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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, 1997
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 83815-8788
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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: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes XX . No .
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the Registrant's voting Common Stock held by
non-affiliates was $330,567,834 as of February 27, 1998. There were 55,094,639
shares of the Registrant's Common Stock outstanding as of February 27, 1998.
Documents incorporated by reference herein:
To the extent herein specifically referenced in Part III, the information
contained in the Proxy Statement for the 1997 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 1997 fiscal
year is incorporated herein by reference. See Part III.
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PART I
ITEM 1. BUSINESS.(1)
GENERAL
Hecla Mining Company (the Company or Hecla), 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 1997, the Company's attributable gold and silver
production was approximately 174,000 ounces and 5,147,000 ounces,
respectively. The Company also shipped approximately 1,026,000
tons of industrial minerals products during 1997, including ball
clay, kaolin, feldspar, and specialty aggregates. Additionally,
the Company shipped approximately 891,000 cubic yards of
landscape material from its MWCA-Mountain West Products division
in 1997.
The principal executive offices of the Company are located at
6500 Mineral Drive, Coeur d'Alene, Idaho 83815-8788, telephone
(208) 769-4100.
STATEMENTS MADE WHICH ARE NOT HISTORICAL FACTS, SUCH AS
ANTICIPATED PRODUCTION, COSTS OR SALES PERFORMANCE ARE "FORWARD
LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, AND INVOLVE A NUMBER OF RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE PROJECTED OR IMPLIED. THESE RISKS AND
UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, METALS PRICE
VOLATILITY, VOLATILITY OF METALS PRODUCTION, INDUSTRIAL MINERALS
MARKET CONDITIONS AND PROJECT DEVELOPMENT RISKS. (SEE INVESTMENT
CONSIDERATIONS).
The Company's principal producing metals properties include the
La Choya gold mine, located in Sonora, Mexico, which began
operations in February 1994; the Lucky Friday silver mine,
located near Mullan, Idaho, which is a significant primary
producer of silver in North America; the Greens Creek silver
mine, located near Juneau, Alaska, a large polymetallic mine in
which the Company owns a 29.7% interest, where operations
recommenced in July 1996; and the Rosebud gold mine, located near
Winnemucca, Nevada, in which the Company owns a 50% interest, and
where operations began in March 1997. The Company also owns the
Grouse Creek mine, located near Challis, Idaho, a gold and silver
mine where operations commenced in December 1994, and which was
placed on
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1 For definitions of certain mining terms used in this
description, see "Glossary of Mining Terms" at the end of Item 1,
page 42.
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standby in the second quarter of 1997 (see Properties on Standby
- - Grouse Creek Gold Mine - Idaho). Effective January 31, 1997,
the Company's interest in the Grouse Creek mine increased to 100%
pursuant to a letter agreement between the Company and Great
Lakes Minerals Inc. (Great Lakes) terminating the Grouse Creek
joint venture and conveying Great Lakes' approximate 20% interest
in the Grouse Creek mine to Hecla. Great Lakes retained a 5%
defined net proceeds interest in the mine. As a result of this
agreement, the Company has assumed 100% of the interests and
obligations associated with the Grouse Creek property.
The following table presents certain information regarding the
Company's metal mining and development properties, including the
relative percentage each contributed to the Company's 1997
revenues:
Date Ownership Percentage of
Name of Property Acquired Interest 1997 Revenue(2)
- ---------------- -------- --------- ---------------
La Choya 1991 100.0% 17.8%
Greens Creek 1988 29.7% 12.8%
Rosebud(1) 1994 50.0% 9.4%
Lucky Friday 1958 100.0% 7.5%
Grouse Creek 1991 100.0% 6.3%
American Girl(1) 1994 47.0% 0.8%
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(1) The Company's interest in the American Girl mine and Rosebud
project were acquired in the March 11, 1994 acquisition of
Equinox Resources Ltd. In 1996, the Company entered into a
50/50 joint venture arrangement with Santa Fe Pacific Gold
Corporation (Santa Fe) to develop the Rosebud project. In
1997, Santa Fe was acquired by Newmont Gold Company
(Newmont).
(2) In addition to the percentage contributions of revenue from
the metal mines, the industrial minerals segment contributed
45.4% of the Company's revenue in 1997.
The Company's industrial minerals segment consists of Kentucky-
Tennessee Clay Company (ball clay and kaolin divisions); K-T
Feldspar Corporation; K-T Clay de Mexico, S.A. de C.V.; and MWCA,
Inc. MWCA, Inc. was formed in 1997 with the combination of two
of the Company's wholly owned subsidiaries: Colorado Aggregate
Company of New Mexico, and Mountain West Products Inc. MWCA
operates two divisions: the Colorado Aggregate division and the
Mountain West Products division. The Company's industrial
minerals segment is 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 ore reserves of ball
clay, kaolin and feldspar.
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The Company has experienced losses from operations for each of
the last seven years. For the year ended December 31, 1997, the
Company reported a net loss of approximately $0.5 million (before
preferred dividends of $8.1 million) or $0.01 per share of Common
Stock compared to a net loss of approximately $32.4 million
(before preferred stock dividends of $8.1 million) or $0.63 per
share of Common Stock for the year ended December 31, 1996. If
the Company's current estimates of the market prices of gold,
silver, lead and zinc are realized in 1998, the Company expects
to record income or (loss) in the range of $2.0 million income to
a $(3.0) million loss after the expected dividends to preferred
shareholders totaling approximately $8.1 million for the year
ending December 31, 1998. 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 1998 will be as projected (see
Investment Considerations).
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, exploration and
development efforts. During 1998, the continued development of
the Lucky Friday expansion project is a priority (see Metals
Segment - Lucky Friday Mine - Idaho).
The Company's domestic exploration plan consists primarily of
exploring for additional reserves in the vicinity of the Lucky
Friday mine, the Greens Creek mine, and the Rosebud mine. The
Company's foreign exploration plan for 1998 will focus on
exploration targets in Mexico and South America. At the same
time, the Company will continue to evaluate acquisition and other
exploration opportunities.
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 cannot be accurately predicted.
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Sales of metal concentrates and metal products are made
principally to custom smelters and metal traders. Industrial
minerals are sold principally to domestic, Mexican, and other
foreign manufacturers and wholesalers. The percentage of revenue
contributed by each class of product is reflected in the
following table:
Years
-------------------------
Product 1997 1996 1995
----------------- ---- ---- ----
Gold 34.9% 40.7% 42.3%
Silver, lead and zinc 19.7 10.7 10.4
Industrial minerals 38.4 40.0 37.1
All others(1) 7.0 8.6 10.2
(1) All others includes specialty metals and sales
from MWCA-Mountain West Products division exclusive of
scoria sales.
Reference is made to Note 1 of Notes to Consolidated Financial
Statements forming part of the Company's audited Consolidated
Financial Statements for the year ended December 31, 1997 (the
Notes to Consolidated Financial Statements) for information with
respect to export sales.
The table below summarizes the Company's production and average
cash operating cost, total cash cost, and total production cost
per ounce for gold and silver for each period indicated:
Years
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Products 1997 1996 1995
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Gold (ounces)(1) 174,164 169,376 169,777
Silver (ounces)(2) 5,147,009 3,024,911 2,242,309
Lead (tons) 24,995 22,660 16,967
Zinc (tons) 16,830 7,464 2,999
Average cost per ounce of gold produced:
Cash operating cost $ 166 $ 273 $ 286
Total cash cost $ 173 $ 276 $ 288
Total production cost $ 239 $ 364 $ 398
Average cost per ounce of silver produced:
Cash operating cost $ 3.58 $4.24 $4.57
Total cash cost $ 3.58 $4.24 $4.57
Total production cost $ 5.42 $5.47 $5.76
Industrial minerals
(tons shipped) 1,025,993 1,072,319 991,214
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(1) The increase in gold production from 1996 to 1997 is
principally due to increased gold production at the Rosebud
mine, where operations commenced in April 1997, of 46,974
ounces; and increased gold production from the Greens Creek
mine of 13,518 ounces due to the mine operating the entire
year after recommencing operations in July 1996. These
increases were partially offset by decreased gold production
at the Grouse Creek mine of 34,242 ounces due to the
suspension of operations in April 1997; decreased gold
production from the American Girl mine of 17,824 ounces due
to the suspension of operations in the fourth quarter of
1996; a 2,001 ounce decrease in gold production at the La
Choya mine, and other slight decreases at other operations.
The slight decrease in gold production from 1995 to 1996 is
principally due to decreased gold production from the Grouse
Creek mine where gold production decreased 5,487 ounces from
66,887 in 1995 to 61,400 ounces in 1996 principally due to
an approximate two-month suspension of operations in 1996;
and decreased gold production from the Republic mine where
operations were completed in February 1995 and from the
Cactus mine where heap rinsing was being completed. These
decreases in gold production were partially offset by an
increase of 8,027 ounces in gold production from the La
Choya mine, and 3,086 ounces of gold production at the
Greens Creek mine where operations recommenced in July 1996.
(2) Increased silver, lead, and zinc production from 1996 to
1997 is principally due to increased silver, lead and zinc
production from the Greens Creek mine due to a full year of
operations at Greens Creek in 1997 following the
recommencement of operations in July 1996. Increased
silver, lead and zinc production from 1995 to 1996 is
principally due to increased silver, lead and zinc
production from the Greens Creek mine where operations
recommenced in July 1996, as well as increased silver, lead
and zinc production from the Lucky Friday mine. Offsetting
the increase in silver production was a decrease in silver
production at the Grouse Creek mine due to an approximate
two-month suspension of operations in 1996 and lower silver
ore grades processed.
METALS SEGMENT
LA CHOYA GOLD MINE - SONORA, MEXICO
The La Choya gold mine is located 30 miles south of the U.S.
border in the State of Sonora, Mexico, and is 100% owned by the
Company through a Mexican subsidiary, Minera Hecla, S.A. de C.V.
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 72,000 ounces of gold in 1995, 80,000
ounces in 1996, and 78,000 ounces in 1997. The Company expects
to produce 25,000 to 30,000 ounces of gold in 1998. Proven and
Probable ore reserves at the La Choya gold mine are expected to
be substantially depleted by March 31, 1998, although recoveries
of metal through the leaching and rinsing process are expected to
continue in 1998 and 1999. The ore is mined via conventional
open pit methods at a stripping ratio of 2.4:1 (1.9:1 during
1997) 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.
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Uncrushed low-grade rock, grading down to 0.006 ounce of gold per
ton, is also dumped on the pad and leached. The gold in the leach
solution is processed in a carbon recovery plant to produce a
gold and silver dore, which is transported to the U.S. for
further refining. The average life of mine recovery of contained
gold ounces is estimated at approximately 88%.
The Company conducted exploration drilling programs between 1994
and 1996 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 ore reserve category. The 1995
program added approximately 18,000 ounces to the existing ore
reserve, and approximately 50,000 ounces of gold were added
during 1996. In 1997, approximately 21,000 ounces of gold were
added to the reserve as a result of mining more gold than was
estimated in the reserve. An exploration drilling program will
be conducted early in 1998 to evaluate the feasibility of pushing
back the south highwall of the open pit.
Information with respect to the La Choya gold mine production,
Proven and Probable ore reserves, and average cost per ounce of
gold produced as of the dates indicated are set forth in the
following table:
Years
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Production (100%) 1997 1996 1995
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Ore processed (tons) 2,828,335 3,571,047 4,031,274
Gold (ounces) 78,170 80,171 72,144
Proven and Probable
Ore Reserves(1)
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Total tons 632,844 3,005,231 3,538,042
Gold (oz. per ton) 0.018 0.024 0.028
Contained gold (oz.)(2) 46,545 115,418 136,121
Average Cost per Ounce
of Gold Produced
---------------------
Cash operating costs $ 183 $ 190 $ 194
Total cash costs $ 184 $ 190 $ 194
Total production costs $ 224 $ 305 $ 297
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(1) For Proven and Probable ore reserve assumptions,
including assumed metals prices, see Glossary of Certain
Mining Terms.
(2) Contained gold ounces include estimated recoverable
gold ounces on the heap leach pad totaling approximately
35,000, 44,000 and 36,000 gold ounces at December 31,
1997, 1996 and 1995, respectively. These ounces were
placed on the pad during 1994-1997 and are currently
estimated to be recovered over the mine's remaining life.
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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 1997 was approximately
$435,000.
As of December 31, 1997, there were 230 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 hourly employees. The current labor agreement
expires on September 7, 1998.
As of December 31, 1997, the La Choya mine property, plant and
equipment was fully depreciated. Electrical power is provided by
on-site diesel generators.
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 operating cost, total cash cost, and total production
cost per ounce of silver increased from $4.24, $4.24, and $5.47,
respectively, in 1996 to $5.47, $5.47, and $6.72, respectively,
in 1997. The increases were due principally to decreased by-
product prices, principally lead in the 1997 period. Gold, lead
and zinc are by-products of the ore mined at the Lucky Friday
mine, the revenues from which are deducted from production costs
in the calculation of the cost per ounce amounts (see Glossary of
Certain Mining Terms).
The principal ore-bearing structure at the Lucky Friday mine
through 1997 is the Lucky Friday Vein, a fissure vein typical of
many in the Coeur d'Alene Mining District. The orebody is
located in the Revett Formation which is known to provide
excellent host rocks for a number of orebodies 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
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sphalerite and chalcopyrite. The ore occurs as a single
continuous orebody in and along the Lucky Friday Vein. The major
part of the orebody has extended from the 1200-foot level to and
below the 5840-foot level, which is currently being developed.
The principal mining method is underhand cut and fill. 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.
The ore produced from the mine is processed in a 1,000-ton-per-
day conventional flotation mill. In 1997, ore was processed at a
rate of approximately 760 tons per day at the Lucky Friday mine
site. The flotation process produces both a silver-lead
concentrate and a zinc concentrate. During 1997, approximately
96.5% of the silver, 95.8% of the lead, and 29.4% of the zinc
were economically recovered.
The Lucky Friday mine/mill facility and surface and underground
equipment are in good working condition. The mill was originally
constructed approximately 36 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 approximately $37.3
million as of December 31, 1997.
Ultimate reclamation activities contemplated include
stabilization of tailings ponds and waste rock areas.
Reclamation expense recognized in 1997 was approximately $14,000.
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 consisted primarily of
driving an access drift from the 4900-foot level of the Lucky
Friday workings which intersected the Gold Hunter ore zone
approximately 850 feet below the presently developed area. The
new access drift includes approximately 7,000 feet of development
excavation. The access drift advanced 3,000 feet in 1995, and
exploratory drilling started in the second quarter of 1996. A
final feasibility study was completed in 1997, and the Company's
Board of Directors approved a $16.0 million development plan.
Initial production
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from the project was achieved in 1997, and full production is
expected to be achieved upon completion of the pre-production
phase in the second quarter of 1998.
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. As of December 31, 1997, unrecouped
costs totaled approximately $29.0 million.
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 development of the Gold Hunter property 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, 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 metal prices of $5.25 per ounce silver in
1998, $5.50 silver in 1999, $5.75 silver in 2000, and $6.00
silver thereafter; $0.30 per pound lead for all periods, and
$0.70 per pound zinc in 1998, $0.65 zinc in 1999, $0.60 zinc
thereafter. These prices were utilized as the Company's
management believes that they are reasonable estimates of 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 total production costs per ounce of silver
produced over the remaining life of mine would be approximately
$4.00 and $5.62, 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 Lucky Friday expansion project
which is expected to result in increased mill throughput and
increased silver grade.
During 1997, the Lucky Friday silver-lead concentrate product was
shipped primarily to the ASARCO smelter at East Helena, Montana.
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The silver, lead and gold contained in the concentrates are sold
to ASARCO. The Lucky Friday zinc concentrates are shipped to
Cominco's smelter in Trail, British Columbia, Canada, and are
sold under an agreement with Cominco Ltd. Commencing in 1998, a
significant amount of silver-lead concentrate will be shipped to
Met-Mex Penoles in Torreon, Mexico, in addition to concentrate
sold to ASARCO.
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
and Gold Hunter orebodies 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 lowest developed
levels.
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Information with respect to the Lucky Friday mine's production,
Proven and Probable ore reserves, and average cost per ounce of
silver produced for the past three years is set forth in the
table below:
Years
-----------------------------------------
Production (100%) 1997 1996 1995
- ------------------- --------- --------- ---------
Ore milled (tons) 193,399 188,272 158,874
Silver (ounces) 1,943,373 1,906,333 1,662,706
Gold (ounces) 853 947 830
Lead (tons) 19,270 20,971 16,967
Zinc (tons) 3,168 3,653 2,999
Proven and Probable
Ore Reserves(1)
- ------------------
Total tons 1,388,590 1,245,660(2) 468,590
Silver (ounces per ton) 14.8 14.9 11.7
Lead (percent) 10.2 11.3 11.6
Zinc (percent) 1.9 2.2 1.8
Contained silver (ounces) 20,532,121 18,512,024 5,488,729
Contained lead (tons) 141,470 140,608 54,459
Contained zinc (tons) 25,703 26,872 8,542
Average Cost per Ounce
of Silver Produced
- ---------------------
Cash operating costs $ 5.47 $ 4.24 $ 4.57
Total cash costs $ 5.47 $ 4.24 $ 4.57
Total production costs $ 6.72 $ 5.47 $ 5.76
- ------------------------------------
(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 200 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 only 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 ore reserve assumptions, including assumed metals
prices, see Glossary of Certain Mining Terms.
