<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File 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
Title of each class which each class is registered
- ----------------------------------------- ------------------------------
( Common Stock, par value $0.25 per share )
( Preferred Share Purchase Rights )
( Series B Cumulative Convertible Preferred) New York Stock 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, $.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 .
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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 $440,998,424 as of February 29, 1996. There were
51,130,252 shares of the Registrant's Common Stock outstanding as of February
29, 1996.
Documents incorporated by reference herein:
To the extent herein specifically referenced in Part III, the
information contained in the Proxy Statement for the 1996 Annual Meeting of
Shareholders of the Registrant, which will be filed with the Commission
pursuant to Regulation 14A within 120 days of the end of the Registrant's
1995 fiscal year is incorporated herein by reference. See Part III.
<PAGE> 2
PART I
ITEM 1. BUSINESS.(1)
GENERAL
Hecla Mining Company (the Company), originally incorporated in 1891, is
principally engaged in the exploration, development and mining of precious and
nonferrous metals, including gold, silver, lead and zinc, and certain industrial
minerals. The Company owns or has interests in a number of precious and
nonferrous metals properties and industrial minerals businesses. In 1995, the
Company's attributable gold and silver production was 169,777 ounces and
2,242,309 ounces, respectively. The Company also shipped approximately 991,000
tons of industrial minerals products during 1995, 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; and the Lucky
Friday silver mine, located near Mullan, Idaho, which is a significant primary
producer of silver in North America. 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. A decision to redevelop the Greens Creek
mine was made in 1995, and commercial production is estimated to recommence by
early 1997.
The following table presents certain information regarding the Company's metal
mining and development properties, including their relative percentage
contributions to the Company's 1995 revenues:
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(1)For definitions of certain mining terms used in this description, see
"Glossary of Certain Mining Terms" at the end of Item 1, page 45.
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<TABLE>
<CAPTION>
DATE OWNERSHIP PERCENTAGE OF
NAME OF PROPERTY ACQUIRED INTEREST 1995 REVENUE(1)
- ---------------- -------- --------- ------------
<S> <C> <C> <C>
Lucky Friday 1958 100.0% 8.3%
Republic(5) 1982 100.0% 0.7%
Greens Creek(2) 1988 29.7% - -
Cactus 1991 75.0% 0.9%
Grouse Creek(3) 1991 80.0% 18.2%
La Choya 1991 100.0% 17.7%
American Girl(4) 1994 47.0% 5.4%
Rosebud(4) 1994 100.0% - -
</TABLE>
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(1) Percentages exclude the contributions of the Company's industrial minerals
and specialty metals segments. The relative percentage contributions to
the Company's 1995 revenue by the industrial minerals and specialty metals
segments were 46.0% and 2.8%, respectively.
(2) 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 estimated to recommence by early 1997.
(3) The Grouse Creek project commenced production in the fourth quarter 1994,
with full production achieved in 1995.
(4) The Company's interests in the American Girl mine and Rosebud project were
acquired in the March 11, 1994 acquisition of Equinox Resources Ltd.
(5) The Republic mine completed operations in February 1995.
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 significant producer of three of the four basic ingredients required
to manufacture ceramic and porcelain products, including sanitaryware, pottery,
dinnerware, electric insulators, and tile. At current production rates, the
Company has over 20 years of proven and probable mineral reserves of ball clay,
kaolin and feldspar. During 1995, the industrial minerals businesses provided
approximately $11.5 million of cash from operations.
Following completion of the Company's 1995 third quarter, as a result of its
periodic review of the status of various mining properties, the Company
determined that adjustments were required to properly reflect the estimated net
realizable value of properties, plants and equipment for the Company's 80%
interest in the Grouse Creek mine. This adjustment totaled $97.0 million
reflecting the write-down of the entire carrying value of the Company's 80%
interest in the Grouse Creek mine. The Grouse Creek mine carrying value write-
down was necessary due to significantly higher than expected operating costs per
gold ounce which was due to much lower than anticipated gold grades being
realized from the proven and probable ore reserves. This adjustment was
reported as a reduction in carrying value of mining properties at September 30,
1995 (see Metals Segment - Grouse Creek Gold Mine - Idaho).
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The Company has experienced losses from operations for each of the last five
years. For the year ended December 31, 1995, the Company reported a loss of
approximately $101.7 million (before preferred dividends of $8.0 million) or
$2.11 per share of common stock, par value $0.25 per share, of the Company (the
Common Stock) compared to a net loss of approximately $24.6 million (before
preferred stock dividends of $8.0 million) or $0.56 per share of Common Stock
for the year ended December 31, 1994. The 1995 net loss resulted primarily from
the write-down of the Company's interest in the Grouse Creek mine in the third
quarter of 1995 totaling $97.0 million as described above. The 1994 net loss
resulted primarily from nonrecurring asset write-downs and increases in the
Company's provision for closed operations and environmental matters. If
Company's estimates of the 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 $(2.0) million loss to income of $5.0 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 the year ending December 31,
1996 will be as projected.
On March 11, 1994, the Company and two wholly owned Canadian subsidiaries of the
Company completed the acquisition of Equinox Resources Ltd. (Equinox), a mining,
exploration and development company, incorporated under the laws of the Province
of British Columbia. In connection with the acquisition of Equinox, the Company
issued approximately 6.3 million Common Stock (including shares issuable upon
exercise of outstanding options and warrants) indicating a transaction value of
approximately $76.3 million on the date of acquisition.
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 efforts. During 1996, priorities include the
continued redevelopment of the Greens Creek mine and development of the Gold
Hunter ore body at the Company's Lucky Friday mine, evaluating the Grouse Creek
mine ore body to determine feasibility of continuing operations (which is
expected to be completed in the second quarter of 1996), and evaluating
alternatives for the potential development of the Rosebud project.
The Company's domestic exploration plan consists primarily of exploring for
additional reserves in the vicinity of the Rosebud project and the Lucky Friday
mine. In addition, the Company's joint venture participants plan to conduct
exploration activities at the Greens Creek mine and the American Girl mine. The
Company's foreign exploration plan for 1996 will focus on exploration targets in
Mexico. At the same time, the Company will continue to evaluate
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acquisition and other exploration opportunities, primarily in North America,
that will complement its existing operations.
The Company's revenues and profitability are strongly influenced by the world
prices of silver, gold, lead and zinc. Metals prices fluctuate widely and are
affected by numerous factors beyond the Company's control, including inflation
and worldwide forces of supply and demand. The aggregate effect of these
factors is not possible to accurately predict.
Sales of metal concentrates and metal products are made principally 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:
<TABLE>
<CAPTION>
Years
------------------------
Product 1995 1994 1993
- -------------------- ---- ---- ----
<S> <C> <C> <C>
Gold 41.1% 39.0% 34.3%
Silver 5.6 4.4 7.5
Lead 4.2 2.9 3.9
Industrial minerals 36.1 39.7 48.1
All others(1) 13.0 14.0 6.2
</TABLE>
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(1) All others include zinc, specialty metals and sales from Mountain West
Products exclusive of scoria sales.
Reference is made to Note 1 of Notes to Consolidated Financial Statements for
information with respect to export sales.
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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:
<TABLE>
<CAPTION>
Years
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Products 1995 1994 1993 1992 1991
- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Gold (ounces)(1) 169,777 127,878 95,907 101,392 147,228
Silver (ounces)(2) 2,242,309 1,642,913 2,992,499 4,738,625 5,326,852
Lead (tons) 16,967 13,214 21,093 26,942 23,957
Zinc (tons) 2,999 2,431 7,838 19,890 15,070
Average Cost per Ounce
of Gold Produced:
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Cash production costs $288 $273 $229 $191 $191
Full production costs $397 $334 $298 $261 $279
Average Cost per Ounce
of Silver Produced:
- ----------------------
Cash production costs $4.57 $5.81 $5.45 $4.51 $4.50
Full production costs $5.76 $7.17 $6.85 $5.89 $5.67
Industrial minerals (tons shipped) 991,214 985,639 887,676 879,034 823,214
</TABLE>
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(1) The increase in gold production from 1994 to 1995 is principally due
to increased gold production from the Grouse Creek gold mine where
gold production increased 64,794 ounces, from 2,093 ounces in 1994 to
66,887 ounces in 1995, and increased gold production from the La Choya
gold mine, where gold production increased 24,283 ounces, from 47,861
ounces in 1994 to 72,144 ounces in 1995. The increase in gold
production was offset by decreased gold production at the Republic Unit
which completed operations in February 1995, and decreased gold
production at the American Girl mine due to fewer tons being milled.
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, and the commencement of operations at the Grouse Creek gold mine
in December 1994 partially offset by decreased gold production at the
Republic mine. The decrease in gold production from 1992 to 1993 is
principally due to decreased production at both the Cactus (which
was shut down in 1993) 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
gold mines.
(2) Increased silver, lead and zinc production from 1994 to 1995 is
principally due to increased silver production from the Grouse Creek
mine which contributed a full year's production in 1995 after
commencing operations in December 1994, and increased silver, lead and
zinc production from the Lucky Friday mine resulting in part from the
effect of the temporary suspension of operations due to an ore
conveyance accident on August 30, 1994. The Lucky Friday resumed
operations in December 1994. Decreased silver, lead and 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. 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 principal executive offices of the Company are located at 6500 Mineral
Drive, Coeur d'Alene, Idaho 83814-8788, telephone (208) 769-4100.
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<PAGE> 7
METALS SEGMENT
GROUSE CREEK GOLD MINE - IDAHO
Operations at the Grouse Creek gold mine commenced in December 1994 and full
production levels were achieved by June 1995. The Company's 80% interest in the
Grouse Creek mine production during 1995 amounted to 66,887 ounces of gold and
541,532 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, totaling $13.3 million, represent the sales
price of $6.8 million for 20% of the amount spent by the Company on acquisition,
exploration and development of the project through June 30, 1993, including a
fixed premium of $1.25 million, plus Great Lakes' pro-rata share of construction
costs for Grouse Creek from July 1, 1993 through January 31, 1994. Pursuant to
the acquisition and joint venture agreements, Great Lakes is required to fund
its 20% pro-rata portion of all capital and operating costs. In addition, these
agreements provide that until March 1, 1996, Great Lakes had the option to
purchase up to an additional 10% undivided interest in the mine and fund its
increased share of capital expenditures. This option expired unexercised on
March 1, 1996.
During the third quarter of 1995 and continuing into the fourth quarter of 1995,
the Grouse Creek mine experienced significantly higher than expected operating
costs per ounce of gold produced and significantly less than expected operating
margins resulting from higher than expected start-up costs and lower than
expected gold ore grade. Mining to date has indicated that mill grade ore
occurs in thinner, less continuous structures than originally interpreted. The
Company thus determined that a 1995 third quarter carrying value write-down
totaling $97.0 million was required to properly reflect net realizable value of
its 80% interest in the Grouse Creek Joint Venture. The amount of the
adjustment was based on the
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<PAGE> 8
Company's carrying value of its 80% interest in the Grouse Creek mine in excess
of the Company's share of estimated discounted future cash flows. A revised
life-of-mine cash flow analysis was developed early in the fourth quarter of
1995 for this purpose which recognizes the geologic complexity of the Sunbeam
deposit as determined from mining experience to date and includes a revised
interpretation of the geologic data.
Two distinct ore deposits have been identified at the Grouse Creek mine: the
Sunbeam deposit and the Grouse deposit. Both deposits are mined by open pit
methods.
The Company currently plans to continue mining on the Sunbeam pit through June
1996 and perform further ore confirmation drilling of the Grouse deposit to
evaluate the feasibility of mining operations beyond June 1996. The Company's
Board of Directors is currently expected to make a decision during the second
quarter of 1996 whether to continue further development and operation of the
Grouse Creek mine.
If the Grouse Creek mine is not further developed and operations wind down in
June 1996, 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 currently
estimated at approximately $3.0 to $4.0 million. If the decision is made to
shut the property down, an accrual for closed operations and environmental
matters in the range of $16.0 to $20.0 million would be necessary at the time
the mine is shut down.
Based on current plans, the Company's share of additional capital costs for the
mine are expected to be between $10.0 and $12.0 million during 1996. The
Company estimates that its share of total production at the Grouse Creek gold
mine will be from 30,000 to 60,000 ounces of gold in 1996. The upper end of the
range for both capital and gold production are contingent upon the Company's
decision to further develop and operate the mine beyond June 1996.
Pursuant to a November 27, 1995 agreement entered into between the Company and
Great Lakes, past due cash calls totaling $2.2 million were forgiven by the
Company in exchange for Great Lakes granting the Company certain warrants to
purchase Great Lakes' common stock (Great Lakes Warrants) which expire on
December 31, 1997, and a royalty totaling $2.3 million payable out of 25% (75%
after December 31, 1997) of the proceeds (in excess of cash operating
requirements) from Great Lakes' share of Grouse Creek production. As of
December 31, 1995, the Company has recorded a receivable from Great Lakes of
$1.3 million, which is the Company's estimated present value of the Great Lakes
Warrants and the royalty payments owed by Great Lakes. In addition, the Company
has been advised that Great Lakes anticipates it will elect to dilute its joint
venture interest rather than pay its share of any future capital
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<PAGE> 9
expenditure requirements for the Grouse Creek mine. Accordingly, projections
for Grouse Creek are based on the assumption that the Company will be funding
100% of those requirements.
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:
<TABLE>
<CAPTION>
Year Total Gold Gold Silver Silver
End Reserves Avg. Grade Content Avg. Grade Content
12/31 (tons)(2) (oz./ton) (ounces) (oz./ton) (ounces)
----- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1995(1) 6,872,400(4) 0.044 299,362 1.25 8,571,140
----
1994(1) 17,658,000(3) 0.041 721,600 0.92 16,206,080
----
1993(1) 12,104,000 0.055 671,200 1.07 12,972,800
----
1992(1) 14,467,000 0.057 831,000 1.21 17,474,000
----
1991(1) 15,018,600 0.048 719,150 1.20 17,276,810
----
</TABLE>
-----------------------
(1) 1995, 1994 and 1993 proven and probable mineral reserves
reflect 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.
(2) For proven and probable mineral reserve assumptions, including
assumed metals prices, see Glossary of Certain Mining Terms.
(3) 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 assumptions 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 totaling 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.
(4) Reserves at the unit decreased from 1994 to 1995 for the
following reasons:
a) During the year, 1,365,200 tons of ore containing
50,885 troy ounces of gold and 884,385 troy ounces
of silver were mined from the Sunbeam pit, and
18,408 tons of ore containing 7,786 troy ounces of
gold and 27,428 troy ounces of silver were mined
from Grouse underground;
b) Recalculation of Sunbeam pit reserves resulting in a
decrease of 2,348,880 tons of ore containing 115,207
troy ounces of gold and 580,702 troy ounces of
silver;
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<PAGE> 10
c) Lower-than-expected tonnage and grade in the portion
of the pit mined in 1995 leading to a production
shortfall of 766,800 tons containing 33,660 troy
ounces gold and 4,381 troy ounces of silver; and,
d) Increases in cutoff grade for the Sunbeam and Grouse
deposits, and decreases in mill recovery applied to
the Grouse deposit reserves to match actual
operating cost and recovery experience at the unit,
resulted in a reduction of 6,285,712 tons containing
214,700 ounces gold and 6,138,044 ounces silver.
Currently, the Grouse deposit is undergoing a reevaluation including
incorporation of 1995 drill hole information into a mineral inventory estimate
and a full metallurgical study. A new mine plan will be completed during the
second quarter 1996. The ore reserves for the Grouse Creek unit should be
considered preliminary, since changes to the Grouse pit mine plan, together with
ongoing evaluation of the Sunbeam pit mine plan could result in significant
changes to ore reserves at the unit.
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
process involves a 6,000-ton-per-day gold recovery facility. The recovery
process involves crushing and grinding of the ore and recovering approximately
50% of the gold in a gravity circuit. The remaining gold and silver is
dissolved in a weak sodium cyanide solution and recovered with carbon adsorption
and Merrill-Crowe precipitation. Overall recoveries are currently estimated at
92% gold and 50% silver for ore from the Sunbeam deposit, and 72% gold and 69%
silver for ore from the Grouse open pit deposit. A refinery on the property
produces a gold/silver dore that is further 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 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 6,000 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 3.6:1. The Grouse deposit will be mined at approximately the same rate
and will have a cut-off grade of 0.032 ounce per ton of gold equivalent and a
stripping ratio of 4.5:1.
Reclamation activities include the partial backfill and revegetation of the
Sunbeam deposit and the Grouse deposit and covering, recontouring and
revegetating the tailings surface and construction of a permanent spillway. The
waste dump and haul roads will be recontoured and revegetated. Process
facilities will be removed and foundations will be buried. Concurrent
reclamation practices will be employed whenever
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<PAGE> 11
possible. The reclamation plans have been approved by the appropriate state and
federal agencies. The Company's share of the reclamation expense recognized in
1995 totaled $1,006,817.
As of December 31, 1995, the Company's net book value of Grouse Creek property,
plant and equipment was $1.5 million. As of December 31, 1995, there were 200
employees at the Grouse Creek gold mine. The employees are not represented by a
bargaining agent.
LA CHOYA GOLD MINE - SONORA, MEXICO
The La Choya gold mine is located 30 miles south of the U.S. border in the State
of Sonora, Mexico, and is 100% owned by the Company 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 16,000 acres.
The La Choya gold mine commenced operations in February 1994 and produced
approximately 48,000 ounces of gold in 1994 and approximately 72,000 ounces in
1995. The Company expects to produce 60,000 to 65,000 ounces of gold in 1996.
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 3.3:1 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/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 87%.
The Company conducted exploration drilling programs during 1994 and 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 approximately 55,000 ounces
of contained gold to the proven and probable reserve category. The 1995 program
did not add significantly to the existing ore reserve.
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Information with respect to production, proven and probable mineral reserves,
and average cost per ounce of gold produced as of the dates indicated are set
forth in the following table:
<TABLE>
<CAPTION>
Years
-----------------------------------------
Production (100%) 1995(4) 1994(1) 1993
----------------- ---------- --------- ----------
<S> <C> <C> <C>
Ore mined (tons) 4,031,274 2,026,381 - -
Ore crushed (tons) 2,648,948 1,979,463 - -
Gold (ounces) 72,144 47,861 - -
Proven and Probable
Mineral Reserves(2)
--------------------
Total tons 3,538,042 6,138,000 6,138,000
Gold (oz. per ton) 0.028 0.032 0.037
Average Cost per Ounce
of Gold Produced
----------------------
Cash production costs(3) $192 $243 - -
Full production costs(3) $295 $337 - -
</TABLE>
------------------------------------
(1) Production at the La Choya mine commenced in February 1994.
(2) For proven and probable mineral reserve assumptions, including assumed
metals prices, see Glossary of Certain Mining Terms.
(3) Includes approximately $2.1 million in start-up cost expensed in the
first quarter of 1994.
(4) At December 31, 1995, estimated recoverable gold ounces on the heap
leach pad totaling approximately 36,000 gold ounces are not included in
ore reserves. These ounces were placed on the pad during 1994 and 1995
and are currently estimated to be recovered over the mine's remaining
life.
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 1995
was $579,561.
As of December 31, 1995, there were 204 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 nonconfidential
(hourly) employees. The current labor agreement expires on September 7, 1996.
As of December 31, 1995, the Company's net book value of the La Choya mine
property, plant and equipment totaled $10.8 million. Electrical power is
provided by on-site diesel generators.
The recent decline of the Mexican peso has not significantly impacted results at
the La Choya mine as both funding for operations and gold
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<PAGE> 13
sales are denominated in U.S. dollars. Further declines in the Mexican peso,
however, could adversely impact the Company's Mexican operations.
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 producing mine for the Company
since 1958. The mine operated continuously until low metals prices and
rockburst activity forced the suspension of operations in April 1986. During
the shutdown, the Company's engineers began converting portions of the mine to a
mechanized underhand mining method designed to increase productivity and reduce
rockburst activity. Production was resumed at the Lucky Friday mine in June
1987 and continued uninterrupted until August 30, 1994, when an ore-conveyance
accident forced suspension of operations until repairs could be made.
Operations resumed on December 5, 1994, and steady-state production was achieved
in February 1995. During 1995, the Company recovered its costs and lost
operating cash flow resulting from the accident from its insurance carrier.
The cash and full production cost per ounce of silver decreased from $5.81 and
$7.17, respectively, in 1994 to $4.57 and $5.76, respectively, in 1995. The
decreases are due principally to decreased production costs and increased silver
production in 1995 compared to 1994, as well as increased by-product credits due
to increased lead and zinc production, higher lead prices and improved zinc
recovery. Lead and zinc are by-products of the process employed 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 average
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
5750-foot level, which is currently being developed.
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. However,
rockbursting continues to be a concern in the one-mile-deep mine.
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
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<PAGE> 14
Lucky Friday mine site. The flotation process produces both a silver-lead
concentrate and a zinc concentrate. During 1995 approximately 97.3% of the
silver, 97.1% of the lead, and 82.9% of the zinc were recovered.
The Lucky Friday mine's mill facility and surface and underground equipment are
in good working condition. The mill was originally constructed approximately 34
years ago. The Company maintains and modernizes the plant and equipment on an
ongoing basis to keep the plant and equipment in good physical and operating
condition. The net book value of the Lucky Friday mine property and its
associated plant and equipment was $27.2 million as of December 31, 1995.
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 1995.
Even though recent historical total production costs have exceeded revenues
realized from the sale of recovered metals, based upon management's estimates of
metal to be recovered which includes 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 undiscounted 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 $5.77 per ounce silver, $0.35 per pound of lead and $0.49 per
pound of zinc through 2005, 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 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 currently 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 currently estimates that future cash and full production costs per ounce
of silver produced over the remaining life of mine would be approximately $3.79
and $4.75, 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.
The principal reason that cash costs per ounce are assumed to be lower than
recent historical amounts is the effect of the development of the Gold Hunter
project and lead by-product revenues (which are credited against the production
costs of silver produced) at $0.35 per pound which is higher than recent actual
prices. If the mineral resource
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<PAGE> 15
associated with the Gold Hunter property described below is not fully developed
by the Company, management of the Company believes that a write-down in the
carrying value of the Lucky Friday mine and or the capitalized costs associated
with Gold Hunter project may occur depending on the current economic environment
at the time the production decision is made on the Gold Hunter. Capitalized
expenditures associated with the Gold Hunter project as of December 31, 1995
total approximately $2.8 million.
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 referred to now as the
"Lucky Friday Expansion Project," discovered mineralization containing
significant amounts of silver and lead in an area accessible from the 4050-foot
level of the Lucky Friday mine. The exploration program and a preliminary
feasibility study were completed during 1993. In 1994, the Company approved the
first phase of development of the Lucky Friday Expansion Project. The first
phase of development 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 presently developed area. The
new access drift will require approximately 7,000 feet of development
excavation. The access drift advanced 3,000 feet in 1995, and exploratory
drilling is scheduled to start in the second quarter of 1996. In 1994 and 1995,
$2.6 million was spent on the first phase of the project. A final feasibility
study will be completed in 1997, at which time a decision will be made on
further development of the Gold Hunter property. If further development is
approved, it is presently estimated that an additional $16.0 million ($3.2
million in 1996 and $12.8 million for 1997 through 1999) in capital expenditures
will be required to bring the Lucky Friday Expansion Project into full
production. If further development is approved, initial production from the
project is expected in 1997, and production will increase until full production
is achieved upon completion of the entire project in the first quarter of 1999.
The Gold Hunter property is controlled by the Company under a long-term
operating agreement, which entitles the Company, as operator, to a 79.08%
interest in the net profits from operations from the Gold Hunter properties.
The Company will be obligated to pay a royalty after it has recouped its costs
to explore and develop the properties, which as of December 31, 1995, totaled
approximately $12.0 million.
The Lucky Friday silver-lead concentrate product is shipped primarily to the
ASARCO smelter at East Helena, Montana. The silver contained in the
concentrates is returned to the Company under a tolling arrangement. The
Company then sells the tolled silver to major metal brokers. The pricing of the
silver is based on worldwide bullion markets. The lead and gold contained in
the concentrates are sold to ASARCO. The Lucky Friday zinc concentrates are
shipped to Cominco's smelter in Trail,
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<PAGE> 16
British Columbia, Canada, and are sold under an agreement with Cominco Ltd.
In the event agreements with ASARCO and Cominco are terminated, the Company
believes that new agreements could be negotiated with other smelters. 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 mineralization to greater depths may
be reliably inferred from operating experience and geological data, the
Company's policy is to develop new levels at a minimum rate consistent with the
requirements for uninterrupted and efficient ore production. A new level is
developed and brought into production only to replace diminishing ore reserves
from levels being mined out. The length and strength of the ore body have not
materially diminished on the lowest developed level of the mine. Based upon
this factor, drilling data and extensive knowledge of the geologic character of
the deposit, and many years of operating experience in the Lucky Friday mine and
Coeur d'Alene Mining District, there are no geologic factors known at present
which appear to prevent the assumed continuation of the Lucky Friday ore body
for a considerable distance below the lowermost working level. Although there
can be no assurance of the extent and quality of the mineralization which may be
developed at greater depths, the existing data and operating experience justify,
in the opinion of the Company's management and based upon industry standards,
the conclusion that the mineralization will extend well below the 6200-foot
level, which is the existing bottom of the mine's Silver Shaft.
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<PAGE> 17
Information with respect to production, proven and probable mineral reserves,
and average cost per ounce of silver produced for the past five years is set
forth in the table below:
<TABLE>
<CAPTION>
Years
---------------------------------------------------------
Production (100%) 1995 1994(2) 1993 1992 1991
- ----------------- --------- --------- --------- --------- ---------
<S> <c <C> <C> <C> <C>
Ore milled (tons) 158,874 124,986 179,579 175,170 152,150
Silver (ounces) 1,662,706 1,306,884 2,122,738 2,031,779 1,850,531
Gold (ounces) 830 605 972 965 928
Lead (tons) 16,967 13,214 19,795 21,336 18,857
Zinc (tons) 2,999 2,431 4,385 4,213 3,164
Proven and Probable
Mineral Reserves(1)
- -------------------
Total tons 468,590 450,685 414,315 446,105 440,060
Silver (oz. per ton)(3) 11.7 13.9 14.4 14.3 13.6
Lead (percent)(3) 11.6 13.9 14.3 13.4 12.8
Zinc (percent)(3) 1.8 2.9 3.0 2.3 2.8
Average Cost per Ounce
of Silver Produced
- ----------------------
Cash production costs $ 4.57 $ 5.81 $ 5.54 $ 4.12 $ 5.01
Full production costs $ 5.76 $ 7.17 $ 6.77 $ 5.35 $ 6.20
</TABLE>
- ------------------------------------
(1) 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 reserve assumptions, including
assumed metals prices, see Glossary of Certain Mining Terms.
(2) Production decreases in 1994 are due primarily to the suspension of
operations resulting from the August 30, 1994 ore-conveyance accident.
(3) Decreased grades for silver, lead and zinc in 1995 versus 1994 are
the result of an adjustment to mining dilution factors to represent
current mining practices, changes in mining method that require more
dilution in some of the planned stopes, decrease in vein width and
grade in current mining areas, and completion of mining in certain
internal ore blocks, around which no additional reserves can be projected.
At December 31, 1995, there were 154 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 has been extended to June 12,
1999. The bargaining agent has the option to request the Company to negotiate
wages and time off during the extended period of the labor agreement.
Washington Water Power Company supplies electrical power to the Lucky Friday
mine.
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<PAGE> 18
GREENS CREEK MINE - ADMIRALTY ISLAND, ALASKA
At December 31, 1995, 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 metal prices and a glut in world
concentrate markets, the decision was made to place the mine on a temporary
shutdown. Commercial production ceased in April 1993, and the mine and mill
were placed on a care-and-maintenance basis. Exploration and mine development
activities continued at the mine during the shutdown. Follow-up drilling on
previously identified targets was successful in identifying a new ore zone, the
Southwest Extension.
In January 1994, a feasibility study was initiated to determine the advisability
of placing the mine back into production. The feasibility study was completed
in the fourth quarter of 1994 and in 1995 the decision was made to reopen the
Greens Creek Mine, with commercial production estimated to recommence by early
1997. The reopening project includes development of the Southwest ore body,
purchase of new mine equipment, upgrading of ancillary facilities, improvement
of environmental control systems and modification of the process plant.
Environmental permitting progress for the reopening project during 1995
included: the Forest Service approval of the General Plan of Operations and
Phase I Construction Plan of Operations; and the City and Borough of Juneau
approval of the Large Mine Permit. Permits that were in-progress at the end of
1995 included the Forest Service Phase II Construction Plan of Operations (CPO)
and the Alaska Department of Environmental Control solid waste permit for the
tailings disposal. Renewal of the mine waste-water discharge and air quality
permits were also in progress at the end of the year.
Current plans call for 1,320 tons per day underground mining operations in the
Southwest ore zone, beginning in the fourth quarter of 1996. Ore from the
underground trackless mine will be milled at the mine site. The mill will
produce gold/silver dore; and lead, zinc and bulk concentrates. The dore will
be marketed to
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<PAGE> 19
a precious metal refiner and the three concentrate products will be
predominantly sold to a number of major smelters worldwide. A lesser amount of
the concentrates will be sold to metal merchants under short-term agreements.
The concentrates will be shipped from a marine terminal located about nine miles
from the mine site.
Improvements to the mill include modifications designed to allow increased
throughput and to recover higher grades of zinc from the Southwest and West ore
zones. Additionally, the reopening project includes recommissioning and deferred
maintenance of all process equipment. Ancillary project work includes an
expansion of the tailings disposal facility, upgrade of the power generating
capacity, and purchase of surface equipment to replace contractors with mine
employees. The capital investment in ancillary facilities will allow the mine to
increase efficiency as well as metal production.
Environmental projects are focused on improving the performance of water
treatment systems at the mine site. Two new water treatment plants, associated
ponds and pipelines will allow the mine staff more assurance of meeting more
stringent environmental standards.
In 1995, the Company's portion of capitalized expenditures to redevelop the
Greens Creek mine totaled $10.6 million. The Company's share of 1996
capitalized expenditures is estimated to be $21.2 million. At December 31,
1995, the Company's interest in the net book value of the Greens Creek mine
property and its associated plant and equipment was $59.7 million.
Even though historical production costs have exceeded revenues realized from the
sale of recovered metals, 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 $411 per ounce of gold, $5.77 per ounce of
silver, $0.35 per pound of lead and $0.49 per pound of zinc through 2014, 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
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 $2.39
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<PAGE> 20
and $4.32, 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. The principal reason that
cash costs per ounce are assumed to be less than historical amounts is a
forecasted 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 substantial contained gold and silver
values, having a vein-like to blanket-like form of variable thickness. The ore
is thought to have been laid down by an "exhalative" process (i.e., volcanic-
related rifts or vents deposited base and precious metals onto an ocean floor).
Subsequently, the mineralization was folded and faulted by multiple generations
of tectonic events.
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 Corporation. Geologic interpretations and
reserve methodology are reviewed, but the reserve compilation is not
independently confirmed 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:
<TABLE>
<CAPTION>
Years (Company's Interest (2))
-------------------------------------------------------------------------------------------
Production 1995(1)(29.7%) 1994(1)(29.7%) 1993(1)(29.7%) 1992(28%) 1991(28%)
- ---------- -------------- -------------- -------------- ---------- ----------
<S> <S> <C> <C> <C> <C>
Ore milled (tons) - - - - 33,638 123,526 120,187
Silver (ounces) - - - - 551,107 1,959,368 2,178,141
Gold (ounces) - - - - 2,826 9,094 10,505
Zinc (tons) - - - - 3,453 11,385 11,906
Lead (tons) - - - - 1,298 4,650 4,863
Proven and Probable
Mineral Reserves(3)
- -------------------
Total tons 2,585,000 2,585,000 1,911,000 3,422,000 3,876,000
Silver (oz. per ton) 19.2 19.2 16.0 12.7 13.3
Gold (oz. per ton) 0.16 0.16 0.14 0.13 0.12
Zinc (percent) 13.1 13.1 14.4 13.2 12.8
Lead (percent) 4.7 4.7 4.7 4.0 4.0
Average Cost per
Ounce of Silver Produced
- ------------------------
Cash production costs - - - - $ 5.11 $ 4.82 $ 3.94
Full production costs - - - - $ 7.16 $ 6.54 $ 5.43
</TABLE>
- -------------------------------
(1) Operations were suspended in April 1993 and placed on a standby basis.
(2) Equity during the period of active production was 28.08%, but was
increased to 29.73% by the time of the reserve determination.
(3) For proven and probable mineral reserve assumptions and definitions,
see Glossary of Certain Mining Terms.
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<PAGE> 21
Mineral reserve criteria and estimation techniques used for 1995, 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.
As of December 31, 1995, there were 124 employees at the Greens Creek mine. The
employees at the Greens Creek mine are not represented by a bargaining agent.
The Greens Creek mine uses electrical power provided by diesel-powered
generators located on-site.
AMERICAN GIRL MINE - CALIFORNIA
The Company acquired its 47% interest in 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 commenced in late 1995.
The cash and full production costs per ounce of gold increased from $344 and
$367, respectively, in 1994 to $436 and $483, respectively, in 1995. The
increases are principally due to Oro Cruz permitting delays in late 1994 and
early 1995. The operations could not operate at full capacity until the Oro
Cruz was permitted and developed. Processing of Oro Cruz ores began in December
1995.
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 located in an area that has experienced high levels of seismic activity.
The mine is managed by MK Gold Company, the Company's joint venture partner. MK
Gold receives a monthly management fee of 2% of certain specified costs of the
joint venture. Certain matters
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<PAGE> 22
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.
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% depending
upon the lessor, gold price and recovery of capital costs.
The property contains several ore bodies from which ore has been and is
currently being mined. At the present time, remaining ore is being mined from
surface pits and underground production areas in the American Girl Canyon area
and two open pits and an underground mine in the Oro Cruz 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,
1995 was 200. 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 $6.9 million at December 31, 1995. 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. The current reclamation
accrual is in excess of estimated reclamation costs, thus 1995 reclamation
expense recognized totaled only $18,663.
