<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------- -----------------
Commission file number 1-8491
---------------------------------------------
HECLA MINING COMPANY
- --------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 82-0126240
- --------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6500 Mineral Drive
Coeur d'Alene, Idaho 83814-8788
- ---------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
208-769-4100
- ---------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for at least the
past 90 days. Yes XX . No .
---- ----
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date.
Class Outstanding April 30, 1996
- --------------------------------------- --------------------------
Common stock, par value $0.25 per share 51,130,248 shares
<PAGE> 2
HECLA MINING COMPANY and SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
I N D E X
PAGE
PART I. - Financial Information
Item l - Consolidated Balance Sheets - March 31, 1996
and December 31, 1995 3
- Consolidated Statements of Operations - Three
Months Ended March 31, 1996 and 1995 4
- Consolidated Statements of Cash Flows - Three
Months Ended March 31, 1996 and 1995 5
- Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. - Other Information
Item 1 - Legal Proceedings 22
Item 6 - Exhibits and Reports on Form 8-K 25
-2-
<PAGE> 3
PART I - FINANCIAL INFORMATION
HECLA MINING COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31,
1996 December 31,
(Unaudited) 1995
------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,018 $ 4,024
Accounts and notes receivable 34,698 25,571
Income tax refund receivable 762 737
Inventories 21,304 20,915
Other current assets 2,462 2,038
---------- ---------
Total current assets 64,244 53,285
Investments 2,260 2,200
Restricted investments 16,358 16,254
Properties, plants and equipment, net 179,474 177,374
Other noncurrent assets 9,537 9,077
---------- ---------
Total assets $ 271,873 $ 258,190
========== =========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 15,677 $ 14,145
Accrued payroll and related benefits 2,566 3,217
Preferred stock dividends payable 2,012 2,012
Accrued taxes 1,303 1,042
Accrued reclamation costs 5,549 5,549
---------- ---------
Total current liabilities 27,107 25,965
Deferred income taxes 359 359
Long-term debt 25,699 36,104
Accrued reclamation costs 27,821 26,782
Other noncurrent liabilities 5,221 4,864
---------- ---------
Total liabilities 86,207 94,074
---------- ---------
SHAREHOLDERS' EQUITY
Preferred stock, $0.25 par value,
authorized 5,000,000 shares, issued
and outstanding - 2,300,000 shares,
liquidation preference $117,012 575 575
Common stock, $0.25 par value,
authorized 100,000,000 shares;
issued 1996 - 51,192,324;
issued 1995 - 48,317,324 12,798 12,079
Capital surplus 351,606 330,352
Accumulated deficit (173,743) (173,206)
Net unrealized gain on investments 214 100
Foreign currency translation adjustment (4,898) (4,898)
Less common stock reacquired at cost;
1996 - 62,076 shares, 1995 - 62,072 shares (886) (886)
---------- ---------
Total shareholders' equity 185,666 164,116
---------- ---------
Total liabilities and shareholders' equity $ 271,873 $ 258,190
========== =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-3-
<PAGE> 4
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars and shares in thousands, except for per-share data)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Sales of products $ 42,947 $ 35,710
--------- ---------
Cost of sales and other direct production costs 33,553 30,230
Depreciation, depletion and amortization 5,459 5,642
--------- ---------
39,012 35,872
--------- ---------
Gross profit (loss) 3,935 (162)
--------- ---------
Other operating expenses:
General and administrative 2,271 2,330
Exploration 803 1,043
Depreciation and amortization 89 83
Provision for closed operations and
environmental matters (183) 56
--------- ---------
2,980 3,512
--------- ---------
Income (loss) from operations 955 (3,674)
--------- ---------
Other income (expense):
Interest and other income 694 1,443
Foreign exchange loss (14) (197)
Gain on investments 20 121
Interest expense:
Total interest cost (621) (165)
Less amount capitalized 477 58
--------- ---------
556 1,260
--------- ---------
Income (loss) before income taxes 1,511 (2,414)
Income tax provision (36) (50)
--------- ---------
Net income (loss) 1,475 (2,464)
Preferred stock dividends 2,012 2,012
--------- ---------
Loss applicable to common shareholders $ (537) $ (4,476)
========= =========
Loss per common share $ (0.01) $ (0.09)
========= =========
Cash dividends per common share $ - - $ - -
========= =========
Weighted average number of common
shares outstanding 51,130 48,107
========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-4-
<PAGE> 5
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Operating activities:
Net income (loss) $ 1,475 $ (2,464)
Noncash elements included in net income (loss):
Depreciation, depletion and amortization 5,548 5,725
Loss (gain) on disposition of properties,
plants and equipment 59 (265)
Gain on sale of investments (20) (121)
Provision for reclamation and closure costs 1,199 220
Change in:
Accounts and notes receivable (9,127) (5,029)
Income tax refund receivable (25) (2)
Inventories (389) (185)
Other current assets (424) (95)
Accounts payable and accrued expenses 1,532 (1,294)
Accrued payroll and related benefits (651) (630)
Accrued taxes 261 528
Accrued reclamation and other noncurrent liabilities 197 2,677
--------- ---------
Net cash used by operating activities (365) (935)
--------- ---------
Investing activities:
Additions to properties, plants and equipment (7,739) (6,961)
Proceeds from disposition of properties,
plants and equipment 74 314
Proceeds from the sales of investments 20 126
Increase in restricted investments (104) (48)
Purchase of investments and increase in cash
surrender value of life insurance (146) (195)
Other, net (502) (835)
--------- ---------
Net cash used by investing activities (8,397) (7,599)
--------- ---------
Financing activities:
Proceeds from the exercise of stock warrants - - 1,208
Issuance of common stock, net of offering costs 21,973 - -
Dividends on preferred stock (2,012) (2,012)
Borrowings against cash surrender value of
life insurance 200 - -
Borrowings on long-term debt 11,500 11,000
Payments on long-term debt (21,905) (3,884)
--------- ---------
Net cash provided by financing activities 9,756 6,312
--------- ---------
Increase (decrease) in cash and cash equivalents 994 (2,222)
Cash and cash equivalents at beginning of period 4,024 7,278
--------- ---------
Cash and cash equivalents at end of period $ 5,018 $ 5,056
========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-5-
<PAGE> 6
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The notes to the consolidated financial statements as of December
31, 1995, as set forth in the Company's 1995 Annual Report on Form
10-K, substantially apply to these interim consolidated financial
statements and are not repeated here.
Note 2. The financial information given in the accompanying unaudited
interim consolidated financial statements reflects all adjustments
which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods reported. All such
adjustments are of a normal recurring nature. All financial
statements presented herein are unaudited. However, the balance
sheet as of December 31, 1995, was derived from the audited
consolidated balance sheet described in Note 1 above. Certain
consolidated financial statement amounts have been reclassified to
conform to the 1996 presentation. These reclassifications had no
effect on the net loss or accumulated deficit as previously
reported.
Note 3. The components of the income tax provision for the three months
ended March 31, 1996 and 1995 are as follows (in thousands):
1996 1995
-------- --------
Current:
State income taxes $ 70 $ 50
Federal income tax benefit (34) - -
------- --------
Total current provision 36 50
Deferred provision - - - -
-------- --------
Total $ 36 $ 50
======== ========
The Company's income tax provision for the first three months of
1996 and 1995 varies from the amount that would have been provided
by applying the statutory rate to the income or loss before income
taxes primarily due to reversal of temporary differences in 1996 and
the nonutilization of net operating losses in 1995.