(2) The increase in the Proven and Probable ore reserves from
1995 to 1996 is principally due to the addition of 668,760
tons of proven and probable mineral, grading 16.7 silver
ounces per ton, 9.4% lead, and 1.8% zinc from the adjacent
Gold Hunter orebody. Additionally, geologic studies and
statistical analysis of a diamond drill hole exploration
program in 1996 permitted increased projection of probable
reserves compared to the previous practice on the Lucky
Friday vein.
At December 31, 1997, there were 186 employees at the Lucky
Friday mine. The United Steelworkers of America is the
bargaining agent for the Lucky Friday hourly employees. The
current labor agreement expires on June 12, 1999. Washington
Water Power Company supplies electrical power to the Lucky Friday
mine.
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GREENS CREEK MINE - ADMIRALTY ISLAND, ALASKA
At December 31, 1997, 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 and a wholly owned
subsidiary of Kennecott Corporation. The Greens Creek mine 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, camp facilities 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 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.
Included in the reopening project were development of the
Southwest ore zone, purchase of new mine mobile equipment,
upgrading of ancillary facilities, improvement of environmental
control systems and modification of the process plant. The
reopening project was completed ahead of schedule, production
began in July 1996 and full production levels were achieved in
January 1997.
Environmental permitting during the reopening project included
obtaining regulatory agency approval of the updated General Plan
of Operations and Large Mine Permit. The approvals included
revisions to appendices regarding fresh water monitoring,
tailings site operation and maintenance, development rock
management and water systems operation. Other actions included
Forest Service approval to house production workers in a man-camp
at Hawk Inlet, and State of Alaska legislative changes allowing
extended working shifts for miners. State of Alaska permitting
action included renewal of the Air Quality Permit by the Alaska
Department of Environmental Control. Permits that were in-
progress at the end of 1997 included the Alaska Department of
Environmental Control
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<PAGE> 14
solid waste permit for tailings disposal and renewal of the mine
waste-water discharge permit. As part of a settlement for civil
penalties associated with past discharges, Greens Creek is under
an Administrative Consent Decree with the EPA.
Current operating plans include mining 1,320 tons per day
underground from the Southwest ore zone. Ore from the
underground trackless mine is milled at the mine site. The mill
produces gold/silver dore; and lead, zinc and bulk concentrates.
The dore is marketed to a precious metal refiner and the three
concentrate products are predominantly sold to a number of major
smelters worldwide. A lesser amount of the concentrates is sold
to metal merchants under short-term agreements. Concentrates are
shipped from a marine terminal located about nine miles from the
mine site. The Greens Creek mine uses electrical power provided
by diesel-powered generators located on-site.
Improvements to the mill included modifications designed to allow
increased throughput and to recover higher grades of zinc from
the Southwest and West ore zones. Additionally, the reopening
project included recommissioning and deferred maintenance of all
process equipment. Ancillary project work included an expansion
of the tailings disposal facility, upgrade of the power
generating capacity, and purchase of surface equipment which
enabled the mine to replace contractors with mine employees. A
camp facility is used to house some of the production work force
at the mine site with the majority of the employees commuting
from Juneau on a daily basis. The capital investment in
ancillary facilities will allow the mine to increase efficiency
as well as metal production. Mine and mill performance tests
established that the new capacity exceeds design throughput of
1,320 tons per day.
Recent environmental projects were 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 stringent environmental
standards as well as reducing the possibility of water
contamination.
A land exchange agreement was approved by Congress and signed
into law by President Clinton on April 1, 1996. Subject to the
joint venture securing private property equal to a value of $1.0
million and transferring title to the USDA Forest Service, Greens
Creek will gain access to approximately 7,500 acres of land with
potential mining resources surrounding the existing mine.
Production from new ore discoveries on the exchange lands will be
subject to federal royalties.
1997 exploration efforts at Greens Creek uncovered an extension
to the Southwest ore zone. Preliminary results indicate it could
be an important addition to the mine's Proven and Probable ore
reserves. Definition drilling on the extension is planned for
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<PAGE> 15
1998, with a goal of bringing this resource into the Proven and
Probable reserve category by the end of 1998.
As of December 31, 1997, there were 249 employees at the Greens
Creek mine. The employees at the Greens Creek mine are not
represented by a bargaining agent. At December 31, 1997, the
Company's interest in the net book value of the Greens Creek mine
property and its associated plant and equipment was $73.8
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 metal prices of $325 per ounce of
gold in 1998, $375 gold in 1999, and $390 gold thereafter; $5.25
per ounce silver in 1998, $5.50 silver in 1999, $5.75 silver in
2000, and $6.00 silver thereafter; $0.30 per pound lead for all
periods, and $0.70 per pound zinc in 1998, $0.65 zinc in 1999,
$0.60 zinc thereafter. 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, process recoveries and smelter terms
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 total production costs per ounce
of silver produced over the remaining life of the mine would be
$1.52 and $4.07, 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.
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<PAGE> 16
The estimated ore 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 by the Company, but the reserve compilation is not
independently confirmed by the Company in its entirety.
Information with respect to the Company's 29.7% share of
production, Proven and Probable ore reserves, and average cost
per ounce of silver produced is set forth in the table below:
Years
--------------------------------------
Production 1997 1996(1) 1995
---------- ---------- ---------- ----------
Ore milled (tons) 145,676 42,737 - -
Silver (ounces) 2,889,265 827,799 - -
Gold (ounces) 16,604 3,086 - -
Zinc (tons) 13,662 3,811 - -
Lead (tons) 5,725 1,689 - -
Proven and Probable
Ore Reserves(2,3,5)
-------------------
Total tons 2,494,085 2,642,000 2,585,000
Silver (ounces per ton) 18.6 19.5 19.2
Gold (ounces per ton) 0.15 0.15 0.16
Zinc (percent) 12.7 12.6 13.1
Lead (percent) 4.5 4.6 4.7
Contained gold (ounces) 369,173 398,046 415,696
Contained silver (ounces) 46,467,846 51,587,608 49,759,167
Contained zinc (tons) 317,497 333,849 338,042
Contained lead (tons) 112,234 120,096 122,696
Average Cost per
Ounce of Silver Produced
------------------------
Cash operating costs(4) $ 2.31 - - - -
Total cash costs(4) $ 2.31 - - - -
Total production costs(4) $ 4.55 - - - -
- -------------------------------
(1) Operations were suspended in April 1993 and restarted in
July 1996.
(2) For Proven and Probable ore reserve assumptions and
definitions, see Glossary of Certain Mining Terms.
(3) Ore reserves represent in-place material, diluted and
adjusted for expected mining recovery. Process plant
recoveries of ore reserve grades are expected to be 76% for
silver, 70% for gold, 89% for zinc and 85% for lead.
Payable recoveries of ore reserve grades by smelters and
refiners are expected to be 66% for silver, 56% for gold,
69% for zinc and 67% for lead.
(4) The Greens Creek mine recommenced operations in July 1996,
on a start-up basis; as such no cost per ounce amounts are
reported for 1996.
(5) The decrease in contained silver in 1997 versus 1996 is a
result of production from the Southwest ore zone yielding
lower precious metal
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<PAGE> 17
grades than expected. Therefore, contained silver decreased
more than 1997 silver production.
ROSEBUD GOLD MINE - NEVADA
The Rosebud gold mine, in which the Company has a 50% interest,
is located in the Rosebud Mining District, in Pershing County,
Nevada, and was acquired by the Company through the merger with
Equinox Resources Ltd. (Equinox). The Rosebud property consists
of the Rosebud claims and the Degerstrom claims. The Rosebud
claims consist of a 100% interest in three patented lode mining
claims, 760 unpatented lode mining claims, and four additional
patented lode mining claims currently under lease. The
Degerstrom claims consist of a 52% interest in 48 lode mining
claims held under a joint venture agreement with N.A. Degerstrom
Inc. The total 815 claims cover approximately 16,840 acres and
collectively comprise the "Rosebud Mine." Patent application has
been made on the 13 claims that contain all of the Proven and
Probable ore reserves. The Rosebud mine may be reached from
Winnemucca, Nevada, by travelling west a distance of
approximately 58 miles on an all weather gravel road. At
December 31, 1997, the Company's interest in the net book value
of property, plant, and equipment at the Rosebud mine totaled
$17.9 million.
On September 6, 1996, the Company and Santa Fe Pacific entered
into a 50/50 joint venture agreement to develop the Rosebud Mine.
Pursuant to the agreement, a limited liability corporation (The
Rosebud Mining Company, L.L.C.) was established to develop the
Rosebud gold property with each party owning a 50% interest. In
May 1997, Santa Fe was merged into Newmont Gold Company thus
becoming the successor in interest to Santa Fe's ownership of the
Rosebud Mining Company, L.L.C. Under the terms of the agreement,
the Company manages the mining activities and ore is hauled via
truck approximately 110 miles to Newmont's Twin Creeks Pinon mill
for processing. In early 1998, Newmont announced that operations
at the Pinon mill would be suspended in 1998 and that ore from
the Rosebud mine would be processed at Newmont's Juniper mill,
which is located in close proximity to the Pinon mill. The
Company, based on available information, does not believe the
anticipated change in ore processing will have a significant
impact on operating costs or mill recoveries.
Mine site construction began during September 1996 and was
completed during March 1997, two months ahead of schedule.
Capital expenditures to bring the mine into production totaled
$18.7 million, $6.3 million (25%) less than budget. Newmont
funded the first $12.5 million of mine-site development and was
also responsible, under the terms of the agreement, to fund costs
of road and mill facility improvements which were completed
during 1997. Newmont also contributed to the joint venture
exploration property located near the Rosebud property, and has
funded the
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<PAGE> 18
first $1.0 million in exploration expenditures, and two-thirds of
all exploration expenditures beyond the initial $1.0 million.
Construction and development activities included development of a
second portal to the mine, 5,500 feet of underground drifting, a
640 foot ventilation shaft, a six-mile power line, an eight-mile
access road, and surface plant facilities necessary to support
the underground operation.
In 1993, Equinox sold for $2.5 million a 2.5% net smelter return
royalty and an option to purchase an additional 1.5% net smelter
return royalty on the property to Euro-Nevada Mining Corporation
Inc. (Euro-Nevada). The option for the additional 1.5% royalty
was exercised, by Euro-Nevada, in the fourth quarter of 1996.
The proceeds of $2.5 million were retained by Hecla under the
terms of the agreement with Newmont.
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 Rosebud claims. Further delineation drilling
during 1994 resulted in identifying two distinct mineralized
zones, 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 Rosebud claims. Mineralization is 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.
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 west of the East Zone.
In 1992, an additional 35,000 feet of drilling in 56 holes was
completed on the Rosebud Mine. 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, underground
work included completion of 3,600 feet of drifting, 25,000 feet
of
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<PAGE> 19
underground diamond drilling, and 30,000 feet of surface diamond
drilling designed to further delineate the orebody.
Engineering and final design work was completed during 1994 and
1995 culminating in the preparation of a feasibility study.
Permit related work, which began during 1994, was completed
during 1996.
Following completion of construction and mine development
activities, the mine commenced operations in March of 1997. The
Company's share of production in 1997 was approximately 47,000
gold ounces and 169,000 silver ounces.
Mine production during 1997 averaged in excess of 750 tons per
day of ore. Feed grades to the mill were as expected during the
first year of production, 0.494 gold ounces per ton and 2.96
silver ounces per ton. The ore produced from the mine is
processed in a conventional carbon in leach circuit. The mill
produces a high quality gold-silver dore. During 1997, 95.9% of
the gold and 57.5% of the silver processed at the mill were
economically recovered.
The cash operating cost, total cash cost, and total production
cost per ounce of gold during the first year of operation were
$137, $156, and $263, respectively. Mine production and mine
site general and administrative costs as well as capitalized
construction costs were all significantly lower than anticipated
during the year.
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<PAGE> 20
The following table presents the production, Proven and Probable
ore reserves, and average cost per ounce of gold produced for the
Rosebud mine as of the dates indicated:
Years
---------------------------------------
Production (50%) 1997 1996 1995
- ---------------- --------- --------- ---------
Ore milled 99,050 - - - -
Gold Recovered (ounces) 46,974 - - - -
Silver Recovered (ounces) 168,584 - - - -
Proven and Probable
Ore Reserves (1,2,3,4)
- ----------------------
Total tons 471,521 638,317 1,189,000
Gold (ounce per ton) 0.420 0.392 0.452
Contained gold (ounces) 197,817 249,942 538,000
Silver (ounces per ton) 2.92 2.70 2.75
Contained silver (ounces) 1,378,201 1,713,945 3,275,000
Average Cost per Ounce
of Gold Produced
- ----------------------
Cash operating costs $ 137 - - - -
Total cash costs $ 156 - - - -
Total production costs $ 263 - - - -
(1) Proven and Probable ore reserves in 1996 and 1997 reflect
only the Company's share (50%) pursuant to the September 6, 1996
sale of a 50% interest in its Rosebud property. If the Company
had only a 50% interest in 1995, the Company's share of contained
gold and silver ounces would have been 269,000 and 1,637,500
respectively.
(2) For Proven and Probable ore reserve assumptions, including
assumed metals prices, see Glossary of Certain Mining Terms.
(3) The decrease in the tons of Proven and Probable ore reserves
in 1997 compared to 1996 is attributable to production during
1997 and a decrease in dilution in the South Zone from 27.6% at a
gold grade of 0.074 oz./ton and a silver grade of 0.75 oz./ton to
13.8% at a gold grade of 0.77 oz./ton and a silver grade of 1.06
oz./ton. This reduction in dilution for the South Zone is based
on actual dilution figures from production during 1997 and
represents the subtraction of 40,800 tons (50%) grading 0.077 oz
Au/ton, 1.06 oz./ton from the 1996 reserve.
(4) The decrease in tons of Proven and Probable ore reserves and
decreased contained gold in 1996 compared to 1995, is principally
attributable to the sale of a 50% interest in the property.
Additionally, a decrease in the specific gravity used for
calculating tonnage, revised geologic and statistical
interpretation based on in-fill drilling in the South Zone of the
deposit, increased dilution tonnage, and a decrease in the
dilution grade resulted in an increase in tons of Proven and
Probable ore reserves, and a decrease in gold ore grade and
contained gold ounces.
As of December 31, 1997, there were 100 employees at the Rosebud
mine. The employees at the mine are not represented by a
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<PAGE> 21
bargaining agent. The Rosebud mine uses power provided by Sierra
Pacific Power.
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 four 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; and (4) MWCA,
which operates the lawn and garden products business and the
Company's specialty aggregate business.
K-T CLAY BALL CLAY DIVISION
K-T Clay is the largest supplier of premium ball clay to North
America, and second worldwide. Ball clay is of sedimentary
origin and consists of several basic clay minerals along with a
slight amount of organic content, a combination of materials that
gives ball clay its unique character. The principal use of ball
clay is in the ceramic and porcelain fields, which includes use
for such items as pottery, dinnerware, tile, electrical
insulators and sanitaryware. Ball clay is also used in
refractories and abrasives and has applications in other
specialty industries as well.
Mining of ball clay is accomplished through strip mining methods.
The mining activity requires definition drilling and the removal
of overburden in order to expose the clay strata to be mined.
Mining activity is selective based on clay grade and strata
control. The clays are mined with loaders and backhoes, loaded
into trucks and hauled to one of K-T Clay's plants for
processing. Processing of ball clay consists of shredding and
classification of clay by various grades, hammer or roller
milling to reduce particle size, drying and packaging. The
grades can be shipped in bulk or blended and bagged in order to
meet a particular customer's requirements. A particular clay or
blend of several clays can also be shipped to customers in a
water 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
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<PAGE> 22
Clay, through many years of experience and ongoing research
performed in its laboratories, possesses the expertise and vast
reserves of various types of ball clays 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 and Nashville, Tennessee. 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
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 182 people employed by K-T Clay at its ball clay
operations as of December 31, 1997. Some of the hourly employees
are represented by the United Steelworkers of America. The
employment of these employees is subject to a four-year labor
agreement which expires on February 8, 2000. The net book value
of the K-T ball clay division properties, plants and equipment
was $7.9 million at December 31, 1997.
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
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Mexican ceramics industry. Prior to construction, semi-dried
clay was shipped to Mexico. The plant was built to provide
Mexican customers with a high-quality clay slurry product, at an
economical price and to permit K-T to be the vendor of choice in
Mexico. Reducing freight costs, a bulk air-floated 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. K-T Mexico also uses its Monterrey facilities to
blend complete prepared ceramic bodies for its sanitaryware
customers. The complete bodies, which are supplied ready to use,
utilize K-T's slurry and local ingredients purchased in the
domestic market.
At December 31, 1997, the net book value of K-T Mexico's property
and associated plant and equipment was $3.0 million. K-T Mexico
utilizes electrical power from the local public utility. There
were 22 people employed by K-T Mexico as of December 31, 1997,
represented by the Industrial Labor Union of Nuevo Leon. The
labor agreement is renegotiated every three years. The present
labor agreement expires November 30, 1998.