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:
<TABLE>
<CAPTION>
Years
--------------------------------------
Production (47%) 1995 1994 1993
- ---------------- ---------- ---------- ---------
<S> <C> <C> <C>
Total ore processed (tons) 783,132 704,489 433,504
Gold (ounces) 21,489 30,624 35,192
Proven and Probable
Mineral Reserves (47%)(1)
-------------------------
Total tons 2,171,000(3) 3,428,000(2) 1,814,200
Gold (oz. per ton) 0.056 0.049 0.078
Average Cost per Ounce
of Gold Produced
----------------------
Cash production costs $ 436 $ 344 $ 257
Full production costs $ 483 $ 367 $ 347
</TABLE>
------------------------------------
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<PAGE> 23
(1) For proven and probable mineral reserve assumptions, including
assumed metals prices, see Glossary of Certain Mining Terms.
(2) 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.
(3) The decrease in the mineral reserves from 1994 to 1995 is the result
of mining activity in 1995, and the removal of low-grade tons from
mineral reserves as Phase I mining of the Tybo pit (low-grade pit)
ceased ahead of schedule due to pit stability concerns.
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 to 35,000 ounces of gold. Exploration for additional surface and
underground ore, which has been moderately successful in the past, is expected
to continue.
ROSEBUD GOLD PROJECT - NEVADA
The Rosebud gold project is located in the Rosebud Mining District, in Pershing
County, Nevada, and was acquired by the Company through the merger with Equinox.
The Rosebud gold project consists of a 100% interest in 3 patented lode mining
claims and 712 unpatented lode mining claims (the Hecla Claims), and a 52%
interest in 48 lode mining claims held under a joint venture with N.A.
Degerstrom Inc. (the Degerstrom Claims). The total 772 claims cover
approximately 15,950 acres and collectively comprise the "Rosebud Project."
Patent application has been made on the 13 claims that contain all of the proven
and probable mineral reserves (see Regulation of Mining Activity). The Rosebud
Project may be reached from Lovelock, Nevada, by travelling northwest a distance
of approximately 58 miles on an all weather gravel road. Capitalized
expenditures at the Rosebud Project totaled $15.0 million at December 31, 1995.
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 on the Rosebud Project, but does not otherwise have an
expiration date that is a date certain.
Until 1991, all significant gold mineralization and most of the 115,000 feet of
drilling in 167 holes had been completed on what was known as the Dozer Hill
Zone, a northeast trending zone extending a distance of about 1,500 feet within
portions of 10 claims within the Hecla Claims. Further delineation drilling
during 1994 resulted in identifying two distinct mineralized zones,
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<PAGE> 24
the South Zone and the North Zone, within the original Dozer Hill Zone.
In 1991, 58,691 feet of drilling was carried out to test exploration targets
east of the South 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 South Zone contained in portions of three
claims within the Hecla Claims. Mineralization appears related to the low angle
South Ridge fault which underlies most of the area of interest. Mineralization
in the South and North Zones occur above this fault while mineralization in the
East Zone occurs within and below this fault.
Results to date indicate that gold mineralization in the South, North and East
Zones, as in many other volcanic-hosted gold deposits, is erratically
distributed with numerous low-grade drill hole intercepts interspersed with
higher grade drill hole intercepts over an area of approximately 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.
In 1992, an additional 35,000 feet of drilling in 56 holes was completed on the
Rosebud Project. This was followed by preliminary metallurgical studies and
permit preparation for an advanced underground exploration program. The
underground exploration program commenced in December 1993. During 1994, the
Company spent approximately $5.6 million at the Rosebud property. Underground
work included completion of 3,600 feet of drifting, 25,000 feet of underground
diamond drilling, and 30,000 feet of surface diamond drilling designed to
further delineate the ore body.
Permitting related work which began during 1994 was substantially completed
during 1995. The Bureau of Land Management issued a finding of "No Significant
Impacts" and Decision Record on October 26, 1995 as a result of the
Environmental Assessment prepared for the Rosebud Project. The 30-day appeal
period mandated by the National Environmental Policy Act was completed on
November 26, 1995 and the Agency received no comments. The Decision Record
allows the project to proceed as planned contingent upon acquiring the necessary
state and local permits. Eight of the eleven permits required by the State of
Nevada were received during 1995 with the remaining three expected during the
first half of 1996. All local permits are confined to normal building permits
and will be obtained following a decision by the Company to commence
construction.
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<PAGE> 25
The following table presents the proven and probable mineral reserves for the
Rosebud Project as of the dates indicated:
<TABLE>
<CAPTION>
Year Total Gold Gold Silver Silver
End Reserves Avg. Grade Content Avg. Grade Content
12/31 (tons)(1) (oz./ton) (ounces) (oz./ton) (ounces)
----- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1995 1,189,000(2) 0.452 538,000 2.75 3,275,000
----
1994 1,641,000(3) 0.356 584,000 2.25 3,694,000
----
1993 1,984,000 0.258 512,000 1.81 3,584,000
----
</TABLE>
-----------------------
(1) For proven and probable mineral reserve assumptions, including
assumed metals prices, see Glossary of Certain Mining Terms.
(2) The decrease in the tons of proven and probable mineral reserves in
1995 compared to 1994 is attributable to refinement of the mine
plan, cost estimates, and cut-off grade during the feasibility study
completed in November 1995.
(3) The decrease in the tons of proven and probable mineral reserves in
1994 compared to 1993 is attributable 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.
The Company is currently finalizing the feasibility study. The feasibility
study includes a comprehensive metallurgical testing program, engineering work
related to the design of the underground mine, process plant, tailings facility,
and infrastructure, and detailed hydrologic and geotechnical studies. Detailed
construction schedules, capital and operating cost estimates, and an economic
analysis are included. Although a decision to proceed with the project has not
been made by the Company, if a determination is made to develop the project,
capital costs are currently expected to be $50.0 to $55.0 million.
REPUBLIC MINE - REPUBLIC, WASHINGTON
The Company owns the Republic mine located in the Republic Mining District near
Republic, Washington, which consists of several associated properties, a mill
and ancillary surface facilities. 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. The property has
been optioned to Santa Fe Pacific Gold who is presently conducting extensive
exploration activities. Under the terms of the agreement, Santa Fe Pacific Gold
can earn a 70% interest in the project by spending $7.5 million over a three-
year period and completing a feasibility study.
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<PAGE> 26
In 1994, the Company recorded an additional reclamation and closure costs
accrual of $7.3 million. At December 31, 1995, the accrued reclamation and
closure costs balance totaled $6.9 million. Reclamation and closure efforts
commenced in 1995. During 1995 no additional reclamation expense was recorded.
Reclamation and closure costs expenditures totaling $1,516,000 during 1995 were
charged against the previously established reclamation and closure cost accrual.
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 Republic mine
(see Note 4 of Notes to Consolidated Financial Statements). The remaining net
book value of the Republic mine property and its associated plant and equipment
was approximately $2.5 million representing the estimated residual value as of
December 31, 1995.
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:
<TABLE>
<CAPTION>
Years
------------------------------------------------------
Production (100%) 1995(3) 1994 1993 1992 1991
- ----------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Ore milled (tons) - - 120,165 110,846 102,631 96,562
Gold (ounces) 3,098 39,085 49,601 58,343 77,736
Silver (ounces) 15,320 283,326 276,688 299,957 311,445
Proven and Probable
Mineral Reserves(1)
- ------------------------
Total tons - - - - 103,533(2) 269,736 401,318
Gold (oz. per ton) - - - - 0.43 0.52 0.53
Silver (oz. per ton) - - - - 2.7 3.2 3.2
Average Cost per
Ounce of Gold Produced
- ----------------------
Cash production costs $ 307 $ 250 $ 207 $ 176 $ 143
Full production costs $ 307 $ 306 $ 262 $ 221 $ 176
</TABLE>
- -------------------------------
(1) Reserves represent diluted in-place grades and do not reflect losses
in the recovery processes. Dilution was effected through application of
1.0 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.
(2) In 1993 a negative mineral reserve adjustment was made totaling
approximately 39,000 ounces of gold and 235,000 ounces of silver. Most
of the adjustment was necessary when development encountered erratic
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<PAGE> 27
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.
(3) The 1995 metal production figures represent milling of stockpiled low-
grade ore and secondary recovery efforts. Therefore, tons milled are not
presented.
There were 11 people employed by the Company at the Republic mine at
December 31, 1995. 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 approximately 85 miles northeast of Los Angeles,
California, in the Mojave Mining District. The property is readily accessible
year-round by all-weather roads. The Company currently has a 63.75% effective
interest in Cactus Gold Mines Company (Cactus) and manages Cactus' two open-pit
heap leach mines, the Middle Buttes and Shumake. The Company, as manager of
Cactus, receives a management fee equal to 2% of net revenues of Cactus as
defined in the mining venture agreement and is reimbursed for costs incurred on
behalf of Cactus.
The Middle Buttes mine began production in August 1986. During 1991, mining
operations were completed at the Middle Buttes mine, and the remaining ore with
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 1996 as heap rinsing operations are completed.
Reclamation efforts are ongoing. Reclamation expense of $39,304 was recognized
in 1995.
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, 1995, there were 14 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.
The following table sets forth the information with respect to the Company's
share of production, proven and probable mineral
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<PAGE> 28
reserves, and average cost per ounce of gold produced for the past five years:
<TABLE>
<CAPTION>
Years
----------------------------------------------------
Production (75%) 1995(1) 1994(1) 1993(1) 1992(1) 1991
- ------------------ ------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Ore processed (tons) - - - - - - 315,328 1,760,714
Gold (ounces) 4,444 7,610 7,316 27,212 40,434
Silver (ounces) 1,743 19,555 24,165 114,415 162,760
Proven and Probable
Mineral Reserves
- -------------------
Total tons - - - - - - - - 234,140
Gold (oz. per ton) - - - - - - - - 0.04
Average Cost per
Ounce of Gold Produced
- ----------------------
Cash production costs $ 284 $ 217 $ 242 $ 213 $ 246
Full production costs $ 296 $ 217 $ 309 $ 337 $ 437
</TABLE>
- -------------------------------
(1) Mining operations were completed in February 1992. Gold recovery from
the heap continued through 1995, but is expected to be completed in 1996.
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 Idaho, western
Montana and South Dakota; 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,
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<PAGE> 29
dinnerware, tile, electrical insulators and sanitaryware. Ball clay is also
used in refractories and abrasives and has applications in other specialty
industries as well.
Mining of ball clay is accomplished through strip mining methods. The mining
activity requires definition drilling and the removal of overburden in order to
expose the clay strata to be mined. Mining activity is selective based on clay
grade and strata control. The clays are mined with loaders and backhoes, loaded
into trucks and hauled to one of K-T Clay's plants for processing. Processing
of ball clay consists of shredding and classification of clay by various grades,
hammer or roller milling to reduce particle size, drying and packaging. The
grades can be shipped in bulk or blended and bagged in order to meet a
particular customer's requirements. A particular clay or blend of several clays
can also be shipped to customers in slurry form in tanker trucks or rail cars.
There are many grades of ball clay which K-T Clay mines, processes and blends to
meet the specifications and requirements of its various customers. Different
uses may require mixtures of ball clay having substantially different physical
properties, and K-T Clay, through many years of experience and ongoing research
performed in its laboratories, 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 established by various
governmental agencies which affect K-T Clay's ball clay mining operations. The
Tennessee Surface Mining Law and the Mississippi Geological Economics and
Topographical Survey, Division of Mining and Reclamation, require 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
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<PAGE> 30
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 163 people employed by K-T Clay at its ball clay operations as of
December 31, 1995. Some of the hourly employees are represented by the United
Steelworkers of America. The employment of these employees is subject to a
three-year labor agreement which expires on February 8, 1997. The net book
value of the K-T ball clay division properties, plants and equipment was $9.0
million at December 31, 1995.
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.
At December 31, 1995, the net book value of K-T Mexico's property and associated
plant and equipment was $3.3 million. K-T Mexico utilizes electrical power from
the local public utility. There were 19 people employed by K-T Mexico as of
December 31, 1995, represented by the Industrial Labor Union of Nuevo Leon. The
labor agreement is renegotiated each year. The present labor agreement expires
December 20, 1996.
Prior to the second quarter of 1995, K-T Mexico's functional currency was the
Mexican peso. During the second quarter of 1995, K-T Mexico commenced invoicing
its customers in U.S. dollars instead of the Mexican peso. This change
indicated a change in the functional currency from the Mexican peso to the U.S.
dollar. The change in the functional currency has been accounted for
prospectively commencing in the second quarter of 1995. Translation adjustments
from prior periods are included in shareholders' equity. The translated amounts
for nonmonetary assets prior to the change have become the accounting basis for
those assets.
The recent decline of the Mexican peso has not significantly impacted the
results at K-T Mexico as both funding for operations and sales are denominated
in dollars. Further decline in the
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<PAGE> 31
Mexican peso, however, could adversely impact the Company's Mexican operations.
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. On June 1, 1995,
K-T Clay acquired the operation and assets of the Langley plant of JM Huber
Corporation in Langley, 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 presently limited. The marketing of kaolin to the
ceramics industry is carried out by K-T Clay's sales force. Marketing to other
industries is done through sales and distribution agents.
Mining of kaolin is done by open-pit methods. Ore bodies are identified and
delineated by exploration drilling and overburden is removed by scrapers down to
favorable clay strata. Select mining of clay is then accomplished by backhoe
with over-the-road truck haulage to the processing and stockpiling facilities.
K-T Clay operates kaolin mines in Georgia, serving its processing plants located
at Sandersville and Deepstep, Georgia. K-T Clay also operates kaolin mines
located in South Carolina, serving a processing plant located in Langley, 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 Langley 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
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<PAGE> 32
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 118 people employed by K-T Clay at its kaolin division as of December
31, 1995, 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 27 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 $24.2 million as of December 31, 1995. K-T Clay utilizes power from several
public utilities as well as local utility cooperatives located in the vicinity
of K-T Clay's operating plants.
K-T FELDSPAR CORPORATION
The Company acquired the operations and assets of K-T Feldspar on December 13,
1990, including sodium feldspar mines and a processing plant located near Spruce
Pine, North Carolina. Feldspars are a mineral group that are the major
constituents of igneous rocks and important constituents of other major rock
types. The feldspars are the most widespread mineral group and make up 60% of
the earth's crust. Chemically the feldspars are aluminosilicates that contain
potassium, sodium and calcium.
K-T Feldspar mines, processes and blends sodium feldspar and feldspar-silica
products. It also produces by-product mica concentrate and construction sand.
K-T Feldspar products are primarily used in the ceramic whiteware, glass and
paint industries.
Markets for feldspar have fluctuated slightly over time as a result of mature
market conditions. However, adverse shifts in market demand could occur due to
mineral substitution and decreased demand for end-use products. Feldspar
currently competes with nepheline syenite in some market segments and
substitution between minerals is linked to economics, physical-chemical
characteristics and
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<PAGE> 33
supplier reliability. The marketing of feldspar to the ceramics and filler
industries is carried out by K-T Clay's sales force and through sales and
distribution agents.
Feldspar ore is mined by open-pit methods using a 40-foot bench mining plan.
Ore is drilled and blasted, loaded by hydraulic shovel or front-end loader into
off-highway dump trucks and transported to the processing plant. K-T Feldspar
operates several mine locations in the Spruce Pine, North Carolina area, all
serving the centrally located processing plant. Processing of the feldspar ores
consists of crushing, grinding, density separation, flotation, drying and high
intensity magnetic separation.
K-T Feldspar holds in excess of 20 years of 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 27 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 $5.3 million as of December
31, 1995. Carolina Power & Light Company, a regulated public utility, provides
the electric power utilized for operations at K-T Feldspar.
There were 49 employees employed by K-T Feldspar as of December 31, 1995; 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, including processing plants in Rexburg, Idaho and Superior, Montana. In
April 1995, Mountain West purchased the assets of Western Bark Company, which
included processing plants at Kamiah, Idaho, Osburn, Idaho, and Piedmont, South
Dakota. Mountain West's primary business is the purchasing, processing and
marketing of certain wood 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. Due to the volatility of lumber mill operations, no
assurance can be placed on Mountain West's ability to obtain raw materials from
suppliers located near Mountain West operating plants. The plants are located
near the
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<PAGE> 34
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 15 years at Rexburg, seven years at Superior, eight years at Kamiah, five
years at Piedmont, and three years at Osburn. The plants are maintained and
upgraded continually and are in good working order.
The net book value of the associated plant and equipment was approximately $6.2
million as of December 31, 1995. Utah Power and Light, Montana Power Company,
Idaho County Light, Black Hills Power, and Washington Water Power Company
provide electrical power utilized by the operations at Rexburg, Superior,
Kamiah, Piedmont, and Osburn, respectively.
Mountain West had 149 employees as of December 31, 1995; none of whom are
represented by a bargaining agent.
COLORADO AGGREGATE COMPANY
CAC mines and sells volcanic rock (scoria) for use as briquettes in gas barbecue
grills, as landscaping mulch and decorative ground cover, and as gravel bedding
in aquariums. Volcanic scoria is a lightweight clinker-like material produced
during gaseous volcanic eruptions that form cinder cones. These cones occur
frequently in the geological environment but are unique by density, texture and
color.
The Company operates mines at Mesita, Colorado, and in northern New Mexico as
well as processing plants at San Acacio and Antonito, Colorado. All mining is
open pit with minimal requirements for the removal of overburden.
The principal customers for scoria briquettes are manufacturers and retailers of
gas barbecue grills. Landscapers, distributors of landscaping materials, lawn
and garden retailers and discount chain stores are the principal customers for
scoria landscape stone. Pet supply retailers and discount chain stores are the
principal customers for aquarium gravel.
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
nine years of mineral reserves at the Mesita, Colorado, location and has
developed in excess of seven years of mineral reserves at the Red Hill mine in
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<PAGE> 35
northern New Mexico which is under lease from the Bureau of Land Management.
CAC's plants and equipment have been operational in excess of 21 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, 1995.
Public Service Company of Colorado and San Luis Valley Electric Co-operative
provide the electric power utilized for operations at CAC.
CAC had 75 employees as of December 31, 1995; none of whom are represented by a
bargaining agent.
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, 1995 are described below.
YELLOW PINE - IDAHO
The Yellow Pine gold mine is located in Valley County, Idaho, about 50 miles
east of McCall in central Idaho, and is accessed by secondary roads and air.
The property consists of 26 patented claims which are held by the Company under
lease from the Bradley Mining Company of San Francisco, California, and 57
unpatented claims. The lease provides for production royalties equal to 6% of
net smelter returns plus 10% of cumulative cash flow, and also provides for a
minimum royalty payment of $3,500 per month reduced by current production
royalties. Production from the oxide mineralization ceased in 1992; the
operation has been undergoing reclamation since that time. Mineralized sulfide
material, estimated at between 15 and 20 million tons containing approximately
0.09 ounce of gold per ton, is also located on the property. The Company
continues to 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, 1995, was
approximately $165,000.
OTHER INTERESTS
URANIUM MILL TAILINGS
The Company has been involved in remediation of uranium mill tailings sites in
Colorado and New Mexico. One site, in New
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<PAGE> 36
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 were initiated in 1995, and completion of remediation is planned for
1996 and 1997.
EXPLORATION
The Company conducts exploration activities from its headquarters in
Coeur d'Alene, Idaho. The Company owns or controls patented and unpatented
mining claims, fee land, mineral concessions, and state and private leases in
six states in the United States 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 Lucky Friday and Greens Creek
silver mines, the American Girl gold mine, the Rosebud property and the Pinos
gold property in Mexico. The Company also owns 78.45% of the outstanding stock
in ConSil Corp., whose primary focus is to explore and develop silver properties
in the United States and Mexico. The Company remains active in other
exploration areas and is seeking advanced-stage acquisition opportunities
principally in the United States and Mexico.
Mineral exploration, particularly for gold and silver, is highly speculative in
nature, involves many risks and frequently is nonproductive. There can be no
assurance that the Company's mineral exploration efforts will be successful.
Once mineralization is discovered, it may take a number of years from the
initial phases of drilling until production is possible, during which time the
economic feasibility of production may change. Substantial expenditures are
required to establish ore reserves through drilling to determine metallurgical
processes to extract the metals from the ore, and, in the case of new
properties, to construct mining and processing facilities. As a result of these
uncertainties, no assurance can be given that the Company's exploration programs
will result in the expansion or replacement of existing reserves that are being
depleted by current production.
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, 1995, 1994 and 1993 were approximately $6.3
million, $8.4 million and $5.7 million, respectively. Exploration expenditures
for 1996 are estimated to be approximately $4.1 million.
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<PAGE> 37
HEDGING ACTIVITIES
The Company's policy guidelines for hedging gold and silver production permit
management 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 the Board of Director's approval and will be
spread among a number of available customers. At December 31, 1995, the Company
had 29% of 1996 budgeted gold production hedged utilizing forward sales
contracts 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. None of the aforementioned activities have been entered
into for speculative purposes at December 31, 1995. For further discussion
regarding hedging activities, see Notes 1 and 2 of Notes to Consolidated
Financial Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations.
INDUSTRY SEGMENTS
Financial information with respect to industry segments is set forth in Note 10
of Notes to the Consolidated Financial Statements.
COMPETITION
The Company is engaged in the mining and processing of gold, silver and other
nonferrous metals and industrial minerals in the United States 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 companies
both within and outside the mining industry 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 Company cannot compare sales from its ball clay mining operations with sales
of other ball clay producers because the principal competitors are either
family-owned or divisions of larger, diversified companies, but the Company
believes that K-T Clay is one of the more significant producers of ball clay in
the United States. With the acquisition of kaolin assets from Cyprus Minerals
Company in 1989 and JM Huber Corporation in 1995, the Company has also become an
important producer in the United States of ceramic-grade kaolin. The principal
competitors of the Company in the ball clay industry are H. C. Spinks Clay
Company, Watts Blake Bearne & Company, and Old Hickory Clay Company. The
principal competitors of the Company in the kaolin industry, are Albion Kaolin
Company, Evans Clay Company, JM Huber Corporation, English China Clay Company
and Dry Branch Kaolin Company. The
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<PAGE> 38
Company, with the acquisition of Indusmin Incorporated's feldspar assets, is
also a major producer and supplier of sodium feldspar products. The principal
competitors of the Company in the feldspar industry are Feldspar Corporation and
Unimin Corporation.
The Company competes with other producers of scoria and with manufacturers of
ceramic briquettes in the production and sale of briquettes. The Company has
limited information as to the size of the barbecue briquette industry, but
believes that it supplies a major portion of the scoria briquettes used in gas
barbecue grills. Price and natural product characteristics, such as color,
uniformity of size, lack of contained moisture and density, are important
competitive considerations. The Company believes that it has a significant
portion of the landscape scoria market east of the Continental Divide.
Mountain West competes with other producers of lawn and garden and soil
products, decorative bark products and landscape mulches. The principal
competitors are either privately owned companies or divisions of larger
diversified companies that operate in numerous regional markets. The Company
has limited information about the sales of competing products in its overall
markets but believes it supplies a significant portion of the market for its
product in the intermountain region.
Because mines have limited lives based on proven ore reserves, the Company is
continually seeking to replace and expand its reserves. The Company encounters
strong competition from other mining companies in connection with the
acquisition of properties producing or capable of producing gold, silver, lead,
zinc and industrial minerals. As a result of this competition, some of which is
with companies with greater financial resources than the Company, the Company
may be unable to acquire attractive mining properties on terms it considers ac-
ceptable. In addition, there are a number of uncertainties inherent in any
program relating to the location of economic ore reserves, the development of
appropriate metallurgical processes, the receipt of necessary governmental
permits and the construction of mining and processing facilities. Accordingly,
there can be no assurance that the Company's programs will yield new reserves to
replace and expand current reserves.
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
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<PAGE> 39
Company's results of operations or financial condition, and the Company believes
that it is substantially in compliance with the regulations promulgated by MSHA.
All of the Company's exploration, development, and production activities in the
United States, Mexico, and Canada are subject to regulation by governmental
agencies under one or more of the various environmental laws. These laws
address emissions to the air, discharges to water, management of wastes,
management of hazardous substances, protection of natural resources, protection
of antiquities and reclamation of lands which are disturbed. The Company
believes that it is in substantial compliance with applicable environmental
regulations. Many of the regulations also require permits to be obtained for
the Company's activities; these permits normally are subject to public review
processes resulting in public approval of the activity. While these laws and
regulations govern how 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 impact of
environmental regulation on the proposed activity. New laws and regulations are
evaluated as they develop to determine the impact on, and changes necessary to,
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 been made for disposal of mine
waste and mill tailings at all of its operating and nonoperating properties in a
manner which complies 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
environmental quality standards. The Company has no control over the smelters'
operations or their compliance with environmental laws and regulations. If the
smelting capacity of the United States is significantly further reduced because
of environmental requirements, it is possible that the Company's operations
could be adversely affected.
The Company is also subject to regulations under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (CERCLA or Superfund) which
regulates and establishes liability for the release of hazardous substances, and
the Endangered Species Act (ESA), which identifies endangered species of plants
and animals and regulates activities to protect these species and their
habitats. The Company has been implicated for certain Superfund
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<PAGE> 40
liabilities (see Note 7 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 amended (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 moratorium on processing of new
patent applications was approved. In addition, a variety of legislation is now
pending before the United States Congress to further amend the General Mining
Law. The proposed legislation would, among other things, change the current
patenting procedures, impose royalties, and enact new reclamation, environmental
controls and restoration requirements. The royalty proposals range from a 2%
royalty on "net profits" from mining claims to an 8% royalty on the modified
gross income/net smelter returns. The extent of any such changes is not
presently known and the potential impact on the Company as a result 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 Mining Law could adversely affect the Company's
ability to economically develop mineral resources on federal lands.
Approximately 30% of the proven and probable gold reserves and approximately 9%
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 applied for patents and has received a first half of Mineral Entry
Final Certificate. Upon the determination of the mineral character of these
claims by a Federal Mine Examiner, the Company believes 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 ability 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, 1995, the Company and its subsidiaries employed 1,259
people.
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<PAGE> 41
INVESTMENT CONSIDERATIONS
METAL PRICE VOLATILITY
Because a significant portion of the Company's revenues are derived from the
sale of gold, silver, lead and zinc, the Company's earnings are directly related
to the prices of these metals. Gold, silver, lead and zinc prices fluctuate
widely and are affected by numerous factors beyond the Company's control,
including expectations for inflation, speculative activities, the relative
exchange rate of the U.S. dollar, global and regional demand and production,
political and economic conditions and production costs in major producing re-
gions. The aggregate effect of these factors, all of which are beyond the
Company's control, is impossible for the Company to predict. If the market
price for these metals falls below the Company's full production costs and
remains at such level for any sustained period, the Company will experience ad-
ditional losses and may determine to discontinue the development of a project or
mining at one or more of its properties. While the Company has periodically
used limited hedging techniques to reduce a portion of the Company's exposure to
the volatility of gold, silver, lead and zinc prices, there can be no assurance
that it will be able to do so as effectively in the future (see Hedging
Activities).
The following table sets forth the average closing prices of the following
metals for 1980, 1985, 1990, and each year thereafter and the present year.
<TABLE>
<CAPTION>
1980 1985 1990 1991 1992 1993 1994 1995
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gold(1)
(per oz.) $612.56 $317.26 $383.46 $362.18 $343.73 $ 359.77 $384.30 $384.16
Silver(2)
(per oz.) 20.63 6.14 4.82 4.04 3.94 4.30 5.28 5.19
Lead(3)
(per lb.) 0.41 0.18 0.37 0.25 0.25 0.18 0.22 0.29
Zinc(4)
(per lb.) 0.34 0.36 0.69 0.51 0.56 0.44 0.44 0.47
</TABLE>
- ------------------------------
(1) London Final.
(2) Handy & Harman.
(3) London Metals Exchange -- Cash.
(4) London Metals Exchange -- Special High Grade -- Cash.
VOLATILITY OF METALS PRODUCTION
The Company's future gold production will be dependent upon the Company's
success in developing new reserves, including the development of the Rosebud
gold project as well as exploration efforts at the Grouse Creek, La Choya and
the American Girl gold mines (see Project Development Risks and Exploration).
The Company's future silver production will be dependent upon the Company's
success in developing new reserves, including the
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continued development of the Lucky Friday Gold Hunter project and the Greens
Creek mine. If metals prices decline, the Company could determine that it is
not economically feasible to continue development of a project or continue
commercial production at some of its properties (see Metal Price Volatility).
PROJECT DEVELOPMENT RISKS
The Company from time to time engages in the development of new ore bodies both
at newly acquired properties and presently existing mining operations
(collectively "Development Projects"). The Company's ability to sustain or
increase its present level of metals production is dependent in part on the
successful development of such new ore bodies and/or expansion of existing
mining operations. The economic feasibility of any individual Development
Project and all such projects collectively is based upon, among other things,
estimates of reserves, metallurgical recoveries, and capital and operating costs
of such Development Projects, and future metal prices. Development Projects are
also subject to the successful completion of feasibility studies, issuance of
necessary permits and receipt of adequate financing.
Development Projects may have no operating history upon which to base estimates
of future operating costs and capital requirements. Particularly for
Development Projects, estimates of reserves, metal recoveries, and cash
operating costs are to a large extent based upon the interpretation of geologic
data obtained from drill holes and other sampling techniques and feasibility
studies which derive estimates of cash operating costs based upon anticipated
tonnage and grades of ore to be mined and processed, the configuration of the
ore body, expected recovery rates of metals from the ore, comparable facility
and equipment costs, anticipated climate conditions and other factors. As a
result, it is possible that actual cash operating costs and economic returns of
any and all Development Projects may materially differ from the costs and
returns currently estimated.
The Company's current Development Projects include the Rosebud project, the Gold
Hunter project located adjacent to the Company's Lucky Friday mine, and the
Greens Creek mine. Development and construction cost requirements to bring the
Rosebud project into commercial production are estimated to be in the $50.0-
$55.0 million range. The timing and amount of development and construction
costs at the Rosebud project are dependent upon the Company's ability to arrange
financing for development and construction. The Company estimates development
and construction costs of $16.0 million ($3.2 million in 1996, and $12.8 for
1997 through 1999) for the Gold Hunter project, and $21.2 million in 1996, for
the Company's 29.7% share of the development expenditures at the Greens Creek
mine. The Company's estimated capital expenditures are based upon currently
available data and could increase or decrease depending upon a number of
factors. One such
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factor is that construction activities for certain Development Projects may not
commence until the Company has secured additional financing and/or environmental
approvals. If capital expenditures exceed current estimates, secondary
financing may be required. Moreover, there can be no assurance that such addi-
tional or secondary financing will be available. The commencement of construc-
tion activities at such Development Projects also depends on the receipt of all
necessary permits and regulatory approvals. There can be no assurance, however,
that all of the necessary permits and regulatory approvals required for such
Development Projects will be issued in the time frame contemplated by the
Company.
Should the Company incur project development and construction costs as
estimated, the Company anticipates that it will fund a substantial portion of
its currently estimated capital requirements for 1996 through 1997 with
operating cash flow and borrowings under its credit facility. The Company is
also currently evaluating other financing options including the issuance of debt
or equity securities and certain project financing alternatives. There can be
no assurance that the Company will be able to obtain the necessary financing,
or, if the necessary financing is obtained, that it will be obtained on
favorable terms.
RESERVES
The ore reserve figures presented in this Form 10-K are, in large part,
estimates made by the Company's technical personnel, and no assurance can be
given that the indicated level of recovery of these metals will be realized.
Reserves estimated for properties that have not yet commenced production may
require revision based on actual production experience. Market price
fluctuations of the various metals mined by the Company, as well as increased
production costs or reduced recovery rates, may render ore reserves containing
relatively lower grades of mineralization uneconomic and may ultimately result
in a restatement of reserves. Moreover, short-term operating factors relating
to the ore reserves, such as the need for sequential development of ore bodies
and the processing of new or different ore grades, may adversely affect the
Company's profitability in any particular accounting period.
The metal prices used to determine mineral reserves at a particular mine are
typically estimated by the company managing the mine. These metal prices may
vary, depending on each company's assessment of metal prices over the near term
and other factors that such company believes relevant. The Company estimates
metals prices for its mineral reserve calculations, which approximate current
market prices, but these metal prices may vary from current market prices based
on a number of factors likely to influence metal prices over the near term. For
proven and probable mineral reserve assumptions, including assumed metal prices,
see Glossary of Certain Mining Terms.
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<PAGE> 44
Declines in the market price of gold may also render ore reserves containing
relatively lower grades of gold mineralization uneconomic to exploit unless the
utilization of forward sales contracts or other hedging techniques is sufficient
to offset the effects of a drop in the market price of the gold expected to be
mined from such reserves. If the Company's realized price per ounce of gold,
including hedging benefits, were to decline substantially below the levels set
for calculation of reserves for an extended period, there could be material
delays in the development of new projects, increased net losses, reduced cash
flow, reductions in reserves and asset write-downs.
JOINT VENTURE ARRANGEMENTS
The Grouse Creek gold mine, the Greens Creek mine, the American Girl gold mine
(including the Oro Cruz gold project) are operated through joint ventures. The
Company owns an undivided interest in the assets of the ventures. Under the
joint venture agreements, the joint venture participants, including the Company,
are entitled to indemnification from the other joint venture participants and
are severally liable only for the liabilities of the joint venturers in pro-
portion to their interest therein. If a joint venture participant defaults on
its obligations under the terms of a joint venture agreement (including as a
result of insolvency), the Company could incur losses in excess of its pro rata
share of the joint venture. In the event any joint venture participant so de-
faults, each agreement provides certain rights and remedies to the remaining
joint venture participants. These include the right to force a dilution of the
percentage interest of the defaulting participant and the right to utilize the
proceeds from the sale of the defaulting parties' share of products, or its
joint venture interest in the joint venture properties to satisfy the obli-
gations of the defaulting participant. Based on the information available to
the Company, the Company has no reason to believe that its joint venture
participants with respect to the Greens Creek and American Girl properties will
be unable to meet its financial obligations under the terms of the respective
joint venture agreements. However, because the Grouse Creek mine ore grades
have fallen short of expectations (see discussion in Management's Financial
Review and Metal Segment - Grouse Creek Gold Mine - Idaho), the Company is not
certain of its joint venture partner's, Great Lakes, ability in this project to
fund future cash calls.