-6-
<PAGE> 7
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Note 4. Inventories consist of the following (in thousands):
March 31, Dec. 31,
1996 1995
--------- ---------
Concentrates and metals in transit
and other products $ 3,287 $ 2,519
Industrial mineral products 8,080 8,671
Materials and supplies 9,937 9,725
-------- --------
$ 21,304 $ 20,915
======== ========
Note 5. In July 1991, the Coeur d'Alene Indian Tribe (the Tribe) brought a
lawsuit, under the Comprehensive Environmental Response Liability
Act of 1980 (CERCLA), in Idaho Federal District Court against the
Company and a number of other mining companies asserting claims for
damages to natural resources located downstream from the Bunker Hill
Superfund Site located at Kellogg, Idaho, over which the Tribe
alleges some ownership or control. The Company has answered the
Tribe's complaint denying liability for natural resource damages and
asserted a number of defenses to the Tribe's claims, including a
defense that the Tribe has no ownership or control over the natural
resources they assert have been damaged. In July 1992, in a
separate action between the Tribe and the State of Idaho, the Idaho
Federal District Court determined that the Tribe does not own the
beds, banks and waters of Lake Coeur d'Alene and the lower portion
of its tributaries, the ownership of which is the primary basis for
the natural resource damage claims asserted by the Tribe against the
Company. Based upon the Tribe's appeal of the July 1992 District
Court ownership decision to the 9th Circuit U.S. Court of Appeals,
the Court in the natural resource damage litigation issued an order
on October 30, 1992, staying the court proceedings in the natural
resource damage litigation until a final decision is handed down on
the question of the Tribe's title. On December 9, 1994, the 9th
Circuit Court reversed the decision of the Idaho Federal District
Court and remanded the case of the Tribe's ownership for trial
before the Idaho Federal District Court. In April 1996, the U.S.
Supreme Court granted the State the right to appeal 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
-7-
<PAGE> 8
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Tribe's natural resource damages claim against the Company and other
mining companies continue to be stayed.
On March 22, 1996, the federal government brought a lawsuit in Idaho
Federal District Court against the Company and a number of other
mining companies which is similar to the above described Tribe's
lawsuit. The lawsuit is being brought by the federal government
asserting claims under CERCLA and the Clean Water Act and seeks
recovery for damages to natural resources located in the Coeur
d'Alene River Basin in North Idaho over which the federal government
asserts to be the trustee. The suit also seeks declaratory relief
that the Company and other defendants are jointly and severally
liable for response costs under CERCLA for historic mining impacts
in the Coeur d'Alene River Basin outside the Bunker Hill Superfund
Site. The Company's answer to the complaint is required to be filed
by May 17, 1996. The Company believes it has a number of defenses
to the federal government's claims.
On March 22, 1996, the Company entered into an agreement (the
Agreement) with the State of Idaho pursuant to which the Company
agreed to continue certain financial contributions to environmental
cleanup work in the Coeur d'Alene River Basin being undertaken by a
State Trustees group. In return, the State agreed not to sue the
Company for damage to natural resources for which the State is a
trustee for a period of five years, to pursue settlement with the
Company of the State's natural resource damage claims and to grant
the Company credit against any such State claims for all
expenditures made under the Agreement and certain other Company
contributions and expenditures for environmental cleanup in the
Coeur d'Alene Basin. In connection with the Agreement, the Company
increased its accrual for closed operations and environmental
matters by $0.5 million during the first quarter of 1996.
In 1991, the Company initiated litigation in the Idaho State
District Court in Kootenai County, Idaho, against a number of
insurance companies 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 for all
liabilities and claims asserted against the Company by the
Environmental Protection Agency (EPA) and the Tribe under CERCLA
related to the Bunker Hill Superfund Site and Coeur d'Alene River
Basin in northern Idaho. In 1992, the Court ruled that the primary
-8-
<PAGE> 9
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
insurance companies had a duty to defend the Company in the Tribe's
lawsuit. During 1995 and in January 1996, the Company entered into
settlement agreements with a number of the insurance carriers named
in the litigation. The Company has received a total of $4.5 million
under the terms of the settlement agreements. Thirty percent of
these settlements is payable to the EPA to reimburse the U.S.
Government for past costs under the Bunker Hill Superfund Site
Consent Decree previously entered into by the Company. Litigation
is still pending against other insurers with trial scheduled for
October 1996. The remaining insurance carriers are providing the
Company a partial defense in all Coeur d'Alene River Basin
environmental litigation. As of March 31, 1996, the Company had not
reduced its accrual for reclamation and closure costs to reflect the
receipt of any anticipated insurance proceeds.
In June 1994, a judgment was entered against the Company in Idaho
State District Court in the amount of $10.0 million in compensatory
damages and $10.0 million in punitive damages based on a jury
verdict rendered in late May 1994 with respect to a lawsuit
previously filed against the Company by Star Phoenix Mining Company
(Star Phoenix), a former lessee of the Star Morning Mine, over a
dispute between the Company and Star Phoenix concerning the
Company's November 1990 termination of the Star Phoenix lease of the
Star Morning Mine property. A number of other claims by Star
Phoenix and certain principals of Star Phoenix against the Company
in the lawsuit were dismissed by the State District Court. On May
3, 1995, the District Court issued its final opinion and order on a
number of post-trial issues pending before the Court. The opinion
and order included the Court's denial of the post-trial motions
filed by Star Phoenix and certain of its principals regarding claims
which had been previously dismissed by the Court during trial. The
Court also awarded Star Phoenix approximately $300,000 in attorneys'
fees and costs. 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. Star Phoenix has
cross-appealed certain trial court discovery determinations.
Briefing on both appeals has been completed and oral argument was
presented to the Idaho Supreme Court on April 10, 1996. A decision
from the Idaho Supreme Court is expected in late 1996. Post-
judgment interest will accrue during the appeal period; the current
interest rate is 10.875%. In order to stay the ability of Star
Phoenix to collect on the judgment during the pendency of the
appeal, the Company has posted an appeal bond in the
-9-
<PAGE> 10
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
amount of $27.2 million representing 136% of the District Court
judgment. The Company pledged U.S. Treasury Securities totaling
$10.0 million as collateral for the appeal bond. This collateral
amount is included in restricted investments at March 31, 1996 and
December 31, 1995. The Company has vigorously pursued 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 Idaho
District Court 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.
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 disposition 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.
Note 6. At March 31, 1996, there was $25.0 million outstanding under the
Company's revolving and term loan facility classified as long-term
debt.
Note 7. In January 1996, the Company issued 2,875,000 shares of its common
stock realizing proceeds of approximately $22.0 million, net of
underwriting discount and issuance costs of approximately $1.7
million. The Company used $21.0 million of the net proceeds to pay
down debt under its existing revolving and term loan credit
facility.
-10-
<PAGE> 11
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Hecla Mining Company (Hecla or the Company) is primarily involved in
the exploration, development, mining, and processing of gold,
silver, lead, zinc, and industrial minerals. As such, the Company's
revenues and profitability are strongly influenced by world prices
of gold, silver, lead, and zinc, which fluctuate widely and are
affected by numerous factors beyond the Company's control, including
inflation and worldwide forces of supply and demand. The aggregate
effect of these factors is not possible to accurately predict. In
the following descriptions, where there are changes that are
attributable to more than one factor, the Company presents each
attribute in descending order relative to the attribute's importance
to the overall change.
Except for the historical information contained herein, the matters
discussed are forward-looking statements that involve risks and
uncertainties, including the timely development of existing
properties and reserves (such as Greens Creek) and future projects
(such as the Rosebud project), the impact of metals prices and metal
production volatility, changing market conditions and regulatory
environment and the other risks detailed from time to time in the
Company's Form 10-K and Form 10-Qs filed with the Securities and
Exchange Commission (see also "Investment Considerations" of Part I,
Item 1 of the Company's 1995 Annual Report on Form 10-K). Actual
results may differ materially from those projected. These forward-
looking statements represent the Company's judgment as of the date
of this filing. The Company disclaims, however, any intent or
obligation to update these forward-looking statements.
The Company incurred losses applicable to common shareholders for
each of the past three years in the period ended December 31, 1995.
If the Company's estimates of market prices of gold, silver, lead,
and zinc are realized in 1996, the Company expects to record income
or loss in the range of a $(3.0) million loss to income of $2.0
million after the expected dividends to preferred shareholders
totaling approximately $8.0 million for the year ending December 31,
1996. Due to the volatility of metals prices and the significant
impact metals price changes have on the Company's operations, there
can be no assurance that the actual results of operations for 1996
will be as projected.
-11-
<PAGE> 12
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
The variability of metals prices requires that the Company, in
assessing the impact of prices on recoverability of its assets,
exercise judgment as to whether price changes are temporary or are
likely to persist. The Company performs a comprehensive evaluation
of the recoverability of its assets on a periodic basis. The
evaluation includes a review of estimated future net cash flows
against the carrying value of the assets. Moreover, a review is
made on a quarterly basis to assess the impact of significant
changes in market conditions and other factors. Asset write-downs
may occur if the Company determines that the carrying values
attributed to individual assets are not recoverable given reasonable
expectations for future production and market conditions.