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 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 declines in the
Mexican peso, or accelerated levels of inflation in Mexico,
could, however, 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, rubber and paper filler, and miscellaneous plastics,
adhesives and
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<PAGE> 24
pigment applications. Kaolin is a unique industrial mineral
because of its wide range of chemical and physical properties.
The K-T Clay kaolin division 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.
Kaolin is mined 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 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 121 people employed by K-T Clay at its kaolin division
as of December 31, 1997, 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
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<PAGE> 25
current labor contract at the Sandersville, Georgia operation
expires on March 1, 1999.
Both the ball clay and kaolin divisions of K-T Clay's plants and
equipment have been operational in excess of 29 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 kaolin division property and
its associated plant and equipment was $14.6 million as of
December 31, 1997. 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 and silica in some market
segments and substitution between minerals is linked to
economics, physical-chemical characteristics and supplier
reliability. The marketing of feldspar to the ceramics and
filler industries is carried out by K-T Clay's sales force and
through sales and distribution agents.
Feldspar ore is mined by open-pit methods using a 40-foot bench
mining plan. Ore is drilled and blasted, loaded by hydraulic
shovel or front-end loader into off-highway dump trucks and
transported to the processing plant. K-T Feldspar operates
several mine locations in the Spruce Pine, North Carolina area,
all serving the centrally located processing plant. Processing
of the feldspar ores consists of crushing, grinding, density
separation via flotation, drying and high intensity magnetic
separation.
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<PAGE> 26
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 29 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 $4.6 million
as of December 31, 1997. Carolina Power & Light Company, a
regulated public utility, provides the electric power utilized
for operations at K-T Feldspar.
There were 48 employees employed by K-T Feldspar as of
December 31, 1997; none of whom are represented by a bargaining
agent.
MWCA, INC. - MOUNTAIN WEST PRODUCTS DIVISION
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. In 1997, Mountain West Products, Inc. and Colorado
Aggregate Company of New Mexico, both wholly owned subsidiaries
of the Company, were combined into MWCA. MWCA-Mountain West
Products division's primary business is the purchasing,
processing and marketing of certain wood by-products from lumber
milling operations in the western intermountain region. These
products are sold as organic soil amendments, organic landscape
mulches and organic decorative landscape ground cover.
The wood by-products are purchased by MWCA and transported by
truck for processing at its plants. The processing plants are
owned by MWCA and the sources of wood by-product supply are held
under contracts. The lumber mills, which supply the wood by-
products, are not owned by MWCA. MWCA's plants are located near
the current sources of the raw materials to reduce transportation
costs. The principal customers are lawn and garden retail
outlets, lawn and garden product distributors and discount retail
chain stores.
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 16 years at Rexburg, nine years
at Superior, nine years at Kamiah, and seven years at Piedmont.
In
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late 1996, the equipment and processing capacity of the Osburn
plant was consolidated with the Superior plant due to close
proximity of plants and operating efficiencies. All plants are
maintained and upgraded continually and are in good working
order. The net book value of the associated plant and equipment
was approximately $5.7 million as of December 31, 1997.
Utah Power and Light, Montana Power Company, Idaho County Light,
and Black Hills Power, provide electrical power utilized by the
operations at Rexburg, Superior, Kamiah, and Piedmont,
respectively.
Mountain West had 111 employees as of December 31, 1997; none of
whom are represented by a bargaining agent.
MWCA, INC. - COLORADO AGGREGATE DIVISION
MWCA-Colorado Aggregate division (CAC) mines and sells volcanic
rock (scoria) for use as briquettes in gas barbecue grills, as
decorative ground cover, and paints gravel bedding which is used
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, and Neosho, Missouri. 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 seven years of mineral
reserves at the Mesita, Colorado, location and has developed in
excess of nine years of mineral reserves at the Red Hill mine, in
northern New Mexico, which is under lease from the Bureau of Land
Management. CAC purchases the rock used for aquarium gravel.
CAC's plants and equipment have been operational in excess of 23
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 $3.7 million as of
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<PAGE> 28
December 31, 1997. Public Service Company of Colorado, San Luis
Valley Rural Electric Cooperative, and Empire District Electric
Company provide the electric power utilized for operations at
CAC.
CAC had 86 employees as of December 31, 1997. During December
1997, the hourly employees of CAC voted in favor of being
represented by the Teamsters Union. A definitive labor agreement
is expected to be negotiated during the early part of 1998.
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, 1997, are
described below.
REPUBLIC MINE - REPUBLIC, WASHINGTON
The Company owns the Republic mine located in the Republic Mining
District near Republic, Washington. In February 1995, the
Company completed operations at the Republic mine and has
commenced 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. In August 1995, the
Company entered into an agreement with Newmont to explore and
develop the Golden Eagle deposit on the Republic mine property.
Newmont conducted extensive exploration on the property and in
the third quarter of 1996 entered into a joint venture agreement
concerning the property. Newmont paid Hecla $2.5 million for an
immediate 75% interest in the joint venture. Newmont is required
to fund all expenditures necessary at the Golden Eagle through
the feasibility stage.
At December 31, 1997, the accrued reclamation and closure costs
totaled $5.0 million. Reclamation and closure efforts commenced
in 1995. Reclamation and closure costs expenditures totaling
approximately $1.2 million during 1997 were charged against the
previously established reclamation and closure cost accrual.
These expenditures related to closing abandoned mine openings,
and placing rockfill in the tailings pond, which is in the
process of being closed. Also during 1997, the mill was sold and
is being removed. Additionaly during 1997, the reclamation
balance was reduced by $0.2 million to reflect current estimates
of remaining work to be performed.
The remaining net book value of the Republic mine property and
its associated plant and equipment was approximately $0.6 million
as of December 31, 1997.
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There were four people employed by the Company at the Republic
mine at December 31, 1997. Employees at Republic are not
represented by a bargaining agent.
GROUSE CREEK GOLD MINE - IDAHO
The Grouse Creek mine is located in central Idaho, 27 miles
southwest of the town of Challis in the Yankee Fork Mining
District. Mineral rights comprising the mine cover 9.1 square
miles, and consist 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.
The remainder of the mineral rights in the Yankee Fork Mining
District consist of 260 unpatented claims. The mine consists of
two distinct ore deposits: the Sunbeam deposit and the Grouse
deposit.
In 1994, the Company sold to Great Lakes a 20% undivided interest
in the mine. Pursuant to the acquisition and joint venture
agreements, Great Lakes was required to fund its 20% pro-rata
portion of all capital and operating costs.
Mining in the Sunbeam pit began in late 1994, and operations in
1994 and 1995 experienced higher than expected operating costs
and less than expected operating margins resulting from higher
than expected start up costs and lower than expected ore grade.
Mining indicated that mill grade ore occurred in thinner, less
continuous structures than had been originally interpreted. The
Company thus recorded a write-down of the carrying value totaling
$97.0 million in 1995 to properly reflect the net realizable
value of its interest in the Grouse Creek joint venture.
In 1996, the Company completed metallurgical testing and economic
analysis of the Grouse deposit. Based upon this analysis, the
Company determined that ore contained in the Grouse deposit was
not economical at the then current metals prices, and the Company
determined to suspend operations at the Grouse Creek mine
following completion of mining of the remaining ore in the
Sunbeam pit. In connection with this decision, the Company
recorded 1996 adjustments for future severance, holding,
reclamation, and closure costs totaling $22.5 million, and
adjustments to the carrying value of property, plant, and
equipment, and inventories totaling $5.3 million.
In January 1997, Great Lakes and the Company entered into a
letter agreement terminating the Grouse Creek joint venture and
conveying Great Lakes' approximate 20% interest in the project to
the Company. Great Lakes retained a 5% defined net proceeds
interest in the project. The Company assumed 100% of the
interests and obligations associated with the property.
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<PAGE> 30
Following completion of mining in the Sunbeam pit in April 1997,
the Company placed the Grouse Creek mine on a care-and-
maintenance status. Under U.S. Forest Service agreements, the
care-and-maintenance period for the property can only extend to
June 2000. On or before that date, either operations must
recommence or the site must initiate final reclamation. During
1997, the mine produced 27,158 ounces of gold and 134,797 ounces
of silver.
The approved mining and reclamation plans for the facility will
remain in effect during the suspension period. During the period
that the property is on a care-and-maintenance basis, reclamation
activities will be undertaken as necessary to prevent degradation
of the property. During 1997, the milling facilities were
mothballed, and the following reclamation activities were
completed: the Sunbeam open pit was regraded and an interim cap
of compacted waste rock was placed on the floor; the waste rock
storage facility was regraded to comply with the requirements in
the permits for permanent reclamation and an interim cap of
compacted waste rock was placed over the entire surface; the
underground adits were sealed and the surface facilities for the
underground mine were removed, then the site was regraded to
comply with the requirements in the permits for permanent
reclamation; and approximately 30 acres of exploration roads and
other disturbed areas were regraded, seeded and trees and shrubs
planted for final reclamation. Ultimately, at the completion of
mining, the milling facilities will be removed and the
foundations buried. Concurrent reclamation practices will be
employed whenever possible. The original reclamation plan
concepts have been approved by the appropriate state and federal
agencies, and as new technology and new reclamation practices
evolve, they will be evaluated and, when applicable, proposed to
the appropriate agencies for approval. During 1997, the Company
increased the accrual for reclamation and closure costs by
approximately $1.7 million to reflect current estimates of
remaining reclamation and closure costs. As of December 31,
1997, the Company's accrual for remaining reclamation and closure
costs at the site totals $18.0 million.
As of December 31, 1997, there were 19 employees at the Grouse
Creek mine. The employees are not represented by a bargaining
agent.
AMERICAN GIRL MINE - CALIFORNIA
The Company acquired the American Girl gold mine in March 1994 as
part of the Equinox acquisition. The mine property is located in
Imperial County, California. The property includes three mining
areas: the Padre-Madre area, the American Girl area, and the Oro
Cruz area where production commenced in late 1995.
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<PAGE> 31
The mine is managed by MK Gold Company, the Company's joint
venture partner. The Company has a 47% interest in the mine with
MK Gold having the remaining 53% interest. MK Gold receives a
monthly management fee of 2% of certain specified costs of the
joint venture. Certain matters regarding the joint venture
require the approval of the joint venture management committee
which consists of two representatives of the Company and two
representatives of MK Gold.
MK Gold announced plans for suspension of American Girl mine
operations on September 5, 1996. The joint venture completed a
thorough evaluation of shutdown and alternative operating
strategies for the operation and determined no practical mining
and processing methods could be developed which would justify
continued operations. The remaining Oro Cruz underground
reserves were not economical due to high development costs and
the remaining surface reserves were not economical at current
metals prices due to higher mining costs and stripping ratio than
originally expected. As part of the suspension plan, the joint
venture agreed to a modified program and budget for the remainder
of 1996 which called for suspension of surface and underground
mining in mid-September 1996. Crushing and milling operations
ceased in mid-October 1996.
Reclamation activities began in September 1996 and full mine
reclamation is expected to be completed by early 1999.
Reclamation activity includes limited backfilling of mine pits,
recontouring and revegetating pits and heap leach pads. Final
reclamation will include removal of buildings and closure of
underground mine openings. During 1997, the Company decreased
the accrual for reclamation and closure costs by approximately
$1.5 million to reflect current estimates of remaining
reclamation and closure costs. The reclamation accrual at
December 31, 1997, totaled $1.9 million.
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.
During production through October 1996, ore was processed by
leaching and conventional milling facilities owned by the joint
venture. Electric power is generated on-site by equipment owned
by the joint venture. The full-time employment at the site as of
December 31, 1997 was 14. Employees are not represented by a
bargaining unit.
CACTUS MINE - CALIFORNIA
The Cactus mine consists of approximately 1,300 acres of
leasehold lands, mining claims and millsites, and fee property,
located
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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.
Rinsing of the heap was completed in 1995, followed by drain-down
and verification sampling in 1996. Reclamation of the Middle
Buttes heap was completed in 1997. 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
was obtained during 1997 as the Shumake heap rinsing activity was
completed. Reclamation of the Shumake heap is presently scheduled
for 1998. An additional reclamation and closure expense of
$824,000 was recognized in 1997. At December 31, 1997, the
accrual for estimated remaining reclamation and closure costs
totals $1.2 million.
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, 1997,
there were six 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 Dakota Mining Corporation (Dakota). 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.
YELLOW PINE MINE - 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
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<PAGE> 33
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, 1997, was approximately
$0.1 million.
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, (3) advanced-stage
exploration acquisition opportunities, and (4) grass-roots
exploration opportunities. The Company is currently
concentrating its exploration activities at the Lucky Friday and
Greens Creek silver mines, the Rosebud gold mine, in which the
Company maintains a 50% interest, the La Choya mine, and other
properties in Mexico and South America. 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,
1997, 1996 and 1995 were approximately $7.4 million, $4.8 million
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<PAGE> 34
and $7.1 million, respectively. Exploration expenditures for
1998 are estimated to be approximately $3.9 million.
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 36 months without approval of the Company's Board
of Directors and will be spread among a number of available
customers. At December 31, 1997, the Company had 10% of 1998
budgeted gold production and 27% of 1998 budgeted silver
production hedged utilizing forward sales contracts. The
Company's policy with respect to lead and zinc hedging permits
management to hedge 30% of estimated annual production of lead
and zinc for periods not to exceed 12 months. There were no
hedging contracts for lead or zinc outstanding at December 31,
1997. None of the aforementioned activities have been entered
into for speculative purposes at December 31, 1997. For further
discussion regarding hedging activities, see Notes 1 and 2 of
Notes to Consolidated Financial Statements and Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations in this Form 10-K.
INDUSTRY SEGMENTS
Financial information with respect to industry segments is set
forth in Note 9 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 privately 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
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<PAGE> 35
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, Wilkinson Clay, and
Dixie Clay. The 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.
The Company 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.
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 generally takes such necessary actions as,
in its judgment, are required to provide for the safety and
health of its employees. MSHA directives have had no material
adverse impact on the Company's results of operations or
financial condition, and the Company believes that it is
substantially in compliance with the regulations promulgated by
MSHA.
All of the Company's exploration, development, and production
activities in the United States, Mexico, South America, 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
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<PAGE> 36
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
available to the Company was significantly reduced because of
environmental requirements, it is possible that the Company's
silver operations could be adversely affected.
The Company is also subject to regulations under the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, (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.
Revisions to CERCLA and ESA are being considered by Congress; the
impact on the Company of these revisions is not clear at this
time.
LEGISLATION
During the past four 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 one-year moratorium on
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<PAGE> 37
processing of new patent applications was approved. In addition,
legislation to further amend the General Mining Law that was
introduced in the U.S. Congress during 1996 and debated again in
1997 with limited progress. The 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.
EMPLOYEES
As of December 31, 1997, the Company and its subsidiaries
employed 1,202 people.
INVESTMENT CONSIDERATIONS
THE FOLLOWING INVESTMENT CONSIDERATIONS, TOGETHER WITH OTHER
INFORMATION SET FORTH IN THIS FORM 10-K, SHOULD BE CAREFULLY
CONSIDERED BY CURRENT AND FUTURE INVESTORS IN THE COMPANY'S
SECURITIES.
RECURRING LOSSES
The Company has experienced losses from operations for each of
the last seven years. For the year ended December 31, 1997, the
Company reported a net loss of approximately $0.5 million (before
preferred dividends of $8.1 million) or $0.01 per share of Common
Stock compared to a net loss of approximately $32.4 million
(before preferred stock dividends of $8.1 million) or $0.63 per
share of Common Stock for the year ended December 31, 1996. The
1997 decreased net loss was due to various factors, the most
significant of which were 1996 adjustments totaling $35.7 million
for severance, holding, reclamation, closure costs, and carrying
value adjustments for property, plant and equipment and certain
assets at the Grouse Creek and American Girl mines. If the
Company's estimates of the market prices of gold, silver, lead
and zinc are realized in 1998, the Company expects to record
income or (loss) in the range of $2.0 million income to a $(3.0)
million loss, after expected dividends to preferred shareholders
totaling approximately $8.1 million for the year ending
December 31, 1998. 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 1998 will be as projected.
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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 regions. 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 additional 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 daily closing prices
of the following metals for 1980, 1985, 1990, 1993, and each year
thereafter through 1997.
<TABLE>
<CAPTION>
1980 1985 1990 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gold(1)
(per oz.) $ 612.56 $ 317.26 $ 383.46 $ 359.77 $ 384.01 $ 384.16 $ 387.70 $ 331.10
Silver(2)
(per oz.) 20.63 6.14 4.82 4.30 5.28 5.19 5.18 4.90
Lead(3)
(per lb.) 0.41 0.18 0.37 0.18 0.25 0.29 0.35 0.28
Zinc(4)
(per lb.) 0.34 0.36 0.69 0.44 0.45 0.47 0.46 0.60
- ----------------------------
(1)London Final.
(2)Handy & Harman.
(3)London Metals Exchange -- Cash.
(4)London Metals Exchange -- Special High Grade -- Cash.
</TABLE>
On February 27, 1998, the closing prices for gold, silver, lead,
and zinc were $297.40 per ounce, $6.30 per ounce, $0.25 per
pound, and $0.47 per pound, respectively.