The Company currently estimates its 29.7% share of its remaining development and
construction costs at the Greens Creek mine to be $21.2 million in 1996. If the
decision is made to further develop and operate the Grouse Creek mine, the
Company estimates additional capital expenditures in the range of $10.0 to $12.0
million in 1996. The Company's estimates of its development costs and capital
expenditures assume that its joint venture participants will not default in
their obligations to contribute their respective portions of such costs and
expenditures except with respect to the
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<PAGE> 45
Grouse Creek gold mine where it is assumed Great Lakes will allow their interest
to dilute and not fund capital expenditures. If there is such a default, there
can be no assurance that the Company's financial resources will be sufficient to
achieve planned levels of expenditures at the joint ventures.
Generally, the manager for a particular project controls day-to-day operating
decisions and most other major decisions for the project. Disagreement with a
joint venture participant as to the major decisions affecting a project's
operations may have an adverse impact on the project. Should the Company incur
joint venture development and construction costs as estimated, the Company
anticipates that it will fund a substantial portion of its currently estimated
capital requirements for 1996 through 1997 with operating cash flow and
borrowings under its credit facility. The Company is also currently evaluating
other financing options including the issuance of debt or equity securities and
certain project financing alternatives. There can be no assurance that the
Company will be able to obtain the necessary financing, or, if the necessary
financing is obtained, that it will be obtained on favorable terms.
TITLE TO PROPERTIES
The validity of unpatented mining claims, which constitute a significant portion
of the Company's undeveloped property holdings in the United States, is often
uncertain and may be contested. Although the Company has attempted to acquire
satisfactory title to its undeveloped properties, the Company, in accordance
with mining industry practice, does not generally obtain title opinions until a
decision is made to develop a property, with the attendant risk that some
titles, particularly titles to undeveloped properties, may be defective.
MINING RISKS AND INSURANCE
The business of mining is generally subject to a number of risks and hazards,
including environmental hazards, industrial accidents, labor disputes,
encountering unusual or unexpected geologic formations, cave-ins, rockbursts,
flooding and periodic interruptions due to inclement or hazardous weather
conditions. Such risks could result in damage to, or destruction of, mineral
properties or producing facilities, personal injury, environmental damage,
delays in mining, monetary losses and possible legal liability. Although the
Company maintains insurance within ranges of coverage consistent with industry
practice, no assurance can be given that such insurance will be available at
economically feasible premiums. Insurance against environmental risks
(including potential for pollution or other hazards as a result of disposal
waste products occurring from exploration and production) is not generally
available to the Company or to other companies within the industry. To the ex-
tent the Company is subject to
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<PAGE> 46
environmental liabilities, the payment of such liabilities would reduce the
funds available to the Company. Should the Company be unable to fund fully the
cost of remedying an environmental problem, the Company might be required to
suspend operations or enter into interim compliance measures pending completion
of the required remedy.
FOREIGN OPERATIONS
The Company's La Choya gold mine is located in Sonora, Mexico and the Company's
K-T Mexico clay slurry plant is located in Monterrey, Mexico. The Company also
has exploration projects and mining investments in Mexico and Canada. Such
projects and investments could be adversely affected by exchange controls,
currency fluctuations, taxation and laws or policies of either foreign
countries or the United States affecting foreign trade, investment and taxation,
which, in turn, could affect the Company's current or future foreign operations.
GLOSSARY OF CERTAIN MINING TERMS
BALL CLAY -- A fine-grained, plastic, white firing clay used principally
for bonding in ceramic ware.
CASH PRODUCTION COSTS -- Includes all direct and indirect operating cash
costs incurred at each operating mine.
CASH PRODUCTION COSTS PER OUNCE -- Calculated based upon total cash
production costs, as defined herein, net of by-product revenues earned from
all metals other than the primary metal produced at each mine, divided by
the total ounces of the primary metal produced.
DECLINE -- An underground passageway connecting one or more levels in a
mine, providing adequate traction for heavy, self-propelled equipment.
Such underground openings are often driven in an upward or downward spiral,
much the same as a spiral staircase.
DEVELOPMENT -- Work carried out for the purpose of opening up a mineral
deposit and making the actual ore extraction possible.
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.
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<PAGE> 47
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, 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.
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.
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
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<PAGE> 48
losses in the recovery process. The Company's estimates of proven and
probable reserves for the Lucky Friday mine, the Grouse Creek mine and the
La Choya mine at December 31, 1995 and 1994 are based on gold prices of
$390 and $395 per ounce, silver prices of $5.50 and $5.60 per ounce, lead
prices of $0.33 and $0.28 per pound, and zinc prices of $0.50 and $0.46 per
pound, respectively. Proven and probable mineral reserves for the Rosebud
project at December 31, 1995 and 1994 are based on gold prices of $395 per
ounce and silver prices of $5.60 per ounce. 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 1995 and 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>
<CAPTION>
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 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
for the American Girl mine at December 31, 1995 and 1994 are based on gold
prices of $400 per ounce.
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 similar to that used for proven
reserves, but the sites for inspection, sampling and measurement are
farther apart or are otherwise less adequately spaced. The degree of
assurance, although lower than that for proven reserves, is high enough to
assume continuity between points of observation.
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<PAGE> 49
PROVEN RESERVES -- Resources for which tonnage is computed from dimensions
revealed in outcrops, trenches, workings or drill holes and for which the
grade and/or quality is computed from the results of detailed sampling.
The sites for inspection, sampling and measurement are spaced so closely
and the geologic character is so well defined that size, shape, depth and
mineral content of reserves are well established. The computed tonnage and
grade are judged to be accurate, within limits which are stated, and no
such limit is judged to be different from the computed tonnage or grade by
more than 20%.
RESERVES -- That part of a mineral deposit which could be economically and
legally extracted or produced at the time of the reserve determination.
Reserves are customarily stated in terms of "Ore" when dealing with
metalliferous minerals.
ROCKBURST -- Explosive rock failures caused by the pressure exerted by rock
adjacent to mine openings far below the surface.
SAND FILL -- The coarser fraction of concentrator tailings, which is
conveyed as a slurry in underground pipes to support cavities left by
extraction of ore.
SHAFT -- A vertical or steeply inclined excavation for the purpose of
opening and servicing a mine. It is usually equipped with a hoist at the
top which lowers and raises a conveyance for handling personnel and
materials.
STOPE -- An underground excavation from which ore has been extracted either
above or below mine level.
TROY OUNCE -- Unit of weight measurement used for all precious metals. The
familiar 16-ounce avoirdupois pound equals 14.583 Troy Ounces.
UNDERHAND MINING -- The primary mining method employed in the Lucky Friday
mine utilizing mechanized equipment, a ramp system and cemented sand fill.
The method has proven effective in reducing mining cost and rockburst
activity.
UNPATENTED MINING CLAIM -- A parcel of property located on federal lands
pursuant to the General Mining Law and the requirements of the state in
which the unpatented claim is located, the paramount title of which remains
with the federal government. The holder of a valid, unpatented lode mining
claim is granted certain rights including the right to explore and mine
such claim under the General Mining Law.
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<PAGE> 50
VEIN -- A mineralized zone having a more or less regular development in
length, width and depth which clearly separates it from neighboring rock.
WASTE -- Barren rock in a mine, or mineralized material that is too low in
grade to be mined and milled at a profit.
ITEM 2. PROPERTIES.
The Company's principal mineral properties are described in Item 1 above. The
Company also has interests in a number of other mineral properties in the United
States, Canada and Mexico. Although some of such properties are known to
contain significant quantities of mineralization, they are not considered
material to the Company's operations at the present time. Encouraging results
from further exploration or increases in the market prices of certain metals
could, in the future, make such properties considerably more important to the
business of the Company taken as a whole.
The general corporate office of the Company is located in Coeur d'Alene, Idaho,
on a tract of land containing approximately 13 acres. The Company also owns and
subdivided approximately 70 adjacent acres presently held for sale.
The administrative offices of the Company's ball clay, kaolin and feldspar
operations are located in Mayfield, Kentucky. Additionally, there are general
offices and laboratory facilities at each operating location. The Company also
owns approximately 1,600 acres of land principally for use in connection with
milling and storage operations for the industrial minerals operations. The
administrative offices of K-T Clay de Mexico are located with the clay slurry
processing facility on a parcel of land near Monterrey, Mexico.
The general offices of the scoria operations are located in Alamosa, Colorado.
The Company owns a parcel of land of approximately 20 acres in the vicinity of
Blanca, Colorado, on which are located building, storage and shipping facilities
utilized in its scoria business, and a bagging plant for landscape scoria. An
additional bagging facility, utilized for scoria briquettes, is located at San
Acacio, Colorado.
The general offices of Mountain West Products, Inc. are located in Rexburg,
Idaho. Processing facilities are located in Rexburg, Kamiah and Osburn, Idaho;
Superior, Montana; and Piedmont, South Dakota.
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<PAGE> 51
ITEM 3. LEGAL PROCEEDINGS.
Contingencies
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 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.
On July 18, 1995, the Department of Interior (DOI) notified the Company and six
other companies (several with assets and resources greater than the Company)
that the federal natural resource trustees (Fish and Wildlife Service and U.S.
Forest Service) identified the Company and the other six companies as
potentially responsible parties (PRPs) for damages resulting from injury to
federal natural resources with respect to the Coeur d'Alene River Basin in North
Idaho. The DOI letter further notifies the Company that the federal trustees
intend to bring suit against these companies to recover the alleged damages
under CERCLA. In September 1995, the Company, together with the other PRPs,
entered into a tolling agreement with the United States pursuant to which
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<PAGE> 52
the United States agreed not to initiate litigation in this matter until March
8, 1996, so long as the parties are pursuing settlement opportunities in good
faith. In this connection, the PRPs agreed not to assert the statute of
limitation as a defense if it were to occur during this period.
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 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 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. 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 $3.755 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. At December 31, 1995, the Company has not reduced its accrual
for reclamation and closure costs to reflect 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
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discovery determinations. Briefing on both appeals has been completed and the
Idaho Supreme Court has scheduled oral argument before the Court on the appeals
for early April 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 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
Securities totaling $10.0 million as collateral for the appeal bond. This
collateral amount is included in restricted investments at December 31, 1995.
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
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) (i) Shares of the Common Stock are traded on the New York Stock
Exchange, Inc., New York, New York.
(ii) The price range of the Common Stock on the New York Stock Exchange
for the past two years was as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995 - High $ 11.75 $ 12.25 $ 12.88 $ 12.38
- Low 8.63 10.13 10.13 6.63
1994 - High $ 15.00 $ 14.38 $ 13.50 $ 13.38
- Low 11.63 9.38 9.25 9.25
</TABLE>
(b) As of December 31, 1995, there were 12,210 holders of record of the
Common Stock.
(c) There were no Common Stock cash dividends paid in 1995 or 1994. The
amount and frequency of cash dividends are significantly influenced by
metals prices, operating results and the Company's cash requirements.
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<PAGE> 55
ITEM 6. SELECTED FINANCIAL DATA.
(dollars in thousands except for per-share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total revenue $ 163,968 $ 133,974 $ 96,060 $ 113,986 $ 121,130
========= ========= ========= ========= =========
Loss before cumulative
effect of changes in
accounting principles $(101,719) $ (24,613) $ (17,782) $ (55,173) $ (15,521)
Cumulative effect of changes in
accounting principles - - - - - - (103) - -
--------- --------- --------- --------- ---------
Net loss (101,719) (24,613) (17,782) (55,276) (15,521)
Preferred stock dividends (8,050) (8,050) (4,070) - - - -
--------- --------- --------- ---------- ---------
Loss applicable to
common shareholders $(109,769) $ (32,663) $ (21,852) $ (55,276) $ (15,521)
========= ========= ========= ========= =========
Loss per common share
before cumulative effect of
changes in accounting principles
and after preferred stock
dividends $ (2.28) $ (0.74) $ (0.58) $ (1.59) $ (0.46)
========= ========= ========= ========= =========
Loss per common share $ (2.28) $ (0.74) $ (0.58) $ (1.59) $ (0.46)
========= ========= ========= ========= =========
Total assets $ 258,190 $ 334,582 $ 346,153 $ 236,130 $ 276,856
========= ========= ========= ========== =========
Long-term debt - Notes and
contracts payable(1) $ 36,104 $ 1,960 $ 50,009 $ 71,219 $ 80,322
========= ========= ========= ========= =========
Cash dividends per common share $ - - $ - - $ - - $ - - $ - -
========= ========= ========= ========= =========
Cash dividends per preferred
share $ 3.50 $ 3.50 $ 1.77 $ - - $ - -
========= ========= ========= ========= =========
Common shares issued 48,317,324 48,144,274 40,320,761 36,324,517 34,062,328
Shareholders of record 12,210 13,196 13,549 14,859 17,127
Employees 1,259 1,204 919 826 911
</TABLE>
- ---------------------------------
(1) Includes $94,000 for 1991 of long-term debt which is recorded in
other noncurrent liabilities.
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<PAGE> 56
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.(1)
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 Grouse
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. 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 $(2.0) million
loss to income of $5.0 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.
The variability of metals prices requires that the Company, in assessing the
impact of prices on recoverability of its assets, exercises judgment as to
whether price changes are temporary or are
- ---------------------------
1 For definitions of certain mining terms used in this description, see
"Glossary of Certain Mining Terms" at the end of Item 1, page 45.
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<PAGE> 57
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.
During the third quarter of 1995 and continuing into the fourth quarter of 1995,
the Grouse Creek mine, which began production in December 1994 and in which the
Company has an 80% interest, experienced significantly higher than expected
operating costs per ounce of gold produced and significantly less than expected
operating margins resulting from higher than expected start-up costs and lower
than expected gold ore grade. Mining to date has indicated that mill grade ore
occurs in thinner, less continuous structures than originally interpreted in the
1994 life-of-mine plan. The Company thus determined that a 1995 third quarter
carrying value adjustment totaling $97.0 million was required to properly
reflect net realizable value of its interest in the Grouse Creek Joint Venture.
The amount of the adjustment was based on the Company's carrying value of its
interest in the Grouse Creek mine in excess of the Company's share of estimated
discounted future cash flows. A revised life-of-mine cash flow analysis was
developed early in the fourth quarter of 1995 for this purpose. The revised
plan recognizes the geologic complexity of the Sunbeam deposit as determined
from mining experience to date and includes a revised interpretation of the
geologic data. The carrying value adjustment was made in accordance with the
provisions of Statement of Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
which the Company adopted effective January 1, 1995. The Company currently
plans to continue mining on the Sunbeam pit through June 1996 and perform
further ore confirmation drilling of the Grouse deposit to evaluate the
feasibility of mining operations beyond June 1996. The Company's Board of
Directors is currently expected to make a decision during the second quarter of
1996 whether to continue further development and operation of the Grouse Creek
mine.
If the Grouse Creek mine is not further developed and operations wind down in
June 1996, 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 $4.0 million. If the decision is made to shut the property down, an
accrual for closed operations and environmental matters in the range of $16.0 to
$20.0 million would be necessary at the time the mine is shut down.
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<PAGE> 58
In 1996, the Company expects to produce between 125,000 and 165,000 ounces of
gold compared to actual 1995 gold production of 170,000 ounces of gold. The
1996 estimated production includes 60,000 to 65,000 ounces from the La Choya
mine, 30,000 to 35,000 ounces from the Company's interest in the American Girl
mine, 30,000 to 60,000 ounces from the Company's 80% interest in the Grouse
Creek mine, and an additional 5,000 ounces from other sources. The high end of
the Grouse Creek mine estimated production is contingent upon the Company's
decision to further develop and operate the mine beyond June 1996. 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 1,086,000 tons.
Additionally, the Company expects to ship 878,000 cubic yards of landscape
material from Mountain West Products in 1996 compared to 867,000 cubic yards in
1995.
RESULTS OF OPERATIONS
- ---------------------
1995 vs 1994
- ------------
The Company incurred a net loss of approximately $101.7 million ($2.11 per
common share) in 1995 compared to a net loss of approximately $24.6 million
($0.56 per common share) in 1994. After $8.1 million in dividends to holders of
the Company's Series B Cumulative Convertible Preferred Stock, the Company's
loss applicable to common shareholders for 1995 was approximately $109.8
million, or $2.28 per common share compared to $32.7 million, or $0.74 per
common share in 1994. The 1995 loss was due to a variety of factors, the most
significant of which was the third quarter write-down of the Company's interest
in the Grouse Creek mine.
Sales of the Company's products increased by approximately $27.1 million, or
21.1%, in 1995 as compared to 1994, principally the result of (1) increased
product sales totaling $49.7 million, most notably from the Grouse Creek mine
where gold and silver production commenced in December 1994, and increased
production at the La Choya and Lucky Friday mines as well as from several
industrial minerals operations; and (2) an increase in the average price of
lead. These two factors were partially offset by decreased sales of
approximately $23.5 million attributable to (1) decreased gold and silver
production in 1995 at the Republic gold mine which completed operations in
February 1995; and (2) decreased gold production at the American Girl mine due
to the completion of most underground mining operations there in February 1995.
Comparing the average metals prices for 1994 with 1995, gold remained fairly
constant at $384 per ounce, silver decreased by
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<PAGE> 59
1.7% from $5.28 per ounce to $5.19 per ounce, lead increased by 16% from $0.25
per pound to $0.29 per pound, and zinc increased by 4% from $0.45 to $0.47 per
pound.
Cost of sales and other direct production costs increased approximately $21.1
million, or 20.2%, in 1995 compared to 1994, primarily a result of (1) increased
production costs of $25.8 million incurred at the Grouse Creek mine in 1995
where production commenced in December 1994; (2) production cost increases at
Mountain West Products ($4.3 million) due principally to increased production as
well as increased freight and raw materials costs; (3) production cost increases
at Kentucky-Tennessee Clay Company's (K-T Clay's) kaolin and ball clay divisions
totaling approximately $4.0 million, principally due to the Langley kaolin
acquisition in 1995; (4) production cost increases at La Choya ($2.7 million)
primarily due to increased production; (5) production cost increases at Colorado
Aggregate Company ($1.2 million) related principally to a change in product mix
requirements; and (6) increased production costs at Lucky Friday of $1.2 million
due to increased production in 1995. These increases in cost of sales and other
direct production costs were partially offset by decreases in operating costs at
other operations, the three most notable of which are (1) decreased production
costs of $10.4 million at the Republic mine due to completion of operations in
February 1995; (2) decreased standby costs at the Greens Creek mine totaling
$2.6 million in the 1995 period, a direct result of management's decision to
further develop the mine and recommence production in early 1997; and (3)
decreased cost of sales in 1995 at the American Girl mine totaling $2.6 million
due to decreased gold production.
Cost of sales and other direct production costs as a percentage of sales from
products improved slightly from 81.3% in 1994 to 80.7% in 1995. Management does
not believe that the Company's cost of sales and other direct production costs
are materially different from industry norms.
Depreciation, depletion and amortization increased $9.2 million or 64.8% from
1994 to 1995 principally due to (1) increased depreciation at the Grouse Creek
mine ($8.6 million) which commenced production in December 1994; and (2)
increased depreciation at the La Choya mine ($2.4 million) due to increased
production; both of which were partially offset by decreased depreciation at the
Republic mine ($2.2 million) due to the curtailment of operations in February
1995.
Cash and full production costs per gold ounce increased from $273 and $334 in
1994, to $288 and $397 in 1995, respectively. The increases are mainly
attributed to the increased per ounce production costs at the Grouse Creek and
American Girl mines during 1995, partially offset by decreased per ounce
production costs at the La Choya mine.
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<PAGE> 60
Cash and full production costs per silver ounce decreased from $5.81 and $7.17
in 1994 to $4.57 and $5.76 in 1995, respectively. The decreases are due
primarily to (1) increased production in 1995 at the Lucky Friday mine; and (2)
increased average prices of lead and zinc in 1995. Lead and zinc are by-
products at the Lucky Friday mine, the net revenues of which are deducted from
production costs in the calculation of productions cost per silver ounce.
Other operating expenses increased by approximately $79.6 million, or 203% from
1994 to 1995, due principally to (1) the third quarter 1995 reduction in
carrying value of the Company's interest in the Grouse Creek mine ($97.0
million) and the Company's interest in the ConSil Corp.'s Silver Summit mine
($0.4 million); and (2) the third quarter 1995 adjustment to increase the
Company's liability for environmental remediation activity costs at the Bunker
Hill Superfund Site ($3.4 million) and the Coeur d'Alene Mining District ($0.3
million). These increases were partially offset by (1) the 1994 increase in the
provision for closed operations and environmental matters related to the
reclamation accruals for the Republic mine and the Coeur d'Alene Mining District
totaling $7.3 million and $1.1 million, respectively; (2) the 1994 $7.9 million
reduction in carrying value of mining properties adjustment related to the
Republic mine ($7.2 million), the Zenda property ($0.4 million), and exploration
equipment ($0.3 million); (3) decreased general and administrative costs of $1.8
million in 1995, primarily due to the nonrecurring 1994 expenses of
approximately $2.1 million related to the acquisition of Equinox Resources Ltd.;
and (4) a decrease of approximately $1.3 million in exploration expense in 1995.
Other income was approximately $10.8 million in 1995 compared to $5.2 million in
1994. The increase was primarily due to (1) the 1995 gain of $4.0 million on
the sales of certain common stock investments; and (2) the 1995 gain of $3.2
million on the sale of the Apex processing facility; both of which were
partially offset by (1) the 1995 write-down of $1.1 million for certain common
stock investments; and (2) the 1994 gain on the sale of certain common stock
investments. Total interest cost decreased $0.6 million in 1995, principally
due to the June 1994 retirement of long-term debt, partially offset by interest
expense during 1995 related to new borrowings under the Company's revolving and
term credit facility (described below).
In 1994, the Company recorded an extraordinary loss totaling approximately $0.8
million on the early retirement of long-term debt. The loss related principally
to the write-off of the unamortized balance of deferred issuance costs related
to the debt.
Income taxes reflect a provision of $0.3 million in 1995 compared to a benefit
of $0.5 million in 1994. The provision in 1995 primarily reflects the
provisions for U.S. and foreign taxes due as a result of certain asset and
certain common stock investment
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dispositions made during 1995, as well as a provision for state income taxes,
partially offset by the carryback of certain 1995 expenditures to reduce income
taxes previously provided. 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 income taxes.
RESULTS OF OPERATIONS
- ---------------------
1994 vs 1993
- ------------
The Company incurred a net loss of approximately $24.6 million ($0.56 per common
share) in 1994 compared to a net loss of approximately $17.8 million ($0.47 per
common share) in 1993. After $8.1 million in dividends to holders of the
Company's Series B Cumulative Convertible Preferred Stock, the 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 stock dividend.
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 totaling $42.3 million, most notably from the La Choya gold mine
in Mexico, which commenced production in February 1994, and Mountain West
Products, which was acquired in December 1993; and (2) increased 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) 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 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.
Comparing the average metals prices for 1993 with 1994, gold increased by 7%
from $360 per ounce to $384 per ounce, silver increased 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 approximately $24.5
million, or 30.6%, in 1994 compared to 1993, primarily a result of
(1) production costs at the La Choya mine and K-T Clay de Mexico during 1994
totaling approximately $11.7 million and $2.9 million, respectively, due to the
commencement of operations at these locations in early 1994; (2) increased
production costs in 1994 at Mountain West Products (acquired in December 1993)
totaling approximately $10.4 million; and (3) increased operating costs at
various other operations totaling
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approximately $7.8 million. These increases were partially offset by decreases
in operating costs at other operations totaling approximately $8.3 million, the
two most notable of which are (1) the Greens Creek mine totaling $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 improved 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 production
costs are materially different from industry norms.
Cash and full production costs 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 production from the Republic and American Girl gold
mines due to declining ore grades.
Cash and full production costs per silver ounce increased from $5.45 and $6.85
in 1993 to $5.81 and $7.17 in 1994, respectively. The increases are primarily
due to decreased ore grade as well as lower lead, silver, and zinc production
from the Lucky Friday mine in 1994. These were partially offset by an increase
in the average price of lead and zinc in 1994. Lead and zinc are by-products at
the Lucky Friday mine, the net revenues of which are deducted from production
costs in the calculation of production costs per ounce.
Other operating expenses increased by approximately $19.8 million, or 101.4%
from 1993 to 1994, principally due to (1) an increase in the provision for
closed operations and environmental matters totaling $9.0 million related
principally to the 1994 reclamation accruals for the Republic gold mine and the
Coeur d'Alene Mining District totaling $7.3 million and $1.1 million,
respectively; (2) an increase totaling $5.3 million in 1994 carrying value
adjustments to certain properties, plants, equipment, and supplies inventory
totaling $7.9 million; (3) an increase in exploration expenditures of $2.7
million principally due 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 primarily attributable to costs
totaling approximately $2.2 million incurred in connection with the March 11,
1994 acquisition of Equinox.
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;
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(2) decreased interest costs totaling $2.6 million due to the June 1994
retirement of long-term debt; 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 totaling approximately $0.8
million on the early retirement of long-term debt. The loss related 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 net operating losses to reduce income taxes previously provided, partially
offset by an Internal Revenue Service settlement and a provision for state
income taxes. The benefit in 1993 primarily reflects a decrease in the deferred
tax provision due to utilization of net operating loss carryovers.
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 December 31, 1995, assets totaled approximately $258.2 million and
shareholders' equity totaled approximately $164.1 million. Cash, cash
equivalents and short-term investments decreased by $3.3 million to $4.0 million
-
at December 31, 1995 from $7.3 million at the end of 1994. Operating activities
provided $11.8 million of cash during 1995. The primary sources were from the
La Choya mine and the industrial minerals segment. Partially offsetting these
sources was a $2.3 million increase in inventories, primarily in the industrial
minerals segment. The Company's $101.7 million net loss for 1995 includes net
noncash charges of $122.7 million. The primary noncash charges were (1)
reduction in carrying value of the Company's interests in the Grouse Creek mine
and ConSil Corp.'s Silver Summit mine (aggregating $97.4 million); (2)
depreciation,
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<PAGE> 64
depletion and amortization of $23.8 million; and (3) the provision for
reclamation and closure costs of $8.1 million.
The Company's investing activities used $42.4 million of cash during 1995. The
most significant use of cash was $45.3 million for property, plant and equipment
additions described below and the transfer of $2.7 million to restricted
investments for additional reclamation surety bonding collateral requirements
related to ongoing operations. These uses were partially offset by proceeds
from sales of certain common stock investments ($5.2 million) and proceeds from
the sales of assets ($3.8 million), primarily the Apex processing facility.
During 1995, the most significant asset additions were $10.6 million at the
Greens Creek mine, $8.7 million at the K-T Clay ball clay and kaolin industrial
minerals divisions, $6.8 million at the Rosebud project, $6.3 million at the
Grouse Creek mine, $5.0 million at the American Girl mine, $2.3 million at the
La Choya mine and other Mexico metals properties, and $2.0 million each at
Mountain West Products and the Lucky Friday Expansion Project (formerly referred
to as the Lucky Friday-Gold Hunter project). Included in the K-T Clay ball clay
and kaolin industrial minerals additions was the $6.3 million acquisition of the
property, plant and equipment of J. M. Huber Corporation's kaolin operation in
Langley, South Carolina. Included in the Mountain West Products amount is the
$1.6 million acquisition of the property, plant and equipment of the Western
Bark operations in Idaho and South Dakota.
During 1995, $27.4 million of cash was provided from financing activities. The
major sources of cash were borrowings against the Company's revolving and term
credit agreement of $48.0 million and proceeds from the exercise of stock
warrants and options of $1.3 million. The primary uses of cash were for
repayments against the bank borrowings ($13.0 million) and payment of the $8.1
million preferred stock dividend.
The Company estimates that capital expenditures to be incurred in 1996 will be
approximately $32.9 million, including $2.6 million of capitalized interest.
These expenditures consist primarily of (1) development expenditures at the
Greens Creek mine ($21.2 million), the Lucky Friday expansion project ($3.2
million), the Rosebud project ($2.6 million) and the American Girl mine ($1.5
million); and (2) expenditures at other operating locations totaling $4.4
million. If the decision is made to further develop and operate the Grouse
Creek mine, the Company estimates additional capital expenditures in the range
of $10.0 to $12.0 million in 1996. The Company intends to finance these capital
expenditures through a combination of (1) existing cash and cash equivalents;
(2) cash flow from operating activities; and (3) amounts available under its
revolving and term credit facility which, subject to certain conditions,
provides for borrowings up to a maximum of $55.0 million.
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<PAGE> 65
The expected 1996 capital expenditures referred to above for the Rosebud project
totaling $2.6 million, represent an estimate of costs to maintain the present
status of the project until a decision is made to develop the property.
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 $50.0 to $55.0 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 and the American Girl properties, that the Company's
joint-venture partners will not default with respect to their respective
portions of development costs and capital expenditures. However, because the
Grouse Creek mine ore grades have fallen far short of expectations as discussed
above, the Company is not certain of its joint-venture partner's, Great Lakes
Minerals Inc. (Great Lakes), ability in this project to fund future cash calls.
Pursuant to a November 27, 1995 agreement entered into between the Company and
Great Lakes, past due cash calls totaling $2.2 million were forgiven by the
Company in exchange for Great Lakes granting the Company certain warrants to
purchase Great Lakes' common stock (Great Lakes Warrants) which expire on
December 31, 1997, and a royalty totaling $2.3 million payable out of 25% (75%
after December 31, 1997) of the proceeds (in excess of cash operating
requirements) from Great Lakes' share of Grouse Creek production. As of
December 31, 1995, the Company has recorded a receivable from Great Lakes of
$1.3 million, which is the Company's estimated present value of the Great Lakes
Warrants and the royalty payments owed by Great Lakes. In addition, the Company
has been advised that Great Lakes anticipates it will elect to dilute its joint-
venture interest rather than pay its share of any future capital expenditure
requirements for the Grouse Creek mine. 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 shares of its Common Stock 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 Common Stock initially to pay down debt under its existing bank revolving
credit facility. After the January 1996 pay down of debt using the proceeds
from the offering, a total of $34.0 million remained available under the bank
facility.
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<PAGE> 66
On October 1, 1995, the Company amended the terms of its August 30, 1994
unsecured revolving and term loan facility. Under the amended terms, the
Company can borrow up to $55.0 million. Amounts may be borrowed on a revolving
credit basis through July 31, 1998, and are repayable in eight quarterly
installments beginning on October 31, 1998. At December 31, 1995, there was
$35.0 million outstanding under the Company's revolving and term loan facility
classified as long-term debt.
On February 7, 1996, the Company entered into a second amendment to the credit
facility whereby it will continue to be able to borrow up to $55.0 million.
Under the amended terms, the Company will continue to be able to select a
floating rate based on the primary bank's prime interest rate or fixed interest
rates for up to six months. The revised fixed interest rates are based on LIBOR
or the CD rate and range from LIBOR +1.175% or the CD rate +1.175%, to LIBOR
+1.775% or the CD rate +1.775%, depending on the level of outstanding
borrowings. The amended terms provide for the facility to be collateralized,
including the pledging of 100% of the stock of certain of the Company's
subsidiaries and providing the lenders under the credit facility a security
interest in accounts receivable. To maintain compliance with the covenants of
the credit facility, the Company must maintain a 1.5 to 1.0 current ratio and a
defined fixed charge coverage ratio of 1.2 to 1.0 through June 30, 1997, then
1.5 to 1.0 thereafter. In addition, the Company must maintain a minimum
tangible net worth of $150.0 million, plus 50% of net income earned, and 100% of
equity raised after December 31, 1995. Amounts available under the amended
facility are based on a debt to cash flow calculation, which must not exceed a
maximum of 3.75 to 1.0 through December 31, 1996, then 3.5 to 1.0 through
December 31, 1997, then 3.0 to 1.0 thereafter.
The Company's planned environmental and reclamation expenditures for 1996 are
expected to be approximately $5.5 million, principally for environmental and
reclamation activities at the Bunker Hill Superfund Site and the Republic
property.
Exploration expenditures for 1996 are estimated to be approximately $4.1
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, 1996 domestic exploration expenditures will be incurred principally
at the Greens Creek, Rosebud, American Girl and Lucky Friday properties.
Foreign exploration efforts in 1996 will center primarily on targets in Mexico.
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
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<PAGE> 67
costs paid or premiums received, for option contracts which hedge the sales
prices of commodities are deferred and subsequently included in income as part
of the hedged transaction. Revenues from the aforementioned contracts are
recognized at the time metal is available for delivery to the refineries. 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, 1995, the Company had forward sales commitments through January
31, 1997 for 13,000 ounces of gold at an average price of $412 per ounce. The
estimated fair value of these forward sales commitments was $228,000 at December
31, 1995. The Company has also purchased options to put 51,120 ounces of gold
to the counterparties at an average price of $389 per ounce. Concurrently, the
Company sold options to allow the counterparties to call 51,120 ounces of gold
from the Company at an average price of $468 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, 1995, the estimated
fair value of the Company's purchased gold put options was approximately
$436,000. If the Company had chosen to close its offsetting short gold call
option position it would have incurred a liability of approximately $134,000.
All of the aforementioned contracts are designated as hedges at December 31,
1995. The London Final gold price at year end was $387 per ounce. In February
1996, the Company purchased options to put 18,000 ounces of gold to the
counterparties at an average price of $410 per ounce. Concurrently, the Company
sold options to allow the counterparties to call 18,000 ounces of gold from the
Company at an average price of $448 per ounce. These options also expire, in
tandem, on a monthly basis through December 1997. Additionally, in January
1996, the Company entered into spot deferred forward sales commitments for
12,000 ounces of gold at $397 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.
The decline of the Mexican peso has 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. Further declines in the Mexican peso,
however, could adversely impact the Company's Mexican operations.
In November 1994, the Company 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, 1995, the Company's allowance for superfund site
remedial action costs was approximately $12.3 million, which the Company
believes is adequate based on current estimates of aggregate costs.