On April 17, 1996, the Company announced that it expects to continue
mining the Sunbeam pit at the Grouse Creek mine, in which the
Company has an 80% interest, through the first quarter of 1997.
However, a two-month shutdown of milling operations and a one-month
shutdown of mining operations will be required to enlarge the
tailings impoundment, which reached capacity earlier than expected
due to heavy snowfall and spring runoff. The temporary shutdown of
milling operations commenced in late April 1996, with mining
operations expected to continue until late May 1996 at which time
mining activities will also be suspended. Both mining and milling
activities are expected to resume in June 1996, although there can
be no assurance that mining and milling activities will resume as
planned.
The Company is currently performing further ore confirmation
drilling of the Grouse deposit to evaluate the feasibility of mining
operations beyond the first quarter of 1997. The Company's Board of
Directors is currently expected to make a decision by the end of
1996 whether to continue further development and operation of the
Grouse Creek mine beyond the first quarter of 1997.
If the Grouse Creek mine is not further developed and operations
wind down in the first quarter of 1997, the property will either be
placed on a care-and-maintenance basis (pending an improvement in
metals prices or other developments) or shut down permanently.
Annual holding costs on a care-and-maintenance basis are estimated
at $3.0 to $5.0 million. If the decision is made to shut the
property down, an accrual for closed operations and environmental
matters in the estimated range of $16.0 to $20.0 million would be
necessary at that time. A detailed study has not been performed to
establish this
-12-
<PAGE> 13
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
estimated range for closed operations and environmental matters,
and, as such, the actual costs could be higher.
The American Girl gold mine in southern California had cash costs in
the first quarter of 1996 of approximately $431 per ounce of gold
recovered. The Company holds a 47% interest in the mine through a
joint venture with MK Gold, the operator of the property. First
quarter 1996 results from the Oro Cruz ore body, which is now being
mined, have been unsatisfactory to the Company. A technical team
consisting of experts from both companies has been formed to address
the problems at the property. The Company's interest in the
carrying value of the American Girl gold mine property, plant and
equipment totaled $7.7 million at March 31, 1996.
In 1996, the Company expects to produce between 140,000 and 165,000
ounces of gold compared to actual 1995 gold production of 170,000
ounces of gold. The 1996 estimated production includes 70,000 to
80,000 ounces from the La Choya mine, 40,000 to 50,000 ounces from
the Company's 80% interest in the Grouse Creek mine, 25,000 to
30,000 ounces from the Company's 47% interest in the American Girl
mine, and an additional 5,000 ounces from other sources. The
Company's share of silver production for 1996 is expected to be
between 2.0 and 2.4 million ounces compared to 1995 production of
2.2 million ounces.
In 1995, the Company shipped 991,000 tons of industrial minerals,
including ball clay, kaolin, feldspar, and specialty aggregates. The
Company's shipments of industrial minerals are expected to increase
in 1996 to 1,067,000 tons. Additionally, the Company expects to
ship 950,000 cubic yards of landscape material from Mountain West
Products in 1996 compared to 867,000 cubic yards in 1995.
RESULTS OF OPERATIONS
The Company recorded net income of approximately $1.5 million, or
$0.03 per common share, in the first three months of 1996 compared
to a net loss of approximately $2.5 million, or $0.05 per common
share, in the same period of 1995. After $2.0 million in dividends
to holders of the Company's Series B Cumulative Convertible
Preferred Stock, the Company's net loss applicable to common
shareholders for the first quarter of 1996 was $0.5 million, or
$0.01 per common share, compared to $4.5 million, or $0.09 per
common share, in the comparable 1995 period.
-13-
<PAGE> 14
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Sales of the Company's products increased by approximately $7.2
million, or 20.3%, in the first three months of 1996 as compared to
the same period in 1995, principally the result of increased product
sales totaling approximately $10.0 million, most notably from the La
Choya mine where gold production increased significantly, as well as
the Lucky Friday mine due to increased production of silver, lead
and zinc. In the first quarter of 1995, personnel at the Lucky
Friday mine worked to achieve normal production levels after
resuming operations in December 1994 as a result of the temporary
suspension of operations caused by the August 30, 1994 ore-
conveyance accident. Sales at the K-T Clay kaolin division also
increased due to the acquisition of the Langley kaolin plant in June
1995. These factors were partially offset by decreased sales of
$2.8 million at other operating properties, including the Republic
gold mine where operations ceased in February 1995 following the
completion of mining and milling operations, the Apex facility,
which was sold in September 1995, the Cactus mine, and the K-T ball
clay division.
Comparing the average metal prices for the first quarter of 1996
with the comparable 1995 period, gold increased by 5.5% to $400 per
ounce from $379 per ounce, silver increased by 17.9% to $5.54 per
ounce from $4.70 per ounce, lead increased by 25.3% to $0.347 per
pound from $0.277 per pound, and zinc decreased by 2.7% to $0.472
per pound from $0.485 per pound.
Cost of sales and other direct production costs increased
approximately $3.3 million, or 11.0%, from the first three months of
1995 to the comparable 1996 period primarily due to (1) increased
production costs at the Lucky Friday mine totaling approximately
$1.7 million due to increased production of silver, lead and zinc
where in 1995, production at the mine was returning to normal
production levels after the temporary suspension of operation as
discussed above; (2) increased costs at the K-T Clay kaolin
division of $1.6 million as a result of the acquisition of the
Langley kaolin plant in June 1995; (3) increased costs of $1.4
million at the La Choya mine as a result of increased gold
production; (4) increased costs at the American Girl mine of $0.9
million; and (5) increased production costs at various other
operations totaling approximately $0.7 million. These increases in
cost of sales and other direct production costs were partially
offset by decreases in operating costs at other operations totaling
approximately $3.0 million. These decreases are primarily due to
(1) decreased costs at the Apex property of $0.9 million as the
result of the sale
-14-
<PAGE> 15
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
of the processing facility in September 1995; (2) decreased costs at
the Grouse Creek mine of $0.8 million where the mine costs were
higher than anticipated in 1995 due to start up problems encountered
with the milling operation; (3) decreased costs of $0.6 million at
the Republic mine where operations were completed in February 1995;
and (4) other production cost decreases at other operating
properties totaling approximately $0.7 million.
Cost of sales and other direct production costs as a percentage of
sales from products decreased from 85% in the first quarter of 1995
to 78% in the comparable 1996 period, primarily due to increased
sales and production at the La Choya mine.
Cash and full production cost per gold ounce decreased from $312 and
$416 for the first quarter of 1995 to $260 and $353 for the first
quarter of 1996, respectively. The decrease in both the cash and
full production cost per gold ounce is primarily attributable to
increased gold production at the La Choya mine and decreased costs
at the Grouse Creek mine in the 1996 period, offset by increased
costs at the American Girl mine.
Cash and full production cost per silver ounce decreased from $4.74
and $6.00 in the first quarter of 1995 to $4.66 and $5.89 in the
first quarter of 1996, respectively. The decreases in the cost per
silver ounce are due primarily to increased production from the
Lucky Friday mine and an increase in the average price of lead in
the 1996 period. Lead and zinc are by-products of silver, the
revenues from which are netted against production costs in the
calculation of production cost per ounce of silver.
Other operating expenses decreased by $0.5 million, or 15.1%, from
the 1995 period to the 1996 period, due principally to (1) decreased
exploration costs totaling approximately $0.2 million relating
principally to the decreased expenditures at the Grouse Creek
property and Mexican exploration properties and (2) decreased
provision for closed operations and environmental matters of
approximately $0.2 million principally due to the receipt of
insurance proceeds relating to the Bunker Hill Superfund site of
$0.7 million, offset by additional accruals for environmental
matters relating to the Coeur d'Alene Basin area totaling
approximately $0.5 million.