VOLATILITY OF METALS PRODUCTION
The Company's future gold production will be dependent upon the
Company's success in developing new reserves, as well as
exploration efforts (see Project Development Risks and
Exploration). The Company's future silver production will be
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<PAGE> 39
dependent upon the Company's success in developing new reserves,
including the continued development of the Lucky Friday expansion
project. 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 Development 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 Project is the Lucky Friday
expansion project (formerly referred to as the Gold Hunter
project) located adjacent to the Company's Lucky Friday mine.
The Company estimates remaining development and construction
costs at December 31, 1997, of $6.3 million to $6.8 million for
the Lucky Friday expansion project. The Company's estimated
capital expenditures are based upon currently available data and
could increase or decrease depending upon a number of factors.
Should the Company incur project development and construction
costs as estimated, the Company anticipates that it will fund its
currently estimated capital requirements for 1998 with operating
cash flow and borrowings under its credit facility.
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<PAGE> 40
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
orebodies 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 ore 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 ore 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 ore reserve assumptions, including assumed metal prices,
see Glossary of Certain Mining Terms.
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 DEVELOPMENT AND OPERATING ARRANGEMENTS
The Greens Creek mine is operated through a joint venture. The
Company owns an undivided interest in the assets of the ventures.
The Company's Rosebud mine is operated through a Limited
Liability Company (LLC) with the Company holding 50% of the
interest in the LLC. The LLC arrangement operates similar to
joint venture arrangements. Under the joint venture and LLC
agreements, the joint participants, including the Company, are
entitled to
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<PAGE> 41
indemnification from the other participants and are severally
liable only for the liabilities of the participants in proportion
to their interest therein. If a participant defaults on its
obligations under the terms of a joint venture or LLC 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 participant so defaults, each agreement provides
certain rights and remedies to the remaining 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 properties to
satisfy the obligations of the defaulting participant. Based on
the information available to the Company, the Company has no
reason to believe that its joint venture or LLC participants with
respect to the Greens Creek and Rosebud properties will be unable
to meet their financial obligations under the terms of the
respective agreements.
COMPETITION FOR PROPERTIES
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 acceptable. 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.
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.
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<PAGE> 42
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 extent
the Company is subject to environmental liabilities, the payment
of such liabilities would reduce the funds available to the
Company. Should the Company be unable to fully fund 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, Canada and South America. Such
projects and investments could be adversely affected by exchange
controls, currency fluctuations, political risks, 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.
HEDGING ACTIVITIES
Hedging activities are intended to minimize the effect of
declines in gold and silver prices on results of operations for a
period of time. Although hedging activities may protect a
company against low gold and silver prices, it may also limit the
price that can be received on hedged ounces, subject to forward
sales and call options, potentially resulting in the Company
foregoing the realization of revenues to the extent the market
prices of gold and silver exceeds the related gold and silver
price in a forward sale or call option contract.
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<PAGE> 43
GLOSSARY OF CERTAIN MINING TERMS
Ball Clay -- A fine-grained, plastic, white firing clay used
principally for bonding in ceramic ware.
Cash Operating Costs -- Includes all direct and indirect
operating cash costs incurred at each operating mine,
excluding royalties and mine production taxes.
Cash Operating Costs Per Ounce -- Calculated based upon
total cash operating costs, as defined herein, net of by-
product revenues 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.
Dilution -- The amount of waste which must be mined along
with the ore in order to obtain the ore.
Dore -- Unrefined gold and silver bullion bars consisting of
approximately 90% precious metals which will be further
refined to almost pure metal.
Exploration -- The searching for ore, usually by geological
surveys, geophysical and geochemical prospecting, drilling,
surface or underground headings, drifts, or tunnels.
Feldspar -- A crystalline mineral consisting of aluminum
silicates and other elements that is an essential ingredient
for the ceramics industry, and also is used in the glass and
paint industries.
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.
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<PAGE> 44
Kaolin -- Also known as china clay, kaolin is a white
alumina-silicate clay used in porcelain, paper, plastics,
rubber, paints, and many other products.
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 effect 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 ore reserves.
Mineralization -- The process by which a mineral or minerals
are introduced into a rock, resulting in a valuable deposit.
Ore -- A mixture of valuable minerals and gangue (valueless
minerals) from which at least one of the minerals or metals
can be extracted at a profit.
Orebody -- A continuous, well-defined mass of material of
sufficient ore content to make extraction economically
feasible.
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 Ore 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 total
cash cost of production. The estimates are based largely on
current costs and on projected prices and demand for the
Company's products. Mineral reserves are stated separately
for each of the Company's mines based upon factors relevant
to each mine. Reserves represent diluted in-place grades and
do not reflect losses in the recovery process. The
Company's estimates of Proven and Probable reserves for the
Lucky Friday mine, the Rosebud mine and the La Choya mine at
December 31, 1997 and 1996 are based on gold prices of $350
and $386 per ounce, silver prices of $5.20 and $5.20 per
ounce, lead prices of $0.29 and $0.38 per pound, and zinc
prices of $0.65 and $0.52 per pound, respectively. Proven
and Probable ore reserves for the Greens Creek mine are
based on calculations of reserves provided to the Company by
the operator of Greens Creek that have been reviewed but not
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<PAGE> 45
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 1997 and
1996 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:
East Ore Area West Ore Area Southwest Ore Area
------------- -------------- ------------------
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
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.
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.
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.
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<PAGE> 46
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.
Total Cash Costs -- Includes all direct and indirect
operating cash costs incurred at each operating mine.
Total Cash Costs Per Ounce -- Calculated based upon total
cash costs, as defined herein, net of by-product revenues
from all metals other than the primary metal produced at
each mine, divided by the total ounces of the primary metal
produced.
Total Production Costs -- Includes total cash costs, as
defined, plus depreciation, depletion and amortization
relating to each operating mine.
Total Production Costs Per Ounce -- Calculated based upon
total 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.
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> 47
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, Mexico and South
America. 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 has subdivided approximately
70 adjacent acres presently held for sale or under contract for
sale.
The administrative offices of the Company's ball clay, kaolin and
feldspar operations are located in Mayfield, Kentucky and
Nashville, Tennessee. 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 MWCA, Inc. are located in Rexburg, Idaho.
Bark processing facilities are located in Rexburg, Idaho; Kamiah,
Idaho; Superior, Montana; and Piedmont, South Dakota. 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. The Company also owns
a bagging facility, utilized for scoria briquettes, located at
San Acacio, Colorado.
The Company believes that its existing facilities are sufficient
for their intended purposes.
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<PAGE> 48
ITEM 3. LEGAL PROCEEDINGS.
Contingencies
- - Bunker Hill
In 1994, the Company, as a potentially responsible party under
the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (CERCLA or Superfund), entered
into a Consent Decree with the Environmental Protection Agency
(EPA) and the State of Idaho, concerning environmental
remediation obligations at the Bunker Hill Superfund Site (Bunker
Hill Site) located at Kellogg, Idaho. The Consent Decree settles
the Company's response-cost liability under Superfund at the
Bunker Hill Site. As of December 31, 1997, the Company has
estimated and accrued an allowance for liability for remedial
activity costs at the Bunker Hill Site of $7.3 million. These
estimated expenditures are anticipated to be made over the next
three to five years. As with any estimate of this nature, it is
reasonably possible that the Company's estimate of this
obligation may change in the near term.
Coeur d'Alene River Basin Natural Resource Damage Claims
- - Coeur d'Alene Tribe Claims
In July 1991, the Coeur d'Alene Indian Tribe (the Tribe) brought
a lawsuit, under CERCLA, in Idaho Federal District Court against
the Company and a number of other mining companies asserting
claims for damages to natural resources downstream from the
Bunker Hill Site over which the Tribe alleges some ownership or
control. The Company has answered the Tribe's complaint denying
liability for natural resource damages. In October 1996,
following a court imposed four-year stay of the proceeding, the
Tribe's natural resource damage litigation was consolidated with
the United States Natural Resources Damage litigation described
below.
- - U.S. Government Claims
On March 22, 1996, the United States filed a lawsuit in Idaho
Federal District Court against certain mining companies that
conducted historic mining operations in the Silver Valley of
northern Idaho, including the Company. The lawsuit asserts
claims under CERCLA and the Clean Water Act and seeks recovery
for alleged damages to or loss of natural resources located in
the Coeur d'Alene River Basin (the Basin) in northern Idaho over
which the United States asserts to be the trustee under CERCLA.
The lawsuit asserts that the defendants' historic mining activity
resulted in releases of hazardous substances and damaged natural
resources within the Basin. The suit also seeks declaratory
relief that the Company and other defendants are jointly and
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<PAGE> 49
severally liable for response costs under CERCLA for historic
mining impacts in the Basin outside the Bunker Hill Site. The
Company answered the complaint on May 17, 1996, denying liability
to the United States under CERCLA and the Clean Water Act and
asserted a counterclaim against the United States for the federal
government's involvement in mining activity in the Basin which
contributed to the releases and damages alleged by the United
States. The Company believes it also has a number of defenses to
the United States' claims. In October 1996, the Court
consolidated the Coeur d'Alene Tribe Natural Resource Damage
litigation with this lawsuit for discovery and other limited
pretrial purposes. The case is proceeding through discovery and
the defendant mining companies have filed a number of summary
judgment motions which are currently pending before the Court.
- - State of Idaho Claims
On March 22, 1996, the Company entered into an agreement (the
Idaho Agreement) with the State of Idaho (State) pursuant to
which the Company agreed to continue certain financial
contributions to environmental cleanup work in the Basin being
undertaken by a State Trustees group. In return, the State
agreed not to sue the Company for damage to natural resources for
which the State is a trustee for a period of five years, to
pursue settlement with the Company of the State's natural
resource damage claims and to grant the Company credit against
any such State claims for all expenditures made under the Idaho
Agreement and certain other Company contributions and
expenditures for environmental cleanup in the Basin.
At December 31, 1997, the Company's accrual for remediation
activity in the Basin, not including the Bunker Hill Site,
totaled approximately $0.8 million. These expenditures are
anticipated to be made over the next four years. Depending on
the results of the aforementioned lawsuits, it is possible that
the Company's estimate of its obligation may change in the near
term.
Insurance Coverage Litigation
In 1991, the Company initiated litigation in the Idaho State
District Court in Kootenai County, Idaho, against a number of
insurance companies which provided comprehensive general
liability insurance coverage to the Company and its predecessors.
The Company believes that the insurance companies have a duty to
defend and indemnify the Company under their policies of
insurance for all liabilities and claims asserted against the
Company by the EPA and the Tribe under CERCLA related to the
Bunker Hill Site and the Basin in northern Idaho. In 1992, the
Court ruled that the primary insurance companies had a duty to
defend the Company in the Tribe's lawsuit. During 1995 and 1996,
the Company entered into settlement agreements with a number of
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<PAGE> 50
the insurance carriers named in the litigation. The Company has
received a total of approximately $7.2 million under the terms of
the settlement agreements. Thirty percent of these settlements
were paid to the EPA to reimburse the U.S. Government for past
costs under the Bunker Hill Site Consent Decree. Litigation is
still pending against one insurer with trial continued until the
underlying environmental claims against the Company are resolved
or settled. The remaining insurer is providing the Company with
a partial defense in all Basin environmental litigation. As of
December 31, 1997, the Company had not reduced its accrual for
reclamation and closure costs to reflect the receipt of any
anticipated insurance proceeds.
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 currently expected outcome of these matters,
individually or in the aggregate, will not have a material
adverse effect on the results of operations, financial condition
or cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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<PAGE> 51
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:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1997 - High $ 7.25 $ 6.25 $ 6.13 $ 6.31
- Low 5.25 5.25 4.94 4.38
1996 - High $ 9.50 $ 8.38 $ 7.50 $ 6.75
- Low 7.00 7.00 5.63 5.50
(b) As of December 31, 1997, there were 10,636 holders
of record of the Common Stock.
(c) There were no Common Stock cash dividends paid in
1997 or 1996. 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> 52
ITEM 6. SELECTED FINANCIAL DATA.
(dollars in thousands except for per-share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total revenue $ 168,569 $ 166,882 $ 159,704 $ 130,569 $ 96,060
========= ========= ========= ========= =========
Net loss $ (483) $ (32,354) $(101,719) $ (24,613) $ (17,782)
Preferred stock dividends (8,050) (8,050) (8,050) (8,050) (4,070)
--------- --------- --------- --------- ---------
Loss applicable to
common shareholders $ (8,533) $ (40,404) $(109,769) $ (32,663) $ (21,852)
========= ========= ========= ========= =========
Basic and diluted loss per
common share $ (0.16) $ (0.79) $ (2.28) $ (0.74) $ (0.58)
========= ========= ========= ========= =========
Total assets $ 250,668 $ 268,393 $ 258,190 $ 344,582 $ 346,153
========= ========= ========= ========= =========
Long-term debt - Notes and
contracts payable $ 22,136 $ 38,208 $ 36,104 $ 1,960 $ 50,009
========= ========= ========= ========= =========
Cash dividends per common share $ - - $ - - $ - - $ - - $ - -
========= ========= ========= ========= =========
Cash dividends per preferred
share $ 3.50 $ 3.50 $ 3.50 $ 3.50 $ 1.77
========= ========= ========= ========= =========
Common shares issued 55,156,324 51,199,324 48,317,324 48,144,274 40,320,761
Shareholders of record 10,636 11,299 12,210 13,196 13,549
Employees 1,202 1,254 1,259 1,204 919
</TABLE>
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<PAGE> 53
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 for precious and base metals. 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 in this
Management's Discussion and Analysis of Financial Condition and
Results of Operations, the matters discussed below are forward-
looking statements. Forward-looking statements involve risks and
uncertainties, including the timely development of existing
properties and reserves and future projects, the impact of metals
prices and metals production volatility, changing market
conditions and the regulatory environment and the other risks
detailed below and elsewhere in this Form 10-K (see "Investment
Considerations" of Part I, Item 1 of this Form 10-K) and from
time to time, as necessary, in the Company's periodic reports
filed with the Securities and Exchange Commission. As a result,
actual results may differ materially from those projected or
implied. 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 as circumstances change or develop.
The Company incurred losses applicable to common shareholders for
each of the past three years in the period ended December 31,
1997. If the Company's estimates of market prices of gold,
silver, lead, and zinc are realized in 1998, the Company expects
to record income or (loss) in the range of $2.0 million income to
a $(3.0) million loss after the expected dividends to preferred
shareholders totaling approximately $8.1 million for the year
ending December 31, 1998. 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
- --------------------
1 For definitions of certain mining terms used in this
description, see "Glossary of Certain Mining Terms" at the end of
Part I, Item 1 of this Form 10-K, page 42.
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results of operations for 1998 will be as projected (see
"Investment Considerations" of Part I, Item 1 of this Form 10-K).
The variability of metals prices requires that the Company, in
assessing the impact of prices on recoverability of its metals
segment assets, exercise judgment as to whether price changes are
temporary or are likely to persist. The Company performs a
comprehensive evaluation of the recoverability of its assets on a
periodic basis. This evaluation includes a review of estimated
future net cash flows against the carrying value of the Company's
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.
At the Greens Creek silver mine in Alaska, full production levels
were achieved in January 1997, following the recommencement of
operations in July 1996. The Company holds a 29.73% interest in
the mine through a joint venture with Kennecott Greens Creek
Mining Company, the operator of the property.
On January 31, 1997, Great Lakes Minerals Inc. (Great Lakes) and
the Company entered into a letter agreement terminating the
Grouse Creek joint venture and conveying Great Lakes' approximate
20% interest in the Grouse Creek mine to Hecla. Great Lakes
retained a 5% defined net proceeds interest in the property. The
Company has assumed 100% of the interests and obligations
associated with the property. As a result of the termination of
the Grouse Creek joint venture, approximately $4.5 million in
restricted cash was released and made available for general
corporate purposes in the first quarter of 1997.
At the Grouse Creek mine, mining activities were completed by the
end of April 1997. The milling operations were completed by the
end of June 1997, and the mine and mill facilities were placed on
a care-and-maintenance status. Limited reclamation activities
commenced in the third quarter of 1997. Under U.S. Forest
Service agreements, the care-and-maintenance period for the
property can only extend to June 2000. On or before that date,
either operations must recommence or the site must initiate final
reclamation which involves the removal of existing buildings.
On April 2, 1997, the Idaho State Supreme Court reversed the
previous decision by the Idaho District Court in the Star Phoenix
Mining Company lawsuit which had found the Company liable for
$10.0 million in compensatory damages and $10.0 million in
punitive damages. As a result of the Supreme Court's decision,
restricted investments totaling $10.0 million were released on
May 6, 1997. On July 14, 1997, the Idaho Supreme Court denied
Star Phoenix's request for a rehearing on certain portions of the
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Court's April 2, 1997 opinion. As a result of the Court's
denial, Star Phoenix has no further right of appeal.
At the Rosebud mine, in which the Company has a 50% interest and
Newmont Gold Company holds the other 50% interest, the designed
production capacity of 750 tons per day was achieved in the
second half of March 1997. The mine is expected to produce
approximately 50,000 to 60,000 ounces of gold annually for the
Company's account over an estimated five years. In 1997, the
mine produced approximately 47,000 ounces of gold and 169,000
ounces of silver for Hecla's account.
