SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended DECEMBER 31, 1994
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 No. 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)
Registrant's telephone number,
including area code 208-769-4100
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Securities registered pursuant to
Section 12(b) of the Act:
Name of each exchange
on which each class
is registered
---------------------<PAGE>
Title of each class
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Common Stock, par value $0.25 per share )
Preferred Share Purchase Rights ) New York Stock
Series B Cumulative Convertible Preferred ) Exchange
Stock par value $0.25 per share ) ---------------------
-------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Warrants to Purchase Shares of Common Stock,
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$.25 par value per share
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(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 $450,767,953 as of February
28, 1995. There were 48,081,915 shares of the Registrant's Common
Stock outstanding as of February 28, 1995.
Documents incorporated by reference herein:
To the extent herein specifically referenced in Part III,
the information contained in the Proxy Statement for the
1995 Annual Meeting of Shareholders of the Registrant,
which has been filed with the Commission pursuant to
Regulation 14A within 120 days of the end of the
Registrant's 1994 fiscal year. See Part III.<PAGE>
PART I
ITEM 1. BUSINESS*
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 a number of precious and nonferrous metals
properties and industrial minerals businesses. In 1994, the
Company's attributable gold and silver production was 127,878 ounces
and 1,642,913 ounces, respectively. The Company also shipped
approximately 985,639 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
Grouse Creek mine, located near Challis, Idaho, a gold and silver
mine where operations commenced in December 1994, in which the
Company is the operator and owns an 80% interest; the La Choya gold
mine, located in Sonora, Mexico, which began operations in February
1994; the American Girl mine, located in Imperial County,
California, a gold mine in which the Company owns a 47% interest;
the Lucky Friday silver mine, located near Mullan, Idaho, which is a
significant primary producer of silver in North America; and the
Republic gold mine, located in the state of Washington, which
completed operations in February 1995. In April 1993, operations at
the Greens Creek mine, located near Juneau, Alaska, a large
polymetallic mine in which the Company owns a 29.7% interest, were
suspended by the manager of the mine in response to depressed metals
prices and a decision to resume production is currently pending.
<TABLE>
The following table presents certain information regarding the
Company's metal mining and development properties, including their
relative percentage contributions to the Company's 1994 revenues:
<CAPTION>
------------------
* For definitions of certain mining terms used in this de-
scription, see "Glossary of Certain Mining Terms" at the end of Item
1, page 38.
-1-<PAGE>
DATE OWNERSHIP PERCENTAGE OF
NAME OF PROPERTY ACQUIRED INTEREST 1994 REVENUE<F1>
---------------- -------- --------- ---------------
<S> <C> <C> <C>
Lucky Friday 1958 100.0% 6.9%
Republic 1982 100.0% 12.8%
Greens Creek<F2> 1988 29.7% -----
Cactus 1991 75.0% 2.4%
Grouse Creek<F3> 1991 80.0% .4%
La Choya<F4> 1991 100.0% 14.3%
American Girl<F5> 1994 47.0% 10.4%
Rosebud<F5> 1994 100.0% -----
---------------------
<FN>
<F1> Percentages exclude the contributions of the Company's
industrial minerals and specialty metals segments. The
relative percentage contributions to the Company's 1994
revenue by the industrial minerals and speciality metals
segments were 49.5% and 3.3%, respectively.
<F2> Operations at the Greens Creek mine were suspended in April
1993. A decision has been made to redevelop the Greens Creek
mine with commercial production expected to recommence in
early 1997.
<F3> The Grouse Creek project commenced production in the fourth
quarter 1994, with full production scheduled to be achieved
in 1995.
<F4> The La Choya mine commenced operations in January 1994.
<F5> The Company's interest in the American Girl mine and Rosebud
project were acquired in the March 11, 1994 acquisition of
Equinox.
</FN>
</TABLE>
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 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 sani-
taryware, pottery, dinnerware, electric insulators, and tile. At
current production rates, the Company has over 20 years of proven
and probable mineral reserves of ball clay, kaolin and feldspar.
During 1994, the industrial minerals businesses provided ap-
proximately $10.4 million of cash from operations.
On December 29, 1993, the Company, two wholly owned Canadian sub-
sidiaries of the Company, and Equinox Resources Ltd. (Equinox), a
-2-<PAGE>
mining, exploration and development company, incorporated under
the laws of the Province of British Columbia, executed an Acqui-
sition Agreement providing for the Company's acquisition of Equi-
nox. Pursuant to the Acquisition Agreement and related Plan of
Arrangement, which was consummated on March 11, 1994, (i) Equinox
common shareholders received 0.3 common share of the Company
(Company common shares), for each outstanding Equinox common
share, (ii) holders of Equinox's Series "A" production partici-
pating preferred shares received newly issued production notes of
the Company with the same material terms and conditions, and (iii)
outstanding Equinox options and warrants became exercisable for
Company common shares. In connection with the acquisition of
Equinox, the Company issued approximately 6.3 million Company
common shares, including shares issuable upon exercise of out-
standing options and warrants. The Company's common shares had a
value of approximately $76.3 million on the date of acquisition.
The most significant properties acquired from Equinox were the
American Girl gold mine, Equinox's primary producing property, and
the Rosebud gold property. The American Girl gold mine is oper-
ated by the Company's joint venture partner MK Gold Company ("MK
Gold") (see Metals Segment - American Girl Mine - California). In
addition, the Company believes that Equinox's Rosebud gold prop-
erty, located in Pershing County, Nevada, has significant explo-
ration and development potential (see Metals Segment - Rosebud
Project - Nevada).
The Company's strategy is to focus its efforts and resources on
expanding its gold and silver reserves and industrial minerals
operations via a combination of acquisition and exploration ef-
forts. During 1995, priorities will be optimizing operating ef-
ficiency at the newly constructed Grouse Creek mine and the
completion of the Rosebud project feasibility study by the fourth
quarter 1995. In addition, the joint venture partners will be
assessing the economic viability of reopening the Greens Creek
mine based on the additional proven and probable ore reserves es-
tablished during 1994.
The Company's domestic exploration plan consists primarily of ex-
ploring for additional reserves in the vicinity of both the Grouse
Creek mine and the Rosebud gold project. The Company's foreign
exploration plan for 1995 will focus on expanding reserves in the
vicinity of the La Choya gold mine and at other promising explo-
ration targets in Mexico. At the same time, the Company will
continue to evaluate acquisition and other exploration opportuni-
ties, primarily in North America, that will complement its exist-
ing operations.
-3-<PAGE>
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.
<TABLE>
Sales of metal concentrates and metal products are made princi-
pally to custom smelters and metal traders. Industrial minerals
are sold principally to domestic manufacturers and wholesalers.
The percentage of revenue contributed by each class of product is
reflected in the following table:
<CAPTION>
Years
-------------------------
Product 1994 1993 1992
-------------------- ------- ------ ------
<S> <C> <C> <C>
Gold 39.0% 34.3% 30.8%
Silver 4.4 7.5 12.0
Lead 2.9 3.9 7.4
Industrial minerals 39.7 48.1 42.5
All others 14.0 6.2 7.3
Reference is made to Note 1 of Notes to Consolidated Financial
Statements for information with respect to export sales.
</TABLE>
-4-<PAGE>
<TABLE>
The table below summarizes the Company's production and average
cash and full production cost per ounce for gold and silver for
each period indicated:
<CAPTION>
Years
-----------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gold (ounces)<F1> 127,878 95,907 101,392 147,228 196,278
Silver (ounces)<F2> 1,642,913 2,992,499 4,738,625 5,326,852 6,210,231
Lead (tons) 13,214 21,093 26,942 23,957 22,199
Zinc (tons) 2,431 7,838 19,890 15,070 13,697
Average cost per ounce of gold produced:
Cash production cost $273 $229 $191 $191 $180
Full cost $334 $298 $261 $279 $253
Average cost per ounce of silver produced:
Cash production cost $5.81 $5.45 $4.51 $4.50 $3.71
Full cost $7.17 $6.85 $5.89 $5.67 $5.45
Industrial minerals (tons shipped) 985,639 887,676 879,034 823,214 711,295
<FN>
<F1> The increase in gold production from 1993 to 1994 is principally due to the
commencement of operations at the La Choya gold mine in February 1994, with
approximately 48,000 ounces of production in 1994, and the commencement of operations
at the Grouse Creek gold mine in December 1994, with 2,093 ounces of production in
1994. The increase in gold production was partially offset by decreased gold
production at the Republic mine due to the mining and processing of lower grade ore.
The decrease in gold production from 1992 to 1993 is principally due to decreased
production at both the Cactus and Republic gold mines. The decrease in gold
production from 1991 to 1992 is principally due to decreased production at the
Republic, Yellow Pine (which was shut down in 1992) and Cactus (which was shut down in
1993) gold mines. The decrease in gold production from 1990 to 1991 is principally
due to decreased production at the Yellow Pine, Cactus and Republic mines.
-5-<PAGE>
<F2> Decreased silver, lead, zinc production from 1993 to 1994 is due to two factors: 1)
the suspension of operations at the Greens Creek mine in April 1993; and 2) decreased
production at the Lucky Friday mine resulting in part from the temporary suspension of
operations due to the ore conveyance accident on August 30, 1994. The Lucky Friday
mine resumed operations in December 1994 and a decision has been made to redevelop the
Greens Creek mine with commercial production estimated to recommence by early 1997.
The decrease in silver production from 1992 to 1993 is principally due to the
suspension of operations at the Greens Creek mine in April 1993 partially offset by
increased silver production at the Lucky Friday mine. The decrease in silver
production from 1991 to 1992 is principally due to the sale of Hecla's interest in the
Galena mine in 1992. The decrease in silver production from 1990 to 1991 is
principally due to the completion ofoperations at the Escalante silver mine in 1990.
The principal executive offices of the Company are located at 6500 Mineral Drive, Coeur
d'Alene, Idaho 83814-8788, telephone (208) 769-4100.
</FN>
</TABLE>
-6-<PAGE>
METALS SEGMENT
GROUSE CREEK GOLD MINE - IDAHO
Operations at the Grouse Creek gold mine commenced in December
1994 with full production levels expected to be achieved during
the second quarter of 1995. In December 1994, the Company's in-
terest in the Grouse Creek mine production amounted to 2,093
ounces of gold and 8,763 ounces of silver.
The mine 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 mine cover 22.3 square
miles. The Grouse Creek gold mine consists of 18 patented lode
mining 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
mine will be located within patented mining claims. The remainder
of the mineral rights in the Yankee Fork Mining District consist
of 950 unpatented claims (see Regulation of Mining Activity).
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 mine. Proceeds received from the
sale, totalling $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 all capital and operating costs. In addition,
these agreements provide that Great Lakes has the option, at any
time prior to 12 months following the commencement of defined
commercial production at the Grouse Creek gold mine, to purchase
up to an additional 10% undivided interest in the mine and fund
its increased share of capital expenditures.
As of December 31, 1994, the Company's net book value of Grouse
Creek property, plant and equipment was $99.3 million. Based on
-7-<PAGE>
the current mine plan, the Company's share of additional capital
costs for the mine are expected to total approximately $0.7 mil-
lion in 1995. The Company estimates, assuming full production
levels are achieved as expected during the second quarter of 1995,
that its share of total production at the Grouse Creek gold mine
will be approximately 89,000 ounces of gold in 1995.
For the Grouse Creek mine, the average life of mine cash cost per
ounce of gold is estimated at approximately $185.00 to $190.00 per
ounce with an estimated full cost of $355.00 to $360.00 per ounce
of gold, although there can be no assurance that these costs will
be achieved.
Two distinct ore deposits have been identified at the Grouse Creek
mine: the Sunbeam deposit and the Grouse deposit. The Grouse
deposit is mined by both open pit and underground methods.
<TABLE>
The following table presents the Company's share of the proven and
probable mineral reserves for the Grouse Creek gold mine as of the
dates indicated:
<CAPTION>
Year Total Gold Gold Silver Silver
End Reserves Avg. Grade Content Avg. Grade Content
12/31 (tons)<F2> (oz./ton) (ozs.) (ozs./ton) (ozs.)
----- --------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
1994<F1> 17,658,000<F3> 0.041 721,600 0.92 16,206,080
----
1993<F1> 12,104,000 0.055 671,200 1.07 12,972,800
----
1992<F1> 14,467,000 0.057 831,000 1.21 17,474,000
----
1991<F1> 15,018,600 0.048 719,150 1.20 17,276,810
----
---------------------
<FN>
<F1> 1994 and 1993 proven and probable mineral reserves re-
flect only the Company's share (80%) pursuant to the
February 8, 1994, sale of a 20% interest in its Grouse
Creek mine. If the Company had only an 80% interest in
1992 and 1991, the Company's share of contained gold and
silver would have been 664,800 and 13,979,200 ounces,
respectively, in 1992 and 575,320 and 13,821,448 ounces,
respectively, in 1991.
-8-<PAGE>
<F2> For proven and probable mineral reserve assumptions,
including assumed metals prices, see Glossary of Certain
Mining Terms.
<F3> The increase in the proven and probable mineral reserves
from 1993 to 1994 is principally due to an increase in
the metals price assumptions used in 1994 (see assump-
tions for proven and probable mineral reserves in the
Glossary of Certain Mining Terms). This increase was
partially offset by a decrease in the Grouse underground
reserves totalling 68,000 tons containing 53,000 ounces
of gold and 136,000 ounces of silver. The decrease in
underground reserves was necessary when 1994 development
encountered erratic mineralization which was previously
estimated to be continuous.
</FN>
</TABLE>
Pursuant to the mine plan, the Sunbeam deposit and the Grouse un-
derground deposit are being mined simultaneously, which will be
followed by the Grouse open pit deposit. The mine plan for the
Grouse underground deposit is a panel cut-and-fill method.
The ore zone is approximately 30-feet thick and is being mined in
panels 10-feet high and 20-feet wide. Cemented backfill is used
to obtain nearly 100% extraction of the underground deposit.
Conventional underground mining equipment is used for drilling,
blasting, loading, and hauling. Mining of the Grouse underground
deposit is expected to be completed by mid-1995.
Both the Sunbeam deposit and the Grouse deposit use conventional
surface mining methods. Blasthole assays are used to determine
ore grade material. The material is segregated and hauled by off-
highway trucks to the mill. Waste material is hauled to a waste
dump or used as construction material in the tailings dam. In
both deposits ore is mined on 20-foot benches. The milling pro-
cess 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 sodium cya-
nide solution and recovered with carbon adsorption and Merrill-
Crowe precipitation. Overall recoveries are currently estimated
at 95% gold and 59% silver for ore from the Sunbeam deposit, 82%
gold and 59% silver for ore from the Grouse open pit deposit and
95% gold and 82% silver from the Grouse underground deposit. A
refinery on the property produces a gold/silver dore that is fur-
ther processed by a commercial refiner. The tailings from the
cyanide process are impounded in a 15.5 million ton capacity
double-lined tailings pond. All permits for this facility are in
-9-<PAGE>
good standing. Salmon River Electric Cooperative, Inc. provides
electrical power to the Grouse Creek gold mine.
The Sunbeam deposit is being mined at a rate of 6,800 tons of ore
per day at a current cut-off grade of 0.025 ounce per ton of gold
equivalent and a stripping ratio of 3.2:1. The Grouse deposit
will be mined at approximately the same rate and will have a cut-
off grade of 0.025 ounce per ton of gold equivalent and a strip-
ping ratio of 3.8:1.
Reclamation activities include the partial backfill and revegeta-
tion of the Sunbeam deposit and the Grouse deposit and covering,
recontouring and revegetating the tailings surface and construc-
tion of a permanent spillway. The waste dump and haul roads will
be recontoured and revegetated. Process facilities will be re-
moved 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. Reclamation expense recognized in 1994 totalled
$12,475.
The Company believes that there is potential for extending and
discovering additional gold reserves at the mine. The Company is
focusing exploration efforts on extension of known mineral depos-
its and on two known mineral occurrences in the district. An ex-
ploration program continues in 1995 to evaluate the economic po-
tential of areas below and adjacent to both pits.
During 1994, the Company was a party to or intervened in litiga-
tion related to the Grouse Creek mine (see Note 8 of Notes to
Consolidated Financial Statements). In addition, on March 8,
1995, the District Court issued an order dissolving the injunction
in the Pacific Rivers litigation described in Note 8.
As of December 31, 1994, there were 172 employees at the Grouse
Creek gold mine. The employees are not represented by a bargain-
ing agent.
LA CHOYA GOLD MINE - SONORA, MEXICO
The La Choya gold mine is located 30 miles south of the U.S. bor-
der in the State of Sonora, Mexico, and is 100% owned by the Com-
pany through a Mexican subsidiary. The La Choya gold mine 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 40,000 acres.
-10-<PAGE>
The La Choya gold mine commenced operations in February 1994 and
produced approximately 48,000 ounces of gold in 1994. The Company
expects to produce 75,000 ounces of gold in 1995 and approximately
50,000 ounces of gold in each of 1996 and 1997. Current proven
and probable mineral reserves at the La Choya gold mine are
expected to be substantially depleted in 1997. The ore is mined
via conventional open pit methods at a stripping ratio of 2.48:1
utilizing a cut-off grade of 0.012 ounce of gold per ton, crushed
to two inches in size, and then cyanide leached on a leach pad.
The gold in the leach solution is processed in a carbon recovery
plant to produce a gold and silver dore, which is transported to
the U.S. for further refining. The average life of mine recovery
of contained gold ounces is estimated at approximately 88%.
An exploration drilling program continues into 1995 in an effort
to expand the gold reserves and mine life at the La Choya gold
mine. Drilling results in 1994 were successful in adding ap-
proximately 55,000 ounces of contained gold to the proven and
probable reserve category. The Company believes there is poten-
tial to discover additional gold reserves within the mining con-
cessions currently controlled by the Company.
<TABLE>
Information with respect to production, proven and probable min-
eral reserves, and average cost per ounce of gold produced as of
the dates indicated are set forth in the following table:
<CAPTION>
Years
------------------------------------
Production (100%) 1994<F1> 1993 1992
------------------- ----------- ---------- ---------
<S> <C> <C> <C>
Ore mined (tons) 2,026,381 - - - -
Ore crushed (tons) 1,979,463 - - - -
Gold (ounces) 47,861 - - - -
Proven and Probable
Mineral Reserves<F2>
-------------------
Total tons 6,138,000 6,138,000 4,283,000
Gold (oz. per ton) 0.032 0.037 0.039
Average Cost per Ounce
of Gold Produced
----------------------
-11-<PAGE>
Cash Production Costs<F3> $243 - - - -
Full Production Cost<F3> $337 - - - -
----------------------------------
<FN>
<F1> Production at the La Choya mine commenced in February
1994.
<F2> For proven and probable mineral reserve assumptions,
including assumed metals prices, see Glossary of Certain
Mining Terms.
<F3> Includes approximately $2.1 million in start-up cost
expensed in the first quarter of 1994.
</FN>
</TABLE>
Reclamation activities will be completed at the end of the mine's
life and will include rinsing of the heap leach pads, followed by
recontouring of the pads, and regrading and revegetating the site.