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<PAGE> 68
In addition, as described in Note 7 of Notes to Consolidated Financial
Statements, the Company is a defendant in an action filed in November 1990 by
Star Phoenix Mining Company (Star Phoenix) and certain principals of Star
Phoenix, asserting that the Company breached the terms of Star Phoenix's lease
agreement for the Company's Star Morning mine and that the Company interfered
with certain contractual relationships of Star Phoenix relating to the Company's
1990 termination of such lease agreement. In June 1994, judgment was entered by
the Idaho State District Court against the Company in the legal proceeding in
the amount of $10.0 million in compensatory damages and $10.0 million in
punitive damages based on a jury verdict rendered in the case in late May 1994.
The Company's post-trial motions were denied by the District Court, and the
Company has appealed the judgment to the Idaho State Supreme Court. Briefing on
the appeal has been completed and the Idaho State Supreme Court has scheduled
oral argument before the Court for early April 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
pending of the appeal, the Company posted an appeal bond in the amount of $27.2
million representing 136% of the District Court judgment. The Company pledged
U.S. Treasury Securities totaling $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 the unlikely 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 there can be no assurance as to the ultimate outcome of the above
matter and the other proceedings disclosed in Note 7 of Notes to Consolidated
Financial Statements, 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.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). The Statement
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<PAGE> 69
establishes financial accounting and reporting standards for stock-based
employee compensation plans. The Statement 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 is required to implement SFAS No. 123 on January 1,
1996. Management does not plan to adopt the measurement provisions of SFAS No.
123 although the Company will comply with the pro-forma disclosure requirements
of the Statement in its 1996 annual financial statements.
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.
SELECTED QUARTERLY DATA
(dollars in thousands except for per-share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
1995: Quarter Quarter Quarter Quarter Total
- ---- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales of products $ 35,710 $ 42,241 $ 41,203 $ 36,725 $ 155,879
Gross profit (loss) $ (162) $ 1,008 $ 1,775 $ 3,986 $ 6,607
Net income (loss) $ (2,464) $ 2,242 $(102,723) $ 1,226 $(101,719)
Preferred stock dividends $ (2,012) $ (2,013) $ (2,013) $ (2,012) $ (8,050)
Loss applicable to
common shareholders $ (4,476) $ 229 $(104,736) $ (786) $(109,769)
Loss per common share $ (0.09) $ 0.01 $ (2.17) $ (0.02) $ (2.28)
1994:
- ----
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)
Loss applicable to
common shareholders $ (7,663) $ (1,311) $ (1,207) $(22,482) $ (32,663)
Loss per common share $ (0.19) $ (0.03) $ (0.03) $ (0.47) $ (0.74)
</TABLE>
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES.
None.
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<PAGE> 70
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Reference is made to the information with respect to the directors of the
Company set forth under the caption "Election of Directors" in the
Company's proxy statement to be filed pursuant to Regulation 14A for the
annual meeting scheduled to be held on May 10, 1996 (the Proxy Statement),
which information is incorporated herein by reference. Information with
respect to executive officers of the Company is set forth as follows:
<TABLE>
<CAPTION>
Age at
May 10,
Name 1996 Position and Term Served
------------------- ------ -------------------------------------------
<S> <C> <C>
William B. Booth 45 Vice President - Investor and Public Affairs
since May 1994; various administrative
functions with the Company since December
1985.
Arthur Brown 55 Chairman since June 1987; Chief Executive
Officer since May 1987; President since May
1986; Chief Operating Officer from May 1986
to May 1987; Executive Vice President from
May 1985 to May 1986; held various positions
as an officer since 1980; employed by the
Company since 1967.
Joseph T. Heatherly 65 Vice President - Controller since May 1989;
Controller from May 1987 to May 1989; various
administrative functions with the Company
since May 1983. Retired effective February
1, 1996.
J. Gary Childress 48 Vice President - Industrial Minerals since
February 1994; President and General Manager
of Kentucky-Tennessee Clay Company from 1987
to 1994; Senior Vice President of Kentucky-
Tennessee Clay Company from 1986 to 1987.
</TABLE>
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<PAGE> 71
<TABLE>
<CAPTION>
Age at
May 10,
Name 1996 Position and Term Served
------------------- ------ ---------------------------------------------
<S> <C> <C>
Ralph R. Noyes 48 Vice President - Metal Mining since May 1988;
Manager Metal Mining from June 1987 to May
1988; prior thereto, since 1976, held various
administrative positions with the Company and
Day Mines, Inc. Resigned effective January
1, 1996.
John P. Stilwell 43 Vice President - Finance and Treasurer since
May 1994; Treasurer since June 1991; held
various administrative positions with the
Company since May 1985.
Michael B. White 45 Vice President - General Counsel and
Secretary since May 1992; Secretary since
November 1991; Assistant Secretary from March
1981 to November 1991; General Counsel since
June 1986; various administrative positions
since 1980.
</TABLE>
There are no family relationships between any of the executive officers.
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) to be filed
pursuant to Regulation 14A, which information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Reference is made to the information set forth under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Proxy Statement to
be filed pursuant to Regulation 14A, which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to the information set forth under the caption "Other
Transactions" in the Proxy Statement to be filed pursuant to Regulation 14A,
which information is incorporated herein by reference.
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<PAGE> 72
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
See Index to Financial Statements on Page F-1
(a)(2) Financial Statement Schedules
See Index to Financial Statements on Page F-1
(a)(3) Exhibits
See Exhibit Index following the financial statements
(b) Reports on Form 8-K
Report on Form 8-K dated October 25, 1995, related to
disappointing results at the Grouse Creek mine.
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<PAGE> 73
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized, on
March 11, 1996.
HECLA MINING COMPANY
By /s/ Arthur Brown
----------------------------------
Arthur Brown, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ Arthur Brown 3/11/96 /s/ Theodore Crumley 3/11/96
- -------------------------------- ---------------------------------
Arthur Brown Date Theodore Crumley Date
Chairman and Director Director
(principal executive officer)
/s/ Stanley E. Hilbert 3/11/96 /s/ Leland O. Erdahl 3/11/96
- -------------------------------- ---------------------------------
Stanley E. Hilbert Date Leland O. Erdahl Date
Corporate Controller Director
(principal accounting officer)
/s/ John P. Stilwell 3/11/96 /s/ William A. Griffith 3/11/96
- -------------------------------- ---------------------------------
John P. Stilwell Date William A. Griffith Date
Vice President - Finance and Director
Treasurer (principal financial
officer)
/s/ John E. Clute 3/11/96 /s/ Charles L. McAlpine 3/11/96
- -------------------------------- ---------------------------------
John E. Clute Date Charles L. McAlpine Date
Director Director
/s/ Joe Coors, Jr. 3/11/96 Jorge E. Ordonez 3/11/96
- -------------------------------- ---------------------------------
Joe Coors, Jr. Date Jorge E. Ordonez Date
Director Director
</TABLE>
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<PAGE> 74
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements
Report of Independent Accountants F-2
Consolidated Balance Sheets at December 31,
1995 and 1994 F-3
Consolidated Statements of Operations for the
Years Ended December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Changes in
Shareholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993 F-6
Notes to Consolidated Financial Statements F-7 to F-35
Report of Deloitte & Touche, Chartered Accountants F-36
Financial Statement Schedules*
- -----------------------------
*Financial statement schedules
have been omitted as not applicable
F-1
<PAGE> 75
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, 1995 and 1994, and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. 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 revenues constituting 12% and net loss
constituting 34% for the year ended December 31, 1993, of the related
consolidated totals. Separate financial statements of Equinox included in the
consolidated financial statements were audited and reported on separately by
other auditors, whose report dated February 28, 1994, expressed an unqualified
opinion on those statements before adjustments, which were audited by us, to
convert Canadian dollars to U.S. dollars and to conform certain Equinox
accounting policies to U.S. generally accepted accounting principles consistent
with those of Hecla Mining Company.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, 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 December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
As discussed in Notes 1 and 3 to the consolidated financial statements, the
Company changed its method of accounting for the impairment of long-lived assets
as of January 1, 1995, and its method of accounting for investments as of
January 1, 1994. The changes were required by Statements of Financial
Accounting Standards issued by the Financial Accounting Standards Board.
/s/ COOPERS & LYBRAND L.L.P.
Spokane, Washington
February 2, 1996, except for the
last paragraph of Note 6,
as to which the date is February 7, 1996
F-2
<PAGE> 76
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
__________
ASSETS
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994
---------- ---------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 4,024 $ 7,278
Accounts and notes receivable 25,571 23,516
Income tax refund receivable 737 247
Inventories 20,915 18,616
Other current assets 2,038 1,597
---------- ---------
Total current assets 53,285 51,254
Investments 2,200 6,476
Restricted investments 16,254 13,553
Properties, plants and equipment, net 177,374 257,908
Other noncurrent assets 9,077 5,391
---------- ---------
Total assets $ 258,190 $ 334,582
========== =========
LIABILITIES
Current liabilities
Accounts payable and accrued expenses $ 14,145 $ 13,570
Accrued payroll and related benefits 3,217 2,724
Preferred stock dividends payable 2,012 2,012
Accrued taxes 1,042 925
Accrued reclamation and closure costs 5,549 4,254
---------- ---------
Total current liabilities 25,965 23,485
Deferred income taxes 359 359
Long-term debt 36,104 1,960
Accrued reclamation and closure costs 26,782 27,162
Other noncurrent liabilities 4,864 4,098
---------- ---------
Total liabilities 94,074 57,064
---------- ---------
Commitments and contingencies (Notes 1, 2 and 7)
SHAREHOLDERS' EQUITY
Preferred stock, $0.25 par value,
authorized 5,000,000 shares;
issued and outstanding - 2,300,000 shares,
liquidation preference $117,012 575 575
Common stock, $0.25 par value, authorized 100,000,000 shares;
issued 1995 - 48,317,324, issued 1994 - 48,144,274 12,079 12,036
Capital surplus 330,352 328,995
Accumulated deficit (173,206) (63,437)
Net unrealized gain on investments 100 3,396
Foreign currency translation adjustment (4,898) (3,158)
Less treasury stock, at cost;
1995 - 62,072 common shares, 1994 - 62,355 common shares (886) (889)
---------- ---------
Total shareholders' equity 164,116 277,518
---------- ---------
Total liabilities and shareholders' equity $ 258,190 $ 334,582
========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
<PAGE> 77
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars and shares in thousands, except per share amounts)
__________
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1995 1994 1993
--------- -------- ---------
<S> <C> <C> <C>
Sales of products $ 155,879 $128,747 $ 92,888
--------- -------- ---------
Cost of sales and other direct production costs 125,810 104,683 80,141
Depreciation, depletion and amortization 23,462 14,233 13,526
--------- -------- ---------
149,272 118,916 93,667
--------- -------- ---------
Gross profit (loss) 6,607 9,831 (779)
--------- -------- ---------
Other operating expenses
General and administrative 9,371 11,132 8,140
Exploration 7,109 8,397 5,656
Research - - - - 150
Depreciation and amortization 367 524 669
Provision for closed operations and environmental
matters 4,615 11,353 2,327
Reduction in carrying value of mining properties 97,387 7,864 2,561
--------- -------- ---------
118,849 39,270 19,503
--------- -------- ---------
Loss from operations (112,242) (29,439) (20,282)
--------- -------- ---------
Other income (expense)
Interest and other income 8,089 5,227 3,172
Miscellaneous income (expense) 18 (234) 102
Gain (loss) on investments 3,169 1,053 (64)
Minority interest - - - - 43
Interest expense
Total interest costs (1,960) (2,606) (5,224)
Less amount capitalized 1,516 1,751 3,533
--------- -------- ---------
10,832 5,191 1,562
--------- -------- ---------
Loss before extraordinary item and income taxes (101,410) (24,248) (18,720)
Income tax benefit (provision) (309) 468 938
--------- -------- ---------
Loss before extraordinary item (101,719) (23,780) (17,782)
Extraordinary loss on retirement of long-term debt - - (833) - -
--------- -------- ---------
Net loss (101,719) (24,613) (17,782)
Preferred stock dividends (8,050) (8,050) (4,070)
--------- -------- ---------
Loss applicable to common shareholders $(109,769) $(32,663) $ (21,852)
========= ======== =========
Loss per common share
Loss before extraordinary item $(2.28) $(0.72) $(0.58)
Extraordinary item - - (0.02) - -
------ ------ ------
$(2.28) $(0.74) $(0.58)
====== ====== ======
Weighted average number of common shares outstanding 48,192 43,944 37,872
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
<PAGE> 78
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Operating activities
Net loss $ (101,719) $ (24,613) $ (17,782)
Noncash elements included in net loss
Depreciation, depletion and amortization 23,829 14,757 14,195
Deferred income tax benefit - - - - (964)
(Gain) loss on disposition of properties, plants
and equipment (3,417) (354) 1,336
(Gain) loss on investments (3,169) (1,053) 64
Accretion of interest on long-term debt - - 2,495 4,465
Provision for reclamation and closure costs 8,071 11,353 1,635
Reduction in carrying value of mining properties 97,387 7,864 3,432
(Gain) loss on retirement of long-term debt - - 833 (323)
Minority interest in net loss of subsidiary - - - - 43
Change in
Accounts and notes receivable (849) (4,675) (2,360)
Income tax refund receivable (490) (247) 390
Inventories (2,299) (4,086) (669)
Other current assets (441) 406 (554)
Accounts payable and accrued expenses 575 (4,088) 5,848
Accrued payroll and related benefits 493 668 (83)
Accrued taxes 117 (3) (343)
Accrued reclamation and closure costs
and noncurrent liabilities (6,326) (4,608) (3,058)
----------- ---------- ----------
Net cash provided (used) by operating activities 11,762 (5,351) 5,272
----------- ---------- ----------
Investing activities
Purchase of investments and change in cash surrender
value of life insurance, net (1,047) 114 (593)
Purchase of short-term investments, net - - - - (27,578)
Proceeds from sale of investments and subsidiary 5,196 32,067 273
Purchase of restricted investments (2,701) (13,553) - -
Additions to properties, plants and equipment (45,308) (66,559) (56,836)
Proceeds from disposition of properties, plants
and equipment 3,822 13,809 1,511
Other, net (2,407) (325) (2,162)
----------- ---------- ----------
Net cash used by investing activities (42,445) (34,447) (85,385)
----------- ---------- ----------
Financing activities
Repayment of long-term debt (13,856) - - - -
Borrowing on long-term debt 48,000 - - - -
Common stock issued under stock option plans
and warrants 1,335 1,765 1,425
Preferred stock issuance, net of issuance costs - - - - 110,346
Preferred stock dividends (8,050) (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 in 1994 - - (50,169) - -
----------- ---------- ----------
Net cash provided by financing activities 27,429 7,045 116,177
----------- ---------- ----------
Change in cash and cash equivalents
Net increase (decrease) in cash and cash equivalents (3,254) (32,753) 36,064
Cash and cash equivalents at beginning of year 7,278 40,031 3,967
----------- ---------- ----------
Cash and cash equivalents at end of year $ 4,024 $ 7,278 $ 40,031
=========== ========== ==========
Supplemental disclosure of cash flow information
Cash paid during year for:
Interest (net of amount capitalized), including
$16,283 of accreted interest in 1994 $ (136) $ 16,528 $ 347
=========== ========== ==========
Income tax payments, net $ 216 $ 436 $ 325
=========== ========== ==========
</TABLE>
See Notes 4 and 6 for noncash investing and financing activities.
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
<PAGE> 79
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1995, 1994 and 1993
(dollars and shares in thousands, except per share amounts)
_______________
<TABLE>
<CAPTION>
Unrealized Foreign
Gain Currency
Preferred Stock Common Stock Capital Accumulated (Loss) on Translation Treasury
Shares Amount Shares Amount Surplus Deficit Investments Adjustment Stock
--------- ------- ------- -------- -------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
----- ------ ------ ------- -------- --------- ------- -------
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 and exercise
of warrants 349 87 1,678
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) 3,396 (3,158) (889)
Net loss (101,719)
Preferred stock dividends
($3.50 per share) (8,050)
Stock issued under stock
option plans and exercise
of warrants 166 41 1,294
Stock issued to directors 7 2 63
Net change in unrealized
gain (loss) on investments (3,296)
Net change in foreign
currency translation (1,740)
adjustment
Treasury stock issued 3
----- ------ ------ ------- -------- --------- ------- -------
Balances, December 31, 1995 2,300 $ 575 48,317 $12,079 $ 330,352 $(173,206) $ 100 $(4,898) $ (886)
===== ====== ====== ======= ======== ========= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
<PAGE> 80
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION -- The accompanying consolidated financial statements
include the accounts of Hecla Mining Company (Hecla or the Company), its
majority-owned subsidiaries and its proportionate share of the accounts of the
joint ventures in which it participates. All significant intercompany
transactions and accounts are eliminated in consolidation. The financial
statements give effect to the amalgamation involving Equinox Resources Ltd.
(Equinox) on March 11, 1994, which was accounted for as a pooling of interests.
The Company's revenues and profitability are strongly influenced by world prices
for 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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
B. COMPANY'S BUSINESS AND CONCENTRATIONS OF CREDIT RISK -- The Company is
engaged in mining and mineral processing activities, including exploration,
extraction, processing and reclamation. The Company's principal products are
metals (primarily gold, silver, lead and zinc) and industrial minerals
(primarily clay and aggregate products). Substantially all of the Company's
operations are conducted in the United States and Mexico. Sales of metals
products are made principally to domestic and foreign custom smelters and metal
traders. The Company sells substantially all of its metallic concentrates to
smelters which are subject to extensive regulations including environmental
protection laws. The Company has no control over the smelters' operations or
their compliance with environmental laws and regulations. If the smelting
capacity available to the Company was significantly reduced because of
environmental requirements or otherwise, it is possible that the Company's
silver operation could be adversely affected. Industrial minerals are sold
principally to domestic and Mexican manufacturers and wholesalers. Sales to
significant metals customers, as a percentage of total sales of metals, were as
follows:
F-7
<PAGE> 81
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Custom smelters 8.9% 9.3% 24.0%
Custom metal traders
Customer A 32.8% 38.3% 15.1%
Customer B 30.6% 19.2% 14.8%
Customer C 11.6% 12.9% 13.7%
Customer D 7.9% 11.9% 11.7%
Customer E 4.4% 8.4% 7.6%
</TABLE>
During 1995, 1994 and 1993, the Company sold 7.0%, 13.0% and 16.7%,
respectively, of its products to companies in foreign countries.
The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company places its cash and temporary cash investments with
institutions of high credit-worthiness. At times such investments may be in
excess of the FDIC insurance limit. The Company routinely assesses the
financial strength of its customers and, as a consequence, believes that its
trade accounts receivable credit risk exposure is limited.
C. INVENTORIES -- Inventories are stated at the lower of average cost or
estimated net realizable value.
D. INVESTMENTS -- The Company uses the equity method to account for
investments in common stock of operating companies 20% to 50% owned.
Investments in nonoperating companies that are not intended for resale or are
not readily marketable are valued at the lower of cost or net realizable value.
Marketable equity securities have been categorized as available for sale and are
stated at market value. Realized gains and losses on the sale of these
securities are recognized in the period they are sold on a specific
identification basis. Unrealized gains and losses are included as a component
of shareholders' equity net of related deferred income taxes, unless a permanent
impairment in value has occurred, which is then charged to operations.
Restricted investments held at December 31, 1995 and 1994, primarily represent
investments in money market funds and a U.S. Treasury Note at 4 5/8% interest
due in February 1996. The investments 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 realizable value. Maintenance,
repairs and renewals are charged to operations. Betterments of a major nature
are capitalized. When assets are retired or sold, the costs and related
allowances for depreciation and amortization are eliminated from the accounts
and
F-8
<PAGE> 82
any resulting gain or loss is reflected in operations. Idle facilities, placed
on a standby basis, are carried at the lower of net book value or estimated net
realizable value.
Management of the Company reviews the net carrying value of all facilities,
including idle facilities, on a regular, periodic basis. These reviews
consider, among other factors, (1) the net realizable value of each major type
of asset, on a property-by-property basis, to reach a judgment concerning
possible permanent impairment of value and any need for a write-down in asset
value; (2) the ability of the Company to fund all care, maintenance and standby
costs; (3) the status and usage of the assets, while in a standby mode, to
thereby determine whether some form of amortization is appropriate; and (4)
current estimates of metals 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 and equipment and the value associated with property interests.
These estimates of undiscounted future cash flows are dependent upon estimates
of metal to be recovered from proven and probable ore reserves and, where
appropriate, from the continuity of existing, developed ore bodies, future
production costs and future metals prices over the estimated remaining mine
life. If undiscounted cash flows are less than the carrying value of a
property, an impairment loss is recognized based upon the estimated expected
future net cash flows from the property discounted at an interest rate
commensurate with the risk involved. The Company adopted the provisions of
Statement of Financial Accounting Standards, No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS No. 121) effective January 1, 1995. The adoption of the provisions of
SFAS No. 121 had no material effect on the results of operations, financial
condition, or cash flows of the Company.
Management's estimates of metals prices, recoverable proven and probable ore
reserves, and operating, capital and reclamation costs are subject to risks and
uncertainties of change affecting the recoverability of the Company's investment
in various projects. Although management has made its best estimate of these
factors based on current conditions, it is reasonably possible that changes
could occur in the near term which could adversely affect management's estimate
of net cash flows expected to be generated from its operating properties and the
need for asset impairment write-downs.
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-9
<PAGE> 83
Management's calculations of proven and probable ore reserves are based on
engineering and geological estimates including minerals prices and operating
costs. Changes in the geological and engineering interpretation of various ore
bodies, minerals prices and operating costs may change the Company's estimates
of proven and probable reserves. It is reasonably possible that certain of the
Company's estimates of proven and probable reserves will change in the near term
resulting in a change to amortization and liability accrual rates in future
reporting periods.
F. MINE EXPLORATION AND DEVELOPMENT -- Exploration costs are charged to
operations as incurred, as are normal development costs at operating mines.
Major mine development expenditures at operating properties and at new mining
properties not yet producing are capitalized.
G. RECLAMATION OF MINING AREAS -- All of the Company's operations are subject
to reclamation and closure requirements. Minimum standards for mine reclamation
have been established by various governmental agencies which affect certain
operations of the Company. A reserve for mine reclamation costs has been
established for restoring certain abandoned and currently disturbed mining areas
based upon estimates of cost to comply with existing reclamation standards.
Mine reclamation costs for operating properties are accrued using the
unit-of-production method. 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 indicate there is a current impairment of an
asset's carrying value and a decision is made to permanently close the property,
in which case they are recognized currently. It is reasonably possible that the
Company's estimate of its ultimate accrual for reclamation costs will change in
the near term due to possible changes in laws and regulations, and
interpretations thereof, and changes in cost estimates.
H. REMEDIATION OF MINING AREAS -- The Company accrues costs associated with
environmental remediation obligations when it is probable that such costs will
be incurred and they are reasonably estimable. Accruals for estimated losses
from environmental remediation obligations generally are recognized no later
than completion of the remedial feasibility study. Costs of future expenditures
for environmental remediation are not discounted to their present value; such
costs are based on management's current estimate of amounts that are expected to
be incurred when the remediation work is performed within current laws and
regulations.
It is reasonably possible that, due to uncertainties associated with defining
the nature and extent of environmental contamination, application of laws and
regulations by regulatory authorities, and changes in remediation technology,
the ultimate cost of remediation
F-10
<PAGE> 84
could change in the future. The Company will continue to review its accrued
liabilities for such remediation costs as evidence becomes available indicating
that its remediation liability has changed.
I. INCOME TAXES -- The Company records deferred tax liabilities and assets for
the expected future income tax consequences of events that have been recognized
in its financial statements. Deferred tax liabilities and assets are determined
based on the temporary 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 expected to reverse.
J. LOSS PER COMMON SHARE -- Loss per common share is computed by adding
preferred stock dividends to the net loss and dividing the result by the
weighted average number of shares of common stock and common stock equivalents
(stock options and warrants) outstanding during each reporting period unless the
common stock equivalents are anti-dilutive. Due to the losses in 1995, 1994 and
1993, common stock equivalents are anti-dilutive and therefore have been
excluded from the computation.
K. REVENUE RECOGNITION -- Sales of metals products sold directly to smelters
are recorded when they are received by the smelter, at estimated metals prices.
Recorded values are adjusted periodically and upon final settlement. Metal in
products tolled (rather than sold to smelters) is sold under contracts for
future delivery; such sales are recorded at contractual amounts when products
are available to be processed by the smelter or refinery. Sales of industrial
minerals are recognized as the minerals are delivered.
L. INTEREST EXPENSE -- Interest costs incurred during the construction of
qualifying assets are capitalized as part of the asset cost.
M. CASH EQUIVALENTS -- The Company considers cash equivalents to consist of
highly liquid investments with a remaining maturity of three months or less when
purchased.
N. 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 and K-T Mexico is the U.S. dollar. Accordingly, the Company translates
the monetary assets and liabilities of both subsidiaries at the year-end
exchange rate while nonmonetary assets and liabilities are translated at
historical rates. Income and expense accounts are translated at the average
exchange rate for each period. Translation adjustments and transaction gains
and losses are reflected in the net loss for the period.
F-11
<PAGE> 85
Prior to the second quarter of 1995, K-T Mexico's functional currency was the
Mexican peso. During the second quarter of 1995, K-T Mexico commenced invoicing
its customers in U.S. dollars instead of the Mexican peso. This change
indicated a change in the functional currency from the Mexican peso to the U.S.
dollar. The change in the functional currency has been accounted for
prospectively commencing in the second quarter of 1995. Translation adjustments
from prior periods are included in shareholders' equity. The translated amounts
for nonmonetary assets prior to the change have become the accounting basis for
those assets.
O. RISK MANAGEMENT CONTRACTS -- 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 subsequently
included in income as part of the hedged transaction. Revenues from the
aforementioned contracts are recognized at the time metals are available for
shipment to the refineries. 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.
NOTE 2: INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
Concentrates, bullion, metals in transit
and other products $ 2,519 $ 5,568
Industrial minerals products 8,671 5,995
Materials and supplies 9,725 7,053
-------- --------
$ 20,915 $ 18,616
======== ========
</TABLE>
At December 31, 1995, the Company had forward sales commitments through January
31, 1997, for 13,000 ounces of gold at an average price of $412 per ounce. The
Company has also purchased options to put 51,120 ounces of gold to the
counterparties at an average price of $389 per ounce. Concurrently, the Company
sold options to allow the counterparties to call 51,120 ounces of gold from the
Company at an average price of $468 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. All of the aforementioned contracts are
designated as hedges at December 31, 1995. The London Final gold price at year
end was
F-12
<PAGE> 86
$387 per ounce. In February 1996, the Company purchased options to put 18,000
ounces of gold to the counterparties at an average price of $410 per ounce.
Concurrently, the Company sold options to allow the counterparties to call
18,000 ounces of gold from the Company at an average price of $448 per ounce.
These options also expire, in tandem, on a monthly basis through December 1997.
Additionally, in January 1996, the Company entered into spot deferred forward
sales commitments for 12,000 ounces of gold at $397. The nature and purpose of
the forward sales and option contracts do not presently expose the Company to
any significant net loss.
NOTE 3: 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, 1995 and 1994, marketable equity securities have been categorized
as available for sale and are stated at quoted market value. Other investments
were recorded at cost at December 31, 1995 and 1994.
Investments consist of the following components (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Carrying
Cost Gains Losses Value
------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1995
- -----------------
Equity securities investments
available for sale $ 355 $ 204 $ (104) $ 455
Other investments 1,745 - - - - 1,745
------- ------- ------- -------
$ 2,100 $ 204 $ (104) $ 2,200
======= ======= ======= =======
December 31, 1994
- -----------------
Equity securities investments
available for sale $ 1,880 $ 3,608 $ (212) $ 5,276
Other investments 1,200 - - - - 1,200
------- ------- ------- -------
$ 3,080 $ 3,608 $ (212) $ 6,476
======= ======= ======= =======
</TABLE>
The other investments are principally large blocks of common and preferred stock
in several mining companies, investments in various ventures, and cash surrender
value of life insurance policies. The securities are generally restricted as to
trading or marketability, although some are traded on various exchanges.
Proceeds from the sales of investment securities in 1995 totaled $5,196,000;
gross realized gains and losses on such sales were $4,240,000 and $1,071,000,
respectively. 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-13
<PAGE> 87
NOTE 4: PROPERTIES, PLANTS AND EQUIPMENT
The major components of properties, plants and equipment are (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Mining properties $ 45,023 $ 53,304
Deferred development costs 122,842 161,645
Plants and equipment 209,100 224,914
Land 6,501 6,305
--------- ---------
383,466 446,168
Less accumulated depreciation,
depletion and amortization 206,092 188,260
--------- ---------
Net carrying value $ 177,374 $ 257,908
========= =========
</TABLE>
In the third quarter of 1995, 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, totaling $97.4 million, consisted of write-downs of properties,
plants and equipment for the Company's interest in the Grouse Creek mine ($97.0
million) and the Company's interest in the ConSil Corp.'s Silver Summit mine
($0.4 million). The Grouse Creek write-down was necessary due to significantly
higher than expected operating costs per gold ounce which was due to much lower
than anticipated gold grades being realized from the proven and probable ore
reserves.
In 1994, the major portion of the $7.9 million adjustment was related to the
$7.2 million write-down of property, plant, equipment and supplies inventory at
the Republic mine, which completed 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 principal portion of the $2.6 million write-down was $1.7 million
related to the American Girl/Oro Cruz Joint Venture to reflect updated
information regarding reserves and operating costs. An additional $0.7 million
was recorded as a write-down of the Zenda property.
The net carrying values of the major mining properties of the Company that were
on a standby or idle basis at December 31, 1995 and 1994, were approximately
$7.6 million and $53.0 million, respectively.
On September 27, 1995, the Company sold its Apex Unit processing facility for
$8.0 million, plus certain working capital items totaling an additional $1.4
million, recognizing a gain on the sale
F-14
<PAGE> 88
totaling approximately $3.2 million. The Company received $4.4 million in
cash at closing (including the $1.4 million in certain working capital
items) and accepted a note receivable for the remaining $5.0 million.
Under the note, $3.0 million, plus accrued interest at NationsBank's published
Prime Rate, is due on September 27, 1996, and the balance of $2.0 million, plus
accrued interest at NationsBank's published Prime Rate plus one percent, is due
on September 27, 1997.
On February 8, 1994, the Company sold a 20% 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% of the amount spent by the Company
on acquisition, exploration and development of the project through June 30,
1993, including a fixed premium of $1.25 million. In addition, Great Lakes
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% by contributing additional funds on a proportional
basis. This option expires in March 1996. At December 31, 1995, the Company
had recorded a receivable from Great Lakes totaling $1.3 million.
NOTE 5: INCOME TAXES
Major components of the Company's income tax provision (benefit) are (in
thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Current
Federal $ (298) $ (805) $ (200)
State 307 337 226
Foreign 300 - - - -
------ ------ ------
Total current 309 (468) 26
------ ------ ------
Deferred
Federal - - - - (728)
State - - - - (236)
Foreign - - - - - -
------ ------ ------
Total deferred - - - - (964)
------ ------ ------
Income tax provision (benefit) $ 309 $ (468) $ (938)
===== ====== ======
</TABLE>
During 1994, 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.
F-15
<PAGE> 89
The components of the net deferred tax liability as of December 31, 1995 and
1994, were as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets
Accrued reclamation costs $ 10,832 $ 10,692
Investment valuation differences 1,969 864
Capital loss carryover 3,431 4,330
Postretirement benefits other
than pensions 898 852
Other liabilities 230 53
Deferred compensation 612 417
Accounts receivable 456 456
Properties, plants and equipment 10,969 - -
Foreign net operating losses 2,314 3,609
Federal net operating losses 57,398 55,414
State net operating losses 4,867 4,426
Tax credit carryforwards 3,435 3,435
Miscellaneous 2,103 1,441
------- -------
Total deferred tax assets 99,514 85,989
Valuation allowance (97,705) (67,149)
------- -------
Net deferred tax assets 1,809 18,840
------- -------
Deferred tax liabilities
Properties, plants and equipment - - (17,333)
Deferred income (287) (363)
Pension costs (624) (556)
Inventories (898) - -
Deferred state income taxes, net (359) (947)
------- -------
Total deferred tax liabilities (2,168) (19,199)
------- -------
Net deferred tax liability $ (359) $ (359)
======= =======
</TABLE>
F-16
<PAGE> 90
The Company has recorded a valuation allowance to reflect the estimated 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 for the years ended December 31, 1995 and 1994, are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1995 1994
-------- ---------
<S> <C> <C>
Balance at beginning of year $(67,149) $(58,529)
Increase related to nonutilization
of net operating loss
carryforwards and nonrecognition
of deferred tax assets due to
uncertainty of recovery (30,556) (8,620)
-------- --------
Balance at end of year $(97,705) $(67,149)
======== ========
</TABLE>
The annual tax provision (benefit) is different from the amount which would be
provided by applying the statutory federal income tax rate to the Company's
pretax income (loss). The reasons for the difference are (in thousands):
<TABLE>
<CAPTION>
1995 % 1994 % 1993 %
-------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Computed "statutory"
benefit $(34,479) (34) $ (8,244) (34) $ (6,365) (34)
Nonutilization of net
operating losses and
effect of foreign tax
provisions, if applicable 34,782 34 8,085 33 5,564 30
State income taxes, net
of federal tax benefit 6 0 (309) (1) (137) (1)
-------- ---- -------- ---- -------- ----
$ 309 0 $ (468) (2) $ (938) (5)
======== ==== ======== ==== ======== ====
</TABLE>
F-17
<PAGE> 91
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, 1995, the Company had tax basis
net operating loss carryovers available to offset future regular and alternative
minimum (AMT) and foreign taxable income. These carryovers expire as follows
(in thousands):
<TABLE>
<CAPTION>
Regular Foreign
Tax Net AMT Net Net Investment
Operating Operating Operating Tax Credit
Losses Losses Losses Carryovers
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
1996 $ 268 $ 268 $ - - $ - -
1997 2,020 695 18 84
1998 11,005 308 352 482
1999 6,235 1,199 4,799 310
2000 3,089 789 1,637 240
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 11,670 7,115 - - - -
2010 18,400 17,800 - - - -
--------- --------- --------- ---------
$ 167,963 $ 65,597 $ 6,806 $ 1,231
========= ========= ========= =========
</TABLE>
At December 31, 1995, for income tax purposes, the Company had 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 $2.0 million in alternative minimum tax credit
carryovers eligible to reduce future regular tax liabilities.