In May 1997, expenditures necessary to develop the Lucky Friday
expansion project, located approximately 5,000 feet northwest of
the Lucky Friday vein, were approved. The Company expended
approximately $10.7 million in 1997 to develop the expansion
area, which is anticipated to increase the Lucky Friday mine
silver production to approximately 4.0 million ounces per year
commencing in 1998. Full production levels from the Lucky Friday
expansion project are expected to be attained by mid-1998. In
1998, the Company's capital expenditures for the project are
expected to be approximately $6.3 million to $6.8 million.
In July 1997, the Company's wholly owned subsidiary, Kentucky-
Tennessee Clay Company (K-T Clay), voluntarily suspended
shipments of ball clay to all animal feed manufacturers.
Approximately 1% of K-T Clay's annual production of ball clay was
used by animal feed manufacturers to prevent animal feed from
clumping. The shipments were suspended as a result of discovery
by the Food and Drug Administration of trace levels of dioxin of
approximately three parts per trillion, found in a limited
sampling of chickens. The source of the dioxin was traced to ball
clay in feed. The FDA determined that there was no health risk,
but as a precaution halted shipments to poultry producers and egg
producers until they certified that the products were essentially
dioxin-free. The Mine Safety Health Administration has cleared
the Company from any issues associated with exposure to its
employees at its plants. The Company's initial investigation
indicated that dioxin may be an inherent characteristic of ball
clays in general. The Company is cooperating fully with the
federal agencies in this matter, and the Company does not believe
there will be any long-term material impact on the Company's
results of operations or financial condition from this matter.
Although K-T Clay has complied with all laws and regulations
applicable to the mining and marketing of these clay products, K-
T Clay has received claims totaling approximately $5.0 million
from third parties related to the discovery of trace elements of
dioxin in the clay products. The Company believes that all such
claims will be covered by K-T Clay's insurance.
In 1998, the Company expects to produce between 100,000 and
110,000 ounces of gold compared to actual 1997 gold production of
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approximately 174,000 ounces of gold. The 1998 estimated gold
production includes 25,000 to 30,000 ounces from the Company's
La Choya mine, 55,000 to 60,000 ounces from the Company's
interest in the Rosebud mine, and 20,000 ounces from the
Company's interest in the Greens Creek mine and other sources.
The Company's share of silver production for 1998 is expected to
be between 7.0 and 7.6 million ounces compared to 1997 production
of approximately 5.1 million ounces. The 1998 estimated silver
production includes 3.8 to 4.2 million ounces from the Lucky
Friday mine, 3.0 to 3.2 million ounces from the Company's
interest in the Greens Creek mine and an additional 0.2 million
ounces from other sources.
In 1997, the Company shipped approximately 1,026,000 tons of
industrial minerals, including ball clay, kaolin, feldspar, and
specialty aggregates. The Company's shipments of industrial
minerals are expected to decrease slightly in 1998 to
approximately 1,024,000 tons. Additionally, the Company expects
to ship approximately 1,027,000 cubic yards of landscape material
from its MWCA-Mountain West Products division in 1998 compared to
891,000 cubic yards in 1997.
RESULTS OF OPERATIONS
1997 vs 1996
- ------------
The Company incurred a net loss of approximately $0.5 million
($0.01 per common share) in 1997 compared to a net loss of
approximately $32.4 million ($0.63 per common share) in 1996.
After payment of $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 1997 was
approximately $8.5 million, or $0.16 per common share compared to
$40.4 million, or $0.79 per common share in 1996. The smaller
loss in 1997 was due to various factors, the most significant of
which were 1996 adjustments, totaling $35.7 million for
severance, holding, reclamation, closure costs, and carrying
value adjustments at the Grouse Creek and American Girl mines.
Sales of the Company's products increased by approximately $5.7
million, or 3.6%, in 1997 compared to 1996, principally due to
increased sales totaling approximately $36.9 million, most
notably from the Greens Creek mine, where operations recommenced
in July 1996, and the Rosebud mine where operations commenced in
April 1997. These factors were partially offset by decreased
sales of approximately $31.2 million principally at the Grouse
Creek mine where operations were completed in April 1997,
decreased sales at the American Girl mine where operations were
suspended in the fourth quarter of 1996, decreased sales at the
La Choya mine principally the result of lower average gold prices
and slightly lower production, decreased sales at MWCA-Mountain
West Products division primarily due to unfavorable weather
conditions during the selling season and resulting competitive
pricing pressures in
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the 1997 period, decreased sales at the Lucky Friday mine
principally due to decreased lead and silver prices, decreased
sales at K-T Clay's Kaolin division due to increased competition
and product substitution in export business to the fiberglass
industry, and decreased sales at K-T Feldspar resulting from a
weaker domestic ceramic market and losses to competition and
substitute products.
Comparing the average metal prices for 1996 with 1997, gold
decreased 15% from $388 per ounce to $331 per ounce, silver
decreased 5% from $5.18 per ounce to $4.90 per ounce, lead
decreased 20% from $0.35 per pound to $0.28 per pound, and zinc
increased 30% from $0.46 to $0.60 per pound. During 1997, the
Company's realized gold price per ounce decreased 11% from $393
per ounce to $351 per ounce.
Cost of sales and other direct production costs decreased
slightly from $126.9 million in 1996 to $126.7 million in 1997,
primarily a result of (1) increased production costs of $13.8
million at the Greens Creek mine where operations recommenced in
July 1996; (2) increased production costs of $7.4 million at the
Rosebud mine, where operations commenced in April 1997; (3)
increased production costs of $1.2 million at the Lucky Friday
mine associated with increased production; and (4) production
cost increases at MWCA-Colorado Aggregate division, K-T Clay Ball
Clay division, and K-T Clay de Mexico in direct correlation to
increased sales at these operations. These increases in cost of
sales and other direct production costs were partially offset by
decreases in operating costs at other operations of approximately
$26.1 million. These decreases are primarily due to (1)
decreased production costs at the Grouse Creek mine of $15.4
million due to the suspension of operations in April 1997; (2)
decreased production costs at the American Girl mine of $8.6
million due to the suspension of operations in the fourth quarter
of 1996; (3) decreased production costs at La Choya of $0.9
million, the result of lower production levels; and (4) decreased
production costs at industrial minerals operations, including K-T
Kaolin, K-T Feldspar, and MWCA-Mountain West Products division
resulting from decreased sales volumes.
Cost of sales and other direct production costs as a percentage
of sales improved from 80.2% in 1996 to 77.3% in 1997. The
decrease is primarily due to the shutdown of the higher cost
American Girl mine in late 1996, and the suspension of operations
at the higher cost Grouse Creek mine in April 1997, as well as
the addition of the lower cost Rosebud and Greens Creek mines.
Depreciation, depletion and amortization increased $0.6 million,
or 2.7%, from 1996 to 1997 principally due to (1) Rosebud mine
depreciation expense ($4.8 million) resulting from the
commencement of operations in April 1997; (2) increased
depreciation expense at the Greens Creek mine ($4.8 million)
resulting from the recommencement of operations in July 1996; and
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(3) increased depreciation expense at the Lucky Friday mine
associated with increased production. These increases in
depreciation, depletion and amortization were partially offset by
decreases at (1) the La Choya mine ($6.0 million), the result of
a lower depletion rate in 1997 attributable to the 1996 increase
in total estimated recoverable ounces from the mine; (2)
decreased depreciation expense at the Grouse Creek mine ($2.2
million) resulting from the 1996 write-down of the remaining
carrying value of property, plant, and equipment; and (3)
decreased depreciation expense at the American Girl mine ($1.3
million) resulting from the suspension of operations at the
American Girl mine in late 1996.
Cash operating costs, total cash costs, and total production
costs per gold ounce decreased from $273, $276, and $364 in 1996
to $166, $173, and $239 in 1997, respectively. The decreases in
the cash operating, total cash and total production cost per gold
ounce were mainly attributed to the suspension of operations at
the higher cost American Girl and Grouse Creek mines, as well as
the commencement of production at the lower cost Rosebud mine.
The total production cost per ounce was also favorably impacted
by the decreased depletion rate per ounce at the La Choya mine in
1997 compared to 1996.
Cash operating costs, total cash costs, and total production
costs per silver ounce decreased from $4.24, $4.24, and $5.47 in
1996 to $3.58, $3.58, and $5.42 in 1997, respectively. The
decreases in cash costs per ounce amounts were due primarily to
recommencement of operations at the Greens Creek mine in July
1996, partially offset by increased per ounce costs at the Lucky
Friday mine resulting from decreased lead by-product credits in
the 1997 period. Gold, lead, and zinc are by-products of the
Company's silver production, the revenues from which are netted
against production costs in the calculation of the production
cost per ounce of silver.
Other operating expenses decreased by approximately $32.9
million, or 67.7%, from 1996 to 1997, due principally to a
decrease in the provision for closed operations and environmental
matters totaling $23.5 million, consisting of (a) the 1996
provision at the Grouse Creek mine ($22.5 million); (b) the 1996
provision for environmental matters within the Coeur d'Alene
River Basin ($2.7 million); (c) a benefit from the American Girl
mine in 1997 versus a provision in 1996 ($1.8 million); and (d)
reductions in the provision for closed operations and
environmental matters in 1997 at other properties, including
Kirkland Lake ($0.8 million), Republic ($0.7 million), Buckhorn
($0.6 million), Star ($0.3 million), and Escalante ($0.2
million). These decreases in the provision were partly offset by
increased provisions including (a) the receipt of $2.6 million in
insurance proceeds in 1996 related to the remediation liability
at Bunker Hill; and (b) increases in the provision for closed
operations and environmental matters in
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1997 at other properties including Grouse Creek ($1.8 million),
Cactus ($0.7 million), Durita ($0.7 million), Yellow Pine ($0.3
million), and other idle properties ($0.2 million). Also,
contributing to the decrease in other operating expenses was a
decrease in reduction in carrying value of mining properties of
$12.2 million, consisting of the Company's 1996 reduction in
carrying value of the Company's interest in the American Girl
mine ($7.6 million) and the Grouse Creek mine ($5.3 million),
partly offset by the 1997 reduction in mining properties related
to the Lisbon Valley joint venture, a uranium property ($0.5
million), and material and supplies inventory at the Grouse Creek
mine ($0.2 million). These decreases were partially offset by
increased exploration expenditures of $2.6 million, most notably
at the La Jojoba ($1.6 million) and El Porvenir ($1.3 million)
gold properties in Mexico, partly offset by other net exploration
decreases of $0.3 million; and increased general and
administrative expenses of $0.2 million.
Other income was approximately $0.9 million in 1997 compared to
$6.0 million in 1996. The $5.1 million decrease was primarily
due to (1) decreased interest and other income ($4.0 million),
resulting principally from the 1996 gain on sale of a royalty
interest in the Rosebud mine to Euro-Nevada ($2.5 million), 1996
gain on sale of the Apex mine ($1.0 million), 1996 sale of an
interest in the Golden Eagle joint venture ($0.6 million),
decreased interest income due to release of restricted
investments in 1997 ($0.5 million), other 1996 gains on the sales
of assets, including land in Coeur d'Alene ($0.6 million),
partially offset by the 1997 gain on sale of an 8% interest in
the Buckhorn joint venture, in Nevada, of $1.1 million; (2)
increased net interest cost of $1.0 million; and (3) increased
loss on investments of $0.4 million principally the result of a
write-down of an investment in common stock. These decreases
were partially offset by decreased miscellaneous expense in 1997
of $0.2 million. Total interest cost decreased $0.6 million in
1997, principally due to lower borrowings in 1997 under the
Company's revolving and term loan facility. Capitalized interest
costs decreased $1.6 million principally due to decreased
capitalized interest costs associated with the Greens Creek
development, the Rosebud mine which was completed in March 1997,
and the American Girl mine, partly offset by increased
capitalized interest at the Lucky Friday expansion project.
Income taxes reflect a provision of $1.9 million in 1997 compared
to a provision of $0.7 million in 1996. The provision in 1997
primarily reflects the provisions for foreign income taxes as
well as a provision for various state income taxes, partially
offset by the carryback of certain various 1997 expenditures to
reduce U.S. income taxes previously provided. The provision in
1996 primarily reflects the provisions for foreign income taxes
as well as a provision for state income taxes, partially offset
by the
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carryback of certain 1996 expenditures to reduce U.S. income
taxes previously provided.
RESULTS OF OPERATIONS
1996 vs 1995
- ------------
The Company incurred a net loss of approximately $32.4 million
($0.63 per common share) in 1996 compared to a net loss of
approximately $101.7 million ($2.11 per common share) in 1995.
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 1996 was approximately
$40.4 million, or $0.79 per common share compared to $109.8
million, or $2.28 per common share in 1995. The 1996 decreased
loss was due to a variety of factors, the most significant of
which was the write-down of the Company's interest in the Grouse
Creek mine in the third quarter of 1995 totaling $97.0 million,
compared to 1996 adjustments totaling $35.7 million for
severance, holding, reclamation, closure costs, and carrying
value adjustments for property, plant, and equipment and certain
other assets at the Grouse Creek and American Girl mines.
Sales of the Company's products increased by approximately $6.6
million, or 4.4%, in 1996 as compared to 1995, principally the
result of (1) increased product sales totaling approximately
$16.8 million, most notably from the industrial minerals
operations where shipment volumes increased at all operations,
increased production at the La Choya mine where gold production
increased approximately 8,000 ounces, as well as at the Greens
Creek mine where the first shipment of product occurred in
November 1996 following the recommencement of operations in July
1996; and (2) an increase in the average price of lead. These
two factors were partially offset by decreased sales of
approximately $10.2 million attributable to (1) decreased gold
and silver production in 1996 at the Grouse Creek mine and
Republic gold mine, the latter of which completed operations in
February 1995; (2) decreased sales from the Apex processing
facility which was sold in September 1995; and (3) decreased gold
production at the Cactus mine due to the completion of operations
in 1995.
Comparing the average metal prices for 1995 with 1996, gold
increased by 1% from $384 per ounce to $388 per ounce, silver
decreased slightly from $5.19 per ounce to $5.18 per ounce, lead
increased by 21% from $0.29 per pound to $0.35 per pound, and
zinc decreased slightly from $0.47 to $0.46 per pound. During
1996, the Company's realized gold price per ounce increased 1%
from $388 per ounce to $393 per ounce.
Cost of sales and other direct production costs increased
approximately $5.3 million, or 4.4%, in 1996 compared to 1995,
primarily a result of (1) increased production costs of $6.9
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million incurred at the industrial minerals operations which
correlated to the increased sales volume at these operations; (2)
increased production costs at the Lucky Friday mine totaling
approximately $2.8 million due to increased mining costs and the
nonrecurring 1995 receipt of $1.1 million in insurance proceeds
related to an ore conveyance accident in August 1994; (3)
increased costs at the La Choya mine of $1.2 million resulting
from increased production at the mine; (4) increased costs at the
American Girl mine of $0.5 million due to difficulties associated
with mining in the Oro Cruz orebody, partially offset by reduced
costs following the shutdown of operations in 1996; and (5)
increased costs at Greens Creek where costs associated with the
first shipment were recognized in the amount of $0.5 million.
These increases in cost of sales and other direct production
costs were partially offset by decreases in operating costs at
other operations, including (1) decreased costs associated with
the Apex processing facility totaling $4.1 million resulting from
the processing plant being sold in September 1995; (2) decreased
costs at the Cactus mine totaling approximately $1.0 million
associated with the completion of operations in 1995; (3)
decreased costs at the Grouse Creek mine totaling $0.9 million is
associated with the second quarter 1996 temporary shutdown of
operations and the third quarter 1996 decision to suspend
operations, as well as higher costs in 1995 associated with the
start-up of operations; and (4) decreased operating costs at the
Republic mine totaling approximately $0.6 million due to the
completion of operations in February 1995.
Cost of sales and other direct production costs as a percentage
of sales from products were constant at 80.2% in 1995 and 1996.
Depreciation, depletion and amortization decreased $3.0 million,
or 12.8%, from 1995 to 1996 principally due to decreased
depreciation at the Grouse Creek mine ($6.8 million) primarily
due to the write-down of the carrying value of property, plant,
and equipment in the third quarter of 1995, partially offset by
increased depreciation at (1) the La Choya mine ($1.9 million)
due to increased gold production; (2) the Greens Creek mine where
operations recommenced on a start-up basis in 1996 ($1.4
million); (3) the American Girl mine ($0.3 million) due to the
increased depreciable base associated with development costs of
the Oro Cruz, partly offset by the write-down of the carrying
value of the American Girl mine property, plant, and equipment,
in the third quarter of 1996; and (4) various industrial minerals
operations totaling approximately $0.2 million.
Cash operating costs, total cash costs, and total production
costs per gold ounce decreased from $286, $288, and $398 in 1995
to $273, $276, and $364 in 1996, respectively. The decreases in
the cash operating cost and total cash cost per ounce were
primarily due to decreases in the cost per ounce amounts at the
Grouse Creek and La Choya mines, offset by increased cost per
ounce amounts at
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the American Girl mine. Total production costs per ounce
decreased principally due to the decreased depreciation,
depletion, and amortization expense at the Grouse Creek mine in
1996 which is the result of the 1995 carrying value adjustment,
partially offset by increased total production cost per ounce at
the American Girl mine.
