2.2 million
incurred in connection with the March 11, 1994
acquisition of Equinox and (2) decreased exploration
expenses totaling approximately $1.1 million relating
principally to the Rosebud project and Republic mine.
Net other income reported was approximately $1.3 million
in the 1995 period compared to $2.5 million in the 1994
period primarily a result of the $1.3 million
nonrecurring gain recognized on the sale of the
Company's common stock investment in Granduc Mines Ltd.
in January 1994. Total interest cost decreased $984,000
in the 1995 period principally due to the June 1994
retirement of long-term debt. Interest cost capitalized
decreased $907,000 in the 1995 period due to the
completion of the Grouse Creek project and the lower
debt level.
FINANCIAL CONDITION AND LIQUIDITY
---------------------------------
A substantial portion of the Company's revenue is
derived from the sale of products, the prices of which
are affected by numerous factors beyond the Company's
control. Prices may change dramatically in short periods
of time and such changes have a significant effect on
revenues, profits and liquidity of the Company. The
Company is subject to many of the same inflationary
pressures as the U.S. economy in general. The Company
continues to implement cost-cutting measures in an
effort to reduce per unit production costs. Management
believes, however, that the Company may not be able to
continue to offset the impact of inflation over the long
term through cost reductions alone. However, the market
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PART I - FINANCIAL INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
prices for products produced by the Company have a much
greater impact than inflation on the Company's revenues
and profitability. Moreover, the discovery, development
and acquisition of mineral properties are in many
instances unpredictable events. Future metals prices,
the success of exploration programs, changes in legal
and regulatory requirements, and other property
transactions can have a significant impact on the need
for capital.
At March 31, 1995, assets totaled approximately $337.4
million and shareholders' equity totaled approximately
$271.7 million. Cash and cash equivalents decreased by
$2.2 million to $5.1 million at March 31, 1995 from $7.3
million at the end of 1994. Operating activities used
approximately $0.9 million of cash during the first
quarter of 1995. The primary uses were (1) the $2.5
million net loss for the quarter and (2) the $5.0
million increase in accounts and notes receivable
partially offset by the $1.9 million decrease in
accounts payable and accrued payroll and related
benefits; the primary sources of cash included (1) an
increase in accrued reclamation and other noncurrent
liabilities of $2.9 million and (2) an increase in
accrued taxes of $0.5 million. Non-cash charges
included depreciation, depletion, and amortization of
$5.7 million. Depreciation, depletion, and amortization
charges during the first quarter of 1995 were $2.9
million higher compared to the first quarter of 1994,
principally due to the commencement of operations at the
Grouse Creek mine in December 1994, and the inclusion of
a full quarter of depreciation, depletion and
amortization at the La Choya mine which commenced
operations in February 1994, offset by decreased
depreciation, depletion, and amortization at the
Republic mine where operations were substantially
complete at December 31, 1994.
The $5.0 million increase in accounts and notes
receivable during the first quarter of 1995 is primarily
due to increased accounts and notes receivable at
Colorado Aggregate and Mountain West Products resulting
from the seasonal nature of sales at these locations,
and the Lucky Friday unit principally resulting from the
resumption of operations at Lucky Friday in December
1994, all of which were offset by a decrease in accounts
and notes receivable at the La Choya mine.
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PART I - FINANCIAL INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
The Company's investing activities used $7.6 million of
cash during the first quarter of 1995. The most
significant use of cash was $7.0 million of property,
plant and equipment additions. During the first quarter
of 1995, significant additions occurred at the Greens
Creek mine, the Grouse Creek mine, the La Choya mine,
K-T Ball and Kaolin industrial minerals projects
totalling $1.5 million, $1.4 million, $1.3 million, and
$1.0 million, respectively.
During the first quarter of 1995, $6.3 million was
provided from financing activities. The major source of
cash was proceeds from borrowings on long-term debt of
$11.0, offset by repayments on long-term debt of $3.9
million. An additional source of cash was proceeds from
the exercise of stock warrants totalling $1.2 million.