Reclamation expense recognized in 1994 totaled $269,032.
As of December 31, 1994, there were 174 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, 1995.
As of December 31, 1994, the Company's net book value of the La
Choya mine property, plant and equipment totaled $15.6 million.
Electrical power is provided by on-site diesel generators.
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 U.S.
dollars.
LUCKY FRIDAY MINE - IDAHO
The Lucky Friday, a deep underground silver and lead mine, located
in northern Idaho and 100% owned by the Company, has been a pro-
ducing mine for the Company since 1958. The mine operated con-
tinuously 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 produc-
tivity and reduce rockburst activity. Production was resumed at
the Lucky Friday mine in June 1987 and continued uninterrupted
until August 30, 1994, when an ore-conveyance accident forced
suspension of operations until repairs could be made. Operations
-12-<PAGE>
resumed on December 5, 1994, and steady-state production was
achieved in February 1995. The Company is insured for the major-
ity of the costs and lost production resulting from the accident.
The cash and full production cost per ounce of silver increased
from $5.54 and $6.77, respectively, in 1993 to $5.81 and $7.17,
respectively, in 1994. The increases are due principally to a
decrease in the average ore grade processed in 1994 compared to
1993, as well as lower lead, silver and zinc production resulting
from the ore-conveyance accident on August 30, 1994. Lead and
zinc are by-products in the process at the Lucky Friday mine, the
revenues from which are deducted from production costs in the
calculation of production cost per ounce (see Glossary of Certain
Mining Terms).
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 the south, with an av-
erage width of six to seven feet. The principal ore minerals are
galena and tetrahedrite, with minor amounts of sphalerite and
chalcopyrite. 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
1994 approximately 97.7% of the silver, 97.5% of the lead, and
79.3% of the zinc were recovered.
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.
The Lucky Friday mine's mill facility and surface and underground
equipment are in good working condition. The mill was originally
constructed approximately 33 years ago. The Company maintains and
-13-<PAGE>
modernizes the plant and equipment on an ongoing basis. Signifi-
cant 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 concen-
trates, 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, con-
struction 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
$27.4 million as of December 31, 1994.
Reclamation activities are contemplated to include stabilization
of tailings ponds and waste rock areas. The current reclamation
accrual is in excess of the estimated reclamation costs, and no
reclamation expense was recognized in 1994.
Even though recent historical production costs have exceeded rev-
enues realized from the sale of recovered metals, based upon
management's estimates of metal to be recovered which excludes the
possible development of the Gold Hunter property (see following
paragraph), and considering estimated future production costs and
metal prices, the Company's management believes that the carrying
value of the Lucky Friday mine is recoverable from future undis-
counted cash flows generated from operations and considering the
estimated salvage value of surface plant, equipment and the value
associated with property rights. In evaluating the carrying value
of the Lucky Friday mine, the Company used fixed metal prices of
$5.00 per ounce of silver, $0.30 per pound of lead and $0.57 per
pound of zinc through 2004, the estimated end of commercial pro-
duction. These prices were utilized as the Company's management
believes that they are reasonable estimates of average prices over
the remaining life of the mine. In contrast to longer-term prices
used for estimating life-of-mine revenues and resultant cash
flows, the Company uses near-term estimates of metal prices to
estimate ore reserves as they more closely reflect the current
economic conditions at the measurement date. Estimated future
production costs were derived from actual production costs cur-
rently being experienced at the Lucky Friday mine, adjusted for
anticipated changes resulting from the execution of the Company's
mine production plan. Based upon these projected factors, the
Company estimates that future cash and full production costs per
ounce of silver produced over the remaining life of the mine would
be approximately $3.76 and $4.62, respectively. As these amounts
are derived from numerous estimates, the most volatile of which
-14-<PAGE>
are metal prices, there can be no assurance that actual results
will correspond to these estimates. With respect to the Lucky
Friday mine, the principal reasons that cash costs per ounce are
assumed to be lower than recent historical amounts are: (i)
slightly higher silver grades, somewhat offset by lower lead
grades; (ii) the effect of lead by-product revenues (which are
credited against the production costs of silver produced) at $0.30
per pound which is higher than recent actual prices; and (iii)
economic gains (i.e., lower cost per ton of ore milled) by oper-
ating the existing mill at higher capacity than the current lev-
els. If the mineral resource associated with the Gold Hunter
property described below is not fully developed by the Company,
management of the Company believes that a material write-down in
the carrying value of the Lucky Friday mine is unlikely based upon
present economic conditions.
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 mineral-
ization 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. In 1994, the Company approved the first phase of
development of the Gold Hunter property. The first phase of de-
velopment consists primarily of driving an access drift from the
4900-foot level of the Lucky Friday workings which will intersect
the Gold Hunter ore zone approximately 850 feet below the pres-
ently developed area. The new access drift will require approx-
imately 7,000 feet of development excavation and cost approxi-
mately $4.7 million. Including the cost of the new access drift,
it is presently estimated that approximately $21 million in capi-
tal expenditures will be required to bring the Gold Hunter into
full production. The entire project is expected to take approx-
imately three years to complete.
The Gold Hunter property is controlled by the Company under a
long-term operating agreement, which entitles the Company, as op-
erator, 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 de-
velop the properties, which as of December 31, 1994, totaled ap-
proximately $8.8 million.
-15-<PAGE>
The Lucky Friday silver-lead concentrate product is shipped pri-
marily 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 concen-
trates are shipped to Cominco's smelter in Trail, British Colum-
bia, 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. However, at present metal prices, increased costs
associated with transporting the concentrate product a greater
distance to other smelters may render operations at the Lucky
Friday mine uneconomical resulting in possible mine closure. If
this were to occur, the Company may be required to write down all
or a part of its investment in the Lucky Friday mine.
Based on the Company's experience in operating deep mines in the
Coeur d'Alene Mining District, where the persistence of mineral-
ization 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 devel-
oped and brought into production only to replace diminishing ore
reserves from levels being mined out. The length and strength of
the ore body have not materially diminished on the lowest devel-
oped 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 assumed continuation of the
Lucky Friday ore body for a considerable distance below the low-
ermost 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 jus-
tify, 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 bot-
tom of the mine's Silver Shaft.
-16-<PAGE>
<TABLE>
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:
<CAPTION>
Years
------------------------------------------------------------
Production (100%) 1994<F2> 1993 1992 1991 1990
------------------- ---------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Ore milled (tons) 124,986 179,579 175,170 152,150 147,671
Silver (ounces) 1,306,884 2,122,738 2,031,779 1,850,531 1,894,944
Gold (ounces) 605 972 965 928 916
Lead (tons) 13,214 19,795 21,336 18,857 17,333
Zinc (tons) 2,431 4,385 4,213 3,164 3,306
Proven and Probable
Mineral Reserves<F1>
---------------------
Total tons 450,685 414,315 446,105 440,060 527,830
Silver (oz. per ton) 13.9 14.4 14.3 13.6 14.5
Lead (percent) 13.9 14.3 13.4 12.8 13.4
Zinc (percent) 2.9 3.0 2.3 2.8 2.7
Average Cost per Ounce
of Silver Produced
----------------------
Cash Production Costs $ 5.81 $ 5.54 $ 4.12 $ 5.01 $ 4.54
Full Production Cost $ 7.17 $ 6.77 $ 5.35 $ 6.20 $ 6.25
-------------------------------
<FN>
<F1> At the Lucky Friday mine, reserves lying above or between developed levels are
classified as proven reserves. Reserves lying below the lowest developed
level, 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. For additional proven and probable mineral
-17-<PAGE>
reserve assumptions, including assumed metals prices, see Glossary of Certain
Mining Terms.
<F2> Production decreases in 1994 are due primarily to the suspension of operations
resulting from the August 30, 1994 ore-conveyance accident.
</FN>
</TABLE>
-18-<PAGE>
At December 31, 1994, there were 149 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 may be
continued for an additional three years if the Company develops
the Gold Hunter property. Washington Water Power Company
supplies electrical power to the Lucky Friday mine.
AMERICAN GIRL MINE - CALIFORNIA
The Company acquired the American Girl gold mine in March 1994
as part of the Equinox acquisition. The mine property is
located in Imperial County, California. The property includes
three mining areas; the Padre-Madre area where mining is nearly
complete, the American Girl Canyon area which is presently
being mined, and the Oro Cruz area where development began
March 1, 1995. Production from the Oro Cruz area is expected
to begin in mid-1995. The Company's share of capital
expenditures associated with the Oro Cruz area development in
1995 is expected to be approximately $4.0 million.
The cash and full production costs per ounce of gold increased
from $257 and $347, respectively, in 1993 to $344 and $367, re-
spectively, in 1994. The increases are due principally to a
decrease in the average ore grade processed in 1994 compared to
1993. This resulted in lower gold production in 1994 without a
significant decrease in production costs. The increase in the
full production cost per ounce of gold was partially offset by
a decrease in depreciation expense in 1994.
Geology of the area is well studied. Gold mineralization is
hosted along low angle brittle faults (detachment faults) with
average dips of 15 to 20 degrees. Gold occurs in the native
form, most often along fracture boundaries.
The mine is managed by MK Gold Company, the Company's joint
venture partner. The Company has a 47% interest in the mine
with MK Gold having the remaining 53% interest. MK Gold
receives a monthly management fee of 2% of certain specified
costs of the joint venture. Certain matters regarding the
joint venture require the approval of the management committee.
The Company and MK Gold each have two members on the joint
venture management committee.
-19-<PAGE>
The parent company of MK Gold recently announced its intent to
sell its interest in MK Gold. Management does not believe that
any sale will have an adverse effect on the operations at the
American Girl mine, but there can be no assurance.
The American Girl mine is held through a combination of
patented and unpatented claims either owned outright or through
leases. Properties are subject to underlying net smelter
return royalties ranging from 3.5% to 12.5%.
The property contains several ore bodies from which ore has
been and is currently being mined. At the present time, ore is
being mined from surface pits and underground production areas
in the American Girl Canyon area. Ore is processed by heap
leaching and conventional milling in facilities owned by the
joint venture. Electric power is generated on-site by
equipment owned by the joint venture. The total full-time
employees at the site as of December 31, 1994 was 183.
Employees at the American Girl mine are not represented by a
bargaining agent. The Company's basis in the American Girl
mine property, plant and equipment was $3.0 million at December
31, 1994. A portion of reclamation activity is being performed
concurrently with operations at the American Girl mine.
Reclamation activity includes backfilling mine pits,
recontouring and revegetating pits and heap leach pads. Final
reclamation will include removal of buildings and closure of
underground mine openings. Reclamation expense recognized in
1994 totalled $24,205.
<TABLE>
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 dates indicated are set forth in
the table below:
<CAPTION>
-20-<PAGE>
Years
-----------------------------------
Production (47%) 1994 1993 1992<F1>
-------------------------- --------- --------- ---------
<S> <C> <C> <C>
Total ore processed (tons) 704,489 433,504 47,685
Gold (ounces) 30,624 35,192 1,922
Proven and Probable
Mineral Reserves (47%)<F2>
--------------------------
Total tons 3,428,000<F3> 1,814,200 1,151,640
Gold (oz. per ton) 0.049 0.078 0.103
Average Cost per Ounce
of Gold Produced
-----------------------
Cash Production Costs $ 344 $ 257 $ 348
Full Production Cost $ 367 $ 347 $ 406
------------------------------------
<FN>
<F1> Equinox acquired the property in December 1992;
represents data for the month ended December 31, 1992.
<F2> For proven and probable mineral reserve assumptions,
including assumed metals prices, see Glossary of Certain
Mining Terms.
<F3> The increase in the mineral reserves from 1993 to 1994
is due to additional lower-grade tons being added to the
proven and probable category during 1994.
</FN>
</TABLE>
The Company anticipates that sufficient ore exists in the American
Girl, Oro Cruz and Padre-Madre mine areas to enable surface and
underground mining to continue into 1998. The Company's share of
annual gold production is expected to be 30,000 and 35,000 ounces
of gold in 1995 and 1996, respectively. Exploration for ad-
ditional surface and underground ore, which has been successful in
the past, is expected to continue.
ROSEBUD GOLD PROJECT - NEVADA
The Rosebud gold project is located in the Rosebud Mining Dis-
trict, in Pershing County, Nevada, and consists of 46 unpatented
-21-<PAGE>
lode mining claims (the "Hecla Claims"), a 52% interest in 49 lode
mining claims held under a joint venture with N.A. Degerstrom Inc.
(the "Degerstrom Claims") and a 100% interest in 411 lode mining
claims (the "Lac Claims") totalling 10,120 acres (the Hecla
Claims, the Degerstrom Claims and the Lac Claims collectively
comprise the "Rosebud Project"). The Rosebud Project may be
reached from Lovelock, Nevada, by travelling a distance of
approximately 50 miles on an all weather gravel road. Capitalized
expenditures at the Rosebud Project totaled $8.1 million at
December 31, 1994.
In 1993, Equinox sold a 2.5% net smelter return royalty and an
option to purchase for $2.5 million an additional 1.5% net smelter
return royalty on the property to Euro-Nevada Mining Corporation
Inc. ("Euro-Nevada"). The option must be exercised within 30 days
after delivery by the Company to Euro-Nevada of a feasibility
study and production decision on the Rosebud Project.
Until 1991, all significant gold mineralization and most of the
115,000 feet of drilling in 167 holes had been completed on what
is known as the Dozer Hill Zone, a northeast trending zone ex-
tending a distance of about 1,500 feet within portions of 10
claims within the Hecla Claims and the Lac Claims.
In 1991, 58,691 feet of drilling was carried out to test explora-
tion targets east of the Dozer Hill Zone and to further evaluate
the property. This exploration drilling encountered a new zone of
high-grade gold mineralization (the "East Zone") about 1,000 feet
east of the Dozer Hill Zone within portions of three claims within
the Hecla Claims and Lac Claims, although numerous low-grade drill
intersections in between suggest the two zones may be connected.
Mineralization appears related to the low angle South Ridge fault
which underlies most of the area of interest. Mineralization in
the Dozer Hill Zone occurs above this fault while mineralization
in the East Zone occurs within and below this fault.
Results to date indicate that gold mineralization in the East
Zone, as in the Dozer Hill Zone and many other volcanic-hosted
gold deposits, is erratically distributed with numerous low-grade
holes interspersed with higher grade holes over an area of ap-
proximately 1,000 feet east-west and 1,000 feet north-south.
Drilling has also intersected further mineralization approximately
700 feet east of the East Zone. Hydrological studies have also
been carried out.
-22-<PAGE>
In 1992, an additional 35,000 feet of drilling in 56 holes was
completed on the Rosebud Project. This was followed by metal-
lurgical studies and permit preparation for an advanced under-
ground exploration program. In 1993, the underground exploration
program was started. During 1994 the Company spent approximately
$5.6 million at the Rosebud property. Underground work included
3,600 feet of drifting, 25,000 feet of underground diamond drill-
ing, and 30,000 feet of surface diamond drilling designed to fur-
ther delineate the ore body.
<TABLE>
The following table presents the proven and probable mineral re-
serves for the Rosebud Project as of the dates indicated:
<CAPTION>
Year Total Gold Gold Silver Silver
End Reserves Avg. Grade Content Avg. Grade Content
12/31 (tons)<F1> (oz./ton) (ozs.) (ozs./ton) (ozs.)
----- ---------- ---------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
1994 1,641,000<F2> 0.356 584,000 2.25 3,694,000
----
1993 1,984,000 0.258 512,000 1.81 3,584,000
----
-----------------------
<FN>
<F1> For proven and probable mineral reserve assumptions,
including assumed metals prices, see Glossary of
Certain Mining Terms.
<F2> The decrease in the tons of proven and probable
mineral reserves in 1994 compared to 1993 is at-
tributable to further delineation drilling of the
ore body during 1994 which resulted in fewer reserve
tons. However, this was more than offset by a
higher average gold grade per ton.
</FN>
</TABLE>
Permitting related work during 1994 included the preparation of
the Plan of Operations submitted to the Bureau of Land Management
in July. National Environmental Policy Act scoping is underway to
determine any significant impacts. Scoping will provide the basis
for preparation of final environmental assessment documents which
could include an environmental impact statement.
Activities in 1995 are expected to include detailed design and a
feasibility study in the fourth quarter. The permitting effort is
expected to continue through the majority of 1995. The Company is
-23-<PAGE>
subject to, among other items, obtaining the appropriate regula-
tory approvals and satisfactory completion of a feasibility study
and intends to begin construction of the mine and related facili-
ties as early as 1996. Production could follow as early as the
first quarter of 1997. Commencement of construction and produc-
tion could be delayed if an environmental impact statement is de-
termined to be required for the project. The feasibility study
will assess the potential to produce approximately 70,000 to
80,000 ounces of gold annually. Although the project is in pre-
liminary stages, if a determination is made to develop the
project, capital costs are expected to be, at a minimum, approxi-
mately $38 million.
Patents have been applied for on 13 claims at the Rosebud prop-
erty. These claims contain all of the proven and probable re-
serves (see Regulation of Mining Activity).
REPUBLIC MINE - REPUBLIC, WASHINGTON
The Company owns the Republic mine located in the Republic Mining
District near Republic, Washington, which consists of several as-
sociated properties, a mill and ancillary surface plants. In
February 1995, the Company completed operations at the Republic
mine and has commenced certain reclamation work in connection with
the mine and mill closure. The Company's land position in the
Republic area consists of approximately five square miles, where
the Company may continue exploration efforts in the future. The
Company's exploration efforts since 1990 have been unsuccessful.
The cash and full production costs per ounce of gold increased
from $207 and $262 in 1993 to $250 and $306 in 1994, respectively.
The increases are due principally to a decrease in the average ore
grade processed in 1994 compared to 1993. This resulted in lower
gold production in 1994 without a significant decrease in produc-
tion costs.
In 1994, the Company recorded an additional reclamation and clo-
sure costs accrual of $7.3 million. At December 31, 1994, the
accrued reclamation and closure costs balance totaled $8.4 mil-
lion. Reclamation and closure efforts will begin in 1995.
Also in 1994, based on its periodic reviews of the status of
various mining properties, the Company determined that certain
adjustments were appropriate to properly reflect the estimated net
realizable value of the Republic mine's property, plant and
equipment. The adjustments totaled $7.2 million as a write-down
of property, plant, equipment, and supplies inventory of the Re-
-24-<PAGE>
public mine (see Note 5 of Notes to Consolidated Financial State-
ments). The remaining net book value of the Republic mine prop-
erty and its associated plant and equipment was approximately $2.5
million representing the estimated residual value as of December
31, 1994.