Cash operating costs, total cash costs, and total production
costs per silver ounce decreased from $4.57, $4.57, and $5.76 in
1995 to $4.24, $4.24, and $5.47 in 1996, respectively. The
decreases in the cost per silver ounce were due primarily to
increased by-product production and prices, principally lead, in
the 1996 period at the Lucky Friday mine. 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
cost per silver ounce.
Other operating expenses decreased by approximately $68.8
million, or 58.6%, from 1995 to 1996, due principally to (1) the
decreased reduction in carrying value of mining properties of
$84.5 million, consisting of the Company's 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), partly offset by the 1996
reductions in carrying values of mining properties at the
American Girl mine totaling approximately $7.6 million and the
Grouse Creek mine totaling approximately $5.3 million; and (2)
decreased exploration expenditures of approximately $2.3 million.
These decreases were partially offset by an $18.2 million
increase in provision for closed operations and environmental
matters, consisting of (1) the 1996 provision for the Grouse
Creek mine totaling approximately $22.5 million; (2) the
increased 1996 provision over the 1995 provision for remediation
costs associated with the Coeur d'Alene River Basin of $2.4
million; (3) the American Girl mine closure cost accrual of $0.3
million in 1996; and (4) provision for environmental matters at
the Company's former Yellow Pine mine of $0.2 million, partially
offset by (1) the 1995 provision totaling $3.4 million for the
Bunker Hill Superfund Site; (2) receipt of $2.6 million in
insurance proceeds in 1996 related to the remediation liability
at Bunker Hill; and (3) decreased expenditures at the closed Star
Unit Area of $1.2 million primarily due to timber sale proceeds
of $0.9 million.
Other income was approximately $6.0 million in 1996 compared to
$9.4 million in 1995. The $3.4 million decrease was primarily
due to (1) decreased gains on investments of $3.2 million due to
the nonrecurring sale of certain common stock investments in
1995; (2) increased net interest cost of $0.3 million; and (3)
increased miscellaneous expense in 1996 compared to 1995, the
impact of which was $0.5 million. These decreases were partially
offset by increased interest and other income in 1996 over 1995
totaling $0.5 million. Total interest cost increased $1.1
million in 1996,
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principally due to higher borrowings in 1996 under the Company's
revolving and term loan facility. Capitalized interest costs
increased $0.8 million principally due to capitalized interest
costs associated with the Greens Creek development, the Rosebud
project, the Lucky Friday expansion project, and development at
the American Girl's Oro Cruz orebody.
Income taxes reflect a provision of $0.7 million in 1996 compared
to a provision of $0.3 million in 1995. The provision in 1996
primarily reflects the provisions for foreign income taxes as
well as a provision for state income taxes, partially offset by
the carryback of certain 1996 expenditures to reduce U.S. income
taxes previously provided. The provision in 1995 primarily
reflects the provisions for U.S. and foreign income taxes as a
result of certain asset and certain common stock investment
dispositions made during 1995, as well as a provision for state
income taxes, partially offset by the carryback of certain 1995
expenditures to reduce U.S. income taxes previously provided.
FINANCIAL CONDITION AND LIQUIDITY
A substantial portion of the Company's revenue is derived from
the sale of products, the prices of which are affected by
numerous factors beyond the Company's control. Prices may change
dramatically in short periods of time and such changes have a
significant effect on revenues, profitability 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 (see "Investment
Considerations" in Part I, Item 1 of this Form 10-K).
At December 31, 1997, assets totaled approximately $250.7 million
and shareholders' equity totaled approximately $160.3 million.
Cash and cash equivalents decreased by $3.4 million to $3.8
million at December 31, 1997, from $7.2 million at the end of
1996. Operating activities provided $6.0 million of cash during
1997. The primary sources of cash were from the La Choya mine,
the Rosebud mine, the Greens Creek mine, and the Company's
industrial minerals operations. Partially offsetting these
sources were (1) decreases, totaling $11.8 million, in accrued
reclamation and other noncurrent liabilities principally for
reclamation and closure activities at the Grouse Creek mine, the
Bunker Hill
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Superfund Site, the Coeur d'Alene River Basin, the Republic mine,
the American Girl mine, and the Durita site; (2) decreased
accounts payable and accrued expenses totaling approximately $4.8
million, most notably at the Grouse Creek mine, K-T Kaolin, the
Rosebud mine, MWCA-Mountain West Products division, and the
Greens Creek mine. Principal noncash charges included in
operating activities include (1) depreciation, depletion, and
amortization costs of approximately $21.3 million; (2) provisions
for reclamation, holding, severance, and closure costs of
approximately $1.3 million; and (3) adjustments for reduction in
the carrying value of mining properties totaling approximately
$0.7 million.
The Company's investing activities used $8.7 million of cash
during 1997. The most significant uses of cash were $24.8
million for properties, plants, and equipment additions described
below and the purchase of investments and increase in cash
surrender value of life insurance of $1.2 million. These uses
were partially offset by (1) the release of $13.8 million in
restricted assets (including the $10.0 million surety collateral
on the Star Phoenix judgement which was reversed in 1997, and the
release of restricted investments at Grouse Creek resulting from
the termination of the Grouse Creek joint venture); and (2)
proceeds from sales of assets ($1.9 million). During 1997, the
most significant asset additions were $11.2 million at the Lucky
Friday mine, $6.0 million at the Rosebud mine, $3.6 million at
the industrial minerals operations, and $2.3 million at the
Greens Creek mine.
During 1997, $0.7 million of cash was used by financing
activities. The major uses of cash were (1) repayments on long-
term debt of $73.7 million; and (2) payment of preferred stock
dividends of $8.1 million. These uses of cash were partially
offset by sources of cash including (1) borrowings on long-term
debt of $57.6 million; and (2) proceeds totaling approximately
$23.4 million from the issuance of 3.950 million common shares in
an underwritten offering completed in February 1997.
The Company currently estimates that 1998 capital expenditures
will be between $12.6 million and $13.8 million, including $0.6
million of capitalized interest. These expenditures, excluding
capitalized interest, consist primarily of (1) development
expenditures at the Lucky Friday expansion project ($6.3-$6.8
million), the Company's share of capital expenditures at the
Greens Creek mine ($3.9-$4.2 million), industrial minerals
capital expenditures ($1.6-$2.0 million); and (2) capital
expenditures at other operating locations ($0.2 million). These
planned capital expenditures will depend, in large part, on the
Company's ability to obtain the required funds from operating
activities, and amounts available under its revolving and term
loan credit facility. There can be no assurance that actual
capitalized expenditures will be as projected based upon the
uncertainties
-63-
<PAGE> 65
associated with the estimates for capital projects and the
Company's ability to generate adequate funding for the projected
capital expenditures.
The Company's estimate of its capital expenditure requirements
assumes, with respect to the Greens Creek and Rosebud properties,
that the Company's joint venture partners will not default with
respect to their respective portions of development costs and
capital expenditures.
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, offer and sell
debt securities, common shares, preferred shares or warrants in
an amount not to exceed $100.0 million in the aggregate. In
February 1997, the Company issued 3.950 million shares of its
common stock to facilitate the funding of the Company's capital
expenditure requirements. To date, the Company has issued $48.4
million of the Company's common shares under the Registration
Statement. The Company used $23.0 million of the February 1997
net proceeds of approximately $23.4 million from the sale of its
common shares to initially pay down debt under its existing
revolving and term loan credit facility, thus increasing its
borrowing capacity under the facility.
On July 30, 1997, the Company issued $9.8 million aggregate
principal amount of tax-exempt, solid waste disposal revenue
bonds. The net proceeds of approximately $9.6 million from the
issuance were initially used to pay down debt under the Company's
existing revolving and term loan credit facility.
On August 11, 1997, the Company entered into a new revolving and
term loan credit facility (Bank Agreement). Under the terms of
the Bank Agreement, the Company may borrow up to $55.0 million on
a revolving credit basis through July 31, 2000. Repayments will
be made in eight quarterly installments beginning October 31,
2000. During the commitment period, the Company pays an annual
facility fee ranging from $178,750 to $261,250, the amount of
which is based on average quarterly borrowings. The Bank
Agreement includes certain collateral provisions, including the
pledging of the common stock of certain of the Company's
subsidiaries and providing the lenders a security interest in
accounts receivable. Under the Bank Agreement, the Company is
required to maintain certain financial ratios, and meet certain
net worth and indebtedness tests, for which the Company was in
compliance at December 31, 1997. Amounts available under the
Bank Agreement are based on a defined debt to cash flow test. As
of December 31, 1997, the Company had borrowings of $21.8 million
(including $9.8 million in solid waste disposal revenue bonds
discussed above) and the ability to borrow the remaining $33.2
million under the facility. The interest rate for borrowings
under the Bank Agreement as of December 31, 1997 was 7.355%.
-64-
<PAGE> 66
The Company's planned net environmental and reclamation
expenditures for 1998 are expected to total $6.9 million,
principally for environmental and reclamation activities at the
Bunker Hill Superfund Site, the Coeur d'Alene River Basin, and
Grouse Creek, Yellow Pine, Cactus, and Republic properties.
Exploration expenditures for 1998 are currently estimated to
total $3.9 million. The Company's exploration strategy will
focus further exploration at, or in the vicinity of, its
currently owned domestic and foreign properties, as well as grass-
roots and advanced stage projects. Accordingly, 1998 domestic
exploration expenditures will be incurred principally at the
Greens Creek, Rosebud, and Lucky Friday properties. Foreign
exploration efforts in 1998 will center primarily on targets in
Mexico and South America.
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 premiums received, for contracts which
hedge the sales prices of commodities are deferred and included
in income as part of the hedged transaction. Revenues from the
aforementioned contracts are recognized at the time contracts are
closed out by delivery of the underlying commodity, when the
Company matches specific production to a contract, or upon
settlement of the net position in cash. The Company is exposed
to certain losses, generally the amount by which the contract
price exceeds the spot price of a commodity, in the event of
nonperformance by the counterparties to these agreements.
At December 31, 1997, the Company had forward sales commitments
through June 30, 1999, for 17,000 ounces of gold at an average
price of $354 per ounce. The estimated fair value of these
forward sales commitments was $931,000 at December 31, 1997. The
London Initial gold price at year end was $289 per ounce.
Additionally, at December 31, 1997, the Company had forward sales
commitments through December 31, 1998, for 2,160,000 ounces of
silver at an average price of $5.68. If the Company's forward
silver sales commitments were closed on December 31, 1997, the
Company's estimated cost to terminate these commitments was
approximately $701,000. The Handy & Harman silver price at year
end was $5.95. The nature and purpose of these forward sales
contracts, however, does not presently expose the Company to any
significant net loss. All of the aforementioned contracts were
designated as hedges at December 31, 1997.
The Company utilizes software and related technologies throughout
its business that will be affected by the "Year 2000 problem,"
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<PAGE> 67
which is common to many corporations, and concerns the inability
of information systems, primarily computer software programs, to
recognize and process date-sensitive information properly as the
Year 2000 approaches. Evaluation of the Company's primary
accounting system for the Year 2000 problem has been completed,
and changes to the programs began in 1997 that are anticipated to
be completed by the end of 1998. An internal study is currently
under way to determine the full scope and related costs of the
Year 2000 problem with respect to other systems the Company
maintains to ensure that the Company's systems continue to meet
its internal needs and those of its customers. As a part of the
internal study, the Company will also address evaluation of key
vendors and customers to determine the impact, if any, on the
Company's business. The internal study and the resulting work
requirements of the study are expected to be completed by the end
of 1998, although, there can be no assurance that all steps will
be completed in a timely manner, until the full scope of the Year
2000 problem is evaluated. The Company currently does not
believe that the Year 2000 problem will have a material impact on
the Company's financial condition or results of operations. The
Company currently estimates that the cost of evaluating and
correcting Year 2000 problems will be in the range of $180,000 to
$225,000, although the ultimate amount may be greater depending
on the results of the aforementioned internal study.
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, 1997, the Company's allowance for Bunker Hill Superfund Site
remedial action costs was approximately $7.3 million, which the
Company believes is adequate based on current estimates of
aggregate costs.
The Company is subject to legal proceedings and claims which have
arisen in the ordinary course of its business and have not been
finally adjudicated (see Note 6 of Consolidated Financial
Statements). Although there can be no assurance as to the
ultimate disposition of these matters, it is the opinion of the
Company's management, based upon the information available at
this time, that the expected outcome of these suits and
proceedings will not have a material adverse effect on the
results of operations or financial condition of the Company and
its subsidiaries.
OTHER MATTERS
In February 1997, Statement of Financial Accounting Standards No.
128 (SFAS 128), "Earnings per Share" was issued. SFAS 128
established standards for computing and presenting earnings per
share (EPS) and simplifies the existing standards. This standard
replaced the presentation of primary and fully diluted EPS with a
-66-
<PAGE> 68
presentation of basic and diluted EPS. It also requires the dual
presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the
diluted EPS computation. The Company adopted the provisions of
SFAS 128 in 1997, and all prior period EPS calculations have been
restated to conform with SFAS 128. Due to the losses in 1997,
1996, and 1995, common stock equivalents were excluded from the
calculation of primary EPS as they were anti-dilutive.
Therefore, there was no difference in the calculation of basic
and primary EPS in 1997, 1996, and 1995, and there is no
difference between basic and diluted EPS in any of these three
years.
In June 1997, Statement of Financial Accounting Standards No. 130
(SFAS 130), "Comprehensive Income," was issued. SFAS 130
establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose
financial statements. SFAS 130 is effective for fiscal years
beginning after December 15, 1997, and requires restatement of
earlier periods presented. The Company does not believe the
application of this standard will have a material effect on the
Company's presentation of its financial statements.
In June 1997, Statement of Financial Accounting Standards No. 131
(SFAS 131), "Disclosures about Segments of an Enterprise and
Related Information," was issued. SFAS 131 establishes standards
for the way that a public enterprise reports information about
its operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports issued to
shareholders. SFAS 131 is effective for fiscal years beginning
after December 15, 1997, and requires restatement of earlier
periods presented. The Company does not believe the application
of this standard will have a material effect on the presentation
of the Company's operating segments.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
Not applicable.
-67-
<PAGE> 69
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)
First Second Third Fourth
1997: Quarter Quarter Quarter Quarter Total
- ---- -------- -------- -------- -------- ---------
Sales of products $ 42,456 $ 46,069 $ 41,204 $ 34,219 $ 163,948
Gross profit $ 4,178 $ 6,784 $ 5,438 $ (203) $ 16,197
Net income (loss) $ 518 $ 3,054 $ 935 $ (4,990) $ (483)
Preferred stock dividends $ (2,012) $ (2,013) $ (2,013) $ (2,012) $ (8,050)
Income (loss) applicable to
common shareholders $ (1,494) $ 1,041 $ (1,078) $ (7,002) $ (8,533)
Basic and diluted income
(loss) per common share $ (0.03) $ 0.02 $ (0.02) $ (0.13) $ (0.16)
1996:
- ----
Sales of products $ 42,947 $ 40,523 $ 37,662 $ 37,120 $ 158,252
Gross profit $ 3,935 $ 3,028 $ 2,360 $ 1,600 $ 10,923
Net income (loss) $ 1,475 $ 2,801 $(36,765) $ 135 $ (32,354)
Preferred stock dividends $ (2,012) $ (2,013) $ (2,013) $ (2,012) $ (8,050)
Income (loss) applicable to
common shareholders $ (537) $ 788 $(38,778) $ (1,877) $ (40,404)
Basic and diluted income
(loss) per common share $ (0.01) $ 0.02 $ (0.76) $ (0.04) $ (0.79)
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES.
None.
-68-
<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 8, 1998 (the Proxy Statement),
which information is incorporated herein by reference.
Information with respect to executive officers of the
Company is set forth as follows:
Age at
May 8,
Name 1998 Position and Term Served
----------------- ------ --------------------------------
William B. Booth 47 Vice President - Investor and
Public Affairs since May 1994;
various administrative functions
with the Company since December
1985.
Arthur Brown 57 Chairman since June 1987; Chief
Executive Officer since May
1987; President since May 1986.
J. Gary Childress 50 Vice President - Industrial
Minerals since February 1994;
President and General Manager of
Kentucky-Tennessee Clay Company
from 1987 to 1994.
George R. Johnson 49 Vice President - Metal Mining
since 1996; Manager of Opera-
tions - Metal Mining from 1990
to 1996; Senior Project Engineer
from 1989 to 1990.
Roger A. Kauffman 54 Executive Vice President and
Chief Operating Officer since
June 1996; President and Chief
Operating Officer of Amax Gold
from 1994 to 1996; previously
employed with the Company from
1985 to 1994 serving as Vice
President - Industrial Minerals
from 1986 to 1994.
-69-
<PAGE> 71
Age at
May 8,
Name 1998 Position and Term Served
- ---------------------- ------ --------------------------------
Jon T. Langstaff 61 Vice President - Human Resources
since May 1995; Personnel
Manager from 1982 to 1995.
John P. Stilwell 45 Vice President - Chief Financial
Officer since May 1996; Chief
Financial Officer and Treasurer
from May 1996 to May 1997; Vice
President - Finance and
Treasurer May 1994 to May 1996;
Treasurer since June 1991.
Michael B. White 47 Vice President - General Counsel
and Secretary since May 1992;
Secretary since November 1991;
General Counsel since June 1986.
David F. Wolfe 54 Treasurer since May 1997;
Manager of Precious Metals
Marketing since 1993; Assistant
Treasurer from June 1985 to May
1997.