The final significant use of cash included the payment
of the $2.0 million preferred stock dividend.
The Company estimates that remaining capital ex-
penditures to be incurred in the balance of 1995 will be
approximately $30.9 million. These expenditures consist
primarily of (1) the Company's share of development
expenditures at the Greens Creek project expected to
total approximately $11.5 million (subject to final
approval); (2) development expenditures at the Rosebud
project and the Grouse Creek and American Girl mines
totaling approximately $5.1 million, $3.8 million and
$3.0 million, respectively; and (3) the purchase of
Western Bark, Inc. for approximately $2.0 million. The
Company intends to finance these capital expenditures
through a combination of (1) existing cash and cash
equivalents and (2) cash flow from operating activities.
In addition, the Company may borrow funds from its
revolving and term credit facility (described below)
which, subject to certain conditions, provides for
borrowings up to a maximum of $40.0 million. At March
31, 1995, the entire credit facility was available to
the Company. The Company had $8.0 million outstanding
at March 31, 1995 under the facility. The Company's
estimate of its capital expenditure requirements assume,
with respect to the Grouse Creek, Greens Creek and Oro
Cruz properties, that the Company's joint venture
partners do not default with respect to their
obligations to contribute their respective portions of
development costs and capital expenditures.
-18-<PAGE>
PART I - FINANCIAL INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
The Company's planned environmental and reclamation
expenditures for the balance of 1995 are expected to be
approximately $8.3 million, principally for
environmental and reclamation activities at the Bunker
Hill Superfund Site, Durita mine, Republic mine, and the
Coeur d'Alene River Basin.
Exploration expenditures for the balance of 1995 are
estimated to be approximately $5.9 million. The
Company's exploration strategy is to focus further
exploration at or in the vicinity of its currently owned
properties. Accordingly, these exploration expenditures
will be incurred principally at Rosebud, Grouse Creek,
American Girl, Lucky Friday, and Mexican exploration
targets.
Exploration efforts at the Republic gold mine have been
unsuccessful to date in extending ore reserves. The
Republic mine completed operations in February 1995.
In the normal course of its business, the Company uses
forward sales commitments and commodity put and call
option contracts to manage its exposure to fluctuations
in the prices of certain metals which it produces.
Contract positions are designed to ensure that the
Company will receive a defined minimum price for certain
quantities of its production. Gains and losses, and the
related costs paid or premium received, for contracts
which hedge the sales prices of commodities are deferred
and included in income as part of the hedged transac-
tion. Revenues from the aforementioned contracts are
recognized at the time contracts are closed out by
delivery of the underlying commodity or settlement of
the net position in cash. The Company is exposed to
certain losses, generally the amount by which the
contract price exceeds the spot price of a commodity, in
the event of nonperformance by the counter parties to
these agreements. At March 31, 1995, the Company had
forward sales commitments through May 31, 1995 for 3,500
ounces of gold at an average price of $378 per ounce.
The Company has also purchased options to put 89,460
ounces of gold to the counter parties at an average
price of $390 per ounce. Concurrently, the Company sold
options to allow the counter parties to call 89,460
ounces of gold from the Company at an average price of
$464 per ounce. There was no net cost associated with
the purchase and sale of these options which expire, in
tandem, on a monthly basis through December 1997. At
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PART I - FINANCIAL INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
March 31, 1995 the estimated fair value of the Company's
purchased gold put options was approximately $339,000.
If the Company had chosen to close its offsetting short
gold call option positions it would have incurred a
liability of approximately $629,000. The London Final
gold price at March 31, 1995 was $392.00. In addition,
at March 31, 1995, the Company has sold forward 3,600
metric tons of lead at an average price of $684 per
metric ton, or $0.31 per pound. These commitments
extend over the period June 1995 to January 1996. It is
not practicable for the Company to obtain or calculate
the estimated fair value of its forward sales option
contracts at March 31, 1995. The nature and purpose of
the forward sales contracts, however, do not presently
expose the Company to any significant net loss. All of
the aforementioned contracts are designated as hedges at
March 31, 1995.