-25-<PAGE>
<TABLE>
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:
<CAPTION>
Years
-----------------------------------------------------------
Production (100%) 1994 1993 1992 1991 1990
----------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Ore milled (tons) 120,165 110,846 102,631 96,562 92,843
Gold (Au) (ounces) 39,085 49,601 58,343 77,736 81,397
Silver (Ag) (ounces) 283,326 276,688 299,957 311,445 326,346
Proven and Probable
Mineral Reserves<F1>
----------------------
Total tons - - 103,533<F2> 269,736 401,318 437,580
Gold (oz. per ton) - - 0.43 0.52 0.53 0.65
Silver (ozs. per ton) - - 2.7 3.2 3.2 3.5
Average Cost per
Ounce of Gold Produced
----------------------
Cash Production Costs $ 250 $ 207 $ 176 $ 143 $ 128
Full Production Cost $ 306 $ 262 $ 221 $ 176 $ 143
-------------------------
<FN>
<F1> Reserves represent diluted in-place grades and do not reflect losses in the
recovery processes. Dilution was effected through application of 1.0 foot 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. For additional proven and probable mineral reserve
assumptions, including assumed metals prices, see Glossary of Certain Mining
Terms.
-26-<PAGE>
<F2> In 1993 a negative mineral reserve adjustment was made totalling 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.
</FN>
</TABLE>
-27-<PAGE>
There were 85 people employed at the Republic mine at December
31, 1994. Employees at Republic are not represented by a
bargaining agent.
CACTUS MINE - CALIFORNIA
The Cactus mine consists of approximately 1,600 acres of
leasehold lands, mining claims and millsites, located approxi-
mately 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.
The full production cost per ounce of gold decreased from $309
in 1993 to $217 in 1994. The decrease is due principally to a
decrease in depreciation expense in 1994 as the property, plant
and equipment were fully depreciated in 1993.
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.
Nominal gold production is expected during 1995 as heap
leaching operations are completed. Reclamation efforts are
ongoing. Reclamation expense of $97,990 was recognized in
1994.
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. As of December
31, 1994, there were 15 employees at the Cactus mine.
Employees at the Cactus mine are not represented by a
bargaining agent.
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.
-28-<PAGE>
<TABLE>
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:
<CAPTION>
Years
-----------------------------------------------------------
Production (75%) 1994<F1> 1993<F1> 1992<F1> 1991 1990
----------------------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Ore processed (tons) - - - - 315,328 1,760,714 1,750,275
Gold (ounces) 7,610 7,316 27,212 40,434 45,005
Silver (ounces) 19,555 24,165 114,415 162,760 184,349
Proven and Probable
Mineral Reserves
-----------------------
Total tons - - - - - - 234,140 1,615,182
Gold (oz. per ton) - - - - - - 0.04 0.03
Average Cost per
Ounce of Gold Produced
-----------------------
Cash Production Costs $ 217 $ 242 $ 213 $ 246 $ 226
Full Production Cost $ 217 $ 309 $ 337 $ 437 $ 366
-----------------------
<FN>
<F1> Mining operations were completed in February 1992. Gold recovery from the heap
continued through 1994, but is expected to be completed in 1995.
</FN>
</TABLE>
-29-<PAGE>
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 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.
-30-<PAGE>
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,
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 mineral 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 estab-
lished 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 all ball
clay producers, including 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 162 people employed by K-T Clay at its ball clay op-
erations as of December 31, 1994. Some of the hourly employees
are represented by the United Steelworkers of America. The
three-year labor agreement will expire on February 8, 1997.
-31-<PAGE>
K-T CLAY DE MEXICO, S.A. DE C.V.
In 1993, K-T Clay completed construction of its clay slurry
plant in Monterrey, Mexico, which now supplies clay slurry to
the Mexican ceramics industry. Prior to construction of this
facility, clay slurry was shipped by rail from K-T Clay's
domestic operations. Reducing freight costs, a bulk semi-dry
clay weighing substantially less than clay slurry is now
shipped by rail from K-T Clay's domestic operations to the K-T
Mexico slurry plant in Monterrey. The clay is blended to
customer specifications and converted to a slurry form for
final shipment to its customers in the region.
Approximately $7.2 million was expended in constructing the
clay slurry plant. Further declines in the Mexican peso could
adversely impact K-T Mexico operations. K-T Mexico utilizes
electrical power from the local public utility. There were 20
people employed by K-T Mexico as of December 31, 1994,
represented by the Industrial Labor Union of Nuevo Leon.
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 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
-32-<PAGE>
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
mineral reserves based on current sales and product mix.
Reserves are held on fee simple and leased property. K-T Clay
is also continuously exploring for new deposits of kaolin,
either to replace certain grades of kaolin that may become
mined out or to locate new deposits that can be mined at lower
cost.
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 81 people employed by K-T Clay at its Kaolin
Division as of December 31, 1994, 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 February 28, 1997.
Both the Ball Clay and Kaolin Divisions of K-T Clay's plants
and equipment have been operational in excess of 26 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 $18.1 million as of December 31, 1994.
K-T Clay utilizes power from several public utilities as well
-33-<PAGE>
as local utility co-operatives located in the vicinity of K-T
Clay's operating plants.
In March 1995, the Company entered into a letter of intent to
purchase additional kaolin processing facilities and reserves
located in South Carolina. The transaction is subject to the
satisfactory completion of due diligence, Board of Director
approval and signing of a definitive purchase and sale
agreement.
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 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 indus-
tries.
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 de-
creased demand for end-use products. Feldspar currently com-
petes 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.
-34-<PAGE>
K-T Feldspar holds in excess of 20 years of mineral 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 26 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
$5.5 million as of December 31, 1994. Carolina Power & Light
Company, a regulated public utility, provides the electric
power utilized for operations at K-T Feldspar.
There were 43 employees employed by K-T Feldspar as of December
31, 1994; none of whom are represented by a bargaining agent.
MOUNTAIN WEST PRODUCTS, INC.
The Company acquired the operations and assets of Mountain West
in December 1993. 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 at its plants in Rexburg,
Idaho and Superior, Montana. The plants are located near the
sources of the raw materials to reduce transportation 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 sales are in the western U.S. and take place in the first
six months of the year due to the seasonality of the market.
The plants have operated in excess of 14 years at Rexburg and
six years at Superior. The plants are maintained and upgraded
continually and are in good working order.
-35-<PAGE>
The net book value of the associated plant and equipment was
approximately $4.8 million as of December 31, 1994. Utah Power
and Light and Montana Power Company provide electrical power
utilized by the operations at Rexburg and Superior,
respectively.
Mountain West had 106 employees as of December 31, 1994; 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 Anto-
nito, Colorado. All mining is open pit with minimal require-
ments for the removal of overburden.
The principal customers for scoria briquettes are manufacturers
and retailers of gas barbecue grills. Landscapers,
distributors of landscaping 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 17 years
of mineral reserves at the Mesita, Colorado, location and has
developed in excess of six 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, 1994. Public Service Company of Colorado and San
-36-<PAGE>
Luis Valley Electric Co-operative provide the electric power
utilized for operations at CAC.
CAC had 71 employees as of December 31, 1994; 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 $3.4 million as of December 31, 1994. 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. During 1994, the Apex facility continued
production of cobalt chemicals and process trials of
metallurgical residues. Based on its periodic review of the
status of various mining properties, the Company determined in
1992 that a write-down of approximately $13.5 million was
necessary to properly reflect the estimated net realizable
value of the Apex facility. There were 37 employees at the
Apex facility at December 31, 1994; none of whom are
represented by a bargaining agent.
-37-<PAGE>
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. These opportunities include joint venture
arrangements, toll processing arrangements, and the possible
sale of the facility.
On February 15, 1995, the Company entered into a letter of
intent to sell the Apex facility. The sale is subject to the
Company completing certain reclamation activities at the
property as well as the satisfactory completion of due
diligence activities by the prospective purchaser and the
signing of a definitive purchase and sale agreement.
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
significant properties on standby at December 31, 1994 are
described below.
GREENS CREEK MINE - ADMIRALTY ISLAND, ALASKA
At December 31, 1994, 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. Greens Creek is a
polymetallic deposit containing silver, zinc, gold, and lead.
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 the mine, an ore concentrating
mill, a tailings impoundment area, a ship-loading facility, and
a 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,
-38-<PAGE>
and the mine and mill were placed on a standby basis.
Exploration and 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.
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 are
predominantly sold to a number of major European and Asian
smelters. A lesser amount of the concentrates are 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 maintained in good working condition.
The mill was originally constructed about seven years ago. The
manager of the joint venture maintains the plant and equipment
on an ongoing basis. Improvements to the mill were made in
1992 directed to increasing mill processing rates and improving
metals separation capability. Specific improvements included
increasing flotation capacity by installing larger flotation
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 $49.3 million as of December 31, 1994.
Even though recent historical production costs have exceeded
revenues realized from the sale of recovered metals and mining
operations at the Greens Creek mine are currently suspended,
based upon management's estimates of metal to be recovered and
considering estimated future production costs and metal prices,
the Company's management believes that the carrying value of
the Greens Creek mine is recoverable from future undiscounted
cash flows generated from operations. In evaluating the
carrying value of the Greens Creek mine, the Company used fixed
metal prices of $395 per ounce of gold, $5.60 per ounce of
silver, $0.28 per pound of lead and $0.46 per pound of zinc
through 2013, the estimated end of commercial production.
These prices were utilized as the Company's management believes
that they are reasonable estimates of average prices over the
remaining life of the mine. In contrast to longer-term prices
-39-<PAGE>
used for estimating life-of-mine revenues and resultant cash
flows, the Company uses near-term estimates of metal prices to
estimate ore reserves as they more closely reflect the current
economic conditions at the measurement date. Estimated future
production costs were derived from actual production costs
experienced at the mine, adjusted, as necessary, for
anticipated changes resulting from the execution of the mine
manager's mine production plan. Based upon these projected
factors, the Company estimates that future cash and full
production costs per ounce of silver produced over the
remaining life of the mine would be $1.98 and $4.27,
respectively. As these amounts are derived from numerous
estimates, the most volatile of which are metal prices, there
can be no assurance that actual results will correspond to
these estimates. With respect to the Greens Creek mine, the
principal reason that cash costs per ounce are assumed to be
less than historical amounts is an increase in the grade of ore
processed.
The Greens Creek deposit consists of zinc, lead, and iron
sulfides and copper-silver sulfides and sulfosalts with sub-
stantial 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 mineralization
was folded and faulted by multiple generations of tectonic
events.
<TABLE>
The estimated mineral reserves for the Greens Creek mine are
computed by Kennecott Greens Creek Mining Company's geology and
engineering staff with technical support from Kennecott Cor-
poration. Geologic interpretations and reserve methodology are
reviewed, but the reserve compilation is not independently con-
firmed by the Company in its entirety. 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:
<CAPTION>
-40-<PAGE>
Years
-----------------------------------------------------------------------
Production 1994<F1>(29.7%) 1993<F1><F2>(29.7%) 1992(28%) 1991(28%) 1990(28%)
------------------- -------------- ----------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Ore milled (tons) - - 33,638 123,526 120,187 107,445
Silver (ounces) - - 551,107 1,959,368 2,178,141 2,144,389
Gold (ounces) - - 2,826 9,094 10,505 10,705
Zinc (tons) - - 3,453 11,385 11,906 10,391
Lead (tons) - - 1,298 4,650 4,863 4,698
Proven and Probable
Mineral Reserves<F3>
-------------------
Total tons 2,585,000 1,911,000 3,422,000 3,876,000 1,782,000
Silver (ozs. per ton) 19.2 16.0 12.7 13.3 15.1
Gold (oz. per ton) 0.16 0.14 0.13 0.12 0.13
Zinc (percent) 13.1 14.4 13.2 12.8 12.4
Lead (percent) 4.7 4.7 4.0 4.0 4.2
Average Cost per
Ounce of Silver Produced
------------------------
Cash Production Costs - - $ 5.11 $ 4.82 $ 3.94 $ 2.52
Full Production Cost - - $ 7.16 $ 6.54 $ 5.43 $ 4.69
-------------------
<FN>
<F1> Operations were suspended in April 1993 and placed on a standby basis.
<F2> Equity during the period of active production was 28.08%, but was increased to
29.73% by the time of the reserve determination.
<F3> For proven and probable mineral reserve assumptions and definitions, see
Glossary of Certain Mining Terms.
</FN>
</TABLE>
-41-<PAGE>
Mineral reserve criteria and estimation techniques used for
1994 and 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. Further drilling in the area
in 1994 accounts for most of the increase in reserves between
1993 and 1994.
In January 1994, the manager of the Greens Creek mine initiated
a feasibility study to determine the advisability of placing
the mine back into production. The feasibility study was
completed during the fourth quarter of 1994, and a decision as
to the resumption of production is pending.
As of December 31, 1994, there were 48 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
-42-<PAGE>
located on the property. The Company continues to seek other
parties interested in the further exploration and development
of this extensive gold-bearing deposit. The net book value of
the Yellow Pine property, plant and equipment as of December
31, 1994, was approximately $180,000.
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 (which was succeeded in
interest by Umetco Minerals Corporation, a wholly owned
subsidiary of Union Carbide, and in 1994 was assigned to Energy
Fuels Nuclear, Inc.) whereby Union Carbide became the operator
of the property. The Company has reserved the right to contest
Umetco Minerals' assignment to Energy Fuels Nuclear. 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 a mill owned by Union Carbide
which was sold to Energy Fuels Nuclear in 1994. 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. As of December 31, 1994, the Company's net book
value of the Lisbon Valley project was $500,000.
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 Corpora-
tion, 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.
-43-<PAGE>
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.
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 remediation of uranium mill
tailings sites in Colorado and New Mexico. One site, in New
Mexico, has been completely reclaimed and the license released
by the Nuclear Regulatory Commission. At a site near Naturita,
Colorado, where a Hecla predecessor reprocessed uranium mill
tailings under a license from the State of Colorado,
remediation activities have been in progress since 1993. The
facility was decontaminated in 1993, stabilization of wastes
occurred in 1994, earthwork activities have been contracted for
1995, and completion of remediation is planned for 1996.
EXPLORATION
The Company conducts exploration activities from its
headquarters in Coeur d'Alene, Idaho. The Company owns or con-
trols patented and unpatented mining claims, fee land, mineral
concessions, and state and private leases in six 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 at the La
Choya and Grouse Creek gold mines and the Rosebud project. The
Company remains active in other exploration areas and is
seeking advanced-stage acquisition opportunities in the United
States and Mexico.
Exploration and development activities in 1994 at the Rosebud
gold property located in Pershing County, Nevada, defined
1,641,000 tons of ore to the proven and probable mineral
reserves containing 0.356 ounce per ton gold and 2.25 ounces of
silver.
-44-<PAGE>
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 ended
December 31, 1994, 1993 and 1992 were approximately $8.4
million, $5.7 million and $8.2 million, respectively.
Exploration expenditures for 1995 are estimated to be
approximately $6.7 million.
HEDGING ACTIVITIES
The Company's policy guidelines for hedging gold and silver
production permit management the right to utilize various
hedging mechanisms for up to 50% of the Company's annual
estimated available metal production. Hedging contracts are
restricted to no longer than 24 months without Board of
Director approval and will be spread among a number of
available customers. At year end the Company had 27% of 1995
budgeted gold production hedged utilizing spot deferred and
option contracts. There were no hedging contracts for silver
outstanding. The Company's policy with respect to lead hedging
permits management to hedge 30% of estimated annual production
of lead for periods not to exceed 12 months (see Notes 1 and 3
of Notes to Consolidated Financial Statements).
INDUSTRY SEGMENTS
Financial information with respect to industry segments is set
forth in Note 11 of Notes to the Consolidated Financial State-
ments.
COMPETITION
The Company is engaged in the mining and processing of gold,
silver and other nonferrous metals and industrial minerals in
the United States and Mexico. 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 in the last five years:
-45-<PAGE>
<TABLE>
Average Metal Prices
<CAPTION>
-------------------------------------------------
Silver Gold
Year (per oz.-Handy & Harman) (per oz.-London Final)
---- ------------------------ ----------------------
<S> <C> <C>
1994 $ 5.28 $ 384
1993 $ 4.30 $ 360
1992 $ 3.94 $ 344
1991 $ 4.04 $ 362
1990 $ 4.82 $ 383
</TABLE>
The Company cannot compare sales from its ball clay mining opera-
tions with sales of other ball clay producers because the princi-
pal competitors are either family-owned or divisions of larger,
diversified companies, but the Company believes that K-T Clay is
one of the largest producers 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 Com-
pany. The principal competitors of the Company in the kaolin in-
dustry, are Albion Kaolin Company, Evans Clay Company, JM Huber
Corporation, English China Clay Company and Dry Branch Kaolin
Company. The Company, with the acquisition of Indusmin Incorpor-
ated's feldspar assets, is also a major producer and supplier of
sodium feldspar products. The principal competitors of the Com-
pany in the feldspar industry are Feldspar Corporation and Unimin
Corporation.
The Company competes with other producers of scoria and with man-
ufacturers 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
-46-<PAGE>
supplies a significant portion of the market for its product in
the intermountain region.
With respect to the acquisition of mineral interests and explora-
tion 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 consid-
erably greater resources.
REGULATION OF MINING ACTIVITY
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 ac-
tivities 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, protec-
tion of natural resources, protection of antiquities and reclama-
tion of lands which are disturbed. The Company believes that it
is in substantial compliance with applicable environmental regu-
lations. Many of the regulations also require permits to be ob-
tained 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 the
Company conducts many aspects of its business, management of the
Company does not believe that they have a material adverse effect
on its results of operations or financial condition at this time.
The Company's projects are evaluated considering the cost and im-
pact 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, the Company's operations.
It is possible that future changes in these laws or regulations
could have a significant impact on some portion of the Company's
business, causing those activities to be economically reevaluated
at that time. The Company believes that adequate provision has
-47-<PAGE>
been made for disposal of mine waste and mill tailings at all of
its operating and nonoperating properties in a manner which com-
plies with current federal and state environmental requirements.
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 environ-
mental 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 require-
ments, it is possible that the Company's operations could be ad-
versely 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 li-
ability for the release of hazardous substances, and the Endan-
gered Species Act ("ESA"), which identifies endangered species of
plants and animals and regulates activities to protect these spe-
cies and their habitats. The Company has been implicated at some
Superfund sites and is involved in litigation under the ESA (see
Note 8 of Notes to Consolidated Financial Statements). Revisions
to CERCLA and ESA are being considered by Congress; the impact on
the Company of these revisions is not clear at this time.
During the past three years, the U.S. Congress considered a number
of proposed amendments to the General Mining Law of 1872, as ame-
nded (the "General Mining Law"), which governs mining claims and
related activities on federal lands. In 1992, a holding fee of
$100 per claim was imposed upon unpatented mining claims located
on federal lands. In October 1994, a one year moratorium on pro-
cessing of new patent applications was approved. In addition, a
variety of legislation is now pending before the U.S. Congress to
further amend the General Mining Law. The pending legislation
would, among other things, impose royalties and new reclamation,
environmental controls and restoration requirements. Each of the
current legislative proposals would impose some form of royalty
payable to the U.S. Government on the value of minerals extracted
from certain federal lands. The extent of any such changes is not
presently known and the potential impact on the Company as a re-
sult of congressional action is difficult to predict. Although a
majority of the Company's existing mining operations occur on
private or patented property, the proposed changes to the General
-48-<PAGE>
Mining Law could adversely affect the Company's ability to eco-
nomically develop mineral resources on federal lands. Approx-
imately 43% of the proven and probable gold reserves and approx-
imately 20% of the proven and probable silver reserves located at
the Grouse Creek project are located on fully patented mining
claims. The balance of such proven and probable mineral reserves
are located within mineral claims for which the Company has ap-
plied for patents and has received a first half of Mineral Entry
Final Certificate. Upon the determination of the mineral charac-
ter of these claims by a Federal Mine Examiner, the Company be-
lieves patents will be issued to the Company covering these
claims. Although there can be no assurance as to the ultimate
impact of legislative action on these claims or the Company's
ability to patent these claims under the existing General Mining
Law, the Company believes that the pending legislation to amend
the General Mining Law will not adversely affect the right of the
Company to receive patents for the Grouse Creek unpatented mining
claims. The proven and probable mineral reserves at the Oro Cruz
and Rosebud properties are located on claims that are unpatented.