F-18
<PAGE> 92
NOTE 6: LONG-TERM DEBT AND CREDIT AGREEMENT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
--------- ----------
<S> <C> <C>
Bank line of credit $ 35,000 $ - -
Notes payable - Sunbeam 692 1,038
Production notes payable 609 1,185
Other long-term debt 149 83
--------- ----------
36,450 2,306
Less current portion (346) (346)
--------- ----------
$ 36,104 $ 1,960
========= ==========
</TABLE>
Zero Coupon Convertible Notes
On June 13, 1994, the Company redeemed its Zero Coupon Convertible Notes with a
face value of approximately $50.2 million. The Company recorded an
extraordinary loss on retirement of long-term debt totaling approximately $0.8
million, which related principally to the write-off of the unamortized balance
of deferred issuance costs of the notes.
Notes Payable - Sunbeam
The notes are non-interest bearing, discounted at 15% and payable in three
annual equal amounts from the date of commercial production of the Grouse Creek
property. The first installment of the notes, totaling approximately $346,000,
was paid in January 1995.
Production Notes Payable
When the Company acquired Equinox in March 1994, the then outstanding production
participating preferred shares were converted to production notes and recorded
as long-term debt. The attributes of the production notes are identical to their
predecessor production participating preferred shares. The valuation of the
production notes as long-term debt is based on the present value of the
estimated cumulative net cash flow discounted 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 October 1, 1995, the Company amended the terms of its unsecured revolving and
term loan facility (the Agreement). Under the
F-19
<PAGE> 93
amended terms, the Company can borrow up to $55.0 million. Amounts may be
borrowed on a revolving credit basis through July 31, 1998, and are repayable in
eight quarterly installments beginning on October 31, 1998. Borrowings bear
interest at floating rates depending on the type of advance. The Company may
select fixed interest rates for up to six months at a range of LIBOR +.8%, or
the CD rate +.8% to LIBOR +1.55% or the CD rate +1.55%, depending on the level
of outstanding borrowings. During the commitment period, the Company is
obligated to pay an annual fee of $178,750. The Agreement contains certain
restrictive covenants, 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 compliance with the covenants of the
Agreement, the Company must maintain a 1.5 to 1.0 current ratio and maintain a
defined fixed charge coverage ratio of 1.5 to 1.0. As of December 31, 1995, the
Company was in compliance with all restrictive covenants of the Agreement.
Amounts available under the Agreement are based on a debt to cash flow
calculation which must not exceed a maximum of 4.0 to 1.0. At December 31,
1995, there were $35.0 million in borrowings outstanding under the Agreement.
On February 7, 1996, the Company entered into a second amendment to the
Agreement whereby it will continue to be able to borrow up to $55.0 million.
Under the amended terms, the Company will continue to be able to select a
floating rate based on the primary bank's prime interest rate or fixed interest
rates for up to six months. The revised fixed interest rates are based on LIBOR
or the CD rate and range from LIBOR +1.175% or the CD rate +1.175%, to LIBOR
+1.775% or the CD rate +1.775%, depending on the level of outstanding
borrowings. The amended terms provide for the Agreement to be collateralized,
including the pledging of 100% of the stock of certain of the Company's
subsidiaries and providing the lenders under the Agreement a security interest
in accounts receivable. To maintain compliance with the covenants of the
Agreement, the Company must maintain a 1.5 to 1.0 current ratio and a defined
fixed charge coverage ratio of 1.2 to 1.0 through June 30, 1997, then 1.5 to 1.0
thereafter. In addition, the Company must maintain a minimum tangible net worth
of $150.0 million, plus 50% of net income earned, and 100% of equity raised
after December 31, 1995. Amounts available under the amended Agreement are
based on a debt to cash flow calculation, which must not exceed a maximum of
3.75 to 1.0 through December 31, 1996, then 3.5 to 1.0 through December 31,
1997, then 3.0 to 1.0 thereafter.
NOTE 7: COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases various facilities and equipment under noncancelable
operating lease arrangements. The major facilities and equipment leases are for
terms of three to ten years. Future
F-20
<PAGE> 94
minimum lease payments under these noncancelable operating leases as of December
31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 $ 3,212
1997 2,760
1998 2,636
1999 2,387
2000 2,113
Thereafter 2,560
--------
Total minimum lease payments $ 15,668
========
</TABLE>
Approximately $10.0 million of the above minimum lease payments relate to
equipment used at the Company's Grouse Creek mine which was written down by
$97.0 million in 1995 (see Note 4). Although the Company currently intends to
continue operating the mine, if a determination is made in the future to close
the Grouse Creek mine, some or all of the remaining lease obligations would need
to be accrued and charged to operations.
Rent expense incurred for the above leases during the years ended December 31,
1995 and 1994 was $3.8 million and $2.2 million, respectively.
Contingencies
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 District Court and remanded the case of the Tribe's ownership for
trial before the District Court. The Company has
F-21
<PAGE> 95
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.
On July 18, 1995, the Department of Interior (DOI) notified the Company and six
other companies (several with assets and resources greater than the Company)
that the federal natural resource trustees (Fish and Wildlife Service and U.S.
Forest Service) identified the Company and the other six companies as
potentially responsible parties (PRPs) for damages resulting from injury to
federal natural resources with respect to the Coeur d'Alene River Basin in North
Idaho. The DOI letter further notifies the Company that the federal trustees
intend to bring suit against these companies to recover the alleged damages
under CERCLA. In September 1995, the Company, together with the other PRPs,
entered into a tolling agreement with the United States pursuant to which the
United States agreed not to initiate litigation in this matter until March 8,
1996, so long as the parties are pursuing settlement opportunities in good
faith. In this connection, the PRPs agreed not to assert the statute of
limitation as a defense if it were to occur during this period.
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 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 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. 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 $3.755 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. At December 31, 1995, the Company has not reduced its accrual
for
F-22
<PAGE> 96
reclamation and closure costs to reflect 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 the Idaho Supreme Court has scheduled oral argument
before the Court on the appeals for early April 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
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 Securities totaling $10.0 million as collateral for the
appeal bond. This collateral amount is included in restricted investments at
December 31, 1995. 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 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
F-23
<PAGE> 97
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 8: EMPLOYEE BENEFIT PLANS
The Company and certain subsidiaries have defined benefit pension plans covering
substantially all employees. One plan covering eligible salaried and hourly
employees provides retirement benefits and is based on the employee's
compensation during the highest 36 months of the last 120 months before
retirement. Three other pension plans covering eligible hourly employees
provide benefits of stated amounts for each year of service. It is the
Company's policy to make contributions to these plans sufficient to meet the
minimum funding requirements of applicable laws and regulations, plus such
additional amounts, if any, as the Company and its actuarial consultants
consider appropriate. Contributions are intended to provide not only for
benefits attributed to service to date, but also for those expected to be earned
in the future. Plan assets for these plans consist principally of equity
securities, insurance contracts and corporate and U.S. government obligations.
F-24
<PAGE> 98
Net periodic pension cost (income) for the plans consisted of the following in
1995, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Service cost $ 778 $ 938 $ 961
Interest cost 2,021 1,938 1,899
Return on plan assets (2,607) (2,737) (2,924)
Amortization of transition asset (434) (434) (434)
Amortization of unrecognized
prior service cost 70 70 45
Amortization of unrecognized net
(gain) loss from earlier periods (12) (4) 6
-------- -------- ---------
Net pension income $ (184) $ (229) $ (447)
======== ======== =========
</TABLE>
The following table sets forth the funded status of the plans and amounts
recognized in the Company's consolidated balance sheets (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
-------- --------
<S> <C> <C>
Actuarial present value of
benefit obligations
Vested benefits $ 30,203 $ 24,429
Nonvested benefits 155 300
-------- ---------
Accumulated benefit obligations 30,358 24,729
Effect of projected future salary
and wage increases 2,014 1,500
-------- ---------
Projected benefit obligations $ 32,372 $ 26,229
======== =========
Plan assets $ 39,881 $ 33,550
Projected benefit obligations (32,372) (26,229)
-------- ---------
Plan assets in excess of projected
benefit obligations 7,509 7,321
Unrecognized net gain (3,976) (3,314)
Unrecognized prior service cost 932 708
Unrecognized net asset
at January 1 (2,647) (3,081)
-------- ---------
Pension asset recognized in
consolidated balance sheets $ 1,818 $ 1,634
======== =========
</TABLE>
The projected benefit obligation was calculated applying the following average
rates:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Discount rate 7.00% 8.00%
Long-term compensation increase 4.00% 5.00%
Long-term rate of return on
plan assets 8.00% 8.00%
</TABLE>
The Company provides certain postretirement benefits, principally health care
and life insurance benefits for qualifying retired employees. The costs of
these benefits are being funded out of general corporate funds and are accrued
over the period in which active employees provide services to the Company. Net
periodic
F-25
<PAGE> 99
postretirement benefit cost included the following components (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost $ 13 $ 24 $ 28
Interest cost 154 141 164
Amortization of gain (18) (13) - -
------- ------- -------
Net postretirement benefit cost $ 149 $ 152 $ 192
======= ======= =======
</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):
<TABLE>
<CAPTION>
December 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Accumulated postretirement
benefit obligation
Retirees $ 1,353 $ 1,317
Fully eligible, active plan
participants 400 314
Other active plan participants 310 290
-------- --------
2,063 1,921
Unrecognized net gain 374 470
-------- --------
Accumulated postretirement
benefit obligations recognized
in consolidated balance sheets $ 2,437 $ 2,391
======== ========
</TABLE>
The actuarial assumptions used in determining the Company's accumulated
postretirement benefit obligation are provided in the table below. Due to the
short period which the Company provides medical benefits to its retirees, the
increases in medical costs are assumed to be 6% in each year. A 1% change in
the assumed health care cost trend rate would not have a significant impact on
the accumulated postretirement benefit obligation or the aggregate of service
and interest cost for 1995 or 1994.
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Discount rate 7.00% 8.00%
Trend rate for medical benefits 6.00% 6.00%
</TABLE>
The Company has a nonqualified deferred compensation plan which permits eligible
officers, directors and key employees to defer a portion of their compensation.
The deferred compensation, which together with Company matching amounts and
accumulated interest is accrued and partially funded, is distributable in cash
after retirement or termination of employment, and at December 31, 1995 and
1994, amounted to approximately $1.8 and $1.2 million,
F-26
<PAGE> 100
respectively. 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 and up to 100% of annual bonuses. The participant
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.
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. 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 was
$173,000 in 1995, $170,000 in 1994, and $158,000 in 1993.
NOTE 9: SHAREHOLDERS' EQUITY
Preferred Stock
The Company has 2.3 million shares of Series B Cumulative Convertible Preferred
Stock (the Preferred Shares) outstanding. Holders of the Preferred Shares are
entitled to receive cumulative cash dividends at the annual rate of $3.50 per
share payable quarterly, when and if declared by the Board of Directors.
The Preferred Shares are convertible, in whole or in part, at the option of the
holders thereof, into shares of common stock at an initial conversion price of
$15.55 per share of common stock. The Preferred Shares are not redeemable by
the Company prior to July 1, 1996. After such date, the shares will be
redeemable at the option of the Company at any time, in whole or in part,
initially at $52.45 per share and thereafter at prices declining ratably on each
July 1 to $50 per share on or after July 1, 2003.
Holders of the Preferred Shares have no voting rights except if the Company
fails to pay the equivalent of six quarterly dividends. If these dividends are
not paid, the holders of Preferred Shares, voting as a class, shall be entitled
to elect two additional directors. The holders of Preferred Shares also have
voting rights related to certain amendments to the Company's Articles of
Incorporation.
The Preferred Shares rank senior to the common stock and any outstanding shares
of Series A Preferred Shares. The Preferred Shares have a liquidation
preference of $50 per share plus all accrued and unpaid dividends which amounted
to $117,012,000 at December 31, 1995.
F-27
<PAGE> 101
Shareholder Rights Plan
In 1986, the Company adopted a Shareholder Rights Plan. Pursuant to this plan,
holders of common stock received one preferred share purchase right for each
common share held. The 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 alternatives, entitle rightholders, other than the Acquiring
Person or group, to purchase common stock of the Company or the acquiring
company having a market value of twice the $47.50 exercise price of the right.
The rights are nonvoting, may be redeemed at any time at a price of 5 cents per
right prior to the tenth day after an Acquiring Person acquires 15% of the
Company's common stock, and expire in May 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
The Company adopted a nonstatutory stock option plan in 1987. The plan provides
that options may be granted to certain officers and key employees to purchase
common stock at a price of not less than 50% of the fair market value at the
date of grant. The plan also provides that options may be granted with a
corresponding number of stock appreciation rights and/or tax offset bonuses to
assist the optionee in paying the income tax liability that may exist upon
exercise of the options. All of the outstanding stock options under the 1987
plan were granted at an exercise price equal to the fair market value at the
date of grant and with an associated tax offset bonus. Outstanding options
under the 1987 plan are immediately exercisable for periods up to ten years. At
December 31, 1995, there were 6,748 shares available for grant in the future
under the plan. The plan expires in 1997.
In 1995, the Company adopted the new Hecla Mining Company Stock Plan for
Nonemployee Directors (the Directors' Stock Plan), which is subject to
termination by the Board of Directors at any time. Each nonemployee director is
credited with 1,000 shares of the common stock of the Company on May 30 of each
year. Nonemployee directors joining the Board of Directors after May 30 of any
year are credited with a pro-rata number of shares based upon the date they join
the Board. All credited shares are held in trust for the benefit of each
director until delivered to the Director. Delivery of the shares from the trust
occurs upon the earlier of (1) death or disability; (2) retirement; (3) a
cessation of the director's service for any other reason; or (4) a change in
control of the Company. Subject to certain restrictions, directors may elect to
receive the delivery of shares on such date or in annual installments thereafter
over 5, 10 or 15 years. The shares of
F-28
<PAGE> 102
common stock credited to nonemployee directors pursuant to the Directors' Stock
Plan may not be sold until at least six months following the date they are
delivered. The maximum number of shares of common stock which may be granted
pursuant to the Directors' Stock Plan is 120,000. During 1995, 6,539 shares
were credited to the nonemployee directors.
In 1995, the shareholders of the Company approved the 1995 Stock Incentive Plan
which provides for a variety of stock-based grants to the Company's officers and
key employees. The plan provides for the grant of stock options, stock
appreciation rights, restricted stock and performance units to eligible officers
and key employees of the Company. Stock options under the plan are required to
be granted at 100% of the market value of the stock on the date of the grant.
The terms of such options shall be no longer than ten years from the date of
grant. No options were granted under this plan in 1995.
F-29
<PAGE> 103
Transactions concerning stock options are summarized as follows:
<TABLE>
<CAPTION>
Exercise
Shares Price
--------- ------------
<S> <C> <C>
Outstanding, December 31, 1992 406,603 $ 7.12-18.26
Year ended December 31, 1993
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
Year ended December 31, 1995
Granted 15,000 9.38
Exercised (12,500) 9.63-10.38
Expired (33,508) 8.54- 9.32
-------
Outstanding, December 31, 1995 316,492 $ 7.12-18.26
=======
</TABLE>
The aggregate amounts charged (credited) to operations in connection with the
plans were $(21,000), $(23,000) and $309,000 in 1995, 1994 and 1993,
respectively.
As a result of the acquisition of Equinox, the outstanding options 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:
F-30
<PAGE> 104
<TABLE>
<CAPTION>
Exercise
Shares Price
--------- ------------
<S> <C> <C>
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
Exercised (251,400) 3.45-17.82
-------
Outstanding, December 31, 1994 900 17.82
Year ended December 31, 1995
Expired (900) 17.82
-------
Outstanding, December 31, 1995 - - - -
=======
</TABLE>
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). This Statement establishes financial accounting
and reporting standards for stock-based employee compensation plans. The
Statement 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 based method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Company
must implement SFAS No. 123 on January 1, 1996. Management does not plan to
adopt the measurement provisions of SFAS No. 123, although the Company will
comply with the pro-forma disclosure requirements of the Statement in its 1996
annual financial statements.
Warrants
As a result of the acquisition of Equinox, outstanding Equinox warrants became
exercisable for Hecla common shares. At December 31, 1995, there were warrants
outstanding to acquire 225,651 Hecla common shares at $8.30 per share, which
expire in August 1996. If the Company'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 exercise their warrants
or lose their right to exercise.
F-31
<PAGE> 105
1996 Common Stock Offering
On January 23, 1996, 2,875,000 shares of the Company's common stock were sold
under the Company's existing Registration Statement which provides for the
issuance of up to $100.0 million of equity and debt securities. The net
proceeds from the offering of $22.0 million were used principally to reduce the
outstanding borrowings under the Company's bank credit agreement.
F-32
<PAGE> 106
NOTE 10: BUSINESS SEGMENTS (in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net sales to unaffiliated customers
Metals (including $27,729 and $18,493
in Mexico in 1995 and 1994) $ 79,810 $ 60,828 $ 45,892
Industrial minerals (including $2,664,
$2,885 and $368 in Mexico in 1995,
1994 and 1993) 71,655 63,634 44,953
Specialty metals 4,414 4,285 2,043
--------- --------- ---------
$ 155,879 $ 128,747 $ 92,888
========= ========= =========
Income (loss) from operations
Metals (including $6,396 and $2,307
in Mexico in 1995 and 1994) $(109,449) $ (24,658) $ (15,418)
Industrial minerals (including $(341),
$(810) and $9 in Mexico in 1995,
1994 and 1993) 6,690 6,872 4,449
Specialty metals 255 3 (504)
General corporate (9,738) (11,656) (8,809)
--------- --------- ---------
$(112,242) $ (29,439) $ (20,282)
========= ========= =========
Capital expenditures
Metals (including $2,319, $466 and
$12,826 in Mexico in 1995, 1994
and 1993) $ 32,838 $ 62,002 $ 45,961
Industrial minerals (including
$183, $1,352 and $5,800 in Mexico
in 1995, 1994 and 1993) 11,811 3,615 11,938
Specialty metals 81 453 - -
General corporate assets 578 489 548
--------- --------- ---------
$ 45,308 $ 66,559 $ 58,447
========= ========= =========
Depreciation, depletion and amortization
Metals $ 18,859 $ 9,699 $ 10,052
Industrial minerals 4,580 4,501 3,718
Specialty metals 23 33 33
General corporate assets 367 524 392
--------- --------- ---------
$ 23,829 $ 14,757 $ 14,195
========= ========= =========
Identifiable assets
Metals (including $15,702, $19,241
and $21,028 in Mexico in 1995,
1994 and 1993) $ 144,246 $ 179,258 $ 136,735
Industrial minerals (including
$4,888, $6,192 and $7,054 in
Mexico in 1995, 1994 and 1993) 71,163 59,502 68,068
Specialty metals - - 6,288 4,197
General corporate assets 35,998 36,507 81,486
Idle facilities 6,783 53,027 55,667
--------- --------- ---------
$ 258,190 $ 334,582 $ 346,153
========= ========= =========
</TABLE>
Net sales and identifiable assets of each segment are those that are directly
identified with those operations. General corporate assets consist primarily of
cash, receivables, investments and
F-33
<PAGE> 107
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 resumption of
operations. At December 31, 1994 and 1993, the Company's recorded net book
value of identifiable assets of the Greens Creek mine was approximately $50.3
million. These amounts have been classified in the idle facilities category at
December 31, 1994 and 1993. On May 17, 1995, the Company announced plans for
the redevelopment of the Greens Creek mine and at December 31, 1995, the
recorded net book value of identifiable assets at the Greens Creek mine is
classified in the metals category.
NOTE 11: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated 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
settlement have not been taken into consideration.
The carrying amounts for cash and cash equivalents, accounts and notes
receivable, restricted investments and current liabilities 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 currently offered for debt with
similar remaining maturities.
F-34
<PAGE> 108
The estimated fair values of financial instruments are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1995 1994
--------------------- ---------------------
Carrying Fair Carrying Fair
Amounts Value Amounts Value
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 4,024 $ 4,024 $ 7,278 $ 7,278
Accounts and notes receivable 25,571 25,571 23,516 23,516
Investments
Equity securities available
for sale 455 455 5,276 5,276
Restricted 16,254 16,254 13,553 13,553
Gold forward sales contracts - - 228 - - (A)
Gold put options - - 436 - - 621
Financial liabilities
Current liabilities 25,965 25,965 23,485 23,485
Long-term debt - principal 36,104 35,563 1,960 1,804
Gold call options - - 134 - - 599
</TABLE>
(A) Fair value information is not available.
F-35
<PAGE> 109
[Deloitte & Touche Letterhead]
AUDITORS' REPORT
To the Directors of
Equinox Resources Ltd.
We have audited the consolidated statements of loss and deficit and changes in
financial position of Equinox Resources, Ltd. for the year ended December 31,
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in Canada. 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 results of the Company's operations and the changes in
its financial position for the year ended December 31, 1993 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-36
<PAGE> 110
HECLA MINING COMPANY and WHOLLY OWNED SUBSIDIARIES
FORM 10-K - December 31, 1995
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number and Description of Exhibits
----------------------------------
<S> <C>
3.1(a) Certificate of Incorporation of the
Registrant as amended to date.2
3.1(b) Certificate of Amendment of Certificate
of Incorporation of the Registrant,
dated as of May 16, 1991.2
3.2 By-Laws of the Registrant as amended
to date.2
4.1(a) Certificate of Designations, Preferences
and Rights of Series A Junior
Participating Preferred Stock of the
Registrant.2
4.1(b) Certificate of Designations, Preferences
and Rights of Series B Cumulative Convertible
Preferred Stock of the Registrant.2
4.2(a) Rights Agreement dated as of May 9, 1986
between Hecla Mining Company and Manufac-
turers Hanover Trust Company, which
includes the form of Certificate of
Designation setting forth the terms of the
Series A Junior Participating Preferred
Stock of Hecla Mining Company as Exhibit A,
the form of Right Certificate as Exhibit B
and the summary of Rights to Purchase
Preferred Shares as Exhibit C.2
4.2(b) Amendment, dated as of November 9, 1990
to the Rights Agreement dated as of May 9,
1986 between Hecla Mining Company and
Manufacturers Hanover Trust Company.2
4.2(c) Second Amendment to Rights Agreement dated
September 30, 1991, between Hecla Mining
Company and Manufacturers Hanover Trust
Company.2
</TABLE>
<PAGE> 111
INDEX TO EXHIBITS (continued)
<TABLE>
<CAPTION>
Number and Description of Exhibits
----------------------------------
<S> <C> <C>
4.2(d) Hecla Mining Company Notice Letter to
Shareholders, being holders of Rights
Certificates, appointing American Stock
Transfer & Trust Company as Rights Agent,
successor to Manufacturers Hanover Trust
Company, effective September 30, 1991,
pursuant to Section 21 of the Rights
Agreement.2
10.1(a) Credit Agreement dated as of August 30, 1994,
among Registrant and Certain Subsidiaries
and NationsBank of Texas, N.A., as Agent,
and Certain Banks as Lenders.2
10.1(b) First Amendment to Credit Agreement dated
October 1, 1995.2
10.1(c) Second Amendment to Credit Agreement dated
February 7, 1996. Attached
10.2 Employment agreement dated November 10,
1989 between Hecla Mining Company and
Arthur Brown. (Registrant has substantially
identical agreements with each of Messrs.
William B. Booth, J. Gary Childress, Joseph
T. Heatherly, Jon T. Langstaff, John P.
Stilwell, and Michael B. White. Such
substantially identical agreements are not
included as separate Exhibits.)1,2
10.3(a) Form of Executive Deferral Plan Master
Document effective January 1, 1995.1,2
10.3(b) Form of Director Deferral Plan Master
Plan Document effective January 1, 1995.1,2
10.4(a) 1987 Nonstatutory Stock Option Plan of the
Registrant.1,2
10.4(b) Hecla Mining Company 1995 Stock Incentive
Plan.1,2
10.4(c) Hecla Mining Company Stock Plan for Non-
employee Directors.1,2
</TABLE>
<PAGE> 112
INDEX TO EXHIBITS (continued)
<TABLE>
<CAPTION>
Number and Description of Exhibits
----------------------------------
<S> <C> <C>
10.5(a) Hecla Mining Company Retirement Plan for
Employees and Supplemental Retirement and
Death Benefit Plan.1,2
10.5(b) Supplemental Excess Retirement Master
Plan Document.1,2
10.5(c) Hecla Mining Company Nonqualified Plans
Master Trust Agreement.1,2
10.6 Form of Indemnification Agreement dated
May 27, 1987 between Hecla Mining Company
and each of its Directors and Officers.1,2
10.7 Summary of Short-term Performance Payment
Plan.1,2
10.8 Acquisition Agreement dated as of
December 29, 1993, by and among Registrant
and B.P.Y.A. 1193 Holdings Ltd., 1057451
Ontario Limited and Equinox Resources Ltd.2
10.9(a) Acquisition Agreement - Grouse Creek
Project, dated January 21, 1994, among
Registrant, Great Lakes Idaho Inc. and
Great Lakes Minerals Inc.2
10.9(b) Mining Venture Agreement dated as of
February 8, 1994, between Registrant and
Great Lakes Idaho Inc.2
10.10 Purchase and Sale Agreement between Hecla
Mining Company and Mooney Chemicals Inc.,
dated August 2, 1995, related to the sale
of the Apex Unit refining facility located
near St. George, Utah. Attached
11. Computation of weighted average number of
common shares outstanding. Attached
12. Statement of Computation of Ratio of Earnings
to Fixed Charges Attached
13.1 Hecla Mining Company Fourth Quarter and
Year-End Results for the Period Ended
December 31, 1995 Attached
</TABLE>
<PAGE> 113
INDEXH TO EXHIBITS (continued)
<TABLE>
<CAPTION>
Number and Description of Exhibits
----------------------------------
<S> <C> <C>
21. List of subsidiaries of the registrant. Attached
23.1 Consent of Coopers & Lybrand to incorpor-
ation by reference of their report dated
February 2, 1996, except for the last
paragraph of Note 6, as to which the date
is February 7, 1996, on the Consolidated
Financial Statements of the Registrant in
the Registrant's Registration Statements
on Form S-3, No. 33-72832, and No. 33-59659,
Form 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
No. 33-59659, Forms S-8, No. 33-7833, No.
33-41833, No. 33-14758, No. 33-40691, No.
33-60095 and No. 33-60099. Attached
27. Financial Data Schedule Attached
</TABLE>
________________________
1. Indicates a management contract or compensatory plan or arrangement.
2. These exhibits were filed in SEC File No. 1-8491 as indicated on the
following page and are incorporated herein by this reference thereto.
<PAGE> 114
<TABLE>
<CAPTION>
Corresponding Exhibit in Annual Report on
Form 10-K, Quarterly Report on Form 10-Q,
Current Report on Form 8-K, Proxy Statement
or Registration Statement, as Indicated
Exhibit in Below; All References are to SEC File
this Report No. 1-8491.
- ----------- --------------------------------------------
<S> <C>
3.1(a) & (b) 3.1 (10-K for 1987)
3.2 2 (Current Report on Form 8-K dated
November 9, 1990)
4.1(a) & (b) 4.1(d)(c) and 4.5 (Quarterly Report on
Form 10-Q dated June 30, 1993)
4.2(a) 1 (Current Report on Form 8-K dated
May 23, 1986)
4.2(b) 1 (Current Report on Form 8-K dated
November 9, 1990)
4.2(c) 4.1(c)(10-K for 1991)
4.2(d) 4.1(d)(10-K for 1991)
10.1(a) 10.1(a)(Quarterly Report on Form 10-Q
dated September 30, 1994)
10.1(b) 10.1(b)(Quarterly Report on Form 10-Q
dated September 30, 1995)
10.2 10.2(b) (10-K for 1989)
10.3(a) 3 (10-K for 1994)
10.3(b) 10.3(b) (10-K for 1994)
10.4(a) B (Proxy Statement dated March 20, 1987)
10.4(b) A (Proxy Statement dated March 27, 1995)
10.4(c) B (Proxy Statement dated March 27, 1995)
10.5(a) 10.11(a) (10-K for 1985)
10.5(b) 10.5(b) (10-K for 1994)
10.5(c) 10.5(c) (10-K for 1994)
10.6 10.15 (10-K for 1987)
10.7 10.7 (10-K for 1994)
10.8 2 (Schedule 13D dated January 7, 1993 -
filed by Registrant with respect to
Equinox Resources Ltd.)
10.9(a) (c)1(Current Report on Form 8-K dated
February 10, 1994)
10.9(b) (c)2(Current Report on Form 8-K dated
February 10, 1994)
23.1 23 (10-K for 1994)
23.2 23.1 (10-K/A for 1994)
23.3 23.2 (10-K/A for 1994)
</TABLE>
<PAGE> 1
Exhibit 10.1(c)
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (herein called the
"Amendment") made as of the 7th day of February, 1996, by and among HECLA
MINING COMPANY, a Delaware corporation (herein called "Borrower"), Colorado
Aggregate Company of New Mexico, Inc., a New Mexico corporation, Kentucky-
Tennessee Clay Company, a Delaware corporation, K-T Feldspar Corporation, a
North Carolina corporation, Mountain West Products, Inc., an Idaho
corporation, Equinox Resources Inc., a Nevada corporation, and NATIONSBANK OF
TEXAS, N.A., a national banking association (in its capacity as Agent under
the Original Agreement, herein called "Agent"), and Lenders named in the
Original Agreement referred to below ("Lenders"),
WITNESSETH:
WHEREAS, Borrower, Colorado Aggregate Company of New Mexico, Kentucky-
Tennessee Clay Company, K-T Feldspar Corporation, Mountain West Products,
Inc., Agent and Lenders have entered into that certain Credit Agreement dated
as of August 30, 1994, as amended by a First Amendment to Credit Agreement
dated as of October 1, 1995 (the "Original Agreement"), for the purpose and
consideration therein expressed, whereby Lenders became obligated to make
loans to Borrower as therein provided; and
WHEREAS, Borrower, Colorado Aggregate Company of New Mexico, Kentucky-
Tennessee Clay Company, K-T Feldspar Corporation, Mountain West Products,
Inc., Equinox Resources Inc., Agent and Lenders desire to amend the Original
Agreement to provide for the purposes and consideration set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Original Agreement and
in consideration of the loans which may hereafter be made by Lenders to
Borrower, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby
agree as follows:
<PAGE> 2
ARTICLE I.
DEFINITIONS AND REFERENCES
Section 1.1. TERMS DEFINED IN THE ORIGINAL AGREEMENT. Unless the
context otherwise requires or unless otherwise expressly defined herein, the
terms defined in the Original Agreement shall have the same meanings whenever
used in this Amendment.
Section 1.2. OTHER DEFINED TERMS. Unless the context otherwise
requires, the following terms when used m this Amendment shall have the
meanings assigned to them in this Section 1.2.
"Amendment" shall mean this Second Amendment to Credit Agreement.
"Amendment Documents" shall mean this Amendment, Guarantor
Security Agreements, Borrower Security Agreement, and the Borrower
Stock Pledge.
"Borrower Security Agreement" shall mean the Security Agreement
of Borrower in favor of Agent dated as of even date herewith
substantially in the form of Exhibit A attached hereto.
"Borrower Stock Pledge" shall mean the Stock Pledge of Borrower
in favor of Agent dated as of even date herewith substantially in the
form of Exhibit B attached hereto.
"Credit Agreement" shall mean the Original Agreement as amended
hereby.
"Guarantor Security Agreements" shall mean collectively a
Security Agreement of each Subsidiary Guarantor in favor of Agent
dated as of even date herewith substantially in the form of Exhibit C
attached hereto.
2
<PAGE> 3
ARTICLE II.
AMENDMENTS TO ORIGINAL AGREEMENT
Section 2. 1. DEFINED TERMS. (a) The definition of "Base Rate" in
Section 1.1 of the Original Agreement is hereby amended in its entirety to
read as follows:
"'BASE RATE' means, on each day the Prime Rate in effect on such
day, plus the Applicable Percentage for such day. For purposes of the
definition of Base Rate, the term "Applicable Percentage" shall be
based on the Loan Balance in effect on such day and calculated
pursuant to the following table:
LOAN BALANCE APPLICABLE PERCENTAGE
------------ ---------------------
less than or equal to twenty-five percent one-quarter of one percent
(25 %) of the Maximum Loan Amount (0.25%) per annum
less than or equal to fifty percent (50%) three-eighths of one percent
but greater than twenty-five percent (25 %) (0.375%) per annum
of the Maximum Loan Amount
less than or equal to seventy-five percent one-half of one percent (0.50%)
(75%) but greater than fifty percent (50%) per annum
of the Maximum Loan Amount
greater than seventy-five percent of the three-quarters of one percent
Maximum Loan Amount (75 %) (0.75%) per annum
If the Prime Rate or the Loan Balance changes after the date hereof, the
Base Rate shall be automatically increased or decreased, as the case may
be, without notice to Borrower from time to time as of the effective
time of each change in the Prime Rate or the Loan Balance. The Base
Rate shall in no event, however, exceed the Highest Lawful Rate."
(b) The definition of "Cash Earnings" in Section 1.1 of the Original
Agreement is hereby amended in its entirety to read as follows:
"'CASH EARNINGS' means as of the end of any Fiscal Quarter,
Borrower's Consolidated net income for such Fiscal Quarter, minus
nonrecurring gains and plus nonrecurring losses for such Fiscal Quarter,
plus other non cash charges taken into account in determining such net
income, minus any cash dividend that has been declared, has accrued or
has been paid on common or preferred stock during such Fiscal Quarter
(but in no event shall any such dividend be included more than once for
purposes of this definition)."