Other income was approximately $0.6 million in the 1996 period
compared to $1.3 million in the 1995 period principally due to
decreased interest and other income of
-15-
<PAGE> 16
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
approximately $0.7 million primarily due to decreased copper
royalties. Total interest cost increased approximately $0.5 million
due to increased borrowing on the Company's revolving and term loan
facility. Interest cost capitalized increased approximately $0.4
million principally due to capitalized interest costs associated
with the Greens Creek development, the Rosebud project, the Lucky
Friday expansion project, and development at the American Girl
mine's Oro Cruz ore body.
FINANCIAL CONDITION AND LIQUIDITY
A substantial portion of the Company's revenue is derived from the
sale of products, the prices of which are affected by numerous
factors beyond the Company's control. Prices may change
dramatically in short periods of time and such changes have a
significant effect on revenues, profits and liquidity of the
Company. The Company is subject to many of the same inflationary
pressures as the U.S. economy in general. The Company continues to
implement cost-cutting measures in an effort to reduce per unit
production costs. Management believes, however, that the Company
may not be able to continue to offset the impact of inflation over
the long term through cost reductions alone. However, the market
prices for products produced by the Company have a much greater
impact than inflation on the Company's revenues and profitability.
Moreover, the discovery, development and acquisition of mineral
properties are in many instances unpredictable events. Future
metals prices, the success of exploration programs, changes in legal
and regulatory requirements, and other property transactions can
have a significant impact on the need for capital.
At March 31, 1996, assets totaled approximately $271.9 million and
shareholders' equity totaled approximately $185.7 million. Cash and
cash equivalents increased by $1.0 million to $5.0 million at March
31, 1996 from $4.0 million at the end of 1995.
During the first three months of 1996, approximately $9.8 million in
cash was provided by financing activities. The major sources of
cash were (1) proceeds totaling approximately $22.0 from the
issuance of 2.875 million common shares in an underwritten offering
completed in January 1996 and (2) proceeds totaling $11.5 million
from borrowing on the revolving and term loan facility. The primary
uses of cash were (1) repayments on long-term debt totaling
approximately $21.9 million and (2) preferred dividend payments
totaling approximately $2.0 million.
-16-
<PAGE> 17
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
The Company's investing activities used $8.4 million of cash during
the first three months of 1996. The most significant use of cash
was approximately $7.7 million of property, plant, and equipment
additions consisting of: a) construction in progress for the Greens
Creek mine, the American Girl Oro Cruz ore body, the Lucky Friday
expansion project, and the Rosebud project totaling approximately
$4.0 million, $1.2 million, $0.8 million, and $0.7 million,
respectively, and b) expenditures principally for ongoing
development of the tailings dam at the Grouse Creek mine totaling
approximately $0.7 million.
Operating activities required approximately $0.4 million of cash
during the first three months of 1996. The primary sources of cash
were from the La Choya mine, the Industrial Minerals operations, and
the Lucky Friday mine. Additionally, increases in accounts payable
and accrued expenses provided $1.5 million in cash, principally due
to increased accounts payable and accrued expenses at Mountain West
Products, Colorado Aggregate, and the Grouse Creek mine. Partially
offsetting these primary sources was a $9.1 million increase in
accounts and notes receivable due to (1) the buildup of receivables
at Mountain West Products and Colorado Aggregate of approximately
$3.0 million each due principally to the seasonal nature of sales at
these properties and (2) increased receivables at the Lucky Friday
mine due to increased production and improved lead prices.
Principal noncash charges included in operating activities include
depreciation, depletion, and amortization of approximately $5.5
million and a $1.2 million provision for reclamation and closure
costs.
The Company estimates that remaining capital expenditures to be
incurred in the balance of 1996 will be approximately $30.7 million,
including $1.9 million of capitalized interest. These expenditures
are expected to consist primarily of (1) the Company's share of
development expenditures at the Greens Creek project expected to
total approximately $15.0 million and (2) development expenditures
at the Rosebud project, the Grouse Creek mine and the Lucky Friday
mine totaling approximately $4.8 million, $4.3 million and $2.8
million, respectively. If the decision is made to further develop
and operate the Grouse Creek mine beyond the first quarter of 1997,
the Company estimates additional capital expenditures totaling
approximately $4.0 million in 1996 and another $4.0 million in 1997,
principally for the development of the Grouse deposit. The Company
intends to finance these capital expenditures
-17-
<PAGE> 18
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
through a combination of (1) existing cash and cash equivalents and
(2) cash flow from operating activities. In addition, the Company
may borrow funds from its revolving and term loan facility which,
subject to certain conditions, provides for borrowings up to a
maximum of $55.0 million.
The expected 1996 capital expenditures referred to above for the
Rosebud project totaling $4.8 million, represent an estimate of
costs to maintain the present status of the project until a decision
is made to develop the property as well as some final engineering
costs. Construction of the Rosebud project has been deferred until
adequate financing arrangements can be made. The Company is
presently evaluating different financing alternatives including
project financing and joint venture arrangements. Construction
costs for the Rosebud project are currently estimated to be $55.0 to
$58.0 million over the 14- to 18-month period needed to bring the
property into production once construction commences.
The Company's estimate of its capital expenditure requirements
assumes, with respect to the Greens Creek property, that the
Company's joint venture partner will not default with respect to its
portion of development costs and capital expenditures. However,
with respect to the Grouse Creek mine, the Company has been advised
that its joint venture partner Great Lakes Minerals Inc. will elect
to dilute its joint venture interest rather than pay its share of
any future capital expenditure requirements. Accordingly,
projections for Grouse Creek are based on the assumption that the
Company will be funding 100% of those requirements.
Pursuant to a Registration Statement filed with the Securities and
Exchange Commission and declared effective in the third quarter of
1995, the Company can, at its option, issue debt securities, common
shares, preferred shares or warrants in an amount not to exceed
$100.0 million in the aggregate. In January 1996, the Company
issued 2.875 million common shares to facilitate the funding of the
Company's capital expenditures in 1996. The Company used $21.0
million of the net proceeds of approximately $22.0 million from the
sale of its common shares to pay down debt under its existing
revolving and term loan credit facility thus increasing its
borrowing capacity under the facility. As of March 31, 1996, a
total of $30.0 million remained available under the bank facility.
-18-
<PAGE> 19
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
The Company's planned environmental and reclamation expenditures for
the balance of 1996 are expected to be approximately $5.0 to $6.0
million, principally for environmental and reclamation activities at
the Bunker Hill Superfund Site, Republic mine, Coeur d'Alene River
Basin, and the Cactus mine.
Exploration expenditures for the balance of 1996 are estimated to be
approximately $4.0 to $5.0 million. The Company's exploration
strategy is to focus further exploration at or in the vicinity of
its currently owned properties. Accordingly, these exploration
expenditures will be incurred principally at Rosebud, Greens Creek,
La Choya, American Girl, Lucky Friday, and Mexican exploration
targets.
In the normal course of its business, the Company uses forward sales
commitments and commodity put and call option contracts to manage
its exposure to fluctuations in the prices of certain metals which
it produces. Contract positions are designed to ensure that the
Company will receive a defined minimum price for certain quantities
of its production. Gains and losses, and the related costs paid or
premium received, for contracts which hedge the sales prices of
commodities are deferred and included in income as part of the
hedged transaction. Revenues from the aforementioned contracts are
recognized at the time contracts are closed out by delivery of the
underlying commodity or settlement of the net position in cash. The
Company is exposed to certain losses, generally the amount by which
the contract price exceeds the spot price of a commodity, in the
event of nonperformance by the counterparties to these agreements.
As of March 31, 1996, the Company had forward sales commitments
through January 31, 1997, for 10,000 ounces of gold at an average
price of $412 per ounce. The estimated fair value of these forward
sales commitments was $94,000 as of March 31, 1996. The Company has
also purchased options to put 61,950 ounces of gold to
counterparties to such options at an average price of $395 per
ounce. Concurrently, the Company sold options to allow
counterparties to such options to call 61,950 ounces of gold from
the Company at an average price of $462 per ounce. There was no net
cost associated with the purchase and sale of these options which
expire on a monthly basis through December 1997. The London Final
gold price at March 31, 1996, was $396.35. At March 31, 1996, the
estimated fair value of the Company's purchased gold put options was
approximately $527,000. If the Company had chosen to close its
offsetting short call option position, it would have incurred a
liability of
-19-
<PAGE> 20
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
approximately $235,000. Additionally, the Company has entered into
spot deferred sales commitments for 12,000 ounces of gold at $399
per ounce. The nature and purpose of the forward sales and option
contracts, however, do not presently expose the Company to any
significant net loss. All of the aforementioned contracts were
designated as hedges as of March 31, 1996.