EMPLOYEES
As of December 31, 1994, the Company and its subsidiaries employed
1,204 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 of
ten driven in an upward or downward spiral, much the same as
a spiral staircase.
-49-<PAGE>
DEVELOPMENT -- Work carried out for the purpose of
opening up a mineral deposit and making the actual ore
extraction possible.
DORE -- Unrefined gold and silver bullion bars
consisting of approximately 90% precious metals which will be
further refined to almost pure metal.
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 mineral reserves.
ORE -- Material that can be mined and processed at a
positive cash flow.
-50-<PAGE>
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. Reserves represent diluted in-place grades and
do not reflect losses in the recovery process. The Company's
estimates of proven reserves and probable reserves at
December 31, 1994 and 1993 are based on gold prices of $395
and $375 per ounce, silver prices of $5.60 and $4.50 per
ounce, lead prices of $0.28 and $0.23 per pound, and zinc
prices of $0.46 and $0.44 per pound, respectively. Proven
and probable mineral reserves for the Greens Creek and
American Girl mines are based on calculations of reserves
provided to the Company by the operators of these properties
that have been reviewed but not independently confirmed by
the Company. Kennecott Greens Creek Mining Company's
estimates of proven and probable reserves for the Greens
Creek mine as of December 1994 are derived from successive
generations of reserve and feasibility analyses for three
different areas of the mine each using a separate assessment
of metal prices. The prices used were:
<TABLE>
East Ore Area West Ore Area Southwest Ore Area
------------- -------------- ------------------
<S> <C> <C> <C>
Gold $ 340 $ 350 $ 360
Silver 4.50 4.75 5.00
Lead 0.33 0.28 0.28
Zinc 0.60 0.57 0.50
</TABLE>
Greens Creek Mining Company's estimates of proven reserves and
probable reserves at December 31, 1993 are based on silver prices
of $4.75 per ounce, gold prices of $350 per ounce, zinc prices of
$0.57 per pound, and lead prices of $0.28 per pound. MK Gold's
estimates of proven and probable reserves at December 31, 1994 and
1993 are based on gold prices of $400 and $380 per ounce, respec-
tively.
-51-<PAGE>
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.
PROBABLE RESERVES -- Resources for which tonnage and grade
and/or quality are computed primarily from information simi-
lar to that used for proven reserves, but the sites for in-
spection, 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 com-
puted 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 estab-
lished. The computed tonnage and grade are judged to be ac-
curate, 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 sur-
face.
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.
-52-<PAGE>
STOPE -- An underground excavation from which ore has been
extracted either above or below mine level.
TROY OUNCE -- Unit of weight measurement used for all pre-
cious 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 effec-
tive 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 re-
quirements of the state in which the unpatented claim is lo-
cated, 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 ex-
plore and mine such claim under the General Mining Law.
VEIN -- A mineralized zone having a more or less regular de-
velopment 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 3. LEGAL PROCEEDINGS
Contingencies
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"). In February
1994, the Company and three other mining company PRPs entered into
a Consent Decree with EPA and the State of Idaho pursuant to which
the Company and two of the three companies signing the decree
agreed to implement remediation work at a portion of the Bunker
Hill Site. The remediation will primarily involve the removal and
replacement of lead-contaminated soils in residential yards within
the site and is estimated to be completed by the participating
mining companies over the period of the next five to seven years.
The Consent Decree also provides for the mining companies to
reimburse EPA for a portion of the government's past costs
incurred at the Bunker Hill Site. The Consent Decree was approved
and entered by the Federal District Court in Idaho on November 17,
-53-<PAGE>
1994. The Consent Decree settles the Company's response-cost
liability under Superfund at the Bunker Hill Site. Based upon the
terms of the Consent Decree and an agreement between the
participating mining companies relating to the allocation of the
cost for work under the Consent Decree, the Company has estimated
and established a total allowance for liability for remedial
activity costs at the Bunker Hill Site of $9.1 million as of
December 31, 1994. Other than consulting work necessary for the
implementation of the Company's allocated portion of the remedial
activity at this site, 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 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, 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.
-54-<PAGE>
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.
At December 31, 1994, the Company has not reduced its
environmental accrual to reflect any anticipated insurance
proceeds. 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.
Litigation is still pending against other insurers.
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. 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. 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 will pay ICC a total of $3.05 million (plus interest from
January 1, 1995) over a period of three months ending on April 3,
1995. The Company has accrued and capitalized 80% of these
amounts reflecting its interest in the Grouse Creek Joint Venture.
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
-55-<PAGE>
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 certain investments totaling $10.0 million as
collateral for the appeal bond. This collateral amount is
included in restricted investments at December 31, 1994. 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.
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. 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. On January 12, 1995, the
District Court issued an Order granting an injunction against the
Forest Service to halt all ongoing and future mining, timber,
grazing, and road building activity in the six national forests
that may affect the endangered salmon. The Court's Order provided
an exception to the injunction for certain projects, like the
-56-<PAGE>
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 effectiveness of the injunction to March 15, 1995, to permit
the government to complete the consultation required under the
Endangered Species Act. On March 1, 1995, the government
announced the completion of the required forest planning
consultation and stated there was no further need for an
injunction. Although the ultimate impact on the Grouse Creek
project of any additional consultation under the Endangered
Species Act and the pending lawsuit cannot be predicted, based on
a comprehensive environmental assessment completed with respect to
developing the Company's Grouse Creek project and the completion
of the consultation, 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 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.
-57-<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
(dollars in thousands except for per-share amounts)
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Total revenue $ 133,974 $ 96,060 $ 113,986 $ 121,130 $ 165,518
========= ========= ========= ========= =========
Income (loss) before
cumulative effect of
changes in accounting
principles $ (24,613) $ (17,782) $ (55,173) $ (15,521) $ 2,342
Cumulative effect of
changes in accounting
principles - - - - (103) - - - -
--------- --------- --------- --------- ----------
Net income (loss) (24,613) (17,782) (55,276) (15,521) 2,342
Preferred stock dividends (8,050) (4,070) - - - - - -
Net income (loss) appli- --------- --------- --------- --------- ----------
cable to common share-
holders $ (32,663) $ (21,852) $ (55,276) $ (15,521) $ 2,342
========= ========= ========= ========= =========
Income (loss) per common
share before cumulative
effect of changes in
accounting principles
and after preferred
stock dividends $ (0.74) $ (0.58) $ (1.59) $ (0.46) $ 0.07
========== ========== ========== ========== =========
Net income (loss) per common
share $ (0.74) $ (0.58) $ (1.59) $ (0.46) $ 0.07
========== ========== ========== ========== =========
-58-<PAGE>
Total assets $ 334,582 $ 346,153 $ 236,130 $ 276,856 $ 277,939
========== ========== ========== ========== =========
Long-term debt - Notes and
contracts payable<F1> $ 1,960 $ 50,009 $ 71,219 $ 80,322 $ 72,554
========== ========== ========== ========== =========
Cash dividends per common
share $ - - $ - - $ - - $ - - $ 0.04
========== ========== ========== ========== =========
Cash dividends per preferred
share $ 3.50 $ 1.77 $ - - $ - - $ - -
========== ========== ========== ========== =========
Common shares issued 48,144,274 40,320,761 36,324,517 34,062,328 32,756,077
Shareholders of record 13,196 13,549 14,859 17,127 18,032
Employees 1,204 919 826 911 981
----------------------------
<FN>
<F1> Includes $94,000 and $181,000 for 1991 and 1990, respectively, of long-term debt
which is recorded in other noncurrent liabilities.
</FN>
</TABLE>
-59-<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDI-
TION AND RESULTS OF OPERATIONS1
INTRODUCTION
The Company is primarily involved in the exploration, development,
mining, and processing of gold, silver, lead, zinc, and industrial
minerals. As such, the Company's revenues and profitability are
strongly influenced by world prices of gold, silver, lead, and
zinc, which fluctuate widely and are affected by numerous factors
beyond the Company's control, including inflation and worldwide
forces of supply and demand. The aggregate effect of these fac-
tors is not possible to accurately predict. In the following de-
scriptions, 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 recorded net losses applicable to common shareholders
for each of the past three years in the period ended December 31,
1994. If the current market prices of gold, silver and lead do
not increase and considering the Company's preferred dividend
payment requirements, the Company expects to continue to experi-
ence net losses applicable to common shareholders. However, even
if metals prices remain at current levels, the Company's operating
cash flows are expected to increase once anticipated production
levels are achieved at the Grouse Creek mine. The Grouse Creek
mine commenced operations in December 1994. Steady-state produc-
tion levels are expected to be achieved during the second quarter
of 1995.
The volatility of metals prices requires that the Company, in as-
sessing the impact of prices on recoverability of its assets, ex-
ercise judgment as to whether price changes are temporary or are
likely to persist. The Company performs a comprehensive evalua-
tion 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 expecta-
tions for future production and market conditions.
------------------
1 For definitions of certain mining terms used in this de-
scription, see "Glossary of Certain Mining Terms" at the end of
Item 1, page 38.
-60-<PAGE>
Based on its periodic review of the status of various mining
properties, the Company has determined that certain adjustments
are appropriate to properly reflect net realizable values during
the fourth quarter of 1994. These adjustments consisted primarily
of the write-downs of properties, plants, equipment and supplies
inventory totalling $7.9 million. The major portion of the ad-
justments related to the $7.2 million write-down of property,
plant, equipment and supplies inventory at the Republic mine,
which will complete operations in February 1995. The balance of
the adjustments relates to an additional $0.3 million write-down
of exploration equipment and a $0.4 million write-down of the
Zenda property.
In 1995, the Company expects to produce approximately 199,000
ounces of gold compared to actual 1994 gold production of 128,000
ounces of gold. The 1995 estimated production includes 89,000
ounces from the Company's 80% interest in the Grouse Creek mine,
75,000 ounces from the La Choya mine, 33,000 ounces from the
Company's interest in the American Girl mine and an additional
2,000 ounces from other sources. The Company's expected gold
production increase in 1995 assumes a full year of production at
the Grouse Creek and La Choya mines, which offsets the decrease in
gold production due to the completion of operations at the Repub-
lic mine in February 1995.
The Company's share of silver production for 1995 is expected to
be 2,300,000 ounces compared to 1994 production of 1,643,000
ounces. The expected increase 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.
In 1994, the Company shipped 986,000 tons of industrial minerals,
including ball clay, kaolin, feldspar, and specialty aggregates.
The Company's shipments of industrial minerals is expected to in-
crease in 1995 to 1,022,000 tons, principally due to increased
shipments of slurry from K-T Clay de Mexico. Additionally, the
Company expects to ship 690,000 cubic yards of landscape material
from 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 ap-
pearing elsewhere herein.
-61-<PAGE>
RESULTS OF OPERATIONS
---------------------
1994 vs 1993
------------
The Company acquired Equinox Resources Ltd. ("Equinox") effective
March 11, 1994. The consolidated financial statements presented
herein have been restated for all periods prior to the acquisition
to include the financial position, results of operations, and cash
flows of Equinox, which was accounted for as a pooling of inter-
ests.
The Company incurred a net loss of approximately $24.6 million
($0.56 per common share) in 1994 compared to a net loss of ap-
proximately $17.8 million ($0.47 per common share) in 1993. After
$8.1 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 1994 was
approximately $32.7 million, or $0.74 per common share compared to
$21.9 million, or $0.58 per common share in 1993 after a $4.1
million preferred dividend. This loss was due to a variety of
factors, the most significant of which are noted below in de-
scending order of magnitude.
Sales of the Company's products increased by approximately $35.9
million, or 38.6%, in 1994 as compared to 1993, principally the
result of (1) increased product sales totalling $42.3 million,
most notably from the La Choya gold mine in Mexico, which com-
menced production in February 1994, and Mountain West Products,
which was acquired in December 1993; and (2) increases in the
average prices of lead and gold. These two factors were partially
offset by decreased sales of approximately $9.4 million in the
metals segment attributable to (1) the suspension of operations at
the Greens Creek mine in April 1993; (2) decreased gold production
in 1994 at the Republic gold mine due to lower-grade ore being
mined and processed; and (3) decreased lead, silver and zinc pro-
duction at the Lucky Friday mine resulting in part from the tem-
porary suspension of operations due to the ore-conveyance accident
on August 30, 1994. The Lucky Friday mine resumed operations in
December 1994.
Comparing the average metal prices for 1993 with 1994, gold in-
creased by 7% from $360 per ounce to $384 per ounce, silver in-
creased by 23% from $4.30 per ounce to $5.28 per ounce, and lead
increased by 39% from $0.18 per pound to $0.25 per pound.
Cost of sales and other direct production costs increased ap-
proximately $24.5 million, or 30.6%, in 1994 compared to 1993,
-62-<PAGE>
primarily a result of (1) production costs at the La Choya mine
and K-T Clay de Mexico during 1994 totalling approximately $11.7
million and $2.9 million, respectively, due to the commencement of
operations at these locations in early 1994; (2) increased pro-
duction costs in 1994 at Mountain West Products (acquired in De-
cember 1993) totalling approximately $10.4 million; and (3) in-
creases in operating costs at various other operations totalling
approximately $7.8 million. These increases in cost of sales and
other direct production costs were partially offset by decreases
in operating costs at other operations totalling approximately
$8.3 million, the two most notable of which are (1) the Greens
Creek mine totalling $4.1 million, where decreased operating costs
are the result of the suspension of operations in April 1993; and
(2) the Lucky Friday mine resulting from the temporary suspension
of operations due to the ore-conveyance accident on August 30,
1994.
Cost of sales and other direct production costs as a percentage of
sales from products decreased from 86% in 1993 to 81% in 1994,
primarily due to increases in production and average metals prices
realized in the metals division, as well as, improved sales within
the industrial minerals segment during 1994. Management does not
believe that the Company's cost of sales and other direct produc-
tion costs are materially different from industry norms.
Cash and full production cost per gold ounce increased from $229
and $298 in 1993, to $273 and $334 in 1994, respectively. The
increases are mainly attributed to the initial start-up costs at
the Grouse Creek and La Choya gold mines and decreased gold pro-
duction from the Republic and American Girl gold mines due to de-
clining ore grades.
Cash and full production cost per silver ounce increased from
$5.45 and $6.85 in 1993 to $5.81 and $7.17 in 1994, respectively.
The increases are due primarily to decreased ore grade as well as
lower lead, silver and zinc production from the Lucky Friday mine
in 1994, resulting from the ore-conveyance accident on August 30,
1994. These were partially offset by an increase in the average
price of lead and zinc in 1994. Lead and zinc are by-products in
the process at the Lucky Friday mine, the net revenues from which
are deducted from production costs in the calculation of produc-
tion cost per ounce.
Other operating expenses increased by approximately $19.8 million,
or 101.4% from 1993 to 1994, due principally to (1) an increase in
the provision for closed operations and environmental matters
totalling $9.0 million related principally to the 1994 reclamation
-63-<PAGE>
accruals for the Republic gold mine and the Coeur d'Alene Mining
District totalling $7.3 million and $1.1 million, respectively;
(2) an increase totalling $5.3 million in the reduction in
carrying value of mining properties, which relates primarily to
1994 carrying value adjustments to certain properties, plants,
equipment, and supplies inventory totalling $7.9 million as
further described in Note 5 of Notes to Consolidated Financial
Statements; (3) an increase in exploration expenditures of $2.7
million due principally to increased exploration activity during
1994 at the Greens Creek, Grouse Creek and La Choya mines; and (4)
an increase in general and administrative costs of $3.0 million
attributable primarily to costs totalling approximately $2.2 mil-
lion incurred in connection with the March 11, 1994, acquisition
of Equinox.
Net other income was approximately $5.2 million in 1994 compared
to $1.6 million in 1993. The increase is primarily due to (1) an
increase in royalty income of approximately $2.8 million in 1994;
(2) decreased interest costs totalling $2.6 million due to the
June 1994 retirement of the Liquid Yield Option Notes ("LYONs")
(see Note 7 of Notes to Consolidated Financial Statements); and
(3) the January 1994 sale of the Company's investment in Granduc
Mines Ltd. resulting in a gain of $1.3 million.
In 1994, the Company recorded an extraordinary loss totalling ap-
proximately $0.8 million on the retirement of the LYONs as further
described in Note 7 of Notes to Consolidated Financial Statements.
The loss relates principally to the write-off of the unamortized
balance of deferred issuance costs related to the debt.
Income taxes reflect a benefit of $0.5 million in 1994 compared to
a $0.9 million benefit in 1993. The benefit in 1994 primarily
reflects the carryback of 1994 and prior year net operating losses
to reduce income taxes previously provided, partially offset by an
Internal Revenue Service settlement and a provision for state in-
come taxes. The benefit in 1993 primarily reflects a decrease in
the deferred tax provision due to utilization of net operating
loss carryovers.
RESULTS OF OPERATIONS
---------------------
1993 vs 1992
------------
The Company acquired Equinox effective March 11, 1994. The con-
solidated financial statements presented herein have been restated
-64-<PAGE>
for all periods prior to the acquisition to include the financial
position, results of operations, and cash flows of Equinox, which
was accounted for as a pooling of interests.
A net loss of approximately $17.8 million, or $0.47 per common
share, was incurred in 1993 compared to a net loss of $55.3 mil-
lion, or $1.59 per common share, in 1992. After $4.1 million in
dividends to shareholders of the Company's Series B Cumulative
Convertible Preferred Stock, the Company's net loss applicable to
common shareholders for 1993 was $21.9 million, or $0.58 per com-
mon share. The 1993 loss was due to a variety of factors, the
most significant of which are discussed below.
Sales of products decreased by $8.7 million, or 9%, in 1993 as
compared to 1992, principally the result of (1) decreased gold
production, the impact of which totals approximately $10.9 mil-
lion, due to the winding down of operations at the Cactus mine,
lower-grade ore 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) de-
creased sales of ball clay from Kentucky-Tennessee Clay Company;
all of which were partially offset by (1) increased revenue from
the Company's acquisition of the American Girl mine totalling
$10.0 million; (2) increased revenue from the Company's Apex
facility totalling $1.8 million; (3) increased sales of feldspar
totalling $1.3 million from K-T Feldspar Corporation, as well as
increased sales of landscape products from the newly acquired
Mountain West Products, and aggregate products from Colorado
Aggregate Company; and (4) increases in the average prices of gold
and silver in 1993 compared to 1992.