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
None
-71-
<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 9, 1998.
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.
/s/ Arthur Brown 3/9/98 /s/ Theodore Crumley 3/9/98
- ------------------------------- --------------------------------
Arthur Brown Date Theodore Crumley Date
Chairman and Director Director
(principal executive officer)
/s/ Stanley E. Hilbert 3/9/98 /s/ Leland O. Erdahl 3/9/98
- ------------------------------- --------------------------------
Stanley E. Hilbert Date Leland O. Erdahl Date
Corporate Controller Director
(principal accounting officer)
/s/ John P. Stilwell 3/9/98 /s/ Charles L. McAlpine 3/9/98
- ------------------------------- --------------------------------
John P. Stilwell Date Charles L. McAlpine Date
Vice President - Chief Financial Director
Officer (principal financial
officer)
/s/ John E. Clute 3/9/98 /s/ Thomas J. O'Neil 3/9/98
- ------------------------------- --------------------------------
John E. Clute Date Thomas J. O'Neil Date
Director Director
/s/ Joe Coors, Jr. 3/9/98 /s/ Jorge E. Ordonez 3/9/98
- ------------------------------- --------------------------------
Joe Coors, Jr. Date Jorge E. Ordonez Date
Director Director
/s/ Paul A. Redmond 3/9/98
- -------------------------------
Paul A. Redmond Date
Director
-72-
<PAGE> 74
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements
- --------------------
Report of Independent Accountants F-2
Consolidated Balance Sheets at December 31,
1997 and 1996 F-3
Consolidated Statements of Operations for the
Years Ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Changes in
Shareholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7 to F-34
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, 1997
and 1996, 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, 1997. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Hecla Mining Company and subsidiaries as of
December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial
statements, the Company changed its methods of accounting for
environmental remediation liabilities in 1996 and impairment of
long-lived assets in 1995.
/s/ COOPERS & LYBRAND L.L.P.
Spokane, Washington
February 5, 1998
F-2
<PAGE> 76
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
----------
<TABLE>
<CAPTION>
ASSETS
December 31,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 3,794 $ 7,159
Accounts and notes receivable 24,445 24,168
Income tax refund receivable 793 1,262
Inventories 22,116 22,879
Other current assets 1,416 2,284
--------- ---------
Total current assets 52,564 57,752
Investments 2,521 1,723
Restricted investments 7,926 21,771
Properties, plants and equipment, net 180,037 177,755
Other noncurrent assets 7,620 9,392
--------- ---------
Total assets $ 250,668 $ 268,393
========= =========
LIABILITIES
Current liabilities
Accounts payable and accrued expenses $ 12,590 $ 17,377
Accrued payroll and related benefits 2,436 3,232
Preferred stock dividends payable 2,012 2,012
Accrued taxes 1,016 1,427
Accrued reclamation and closure costs 6,914 8,664
--------- ---------
Total current liabilities 24,968 32,712
Deferred income taxes 300 359
Long-term debt 22,136 38,208
Accrued reclamation and closure costs 34,406 45,953
Other noncurrent liabilities 8,518 5,653
--------- ---------
Total liabilities 90,328 122,885
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTES 1, 2, 3 AND 6)
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 1997 - 55,156,324 shares, issued
1996 - 51,199,324 shares 13,789 12,800
Capital surplus 373,966 351,559
Accumulated deficit (222,143) (213,610)
Net unrealized loss on investments (63) (32)
Foreign currency translation adjustment (4,898) (4,898)
Less treasury stock, at cost; 1997 - 62,089 common
shares, 1996 - 62,085 common shares (886) (886)
--------- ---------
Total shareholders' equity 160,340 145,508
--------- ---------
Total liabilities and shareholders' equity $ 250,668 $ 268,393
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
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,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Sales of products $ 163,948 $ 158,252 $ 151,615
---------- ---------- ----------
Cost of sales and other direct production costs 126,742 126,878 121,546
Depreciation, depletion and amortization 21,009 20,451 23,462
---------- ---------- ----------
147,751 147,329 145,008
---------- ---------- ----------
Gross profit 16,197 10,923 6,607
---------- ---------- ----------
Other operating expenses
General and administrative 7,976 7,745 7,950
Exploration 7,422 4,843 7,109
Depreciation and amortization 311 338 367
Provision for (benefit from) closed operations
and environmental matters (724) 22,806 4,615
Reduction in carrying value of mining properties 715 12,902 97,387
---------- ---------- ----------
15,700 48,634 117,428
---------- ---------- ----------
Income (loss) from operations 497 (37,711) (110,821)
---------- ---------- ----------
Other income (expense)
Interest and other income 4,621 8,630 8,089
Miscellaneous expense (1,643) (1,870) (1,403)
Gain (loss) on investments (405) (28) 3,169
Interest expense:
Interest costs (2,462) (3,058) (1,960)
Less amount capitalized 806 2,360 1,516
---------- ---------- ----------
917 6,034 9,411
---------- ---------- ----------
Income (loss) before income taxes 1,414 (31,677) (101,410)
Income tax provision (1,897) (677) (309)
---------- ---------- ----------
Net loss (483) (32,354) (101,719)
Preferred stock dividends (8,050) (8,050) (8,050)
---------- ---------- ----------
Loss applicable to common shareholders $ (8,533) $ (40,404) $ 109,769)
========== ========== ==========
Basic and diluted loss per common share $ (0.16) $ (0.79) $ (2.28)
========= ========= =========
Weighted average number of common shares outstanding 54,763 51,133 48,192
======= ======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
F-4
<PAGE> 78
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
--------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities
Net loss $ (483) $ (32,354) $ (101,719)
Noncash elements included in net loss
Depreciation, depletion and amortization 21,320 20,789 23,829
Gain on disposition of properties, plants
and equipment (1,111) (706) (3,417)
(Gain) loss on investments 405 28 (3,169)
Reduction in carrying value of mining properties 715 12,902 97,387
Provision for reclamation and closure costs 1,341 28,284 8,071
Change in
Accounts and notes receivable (277) 192 (849)
Income tax refund receivable 469 (525) (490)
Inventories 548 (4,239) (2,299)
Other current assets 868 (479) (441)
Accounts payable and accrued expenses (4,787) 3,232 575
Accrued payroll and related benefits (796) 15 493
Accrued taxes (411) 385 117
Accrued reclamation and other noncurrent liabilities (11,772) (5,210) (6,326)
----------- ----------- -----------
Net cash provided by operating activities 6,029 22,314 11,762
----------- ----------- -----------
Investing activities
Additions to properties, plants and equipment (24,794) (33,731) (45,308)
Proceeds from disposition of properties, plants
and equipment 1,872 3,641 3,822
Proceeds from sale of investments - - 130 5,196
Decrease (increase) in restricted investments 13,845 (4,368) (2,758)
Purchase of investments and change in cash surrender
value of life insurance, net (1,233) (726) (1,047)
Other, net 1,642 (480) (2,407)
----------- ----------- -----------
Net cash used by investing activities (8,668) (35,534) (42,502)
----------- ----------- -----------
Financing activities
Common stock issued under stock option plans
and warrants - - - - 1,335
Issuance of common stock, net of offering costs 23,396 21,928 - -
Dividends on preferred stock (8,050) (8,050) (8,050)
Borrowings, net of repayments,
against cash surrender value of life insurance - - 801 - -
Borrowing on long-term debt 57,601 51,631 48,000
Repayment on long-term debt (73,673) (48,918) (13,856)
----------- ----------- -----------
Net cash provided (used) by financing activities (726) 17,392 27,429
----------- ----------- -----------
Change in cash and cash equivalents
Net increase (decrease) in cash and cash equivalents (3,365) 4,172 (3,311)
Cash and cash equivalents at beginning of year 7,159 2,987 6,298
----------- ----------- -----------
Cash and cash equivalents at end of year $ 3,794 $ 7,159 $ 2,987
=========== =========== ===========
Supplemental disclosure of cash flow information
Cash paid during year for:
Interest, net of amount capitalized $ 912 $ 249 $ (136)
=========== =========== ===========
Income tax payments, net of refunds $ 333 $ 148 $ 216
=========== =========== ===========
SEE NOTE 3 FOR NONCASH INVESTING AND FINANCING ACTIVITIES.
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
F-5
<PAGE> 79
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
(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> <C>
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
loss on investments (3,296)
Net change in foreign
currency translation
adjustment (1,740)
Treasury stock issued 3
----- ------ ------ -------- -------- --------- -------- --------- -------
Balances, December 31, 1995 2,300 575 48,317 12,079 330,352 (173,206) 100 (4,898) (886)
Net loss (32,354)
Preferred stock dividends
($3.50 per share) (8,050)
Stock issued for cash,
net of issuance costs 2,875 719 21,154
Stock issued to directors 7 2 53
Net change in unrealized
loss on investments (132)
----- ------ ------ -------- -------- --------- -------- --------- -------
Balances, December 31, 1996 2,300 575 51,199 12,800 351,559 (213,610) (32) (4,898) (886)
Net loss (483)
Preferred stock dividends
($3.50 per share) (8,050)
Stock issued for cash,
net of issuance costs 3,950 987 22,368
Stock issued to directors 7 2 39
Net change in unrealized
loss on investments (31)
------ ------ ------ -------- -------- --------- -------- --------- -------
Balances, December 31, 1997 2,300 $ 575 55,156 $ 13,789 $373,966 $(222,143) $ (63) $ (4,898) $ (886)
====== ====== ====== ======== ======== ========= ======== ========= =======
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
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 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
liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ materially from those
estimates.
Certain consolidated financial statement amounts have been
reclassified to conform to the 1997 presentation. These
reclassifications had no effect on the net loss or accumulated
deficit as previously reported.
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,
aggregate and landscape 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 were significantly reduced because of environmental
requirements or otherwise, it is possible that the Company's
silver operations
F-7
<PAGE> 81
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:
1997 1996 1995
---- ---- ----
Customer A 30.1% 31.2% 30.6%
Customer B 19.8% 29.5% 32.8%
Customer C 12.8% 16.0% 8.2%
Customer D 1.3% 7.5% 11.6%
During 1997, 1996, and 1995, the Company sold 23.8%, 10.8% and
7.2%, respectively, of its products to companies in foreign
countries. Significant export sales, as a percentage of total
sales to foreign countries, were as follows:
1997 1996 1995
---- ---- ----
Canada 28.2% 27.7% 26.2%
Mexico 17.8% 32.9% 42.7%
Belgium 13.6% - - - -
Japan 13.4% 2.3% 1.0%
England 11.4% 5.6% 0.2%
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 federal 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 are categorized as available for sale.
F-8
<PAGE> 82
Realized gains and losses on the sale of securities are
recognized 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, 1997 and 1996,
primarily represent investments in money market funds and U.S.
Treasury securities. These investments are or were restricted
for reclamation funding, as well as reclamation surety bond and
appeal bond collateral requirements.
E. PROPERTIES, PLANTS AND EQUIPMENT -- Properties, plants and
equipment are stated at the lower of cost or estimated net
realizable value. Maintenance, repairs and renewals are charged
to operations. Betterments of a major nature are capitalized.
When assets are retired or sold, the costs and related allowances
for depreciation and amortization are eliminated from the
accounts and any resulting gain or loss is reflected in
operations. Idle facilities, placed on a standby basis, are
carried at the lower of net carrying value or estimated net
realizable value.
Management of the Company reviews the net carrying value of all
facilities, including idle facilities, on a 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 metal
prices that affect the decision to reopen or make a disposition
of the assets. The Company estimates the net realizable value of
each property based on the estimated undiscounted future cash
flows that will be generated from operations at each property,
the estimated salvage value of the surface plant 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. Effective January
1995, the Company adopted 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 121).
The adoption of SFAS 121 had no
F-9
<PAGE> 83
material impact on the Company's results of operations or
financial condition.
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 and information, 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.
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, mineral 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
reclamation 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
are capitalized at operating properties and at new mining
properties not yet producing.
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 and charged to cost of sales and other direct production
costs. 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
F-10
<PAGE> 84
is made to permanently close the property, in which case they are
recognized currently and charged to provision for closed
operations and environmental matters. 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 and are charged to
provision for closed operations and environmental matters. 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. Recoveries of environmental remediation
costs from other parties are recorded as assets when their
receipt is deemed probable.
In 1996, the American Institute of Certified Public Accountants
issued Statement of Postion 96-1, "Environmental Remediation
Liabilities" (SOP 96-1). The Company adopted the provisions of
SOP 96-1 during 1996. The adoption of the provisions of SOP 96-1
had no material effect on the results of operations or financial
condition of the Company.
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 could change materially in the future. The
Company periodically reviews its accrued liabilities for such
remediation costs as evidence becomes available indicating that
its remediation liability has potentially 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. BASIC AND DILUTED LOSS PER COMMON SHARE -- In February 1997,
Statement of Financial Accounting Standards No. 128 (SFAS 128),
"Earnings per Share" was issued. SFAS 128 established standards
F-11
<PAGE> 85
for computing and presenting earnings per share (EPS) and
simplifies the existing standards. This standard replaced the
presentation of primary and fully diluted EPS with a presentation
of basic and diluted EPS. It also requires the dual presentation
of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. The Company adopted the provisions of SFAS 128 in
1997, and all prior period EPS calculations have been restated to
conform with SFAS 128. Due to the losses in 1997, 1996, and 1995,
common stock equivalents were excluded from the calculation of
primary EPS as they were antidilutive. Therefore, there was no
difference in the calculation of basic and primary EPS in 1997,
1996, and 1995, and there is no difference between basic and
diluted EPS in any of these three years.
K. REVENUE RECOGNITION -- Sales of metal products sold directly
to smelters are recorded when title and risk of loss transfer to
the smelter, at estimated metal prices. Recorded values are
adjusted periodically and upon final settlement. Metal in
products tolled (rather than sold to smelters) is sold under
contracts for future delivery; such sales are recorded at
contractual amounts when products are available to be processed
by the smelter or refinery. Sales of industrial minerals are
recognized as the minerals are delivered.
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.
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
F-12
<PAGE> 86
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.
Accumulated translation adjustments from prior periods are
included as a separate component of 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 derivative commodity instruments to
manage its exposure to fluctuations in the prices of certain
metals which it produces. The Company does not hold or issue
derivative instruments for trading purposes.
The Company uses forward sales and commodity put and call options
to hedge anticipated sales of certain metal products it produces.
The Company also utilizes forward contracts to sell its unhedged
production of metal products.
The Company accounts for commodity put and call options by
deferring any gains and losses, and the related costs paid or
premium received, for contracts which hedge the sales prices of
commodities until the hedged position is settled. Gains and
losses, and the related costs paid or premiums received are
included in sales at the time of settlement. The Company
recognizes revenue on forward sales contracts designated as
hedges at the time the Company matches specific production to a
forward contract, or upon settlement of the net position in cash.
In the case of matching specific production to a contract, the
revenue may be recognized in a period prior to the receipt of
cash, in which case a receivable is established for the expected
receipt, although this time period is typically less than two
months. Specific criteria required for commodity put and call
options and forward sales contracts accounting include the
Company's ability to produce the underlying commodity prior to
the contract settlement date, the existence of price risk
associated with the underlying commodity, the designation of the
transaction at the time the contract is entered into as a hedge
against price volatility, and whether this type of transaction
effectively reduces the price risk associated with the underlying
commodity.
The Company also uses forward contracts as a means to sell
available production. Revenue from these contracts is recognized
at the time the contracts are entered into, with a corresponding
receivable, as the commodity has already been produced and is
available for delivery. Upon delivery of the underlying
commodity on the settlement date, cash is received from the sale.
The only criterion for utilizing this method is the availability
of produced metal at the time the contract is entered into.
F-13
<PAGE> 87
P. ACCOUNTING FOR STOCK OPTIONS -- In October 1995, the
Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123). SFAS 123 establishes financial
accounting and reporting standards for stock-based employee
compensation plans. SFAS 123 encourages all entities to adopt a
fair value based method of accounting, but allows an entity to
continue to measure compensation cost for those plans using the
intrinsic value method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company adopted only the disclosure provisions
of SFAS 123 in 1996.
Q. COMPREHENSIVE INCOME -- In June 1997, Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Comprehensive Income,"
was issued. SFAS 130 establishes standards for reporting and
display of comprehensive income and its components in a full set
of general purpose financial statements. SFAS 130 is effective
for fiscal years beginning after December 15, 1997, and requires
restatement of earlier periods presented. The Company does not
believe the application of this standard will have a material
effect on the Company's presentation of its financial statements.
NOTE 2: INVENTORIES
Inventories consist of the following (in thousands):
December 31,
-------------------
1997 1996
-------- --------
Concentrates, bullion, metals in transit
and other products $ 4,773 $ 4,839
Industrial minerals products 9,230 8,902
Materials and supplies 8,113 9,138
-------- --------
$ 22,116 $ 22,879
======== ========
At December 31, 1997, the Company had forward sales commitments
through June 30, 1999 for 17,000 ounces of gold at an average
price of $354 per ounce and forward sales commitments through
December 31, 1998, for 2,160,000 ounces of silver at an average
price of $5.68 per ounce. All of the aforementioned contracts
are designated as hedges at December 31, 1997. 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. The London Initial gold price at December 31, 1997
was $289 per ounce. The Handy & Harman silver price at December
31, 1997, was $5.95 per ounce.