Prior declines in the Mexican peso did not significantly impacted
results at the La Choya mine or K-T Clay de Mexico, S.A. de C.V. as
both funding for operations and sales are denominated in dollars.
In the first three months of 1996, a net foreign exchange loss
totaling $14,000 was recorded relating to both of the Company's
Mexican operations. However, further declines in the Mexican peso
could adversely impact the Company's Mexican operations.
As described in Note 5 of Notes to Consolidated Financial
Statements, the Company is a defendant in a legal action filed in
November 1990 by Star Phoenix and certain principals of Star
Phoenix, asserting that the Company breached the terms of Star
Phoenix's lease agreement for the Company's Star Morning Mine and
that the Company interfered with certain contractual relationships
of Star Phoenix relating to the Company's 1990 termination of such
lease agreement. In June 1994, a judgment was entered by the Idaho
State District Court against the Company in the legal proceeding in
the amount of $10.0 million in compensatory damages and $10.0
million in punitive damages based on a jury verdict rendered in the
case in late May 1994. The Company's post-trial motions were denied
by the District Court, and the Company appealed the judgment to the
Idaho State Supreme Court. Briefing on the appeal has been
completed and oral argument was presented to the Idaho State Supreme
Court on April 10, 1996. A decision from the Idaho State Supreme
Court is expected in late 1996. Post-judgment interest will accrue
during the appeal period; the current interest rate is 10.875%. In
order to stay the ability of Star Phoenix to collect on the judgment
during the pendency of the appeal, the Company posted an appeal bond
in the amount of $27.2 million representing 136% of the District
Court judgment. The Company pledged U.S. Treasury Securities
totaling $10.0 million as collateral for the $27.2 million bond.
Although the ultimate outcome of the appeal of the judgment is
subject to the inherent uncertainties of any legal proceeding, based
on the Company's analysis of the factual and legal issues associated
with the proceeding before the District Court and based upon the
opinions of outside counsel, as of the
-20-
<PAGE> 21
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
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 the event of an unfavorable outcome in
this proceeding, the judgment would be paid from the pledged
collateral totaling $10.0 million with the remaining balance to be
paid from bank borrowings, other potential financing arrangements or
proceeds from certain asset sales.
Although the ultimate disposition of this matter and various other
pending legal actions and claims is not presently determinable, it
is the opinion of the Company's management, based upon the
information available at this time, that the outcome of these suits
and proceedings will not have a material adverse effect on the
results of operations and financial condition of the Company and its
subsidiaries.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123). SFAS No. 123 establishes
financial accounting and reporting standards for stock-based
employee compensation plans. SFAS No. 123 encourages all entities
to adopt a fair value based method of accounting, but allows an
entity to continue to measure compensation cost for those plans
using the intrinsic value method of accounting prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees." The
Company will comply with the provisions of SFAS No. 123 on January
1, 1996, by presenting the pro-forma disclosure requirements of SFAS
No. 123 in its 1996 annual financial statements.
-21-
<PAGE> 22
PART II - OTHER INFORMATION
HECLA MINING COMPANY and SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
In July 1991, the Coeur d'Alene Indian Tribe (the Tribe) brought a
lawsuit, under the Comprehensive Environmental Response Liability
Act of 1980 (CERCLA), in Idaho Federal District Court against the
Company and a number of other mining companies asserting claims for
damages to natural resources located downstream from the Bunker Hill
Superfund Site located at Kellogg, Idaho, over which the Tribe
alleges some ownership or control. The Company has answered the
Tribe's complaint denying liability for natural resource damages and
asserted a number of defenses to the Tribe's claims, including a
defense that the Tribe has no ownership or control over the natural
resources they assert have been damaged. In July 1992, in a
separate action between the Tribe and the State of Idaho, the Idaho
Federal District Court determined that the Tribe does not own the
beds, banks and waters of Lake Coeur d'Alene and the lower portion
of its tributaries, the ownership of which is the primary basis for
the natural resource damage claims asserted by the Tribe against the
Company. Based upon the Tribe's appeal of the July 1992 District
Court ownership decision to the 9th Circuit U.S. Court of Appeals,
the Court in the natural resource damage litigation issued an order
on October 30, 1992, staying the court proceedings in the natural
resource damage litigation until a final decision is handed down on
the question of the Tribe's title. On December 9, 1994, the 9th
Circuit Court reversed the decision of the Idaho Federal District
Court and remanded the case of the Tribe's ownership for trial
before the Idaho Federal District Court. In April 1996, the U.S.
Supreme Court granted the State the right to appeal 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.
On March 22, 1996, the federal government brought a lawsuit in Idaho
Federal District Court against the Company and a number of other
mining companies which is similar to the above described Tribe's
lawsuit. The lawsuit is being brought by the federal government
asserting claims under CERCLA and the Clean Water Act and
-22-
<PAGE> 23
PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
seeks recovery for damages to natural resources located in the Coeur
d'Alene River Basin in North Idaho over which the federal government
asserts to be the trustee. The suit also seeks declaratory relief
that the Company and other defendants are jointly and severally
liable for response costs under CERCLA for historic mining impacts
in the Coeur d'Alene River Basin outside the Bunker Hill Superfund
Site. The Company's answer to the complaint is required to be filed
by May 17, 1996. The Company believes it has a number of defenses
to the federal government's claims.
On March 22, 1996, the Company entered into an agreement (the
Agreement) with the State of Idaho pursuant to which the Company
agreed to continue certain financial contributions to environmental
cleanup work in the Coeur d'Alene River Basin being undertaken by a
State Trustees group. In return, the State agreed not to sue the
Company for damage to natural resources for which the State is a
trustee for a period of five years, to pursue settlement with the
Company of the State's natural resource damage claims and to grant
the Company credit against any such State claims for all
expenditures made under the Agreement and certain other Company
contributions and expenditures for environmental cleanup in the
Coeur d'Alene Basin. In connection with the Agreement, the Company
increased its accrual for closed operations and environmental
matters by $0.5 million during the first quarter of 1996.
In 1991, the Company initiated litigation in the Idaho State
District Court in Kootenai County, Idaho, against a number of
insurance companies 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 for all
liabilities and claims asserted against the Company by the
Environmental Protection Agency (EPA) and the Tribe under CERCLA
related to the Bunker Hill Superfund Site and Coeur d'Alene River
Basin in northern Idaho. In 1992, the Court ruled that the primary
insurance companies had a duty to defend the Company in the Tribe's
lawsuit. During 1995 and in January 1996, the Company entered into
settlement agreements with a number of the insurance carriers named
in the litigation. The Company has received a total of $4.5 million
under the terms of the settlement agreements. Thirty percent of
these settlements is payable to the EPA to reimburse the U.S.
Government for past costs under the Bunker Hill Superfund Site
Consent Decree previously entered into by
-23-
<PAGE> 24
PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
the Company. Litigation is still pending against other insurers
with trial scheduled for October 1996. The remaining insurance
carriers are providing the Company a partial defense in all Coeur
d'Alene River Basin environmental litigation. As of March 31, 1996,
the Company had not reduced its accrual for reclamation and closure
costs to reflect the receipt of any anticipated insurance proceeds.
In June 1994, a judgment was entered against the Company in Idaho
State District Court in the amount of $10.0 million in compensatory
damages and $10.0 million in punitive damages based on a jury
verdict rendered in late May 1994 with respect to a lawsuit
previously filed against the Company by Star Phoenix Mining Company
(Star Phoenix), a former lessee of the Star Morning Mine, over a
dispute between the Company and Star Phoenix concerning the
Company's November 1990 termination of the Star Phoenix lease of the
Star Morning Mine property. A number of other claims by Star
Phoenix and certain principals of Star Phoenix against the Company
in the lawsuit were dismissed by the State District Court. On May
3, 1995, the District Court issued its final opinion and order on a
number of post-trial issues pending before the Court. The opinion
and order included the Court's denial of the post-trial motions
filed by Star Phoenix and certain of its principals regarding claims
which had been previously dismissed by the Court during trial. The
Court also awarded Star Phoenix approximately $300,000 in attorneys'
fees and costs. 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. Star Phoenix has
cross-appealed certain trial court discovery determinations.