The recent decline of the Mexican peso has not and is
not expected to significantly impact results at the La
Choya mine as both funding for operations and gold sales
are denominated in dollars. However, at the Company's
K-T Mexico clay slurry plant, sales are denominated in
pesos. At March 31, 1995, the Company has reflected a
foreign currency translation adjustment (component of
shareholders' equity) totaling $4.9 million which
relates to operations at K-T Mexico. Foreign exchange
losses totaling $0.2 million have been recorded relating
to operations at the La Choya mine. Continued declines
in the Mexican peso could further adversely impact the
Company's Mexico operations.
As described in Note 5 of Notes to Consolidated
Financial Statements, the Company is a defendant in a
legal action filed in November 1990 by Star Phoenix and
certain principals of Star Phoenix, asserting that the
Company breached the terms of Star Phoenix's lease
agreement for the Company's Star Morning Mine and that
the Company interfered with certain contractual
relationships of Star Phoenix relating to the Company's
1990 termination of such lease agreement. In June 1994,
judgment was entered by the Idaho State District Court
against the Company in the legal proceeding in the
amount of $10.0 million in compensatory damages and
$10.0 million in punitive damages based on a jury
verdict rendered in the case in late May 1994. The
Company's post-trial motions were denied by the District
Court, and the Company has appealed the judgment to the
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PART I - FINANCIAL INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
Idaho State Supreme Court. Post-judgment interest will
accrue during the appeal period; the current interest
rate is 10.5%. In order to stay the ability of Star
Phoenix to collect on the judgment during the pending of
the appeal, the Company posted an appeal bond in the
amount of $27.2 million representing 136% of the
District Court judgment. The Company pledged U.S.
Treasury Notes totaling $10.0 million as collateral for
the $27.2 million bond. The Company intends to
vigorously pursue its appeal to the Idaho Supreme Court
and it has been the Company's position, and at the
current time it remains the Company's position, that it
will not enter into a settlement with Star Phoenix for
any material amount. Although the ultimate outcome of
the appeal of the judgment is subject to the inherent
uncertainties of any legal proceeding, based on the
Company's analysis of the factual and legal issues
associated with the proceeding before the District Court
and based upon the opinions of outside counsel, as of
the date hereof, it is management's belief that the
Company should ultimately prevail in this matter,
although there can be no assurance in this regard.
Although there can be no assurance as to the ultimate
outcome of these matters and the proceedings disclosed
above, it is the opinion of the Company's management,
based upon the information available at this time, that
the outcome of these matters, individually or in the
aggregate, will not have a material adverse effect on
the results of operations and financial condition of the
Company and its subsidiaries.
-21-<PAGE>
PART II - OTHER INFORMATION
HECLA MINING COMPANY and SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
In July 1991, the Coeur d'Alene Indian Tribe (the
"Tribe") brought a lawsuit, under CERCLA, in Idaho
Federal District Court against the Company and a number
of other mining companies asserting claims for damages
to natural resources located downstream from the Bunker
Hill Superfund Site located at Kellogg, Idaho, over
which the Tribe alleges some ownership or control. The
Company has answered the Tribe's complaint denying
liability for natural resource damages and asserted a
number of defenses to the Tribe's claims, including a
defense that the Tribe has no ownership or control over
the natural resources they assert have been damaged. In
July 1992, in a separate action between the Tribe and
the State of Idaho, the Idaho Federal District Court
determined that the Tribe does not own the beds, banks
and waters of Lake Coeur d'Alene and the lower portion
of its tributaries, the ownership of which is the
primary basis for the natural resource damage claims
asserted by the Tribe against the Company. Based upon
the Tribe's appeal of the July 1992 District Court
ownership decision to the 9th Circuit U.S. Court of
Appeals, the court in the natural resource damage
litigation issued an order on October 30, 1992, staying
the court proceedings in the natural resource damage
litigation until a final decision is handed down on the
question of the Tribe's title. On December 9, 1994, the
9th Circuit Court reversed the decision of the Idaho
District Court and remanded the case of the Tribe's
ownership for trial before the District Court. The
Company has been advised that the State will seek an
appeal of the 9th Circuit Court decision to the U.S.