Cost of sales and other direct production costs decreased by $4.7
million, or 6%, in 1993 as compared to 1992, primarily a result of
(1) decreased operating costs totalling approximately $9.0 million
at the Greens Creek mine due to suspension of operations in April
1993; (2) decreased operating costs totalling approximately $6.0
million at the Cactus mine due to the completion of mining opera-
tions in February 1992; (3) decreased operating costs totalling
-65-<PAGE>
approximately $1.6 million resulting from the sale of the
Company's 25% interest in the Galena mine in May 1992; (4) de-
creased operating costs totalling 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 totalling approximately $0.4 million at the Republic mine;
all of which were partially offset by (1) operating costs in 1993
totalling approximately $7.5 million associated with the newly
acquired American Girl mine; (2) increased operating costs during
1993 totalling approximately $4.5 million at the Apex facility, K-
T Feldspar Corporation, Kentucky-Tennessee Clay Company's ball
clay division, and Colorado Aggregate Company; and (3) operating
costs in 1993 totalling approximately $0.3 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 86% 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 main-
tenance 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 $191
and $261 in 1992 to $229 and $298 in 1993, respectively. The in-
creases 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 de-
creasing depreciation charges due to the completion of mining op-
erations at the Cactus mine.
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.
Other operating expenses decreased by $44.5 million, or 70%, in
1993 as compared to 1992, primarily the result of (1) the 1992
reduction in carrying value of mining properties totalling $28.4
-66-<PAGE>
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; (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 mil-
lion write-down to reflect the estimated net realizable value in
the Company's interest in the Lisbon Valley project in Utah; (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; and (e) a $0.5 million write-down of certain newly
acquired Equinox mining properties; (2) the 1992 provision for
closed operations and environmental matters totalling $13.6 mil-
lion, which consisted principally of an $8.5 million increase in
the allowance for the Bunker Hill Superfund Site remediation cost
and additional idle property reclamation and closure cost accruals
of $3.3 million as further described in Note 8 of Notes to Con-
solidated Financial Statements; (3) decreased domestic exploration
expenditures mainly at the Republic mine in 1993; (4) foreign ex-
ploration 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 corpo-
rate headquarters; and (6) research expenditures incurred at the
Apex facility during 1992, nonrecurring in 1993; all of which were
partially offset by increased general and administrative and ex-
ploration costs in 1993 attributed to the newly acquired Equinox
properties.
Net other income was approximately $1.6 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 non-
operating 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 to retire the LYONs as described in Note 7 of Notes to Con-
solidated Financial Statements, and (b) increased capitalized in-
terest related to the Grouse Creek and La Choya projects; (2) the
$2.1 million write-down in 1992 of the Company's common stock in-
vestment in Granduc Mines Limited to reflect the apparent other-
than-temporary decline in market value of the investment, nonre-
curring in 1993; and (3) increased interest income earned in 1993
on the investment of the proceeds from the Company's public of
fering of 2.3 million shares of Series B Cumulative Convertible
-67-<PAGE>
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 1993 primarily
reflects a decrease in the deferred tax provision due to utiliza-
tion of net operating loss carryovers. The benefit in 1992 pri-
marily reflects the carryback of net operating losses to reduce
income taxes previously provided.
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 dramati-
cally in short periods of time and such changes have a significant
effect on revenues, profits and liquidity of the Company. The
Company is subject to many of the same inflationary pressures as
the U.S. economy in general. The Company continues to implement
cost-cutting measures in an effort to reduce per unit production
costs. Management believes, however, that the Company may not be
able to continue to offset the impact of inflation over the long
term through cost reductions alone. However, the market prices
for products produced by the Company have a much greater impact
than inflation on the Company's revenues and profitability. More-
over, the discovery, development and acquisition of mineral prop-
erties 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, 1994, assets totaled approximately $334.6 million
and shareholders' equity totaled approximately $277.5 million.
Cash, cash equivalents and short-term investments decreased by
$60.4 million to $7.3 million at December 31, 1994 from $67.7
million at the end of 1993. Operating activities used $5.4
million of cash during 1994. The primary uses were (1) the net
loss for the year, (2) the increase in accounts and notes receiv-
able and inventories and (3) the decrease in accrued reclamation
costs, accounts payable and accrued expenses. The Company's $24.6
million net loss for 1994 includes non-cash charges of $35.9
million. The primary non-cash charges were (1) depreciation,
depletion and amortization of $14.8 million, (2) provision for
reclamation and closure costs of $11.4 million and (3) reduction
in carrying value of mining properties of $7.9 million.
Depreciation, depletion and amortization charges during 1994 are
consistent with prior years. The provision for reclamation and
-68-<PAGE>
closure costs and reduction in carrying value of mining properties
is principally related to the closure of the Company's Republic
mine as further described above in "Results of Operations - 1994
vs. 1993".
The $4.7 million increase in accounts and notes receivable and
$4.1 million increase in inventories in 1994 is primarily due to
the commencement of operations at K-T Clay's Mexican slurry plant,
Grouse Creek and La Choya, all of which were offset by a reduction
in operations at Republic. The decrease in accrued reclamation
costs during 1994 was primarily related to the ongoing reclamation
work being performed at the Bunker Hill Superfund site and other
normal reclamation work at operating properties.
The Company's investing activities used $34.4 million of cash
during 1994. The most significant use of cash was $66.6 million
for property, plant and equipment additions. During 1994, the
most significant additions occurred at the Grouse Creek, Rosebud
and American Girl/Oro Cruz projects totalling $51.1 million, $5.6
million and $1.3 million, respectively. Additionally, the Company
had capital expenditures at K-T Clay's Mexican slurry plant and
the Lucky Friday mine totalling $1.3 million and $1.1 million,
respectively. The Company also used $13.6 million for the
purchase of restricted investments in satisfaction of a litigation
appeal bond (see Note 8 of Notes to the Consolidated Financial
Statements). Offsetting these uses of funds for investing
activities, the Company received $32.1 million proceeds from the
sale and maturity of short-term investments. Additionally, the
Company received approximately $13.3 million from the sale of a
20% undivided interest in the Grouse Creek project.
During 1994, $7.0 million of cash was provided from financing ac-
tivities. The major source of cash was proceeds totalling ap-
proximately $63.5 million from the Company's May 1994 public of-
fering of 7,475,000 shares of its common stock. Part of the pro-
ceeds from this offering were used to retire the remaining $50.2
million LYONs (see Note 7 of Notes to Consolidated Financial
Statements). The last significant use of cash in 1994 was payment
of the $8.1 million preferred stock dividend.
The Company estimates that capital expenditures to be incurred in
1995 will be approximately $29.4 million. These expenditures
consist primarily of (1) development expenditures at the Greens
Creek mine ($12.1 million, subject to the Company's Board of Di-
rectors' approval), the Lucky Friday mine ($1.4 million), the
Grouse Creek mine ($0.7 million), and the La Choya mine ($1.0
million); (2) development expenditures at the Rosebud and American
-69-<PAGE>
Girl/Oro Cruz projects of approximately $5.8 million and $4.0
million, respectively; and (3) expenditures at other operating
locations totalling $4.4 million. The Company intends to finance
these capital expenditures through a combination of (1) existing
cash and cash equivalents; (2) cash flow from operating activi-
ties; and (3) amounts available under its revolving and term loan
facility (described below) which, subject to certain conditions,
provides for borrowings up to a maximum of $40.0 million.
The Company's estimate of its capital expenditure requirements
assumes, with respect to the Grouse Creek, Greens Creek and the
American Girl/Oro Cruz properties, that the Company's joint ven-
ture partners do not default with respect to their obligations to
contribute their respective portions of the development costs and
capital expenditures.
The Company's planned environmental and reclamation expenditures
for 1995 are expected to be approximately $4.3 million, princi-
pally for environmental and reclamation activities at the Bunker
Hill Superfund Site and the Durita property (see Note 8 of Notes
to Consolidated Financial Statements).
Exploration expenditures for 1995 are estimated to be approx-
imately $6.7 million. The Company's exploration strategy is to
focus further exploration at or in the vicinity of its currently
owned domestic and foreign properties. Accordingly, 1995 domestic
exploration expenditures will be incurred principally at the
Grouse Creek and Rosebud properties. Foreign exploration efforts
in 1995 will center primarily on the Company's La Choya property
and other exploration targets in Mexico.
An adjustment increasing the reclamation and closure cost accrual
by $10.1 million was also recorded in the fourth quarter of 1994.
The adjustment relates primarily to estimated reclamation and
closure costs at the Republic gold mine ($7.3 million), the Coeur
d'Alene Mining District ($1.1 million), and other miscellaneous
idle properties ($1.7 million).
On August 30, 1994, the Company entered into an unsecured revolv-
ing and term loan facility, under the terms of which the Company
can borrow up to $40.0 million. Amounts may be borrowed on a re-
volving credit basis through July 31, 1997, and are repayable in
eight quarterly installments beginning on October 31, 1997. Bor-
rowings bear interest at floating rates depending on the type of
advance. The Company has the election to select fixed interest
rates for up to six months at LIBOR + .8% for the first $20.0
million in borrowings, LIBOR + .925% for borrowings over $20.0
-70-<PAGE>
million, or a CD rate + .8% for the first $20.0 million in
borrowings, CD rate + .925% for borrowings over $20.0 million, or
a floating rate based on the primary bank's prime interest rate.
During the commitment period, the Company is obligated to pay an
annual fee of $130,000. To maintain compliance with the covenants
of the credit facility, the Company must maintain a 1.5 to 1.0
current ratio and the Company must maintain a fixed charge
coverage ratio of 1.0 to 1.0 through December 31, 1994, and a
fixed charge coverage ratio of 1.5 to 1.0 thereafter. The fixed
charge coverage ratio is defined as the ratio, for the prior four
consecutive fiscal quarters, of the Company's consolidated
earnings before income taxes, depreciation, and amortization,
nonrecurring losses and cash reclamation charges minus
nonrecurring gains divided by the sum of the following (i)
consolidated interest expense, plus (ii) consolidated long-term
debt scheduled to be paid during such period, plus (iii)
consolidated capital lease payments paid during such period, plus
(iv) dividends on common and preferred stock declared or paid
(without duplication), plus (v) consolidated reclamation
expenditures paid. As of December 31, 1994, the Company was in
compliance with all restrictive covenants of the credit facility.
Amounts available under the facility are based on a debt to cash
flow calculation, which must not exceed a maximum of 4.0 to 1.0.
At December 31, 1994, the entire credit facility was available to
the Company. At December 31, 1994, there were no borrowings
outstanding under the facility (see Note 7 of Notes to
Consolidated Financial Statements).
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 met-
als 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 premiums received, for option contracts which hedge
the sales prices of commodities are deferred and included in
income as part of the hedged transaction. Revenues from the
aforementioned contracts are recognized at the time contracts are
closed out by delivery of the underlying commodity or settlement
of the net position in cash. The Company is exposed to certain
losses, generally the amount by which the contract price exceeds
the spot price of a commodity, in the event of nonperformance by
the counterparties to these agreements.
At December 31, 1994, the Company had forward sales commitments
through March 31, 1995 for 3,500 ounces of gold at an average
price of $375 per ounce. The Company has also purchased options
-71-<PAGE>
to put 102,240 ounces of gold to the counterparties at an average
price of $390 per ounce. Concurrently, the Company sold options
to allow the counterparties to call 102,240 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 December 31, 1994 the estimated fair value of the Company's
purchased gold put options was approximately $621,000. If the
Company had chosen to close its offsetting short gold call option
position it would have incurred a liability of approximately
$599,000. The London Final gold price for 1994 was $383.25. In
addition, at December 31, 1994, 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 December 31, 1994. 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 December 31, 1994.
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 our K-T Mexico clay slurry plant, sales are denomi-
nated in pesos. At December 31, 1994, Hecla has reflected a for-
eign currency translation adjustment (component of shareholders'
equity) totalling $3.2 million which relates to operations at K-T
Mexico. Foreign exchange losses totalling $0.2 million have been
recorded relating to operations at the La Choya mine (see Note 1
of Notes to Consolidated Financial Statements for further discus-
sion of foreign currency translation). Continued declines in the
Mexican peso could further adversely impact K-T Mexico operations.
As further described in Note 8 of Notes to Consolidated Financial
Statements, the Company has entered into a Court approved Consent
Decree requiring the Company and certain other mining companies to
undertake specific remediation work with respect to the Bunker
Hill Superfund Site in northern Idaho. At December 31, 1994, the
Company's allowance for Superfund site remedial action costs was
approximately $9.1 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 Fi-
nancial Statements, the Company is a defendant in two other sig-
nificant actions. The first action was filed in November 1990 by
-72-<PAGE>
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 agree-
ment. In June 1994, judgment was entered by the Idaho State Dis-
trict Court against the Company in the legal proceeding in the
amount of $10.0 million in compensatory damages and $10.0 million
in punitive damages based on a jury verdict rendered in the case
in late May 1994. The Company's post-trial motions were denied by
the District Court, and the Company has appealed the judgment to
the Idaho State Supreme Court. Post-judgment interest will accrue
during the appeal period; the current interest rate is 10.5%. In
order to stay the ability of Star Phoenix to collect on the judg-
ment during the pending of the appeal, the Company posted an ap-
peal bond in the amount of $27.2 million representing 136% of the
District Court judgment. The Company pledged U.S. Treasury Notes
totalling $10.0 million as collateral for the $27.2 million appeal
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.
In addition, the Company has intervened in a lawsuit where
certain environmental groups are seeking an injunction against the
U.S. Forest Service to halt current and prospective logging,
grazing, road building, and mining operations that may affect en-
dangered salmon in six national forests in Idaho. The Company's
Grouse Creek mine is located in one of these national forests (see
Note 8 of Notes to Consolidated Financial Statements).
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
condition of the Company and its subsidiaries.
-73-<PAGE>
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>
SELECTED QUARTERLY DATA
(dollars in thousands except for per-share amounts)
<CAPTION>
First Second Third Fourth
1994: Quarter Quarter Quarter Quarter Total
---- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Sales of products $ 26,339 $ 38,048 $ 35,279 $ 29,081 $128,747
Gross profit (loss) $ (951) $ 4,021 $ 5,846 $ 915 $ 9,831
Net income (loss) $ (5,651) $ 702 $ 806 $(20,470) $(24,613)
Preferred stock dividends $ (2,012) $ (2,013) $ (2,013) $ (2,012) $ (8,050)
Net loss applicable to
common shareholders $ (7,663) $ (1,311) $ (1,207) $(22,482) $(32,663)
Net loss per common
share $ (0.19) $ (0.03) $ (0.03) $ (0.47) $ (0.74)
1993:
----
Sales of products $ 23,779 $ 26,022 $ 22,605 $ 20,482 $ 92,888
Gross profit (loss) $ (1,346) $ 466 $ 799 $ (698) $ (779)
Net loss $ (5,458) $ (2,813) $ (1,672) $ (7,839) $(17,782)
Preferred stock dividends - - - - $ (2,057) $ (2,013) $ (4,070)
Net loss applicable to common
shareholders $ (5,458) $ (2,813) $ (3,729) $ (9,852) $(21,852)
Net loss per common
share $ (0.17) $ (0.07) $ (0.09) $ (0.25) $ (0.58)
</TABLE>
-74-<PAGE>
PART III
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 therein) filed pursuant to
Regulation 14A, which information is incorporated herein by
reference.
Pursuant to the change of control employment agreements between
the Company and each of its named executive officers (the
"Employment Agreements"), if a Change of Control (as defined in
the Employment Agreements) occurred and the named executive
officers were each terminated as of March 31, 1995, the named
executive officers would be entitled to the following estimated
cash payments pursuant to the Employment Agreements: Mr. Brown,
$1,782,730; Mr. Childress, $385,568; Mr. Heatherly, $394,338;
Mr. Noyes, $451,251; and Mr. White $347,074. The named
executive officers would also be entitled to lump-sum payments
representing the difference in pension and supplemental
retirement benefits to which they would be entitled on (i) the
date of actual termination, and (ii) the end of the two-year
employment period under the Employment Agreements.
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 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 filed
pursuant to Regulation 14A, which information is incorporated
herein by reference.
-75-<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this amendment to its annual report to be signed on its behalf
by the undersigned, thereunto duly authorized, on August 24,
1995.
HECLA MINING COMPANY
By /s/John P. Stilwell
--------------------------
John P. Stilwell
Vice President -
Finance and Treasurer
-76-<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements
--------------------
Report of Independent Accountants F-2
Consolidated Balance Sheets at December 31,
1994 and 1993 F-4
Consolidated Statements of Operations for the
Years Ended December 31, 1994, 1993 and 1992 F-5
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1994, 1993 and 1992 F-6
Consolidated Statement of Changes in
Shareholders' Equity for the Years Ended
December 31, 1994, 1993 and 1992 F-8
Notes to Consolidated Financial Statements F-11 to F-41
Report of Deloitte & Touche, Chartered Accountants F-42
Financial Statement Schedules*
-----------------------------
*Financial statement schedules
have been omitted as not applicable
F-1<PAGE>
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, 1994
and 1993, and the related consolidated statements of opera-
tions, changes in shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1994.
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
did not audit the financial statements of Equinox Resources
Ltd. ("Equinox") which statements reflect total assets consti-
tuting 4% as of December 31, 1993 and revenues constituting 12%
and 1% and net loss constituting 34% and 11% for each of the
two years in the period ended December 31, 1993, respectively,
of the related consolidated totals. Separate financial state-
ments of Equinox included in the consolidated financial state-
ments were audited and reported on separately by other audi-
tors, whose report dated February 28, 1994, expressed an un-
qualified opinion on those statements before adjustments to
convert Canadian dollars to U.S. dollars and to conform certain
Equinox accounting policies to U.S. generally accepted account-
ing principles consistent with those of Hecla Mining Company as
described in Note 2 to the Consolidated Financial Statements.
We also audited the adjustments described in Note 2 to the Con-
solidated Financial Statements.
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 evalu-
ating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
F-2<PAGE>
In our opinion, based on our audits and the report of the other
auditors, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Hecla Mining Company and subsidiaries as of Decem-
ber 31, 1994 and 1993, and the results of their operations and
their cash flows for each of the three years in the period
ended December 31, 1994, 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. In addition, as discussed in Note 4 to the Consolidated
Financial Statements, the Company changed its method of ac-
counting for investments as of January 1, 1994. All of the
above changes were required by Statements of Financial Account-
ing Standards issued by the Financial Accounting Standards
Board.
/s/ COOPERS & LYBRAND L.L.P.