Briefing on both appeals has been completed and oral argument was
presented to the Idaho Supreme Court on April 10, 1996. A decision
from the Idaho Supreme Court is expected in late 1996. Post-
judgment interest will accrue during the appeal period; the current
interest rate is 10.875%. In order to stay the ability of Star
Phoenix to collect on the judgment during the pendency 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 Securities totaling $10.0 million as
collateral for the appeal bond. This collateral amount is included
in restricted investments at March 31, 1996 and December 31, 1995.
The Company has vigorously pursued 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
-24-
<PAGE> 25
PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
settlement with Star Phoenix for any material amount. Although the
ultimate outcome of the appeal of the Idaho District Court 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.
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 disposition 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12 - Statement of Computation of Ratio of Earnings to
Fixed Charges
13 - First Quarter Report to Shareholders for the quarter
ended March 31, 1996, for release dated April 30,
1996
27 - Financial Data Schedule
(b) Reports on Form 8-K
Report on Form 8-K dated January 23, 1996, related to the sale
by the Company of 2,875,000 shares of the Company's Common
Stock, par value $0.25 per share, to Salomon Brothers Inc.
Items 2, 3, 4 and 5 of Part II are omitted from this report as inapplicable.
-25-
<PAGE> 26
HECLA MINING COMPANY and SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HECLA MINING COMPANY
------------------------------------
(Registrant)
Date: May 13, 1996 By /s/ Arthur Brown
-------------------------------------
Arthur Brown, Chairman, President
and Chief Executive Officer
Date: May 13, 1996 By /s/ Stanley E. Hilbert
-------------------------------------
Stanley E. Hilbert,
Corporate Controller
(Chief Accounting Officer)
-26-
<PAGE> 1
Exhibit 12
HECLA MINING COMPANY
FIXED CHARGE COVERAGE RATIO CALCULATION
For the three months ended March 31, 1995 and 1996
(In thousands, except ratios)
<TABLE>
<CAPTION>
Three Months Three Months
1996 1995
------------ ------------
<S> <C> <C>
Net income (loss) before income taxes $ 1,511 $ (2,414)
Add: Fixed Charges 2,767 2,323
Less: Capitalized Interest (477) (58)
-------- --------
Net income (loss) before
income taxes $ 3,801 $ (149)
======== ========
Fixed charges:
Preferred stock dividends $ 2,012 $ 2,012
Interest portion of rentals 134 146
Interest expense 621 165
-------- --------
Total fixed charges $ 2,767 $ 2,323
======== ========
Fixed Charge Ratio 1.37 (a)
Inadequate coverage $ - - $ 2,472
======== ========
Write-downs and other noncash charges:
DD&A(b) (mining activity) $ 5,459 $ 5,642
DD&A(b) (corporate) 89 83
Provision for closed
operations (183) 56
-------- --------
$ 5,365 $ 5,781
======== ========
</TABLE>
(a) Earnings for period inadequate to cover fixed charges.
(b) "DD&A" is an abbreviation for "depreciation, depletion and amortization."
<PAGE> 1
[HECLA LOGO] Exhibit 13
HECLA REPORTS FIRST QUARTER RESULTS
For the Period Ended March 31, 1996
For release: April 30, 1996
COEUR D'ALENE, Idaho -- Hecla Mining Company (HL & HL-B:NYSE) today
reported a net loss of $537,000, or 1 cent per common share, for the first
quarter of 1996, on revenue of $43.6 million. The results include $2 million in
quarterly dividend payments to holders of preferred stock. This compares to a
net loss of $4.5 million, or 9 cents per common share for the first quarter of
1995, on revenue of $37.2 million. Prior to payment of the preferred dividend,
the company realized income of $1.5 million in the first quarter of 1996,
compared to a loss of $2.5 million during the same period in 1995.
Improved results over the same quarter last year are due primarily to
increased production from the La Choya gold mine, which nearly doubled its
output, and better performance from the Grouse Creek gold mine, which was in
start-up mode during the first quarter of 1995. A higher gold price also
contributed to improved results, averaging $400 per ounce during the first
quarter of 1996, compared to $379 an ounce for the first quarter of 1995.
Arthur Brown, Hecla's chairman, president and chief executive officer, said,
"I'm pleased to see improved performance from our operations in the first
quarter, particularly with regard to our precious metals operations."
PRODUCTION
Silver production improved to 536,000 ounces during the first quarter of
1996 at an average cash cost of $4.66 per ounce. Gold production was also up
from 39,000 ounces during the first quarter of 1995 to over 47,000 ounces in the
first quarter of 1996. The average cash cost per ounce of gold during this
year's first quarter was $260, a 17% reduction from last year's first quarter
costs. The company shipped 255,038 tons of industrial minerals in the first
quarter, compared to 242,768 tons shipped in the same period of 1995.
LUCKY FRIDAY EXPANSION PROJECT
At the beginning of April, Hecla reported that initial results from new
drilling into the Lucky Friday expansion areas confirmed the existence of a
large new silver deposit adjacent to the underground workings of the mine. The
Lucky Friday silver mine is located near Mullan, Idaho, and produced 1.7 million
ounces of silver in 1995. The currently identified resource in the new deposit
is estimated to contain nearly 50 million ounces of silver. An exploration
program which will include approximately 20,000 feet of diamond drilling is
under way to further delineate the deposit. Brown said, "I'm delighted about
the latest exploration results at the Lucky Friday mine. Expansion of our
silver reserves is a key part of our plan to increase Hecla's silver production
to eight million ounces or more annually."
GREENS CREEK
Redevelopment of the Greens Creek silver/gold/zinc/lead mine on Admiralty
Island near Juneau, Alaska, is ahead of the original schedule, which called for
start-up in January 1997. Hecla owns a
Contact Bill Booth, vice president-investor and public affairs, or Vicki
Veltkamp, manager-corporate communications
6500 Mineral Drive * Coeur d'Alene, Idaho 83814-8788 * 208/769-4100
* FAX 208/769-4159
<PAGE> 2
HECLA REPORTS FIRST QUARTER RESULTS Page 2
29.7% interest in the mine in a joint venture with Kennecott Greens Creek Mining
Company. The mine closed in 1993 due to low metals prices, but the discovery of
a new, higher-grade deposit will put the mine back to work producing silver at a
cash cost of under $3.00 per ounce. Current efforts include test mining in the
ore zones and upgrading the processing facilities. Hecla expects to see Greens
Creek contribute 3 million ounces of silver as the company's share of annual
production in 1997.
On April 1, 1996, final approval was received for a land exchange with the
U.S. Forest Service granting subsurface mining rights to a large area
surrounding the Greens Creek patented claims. The exchange will increase the
acreage surrounding the mine available for exploration from 340 acres to
7,500 acres containing several significant mineral exploration targets.
GROUSE CREEK
Hecla recently announced that mining is expected to continue at the Grouse
Creek gold mine in central Idaho for at least one more year while the Sunbeam
deposit is mined out. Based on improved ore grades and a recalculation of ore
reserves in the Sunbeam pit, additional ore tonnage has been added to the mine
plan. However, an approximate two-month shutdown of milling operations and a
one-month shutdown of mining operations at Grouse Creek will be necessary in
order to enlarge the tailings impoundment, which will reach capacity earlier
than expected due to extremely heavy snowfall and spring runoff. After
resumption of operations, the mine is expected to operate through the first
quarter of 1997.
The property also consists of the adjacent Grouse deposit. Hecla is
continuing its evaluation of that deposit to determine whether it is
economically viable to mine the Grouse deposit after mining in the Sunbeam pit
is completed. A determination as to whether to develop the Grouse deposit is
expected later this year.
Operations at Grouse Creek during the first quarter produced over 18,000
ounces of gold for Hecla's account, at a cash cost of $296 per ounce. Hecla
holds an 80% interest in the property in a joint venture with Great Lakes
Minerals Inc.