3
<PAGE> 4
(c) The definition of "EBITDA" in Section 1.1 of the Original Agreement
is hereby amended in its entirety to read as follows:
"'EBITDA' means as of the end of any Fiscal Quarter, Borrower's
Consolidated net income for the four consecutive Fiscal Quarters then
ended plus interest, taxes, depreciation and amortization, nonrecurring
losses and reclamation charges, to the extent the foregoing have been
deducted in determining such net income, minus nonrecurring gains to the
extent such gains have been included in determining such net income."
(d) The definition of "Spread" in Section 1.1 of the Original Agreement
is hereby amended in its entirety to read as follows:
"'SPREAD' means, on each day, the applicable percentage rate based
on the Loan Balance in effect on such day and calculated pursuant to the
following table:
LOAN BALANCE APPLICABLE PERCENTAGE
------------ ---------------------
less than or equal to twenty-five percent one and seventeen and one-
(25 %) of the Maximum Loan Amount half one-hundredths of one
percent (1.175%) per annum
less than or equal to fifty percent (50%) one and thirty-seven and one-
but greater than twenty-five percent (25 %) half one-hundredths of one
of the Maximum Loan Amount percent (1.375%) per annum
less than or equal to seventy-five percent one and fifty-seven and one-
(75%) but greater than fifty percent (50%) half one-hundredths of one
of the Maximum Loan Amount percent (1.575%) per annum
greater than seventy-five percent of the one and seventy-seven and one-
Maximum Loan Amount (75 %) half one-hundredths of one
percent (1.775%) per annum
(e) The definition of "Subsidiary Guarantor" in Section 1.1 of the
Original Agreement is hereby amended in its entirety to read as follows:
"'SUBSIDIARY GUARANTOR' means each of Colorado Aggregate Company of
New Mexico, Kentucky-Tennessee Clay Company, K-T Feldspar Corporation,
Mountain West Products, Inc., Equinox Resources Inc., and any other
Subsidiary who has guaranteed some or all of the Obligations pursuant to
Article VIA."
4
<PAGE> 5
(f) The following definition of "Security Documents" is hereby added to
Section 1.1 of the Original Agreement immediately following the definition of
"Reserve Percentage":
"'SECURITY DOCUMENTS' means the instruments listed in the Security
Schedule and all other security agreements, deeds of trust, mortgages,
chattel mortgages, pledges, guaranties, financing statements,
continuation statements, extension agreements and other agreements and
instruments now, heretofore, or hereafter delivered by Borrower or any
Subsidiary Guarantor to Agent in connection with this Agreement or any
transaction contemplated hereby to secure or guarantee the payment of
any part of the Obligations or the performance of Borrower's or any
Subsidiary Guarantor's other duties and obligations under the Loan
Documents."
(g) The following definition of "Security Schedule" is hereby added to
Section 1.1 of the Original Agreement immediately following the definition of
"Security Documents":
"'SECURITY SCHEDULE' means Schedule 3 attached hereto."
Section 2.2. MANDATORY PREPAYMENTS; DETERMINATION OF TOTAL DEBT TO CASH
EARNINGS RATIO. Subsection (a) of Section 2.8 of the Original Agreement is
hereby amended to its entirety to read as follows:
(a)(i) During the Commitment Period:
(A) if the Total Debt to Cash Earnings Ratio exceeds 3.75 to
1.0 as of the end of any Fiscal Quarter during the period beginning
on January 1, 1996 and ending on or prior to December 31, 1996;
(B) if the Total Debt to Cash Earnings Ratio exceeds 3.5 to
1.0 as of the end of any Fiscal Quarter during the period beginning
on January 1, 1997 and ending on or prior to December 31, 1997; or
(C) if the Total Debt to Cash Earnings Ratio exceeds 3.0 to
1.0 as of the end of any Fiscal Quarter ending after January 1,
1998;
Then, Borrower shall make a prepayment of the Loan Balance to
Agent for distribution to Lenders in the amount necessary to cause
the Total Debt to Cash Earnings Ratio to be equal to or less than
the Total Debt to Cash Earnings Ratio permitted for such period
under this Section 2.8 (in this section called the "Required
Prepayment Amount"), all in accordance with the following
provisions of this Section 2.8.
(ii) After the Commitment Period expires, if the Total Debt to Cash
Earnings Ratio exceeds 3.0 to 1.0 as of the end of any Fiscal Quarter,
then Borrower shall make a prepayment
5
<PAGE> 6
of the Loan Balance to Agent for distribution to Lenders in the amount
necessary to cause the Total Debt to Cash Earnings Ratio to be equal to
or less than the Total Debt to Cash Earnings Ratio permitted for such
period under this Section 2.8 (in this section called the "Required
Prepayment Amount"), all in accordance with the following provisions of
this Section 2.8.
Before the end of the second calendar month immediately following such
Fiscal Quarter, Borrower shall give written notice to Agent electing to
pay the Required Prepayment Amount to Agent for distribution to Lenders
either (i) on the last day of the next calendar month or (ii) in six (6)
equal consecutive monthly installments due on the last day of each of
the next six calendar months beginning with the month following the
month in which such election is made. (For example, if the Total Debt to
Cash Earnings Ratio as of the end of the Fiscal Quarter ended September
30, 1996 were to exceed 3.75 to 1.0, Borrower would be required to elect
by November 30, 1996 whether to pay the full Required Prepayment Amount
on December 31, 1996 or to pay the Required Prepayment Amount in six
equal consecutive monthly installments beginning on December 31, 1996.)
If such installment payments are elected, Borrower shall pay each such
installment when due. Each such prepayment made after the end of the
Commitment Period shall be applied to the regular installments of
principal due under the Notes in the inverse order of their maturities.
Each prepayment of principal under this section shall be accompanied by
all interest then accrued and unpaid on the principal so prepaid,
together with any other amounts then due and payable under Section 2.13.
Any principal or interest prepaid pursuant to this section shall be in
addition to, and not in lieu of, all payments otherwise required to be
paid under the Loan Documents at the time of such prepayment."
6
<PAGE> 7
Section 2.3. FACILITY FEES; LETTER OF CREDIT FEES. Section 2.5 of the
Original Agreement is hereby amended in its entirety to read as follows:
"Section 2.5 FACILITY FEES: LETTER OF CREDIT FEES.
(a) In consideration of each Lender's commitment to make Advances,
Borrower will pay to Agent for the account of Lenders a nonrefundable
quarterly facility fee for each Fiscal Quarter. The fee for each Fiscal
Quarter shall be equal to the product of (i) the Applicable Percentage
(based on the average daily loan balance for such Fiscal Quarter)
multiplied by (ii) the number of days in such Fiscal Quarter divided by
360 multiplied by (iii) the Maximum Loan Amount, and shall be due and
payable in arrears on the tenth day after the end of such Fiscal
Quarter. For each Fiscal Quarter, the "Applicable Percentage" shall be
determined according to the following table:
AVERAGE DAILY LOAN BALANCE APPLICABLE PERCENTAGE
-------------------------- ---------------------
less than or equal to twenty-five percent thirty-two and one-half one-
(25 %) of the Maximum Loan Amount hundredths of one percent
(0.325%) per annum
less than or equal to fifty percent (50%) thirty-seven and one-half
but greater than twenty-five percent (25 %) one-hundredths of one percent
of the Maximum Loan Amount percent (0.375%) per annum
less than or equal to seventy-five percent forty-two and one-half one-
(75%) but greater than fifty percent (50%) hundredths of one percent
of the Maximum Loan Amount (0.425%) per annum
greater than seventy-five percent of the forty-seven and one-half one-
Maximum Loan Amount (75 %) hundredths of one percent
(0.475%) per annum
The portion of the annual facility fee paid in advance on August 30,
1995 and allocable to the period after February 7, 1996, $104,890, shall
be credited to the facility fee due under this Section 2.5.
(b) In consideration of the issuance of each Letter of Credit by
Issuing Bank, Borrower agrees to pay:
(i) an issuance fee for each Letter of Credit in the amount
calculated by applying one-eighth of one percent (0. 125 %) per
annum of the face amount of such Letter of Credit for the tenn
thereof, payable to Issuing Bank for its own account at the time of
issuance of such Letter of Credit;
(ii) a letter of credit fee equal to the greater of (A) the
amount calculated by applying the Spread to the face amount of such
Letter of Credit for the term thereof
7
<PAGE> 8
or (B) $500, in each case payable to Issuing Bank at the time of
issuance of such Letter of Credit for the account of Lenders in
accordance with their Percentage Shares.
Section 2.4. PAYMENTS TO LENDERS. Section 2.9 of the Original Agreement
is hereby amended in its entirety to read as follows:
"Section 2.9 PAYMENTS TO LENDERS. Borrower will make each payment
which it owes under the Loan Documents to Agent for the account of the
Under to whom such payment is owed. Each such payment must be received
by Agent not later a= I 1: 00 a.m., Dallas, Texas time, on the date such
payment becomes due and payable, in lawful money of the United States of
America, without set-off, deduction or counterclaim, and in immediately
available funds. Any payment received by Agent after such time will be
deemed to have been made on the next following Business Day. Should any
such payment (other than a payment of interest on a Fixed Rate Portion
which is addressed in the definition of "LIBOR Interest Period") become
due and payable on a day other than a Business Day, the maturity of such
payment shall be extended to the next succeeding Business Day, and, in
the case of a payment of principal or past due interest, interest shall
accrue and be payable thereon for the period of such extension as
provided in the Loan Document under which such payment is due. Each
payment under a Loan Document shall be due and payable at the place
provided therein and, if no specific place of payment is provided, shall
be due and payable at the place of payment of Agent's Note. When Agent
collects or receives money on account of the Obligations, Agent shall
distribute all money so collected or received, and Lenders shall apply
all such money they receive from Agent, as follows:
(a) first, for the payment of all Obligations which are then
due (and if such money is insufficient to pay all such Obligations,
first to any reimbursements due Agent under Section 5. 1 (i) or 0)
and then to the partial payment of all other Obligations then due
in proportion to the amounts thereof, or as Lenders shall otherwise
agree);
(b) then for the prepayment of amounts owing under the Loan
Documents (other than principal on the Notes) if so specified by
Borrower;
(c) then for the prepayment of principal on the Notes,
together with accrued and unpaid interest on the principal so
prepaid;
(d) then for the payment or prepayment of any other
Obligations; and
(e) last, for the pro rata payment of any obligations of
Borrower to Lenders relating to any hedging arrangements or other
indebtedness secured by the Security Documents.
8
<PAGE> 9
All payments applied to principal or interest on any Note shall be applied
first to any interest then due and payable, then to principal then due and
payable, and last to any prepayment of principal and interest in compliance
with Section 2.7. All distributions of amounts described in any of
subsections (b), (c), (d) or (e) above shall be made by Agent pro rata to
Agent and each Lender then owed Obligations described in such subsection in
proportion to all amounts owed to Agent and all Lenders which are described
in such subsection.
Section 2.5. FIXED CHARGE COVERAGE RATIO. Subsection (1) of Section 5.2
of the Original Agreement is hereby amended in its entirety to read as
follows:
"(1) FIXED CHARGE COVERAGE RATIO. The ratio of (1) Borrower's
Consolidated EBITDA as of the end of each Fiscal Quarter to (2)
Borrower's Consolidated Fixed Charges as of the end of such Fiscal
Quarter will never be less than (A) 1.2 to 1.0 at any time after the
date hereof and (B) 1.5 to 1.0 at any time after June 30, 1997."
Section 2.6. TANGIBLE NET WORTH. A new subsection (m) is added to
Section 5.2 of the Original Agreement to read as follows:
"(m) TANGIBLE NET WORTH. Borrower's Consolidated Tangible Net
Worth as of the end of any Fiscal Quarter ending after December 31, 1995
will not be less than the sum of (A) $150,000,000, plus (B) 50% of
Borrower's Consolidated net income earned during the period from January
1, 1996 to the end of such Fiscal Quarter, plus (C) 100% of the net
proceeds from the issuance of equity securities of Borrower during the
period from January 1, 1996 to the end of such Fiscal Quarter. As used
in this subsection the term "Borrower's Consolidated Tangible Net Worth"
means the remainder of (i) all Consolidated Assets of Borrower, other
than intangible assets (including without limitation as intangible
assets such assets as patents, copyrights, licenses, franchises,
goodwill, trade names, trade secrets and leases other than oil, gas or
mineral leases or leases required to be capitalized under GAAP), minus
(ii) Borrower's Consolidated Debt. As used in this subsection the term
"Borrower's Consolidated Debt" means all Consolidated liabilities and
similar balance sheet items of Borrower, together with all Funded Debt
of any Related Person."
Section 2.7. LIMITATION ON SALES OF PROPERTY. Clause (iii) of
subsection (d) of Section 5.2 of the Original Agreement is hereby amended in
its entirety to read as follows:
"(iii) properties or assets, or interests therein, the value of
which does not exceed in the aggregate ten million dollars ($10,000,000)
during any Fiscal Year; provided that immediately upon any such sale the
Total Debt to Cash Earnings Ratio shall be recalculated excluding the
Cash Earnings attributable to the properties and assets so sold
(excluding any gain or including any losses attributable to such sale)."
9
<PAGE> 10
Section 2.8. NEW SUBSIDIARY GUARANTOR. Equinox Resources Inc. hereby
agrees to become a "Subsidiary Guarantor" under the Credit Agreement and
agrees to be bound by all terms and conditions set forth in Article VIA of
the Credit Agreement and all other provisions of the Credit Agreement
applicable to Subsidiary Guarantors as if it were an original signatory to
the Credit Agreement.
Section 2.9. SECURITY SCHEDULE. A new Schedule 5 is hereby added to the
Original Agreement to read as set forth in Schedule 5 attached hereto.
ARTICLE III.
CONDITIONS OF EFFECTIVENESS
Section 3.1. EFFECTIVE DATE. This Amendment shall become effective as
of the date first above written when, and only when:
(a) Agent shall have received each of the Amendment Documents duly
executed and delivered by Borrower, each Subsidiary Guarantor and each
Lender;
(b) Agent shall have received an amendment fee of $16,500 payable to
Agent for the account of Lenders in accordance with their Percentage Shares;
and
(c) Agent shall have additionally received all of the following
documents, each document (unless otherwise indicated) being dated the date of
receipt thereof by Agent, duly authorized, executed and delivered, and in
form and substance satisfactory to Agent:
(i) certificates of duly authorized officers of Borrower and each
Subsidiary Guarantor to the effect that all of the representations and
warranties set forth in Article IV hereof are true and correct at and as
of the time of such effectiveness;
(ii) certificates of the Secretaries or Assistant Secretaries of
Borrower and each Subsidiary Guarantor dated the date of the Amendment
Documents certifying that attached thereto is a true and complete copy
of resolutions adopted by the Board of Directors of such corporation
authorizing the execution, delivery and performance of the Amendment
Documents and certifying the names and true signatures of the officers
of such corporation authorized to sign the Amendment Documents;
(iii) an opinion of Borrower's General Counsel in form and
substance satisfactory to Agent; and
(iv) such supporting documents as Agent may reasonably request.
10
<PAGE> 11
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Section 4.l. REPRESENTATIONS AND WARRANTIES OF BORROWER. In order to
induce each Lender to enter into the Amendment Documents, each of Borrower
and the Subsidiary Guarantors represents and warrants to each Lender that:
(a) The representations and warranties contained in Section 4.1 of the
Original Agreement are true and correct at and as of the time of the
effectiveness hereof.
(b) Each of Borrower and the Subsidiary Guarantors is duly authorized
to execute and deliver the Amendment Documents and is and will continue to be
duly authorized to borrow monies and to perform its obligations under the
Credit Agreement. Each of Borrower and the Subsidiary Guarantors has duly
taken all corporate action necessary to authorize the execution and delivery
of the Amendment Documents and to authorize the performance of its
obligations hereunder.
(c) The execution and delivery by each of Borrower and the Subsidiary
Guarantors of the Amendment Documents, the performance by each of Borrower
and the Subsidiary Guarantors of its obligations thereunder and the
consummation of the transactions contemplated thereby do not and will not
conflict with any provision of law, statute, rule or regulation or of the
certificate or articles of incorporation and bylaws of Borrower and each
Subsidiary Guarantor, or of any material agreement, judgment, license, order
or permit applicable to or binding upon Borrower or any Subsidiary Guarantor,
or result in the creation of any lien, charge or encumbrance upon any assets
or properties of Borrower or any Subsidiary Guarantor. Except for those
which have been obtained, no consent, approval, authorization or order of any
court or governmental authority or third party is required in connection with
the execution and delivery by Borrower or any Subsidiary Guarantor of the
Amendment Documents.
(d) When duly executed and delivered, each of the Amendment Documents
and the Credit Agreement will be a legal and binding obligation of each of
Borrower and the Subsidiary Guarantors, enforceable in accordance with its
terms, except as limited by bankruptcy, insolvency or similar laws of general
application relating to the enforcement of creditors' rights and by equitable
principles of general application.
(e) The audited annual Consolidated financial statements of Borrower
dated as of December 31, 1994 and the unaudited quarterly Consolidated
financial statements of Borrower dated as of September 30, 1995 fairly
present the Consolidated financial position at such dates and the
Consolidated statement of operations and the changes in Consolidated
financial position for the periods ending on such dates for Borrower. Copies
of such financial statements have heretofore been delivered to each Lender.
Since September 30, 1995, no material adverse change has occurred in the
financial condition or businesses or in the Consolidated financial condition
or businesses of Borrower.
11
<PAGE> 12
ARTICLE V.
MISCELLANEOUS
Section 5.1. RATIFICATION OF AGREEMENTS. The Original Agreement as
hereby amended is hereby ratified and confirmed in all respects. The Loan
Documents, as they may be amended or affected by the various Amendment
Documents, are hereby ratified and confined in all respects. Any reference
to the Credit Agreement in any Loan Document shall be deemed to refer to this
Amendment also and any reference in any Loan Document to any other document
or instrument amended, renewed, extended or otherwise affected by any
Amendment Document shall also refer to such Amendment Document. The
execution, delivery and effectiveness of the other Amendment Documents shall
not, except as expressly provided herein or therein, operate as a waiver of
any right, power or remedy of Lender under the Credit Agreement or any other
Loan Document nor constitute a waiver of any provision of the Credit
Agreement or any other Loan Document.
Section 5.2. SURVIVAL OF AGREEMENTS. All representations, warranties,
covenants and agreements of Borrower herein shall survive the execution and
delivery of the Amendment Documents and the performance hereof and shall
further survive until all of the Obligations are paid in full. All
statements and agreements contained in any certificate or instrument
delivered by Borrower or any Related Person hereunder or under the Credit
Agreement to any Lender shall be deemed to constitute representations and
warranties by, and/or agreements and covenants of, Borrower under the
Amendment Documents and under the Credit Agreement.
Section 5.3. GOVERNING LAW. The Amendment Documents shall be governed
by and construed in accordance with the laws of the State of Texas and any
applicable laws of the United States of America in all respects, including
construction, validity and performance.
Section 5.4. COUNTERPARTS. This Amendment may be separately executed in
counterparts and by the different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Amendment.
12
<PAGE> 13
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
HECLA MINING COMPANY, Borrower
By: /s/ John P. Stilwell
---------------------------------
John P. Stilwell
President-Finance and Treasurer
COLORADO AGGREGATE COMPANY OF NEW
MEXICO, INC., Subsidiary Guarantor
By: /s/ J. Gary Childress
---------------------------------
J. Gary Childress
Vice President
KENTUCKY-TENNESSEE CLAY COMPANY,
Subsidiary Guarantor
By: /s/ J. Gary Childress
---------------------------------
J. Gary Childress
Vice President
K-T FELDSPAR CORPORATION,
Subsidiary Guarantor
By: /s/ J. Gary Childress
---------------------------------
J. Gary Childress
Vice President
13
<PAGE> 14
MOUNTAIN WEST PRODUCTS, INC.
Subsidiary Guarantor
By: /s/ Michael B. White
---------------------------------
Michael B. White
Vice President
EQUINOX RESOURCES INC.
Subsidiary Guarantor
By: /s/ Michael B. White
---------------------------------
Name: Michael B. White
Title: Vice President
NATIONSBANK OF TEXAS, N.A.,
Agent and Lender
By: /s/ David C. Rubenking
---------------------------------
Name: David C. Rubenking
Title: Senior Vice President
SEATTLE-FIRST NATIONAL BANK, Lender
By: /s/ Joe Poole
---------------------------------
Joe Poole, Vice President
BANK OF AMERICA, IDAHO, N.A., Lender
By: /s/ John A. MacPhee
---------------------------------
John A. MacPhee, Vice President
14
<PAGE> 15
FIRST SECURITY BANK OF IDAHO, N.A.,
Lender
By: /s/ Vicki Riga
---------------------------------
Vicki Riga, Vice President
15
<PAGE> 1
Exhibit 10.10
PURCHASE & SALE AGREEMENT
BETWEEN
HECLA MINING COMPANY
AND
MOONEY CHEMICALS, INC.
DATED: AUGUST 2, 1995
<PAGE> 2
PURCHASE & SALE AGREEMENT
BETWEEN
HECLA MINING COMPANY
AND
MOONEY CHEMICALS, INC.
INDEX
SECTION PAGE
RECITALS and DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 1
1. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. ASSETS SUBJECT TO AGREEMENT . . . . . . . . . . . . . . . . . . . . . 2
3. ASSUMPTION OF OBLIGATIONS AND LIABILITIES BY PURCHASER . . . . . . . . 3
4. PURCHASE PRICE AND ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . 4
(a) Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . 4
(b) Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(c) Reclamation Expense. . . . . . . . . . . . . . . . . . . . . . . 5
5. POSSESSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6. REPRESENTATIONS AND WARRANTIES OF HECLA . . . . . . . . . . . . . . . 6
(a) Organization . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(c) Authorization and Approval of Agreement . . . . . . . . . . . . . 6
(d) Ability to Carry Out Agreement . . . . . . . . . . . . . . . . . 7
(e) Legal Proceedings; Compliance with Laws . . . . . . . . . . . . . 8
(f) Broker's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(g) Real Property Leases . . . . . . . . . . . . . . . . . . . . . . 8
(h) Material Personal Property Leases . . . . . . . . . . . . . . . . 9
(i) Machinery and Equipment . . . . . . . . . . . . . . . . . . . . . 9
(j) Material Agreements and Instruments . . . . . . . . . . . . . . 10
(k) Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(l) Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . 10
(m) Environmental Compliance . . . . . . . . . . . . . . . . . . . 10
(n) Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(o) Patents and Technology . . . . . . . . . . . . . . . . . . . . 11
7. REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . . . . . . . 12
(a) Organization . . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Qualification . . . . . . . . . . . . . . . . . . . . . . . . . 12
(c) Authorization and Approval of Agreement . . . . . . . . . . . . 12
(d) Ability to Carry Out Agreement . . . . . . . . . . . . . . . . 13
(e) Broker's Fee . . . . . . . . . . . . . . . . . . . . . . . . . 14
(f) Due Diligence Investigation . . . . . . . . . . . . . . . . . . 14
(g) Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
<PAGE> 3
8. COVENANTS OF HECLA . . . . . . . . . . . . . . . . . . . . . . . . . 14
(a) Conduct of Business . . . . . . . . . . . . . . . . . . . . . . 15
(b) Operation in Ordinary Course . . . . . . . . . . . . . . . . . 15
(c) Maintenance of Property . . . . . . . . . . . . . . . . . . . . 16
(d) Access to Properties, Books and Records . . . . . . . . . . . . 16
(e) Further Assurances . . . . . . . . . . . . . . . . . . . . . . 16
(f) Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(g) Closing Letter . . . . . . . . . . . . . . . . . . . . . . . . 18
(h) Press Releases . . . . . . . . . . . . . . . . . . . . . . . . 18
(i) Employees at the Apex Unit . . . . . . . . . . . . . . . . . . 18
9. COVENANTS OF PURCHASER . . . . . . . . . . . . . . . . . . . . . . . 19
(a) Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Further Assurances . . . . . . . . . . . . . . . . . . . . . . 20
(c) Press Releases . . . . . . . . . . . . . . . . . . . . . . . . 20
(d) Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 20
10. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11. TRANSFERS AND DELIVERIES BY PURCHASER AT CLOSING . . . . . . . . . . 22
(a) The Purchase Price . . . . . . . . . . . . . . . . . . . . . . 22
(b) Written opinion . . . . . . . . . . . . . . . . . . . . . . . . 23
(c) Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12. TRANSFERS AND DELIVERIES BY HECLA . . . . . . . . . . . . . . . . . 24
(a) Physical Possession . . . . . . . . . . . . . . . . . . . . . 24
(b) Bill of Sale . . . . . . . . . . . . . . . . . . . . . . . . . 24
(c) Written Opinion . . . . . . . . . . . . . . . . . . . . . . . . 24
(d) Closing Letter . . . . . . . . . . . . . . . . . . . . . . . . 26
13. CLOSING REPORTS: ADJUSTMENTS TO PURCHASE PRICE . . . . . . . . . . 26
14. CLOSING PRORATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 29
(a) Ad Valorem Taxes . . . . . . . . . . . . . . . . . . . . . . . 29
(b) Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(c) Other Proratable Expenses . . . . . . . . . . . . . . . . . . . 30
15. CONDITION TO OBLIGATIONS OF PURCHASER . . . . . . . . . . . . . . . 30
(a) New Lease Agreement . . . . . . . . . . . . . . . . . . . . . . 30
(b) Representations and Warranties Correct . . . . . . . . . . . . 31
(c) Interim Reclamation Program . . . . . . . . . . . . . . . . . . 31
(d) Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(e) Receipt of Title Insurance on the Closing Date . . . . . . . . 32
(f) Release of Royalty Interest . . . . . . . . . . . . . . . . . . 32
(g) Receipt of Survey . . . . . . . . . . . . . . . . . . . . . . . 32
16. CONDITIONS TO OBLIGATIONS OF HECLA . . . . . . . . . . . . . . . . . 32
(a) Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(b) Representations and Warranties Correct . . . . . . . . . . . . 33
(c) Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(d) New Lease Agreement . . . . . . . . . . . . . . . . . . . . . . 34
17. BOOKS, RECORDS, AND MISCELLANEOUS . . . . . . . . . . . . . . . . . 34
<PAGE> 4
18. TAXES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . 35
(a) Taxes and Fees . . . . . . . . . . . . . . . . . . . . . . . . 35
(b) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
19. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; COVENANTS AND AGREEMENTS 36
(a) Representations and Warranties . . . . . . . . . . . . . . . . 36
(b) Covenants, Conditions and Agreements . . . . . . . . . . . . . 36
20. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . 36
21. ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . 39
(a) Hecla Environmental Indemnity . . . . . . . . . . . . . . . . . 39
(b) Purchaser Environmental Indemnity . . . . . . . . . . . . . . . 40
(c) Apportionment . . . . . . . . . . . . . . . . . . . . . . . . . 41
(d) Reclamation Program . . . . . . . . . . . . . . . . . . . . . . 42
(e) Under this Agreement . . . . . . . . . . . . . . . . . . . . . 42
22. TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . 43
23. LIABILITY ON TERMINATION . . . . . . . . . . . . . . . . . . . . . . 44
24. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(a) Exhibits and Schedules . . . . . . . . . . . . . . . . . . . . 45
(b) No Assignment, Successors, Assigns, Etc . . . . . . . . . . . . 45
(c) Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 46
(d) Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 46
(e) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(f) Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(g) Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 47
(h) Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(i) The prevailing party . . . . . . . . . . . . . . . . . . . . . 47
<PAGE> 5
PURCHASE & SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (hereinafter referred to as
"Agreement") is made and effective this 2ND day of AUGUST, 1995, between
Hecla Mining Company, a Delaware corporation ("Hecla"), and Mooney Chemicals,
Inc., a corporation ("Purchaser").
-----------
RECITALS and DEFINITIONS
WHEREAS, Hecla is the owner of certain facilities and properties
consisting of that certain Lease Agreement dated November 21, 1983, among St.
George Mining Corporation and the Shivwits-Paiute Band; as amended April 4,
1985; as assigned to Hecla March 22, 1989; and as further amended July 16,
1991 (hereinafter referred to, as amended and assigned, as the "Lease
Agreement"), together with certain plant, equipment and facilities associated
therewith, all located on the Shivwits-Paiute Indian Reservation in
Washington County, Utah; and
WHEREAS, Purchaser desires to purchase from Hecla and Hecla desires to
sell and assign to Purchaser the above-described assets upon the terms and
subject to the conditions set forth in this Agreement;
-1-
<PAGE> 6
NOW, THEREFORE, in consideration of the premises and the mutual
promises, covenants and conditions herein contained, the parties hereto agree
as follows:
1. PURCHASE AND SALE. Upon the terms and subject to the conditions set
forth herein, Hecla hereby agrees to sell, convey, assign, transfer and
deliver to Purchaser, all Hecla's right, title and interest in and to
the Apex Unit, as defined in Section 2 hereof, and Purchaser hereby
agrees to purchase, acquire, assume and accept all Hecla's right, title
and interest in and to the Apex Unit from Hecla, as of 12:01 a.m. PST
(the "Effective Time") on the Closing Date, as defined in Section 10 of
this Agreement.
2. ASSETS SUBJECT TO AGREEMENT. The assets to be sold by Hecla to
Purchaser pursuant to this Agreement shall include, without limitation,
all of Hecla's right, title and interest in all property and fixed
assets, real and personal, and all other improvements located on the
real property generally described in Exhibit A attached hereto and by
this reference incorporated herein (the "Property"), including the
vehicles, machinery, equipment, fixtures and other tangible operating
assets described in Exhibit B, attached hereto and by reference
incorporated herein, and books and records located on the Property,
intellectual property and know-how regarding cobalt recovery and
processing used at the Apex Unit (hereinafter
-2-
<PAGE> 7
referred to as the "Personalty") and all inventory, supplies and
consumables of the business being operated from and associated with the
Property as a going business concern. The values of inventory, supplies
and consumables and certain obligations associated therewith are more
specifically described in the schedule attached hereto as Exhibit D,
incorporated herein by this reference (the "Working Capital") (all
Property, Personalty and Working Capital is collectively referred to
herein as the "Apex Unit") Specifically excluded from this Agreement
are Hecla's leasehold interest in the real property on which the Apex
Unit is located, and all Accounts Receivable (as that term is defined by
Generally Accepted Accounting Principles) associated with the Apex Unit,
which Hecla shall collect and retain from and after the Closing Date.
3. ASSUMPTION OF OBLIGATIONS AND LIABILITIES BY PURCHASER. As of the
Effective Time, Purchaser shall assume specified obligations,
liabilities and/or risks of Hecla described in Exhibit D hereto. Except
as set forth in Exhibit D, Purchaser shall not assume or be responsible
for any obligation or liability of Hecla, whether fixed or contingent,
known or unknown, between Hecla and another party or parties. Purchaser
shall be entitled to claim and assert any defense by way of
counterclaim, off-set, statute of limitations, or otherwise, or any
other rights of Hecla with respect to any and all such
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debts, obligations and liabilities of Hecla assumed by Purchaser, to the
same extent as Hecla would be entitled to do absent the assumption
thereof by Purchaser.
4. PURCHASE PRICE AND ADJUSTMENTS.
(a) PURCHASE PRICE. The purchase price payable by Purchaser to Hecla
as consideration for the sale of the Apex Unit shall be:
(i) For the Property and Personalty, eight million dollars
($8,000,000) (the "Property Purchase Price"), paid in the
following installment amounts: (A) three million dollars
($3,000,000) in immediately available funds at Closing; (B)
three million dollars ($3,000,000), together with simple
interest accrued on the entire balance of the Property
Purchase Price outstanding at the prime rate of interest
offered to Hecla by Nationsbank, N.A. (the "Prime Rate"), in
immediately available funds on the first anniversary of the
Closing Date; and (C) two million dollars ($2,000,000),
together with simple interest accrued on the entire balance of
the Property Purchase Price outstanding at the Prime Rate plus
one percent (1%), in immediately available funds on the second
anniversary of the Closing Date. Purchaser shall have the
right to prepay any or all of the above-described
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amounts at any time prior to the dates specified herein.
(ii) For the Working Capital, one million three hundred ninety
thousand eight hundred ten dollars, ($1,390,810) paid in
immediately available funds at Closing.
(b) ADJUSTMENTS. As soon as practicable after Closing in accordance
with the procedure established in Section 13, the Adjustment Amount
(as that term is defined in Section 13), shall be paid by Hecla to
Purchaser or to Hecla by Purchaser, as appropriate.
(c) RECLAMATION EXPENSE. As soon as practicable following Hecla's
completion of repairs to the pond 3A liner, more specifically
described in Exhibit E to this Agreement, Purchaser shall reimburse
Hecla in an amount which shall be the lesser of (i) fifty thousand
dollars ($50,000) or (ii) the actual cost incurred by Hecla in
making such repairs. Hecla shall supply Purchaser with supporting
documentation regarding the costs incurred in making such repairs.
5. POSSESSION. Purchaser shall be entitled to immediate possession of the
Apex Unit upon the completion of the Closing
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of this Agreement, subject to Hecla's rights specified in Section 21(d)
of this Agreement.
6. REPRESENTATIONS AND WARRANTIES OF HECLA. Hecla represents and warrants
to Purchaser that:
(a) ORGANIZATION. Hecla is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority (corporate and
other) to own, use or deal in the Apex Unit.
(b) QUALIFICATION. Hecla is duly qualified to do business and is in
good standing in those states or other jurisdictions where
qualification is required in connection with the ownership of, use
of, or dealing in the Apex Unit.
(c) AUTHORIZATION AND APPROVAL OF AGREEMENT. The execution, delivery
and performance by Hecla of this Agreement and all documents
contemplated hereby have been duly and effectively authorized by
all necessary corporate action on the part of Hecla, and no
additional consent, approval or other action by its Board of
Directors or stockholders is required by Hecla's Certificate of
Incorporation, By-Laws or otherwise.