Spokane, Washington
February 3, 1995, except for the
penultimate paragraph of Note 8,
as to which the date is March 1, 1995
F-3<PAGE>
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
--------------
<TABLE>
ASSETS
<CAPTION>
December 31,
---------------------
1994 1993
--------- ---------
<S> <C> <C>
Current assets
Cash and cash equivalents $7,278 $40,031
Short-term investments - - 27,636
Accounts and notes receivable 23,516 18,841
Income tax refund receivable 247 - -
Inventories 18,616 15,020
Other current assets 1,597 2,003
-------- --------
Total current assets 51,254 103,531
Investments 6,476 6,565
Restricted investments 13,553 - -
Properties, plants and equipment, net 257,908 229,055
Other noncurrent assets 5,391 7,002
-------- --------
Total assets $334,582 $346,153
======== ========
<CAPTION>
LIABILITIES
<S> <C> <C>
Current liabilities
Accounts payable and accrued expenses $13,570 $17,312
Accrued payroll and related benefits 2,724 2,056
Preferred stock dividends payable 2,012 2,012
Accrued taxes 925 928
Accrued reclamation costs 4,254 - -
-------- --------
Total current liabilities 23,485 22,308
Deferred income taxes 359 359
Long-term debt 1,960 50,009
Accrued reclamation costs 27,162 24,947
Other noncurrent liabilities 4,098 3,858
-------- --------
Total liabilities 57,064 101,481
-------- --------
Commitments and contingencies (Notes 3, 5 and 8)
<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 1994 - 48,144,274,
issued 1993 - 40,320,761 12,036 10,080
Capital surplus 328,995 265,687
Retained deficit (63,437) (30,774)
Net unrealized gain (loss) on investments 3,396 (8)
Foreign currency translation adjustment (3,158) - -
Less common stock reacquired, at cost;
1994 - 62,355 shares, 1993 - 62,226 shares (889) (888)
-------- --------
Total shareholders' equity 277,518 244,672
-------- --------
Total liabilities and shareholders' equity $334,582 $346,153
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4<PAGE>
<TABLE>
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars and shares in thousands, except per share amounts)
--------------
<CAPTION>
Year ended December 31,
----------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Sales of products $128,747 $92,888 $101,621
-------- -------- --------
Cost of sales and other direct production costs 104,683 80,141 84,814
Depreciation, depletion and amortization 14,233 13,526 13,774
-------- -------- --------
118,916 93,667 98,588
-------- -------- --------
Gross profit (loss) 9,831 (779) 3,033
-------- -------- --------
Other operating expenses
General and administrative 11,132 8,140 9,206
Exploration 8,397 5,656 8,186
Research - - 150 1,358
Depreciation and amortization 524 669 851
Provision for closed operations and
environmental matters 11,353 2,327 13,608
Reduction in carrying value of mining
properties 7,864 2,561 30,791
-------- -------- --------
39,270 19,503 64,000
-------- -------- --------
Loss from operations (29,439) (20,282) (60,967)
-------- -------- --------
Other income (expense)
Interest and other income 5,227 3,172 12,365
Miscellaneous income (expense) (234) 102 197
Gain (loss) on investments 1,053 (64) (2,373)
Minority interest - - 43 95
Interest expense
Total interest costs (2,606) (5,224) (6,905)
Less amount capitalized 1,751 3,533 2,070
-------- -------- --------
5,191 1,562 5,449
-------- -------- --------
Loss before extraordinary item, income
taxes and cumulative effect of changes
in accounting principles (24,248) (18,720) (55,518)
Income tax benefit 468 938 345
-------- -------- --------
Loss before extraordinary item and cumulative
effect of changes in accounting principles (23,780) (17,782) (55,173)
Extraordinary loss on retirement of
long-term debt (833) - - - -
-------- -------- --------
Loss before cumulative effect of changes
in accounting principles (24,613) (17,782) (55,173)
Cumulative effect of changes in accounting
principles - - - - (103)
-------- -------- --------
Net loss (24,613) (17,782) (55,276)
Preferred stock dividends (8,050) (4,070) - -
-------- -------- --------
Net loss applicable to common shareholders $(32,663) $(21,852) $(55,276)
======== ======== ========
Net loss per common share
Loss before cumulative effect of changes
in accounting principles and after
preferred stock dividends $(0.74) $(0.58) $(1.58)
Cumulative effect of changes in
accounting principles - - - - (0.01)
------ ------ ------
$(0.74) $(0.58) $(1.59)
====== ====== ======
Cash dividends per common share $ - - $ - - $ - -
------ ------ ------
------ ------ ------
Weighted average number of common shares
outstanding 43,944 37,872 34,778
====== ====== ======
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-5<PAGE>
<TABLE>
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<CAPTION>
Year Ended December 31,
------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Net loss $(24,613) $(17,782) $(55,276)
Noncash elements included in net loss
Depreciation, depletion and amortization 14,757 14,195 14,625
Deferred income tax benefit - - (964) (120)
(Gain) loss on disposition of properties,
plants and equipment (354) 1,336 (9,628)
Realized (gain) loss on sale of investments (1,053) 64 2,373
Accretion of interest on long-term debt 2,495 4,465 5,602
Provision for reclamation and closure costs 11,353 1,635 13,243
Reduction in carrying value of mining
properties 7,864 3,432 31,329
(Gain) loss on retirement of long-term debt 833 (323) (510)
Minority interest in net loss of subsidiary - - 43 76
Change in
Accounts and notes receivable (4,675) (2,360) 6,231
Income tax refund receivable (247) 390 - -
Inventories (4,086) (669) 4,174
Other current assets 406 (554) 848
Accounts payable and accrued expenses (4,088) 5,848 221
Accrued payroll and related benefits 668 (83) (443)
Accrued taxes (3) (343) (1,770)
Accrued reclamation and noncurrent
liabilities (4,608) (3,058) (2,366)
-------- -------- --------
Net cash provided (used) by operating
activities (5,351) 5,272 8,609
-------- -------- --------
Investing activities
Purchase of investments and change in cash
surrender value of life insurance, net 114 (593) (412)
Purchase of short-term investments, net - - (27,578) 27
Proceeds from sale of investments and
subsidiary 32,067 273 - -
Purchase of restricted investments (13,553) - - - -
Additions to properties, plants and equipment (66,559) (56,836) (23,551)
Proceeds from disposition of properties,
plants and equipment 13,809 1,511 11,493
Other, net (325) (2,162) (272)
-------- -------- --------
Net cash used by investing activities (34,447) (85,385) (12,715)
-------- -------- --------
Financing activities
Repayment of debt - - - - (2,427)
Common stock issued under stock option
plans and warrants 1,765 1,425 669
Preferred stock issuance, net of issuance
costs - - 110,346 - -
Preferred stock dividends (8,050) (2,058) - -
Common stock issuance, net of issuance costs 63,499 6,464 - -
Retirement of long-term debt including
$16,283 of accreted interest (50,169) - - - -
-------- -------- --------
Net cash provided (used) by financing
activities 7,045 116,177 (1,758)
-------- -------- --------
Change in cash and cash equivalents
Net increase (decrease) in cash and cash
equivalents (32,753) 36,064 (5,864)
Net decrease in cash for the two-month
period ended December 31, 1992 - - - - (80)
Cash and cash equivalents at beginning
of year 40,031 3,967 9,911
-------- -------- --------
Cash and cash equivalents at end of year $ 7,278 $ 40,031 $ 3,967
======== ======== ========
F-6<PAGE>
Supplemental disclosure of cash flow information
Cash paid during year for
Interest (net of amount capitalized),
including $16,283 of accreted interest
in 1994 $ 16,528 $ 347 $ 186
======== ======== ========
Income tax payments, net $ 436 $ 325 $ 222
======== ======== ========
See Notes 2 and 7 for noncash investing and financing activities.
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-7<PAGE>
<TABLE>
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1994, 1993 and 1992
(dollars and shares in thousands, except per share amounts)
---------------------
<CAPTION>
Net
Foreign Unrealized
Preferred Stock Common Stock Retained Currency Gain
--------------- --------------- Capital Earnings Translation (Loss) on Treasury
Shares Amount Shares Amount Surplus (Deficit) Adjustment Investments Stock
------ ------ ------ ------ ------- --------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1991 - - $ - - 34,063 $ 8,515 $101,007 $ 49,429 $ - - (16) $(910)
Net loss (55,276)
Stock issued under stock option plans 73 18 423
Stock issued for Mexican mineral
concessions 185 46 1,748
Stock issued to retire long-term
debt 1,120 280 10,921
Stock issued on debenture conversion 68 17 341
Stock issued on exercise of warrants 60 15 268
Stock issued on acquisition of
investment in Eastmaque 69 17 341
Stock issued for property acquisition 7 2 37
Stock issued on amalgamation with
Eastmaque 680 170 3,120
Equinox net loss for the two-month
period ended December 31, 1992 (3,075)
----- ----- ------ ------- -------- -------- ------- ------ -----
F-8<PAGE>
Balances, December 31, 1992 - - - - 36,325 9,080 118,206 (8,922) - - (16) (910)
Net loss (17,782)
Preferred stock issuance, net of
issuance costs 2,300 575 109,771
Preferred stock dividends
($1.77 per share) (4,070)
Stock issued under stock option plans 227 57 1,368
Stock issued for Mountain West
Products, Inc. 655 164 6,141
Stock issued to retire long-term
debt 2,200 550 23,870
Stock issued for property acquisition 13 4 92
Stock issued for cash, net of
issuance costs 900 225 6,239
Net change in unrealized gain
(loss) on investments 8
Treasury stock issued net of
purchase 22
----- ----- ------ ------- -------- -------- ------- ------ -----
F-9<PAGE>
Balances, December 31, 1993 2,300 575 40,320 10,080 265,687 (30,774) - - (8) (888)
Effect of change in accounting
for investments 635
Net loss (24,613)
Preferred stock dividends
($3.50 per share) (8,050)
Stock issued under stock option plans 312 78 1,419
Stock issued on exercise of
warrants 37 9 259
Stock issued for cash, net of
issuance costs 7,475 1,869 61,630
Net change in unrealized gain
(loss) on investments 2,769
Net change in foreign currency
translation adjustment (3,158)
Treasury stock purchased (1)
----- ----- ------ ------- -------- -------- ------- ------ -----
Balances, December 31, 1994 2,300 $ 575 48,144 $12,036 $328,995 $(63,437) $(3,158) $3,396 $(889)
===== ===== ====== ======= ======== ======== ======= ====== =====
The accompanying notes are an integral part of the financial statements.
</TABLE>
F-10<PAGE>
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION -- The accompanying consolidated fi-
nancial statements include the accounts of Hecla Mining Com-
pany, its majority-owned subsidiaries and its proportionate
share of the accounts of the joint ventures in which it par-
ticipates. All significant intercompany transactions and ac-
counts are eliminated. The accompanying consolidated financial
statements of Hecla Mining Company and subsidiaries ("Hecla")
have been prepared to give effect to the amalgamation involving
Equinox Resources Ltd. ("Equinox") on March 11, 1994, which was
accounted for as a pooling of interests.
Prior to November 1, 1992, Equinox's fiscal year end was Octo-
ber 31. Accordingly, the December 31, 1992 consolidated state-
ment of operations includes the results of operations for Hecla
for the year ended December 31 and for Equinox for the fiscal
year ended October 31. Subsequent to October 31, 1992, Equinox
had a December 31 year end. Equinox's sales and net loss for
the two-month period ended December 31, 1992 were $1,901,000
and $3,075,000, respectively. The net loss has been reflected
in the consolidated statement of changes in shareholders' eq-
uity during the year ended December 31, 1992.
<TABLE>
B. COMPANY'S BUSINESS AND CONCENTRATIONS OF CREDIT RISK -- The
Company is 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:
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Custom smelters 9.3% 24.0% 37.1%
Custom metal traders
Customer A 38.3% 15.1% 7.6%
Customer B 19.2% 14.8% 2.5%
Customer C 12.9% 13.7% 21.0%
Customer D 11.9% 11.7% 16.2%
Customer E 8.4% 7.6% 13.7%
</TABLE>
F-11<PAGE>
During 1994, 1993 and 1992, the Company sold 13.0%, 16.7%, and
26.0%, respectively, of its products to companies in foreign coun-
tries.
The Company's financial instruments that are exposed to concen-
trations of credit risk consist primarily of cash and cash equiva-
lents and trade accounts receivable. The Company places its cash
and temporary cash investments with high credit worthy institu-
tions. At times such investments may be in excess of the FDIC in-
surance 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.
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 ac-
counting for investments in common stock of operating companies 20%
to 50% owned. Investments in non-operating companies that are not
intended for resale or are not readily marketable are valued at the
lower of cost or net realizable value.
At December 31, 1994, marketable equity securities have been cat-
egorized as available for sale and are stated at market value (see
Note 4). Realized gains and losses on the sale of these securities
are recognized in the consolidated statement of operations in the
period they are sold on a specific identification basis. Unreal-
ized gains and losses are included as a component of shareholders'
equity net of related deferred income taxes. At December 31, 1993,
marketable equity securities were stated at the lower of aggregate
cost or quoted market value.
Restricted investments held at December 31, 1994 (see Note 8) and
short-term investments held at December 31, 1993, represent in-
vestments in certificates of deposits, commercial paper and U.S.
Treasury Notes and are 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 real-
izable 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 fa-
cilities, placed on a standby basis, are carried at the lower of
net book value or estimated net realizable value.
F-12<PAGE>
Management of the Company reviews the net carrying value of all
facilities, including idle facilities, on a regular, periodic ba-
sis. These reviews consider, among other factors, (1) the net re-
alizable 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 amortiza-
tion 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 associ-
ated with property interests. These estimates of undiscounted fu-
ture cash flows are dependent upon estimates of metal to be recov-
ered from proven and probable ore reserves and, where appropriate,
from the continuity of existing, developed ore bodies, future pro-
duction 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 oper-
ating properties and at new mining properties not yet producing are
capitalized.
G. RECLAMATION OF MINING AREAS -- Minimum standards for mine rec-
lamation 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 aban-
doned and currently disturbed mining areas based upon estimates of
cost to comply with existing reclamation standards. Mine reclama-
tion costs for operating properties are accrued using the unit-of-
production method. The estimated amount of metals or minerals to
be recovered from a mine site is based on internal and external
geological data and is reviewed by management on a periodic basis.
Changes in such estimated amounts which affect reclamation cost
accrual rates are reflected on a prospective basis unless they in-
dicate there is a current impairment of an asset's carrying value,
in which case they are recognized currently.
H. INCOME TAXES -- The Company records deferred tax liabilities
and assets for the expected future income tax consequences of
F-13<PAGE>
events that have been recognized in its financial statements. De-
ferred tax liabilities and assets are determined based on the tem-
porary differences between the financial statement carrying amounts
and the tax bases of assets and liabilities using enacted tax rates
in effect in the years in which the temporary differences are ex-
pected to reverse.
I. NET LOSS PER COMMON SHARE -- Net loss per common share is com-
puted 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 and warrants) outstand-
ing during each reporting period unless the common stock equiva-
lents are anti-dilutive. Due to the net losses in 1994, 1993 and
1992, 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 avail-
able to be processed by the smelter or refinery. Sales of indus-
trial minerals are recognized as the minerals are delivered.
K. INTEREST EXPENSE -- Interest costs incurred during the con-
struction 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.
M. FOREIGN CURRENCY TRANSLATION -- The Company operates in Mexico
with its two wholly owned subsidiaries; Minera Hecla, S.A. de C.V.
("Minera Hecla") and K-T Clay de Mexico S.A. de C.V. ("K-T
Mexico"). The functional currency for Minera Hecla is the U.S.
dollar, whereas, the Mexican peso is the functional currency for K-
T Mexico. Accordingly, the Company translates the monetary assets
and liabilities of Minera Hecla at the year-end exchange rate while
non-monetary assets and liabilities are translated at historical
rates. The Company translates all assets and liabilities of K-T
Mexico at the year-end exchange rate. Income and expense accounts
of both subsidiaries are translated at the average exchange rate
for each period. Minera Hecla translation adjustments and transac-
tion gains and losses are reflected in the net loss for the period
while the resulting K-T Mexico translation adjustments are re-
flected as a component of shareholders' equity.
F-14<PAGE>
N. RISK MANAGEMENT CONTRACTS -- In the normal course of its busi-
ness, 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 con-
tracts which hedge the sales prices of commodities are deferred and
included in income as part of the hedged transaction. Revenues
from the aforementioned contracts are recognized at the time con-
tracts 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 nonperfor-
mance by the counterparties to these agreements.
O. RECLASSIFICATIONS -- Certain consolidated financial statement
amounts have been reclassified to conform to the 1994 presentation.
These reclassifications had no effect on the net loss or retained
deficit as previously reported.
NOTE 2: BUSINESS COMBINATIONS
Equinox
On December 29, 1993, Hecla, two wholly owned Canadian subsidiaries
of Hecla, and Equinox, a mining, exploration and development com-
pany, incorporated under the laws of the Province of British Colum-
bia, executed an Acquisition Agreement providing for Hecla's acqui-
sition of Equinox. Pursuant to the Acquisition Agreement and re-
lated Plan of Arrangement, which was consummated on March 11, 1994,
(i) Equinox common shareholders received 0.3 common share of Hecla
("Hecla common shares"), for each outstanding Equinox common share,
(ii) holders of Equinox's Series "A" production participating pre-
ferred shares received newly issued production notes of Hecla with
the same material terms and conditions, and (iii) outstanding Equi-
nox options and warrants became exercisable for Hecla common
shares. In connection with the acquisition of Equinox, Hecla is-
sued approximately 6.3 million Hecla common shares, including
shares issuable upon exercise of outstanding Equinox options and
warrants.
<TABLE>
The acquisition of Equinox has been accounted for as a pooling-of-
interests and, accordingly, the Company's consolidated financial
statements have been restated for all periods presented to include
the financial position, results of operations, and cash flows of
Equinox. The results of operations for Equinox for the period
January 1, 1994 to March 11, 1994 were not material and, therefore,
F-15<PAGE>
are not presented. Separate operating results of the combining en-
tities for the two years in the period ended December 31, 1993 are
as follows (in thousands):
<CAPTION>
December 31,
-------------------
1993 1992
-------- --------
<S> <C> <C>
Sales of products
Hecla $ 81,847 $100,651
Equinox 11,041 970
-------- --------
$ 92,888 $101,621
======== ========
Net loss applicable to
common shareholders
Hecla $ 15,805 $ 49,289
Equinox 6,047 5,987
-------- --------
$ 21,852 $ 55,276
======== ========
</TABLE>
The consolidated financial statements include adjustments to con-
form Equinox's accounting policies to U.S. generally accepted ac-
counting principles consistent with those of Hecla, principally
relating to exploration, reclamation, and the reduction in carrying
value of mining properties. The effect of these adjustments was to
increase (decrease) Equinox's net loss by $(3,028,000) and $396,000
during 1993 and 1992, respectively.
Eastmaque Gold Mines Ltd.
On December 8, 1992, Equinox amalgamated with Eastmaque Gold Mines
Ltd. ("Eastmaque") under the provisions of the Company Act of Brit-
ish Columbia. Both companies were involved in the exploration and
development of resource properties. The transaction has been ac-
counted for as a purchase and the results of operations of East-
maque have been included in the consolidated statements of opera-
tions from the date of amalgamation. The combination was effected
through the issuance of 69,000 common shares during Equinox's fis-
cal year ended October 31, 1992 and 680,000 common shares on Decem-
ber 6, 1992 at a total deemed value of approximately $3.6 million,
the issuance of 415,000 warrants and 415,000 Class A preferred
shares and costs of approximately $108,000. The estimated fair
value of the net assets of Eastmaque at the date of amalgamation
was approximately $4.8 million consisting principally of resource
property and inventory assets totalling $9.6 million offset by li-
abilities of $4.8 million.