OTHER METALS OPERATIONS
Hecla's La Choya gold mine in Sonora, Mexico, continued to perform well
during the first quarter. The mine produced more than 21,000 ounces of gold at
a cash cost of $175 per ounce, nearly doubling the ounces produced during the
first quarter of last year.
The American Girl gold mine in southern California turned in a
disappointing performance in the first quarter, with cash costs at approximately
$431 per ounce. Hecla holds a 47% interest in the mine through a joint venture
with MK Gold, the operator of the property. First quarter results from the Oro
Cruz ore body, which is now being mined, have been unsatisfactory. A technical
team consisting of experts from both companies has been formed to address the
problems at the property.
INDUSTRIAL MINERALS
Operating income for Hecla's industrial minerals divisions increased
slightly from the same quarter a year ago, primarily because of outstanding
performance by the kaolin and feldspar operations. Last year, Hecla acquired
the Langley, South Carolina, kaolin mine and processing plant, resulting in
Contact Bill Booth, vice president-investor and public affairs, or Vicki
Veltkamp, manager-corporate communications
6500 Mineral Drive * Coeur d'Alene, Idaho 83814-8788 * 208/769-4100
* FAX 208/769-4159
<PAGE> 3
HECLA REPORTS FIRST QUARTER RESULTS Page 3
increased sales and income from kaolin. Higher net income from feldspar and
kaolin was offset by sluggish ball clay sales in the first quarter.
EXPLORATION
Hecla has signed a letter of intent with Dakota Mining Corporation to
combine their interests in the Stibnite/Yellow Pine area in north-central Idaho.
Hecla's interest consists of a currently identified sulfide gold deposit
containing approximately 1.8 million ounces of contained gold. Dakota's
property provides additional exploration potential and the level ground
necessary for building a processing plant and the associated infrastructure
needed to support a mining plan. The gold mineralization is sulfide in nature,
which requires a different type of processing than does oxide gold
mineralization. Hecla believes there is significant potential in this district
for additional gold reserves to be discovered. The unitization of Hecla's
property at Yellow Pine with Dakota's is an important first step toward making
the resource more attractive for potential development, possibly by a third
party with appropriate expertise at processing sulfide material.
ENVIRONMENTAL
In April, Hecla was named a defendant in a lawsuit brought by the federal
government against several mining companies for alleged federal natural resource
damages caused by historic mining practices in North Idaho. Hecla and other
mining companies in the area have been working on cleanup programs for several
years, cooperating with both federal and State of Idaho agencies. Based upon
available information, Hecla does not believe the federal claims are
supportable, nor does it believe that the ultimate outcome of the litigation
will have a material adverse effect on the results of operating and financial
conditions of the company. However, the company believes the lawsuit will have
a counterproductive impact on cleanup efforts already under way.
The State of Idaho and Hecla Mining Company have recently entered into an
agreement designed to provide additional funding of ongoing cleanup initiatives
in northern Idaho's Coeur d'Alene Basin, while putting on hold any state
litigation against Hecla for any Basin-related state natural resource damages.
The agreement is intended to put additional money and manpower into the Basin
cleanup, rather than litigation. The State and Hecla will continue to seek a
negotiated agreement on a final resolution of the State's claims against Hecla.
Hecla Mining Company, headquartered in Coeur d'Alene, Idaho, is one of the
United States' best-known silver producers. The company also produces gold and
is a major supplier of ball clay, kaolin and other industrial minerals. Hecla's
operations are principally in the U.S. and Mexico.
-HL-
Hecla Mining Company news releases can be accessed on the Internet at:
http://www.hecla-mining.com
You can also request a free fax of this entire news release
from BusinessWire NewsOnDemand at 800-344-7826
Contact Bill Booth, vice president-investor and public affairs, or Vicki
Veltkamp, manager-corporate communications
6500 Mineral Drive * Coeur d'Alene, Idaho 83814-8788 * 208/769-4100
* FAX 208/769-4159
<PAGE> 4
HECLA MINING COMPANY
(dollars in thousands, except per-share amounts - unaudited)
<TABLE>
<CAPTION>
First Quarter Ended
-------------------------------
HIGHLIGHTS Mar. 31, 1996 Mar. 31, 1995
- ------------------------------------------------------------------------------
FINANCIAL DATA
- ------------------------------------------------------------------------------
<S> <C> <C>
Total revenue $ 43,641 $ 37,153
Gross profit (loss) 3,935 (162)
Net income (loss) 1,475 (2,464)
Loss applicable to common shareholders (537) (4,476)
Loss per common share (0.01) (0.09)
Cash flow used by operating activities (365) (935)
- ------------------------------------------------------------------------------
SALE OF PRODUCTS BY SEGMENT
- ------------------------------------------------------------------------------
Gold operations $ 19,015 $ 14,971
Silver operations 4,476 2,427
Industrial minerals 19,456 17,402
Specialty metals - - 910
--------- --------
Total sales $ 42,947 $ 35,710
- ------------------------------------------------------------------------------
GROSS PROFIT (LOSS) BY SEGMENT
- ------------------------------------------------------------------------------
Gold operations $ 2,189 $ (1,609)
Silver operations 108 (161)
Industrial minerals 1,638 1,604
Specialty metals - - 4
--------- --------
Total gross profit (loss) $ 3,935 $ (162)
- ------------------------------------------------------------------------------
PRODUCTION SUMMARY - TOTALS
- ------------------------------------------------------------------------------
Gold - Ounces 47,272 38,984
Silver - Ounces 536,000 459,395
Lead - Tons 5,577 3,649
Zinc - Tons 1,006 585
Industrial minerals - Tons shipped 255,038 242,768
Average cost per ounce of gold produced:
Cash cost ($/oz.) 260 312
Full cost ($/oz.) 353 416
Average cost per ounce of silver produced:
Cash cost ($/oz.) 4.66 4.74
Full cost ($/oz.) 5.89 6.00
- ------------------------------------------------------------------------------
AVERAGE METAL PRICES
- ------------------------------------------------------------------------------
Gold - Realized ($/oz.) 401 385
Gold - London Final ($/oz.) 400 379
Silver - Handy & Harman ($/oz.) 5.54 4.70
Lead - LME Cash (cents/pound) 34.7 27.7
Zinc - LME Cash (cents/pound) 47.2 48.5
</TABLE>
Contact Bill Booth, vice president-investor and public affairs, or Vicki
Veltkamp, manager-corporate communications
6500 Mineral Drive * Coeur d'Alene, Idaho 83814-8788 * 208/769-4100
* FAX 208/769-4159
<PAGE> 5
HECLA MINING COMPANY
Consolidated Balance Sheets
(dollars in thousands - unaudited)
<TABLE>
<CAPTION>
-------------------------------
Mar. 31, 1996 Dec. 31, 1995
- ------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,018 $ 4,024
Accounts and notes receivable 34,698 25,571
Income tax refund receivable 762 737
Inventories 21,304 20,915
Other current assets 2,462 2,038
--------- ---------
Total current assets 64,244 53,285
Investments 2,260 2,200
Restricted investments 16,358 16,254
Properties, plants and equipment, net 179,474 177,374
Other noncurrent assets 9,537 9,077
--------- ---------
Total assets $ 271,873 $ 258,190
========= =========
- ------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 15,677 $ 14,145
Accrued payroll and related benefits 2,566 3,217
Preferred stock dividends payable 2,012 2,012
Accrued taxes 1,303 1,042
Accrued reclamation costs 5,549 5,549
--------- ---------
Total current liabilities 27,107 25,965
Deferred income taxes 359 359
Long-term debt 25,699 36,104
Accrued reclamation costs 27,821 26,782
Other noncurrent liabilities 5,221 4,864
--------- ---------
Total liabilities 86,207 94,074
--------- ---------
- ------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------
Preferred stock 575 575
Common stock 12,798 12,079