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(d) ABILITY TO CARRY OUT AGREEMENT. Hecla is not a party to, subject
to or bound by any judgment, order, writ, injunction or decree of
any court or governmental body which would (i) prevent the carrying
out of this Agreement, or (ii) materially adversely affect its
ownership and use of the Apex Unit. Neither the execution and
delivery of this Agreement by Hecla, nor the performance of Hecla's
obligations hereunder, will constitute a violation of, or be in
conflict with, or result in the breach of, or constitute a default
under, or create (or cause the acceleration of the maturity of) any
debt, obligation or liability pursuant to, or result in the
creation or imposition of any security interest, lien or other
encumbrance upon the Property, Personalty or the Working Capital
under (i) any term or provision of the Certificate of Incorporation
or By-Laws of Hecla, (ii) any obligation of Hecla under any loan or
financing agreement, lease or other agreement or instrument of any
kind to which Hecla is a party. No consent or approval of any
Federal, state or local authority is required for the consummation
or validity of the purchase of the Apex Unit, other than the
approval of a lease of real property to Purchaser and an amendment
of Hecla's Lease Agreement from the Shivwits-Paiute Band by the
United States Department of the Interior, Bureau of Indian Affairs
(hereinafter referred to as the "BIA").
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(e) LEGAL PROCEEDINGS; COMPLIANCE WITH LAWS. There are no lawsuits,
proceedings or governmental investigations pending or, to the
knowledge of a principal officer of Hecla or Hecla, threatened with
respect to Hecla or the Apex Unit, nor is Hecla operating under or
subject to, or in default with respect to, any order, writ,
injunction, or decree of any court or governmental agency or body
as of the date of this Agreement. To the best of Hecla's
knowledge, it has substantially complied with all laws, rules and
regulations, federal, state and local, which affect the Apex Unit.
(f) BROKER'S FEE. Hecla has not caused to be incurred for or by
Purchaser any liability for any fee or commission in the nature of
a finder's, originator's or broker's fee in connection with the
subject matter of this Agreement.
(g) REAL PROPERTY LEASES. Other than the Lease Agreement, there are no
leases or agreements pursuant to which a third party is lessor or
lessee of real property owned or held by Hecla used or held for use
in connection with the operations of the Apex Unit. Hecla is the
holder of the leasehold estates and related interests purported to
be granted by the Lease Agreement. The Lease Agreement is in full
force and effect and is enforceable in accordance with its terms
and the leasehold it purports to grant is
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free and clear of all liens, security interests, restrictions,
covenants, claims, charges or other encumbrances by, through and
under Hecla. Neither Hecla, nor, to best of Hecla's knowledge, the
Lessor under the Lease Agreement, is in default, in any material
respect, under any of the foregoing, and no event has occurred
which, with the lapse of time or the giving of notice, or both,
would constitute such a default.
(h) MATERIAL PERSONAL PROPERTY LEASES. There are no material leases,
or agreements pursuant to which Hecla is lessee of or holds,
manages or operates any personal property as part of its
operations; there are no material leases or agreements pursuant to
which a third party is lessee of or holds, claims, manages or
operates any personal property owned or held by Hecla as part of
its operations at the Apex Unit or in relation thereto.
(i) MACHINERY AND EQUIPMENT. Hecla holds good title to all Personalty.
Such Personalty shall be sold in the condition existing at the
Effective Time. Hecla makes NO WARRANTY OR REPRESENTATION, EXPRESS
OR IMPLIED, AS TO MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE
OR OTHERWISE REGARDING THE PERSONALTY.
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(j) MATERIAL AGREEMENTS AND INSTRUMENTS. Except as set forth herein,
there are no material contracts, indentures, guarantees,
agreements, or other instruments relating to the Apex Unit to which
Hecla is a party as of the date hereof.
(k) INVENTORY. Items comprising the raw materials, work in progress
and finished goods inventory of the Apex Unit, the value of which
is specified in Exhibit D to this Agreement, were, as of the date
Exhibit D was prepared, and shall be at the Effective Time,
processable by the facilities at the Apex Unit so as to be rendered
saleable in the ordinary course of the Apex Unit's business.
(l) ACCOUNTS PAYABLE. The accounts payable summarized in Exhibit D to
this Agreement as of the Closing Date will have been incurred in
the ordinary course of the Apex Unit's business.
(m) ENVIRONMENTAL COMPLIANCE. Hecla has made available to Purchaser
copies of all notices, data, reports or other information in
Hecla's possession or control respecting any Hazardous Substances
as defined in Section 21 of this Agreement ("Environmental Data")
used or generated in connection with the Apex Unit, or disposed of
or from the Property prior to the Closing Date. Hecla does not
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warrant the accuracy or completeness of any Environmental Data
supplied to Purchaser, although Hecla is not aware of material
inaccuracies in such Environmental Data.
(n) LIENS. There are no mortgages, liens (except liens, if any, for
taxes not yet due and inchoate liens of materialmen, mechanics,
workmen, repairmen, employees or other similar liens arising in the
ordinary course of business which are not delinquent or which are
bonded, all of which it agrees to discharge in due course prior to
the Closing unless such are to be assumed by Purchaser as provided
herein), security interests or encumbrances on the Apex Unit or its
properties except such mortgages, liens, security interests, or
encumbrances to be assumed by the Purchaser or to which the Apex
Unit are to remain subject as provided in this Agreement, or any
Exhibit attached hereto.
(o) PATENTS AND TECHNOLOGY. There are no patents, trade names or
trademarks used by Hecla in the conduct of the business of the
Apex Unit. Hecla has granted no license or other rights to persons
or entities with respect to patents, trade names, trademarks or any
other technology or proprietary rights used with respect to the
Apex Unit. To the best of Hecla's knowledge, (i) the business of
the Apex Unit as presently conducted does not infringe upon
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any patent, trade name, trademarks, or other proprietary rights of
third parties, (ii) there is no pending or threatened litigation
against Hecla involving any patent, trade name, trademark or other
proprietary right, and (iii) no third party is infringing upon any
patent, trade name or trademark of Hecla used in the conduct of the
business of the Apex Unit.
7. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
warrants to Hecla that:
(a) ORGANIZATION. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware, and has all requisite power and authority (corporate and
other) to carry on its business as now being conducted.
(b) QUALIFICATION. Purchaser is duly qualified to do business and is
in good standing in those states or other jurisdictions where
qualification is required in connection with the ownership of, use
of, or dealing in the Apex Unit.
(c) AUTHORIZATION AND APPROVAL OF AGREEMENT. The execution, delivery
and performance by Purchaser of this Agreement and all documents
contemplated hereby have been duly and
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effectively authorized by all necessary corporate action on the
part of Purchaser, and no additional consent, approval or other
action by its Board of Directors or stockholders is required by
Purchaser's Certificate of Incorporation, By-Laws or otherwise.
(d) ABILITY TO CARRY OUT AGREEMENT. Purchaser is not a party to,
subject to, or bound by any judgment, order, writ, injunction, or
decree of any court or governmental body which would prevent the
carrying out of this Agreement. Neither the execution and delivery
of this Agreement nor the performance of Purchaser's obligations
hereunder will constitute a violation of, or be in conflict with,
or result in the breach of, or constitute a default under (i) any
term or provision of the Certificate of Incorporation or By-Laws of
Purchaser, (ii) any obligation of Purchaser under any loan or
financing agreement, lease or other agreement or instrument of any
kind to which Purchaser is a party, or (iii) any statute or law.
No consent or approval of any Federal, state or local authority is
required for the consummation or validity of the purchase of the
Apex Unit, other than the approval of a lease of real property to
Purchaser and an amendment of Hecla's Lease Agreement from the
Shivwits-Paiute Band by the BIA.
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(e) BROKER'S FEE. Purchaser has not caused to be incurred for or by
Hecla any liability for any fee or commission in the nature of a
finder's, originator's or broker's fee in connection with the
subject matter of this Agreement.
(f) DUE DILIGENCE INVESTIGATION. Purchaser has conducted a due
diligence investigation of the Apex Unit and its associated
business operations, and acknowledges that Hecla has provided and
made available to Purchaser all information, records, and persons
associated with the Apex Unit and its associated business
operations requested by Purchaser.
(g) CONSENTS. Prior to the Effective Time, and as soon as practicable
following execution of this Agreement, Purchaser shall have made
application and submitted all documents and materials necessary for
the issuance of the consent of the Shivwits-Paiute Band to Hecla's
Amendment of Lease and Purchaser's New Lease (as those terms are
herein defined) with the Shivwits-Paiute Band, and of the consent
of the BIA to Hecla's Amendment to Lease and Purchaser's Lease
Agreement with the Shivwits-Paiute Band.
8. COVENANTS OF HECLA. It is covenanted and agreed that between the date
hereof and the Closing Date:
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(a) CONDUCT OF BUSINESS. Hecla shall not, without the prior written
consent of Purchaser:
(i) enter into any agreement (other than agreements entered into
in the ordinary course of business) which will become an obligation
of Purchaser or would otherwise affect the Apex Unit;
(ii) lease, mortgage, or otherwise encumber any of the Apex Unit;
or
(iii) enter into discussions or negotiations with any third party
concerning the sale of any of the Apex Unit prior to the Closing
Date, or grant options or rights, or enter into any contract or
commitment to sell any of the Apex Unit other than in the ordinary
course of business of Hecla.
(b) OPERATION IN ORDINARY COURSE. Hecla shall conduct operations at
the Apex Unit only in the ordinary course of its business
consistent with past practice. Hecla shall consult with Purchaser
with respect to any significant operational, financial or other
business issues relating to the Apex Unit.
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<PAGE> 20
(c) MAINTENANCE OF PROPERTY. Hecla shall take or cause to be taken
such steps as shall be necessary to maintain the Property in good
standing, including, but not limited to the payment of rentals,
royalties and all taxes, fees or other governmental charges of
whatever nature imposed or levied upon the Property.
(d) ACCESS TO PROPERTIES, BOOKS AND RECORDS. Hecla has made and will,
during normal business hours and subject to reasonable notification
by Purchaser to Hecla, and subject to Hecla's reasonable
requirements and rules, permit Purchaser and Purchaser's authorized
officers, employees, attorneys, engineers, accountants and other
agents and representatives to have access to the properties, books
and records, and documents relating to the Apex Unit. Hecla shall
have the right, in lieu thereof, where such information is included
within Hecla's other corporate records, to make copies of or
provide such information from such books and records and documents
as Purchaser may from time to time reasonably request.
(e) FURTHER ASSURANCES. Hecla will diligently prepare, execute and
deliver such instruments and take such action as Purchaser may
reasonably request in order to effect the transactions contemplated
by this Agreement and to satisfy
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each of the conditions set forth in Section 15 of this Agreement.
(f) CONSENTS. Prior to the Effective Time, and as soon as practicable
following execution of this Agreement, Hecla shall make application
and submit all documents and materials necessary for the issuance
of the consent of the BIA and the Shivwits-Paiute Band to amend
Hecla's Lease Agreement to provide for: (i) Hecla's Amendment of
Lease Agreement (hereinafter referred to as the "Amendment") with
respect to a portion of the Property; (ii) Hecla's retention of
certain real and personal property subject to its Lease Agreement;
and (iii) Hecla's ongoing activities thereon, including, but not
limited to, reclamation operations specified in Exhibit E, attached
hereto and incorporated herein by this reference; all on terms
satisfactory to Hecla in its reasonable discretion. Hecla shall
cooperate and otherwise assist Purchaser with obtaining a lease
agreement, substantially in the form of Exhibit F for Purchaser's
operation of the Apex Unit (hereinafter referred to as the "New
Lease"), with the Shivwits-Paiute Band, and the consent of the BIA
thereto, and shall be deemed by Purchaser to have satisfied its
obligations with respect to the transfer of the property subject to
the Lease Agreement. In no event will Hecla be
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required to underwrite or in any way guarantee payment or
performance by the Purchaser of its lease agreement or any other
arrangement, contract, indenture, guarantee, agreement or other
instrument which Purchaser enters into with the Shivwits-Paiute
Band.
(g) CLOSING LETTER. Hecla shall provide Purchaser a letter from the
President or a Vice President of Hecla at Closing to the effect
that from the date of signing this Agreement to the Effective Time
there has been no material change in respect to the Apex Unit,
except for changes resulting from the ordinary course of business,
and that all disclosures in the Exhibits to this Agreement are
current as of the Effective Time.
(h) PRESS RELEASES. Hecla will consult and cooperate with Purchaser
and use all reasonable efforts to agree upon the terms and
substance of all press releases, announcements and public
statements with respect to the transactions contemplated herein
prior to the Effective Time, provided that such consultation and
cooperation shall not interfere with any obligation of Hecla to
disclose any information as required by applicable law.
(i) EMPLOYEES AT THE APEX UNIT. Hecla shall, effective immediately
prior to the Closing Date, terminate, or
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transfer, in its sole discretion, those employees which it employs
at the Apex Unit, and Purchaser shall be free, in its sole
discretion, to hire those persons which it may thereafter wish to
employ.
9. COVENANTS OF PURCHASER. It is covenanted and agreed that between the
date hereof and the Closing Date:
(a) CONSENTS. Prior to the Effective Time, and as soon as practicable
following execution of this Agreement, Purchaser shall make
application and submit all documents and materials to the BIA and
the Shivwits-Paiute Band to obtain a lease agreement with the
Shivwits-Paiute Band on terms reasonably necessary for Purchaser's
operation of the Apex Unit, in a manner consistent with the
transactions contemplated herein. Purchaser shall cooperate and
otherwise assist Hecla with obtaining an amendment to Hecla's Lease
Agreement, on such terms as are customary and reasonably necessary
for Hecla's continuing activities adjacent to the Apex Unit, as
specified in Section 8(f) of this Agreement, and the consent of the
BIA thereto. In no event will Purchaser be required to underwrite
or in any way guarantee payment or performance by Hecla of its
obligations pursuant to the amendment to Hecla's Lease Agreement,
or any other arrangement, contract, indenture, guarantee, agreement
or other
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instrument which Hecla enters into with the Shivwits-Paiute Band.
(b) FURTHER ASSURANCES. Purchaser will diligently prepare, execute and
deliver such instruments and take such action as Hecla may
reasonably request in order to effect the transactions contemplated
by this Agreement and to satisfy each of the conditions set forth
in Section 16 of this Agreement.
(c) PRESS RELEASES. Purchaser will consult and cooperate with Hecla
and use all reasonable efforts to agree upon the terms and
substance of all press releases, announcements and public
statements with respect to the transactions contemplated herein
prior to the Effective Time, provided that such consultation and
cooperation shall not interfere with any obligation of Purchaser to
disclose any information as required by applicable law.
(d) CONFIDENTIALITY. In the event of the termination of this
Agreement, Purchaser shall promptly return to Hecla all documents,
work papers, and other material obtained by Purchaser or on its
behalf from Hecla or Hecla's representatives as a result of this
Agreement or in connection herewith, whether so obtained before or
after the execution hereof, and Purchaser shall not retain any
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copy or other reflection of any such documents, work papers and
other material. Purchaser shall at all times prior to the Closing
Date, and in the event of termination of this Agreement, cause any
information so obtained to be kept confidential and will not use,
or permit the use of, such documents, work papers and other
materials in its business or in any other manner or for any other
purpose, unless such information (i) becomes generally available to
the public other than as a result of a disclosure by Hecla or its
representatives, (ii) was available to Purchaser on a non-
confidential basis prior to its disclosure to Purchaser by Hecla or
its representatives, or (iii) becomes available to Purchaser on a
non-confidential basis from a source other than Hecla or its
representatives, provided that such source is not bound by a
confidentiality agreement with Hecla or its representatives;
provided, further, that to the extent information obtained by
Purchaser as a result of this Agreement, whether so obtained before
or after the execution hereof, relates to Hecla, Hecla's operations
other than the Apex Unit, or any affiliate, Purchaser's obligation
hereunder shall survive for a period of three years from the date
of this Agreement and shall not terminate on the Closing Date or
upon termination of this Agreement.
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10. CLOSING. Closing shall take place on or before 12:01 p.m., local time,
on the last business day of the calendar month in which both: (a) BIA's
approval of both (i) Hecla's Amendment and (ii) Purchaser's New Lease
with the Shivwits-Paiute Band; and (b) the satisfaction of all
conditions precedent specified in Sections 15 and 16 of this Agreement
are met or waived in writing by the party whose obligations are
conditioned thereon; or on such other date mutually agreed upon in
writing by the parties hereto (the "Closing Date"); Closing shall occur
in the offices of OMG located at 3800 Terminal Tower, Cleveland, Ohio,
44114, or at such other place mutually agreed upon in writing by the
parties hereto. Closing must occur prior to September 30, 1995, unless
extended by mutual written agreement. If Closing has not occurred by
the close of business on September 30, 1995, this Agreement may be
terminated in accordance with Section 22 hereof.
11. TRANSFERS AND DELIVERIES BY PURCHASER AT CLOSING. Purchaser shall
execute, where applicable, and deliver to Hecla at the Closing the
following:
(a) THE PURCHASE PRICE provided for in Sections 4(a) and 4(b) hereof
consisting of the dollar amounts specified in Sections 4(a) and
4(b), in cash or immediately available funds;
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(b) WRITTEN OPINION of the General Counsel of Purchaser, dated as of
the Closing Date, substantially stating, in his opinion, that
Purchaser's corporate existence and good standing are as
represented in Section 7 hereof; that Purchaser has taken all
corporate action necessary to authorize the execution and
performance of this Agreement; that this Agreement and the
instruments delivered by Purchaser to Hecla pursuant to or in
connection with this Agreement have been duly executed and
delivered by Purchaser and are valid, binding and enforceable
against Purchaser in accordance with their respective terms (except
to the extent that enforcement is affected by laws pertaining to
bankruptcy, reorganization, insolvency and creditors' rights and by
the availability of injunctive relief and specific performance);
that neither the execution and delivery by Purchaser of this
Agreement nor its compliance herewith, will conflict with
Purchaser's Certificate of Incorporation or By-Laws, or to his
knowledge will result in a default under or breach of the terms,
conditions or provisions of any agreement or instrument to which
Purchaser is a party or by which it may be bound; and that neither
the execution and delivery of this Agreement by Purchaser nor its
compliance herewith will result in a violation of any statute,
regulation, law, ordinance, or, to the best of his knowledge,
order,
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writ, judgment or decree of any court, agency or governmental
authority, other than as expressly provided for in this Agreement;
that Purchaser is not a party to or affected by any pending legal,
administrative or other action which materially affects Purchaser's
execution, delivery and performance of this Agreement.
(c) GUARANTY of Purchaser's obligations substantially in the format of
Exhibit H, attached hereto and incorporated herein by this
reference.
12. TRANSFERS AND DELIVERIES BY HECLA. Hecla shall execute, where
applicable, and deliver to Purchaser at the Closing, unless otherwise
provided herein, the following:
(a) PHYSICAL POSSESSION of all tangible property constituting part of
the Apex Unit.
(b) BILL OF SALE for the Property, Personalty and the Working Capital
requiring a transfer of title to Purchaser.
(c) WRITTEN OPINION of legal counsel for Hecla, dated as of the Closing
Date, substantially stating, in his opinion, that Hecla's corporate
existence and good standing are as stated in Section 6 hereof; that
Hecla has taken all corporate action necessary to authorize the
execution and
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performance of this Agreement; that this Agreement and the
instruments delivered by Hecla to Purchaser pursuant to or in
connection with this Agreement have been duly executed and
delivered by Hecla and are valid, binding and enforceable against
Hecla in accordance with their terms (except to the extent that
enforcement is affected by laws pertaining to bankruptcy,
reorganization, insolvency and creditors' rights and by the
availability of injunctive relief and specific performance); that
neither the execution and delivery by Hecla of this Agreement nor
its compliance herewith will conflict with Hecla's Certificate of
Incorporation or By-Laws or result in the creation or imposition of
any lien, charge or encumbrance upon the Property or, to the best
of his knowledge, result in a default under, or a breach of the
terms, conditions or provisions of, any agreement or instrument
affecting ownership and use of the Apex Unit to which Hecla is a
party or by which it is bound; that Hecla is not a party to, nor
subject to or bound by, any judgment, injunction or decree of any
court or governmental authority which may restrict or interfere
with the performance of this Agreement or such other instruments
and documents; that except as set forth in this Agreement or any of
the Exhibits hereto, to the best of his knowledge, Hecla is not a
party to, or affected by, any pending legal,
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administrative or other action, which materially adversely affects
the Apex Unit or Hecla;
(d) CLOSING LETTER as provided for in Section 8(g).
13. CLOSING REPORTS: ADJUSTMENTS TO PURCHASE PRICE.
(a) As soon as practicable, and in any event within 10 business days
following the Closing Date, the parties shall jointly conduct an
inventory of the Apex Unit, and Hecla shall prepare and deliver to
Purchaser a schedule of the value of certain current assets and
certain current liabilities of the Apex Unit as of the Closing Date
prepared in accordance with Generally Accepted Accounting
Principles with Inventory valued on an average costing method, all
prepared on a basis consistent with the Schedule of Certain Current
Assets and Certain Current Liabilities attached hereto as Exhibit D
(the "Book Value") together with a report of Hecla thereon (the
"Closing Date Report") containing (i) a schedule setting forth the
Book Value of certain current assets and certain current
liabilities described on Exhibit D, in each case as the same
existed as at the Closing (the "Closing Schedule"), and (ii)
Hecla's determination of the Adjustment Amount (as that term is
hereinafter defined) based on such Closing Schedule. The
"Adjustment Amount"
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shall mean the arithmetic number obtained when the Book Value of
the Inventories and Prepaid Expenses less the Book Value of the
Current Liabilities as shown on the Closing Date Report, is
subtracted from the Book Value of the Inventories and Prepaid
Expenses as set forth in the schedule attached hereto as Exhibit D.
If the Adjustment Amount so obtained is negative, then Hecla shall
pay to Purchaser, or if the number so obtained is positive, then
Purchaser shall pay to Hecla, in immediately available funds, an
amount equal to the Adjustment Amount plus interest thereon at the
Prime Rate of interest per annum by Nationsbank, N.A. as its
reference rate of interest for demand commercial loans on the
Closing Date, calculated from and including the Closing Date, but
excluding the date such payment is made.
(b) Hecla's determination of the Adjustment Amount shall be final and
binding on the parties unless, within 30 days after delivery
thereof, a written notice of objection is given by Purchaser to
Hecla setting out Purchaser's objections to the Closing Schedule
and Closing Date Report and including Purchaser's determination of
the Adjustment Amount. During the 30 day period, Purchaser shall
have the opportunity to (i) examine the working papers, schedules
and other documents prepared by Hecla in
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<PAGE> 32
connection with the determination and preparation of the Closing
Schedule and the Closing Date Report; and (ii) ask questions of and
have discussions with Hecla in connection with the foregoing.
Hecla and Purchaser shall consult with each other with respect to
Purchaser's objections. If Hecla and Purchaser are unable to agree
on the Adjustment Amount within 20 days after Hecla's receipt of
Purchaser's notice of objection, the Adjustment Amount shall be
determined expeditiously by a nationally recognized firm of
certified public accountants who are not auditors for any of the
parties hereto or any of their respective Affiliates (the
"Accountants") agreed to by Hecla and Purchaser within 15 days
after the notice of objection has been given or, failing agreement
thereon, selected forthwith by Purchaser's external auditors and
Hecla's external auditors. Each of Hecla and Purchaser shall
submit to the Accountants their respective final determinations of
the Adjustment Amount as revised to the date of submission,
together with such supporting data as the Accountants consider
necessary or appropriate. The resolution of the dispute by the
Accountants will be final and binding on the parties. The fees and
expenses of the Accountants shall be borne by the party whose final
determination of the Adjustment Amount was further from the
Adjustment Amount determined by the Accountants. If
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<PAGE> 33
the determination of the Adjustment Amount by each of Purchaser and
Hecla is equally distant from the Adjustment Amount determined by
the Accountants, then the fees and expenses of the Accountants
shall be borne equally by Hecla and Purchaser.
(c) Either Hecla or Purchaser may prepay all or any portion of the
Adjustment Amount and thereafter no interest shall be payable on
the amount prepaid. If such prepayment exceeds the amount payable
as the Adjustment Amount, no interest shall be payable to the payor
of such prepayment on such overpayment, but the amount of the
overpayment shall be refunded to the payor on the Adjustment Date.
Purchaser shall give Hecla such assistance and access to the
assets, books, records and employees of the Apex Unit as Hecla may
reasonably require in order to enable Hecla to prepare the Closing
Schedule and Closing Date Report and for all matters relating to
the final determination of the Adjustment Amount.
14. CLOSING PRORATIONS. Expenses which will require proration will be
prorated as follows:
(a) AD VALOREM TAXES. All ad valorem taxes (both real and personal
property) shall be prorated between the parties
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<PAGE> 34
as of the Closing Date and cash settlement therefore shall be made
promptly after Closing.
(b) UTILITIES. Hecla will request that utility companies take meter
readings or follow similar procedures to invoice Hecla for services
provided through the Effective Time, which invoices shall be paid
by Hecla. Other utility bills received after the Effective Time
which require proration will be paid by Purchaser. Purchaser will
invoice Hecla for its pro rata share of such invoices and will be
promptly reimbursed by Hecla.
(c) OTHER PRORATABLE EXPENSES. Invoices received after the Effective
Time for other proratable expenses will be paid by Purchaser.
Purchaser will invoice Hecla for its pro rata share of such
invoices and will be promptly reimbursed by Hecla.
15. CONDITION TO OBLIGATIONS OF PURCHASER. The obligation of Purchaser to
close under this Agreement is subject to the satisfaction at or prior to
the Closing Date of the following conditions precedent, unless waived by
Purchaser:
(a) NEW LEASE AGREEMENT. Purchaser shall have received: (i) the
executed and delivered New Lease specified in Section 8(f) of this
Agreement, and (ii) the consent of
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<PAGE> 35
the Bureau of Indian Affairs to the New Lease specified in Section
8(f) of this Agreement.
(b) REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties of Hecla contained in Section 6 of this Agreement shall
be true and correct on and as of the Closing Date in all material
respects; Hecla shall have performed and complied in all material
respects with all of Hecla's obligations to Closing pursuant to
agreements and conditions required by Sections 6, 8 and 15 of this
Agreement to be performed or complied with by it prior to or on the
Closing Date and Purchaser shall be furnished with a certificate or
certificates in the form attached as Exhibit C of appropriate
officers of Hecla, dated as of the Closing Date, certifying to the
fulfillment of the foregoing conditions.
(c) INTERIM RECLAMATION PROGRAM. Hecla shall have completed that
portion of the reclamation program specified in Exhibit E which is
designated for completion prior to Closing.
(d) AMENDMENT. Hecla shall have received, in a form and substantively,
reasonably necessary to Hecla's activities, the Amendment described
in Section 16(a).
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<PAGE> 36
(e) RECEIPT OF TITLE INSURANCE ON THE CLOSING DATE. Purchaser shall
have received a commitment for title insurance policy issued by
Commonwealth Land Title Insurance as Owners Policy Form B, in the
amount of $8,000,000,showing that the title to the real estate is
in the Tribe, containing only the exceptions listed on Exhibit I
hereto. Purchaser shall have satisfied itself that the exceptions
to the title to the real estate listed on Exhibit I do not
interfere with Purchaser's proposed used of the real property.
(f) RELEASE OF ROYALTY INTEREST. Hecla shall have received a full and
unconditional release of any and all interest in the Apex Unit and
operations conducted there described in that certain Royalty
Agreement dated March 22, 1989, between Hecla and St. George Mining
Company.
(g) RECEIPT OF SURVEY. Before closing, Purchaser shall have received a
survey of the real estate which shall identify all recorded
easements and encroachments and all improvements on the property
and shall not show any violations of building or set-back lines.
16. CONDITIONS TO OBLIGATIONS OF HECLA. The obligation of Hecla to close
under this Agreement is subject to the satisfaction
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<PAGE> 37
at or prior to the Closing Date of each of the following conditions
precedent, unless waived by Hecla:
(a) CONSENTS. Hecla shall have received, executed and delivered the
Amendment substantially in the form attached hereto as Exhibit G
from the Shivwits-Paiute Band, together with the consent of the BIA
thereto, and with such other terms as are substantively, reasonably
necessary to Hecla's ongoing activities at the Apex Unit, in a
manner consistent with the transactions contemplated herein.
(b) REPRESENTATIONS AND WARRANTIES CORRECT. All representations and
warranties of Purchaser contained in Section 7 of this Agreement
shall be true and correct on and as of the Closing Date in all
material respects; Purchaser shall have performed and complied in
all material respects with all of Purchaser's obligations prior to
Closing pursuant to agreements and conditions required by Sections
7, 9 and 16 of this Agreement to be performed or complied with by
it prior to or on the Closing Date, and Hecla shall be furnished
with a certificate or certificates in the form attached as Exhibit
C of appropriate officers of Purchaser, dated as of the Closing
Date, certifying to the fulfillment of the foregoing conditions.
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(c) GUARANTY. Purchaser shall have delivered an executed guaranty by
its shareholder and all affiliates of its shareholder in the form
attached hereto as Exhibit H. "Affiliates" of any party hereto
means all persons or companies that directly, or indirectly through
one or more intermediaries, control, or are controlled by, or are
under common control with, the party, all within the meaning of
subsection (a)(1) of SEC Rule 144 under the Securities Act of 1933,
except natural persons, companies in which the shareholder or
affiliate only hold a minority interest, and persons domiciled
outside or organized under laws other than the United States of
America.
(d) NEW LEASE AGREEMENT. Purchaser shall have received: (i) the
executed and delivered New Lease specified in Section 8(f) of this
Agreement; and (ii) the consent of the Bureau of Indian Affairs to
the New Lease specified in Section 8(f) of this Agreement.
17. BOOKS, RECORDS, AND MISCELLANEOUS. On the Closing Date, or as soon
thereafter as is practicable, Hecla shall turn over to Purchaser all of
the books, records, maps, personal property tax returns and files, or
copies thereof (the "Documents") which relate solely to the Apex Unit.
Both prior to and after the Closing Date, Hecla agrees to make its books
and records
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<PAGE> 39
relating to the Apex Unit available for inspection by Purchaser at any
reasonable time upon reasonable request, or, in lieu thereof and at
Hecla's option, shall make such copies or provide such information from
such books and records as Purchaser may from time to time reasonably
request. After the Closing Date, the Documents will be retained by
Purchaser in part for Hecla's benefit and will be available for review
and copying by Hecla for any proper purpose upon reasonable notice
during Purchaser's normal business hours. Hecla or Purchaser, as the
case may be, shall use their best efforts not to destroy any documents
or documents respectively, without 30 days prior written notice to the
other, for a period of 5 years after the Closing Date.
18. TAXES AND EXPENSES.
(a) TAXES AND FEES. Hecla shall pay all transfer and documentary stamp
taxes payable in connection with the purchase and sale hereunder.
Purchaser shall pay all recordation and filing fees.
(b) EXPENSES. Each of the parties hereto will pay its own expenses
incident to the preparation and carrying out of this Agreement and
the expenses and fees involved in the preparation and delivery of
all documents, reports and opinions required to be delivered by or
on behalf of it
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<PAGE> 40
hereunder, whether or not the transactions contemplated hereby are
consummated.
19. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; COVENANTS AND AGREEMENTS.
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
set forth in Sections 6 and 7 shall survive the Closing Date from
the Effective Time until 12 months after Closing, at which time
they shall automatically terminate and shall not merge into any of
the deeds, assignments, bill of sale or other instruments delivered
at Closing.
(b) COVENANTS, CONDITIONS AND AGREEMENTS. The Covenants and Conditions
set forth in Sections 8 and 9 [except for Sections 8(e), 9(b) and
9(d)], 15 and 16 shall terminate as of and shall not survive the
Closing Date. The agreements set forth in Sections 4, 20 and 21
shall survive the Closing Date.
20. INDEMNIFICATION. Except with respect to matters specified in Section 21
of this Agreement, the parties hereto shall be indemnified as follows:
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<PAGE> 41
(a) Hecla shall defend, indemnify and hold harmless the Purchaser, its
officers, directors, successors and assigns against all damages,
claims, losses, liabilities (except liabilities assumed by
Purchaser), costs and expenses which arise out of Hecla's Apex Unit
operations or associated with Hecla's Apex Unit employees, prior to
the Closing Time and obligations or liabilities of Hecla related to
the Apex Unit not specifically assumed by Purchaser or the
obligation of Purchaser pursuant to this Agreement and the breach
of the representations and warranties, the covenants and agreements
which survive the Closing pursuant to Section 19 except for loss of
profits; consequential, incidental or special damages.
(b) Purchaser shall defend, indemnify and hold harmless Hecla, its
officers, directors, successors and assigns against all damages,
claims, losses, liabilities, costs and expenses which it assumed
pursuant to the terms of this Agreement and which arise out of the
conduct of operations at the Apex Unit subsequent to the Closing
Time, and the breach of the representations and warranties, the
covenants and agreements which survive the Closing pursuant to
Section 19 except for loss of profits; consequential, incidental or
special damages.
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<PAGE> 42
(c) The right of either party to indemnification hereunder is
contingent on receipt by the indemnifying party of a promptly
delivered written notice of a claim for indemnification from the
party seeking such indemnification.
(d) Upon receipt of a notice claiming indemnification the indemnifying
party shall proceed to assume the defense with respect to any third
party litigation then pending with respect to such claims.
(e) The party seeking indemnification for any third party claims
pursuant to this Section shall have the right, at its sole cost and
expense, to participate in any legal action in respect of which
indemnification is sought, provided, however, that the party from
whom indemnification is sought shall have the sole right to settle
or otherwise dispose of such legal action in any manner it deems
appropriate without the consent of the other party.
(f) In the event that, after receipt of notice under Section 20(c)
above, the indemnifying party fails to assume the defense of any
action brought by a third party where the obligation to defend is
owed to the party seeking indemnification, then the party seeking
indemnification
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<PAGE> 43
shall be entitled to its reasonable attorney's fees in addition to
recoveries allowed under this Section.