F-16<PAGE>
NOTE 3: INVENTORIES
<TABLE>
Inventories consist of the following (in thousands):
<CAPTION>
December 31,
-------------------
1994 1993
-------- --------
<S> <C> <C>
Concentrates, bullion, metals in transit
and other products $ 5,568 $ 2,615
Industrial minerals products 5,995 5,260
Materials and supplies 7,053 7,145
-------- --------
$ 18,616 $ 15,020
======== ========
</TABLE>
At December 31, 1994, the Company had forward sales commitments
through March 31, 1995 for 3,500 ounces of gold at an average
price of $375 per ounce. The Company has also purchased options
to put 102,240 ounces of gold to the counterparties at an average
price of $390 per ounce. Concurrently, the Company sold options to
allow the counterparties to call 102,240 ounces of gold from the
Company at an average price of $464 per ounce. There was no net
cost associated with the purchase and sale of these options which
expire on a monthly basis through December 1997. The London Final
gold price for 1994 was $383.25. It is not practicable for the
Company to obtain or calculate the estimated fair value of these
option contracts at December 31, 1994, due to the cost of obtain-
ing the data. The nature and purpose of the contracts, however,
do not presently expose the Company to any significant net loss.
In addition, at December 31, 1994, the Company has sold forward
3,600 metric tons of lead at an average price of $684 per metric
ton, or $0.31 per pound. These commitments extend over the period
June 1995 to January 1996. All of the aforementioned contracts
are designated as hedges at December 31, 1994. There are no for-
ward sales commitments or purchase options for silver at December
31, 1994.
NOTE 4: INVESTMENTS
The Company adopted the provisions of SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," effective
January 1, 1994. At December 31, 1994, marketable equity securi-
ties have been categorized as available for sale and are stated at
quoted market value. At December 31, 1993, marketable equity se-
curities were stated at the lower of aggregate cost or quoted mar-
ket value. Other investments were recorded at cost at December
31, 1994 and 1993.
<TABLE>
Investments consist of the following components (in thousands):
<CAPTION>
F-17<PAGE>
Carrying Market
Value Cost Value
-------- -------- ------
December 31, 1994
-----------------
<S> <C> <C> <C>
Equity securities investments
available for sale $ 5,276 $ 1,880 $ 5,276
Other investments 1,200 1,200
------- -------
$ 6,476 $ 3,080
======= =======
December 31, 1993
-----------------
Marketable equity securities $ 377 $ 385 $ 377
Other investments 6,188 6,188
------- -------
$ 6,565 $ 6,573
======= =======
</TABLE>
Gross unrealized gains and losses at December 31, 1994, were
$3,608,000 and $212,000, respectively.
The other investments are principally large blocks of common and
preferred stock in several mining companies, investments in vari-
ous ventures, and cash surrender value of life insurance policies.
The securities are generally restricted as to trading or market-
ability, although some are traded on various exchanges.
Proceeds from the sales of investment securities in 1994 totaled
$2,970,000; gross realized gains and losses on such sales were
$1,366,000 and $313,000, respectively.
F-18<PAGE>
NOTE 5: PROPERTIES, PLANTS AND EQUIPMENT
<TABLE>
The major components of properties, plants and equipment are (in
thousands):
<CAPTION>
December 31,
---------------------
1994 1993
--------- ---------
<S> <C> <C>
Mining properties $ 53,304 $ 59,642
Deferred development costs 161,645 156,969
Plants and equipment 224,914 182,664
Land 6,305 6,163
--------- ---------
446,168 405,438
Less accumulated depreciation,
depletion and amortization 188,260 176,383
--------- ---------
Net carrying value $ 257,908 $ 229,055
========= =========
</TABLE>
In the fourth quarter of 1994, based on its periodic reviews of
the status of various mining properties, the Company determined
that certain adjustments were appropriate to properly reflect
estimated net realizable values. These adjustments consisted
primarily of the write-downs of properties, plants, equipment,
and supplies inventory totalling approximately $7.9 million.
The major portion of these adjustments was related to the $7.2
million write-down of property, plant, equipment, and supplies
inventory at the Republic mine, which will complete operations
in February 1995. Also included was a $0.3 million write-down
of exploration equipment and a $0.4 million write-down of the
Zenda property.
In 1993, the Company also recorded approximately $2.6 million
as a reduction of the carrying value of mineral properties.
This principally related to the American Girl/Oro Cruz Joint
Venture which was written down $1.7 million to reflect updated
information regarding reserves and operating costs. An ad-
ditional $0.7 million was recorded as a write-down of the Zenda
property to reduce the carrying value to net realizable value.
The 1992 adjustments consisted primarily of the write-downs of
various properties, plants and equipment totalling ap-
proximately $30.8 million. The major portion of the adjust-
ments 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. Also in 1992, due to
depressed silver prices, the Company recorded write-downs of
F-19<PAGE>
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 ap-
proximately $3.5 million to its estimated net realizable value.
Included in the 1992 write-downs were approximately $1.5 mil-
lion and $0.4 million related to the Company's interests in the
Creede and Hardscrabble gold and silver properties, respec-
tively, both located in Colorado. Also included in the 1992
write-down is $1.1 million related to the Zenda property and
$1.7 million related to the Van Stone mine. Both were a result
of decreases in estimates of metal prices and in the case of
Van Stone, underground reserves. Certain non-recourse loans of
approximately $3.5 million which were payable only from the net
production proceeds of the Van Stone property were also written
off.
The net carrying values of the major mining properties of the
Company that were on a standby or idle basis at December 31,
1994 and 1993 were approximately $53.0 million and $55.7 mil-
lion, respectively.
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 Com-
pany on acquisition, exploration and development of the project
through June 30, 1993, including a fixed premium of $1.25 mil-
lion. In addition, Great Lakes funded its pro-rata share of
the total construction cost for Grouse Creek from July 1, 1993
to the completion of the project and has the option to increase
its ownership to a maximum of 30 percent by contributing ad-
ditional funds on a proportional basis. This option expires
twelve months after commencement of operations as defined in
the agreement.
F-20<PAGE>
NOTE 6: INCOME TAXES
<TABLE>
Major components of the Company's income tax provision (ben-
efit) are (in thousands):
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Current
Federal $ (805) $ (200) $ (390)
State 337 226 165
------- ------- -------
Total current (468) 26 (225)
------- ------- -------
Deferred
Federal - - (728) (17)
State - - (236) (103)
------- ------- -------
Total deferred - - (964) (120)
------- ------- -------
Income tax benefit $ (468) $ (938) $ (345)
======= ======= =======
</TABLE>
Effective January 1, 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" and recorded a tax benefit of approximately $1.5
million ($0.049 per common share), which represents the net de-
crease in the deferred tax liability as of that date.
During 1994 and 1992, 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 $1,009,000
and $390,000, respectively.
F-21<PAGE>
<TABLE>
The components of the net deferred tax liability are (in thou-
sands):
<CAPTION>
December 31,
-----------------------
1994 1993
---------- --------
<S> <C> <C>
Deferred tax assets
Accrued reclamation costs $ 10,692 $ 7,589
Investment valuation differences 864 1,754
Miscellaneous 1,441 1,106
Capital loss carryover 4,330 933
Postretirement benefits other
than pensions 852 742
Other liabilities 53 188
Deferred compensation 417 406
Accounts receivable 456 456
Foreign net operating losses 3,609 1,280
Federal net operating losses 55,414 57,961
State net operating losses 4,426 4,359
Tax credit carryforwards 3,435 1,626
-------- --------
Total deferred tax assets 85,989 78,400
Valuation allowance (67,149) (58,529)
-------- --------
Net deferred tax assets 18,840 19,871
-------- --------
Deferred tax liabilities
Properties, plants and equipment (17,333) (17,042)
Deferred income (363) (440)
Pension costs (556) (477)
Deferred state income taxes, net (947) (2,271)
-------- --------
Total deferred tax liabilities (19,199) (20,230)
-------- --------
Net deferred tax liability $ (359) $ (359)
======== ========
</TABLE>
<TABLE>
The Company has recorded a valuation allowance to reflect the es-
timated amount of deferred tax assets which may not be realized
principally due to the expiration of net operating losses and tax
credit carryforwards. The changes in the valuation allowance are
(in thousands):
<CAPTION>
F-22<PAGE>
December 31,
---------------------
1994 1993
--------- ---------
<S> <C> <C>
Balance at beginning of year $(58,529) $(53,802)
Increase related to nonutilization
of net operating loss
carryforwards and nonrecognition
of deferred tax assets due to
uncertainty of recovery (8,620) (4,727)
-------- --------
Balance at end of year $(67,149) $(58,529)
======== ========
</TABLE>
<TABLE>
The annual tax provision (benefit) is different from the amount
which would be provided by applying the statutory federal in-
come tax rate to the Company's pretax income (loss). The rea-
sons for the difference are (in thousands):
<CAPTION>
1994 % 1993 % 1992 %
-------- --- -------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C>
Computed "statutory"
provision (benefit) $(8,244) (34) $(6,365) (34) $(18,876) (34)
Nonutilization of net
operating losses 8,085 33 5,564 30 18,490 33
State income taxes, net of
federal tax benefit (309) (1) (137) (1) 41 - -
------- --- ------- --- ------- ---
$ (468) (2) $ (938) (5) $ (345) (1)
======= === ======= === ======= ===
</TABLE>
<TABLE>
Substantially all 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, 1994, the Company had tax basis net operating loss
carryovers available to offset future regular and alternative
minimum and foreign taxable income. These carryovers expire as
follows (in thousands):
<CAPTION>
F-23<PAGE>
Regular Foreign
Tax Net AMT Net Net Investment
Operating Operating Operating Tax Credit
Losses Losses Losses Carryover
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
1995 $ 12,590 $ 5 $ - - $ - -
1996 268 268 - - - -
1997 2,020 695 1,270 84
1998 11,005 308 376 482
1999 6,235 1,199 8,966 310
2000 3,089 789 - - 240
2001 4,538 1,683 - - 115
2002 2,717 346 - - - -
2003 1,792 623 - - - -
2004 16,406 532 - - - -
2005 10,744 878 - - - -
2006 23,766 3,105 - - - -
2007 27,134 8,285 - - - -
2008 28,179 21,971 - - - -
2009 12,500 6,080 - - - -
-------- ------- -------- -------
$162,983 $46,767 $ 10,612 $ 1,231
======== ======= ======== =======
</TABLE>
The above amounts include approximately $17.9 million and $8.5
million, respectively, of regular and alternative minimum tax net
operating losses carrying over from Equinox Resources Ltd. and
CoCa Mines Inc. Due to these mergers, there will be limitations
on the amount of these net operating losses that can be utilized
in any given year to reduce certain future taxable income.
The Company has approximately $2.1 million in alternative minimum
tax credit carryovers eligible to reduce future regular tax li-
abilities.
During 1992, the Company used capital loss carryovers of ap-
proximately $7.4 million to offset 1992 capital gains.
F-24<PAGE>
NOTE 7: LONG-TERM DEBT AND CREDIT AGREEMENT
<TABLE>
Long-term debt consists of the following (in thousands):
<CAPTION>
December 31,
---------------------
1994 1993
-------- --------
<S> <C> <C>
Zero coupon convertible notes.......... $ - - $ 48,433
Notes payable - Sunbeam................ 1,038 962
Production notes payable............... 1,185 520
Other long-term debt................... 83 94
-------- --------
2,306 50,009
Less: current portion (346) - -
-------- --------
$ 1,960 $ 50,009
======== ========
</TABLE>
Zero Coupon Convertible Notes
During 1989, the Company issued subordinated zero coupon con-
vertible notes, due June 14, 2004, with a face value at matu-
rity of $201,250,000. These Liquid Yield Option Notes
("LYONs") were issued at 30.832% of their face value at
maturity. During 1992, the Company exchanged 1,120,125 shares
of its common stock for 30,900 outstanding LYONs. In this
noncash transaction, the Company recorded the issuance of
common stock totalling approximately $11.2 million and the
reduction of long-term debt and deferred issuance costs
totalling approximately $12.0 million and $0.3 million,
respectively, recognizing a gain totalling approximately $0.5
million.
During 1993, the Company exchanged 2.2 million shares of its
common stock for 60,400 outstanding LYONs. The Company re-
corded the issuance of common stock totalling approximately
$24.4 million and the reduction of long-term debt and deferred
issuance costs totalling approximately $25.2 million and $0.5
million, respectively, recognizing a gain from this transaction
of approximately $0.3 million.
On May 11, 1994, the Company completed a public offering of its
common stock and called for redemption of the remaining 109,950
LYONs. On June 13, 1994, the Company used approximately $50.2
million of the net proceeds from the common stock offering to
F-25<PAGE>
redeem the outstanding LYONs. The Company recorded an extra-
ordinary loss on retirement of long-term debt totalling ap-
proximately $0.8 million in 1994, which related principally to
the write-off of the unamortized balance of deferred issuance
costs of the LYONs.
Notes Payable - Sunbeam
The notes are noninterest-bearing, discounted at 15% and pay-
able in three annual equal amounts from the date of commercial
production of the Grouse Creek property. The first installment
of the notes, totalling approximately $346,000, was paid in
January 1995.
Production Notes Payable
When the Company acquired Equinox in March 1994, the then out-
standing production participating preferred shares were con-
verted to production notes and recorded as long-term debt. The
attributes of the production notes are identical to their pre-
decessor production participating preferred shares. The valu-
ation of the production notes as long-term debt is based on the
present value of the estimated cumulative net cash flow dis-
counted at 10% from the American Girl/Oro Cruz project. Based
upon the repayment terms of the production notes, the Company
expects to pay the notes in full during 1997.
Revolving Credit Agreement
On August 30, 1994, the Company entered into an unsecured re-
volving and term loan facility, under the terms of which the
Company can borrow up to $40.0 million. Amounts may be bor-
rowed on a revolving credit basis through July 31, 1997, and
are repayable in eight quarterly installments beginning on Oc-
tober 31, 1997. Borrowings bear interest at floating rates
depending on the type of advance. The Company has the election
to select fixed interest rates for up to six months at LIBOR
+.8% for the first $20.0 million in borrowings, LIBOR +.925%
for borrowings over $20.0 million, or a CD rate +.8% for the
first $20.0 million in borrowings, CD rate +.925% for borrow-
ings over $20.0 million, or a floating rate based on the
primary bank's prime interest rate. During the commitment pe-
riod, the Company is obligated to pay an annual fee of
$130,000. The agreement contains certain restrictive cove-
nants, the most restrictive of which relate to maintenance of a
current ratio, fixed charge coverage ratio and limitations on
the issuance of additional indebtedness. To maintain compli-
ance with the covenants of the credit facility, the Company
must maintain a 1.5 to 1.0 current ratio and the Company must
maintain a fixed charge coverage ratio of 1.0 to 1.0 through
F-26<PAGE>
December 31, 1994, and a fixed charge coverage ratio of 1.5 to
1.0 thereafter. The fixed charge coverage ratio is defined as
the ratio, for the prior four consecutive fiscal quarters, of
the Company's consolidated earnings before income taxes, depre-
ciation, and amortization, nonrecurring losses and cash recla-
mation charges minus nonrecurring gains divided by the sum of
the following (i) consolidated interest expense, plus (ii) con-
solidated long-term debt scheduled to be paid during such
period, plus (iii) consolidated capital lease payments paid
during such period, plus (iv) dividends on common and preferred
stock declared or paid (without duplication), plus (v) consoli-
dated reclamation expenditures paid. As of December 31, 1994,
the Company was in compliance with all restrictive covenants of
the credit facility. Amounts available under the facility are
based on a debt to cash flow calculation which must not exceed
a maximum of 4.0 to 1.0. At December 31, 1994, the entire
credit facility was available to the Company.
NOTE 8: COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases various facilities and equipment under non-
cancelable operating lease arrangements. The major facilities
and equipment leases are for terms of three to ten years.
<TABLE>
Future minimum lease payments under these noncancelable oper-
ating leases as of December 31, 1994 are as follows (in thou-
sands):
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1995 $ 2,793
1996 2,537
1997 2,068
1998 1,942
1999 1,523
Thereafter 2,319
-------
Total minimum lease payments $13,182
=======
</TABLE>
Contingencies
In October 1989, and again in February 1990, the Company was
notified by the EPA that the EPA considered the Company a Po-
tentially Responsible Party ("PRP") at the Bunker Hill Super-
fund Site located at Kellogg, Idaho ("Bunker Hill Site"). In
F-27<PAGE>
February 1994, the Company and three other mining company PRPs
entered into a Consent Decree with EPA and the State of Idaho
pursuant to which the Company and two of the three companies
signing the decree agreed to implement remediation work at a
portion of the Bunker Hill Site. The remediation will prima-
rily involve the removal and replacement of lead-contaminated
soils in residential yards within the site and is estimated to
be completed by the participating mining companies over the
period of the next five to seven years. The Consent Decree
also provides for the mining companies to reimburse EPA for a
portion of the government's past costs incurred at the Bunker
Hill Site. The Consent Decree was approved and entered by the
Federal District Court in Idaho on November 17, 1994. The
Consent Decree settles the Company's response-cost liability
under Superfund at the Bunker Hill Site. Based upon the terms
of the Consent Decree and an agreement between the participat-
ing mining companies relating to the allocation of the cost for
work under the Consent Decree, the Company has estimated and
established a total allowance for liability for remedial ac-
tivity costs at the Bunker Hill Site of $9.1 million as of De-
cember 31, 1994. Other than consulting work necessary for the
implementation of the Company's allocated portion of the reme-
dial activity at this site, the Company's accruals do not in-
clude any future legal or consulting costs. The Company does
not believe that these costs will be material.
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 compa-
nies asserting claims for damages to natural resources located
downstream from the Bunker Hill Site over which the Tribe al-
leges some ownership or control. The Company has answered the
Tribe's complaint denying liability for natural resource dam-
ages 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 Oc-
tober 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
F-28<PAGE>
for trial before the District Court. The Company has been ad-
vised 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, initi-
ated 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 de-
nied 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 li-
ability 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. At December 31, 1994, the Com-
pany has not reduced its environmental accrual to reflect any
anticipated insurance proceeds. 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 Bun-
ker Hill Consent Decree. Litigation is still pending against
other insurers.
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 re-
lating to the earth moving work contracted to ICC at the Com-
pany'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. 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 will pay ICC a total of $3.05 million (plus
interest from January 1, 1995) over a period of three months
ending on April 3, 1995. The Company has accrued and capital-
ized 80% of these amounts reflecting its interest in the Grouse
Creek Joint Venture.