Supreme Court. In July 1994, the United States, as
Trustee for the Coeur d'Alene Tribe, initiated a
separate suit in Idaho Federal District Court seeking a
determination that the Coeur d'Alene Tribe owns
approximately the lower one-third of Lake Coeur d'Alene.
The State has denied the Tribe's ownership of any
portion of Lake Coeur d'Alene and its tributaries. The
legal proceedings related to the Tribe's natural
resource damages claim against the Company and other
mining companies continue to be stayed.
-22-<PAGE>
PART II - OTHER INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
In 1991, the Company initiated litigation in the Idaho
State District Court in Kootenai County, Idaho, against
a number of insurance carriers which provided
comprehensive general liability insurance coverage to
the Company and its predecessors. The Company believes
that the insurance companies have a duty to defend and
indemnify the Company under their policies of insurance
relating to claims asserted against the Company by the
EPA and the Tribe. In two separate decisions issued in
August 1992 and March 1993, the court ruled that the
primary insurance companies had a duty to defend the
Company in the Tribe's lawsuit, but that no carrier had
a duty to defend the Company in the EPA proceeding. In
January 1995, the Company entered into settlement
agreements with four of the insurance carriers named in
the litigation. The Company received a total of $2.425
million under the terms of the settlement agreements. A
portion of this settlement amount will be payable to the
EPA to reimburse the U.S. Government for past costs
under the Bunker Hill Consent Decree. The Company has
initiated a separate legal proceeding in Federal Dis-
trict Court in Idaho seeking a clarification of its
obligation to pay a portion of the insurance proceeds to
the EPA. Litigation is still pending against other
insurers. At March 31, 1995, the Company has not
reduced its environmental accrual to reflect any
anticipated additional insurance proceeds.
In December 1993, Industrial Constructors Corp. ("ICC")
served the Company with a complaint in Federal District
Court for the District of Idaho alleging that the
Company failed to comply with the terms of the contract
between the Company and ICC relating to the earth moving
work contracted to ICC at the Company's Grouse Creek
gold project. In January 1995, the Company entered into
a settlement of the litigation with ICC pursuant to
which the Company on behalf of the Grouse Creek Joint
Venture paid ICC a total of $3.05 million, of which the
Company was responsible for 80%, including approximately
$1.0 million in contract retention (plus interest from
January 1, 1995) over a period of three months ending on
April 3, 1995. In April 1995, the Court dismissed all
claims in the litigation.
In June 1994, a judgment was entered against the Company
in Idaho State District Court in the amount of $10.0
million in compensatory damages and $10.0 million in
punitive damages based on a jury verdict rendered in
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PART II - OTHER INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
late May 1994 with respect to a lawsuit previously filed
against the Company by Star Phoenix Mining Company
("Star Phoenix"), a former lessee of the Star Morning
Mine, over a dispute between the Company and Star
Phoenix concerning the Company's November 1990
termination of the Star Phoenix lease of the Star
Morning Mine property. A number of other claims by Star
Phoenix and certain principals of Star Phoenix
against the Company in the lawsuit were dismissed by the
State District Court. The Company's post-trial motions
were denied by the State District Court, and the Company
has appealed the District Court judgment to the Idaho
State Supreme Court. Post-judgment interest will accrue
during the appeal period; the current interest rate is
10.5%. In order to stay the ability of Star Phoenix to
collect on the judgment during the pending of the
appeal, the Company has posted an appeal bond in the
amount of $27.2 million representing 136% of the
District Court judgment. The Company pledged U.S.