21. ENVIRONMENTAL MATTERS. Purchaser acknowledges that Hecla has advised
Purchaser that: (i) the Apex Unit was used by Hecla and previous owners
or lessees for mining activities; and (ii) due to the past and present
use of the Property, there may be Hazardous Substances associated with
the Property. Subject to Sections 6(m) and 21 of this Agreement, Hecla
makes no warranty or representation of any type or character, written or
implied, regarding Hazardous Substances situated on or environmental
conditions associated with the Property, or that Hecla has complete
knowledge or information about these matters and Purchaser hereby agrees
to accept the Apex Unit in an "as is" condition.
(a) HECLA ENVIRONMENTAL INDEMNITY. Without limiting the scope of
Hecla's indemnity obligations in Section 20, Hecla shall be responsible
for, and agrees to protect, indemnify, defend and hold harmless
Purchaser, its officers, partners, employees and agents and their
respective successors and assigns, from, against and in respect of any
Losses arising out of or relating to the following:
(i) the matters set forth or referred to in Schedule E;
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<PAGE> 44
(ii) any violation or alleged violation of any Environmental Law or any
license or permit pertaining to any Environmental Law attributable
to the ownership or operation of the Apex Unit by Hecla or others
prior to the Closing Date;
(iii) the generation, transport, treatment, recycling, storage or
disposal of Hazardous Substances, or arrangement therefor prior
to the Closing Date, at or from the Apex Unit by Hecla or its
predecessors;
(iv) any release or disposal of Hazardous Substances on, under or from
the Property to the extent attributable to the ownership or
operation of the Property by Hecla or others prior to the Closing
Date (including any spreading of such substances after the Closing
Date, to the extent such spreading was not caused or contributed to
by Purchaser, its agents, employees or representatives);
(v) any Losses incurred by Purchaser in connection with Hecla's
reclamation program referenced in Section 21(b) of this Agreement.
(b) PURCHASER ENVIRONMENTAL INDEMNITY. Purchaser shall be responsible
for, and agrees to protect, indemnify, defend and hold harmless Hecla,
its officers, partners, employees and
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<PAGE> 45
agents, and their respective successors and assigns, from, against and in
respect of any Losses arising out of or relating to (i) any violation or
alleged violation of any Environmental Law or any license or permit
pertaining to any Environmental Law that is attributed to the ownership
and operation of the Apex Unit by Purchaser or its successors after the
Closing Date; (ii) any release or disposal of any Hazardous Substance
on, under or from the Property to the extent attributed to the ownership
and operation of the Property by Purchaser, its successors after the
Effective Time; (iii) the generation, transport, treatment, recycling,
storage or disposal of Hazardous Substances, or arrangement therefor
after the Closing Date, at the Apex Unit by Purchaser or its successors.
(c) APPORTIONMENT. Hecla and Purchaser acknowledge that various
Hazardous Substances are on the Property. If a Loss results both from
Hazardous Substances in existence before the Closing Date and from the
new release of Hazardous Substances following closing, liability between
Hecla and Purchaser shall be apportioned on the basis of the respective
causal contributions to the Losses of new releases of Hazardous
Substances following the Closing Date compared to environmental
conditions in existence prior to the Effective Time.
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<PAGE> 46
Any indemnification sought under this Section 21 shall be governed in
applicable part by the provisions of Section 20(c) - (f).
(d) RECLAMATION PROGRAM. Hecla agrees, at its sole cost and expense,
promptly to undertake a reclamation program to reclaim certain
portions of the Property and relocate materials from the Property to
an off-site location, which location will be controlled by Hecla.
The reclamation program herein is more specifically described in
Exhibit E hereto. Hecla agrees to commence the reclamation program
promptly upon Hecla obtaining a release of the royalty interest
specified in Section 15(f) of this Agreement, and shall diligently
pursue the completion of the program as soon as reasonably possible.
To the extent that the reclamation program continues following
Closing, Purchaser agrees to grant Hecla necessary access to the
Property to complete its program, and Hecla shall conduct its program
so as not to unreasonably interfere with Purchaser's operations at
the Apex Unit.
(e) Under this Agreement:
(i) "Losses" means any and all losses, claims, liabilities,
deficiencies, penalties, fines, costs, damages and expenses
whatsoever, including without limitation reasonable
professional fees and costs of
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<PAGE> 47
investigation, litigation, settlement, judgment and interest.
(ii) "Hazardous Substances" means and includes any substances,
chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products which are defined as
"hazardous substances", "hazardous wastes", "toxic substances",
or "pollutants", or which are regulated or addressed, under any
Environmental Law.
(iii) "Environmental Law" means any applicable federal, state or
local law, statute or regulation now existing, or hereafter
arising or from time to time amended, relating to health,
safety or the environment, including without limitation the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601 ET
SEQ. ("CERCLA"); the Resource Conservation and Recovery Act
("RCRA"), 42 U.S.C. Section 6901, ET SEQ.; and the Federal
Water Pollution Control Act ("FWPCA") 33 U.S.C. Section 1251 ET
SEQ.
22. TERMINATION OF AGREEMENT. This Agreement and the transactions
contemplated hereby will terminate as follows:
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<PAGE> 48
(a) On September 30, 1995, if the Closing shall not have taken place,
unless such date is extended by mutual agreement.
(b) On the Closing Date by Purchaser if the conditions set forth in
Section 15 shall not have been met or waived;
(c) On the Closing Date by Hecla if the conditions set forth in Section
16 shall not have been met or waived; or
(d) At any time, by mutual consent of the parties hereto.
23. LIABILITY ON TERMINATION. In the event of termination of this Agreement
pursuant to Section 22, the parties hereto shall, in addition to any and
all other rights and remedies available to them, (i) return all books,
records and documents furnished by Hecla by the other party, (ii) remain
bound by the confidentiality provisions contained herein in Section 9(f)
hereof, and (iii) Purchaser shall reimburse Hecla for reclamation or
other environmental response costs incurred by it in anticipation of the
consummation of the transactions contemplated herein as specified in
Exhibit E in the event that all of Purchaser's Conditions of Closing
specified in Section 15 are fulfilled, and Purchaser fails to close the
transactions contemplated herein under circumstances which are or would
be, with the exercise of reasonably prudent business judgment,
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<PAGE> 49
within their control, and through no fault or failure in Hecla's
performance.
24. MISCELLANEOUS
(a) EXHIBITS AND SCHEDULES. All Exhibits and Schedules attached to this
Agreement shall be deemed part of this Agreement and incorporated
herein, where applicable, as if fully set forth herein.
(b) NO ASSIGNMENT, SUCCESSORS, ASSIGNS, ETC. The terms and conditions of
this Agreement shall inure to the benefit of, and shall be binding
upon, the parties hereto, their respective successors and approved
assigns; provided, however, that this Agreement shall not be assigned
or conveyed by any party to any person or entity without the prior
written consent of the other party hereto, which consent shall not be
unreasonably withheld. For purposes of this Section OMG Apex, Inc.,
a Utah corporation, wholly owned subsidiary of Mooney Chemicals,
Inc., is an approved assignee. In the event of an assignment, the
assigning party shall not be relieved of any of its obligations and
undertakings contracted for herein and the assignee, shareholders of
the assignee, and all affiliates thereof shall deliver a guaranty
substantially in the form attached hereto as Exhibit H.
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<PAGE> 50
(c) GOVERNING LAW. This Agreement shall be construed in accordance with,
and governed by, the law of the state of Utah applicable to
agreements made and to be performed wholly within this jurisdiction.
Venue to enforce any claim arising from any provision of this
Agreement shall lie in Kootenai County, Idaho.
(d) COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original and
all of which shall constitute one and the same instrument.
(e) NOTICES. Any notices or other communications shall be in writing and
shall be considered to have been duly given on the earlier of (1) the
date of actual receipt or (2) three days after deposit in the
first-class certified U.S. mail, postage prepaid, return receipt
requested:
If to Hecla, to:
Hecla Mining Company
6500 Mineral Drive
Coeur d'Alene, Idaho 83814-8788
Attn: Vice President - Industrial Minerals
If to Purchaser, to:
Mooney Chemicals, Inc.
3800 Terminal Tower
Cleveland, Ohio 44113-2204
Attn: Michael Scott, Esq.
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<PAGE> 51
(f) AMENDMENT. This Agreement may be amended at any time prior to
Closing by written instrument executed by the parties hereto.
(g) ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties hereto relating to the subject matter herein.
(h) WAIVER. Any default, misrepresentation or breach of any covenant or
warranty by a party in connection with this Agreement may be waived
in writing by the other party. No such waiver shall be deemed to
extend to any prior or subsequent default, misrepresentation or
breach of any covenant or warranty, or affect any rights arising by
virtue of any prior or subsequent default, misrepresentation or
breach of any covenant or warranty.
(i) The prevailing party in any dispute arising under this Agreement
shall be entitled to an award of its reasonable attorneys fees, costs
and expenses.
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<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers, all as of the day and year
first above written.
HECLA MINING COMPANY MOONEY CHEMICALS, INC.
By: /s/ J. Gary Childress By: /s/ Thomas E. Fleming
-------------------------- ---------------------------
Attest: Attest:
/s/ Nathaniel K. Adams /s/ M. Scott
----------------------------- ------------------------------
Assistant Secretary Secretary
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<PAGE> 1
FORM 10-K DECEMBER 31, 1995
COMMISSION FILE NO. 1-8491
EXHIBIT 11
HECLA MINING COMPANY AND SUBSIDIARIES
CALCULATION OF WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Shares of common stock issued at
beginning of period 48,144,274 40,320,761 36,324,517
The incremental effect of the issuance
of new shares in exchange for
outstanding Liquid Yield Option Notes - - - - 1,269,217
The incremental effect of the issuance
of new shares for cash, net of
issuance costs - - 3,450,000 242,308
The incremental effect of the issuance of
new shares for property - - - - 3,931
The incremental effect of the issuance
of new shares under Stock Option and
Employee Stock Ownership Plans 110,263 235,571 87,485
The incremental effect of the issuance
of new shares for the acquisition of
Mountain West Bark Products, Inc. - - - - 8,397
---------- ---------- ----------
48,254,537 44,006,332 37,935,855
Less:
Weighted average treasury shares held 62,291 62,276 63,728
---------- ---------- ----------
Weighted average number of common shares
outstanding during the period 48,192,246 43,944,056 37,872,127
========== ========== ==========
</TABLE>
<PAGE> 1
Exhibit 12
HECLA MINING COMPANY
FIXED CHARGE COVERAGE RATIO CALCULATION
For the years ended December 31, 1991, 1992, 1993, 1994 and 1995
and the three months ended December 31, 1994 and 1995
(In thousands, except ratios)
<TABLE>
<CAPTION>
4th Qtr 4th Qtr
1991 1992 1993 1994 1995 1994 1995
-------- -------- -------- -------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net loss before income taxes and
cumulative effect of
changes in accounting principles $(18,077) $(55,518) $(18,720) $(24,248) $(101,410) $(20,666) $ 1,284
Add: Fixed Charges 7,136 7,036 9,385 10,857 10,551 2,193 2,862
Less: Capitalized Interest (145) (2,070) (3,533) (1,751) (1,516) - - (666)
-------- -------- -------- -------- --------- -------- -------
Net income (loss) before
income taxes and cumulative
effect of changes in accounting
principles and fixed charges $(11,086) $(50,552) $(12,868) $(15,142) $ (92,375) $(18,473) $ 3,480
======== ======== ======== ======== ========= ======== =======
Fixed charges:
Preferred stock dividends - - - - $ 4,070 $ 8,050 $ 8,050 $ 2,013 $ 2,012
Interest portion of rentals - - - - - - 166 541 97 126
Interest expense $ 6,985 $ 6,905 5,224 2,606 1,960 83 724
Amortization of LYONs 151 131 91 35 - - - - - -
-------- -------- -------- -------- --------- -------- -------
Total fixed charges $ 7,136 $ 7,036 $ 9,385 $ 10,857 $ 10,551 $ 2,193 $ 2,862
======== ======== ======== ======== ========= ======== =======
Fixed Charge Ratio (a) (a) (a) (a) (a) (a) 1.22
Inadequate coverage $ 18,222 $ 57,588 $ 22,253 $ 25,999 $ 102,926 $ 20,666 $ - -
======== ======== ======== ======== ========= ======== =======
Write-downs and other noncash charges:
DD&A(b) (mining activity) $ 21,161 $ 13,774 $ 13,526 $ 14,233 $ 23,462 $ 3,740 $ 4,882
DD&A(b) (corporate) 737 851 669 524 367 81 102
Provision for closed
operations 3,764 13,608 2,327 11,353 4,615 10,280 319
Reduction in carrying value of
mining properties 41 30,791 2,561 7,864 97,387 7,864 - -
-------- -------- -------- -------- --------- -------- -------
$ 25,703 $ 59,024 $ 19,083 $ 33,974 $ 125,831 $ 21,965 $ 5,303
======== ======== ======== ======== ========= ======== =======
(a) Earnings for period inadequate to cover fixed charges.
(b) "DD&A" is an abbreviation for "depreciation, depletion and amoritization."
</TABLE>
<PAGE> 1
[HECLA LOGO] Exhibit 13.1
HECLA REPORTS FOURTH QUARTER AND YEAR-END RESULTS
For the Period Ended December 31, 1995
For release: February 8, 1996
COEUR D'ALENE, IDAHO -- Hecla Mining Company (HL & HL-PrB:NYSE) today
reported a loss for the fourth quarter of 1995 of $786,000, or 2 cents per
common share, on revenue of $38.3 million, after a $2 million quarterly dividend
to preferred shareholders. This compares to a loss of $22.5 million, or 47
cents per common share, on revenue of $30.2 million in the fourth quarter of
1994. Fourth quarter 1994 results included asset write-downs and reclamation
adjustments of $18 million.
In 1995, Hecla lost a total of $109.8 million, or $2.28 per common
share, on revenue of $164 million, compared to a loss of $32.7 million, or 74
cents per common share, on revenue of $134 million in 1994. The 1995 year-end
results include an asset write-down of $97 million associated with the Grouse
Creek gold mine in central Idaho and another $4.8 million in accruals for
environmental remediation at other properties and write-downs of certain common
stock investments in other companies. These write-downs and accruals were taken
in the third quarter of 1995. Year-end 1995 results also include a $7.2 million
gain on the sales of the Apex processing facility and common stock investments.
Arthur Brown, Hecla's chairman and chief executive officer, said, "1995
was a very disappointing year for Hecla, largely due to the setback at the
Grouse Creek mine. This was reflected in the third quarter write-down.
Overall, fourth quarter performance for the company improved to a near break-
even level, and we expect to see this improvement continue in the future."
Brown continued, "We are moving forward toward putting the Greens Creek mine
back into production and working on our Lucky Friday expansion project. We will
also do everything we can to keep the Grouse Creek mine operating because it
could still be an important source of cash for the company. And further down
the line, we're looking forward to the possibility of bringing the very
promising Rosebud gold project into operation when appropriate financing is
arranged."
PRODUCTION
Hecla produced about 170,000 ounces of gold and 2.2 million ounces of
silver in 1995. This compares to approximately 128,000 ounces of gold and 1.6
million ounces of silver in 1994. In addition,
the company mined nearly 17,000 tons of lead, 3,000 tons of zinc, and shipped
about 990,000 tons of industrial minerals in 1995.
(more)
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 FOURTH QUARTER AND YEAR-END RESULTS
COMMON STOCK OFFERING
In January 1996, Hecla completed the sale of 2.875 million common
shares, which provided Hecla with net proceeds of approximately $22 million.
The proceeds will facilitate funding the company's capital expenditures in 1996,
particularly the amounts required to reopen the Greens Creek mine in Alaska.
The net proceeds from the sale of common stock will be reflected in the first
quarter 1996 financial statements. The shares were sold under Hecla's existing
shelf registration, and the company now has approximately 51 million common
shares outstanding.
GROUSE CREEK
Hecla continues to evaluate the ore body at the Grouse Creek mine and
is developing a revised mine plan. As reported last October, the property
encountered significant shortfalls of ore tonnage and gold grade, and the
company subsequently took a third quarter write-down on its investment in the
mine. The company intends to continue operating the property as long as it is
economically feasible. Hecla's 80% interest in Grouse Creek produced nearly
67,000 ounces of gold for the company's account during 1995.
Cash costs of production per ounce of gold increased at Grouse Creek in
the fourth quarter to $319 per ounce, compared to $293 per ounce during the
third quarter of 1995. The increase was due to additional expenditures for
confirmation drilling and feasibility studies as Hecla revises the mine plan and
recalculates reserves. About $400,000, or $24 per ounce of gold produced, was
spent on this effort in the fourth quarter. After the studies are completed
during the second quarter of 1996, these additional expenditures will be
eliminated. Full costs per ounce decreased significantly from earlier in the
year because of the write-down of the capitalized development costs of the mine
in the third quarter.
OTHER OPERATIONS
In 1995, the Lucky Friday Unit in North Idaho increased silver
production by 27% over 1994, producing about 1.7 million ounces of silver. With
the help of better lead and zinc prices, higher volume, and an insurance
settlement for damage to the Lucky Friday's hoist in 1994, Hecla's silver
operation was able to show a profit for the year. Lucky Friday completed its
safest year on record in its 56 years of
(more)
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 FOURTH QUARTER AND YEAR-END RESULTS
operation when employees worked for longer than an entire calendar year without
a lost-time accident. This safety record is far better than the national
average for underground mines.
The La Choya gold mine in Mexico performed very well in 1995, producing
more than 72,000 ounces of gold for Hecla, at a cash production cost of $192 per
ounce.
At the American Girl gold mine in California, in which Hecla holds a
47% interest, costs ran high for the year as the mine waited for permits to
access the new higher-grade Oro Cruz deposit. Mining began in this new area
during the fourth quarter of 1995.
INDUSTRIAL MINERALS
The industrial minerals segment showed another year of record sales,
with a total of $71.7 million in sales in 1995. However, costs also increased,
keeping gross profit for industrial minerals at about the same level as 1994.
GREENS CREEK
Work proceeds on schedule with the Greens Creek mine reopening in
Alaska. Hecla expects to spend about $20 million in 1996 for its share of
capital costs to help bring the mine back on-line. The polymetallic mine is
expected to produce more than 3 million ounces of silver and about 20,000 ounces
of gold for Hecla's account annually, beginning in 1997.
NEW DIRECTOR
During the fourth quarter, Hecla's board of directors elected Ted
Crumley as a new member of the board. He is senior vice president and chief
financial officer for Boise Cascade Corporation. The addition of Mr. Crumley
expands the size of the board to eight directors.
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.
Hecla Mining Company news releases can be accessed on the Internet at:
http://www.hnt.com/bizwire/cnn/794.htm.
-HL-
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>
Fourth Quarter Ended Year Ended
--------------------- -----------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
HIGHLIGHTS 1995 1994 1995 1994
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
FINANCIAL DATA
- --------------------------------------------------------------------------------------------------------
Total revenue $ 38,338 $ 30,195 $ 163,968 $ 133,974
Gross profit 3,986 915 6,607 9,831
Net income (loss) 1,226 (20,480) (101,719) (24,613)
Loss applicable to
common shareholders (786) (22,493) (109,769) (32,663)
Loss per common share (0.02) (0.47) (2.28) (0.74)
Cash flow from operating activities 7,540 (8,414) 11,762 (5,351)
- --------------------------------------------------------------------------------------------------------
SALE OF PRODUCTS BY SEGMENT
- --------------------------------------------------------------------------------------------------------
Gold operations $ 18,914 $ 14,215 $ 66,816 $ 51,904
Silver operations 4,092 291 12,994 8,924
Industrial minerals 13,719 13,118 71,655 63,634
Specialty metals - - 1,457 4,414 4,285
-------- -------- --------- ---------
Total sales $ 36,725 $ 29,081 $ 155,879 $ 128,747
======== ======== ========= =========
- --------------------------------------------------------------------------------------------------------
GROSS PROFIT (LOSS) BY SEGMENT
- --------------------------------------------------------------------------------------------------------
Gold operations $ 2,639 $ 1,382 $ (2,013) $ 7,110
Silver operations 340 (1,115) 827 (4,610)
Industrial minerals 1,007 510 7,499 7,329
Specialty metals - - 138 294 2
-------- -------- --------- ---------
Total gross profit $ 3,986 $ 915 $ 6,607 $ 9,831
======== ======== ========= =========
- --------------------------------------------------------------------------------------------------------
PRODUCTION SUMMARY - TOTALS
- --------------------------------------------------------------------------------------------------------
Gold - Ounces 49,938 36,867 169,777 127,878
Silver - Ounces 618,648 134,384 2,242,309 1,642,913
Lead - Tons 4,475 477 16,967 13,214
Zinc - Tons 881 103 2,999 2,431
Industrial minerals - Tons shipped 225,103 235,096 991,214 985,639
Average cost per ounce of gold produced:
Cash cost ($/oz.) 246 281 288 273
Full cost ($/oz.) 326 347 397 334
Average cost per ounce of silver produced:
Cash cost ($/oz.) 4.14 6.03 4.57 5.81
Full cost ($/oz.) 5.25 7.99 5.76 7.17
- --------------------------------------------------------------------------------------------------------
AVERAGE METAL PRICES
- --------------------------------------------------------------------------------------------------------
Gold - Realized ($/oz.) 388 389 388 387
Gold - London Final ($/oz.) 385 384 384 384
Silver - Handy & Harman ($/oz.) 5.26 5.14 5.19 5.28
Lead - LME Cash ( cents/pound) 31.5 29.4 28.6 24.8
Zinc - LME Cash ( cents/pound) 45.8 50.3 46.8 45.3
</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)
<TABLE>
<CAPTION>
Dec. 31, Dec. 31,
1995 1994
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
ASSETS (unaudited)
- --------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 4,024 $ 7,278
Accounts and notes receivable 25,571 23,516
Income tax refund receivable 737 247
Inventories 20,915 18,616
Other current assets 2,038 1,597
---------- ----------
Total current assets 53,285 51,254
Investments 2,200 6,476
Restricted investments 16,254 13,553
Properties, plants and equipment, net 177,374 257,908
Other noncurrent assets 9,077 5,391
---------- ----------
Total assets $ 258,190 $ 334,582
========== ==========
- --------------------------------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 14,145 $ 13,570
Accrued payroll and related benefits 3,217 2,724
Preferred stock dividends payable 2,012 2,012
Accrued taxes 1,042 925
Accrued reclamation costs 5,549 4,254
---------- ----------
Total current liabilities 25,965 23,485
Deferred income taxes 359 359
Long-term debt 36,104 1,960
Accrued reclamation costs 26,782 27,162
Other noncurrent liabilities 4,864 4,098
---------- ----------
Total liabilities 94,074 57,064
========== ==========
- --------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------
Preferred stock 575 575
Common stock 12,079 12,036
Capital surplus 330,352 328,995
Accumulated deficit (173,206) (63,437)
Net unrealized gain on investments 100 3,396
Foreign currency translation adjustment (4,898) (3,158)
Treasury stock (886) (889)
---------- ----------
Total shareholders' equity 164,116 277,518
---------- ----------
Total liabilities and shareholders' equity $ 258,190 $ 334,582
========== ==========
Common shares outstanding at end of period 48,255 48,082
========== ==========
</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 in thousands, except per-share amounts - unaudited)
<TABLE>
<CAPTION>
Fourth Quarter Ended Year Ended
------------------------ -----------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales of products $ 36,725 $ 29,081 $ 155,879 $ 128,747
--------- --------- --------- ---------
Cost of sales and other direct production costs 27,857 24,426 125,810 104,683
Depreciation, depletion and amortization 4,882 3,740 23,462 14,233
--------- --------- --------- ---------
32,739 28,166 149,272 118,916
--------- --------- --------- ---------
Gross profit 3,986 915 6,607 9,831
--------- --------- --------- ---------
Other operating expenses:
General and administrative 1,801 2,182 9,371 11,132
Exploration 2,230 2,071 7,109 8,397
Depreciation and amortization 102 81 367 524
Provision for closed operations and
environmental matters 319 10,280 4,615 11,353
Reduction in carrying value of mining
properties - - 7,864 97,387 7,864
--------- --------- ---------- ---------
4,452 22,478 118,849 39,270
--------- --------- ---------- ---------
Loss from operations (466) (21,563) (112,242) (29,439)
--------- --------- --------- ----------
Other income (expense):
Interest and other income 1,613 1,114 8,089 5,227
Foreign exchange gain (loss) (132) (58) 18 (234)
Gain (loss) on investments 327 (76) 3,169 1,053
Interest expense:
Total interest cost (724) (83) (1,960) (2,606)
Less amount capitalized 666 - - 1,516 1,751
--------- --------- --------- ---------
1,750 897 10,832 5,191
--------- ---------- --------- ---------
Income (loss) before income taxes
and extraordinary item 1,284 (20,666) (101,410) (24,248)
Income tax (provision) benefit (58) 196 (309) 468
--------- ---------- --------- ---------
Income (loss) before extraordinary item 1,226 (20,470) (101,719) (23,780)
Extraordinary loss on retirement of
long-term debt - - (10) - - (833)
--------- --------- --------- ---------
Net income (loss) 1,226 (20,480) (101,719) (24,613)
Preferred stock dividends (2,012) (2,013) (8,050) (8,050)
--------- --------- --------- ---------
Loss applicable to common
shareholders $ (786) $ (22,493) $(109,769) $ (32,663)
========= ========= ========= =========
Loss per common share $ (0.02) $ (0.47) $ (2.28) $ (0.74)
========= ========= ========= =========
Weighted average number of
common shares outstanding 48,255 48,082 48,192 43,944
========= ========= ========= =========
Common shares outstanding at end of year 48,255 48,082
========= =========
</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>
Year Ended
---------------------------
Dec. 31, Dec. 31,
1995 1994
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
- ----------------------------------------------------------------------------------------------------------------------
Net loss $ (101,719) $ (24,613)
Noncash elements included in net loss:
Depreciation, depletion and amortization 23,829 14,757
Gain on disposition of properties, plants and equipment (3,417) (354)
Gain on sale of investments (3,169) (1,053)
Extraordinary loss on early retirement of long-term debt - - 833
Accretion of interest on long-term debt - - 2,495
Reduction in carrying value of mining properties 97,387 7,864
Provision for reclamation and closure costs 8,071 11,353
Change in:
Accounts and notes receivable (849) (4,675)
Income tax refund receivable (490) (247)
Inventories (2,299) (4,086)
Other current assets (441) 406
Accounts payable and accrued expenses 575 (4,088)
Accrued payroll and related benefits 493 668
Accrued taxes 117 (3)
Accrued reclamation and other noncurrent liabilities (6,326) (4,608)
---------- ---------
Net cash provided (used) by operating activities 11,762 (5,351)
---------- ---------
- ----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
- ----------------------------------------------------------------------------------------------------------------------
Additions to properties, plants and equipment (45,308) (66,559)
Proceeds from disposition of properties, plants and equipment 3,822 13,809
Proceeds from the sales of investments 5,196 32,067
Purchase of restricted investments (2,701) (13,553)
Purchase of investments and increase in cash surrender value
of life insurance (1,047) 114
Other, net (2,407) (325)
---------- ---------
Net cash used by investing activities (42,445) (34,447)
---------- ---------
- ----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
- ----------------------------------------------------------------------------------------------------------------------
Proceeds from exercise of stock warrants and options 1,335 1,765
Issuance of common stock - - 63,499
Early retirement of long-term debt - - (50,169)
Dividends on preferred stock (8,050) (8,050)
Borrowing on long-term debt 48,000 - -
Repayment on long-term debt (13,856) - -
---------- ---------
Net cash provided by financing activities 27,429 7,045
---------- ---------
Net decrease in cash and cash equivalents (3,254) (32,753)
Cash and cash equivalents at beginning of year 7,278 40,031
---------- ---------
Cash and cash equivalents at end of year $ 4,024 $ 7,278
========== =========
</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>
Fourth Quarter Ended Year Ended
------------------------- ------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
LA CHOYA UNIT
- ----------------------------------------------------------------------------------------------------------------------
Tons of ore mined 1,258,053 516,827 4,031,274 2,026,381
Ore grade mined - Gold (oz./ton) 0.025 0.031 0.026 0.041
Gold produced (oz.) 26,664 15,869 72,144 47,861
Silver produced (oz.) 2,681 2,093 7,380 6,019
Average cost per ounce of gold produced:
Cash cost $158 $221 $192 $243
Full cost $266 $306 $295 $337
- ----------------------------------------------------------------------------------------------------------------------
REPUBLIC UNIT (1)
- ----------------------------------------------------------------------------------------------------------------------
Tons of ore milled - - 33,424 10,269 120,165
Ore grade milled - Gold (oz./ton) - - 0.28 0.13 0.36
Gold produced (oz.) 188 8,610 3,098 39,085
Silver produced (oz.) 262 70,369 15,320 283,326
Average cost per ounce of gold produced:
Cash cost $50 $285 $307 $250
Full cost $50 $348 $307 $306
- ----------------------------------------------------------------------------------------------------------------------
AMERICAN GIRL UNIT (Reflects Hecla's 47% share)
- ----------------------------------------------------------------------------------------------------------------------
Tons of ore milled 16,457 28,928 57,400 119,189
Tons of ore to heap 110,436 177,128 725,732 585,300
Ore grade milled - Gold (oz./ton) 0.148 0.162 0.179 0.171
Ore grade to heap - Gold (oz./ton) 0.033 0.024 0.030 0.025
Gold produced (oz.) 5,504 8,128 21,489 30,624
Silver produced (oz.) 2,722 6,132 13,053 18,366
Average cost per ounce of gold produced:
Cash cost $453 $351 $436 $344
Full cost $525 $367 $483 $367
- ----------------------------------------------------------------------------------------------------------------------
GROUSE CREEK (Reflects Hecla's 80% share)
- ----------------------------------------------------------------------------------------------------------------------
Tons of ore milled 443,715 34,654 1,564,176 70,912
Ore grade milled - Gold (oz./ton) 0.039 0.190 0.044 0.103
Ore grade milled - Silver (oz./ton) 0.63 0.79 0.64 0.55
Gold produced (oz.) 16,353 2,093 66,887 2,093
Silver produced (oz.) 151,259 8,763 541,532 8,763
Average cost per ounce of gold produced:
Cash cost $319 $540 $344 $540
Full cost $359 $730 $493 $730
- ----------------------------------------------------------------------------------------------------------------------
LUCKY FRIDAY UNIT
- ----------------------------------------------------------------------------------------------------------------------
Tons of ore milled 41,852 5,588 158,874 124,986
Ore grade milled - Silver (oz./ton) 11.18 7.62 10.85 10.74
Silver produced (oz.) 461,440 42,555 1,662,706 1,306,884
Lead produced (tons) 4,475 477 16,967 13,214
Average cost per ounce of silver produced:
Cash cost $4.14 $6.03 $4.57 $5.81
Full cost $5.25 $7.99 $5.76 $7.17
- ----------------------------------------------------------------------------------------------------------------------
OTHER
- ----------------------------------------------------------------------------------------------------------------------
Gold produced (oz.) 1,229 2,167 6,159 8,215
Silver produced (oz.) 284 4,472 2,318 19,555
1)Republic Unit ceased operations March 31, 1995. Gold ounces produced during the fourth quarter 1995 are from mill clean-up work.
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>
<PAGE> 1
FORM 10-K DECEMBER 31, 1995
COMMISSION FILE NO. 1-8491
EXHIBIT 21
HECLA MINING COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF REGISTRANT
December 31, 1995
<TABLE>
<CAPTION>
State or Country Percentage of
in Which Voting Securities
Organized Owned
---------------- -----------------
<S> <C> <C> <C>
CoCa Mines Inc. Colorado 100 (A)
Colorado Aggregate Company of
New Mexico New Mexico 100 (A)
Consolidated Silver Corporation Idaho 78.45 (A)
Eastmaque Gold Mines (U.S.) Inc. Nevada 100 (A)
Equinox Resources, Inc. Nevada 100 (A)
Kentucky-Tennessee Clay Company Delaware 100 (A)
K-T Clay de Mexico, S.A. de C.V. Mexico 100 (A)
K-T Feldspar Corporation North Carolina 100 (A)
Minera Hecla, S.A. de C.V. Mexico 100 (A)
Mountain West Products Inc. Idaho 100 (A)
(A) Included in the consolidated financial statements filed herewith.
</TABLE>
<PAGE> 1
Exhibit 23.1
Form 10-K December 31, 1995
Commission File No. 1-8491
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the registration statements of
Hecla Mining Company and subsidiaries on Form S-3 (File No. 33-72832 and No. 33-
59659) 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 impairment of long-lived assets as of January 1, 1995,
and accounting for investments as of January 1, 1994, dated February 2, 1996,
except for the last paragraph of Note 6 as to which the date is February 7,
1996, on our audits of the consolidated financial statements of Hecla Mining
Company and subsidiaries as of December 31, 1995 and 1994, and for the years
ended December 31, 1995, 1994 and 1993, which report is included in this Annual
Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Spokane, Washington
March 11, 1996
<PAGE> 1
Exhibit 23.2
Form 10-K December 31, 1995
Commission File No. 1-8491
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the registration 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 audit of the consolidated statements
of loss and deficit and changes in financial position of Equinox Resources Ltd.
for the year ended December 31, 1993, which report is included in this Annual
Report on Form 10-K.
/s/ Deloitte & Touche
CHARTERED ACCOUNTANTS
Vancouver, Canada
March 11, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 4,024
<SECURITIES> 0
<RECEIVABLES> 25,571
<ALLOWANCES> 0
<INVENTORY> 20,915
<CURRENT-ASSETS> 53,285
<PP&E> 383,466
<DEPRECIATION> (206,092)
<TOTAL-ASSETS> 258,190
<CURRENT-LIABILITIES> 25,965
<BONDS> 0
0
575
<COMMON> 12,079
<OTHER-SE> 151,462
<TOTAL-LIABILITY-AND-EQUITY> 258,190
<SALES> 155,879
<TOTAL-REVENUES> 163,968
<CGS> 125,810
<TOTAL-COSTS> 149,272
<OTHER-EXPENSES> 115,662
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 444
<INCOME-PRETAX> (101,410)
<INCOME-TAX> (309)
<INCOME-CONTINUING> (101,719)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (109,769)
<EPS-PRIMARY> (2.28)
<EPS-DILUTED> (2.28)
</TABLE>