Capital surplus 351,606 330,352
Accumulated deficit (173,743) (173,206)
Net unrealized gain on investments 214 100
Foreign currency translation adjustment (4,898) (4,898)
Treasury stock (886) (886)
--------- ---------
Total shareholders' equity 185,666 164,116
--------- ---------
Total liability and shareholders' equity $ 271,873 $ 258,190
========= =========
Common shares outstanding at end of period 51,130 48,255
========= =========
</TABLE>
Contact Bill Booth, vice president-investor and public affairs, or Vicki
Veltkamp, manager-corporate communications
6500 Mineral Drive * Coeur d'Alene, Idaho 83814-8788 * 208/769-4100
* FAX 208/769-4159
<PAGE> 6
HECLA MINING COMPANY
Consolidated Statements of Operations
(dollars and shares in thousands, except per-share amounts - unaudited)
<TABLE>
<CAPTION>
First Quarter Ended
--------------------------------
Mar. 31, 1996 Mar. 31, 1995
------------- -------------
<S> <C> <C>
Sales of products $ 42,947 $ 35,710
--------- ---------
Cost of sales and other direct production costs 33,553 30,230
Depreciation, depletion and amortization 5,459 5,642
--------- ---------
39,012 35,872
--------- ---------
Gross profit (loss) 3,935 (162)
--------- ---------
Other operating expenses:
General and administrative 2,271 2,330
Exploration 803 1,043
Depreciation and amortization 89 83
Provision for closed operations and
environmental matters (183) 56
--------- ---------
2,980 3,512
--------- ---------
Income (loss) from operations 955 (3,674)
--------- ---------
Other income (expense):
Interest and other income 694 1,443
Foreign exchange loss (14) (197)
Gain on investments 20 121
Interest expense:
Total interest cost (621) (165)
Less amount capitalized 477 58
--------- ---------
556 1,260
--------- ---------
Income (loss) before income taxes 1,511 (2,414)
Income tax provision (36) (50)
--------- ---------
Net income (loss) 1,475 (2,464)
Preferred stock dividends (2,012) (2,012)
--------- ---------
Loss applicable to common shareholders $ (537) $ (4,476)
========= =========
Loss per common share $ (0.01) $ (0.09)
========= =========
Weighted average number of common
shares outstanding 51,130 48,107
========= =========
</TABLE>
Contact Bill Booth, vice president-investor and public affairs, or Vicki
Veltkamp, manager-corporate communications
6500 Mineral Drive * Coeur d'Alene, Idaho 83814-8788 * 208/769-4100
* FAX 208/769-4159
<PAGE> 7
HECLA MINING COMPANY
Consolidated Statements of Cash Flows
(dollars in thousands - unaudited)
<TABLE>
<CAPTION>
First Quarter Ended
------------------------------
Mar. 31, 1996 Mar. 31, 1995
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
- --------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) $ 1,475 $ (2,464)
Noncash elements included in net income (loss):
Depreciation, depletion and amortization 5,548 5,725
Loss (gain) on disposition of properties,
plants and equipment 59 (265)
Gain on investments (20) (121)
Provision for reclamation and closure costs 1,199 220
Change in:
Accounts and notes receivable (9,127) (5,029)
Income tax refund receivable (25) (2)
Inventories (389) (185)
Other current assets (424) (95)
Accounts payable and accrued expenses 1,532 (1,294)
Accrued payroll and related benefits (651) (630)
Accrued taxes 261 528
Accrued reclamation and other noncurrent
liabilities 197 2,677
-------- --------
Net cash used by operating activities (365) (935)
-------- --------
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
- --------------------------------------------------------------------------------
Additions to properties, plants and equipment (7,739) (6,961)
Proceeds from disposition of properties, plants
and equipment 74 314
Proceeds from the sales of investments 20 126
Increase in restricted investments (104) (48)
Purchase of investments and increase in cash
surrender value of life insurance (146) (195)
Other, net (502) (835)
-------- --------
Net cash used by investing activities (8,397) (7,599)
-------- --------
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
- --------------------------------------------------------------------------------
Proceeds from exercise of stock warrants - - 1,208
Issuance of common stock, net of offering costs 21,973 - -
Dividends on preferred stock (2,012) (2,012)
Borrowings against cash surrender value
of life insurance 200 - -
Borrowing on long-term debt 11,500 11,000
Repayment on long-term debt (21,905) (3,884)
-------- --------
Net cash provided by financing activities 9,756 6,312
-------- --------
Net increase (decrease) in cash and cash equivalents 994 (2,222)
Cash and cash equivalents at beginning of period 4,024 7,278
-------- --------
Cash and cash equivalents at end of period $ 5,018 $ 5,056
======== ========
</TABLE>
Contact Bill Booth, vice president-investor and public affairs, or Vicki
Veltkamp, manager-corporate communications
6500 Mineral Drive * Coeur d'Alene, Idaho 83814-8788 * 208/769-4100
* FAX 208/769-4159
<PAGE> 8
HECLA MINING COMPANY
Production Data
<TABLE>
<CAPTION>
First Quarter Ended
------------------------------
Mar. 31, 1996 Mar. 31, 1995
- ------------------------------------------------------------------------------
LA CHOYA UNIT
- ------------------------------------------------------------------------------
<S> <C> <C>
Tons of ore mined 1,043,070 578,435
Ore grade mined - Gold (oz./ton) 0.019 0.037
Gold produced (oz.) 21,036 11,016
Silver produced (oz.) 2,352 1,064
Average cost per ounce of gold produced:
Cash cost $175 $221
Full cost $287 $306
- ------------------------------------------------------------------------------
AMERICAN GIRL UNIT (Reflects Hecla's 47% share)
- ------------------------------------------------------------------------------
Tons of ore milled 31,629 19,873
Tons of ore to heap 138,963 200,266
Ore grade milled - Gold (oz./ton) 0.121 0.187
Ore grade to heap - Gold (oz./ton) 0.045 0.027
Gold produced (oz.) 6,439 5,527
Silver produced (oz.) 1,804 4,471
Average cost per ounce of gold produced:
Cash cost $431 $359
Full cost $509 $376
- ------------------------------------------------------------------------------
GROUSE CREEK (1) (Reflects Hecla's 80% share)
- ------------------------------------------------------------------------------
Tons of ore milled 440,883 246,161
Ore grade milled - Gold (oz./ton) 0.043 0.070
Ore grade milled - Silver (oz./ton) 0.410 0.770
Gold produced (oz.) 18,339 17,857
Silver produced (oz.) 101,220 104,950
Average cost per ounce of gold produced:
Cash cost $296 $382
Full cost $376 $552
- ------------------------------------------------------------------------------
LUCKY FRIDAY UNIT
- ------------------------------------------------------------------------------
Tons of ore milled 42,729 32,340
Ore grade milled - Silver (oz./ton) 10.25 10.51
Silver produced (oz.) 428,620 333,066
Lead produced (tons) 5,577 3,649
Average cost per ounce of silver produced:
Cash cost $4.66 $4.74
Full cost $5.89 $6.00
- ------------------------------------------------------------------------------
OTHER
- ------------------------------------------------------------------------------
Gold produced (oz.) 1,458 4,584
Silver produced (oz.) 2,004 15,844
(1)Production at the Grouse Creek Unit began during December 1994. The
ownership percentage of the Grouse Creek mine has increased to 80.13% as of
March 31, 1996, compared to 80.00% at March 31, 1995.
</TABLE>
Contact Bill Booth, vice president-investor and public affairs, or Vicki
Veltkamp, manager-corporate communications
6500 Mineral Drive * Coeur d'Alene, Idaho 83814-8788 * 208/769-4100
* FAX 208/769-4159
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 5,018
<SECURITIES> 0
<RECEIVABLES> 34,698
<ALLOWANCES> 0
<INVENTORY> 21,304
<CURRENT-ASSETS> 64,244
<PP&E> 390,778
<DEPRECIATION> (211,304)
<TOTAL-ASSETS> 271,873
<CURRENT-LIABILITIES> 27,107
<BONDS> 0
0
575
<COMMON> 12,798
<OTHER-SE> 172,293
<TOTAL-LIABILITY-AND-EQUITY> 271,873
<SALES> 42,947
<TOTAL-REVENUES> 43,641
<CGS> 33,553
<TOTAL-COSTS> 39,012
<OTHER-EXPENSES> 2,980
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144
<INCOME-PRETAX> 1,511
<INCOME-TAX> (36)
<INCOME-CONTINUING> 1,475
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,475
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