F-29<PAGE>
In June 1994, a judgment was entered against the Company in
Idaho State District Court in the amount of $10.0 million in
compensatory damages and $10.0 million in punitive damages
based on a jury verdict rendered in late May 1994 with respect
to a lawsuit previously filed against the Company by Star
Phoenix Mining Company ("Star Phoenix"), a former lessee of the
Star Morning Mine, over a dispute between the Company and Star
Phoenix concerning the Company's November 1990 termination of
the Star Phoenix lease of the Star Morning Mine property. A
number of other claims by Star Phoenix and certain principals
of the Star Phoenix against the Company in the lawsuit were
dismissed by the State District Court. The Company's post-
trial motions were denied by the State District Court, and the
Company has appealed the District Court judgment to the Idaho
State Supreme Court. Post-judgment interest will accrue during
the appeal period; the current interest rate is 10.5%. In or-
der to stay the ability of Star Phoenix to collect on the judg-
ment 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 totalling $10.0 million as collateral for the
appeal bond. This collateral amount is included in restricted
investments at December 31, 1994. 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 ulti-
mately prevail in this matter, although there can be no as-
surance in this regard. Accordingly, the Company has not ac-
crued 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 environmen-
tal 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 obliga-
tions 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. Recent
F-30<PAGE>
communications between the applicable federal agencies regard-
ing activities at the project indicate that additional consul-
tation under the Endangered Species Act will be necessary for
certain aspects of the Company's Grouse Creek project. On
January 12, 1995, the District Court issued an Order granting
an injunction against the Forest Service to halt all ongoing
and future mining, timber, grazing, and road building activity
in the six national forests that may affect the endangered
salmon. The Court's Order provided an exception to the in-
junction 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 En-
dangered Species Act. On March 1, 1995, the government an-
nounced the completion of the required forest planning consul-
tation and stated there was no further need for an injunction.
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 comprehen-
sive environmental assessment completed with respect to devel-
oping the Company's Grouse Creek project and the completion of
the consultation, the Company's management currently does not
anticipate that these matters will have a material adverse af-
fect 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 outcome of these matters, individually or in aggre-
gate, will not have a material adverse effect on the results of
operations and financial condition of the Company and its sub-
sidiaries.
NOTE 9: EMPLOYEE BENEFIT PLANS
The Company and certain subsidiaries have defined benefit pen-
sion plans covering substantially all employees. One plan cov-
ering eligible salaried and hourly employees provides retire-
ment benefits and is based on the employee's compensation dur-
ing the highest 36 months of the last 120 months before re-
tirement. 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
F-31<PAGE>
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.
<TABLE>
Net periodic pension cost (income) for the plans consisted of
the following in 1994, 1993 and 1992 (in thousands):
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Service cost $ 938 $ 961 $ 872
Interest cost 1,938 1,899 1,732
Return on plan assets (2,737) (2,924) (2,849)
Amortization of transition asset (434) (434) (434)
Amortization of unrecognized
prior service cost 70 45 45
Amortization of unrecognized net
(gain) loss from earlier periods (4) 6 (305)
------- ------- -------
Net pension income $ (229) $ (447) $ (939)
======== ======= =======
</TABLE>
<TABLE>
The following table sets forth the funded status of the plans
and amounts recognized in the Company's consolidated balance
sheets (in thousands):
<CAPTION>
F-32<PAGE>
December 31,
-----------------------
1994 1993
-------- --------
<S> <C> <C>
Actuarial present value of
benefit obligations
vested benefits $ 24,429 $ 27,771
nonvested benefits 300 764
-------- --------
Accumulated benefit obligations 24,729 28,535
Effect of projected future salary
and wage increases 1,500 2,205
-------- --------
Projected benefit obligations $ 26,229 $ 30,740
======== ========
Plan assets $ 33,550 $ 35,135
Projected benefit obligations (26,229) (30,740)
-------- --------
Plan assets in excess of projected
benefit obligations 7,321 4,395
Unrecognized net gain (3,314) (253)
Unrecognized prior service cost 708 778
Unrecognized net asset
at January 1 (3,081) (3,515)
-------- --------
Pension asset recognized in
consolidated balance sheets $ 1,634 $ 1,405
======== ========
<CAPTION>
The projected benefit obligation was calculated applying the
following average rates:
1994 1993
-------- --------
<S> <C> <C>
Discount rate 8.00% 6.50%
Long-term compensation increase 5.00% 5.00%
Long-term rate of return on
plan assets 8.00% 8.50%
</TABLE>
The Company provides certain postretirement benefits, princi-
pally health care and life insurance benefits for qualifying
retired employees. The costs of these benefits are being
funded out of general corporate funds. Prior to 1992, the cost
of some of these benefits was expensed when payments were made.
Other health care and life insurance benefits had been previ-
ously accrued. Effective January 1, 1992, the Company adopted
Statement of Financial Accounting Standards No. 106, "Employ-
ers' Accounting for Postretirement Benefits Other Than Pen-
sions" (SFAS No. 106), which requires that these postretirement
F-33<PAGE>
benefits be accrued over the period in which active employees
provide services to the Company. At January 1, 1992, the cu-
mulative effect of recording these postretirement benefits was
to increase the 1992 net loss by $1.6 million or $0.051 per
share.
<TABLE>
Net periodic postretirement benefit cost for 1994, 1993 and
1992 included the following components (in thousands):
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Service cost $ 24 $ 28 $ 22
Interest cost 141 164 179
Amortization of gain (13) - - - -
---- ---- ----
Net postretirement benefit cost $152 $192 $201
==== ==== ====
</TABLE>
<TABLE>
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 (in thousands):
<CAPTION>
December 31,
-----------------------
1994 1993
-------- --------
<S> <C> <C>
Accumulated postretirement
benefit obligation
Retirees $(1,317) $(1,569)
Fully eligible, active plan
participants (314) (355)
Other active plan participants (290) (242)
------- -------
(1,921) (2,166)
Unrecognized net gain (470) (191)
------- -------
Accumulated postretirement
benefit obligation recognized
in consolidated balance sheets $(2,391) $(2,357)
======= =======
</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
F-34<PAGE>
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
1994 or 1993.
1994 1993
-------- --------
Discount rate 8.00% 6.50%
Trend rate for medical benefits 6.00% 6.00%
The Company has a Deferred Compensation Plan which permits
eligible officers and directors to defer a portion of their
compensation. The deferred compensation, which together with
Company matching amounts and accumulated interest is accrued
but unfunded, is distributable in cash after retirement or
termination of employment, and at December 31, 1994 and 1993,
amounted to approximately $1.2 million. The Company amended
the Deferred Compensation Plan effective January 1, 1995. The
amended plan allows the participants to defer up to a maximum
of 50% of base salary from January 1, to May 31, 1995, and up
to 100% of annual bonuses for the 1995 calendar year. The par-
ticipant may elect to receive such deferred amounts, together
with interest at the Moody's Corporate Bond Yield rate, in one
payment at retirement, or on any plan anniversary after the
completion of three years as elected. Participation in the
nonqualified plan is limited to a select group of management.
The first plan year begins January 1, 1995 and ends May 31,
1995. All subsequent plan years will be June 1 to May 31.
The Company has an employees' Capital Accumulation Plan which
is available to all salaried and certain hourly employees after
completion of six months 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 contribution for 1994 was
approximately $170,000, and $158,000 for both 1993 and 1992.
NOTE 10: SHAREHOLDERS' EQUITY
Preferred Stock
The Company has 2.3 million shares of Series B Cumulative Con-
vertible Preferred Stock (the "Preferred Shares") outstanding.
Holders of the Preferred Shares are entitled to receive cumu-
lative cash dividends at the annual rate of $3.50 per share
payable quarterly, when and if declared by the Board of Direc-
tors.
F-35<PAGE>
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 divi-
dends. If these dividends are not paid, the holders of Pre-
ferred 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 Com-
pany's Articles of Incorporation.
The Preferred Shares rank senior to the common stock and any
outstanding shares of Series A Preferred Shares. The Preferred
Shares have a liquidation preference of $50 per share plus all
accrued and unpaid dividends.
Shareholder Rights Plan
In 1986, the Company adopted a Shareholder Rights Plan. Pursu-
ant to this plan, holders of common stock received one pre-
ferred share purchase right for each common share held. The
rights will be triggered once an Acquiring Person, as defined
in the plan, 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 alterna-
tives, 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 5 cents per right prior to the tenth
day after an Acquiring Person acquires 15% of the Company's
common stock, and expire in 1996. Additional details are set
forth in the Rights Agreement filed with the Securities and
Exchange Commission on May 19, 1986, and in the amendments
dated November 29, 1990 and September 30, 1991.
Stock Option Plans
In connection with the Company's 1991 acquisition of CoCa
Mines, Inc., the Company assumed three preexisting CoCa em-
ployee stock option plans.
F-36<PAGE>
The Company adopted a nonstatutory stock option plan in 1987.
The plan provides that options may be granted to certain of-
ficers 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, 1994 and 1993, there
were 18,748 and 129,148 shares, respectively, available for
grant in the future under the plan. The plan expires in 1997.
<TABLE>
Transactions concerning stock options are summarized as fol-
lows:
<CAPTION>
Exercise
Shares Price
-------- ------------
<S> <C> <C>
Outstanding, December 31, 1991 385,628 $ 7.12-18.26
Year ended December 31, 1992
Granted 66,000 10.50
Exercised (37,525) 7.12- 8.54
Expired (7,500) 10.37
--------
Outstanding, December 31, 1992 406,603 7.12-18.26
Year ended December 31, 1993
Granted - - - -
Exercised (86,443) 7.12-12.25
Expired (18,500) 10.38-12.25
---------
Outstanding, December 31, 1993 301,660 7.12-18.26
Year ended December 31, 1994
Granted 120,000 9.63
Exercised (61,037) 7.25-10.50
Expired (13,123) 12.25
--------
Outstanding, December 31, 1994 347,500 $7.12-18.26
========
</TABLE>
F-37<PAGE>
The Company also 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. At December
31, 1991, 46,626 shares were outstanding under this plan at
prices ranging from $8.54-$10.87. All of these options expired
in 1992 when the plan expired.
The aggregate amounts charged (credited) to operations in con-
nection with the plans were $(23,000), $309,000 and $(165,000)
in 1994, 1993 and 1992, respectively.
<TABLE>
As a result of the acquisition of Equinox, the outstanding op-
tions under the Equinox stock option plan became exercisable
for Hecla common shares. Transactions concerning the Equinox
options, giving effect to the common share exchange ratio, are
as follows:
<CAPTION>
Exercise
Shares Price
------- ----------
<S> <C> <C>
Outstanding, December 31, 1991 174,000 $4.14-4.21
Year ended December 31, 1992
Granted 177,900 3.78-19.56
Exercised (36,900) 3.78
--------
Outstanding, December 31, 1992 315,000 3.78-19.56
Year ended December 31, 1993
Granted 25,500 6.00-6.52
Exercised (88,200) 3.80-6.55
--------
Outstanding, December 31, 1993 252,300 3.78-19.56
Year ended December 31, 1994
Granted - - - -
Exercised (251,400) 3.45-17.82
--------
Outstanding, December 31, 1994 900 $ 17.82
========
</TABLE>
Warrants
As a result of the acquisition of Equinox, outstanding Equinox
warrants became exercisable for Hecla common shares. At Decem-
ber 31, 1994 and 1993, there were 379,506 and 415,131 warrants
F-38<PAGE>
outstanding, respectively, to acquire Hecla common shares at
$8.08 per share, which expire in August, 1996. If the Com-
pany's shares trade at a price of $12.58 per share or above for
20 consecutive trading days, upon Hecla's election and notice
to warrant holders, the holders of Equinox warrants must exer-
cise their warrants or lose their right to exercise.
At December 31, 1993, the Company had outstanding 459,433 war-
rants 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. During 1994,
1,853 of these warrants were exercised. The remaining warrants
expired in May 1994.
<TABLE>
NOTE 11: BUSINESS SEGMENTS (IN THOUSANDS)
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net sales to unaffiliated customers
Metals (including $18,493 in Mexico
in 1994) $ 60,828 $ 45,892 $ 58,390
Industrial minerals (including
$2,885 and $368 in Mexico in
1994 and 1993) 63,634 44,953 43,231
Specialty metals 4,285 2,043 - -
-------- -------- --------
$128,747 $ 92,888 $101,621
======== ======== ========
Income (loss) from operations
Metals (including $2,307
in Mexico in 1994) $(24,658) $(15,418) $(40,198)
Industrial minerals (including
$(810) and $9 in Mexico in
1994 and 1993) 6,872 4,449 4,620
Specialty metals 3 (504) (15,332)
General corporate (11,656) (8,809) (10,057)
-------- -------- --------
$(29,439) $(20,282) $(60,967)
======== ======== ========
F-39<PAGE>
Capital expenditures
Metals (including $466 and $12,826
in Mexico in 1994 and 1993) $ 62,002 $ 45,961 $ 20,190
Industrial minerals (including
$1,352 and $5,800 in 1994 and
1993 in Mexico) 3,615 11,938 3,203
Specialty metals 453 - - - -
General corporate assets 489 548 158
-------- -------- --------
$ 66,559 $ 58,447 $ 23,551
======== ======== ========
Depreciation, depletion and amortization
Metals $ 9,699 $ 10,052 $ 9,618
Industrial minerals 4,501 3,718 4,188
Specialty metals 33 33 - -
General corporate assets 524 392 819
-------- -------- --------
$ 14,757 $ 14,195 $ 14,625
======== ======== ========
Identifiable assets
Metals (including $19,241 and
$21,028 in Mexico in 1994
and 1993) $179,258 $136,735 $138,191
Industrial minerals (including
$6,192 and $7,054 in Mexico in
1994 and 1993) 59,502 68,068 46,488
Specialty metals 6,288 4,197 - -
General corporate assets 36,507 81,486 44,206
Idle facilities 53,027 55,667 7,245
-------- -------- --------
$334,582 $346,153 $236,130
======== ======== ========
</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, in-
vestments 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, 1994 and 1993, the Company's re-
corded 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,
1994 and 1993.
F-40<PAGE>
NOTE 12: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of finan-
cial instruments is made in accordance with the requirements of
Statement of Financial Accounting Standards No. 107, "Disclo-
sures about Fair Value of Financial Instruments." The esti-
mated fair value amounts have been determined using available
market information and appropriate valuation methodologies.
However, considerable judgment is required to interpret market
data and to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative
of the amounts the Company could realize in a current market
exchange.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it
is practicable to estimate that value. Potential income tax
ramifications related to the realization of unrealized gains
and losses that would be incurred in an actual sale or settle-
ment have not been taken into consideration.
The carrying amounts for cash and cash equivalents, accounts
and notes receivable, restricted investments and current li-
abilities are a reasonable estimate of their fair values. Fair
value for equity securities investments available for sale is
determined by quoted market prices. The fair value of long-
term debt is based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates cur-
rently offered for debt with similar remaining maturities.
<TABLE>
The estimated fair values of the following financial instru-
ments are as follows (in thousands):
<CAPTION>
December 31,
----------------------------------------
1994 1993
------------------ -------------------
Carrying Fair Carrying Fair
Amounts Value Amounts Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 7,278 $ 7,278 $40,031 $40,031
Accounts and notes receivable 23,516 23,516 18,841 18,841
Investments
Equity securities available
for sale 5,276 5,276 377 377
Restricted 13,553 13,553 - - - -
Financial liabilities
Current liabilities 23,485 23,485 22,308 22,308
Long-term debt - principal 1,960 1,804 50,009 50,009
</TABLE>
F-41
[Deloitte & Touche Letterhead]
AUDDITORS' REPORT
To the Directors of
Equinox Resources Ltd.
We have audited the consolidated balance sheet of Equinox Resources Ltd.
as of December 31, 1993 and the consolidated statements of loss and
deficit and changes in financial position for the year then ended, the
two months ended December 31, 1992 and the year ended October 31, 1992.
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 an audit to
obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly,
in all material respects, the financial position of the Company as at
December 31, 1993, the results of the Company's operations and the
changes in its financial position for the year then ended, the two months
ended December 31, 1992 and the year ended October 31, 1992 in accordance
with generally accepted accounting principles in Canada applied on a
consistent basis.
/s/ Deloitte & Touche
CHARTERED ACCOUNTANTS
Vancouver, Canada
February 28, 1994
F-42
HECLA MINING COMPANY and SUBSIDIARIES
FORM 10-K/A - December 31, 1994
INDEX TO EXHIBITS
Number and Description of Exhibits
23.1 Consent of Coopers & Lybrand L.L.P. to incor-
poration by reference of their report dated
February 3, 1995, except for the
penultimate paragraph of Note 8, as
to which the date is March 1, 1995, on the
consolidated financial statements of the
Registrant in the Registrant's Registration
Statements on Form S-3, No. 33-72832, and
Forms S-8, No. 33-7833, No. 33-41833,
No. 33-14758, No. 33-40691, No. 33-60095 and
No. 33-60099. Attached
23.2 Consent of Deloitte & Touche to incorpor-
ation by reference of their report dated
February 28, 1994 on the consolidated
financial statements of Equinox Resources
Ltd. in the Registrant's Registration
Statements on Form S-3, No. 33-72832, and
Forms S-8, No. 33-7833, No. 33-41833,
No. 33-14758, No. 33-40691, No. 33-60095 and
No. 33-60099. Attached
Exhibit 23.1
Form 10-K/A December 31, 1994
Commission File No. 1-8491
CONSENT OF INDEPENDENT ACCOUNTANTS
---------------------------------
We consent to the incorporation by reference in the registra-
tion statements of Hecla Mining Company and subsidiaries on
Form S-3 (File No. 33-72832) and Forms S-8 (File No. 33-7833,
33-41833, 33-14758, 33-40691, 33-60095 and 33-60099) of our
report, which includes an explanatory paragraph concerning
changes in accounting for income taxes and post-retirement ben-
efits other than pensions in 1992, and accounting for invest-
ments in 1994, dated February 3, 1995, except for the penulti-
mate paragraph of Note 8 as to which the date is March 1, 1995,
on our audits of the consolidated financial statements of Hecla
Mining Company and subsidiaries as of December 31, 1994 and
1993, and for the years ended December 31, 1994, 1993 and 1992,
which report is included in this Annual Report on Form 10-K/A.
/s/ Coopers & Lybrand L.L.P.
Spokane, Washington
August 24, 1995
Exhibit 23.2
Form 10-K/A December 31, 1994
Commission File No. 1-8491
CONSENT OF INDEPENDENT ACCOUNTANTS
---------------------------------
We consent to the incorporation by reference in the registra-
tion statements of Hecla Mining Company and subsidiaries on
Form S-3 (File No. 33-72832), and Forms S-8 (File No. 33-7833,
33-41833, 33-14758, 33-40691, 33-60095 and 33-60099) of our
report dated February 28, 1994, on our audits of the consoli-
dated financial statements of Equinox Resources Ltd. as of De-
cember 31, 1993, and for the year then ended, the two months
ended December 31, 1992 and the year ended October 31, 1992,
which report is included in this Annual Report on Form 10-K/A.
/s/ Deloitte & Touche
CHARTERED ACCOUNTANTS
Vancouver, Canada
August 24, 1995