Treasury Notes totaling $10.0 million as collateral for
the appeal bond. This collateral amount is included in
restricted investments at December 31, 1994 and March
31, 1995. On May 3, 1995, the District Court issued its
final opinion and order on a number of post-trial issues
pending before the Court. The Opinion and Order
including the Court's denial of the post-trial motions
filed by Star Phoenix and certain of its principals
regarding claims which had been previously dismissed by
the Court during trial. The Court also awarded Star
Phoenix approximately $300,000 in attorneys' fees and
costs out of the $1.6 million claimed by the Plaintiffs.
The Company intends to vigorously pursue its appeal to
the Idaho Supreme Court and it has been the Company's
position, and at the current time it remains the
Company's position, that it will not enter into a
settlement with Star Phoenix for any material amount.
Although the ultimate outcome of the appeal of the
judgment is subject to the inherent uncertainties of any
legal proceeding, based upon the Company's analysis of
the factual and legal issues associated with the
proceeding before the Idaho District Court and based on
the opinions of outside counsel, as of the date hereof,
it is management's belief that the Company should
ultimately prevail in this matter, although there can be
no assurance in this regard. Accordingly, the Company
has not accrued any liability associated with this
litigation.
-24-<PAGE>
PART II - OTHER INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
On September 15, 1994, the Company intervened in a
lawsuit brought in the U.S. District Court in Idaho by
two environmental groups against the United States
Forest Service seeking to halt current and prospective
logging, grazing, road building and mining operations
within six national forests located in Idaho that may
affect endangered salmon. The lawsuit alleges that the
Forest Service failed to comply with certain obligations
with respect to agency consultation for endangered
salmon under the Endangered Species Act in the planning
process for these national forests. The Company's
Grouse Creek project is located within one of the
national forests identified in the lawsuit and could be
subject to the relief requested. On January 12, 1995,
the District Court issued an Order granting an injunc-
tion against the Forest Service to halt all ongoing and
future mining, timber, grazing, and road building
activity in the six national forests that may affect the
endangered salmon. The Court's Order provided an
exception to the injunction for certain projects, like
the Grouse Creek project, with determinations that the
project would not likely adversely affect the endangered
salmon. The Forest Service is required to seek court
approval for all such projects to be excluded from the
injunction. The District Court has stayed the ef-
fectiveness of the injunction to March 15, 1995, to
permit the government to complete the consultation
required under the Endangered Species Act. On March 1,
1995, the government announced the completion of the re-
quired forest planning consultation and on March 8,
1995, the Court terminated the injunction. Recent
communications between the applicable federal agencies
regarding activities at the project indicate that
additional consultation under the Endangered Species Act
will be necessary for certain aspects of the Company's
Grouse Creek project. Although the ultimate impact on
the Grouse Creek project of any additional consultation
under the Endangered Species Act and the pending lawsuit
cannot be predicted, based on a comprehensive en-
vironmental assessment completed with respect to
developing the Company's Grouse Creek project and the
completion of the consultation on March 1, 1995, the
Company's management currently does not anticipate that
these matters will have a material adverse affect on the
Company or its financial condition.
The Company is subject to other legal proceedings and
claims which have arisen in the ordinary course of its
-25-<PAGE>
PART II - OTHER INFORMATION (CONTINUED)
HECLA MINING COMPANY AND SUBSIDIARIES
business and have not been finally adjudicated.
Although there can be no assurance as to the ultimate
outcome of these matters and the proceedings disclosed
above, it is the opinion of the Company's management,
based upon the information available at this time, that
the outcome of these matters, individually or in the
aggregate, will not have a material adverse effect on
the results of operations and financial condition of the
Company and its subsidiaries.
-26-<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this amendment to a report to
be signed on its behalf by the undersigned thereunto duly
authorized.
HECLA MINING COMPANY
--------------------------------
(Registrant)
Date: August 24, 1995 By /s/John P. Stilwell
----------------------------------
John P. Stilwell, Vice President -
Finance and Treasurer
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