F-14
<PAGE> 88
NOTE 3: PROPERTIES, PLANTS AND EQUIPMENT
The major components of properties, plants and equipment are (in
thousands):
December 31,
--------------------
1997 1996
--------- ---------
Mining properties $ 51,079 $ 39,893
Development costs 98,558 99,659
Plants and equipment 249,534 246,091
Land 6,158 6,142
--------- ---------
405,329 391,785
Less accumulated depreciation,
depletion and amortization 225,292 214,030
--------- ---------
Net carrying value $ 180,037 $ 177,755
========= =========
In the fourth quarter of 1997, as a result of the expiration of
the underlying lease agreement, the Company recorded an
adjustment, totaling $0.5 million, to reduce the carrying value
of its interest in the Lisbon Valley joint venture.
On January 31, 1997, Great Lakes Minerals Inc. (Great Lakes) and
the Company entered into a letter agreement terminating the
Grouse Creek joint venture and conveying Great Lakes' interest in
the Grouse Creek mine to Hecla. Great Lakes retained a 5%
defined net proceeds interest in the property. The Company has
assumed 100% of the interests and obligations associated with the
property.
In 1996, based on its periodic reviews of the status of various
mining properties, the Company determined that certain
adjustments were necessary to properly reflect estimated net
realizable values. These adjustments, totaling $12.9 million,
consisted of write-downs of property, plant and equipment,
inventories and production notes payable for the Company's
interest in the American Girl mine ($7.6 million), and property,
plant and equipment and inventories for the Company's interest in
the Grouse Creek mine ($5.3 million).
In 1995, adjustments to the carrying value of mining properties
totaling $97.4 million were recorded to write down the Company's
interest in the Grouse Creek mine ($97.0 million) and for the
Company's interest in ConSil Corp.'s Silver Summit mine ($0.4
million).
The net carrying values of the major mining properties of the
Company that were on a standby or idle basis at December 31, 1997
and 1996, were approximately $2.8 million and $4.0 million,
respectively.
F-15
<PAGE> 89
On September 6, 1996, Hecla and Santa Fe Pacific Gold Corporation
(Santa Fe), which was subsequently acquired by Newmont Gold
Company (Newmont), entered into a joint venture agreement with
respect to the development and operation of the Rosebud mine.
Pursuant to the agreement, a limited liability corporation was
established with each party owning a 50% interest in the mine.
No gain or loss was recognized in connection with the agreement.
Under the terms of the agreement, Hecla manages the mining
activities and Newmont manages mill processing. Total mine-site
capital expenditures to bring the mine into production were $18.7
million; all of which had been expended through December 31,
1997. Under the terms of the agreement, Newmont funded the first
$12.5 million of mine-site development and is also responsible to
fund costs of road and mill facility improvements. Newmont also
contributed exploration property adjacent to the Rosebud
property, and funded the first $1.0 million in exploration
expenditures in 1997, and will fund two-thirds of future
exploration expenditures beyond the initial $1.0 million.
In 1996, Euro-Nevada Mining Corporation Inc. (Euro-Nevada)
exercised its option to purchase an additional 1.5% Net Smelter
Return (NSR) royalty on the Rosebud property for $2.5 million,
the proceeds of which were retained by Hecla under the terms of
the agreement with Newmont. After the exercise of its option,
Euro-Nevada holds a 4% NSR royalty on production from the Rosebud
property. The Company recognized a gain of $2.5 million in 1996
associated with this transaction.
In 1996, the Company and Santa Fe entered into a joint venture
agreement for the Golden Eagle property located adjacent to the
Company's Republic mine. This agreement was assumed by Newmont
as part of its acquisition of Santa Fe. Newmont purchased an
immediate 75% interest in the joint venture for $2.5 million. The
Company recorded a gain on the transaction totaling $0.6 million.
Under the agreement, Newmont is to fund all expenditures at the
property through the economic feasibility stage.
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 totaling approximately $3.2 million. The Company received
$4.4 million in cash at closing and accepted a note receivable
for the remaining $5.0 million. Under the note, $3.0 million,
plus accrued interest, was paid on September 27, 1996, and the
balance of $2.0 million, plus accrued interest, was paid on
September 27, 1997.
F-16
<PAGE> 90
NOTE 4: INCOME TAXES
Major components of the Company's income tax provision are (in
thousands):
1997 1996 1995
------ ------ ------
Current
Federal $ 24 $ (749) $ (298)
State 345 341 307
Foreign 1,528 1,085 300
------ ------ ------
Income tax provision $1,897 $ 677 $ 309
====== ====== ======
Domestic and foreign components of income (loss) before income
taxes for the years ended December 31, 1997, 1996 and 1995 are as
follows (in thousands):
December 31,
----------------------------------
1997 1996 1995
-------- -------- ---------
Domestic $ (4,922) $(36,468) $(104,050)
Foreign 6,336 4,791 2,640
-------- -------- ---------
Total $ 1,414 $(31,677) $(101,410)
======== ======== =========
The components of the net deferred tax liability were as follows
(in thousands):
December 31,
------------------------
1997 1996
--------- ---------
Deferred tax assets
Accrued reclamation costs $ 14,039 $ 17,988
Investment valuation differences 2,062 1,924
Capital loss carryover 2,373 2,826
Postretirement benefits other
than pensions 1,051 967
Deferred compensation 1,059 795
Accounts receivable 456 456
Foreign net operating losses 2,634 3,048
Federal net operating losses 83,715 72,686
State net operating losses 8,372 7,514
Tax credit carryforwards 3,487 2,659
Miscellaneous 1,446 2,531
--------- ---------
Total deferred tax assets 120,694 113,394
Valuation allowance (112,478) (107,937)
--------- ---------
Net deferred tax assets 8,216 5,457
--------- ---------
Deferred tax liabilities
Properties, plants and equipment (5,815) (3,903)
Deferred income (134) (210)
Pension costs (1,461) (951)
Inventories (806) (393)
Deferred state income taxes, net (300) (359)
--------- ---------
Total deferred tax liabilities (8,516) (5,816)
--------- ---------
Net deferred tax liability $ (300) $ (359)
========= =========
F-17
<PAGE> 91
The Company 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, 1997, 1996 and 1995, are as follows
(in thousands):
1997 1996 1995
---------- ---------- ----------
Balance at beginning of year $ (107,937) $ (97,705) $ (67,149)
Increase related to nonutilization
of net operating loss carry-
forwards and nonrecognition of
deferred tax assets due to
uncertainty of recovery (4,541) (10,232) (30,556)
---------- ---------- ----------
Balance at end of year $ (112,478) $ (107,937) $ (97,705)
========== ========== ==========
The annual tax provision 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):
1997 1996 1995
-------------- --------------- --------------
Computed "statutory"
provision (benefit) $ 481 34% $(10,770) (34)% $(34,479) (34)%
Nonutilization of net
operating losses and
effect of foreign tax
provisions 1,188 84 11,716 37 34,782 34
State income taxes, net
of federal tax benefit 228 16 (269) (1) 6 0
------- ---- -------- ---- -------- ----
$ 1,897 134% $ 677 2% $ 309 0%
======= ==== ======== ==== ======== ====
As of December 31, 1997, for income tax purposes, the Company has
operating loss carryovers of $246.0 million and $136.0 million,
for regular and alternative minimum tax purposes, respectively.
These operating loss carryovers expire over the next 15 years,
the majority of which expire between 2006 and 2012. In addition,
the Company has foreign tax operating losses of approximately
$8.0 million which expire prior to 2003 and investment tax credit
carryovers of $1.1 million which expire prior to 2002.
Approximately $17.0 million and $8.0 million of regular and
alternative minimum tax loss carryovers, respectively, are
subject to limitations in any given year due to mergers. The
Company has approximately $1.2 million in alternative minimum tax
credit carryovers eligible to reduce future regular tax
liabilities.
F-18
<PAGE> 92
NOTE 5: LONG-TERM DEBT AND CREDIT AGREEMENT
Long-term debt consists of the following (in thousands):
December 31,
-----------------------
1997 1996
--------- ----------
Revolving credit agreement $ 12,000 $ 38,000
Revenue bonds 9,800 - -
Notes payable - Sunbeam - - 346
Other long-term debt 486 208
--------- ----------
22,286 38,554
Less current portion (150) (346)
--------- ----------
$ 22,136 $ 38,208
========= ==========
Revolving Credit Agreement
On August 11, 1997, the Company entered into a new revolving and
term loan credit facility (Bank Agreement) to replace the prior
facility. Under the terms of the Bank Agreement, the Company may
borrow up to $55.0 million on a revolving credit basis through
July 31, 2000, repayable in eight quarterly installments
beginning October 31, 2000. During the commitment period, the
Company pays an annual facility fee ranging from $178,750 to
$261,250, the amount of which is based on average quarterly
borrowings. The Bank Agreement includes certain collateral
provisions, including the pledging of the common stock of certain
of the Company's subsidiaries and providing the lenders a
security interest in accounts receivable. Under the Bank
Agreement, the Company is required to maintain certain financial
ratios, and meet certain net worth and indebtedness tests for
which the Company was in compliance at December 31, 1997. Amounts
available for borrowing under the Bank Agreement are based on a
defined debt to cash flow test. At December 31, 1997, the
Company had borrowings classified as long-term debt of $12.0
million under the Bank Agreement. The amount available to borrow
is reduced by the $9.8 million amount of tax-exempt solid waste
disposal bonds outstanding (described below). At December 31,
1997, the Company had the ability to borrow an additional $33.2
million under the Bank Agreement. The interest rate for
borrowing under the Bank Agreement as of December 31, 1997 was
7.355%.
Revenue Bonds
On July 30, 1997, the Company issued $9.8 million aggregate
principal amount of tax-exempt, solid waste disposal revenue
bonds. The net proceeds of approximately $9.6 million from the
issuance were initially used to pay down debt under the Company's
existing revolving and term loan credit facility. The bonds
F-19
<PAGE> 93
mature on July 1, 2007. The payment of the unpaid principal and
up to $140,959 of interest (35 days at an annual rate of 15%) on
the bonds is collateralized by an irrevocable, direct-pay letter
of credit, which will expire on July 31, 1998 unless extended.
The letter of credit has an annual fee equal to 1.5% of the
amount of the letter of credit. The bonds initially bear
interest at the weekly rate as determined by the remarketing
agent. At the Company's option, the weekly rate may be converted
to a fixed or variable rate. While the bonds bear interest at
the weekly rate or the variable rate, the bonds are redeemable at
the option of the Company and the direction of the Company, in
whole or in increments of $100,000, upon at least 30 days written
notice. Certain restrictions are applicable to optional
redemptions while the bonds bear interest at the fixed rate. At
December 31, 1997, there was $9.8 million in revenue bonds
outstanding classified as long-term debt. The interest rate on
the bonds as of December 31, 1997 was 4.4%.
Notes Payable - Sunbeam
The Sunbeam notes were non-interest bearing, discounted at 15%
and payable in three annual equal amounts. The final installment
was paid in January 1997.
NOTE 6: 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
minimum lease payments under these noncancelable operating leases
as of December 31, 1997, are as follows (in thousands):
Year ending December 31,
------------------------
1998 $ 3,458
1999 2,972
2000 1,968
2001 1,148
2002 383
Thereafter 312
-------
Total minimum lease payments $10,241
=======
Approximately $1.4 million of the above minimum lease payments
relate to equipment used at the Company's Grouse Creek mine which
was written down in 1996 and 1995. The Company is seeking
arrangements such that there will be no material additional lease
obligations in connection with the Grouse Creek mine beyond April
F-20
<PAGE> 94
1998; however, there can be no assurance that the Company will be
successful in making such arrangements. The lease obligations
through April 1998 were accrued and charged to operations in
1997.
Rent expense incurred for operating leases during the years ended
December 31, 1997, 1996 and 1995 was approximately $4.8 million,
$4.2 million and $3.8 million, respectively.
Contingencies
- - Bunker Hill
In 1994, the Company, as a potentially responsible party under
the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (CERCLA or Superfund), entered
into a Consent Decree with the Environmental Protection Agency
(EPA) and the State of Idaho, concerning environmental
remediation obligations at the Bunker Hill Superfund Site (Bunker
Hill Site) located at Kellogg, Idaho. The Consent Decree settles
the Company's response-cost liability under Superfund at the
Bunker Hill Site. As of December 31, 1997, the Company has
estimated and accrued an allowance for liability for remedial
activity costs at the Bunker Hill Site of $7.3 million. These
estimated expenditures are anticipated to be made over the next
three to five years. As with any estimate of this nature, it is
reasonably possible that the Company's estimate of this
obligation may change in the near term.
Coeur d'Alene River Basin Natural Resource Damage Claims
- - Coeur d'Alene Tribe Claims
In July 1991, the Coeur d'Alene Indian Tribe (the Tribe) brought
a lawsuit, under CERCLA, in Idaho Federal District Court against
the Company and a number of other mining companies asserting
claims for damages to natural resources downstream from the
Bunker Hill Site over which the Tribe alleges some ownership or
control. The Company has answered the Tribe's complaint denying
liability for natural resource damages. In October 1996,
following a court imposed four-year stay of the proceeding, the
Tribe's natural resource damage litigation was consolidated with
the United States Natural Resources Damage litigation described
below.
- - U.S. Government Claims
On March 22, 1996, the United States filed a lawsuit in Idaho
Federal District Court against certain mining companies that
conducted historic mining operations in the Silver Valley of
northern Idaho, including the Company. The lawsuit asserts
F-21
<PAGE> 95
claims under CERCLA and the Clean Water Act and seeks recovery
for alleged damages to or loss of natural resources located in
the Coeur d'Alene River Basin (the Basin) in northern Idaho over
which the United States asserts to be the trustee under CERCLA.
The lawsuit asserts that the defendants' historic mining activity
resulted in releases of hazardous substances and damaged natural
resources within the Basin. The suit also seeks declaratory
relief that the Company and other defendants are jointly and
severally liable for response costs under CERCLA for historic
mining impacts in the Basin outside the Bunker Hill Site. The
Company answered the complaint on May 17, 1996, denying liability
to the United States under CERCLA and the Clean Water Act and
asserted a counterclaim against the United States for the federal
government's involvement in mining activity in the Basin which
contributed to the releases and damages alleged by the United
States. The Company believes it also has a number of defenses to
the United States' claims. In October 1996, the Court
consolidated the Coeur d'Alene Tribe Natural Resource Damage
litigation with this lawsuit for discovery and other limited
pretrial purposes. The case is proceeding through discovery and
the defendant mining companies have filed a number of summary
judgment motions which are currently pending before the Court.
- - State of Idaho Claims
On March 22, 1996, the Company entered into an agreement (the
Idaho Agreement) with the State of Idaho (State) pursuant to
which the Company agreed to continue certain financial
contributions to environmental cleanup work in the Basin being
undertaken by a State Trustees group. In return, the State
agreed not to sue the Company for damage to natural resources for
which the State is a trustee for a period of five years, to
pursue settlement with the Company of the State's natural
resource damage claims and to grant the Company credit against
any such State claims for all expenditures made under the Idaho
Agreement and certain other Company contributions and
expenditures for environmental cleanup in the Basin.
At December 31, 1997, the Company's accrual for remediation
activity in the Basin, not including the Bunker Hill Site,
totaled approximately $0.8 million. These expenditures are
anticipated to be made over the next four years. Depending on
the results of the aforementioned lawsuits, it is possible that
the Company's estimate of its obligation may change in the near
term.
Insurance Coverage Litigation
In 1991, the Company initiated litigation in the Idaho State
District Court in Kootenai County, Idaho, against a number of
insurance companies which provided comprehensive general
F-22
<PAGE> 96
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 EPA and the Tribe under CERCLA related to the
Bunker Hill Site and the Basin in northern Idaho. In 1992, the
Court ruled that the primary insurance companies had a duty to
defend the Company in the Tribe's lawsuit. During 1995 and 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 approximately $7.2 million under the terms of
the settlement agreements. Thirty percent of these settlements
were paid to the EPA to reimburse the U.S. Government for past
costs under the Bunker Hill Site Consent Decree. Litigation is
still pending against one insurer with trial continued until the
underlying environmental claims against the Company are resolved
or settled. The remaining insurer is providing the Company with
a partial defense in all Basin environmental litigation. As of
December 31, 1997, the Company had not reduced its accrual for
reclamation and closure costs to reflect the receipt of any
anticipated insurance proceeds.
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 currently expected outcome of these matters,
individually or in the aggregate, will not have a material
adverse effect on the results of operations, financial condition
or cash flows of the Company.
NOTE 7: 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-23
<PAGE> 97
Net periodic pension cost (income) for the plans consisted of the
following in 1997, 1996 and 1995 (in thousands):
1997 1996 1995
------- ------- -------
Service cost $ 946 $ 881 $ 778
Interest cost 2,330 2,196 2,021
Return on plan assets (3,962) (3,499) (2,607)
Amortization of transition asset (392) (419) (434)
Amortization of unrecognized
prior service cost 121 91 70
Amortization of unrecognized net
gain from earlier periods (428) (60) (12)
------- ------- -------
Net pension income $(1,385) $ (810) $ (184)
======= ======= =======
The following table sets forth the funded status of the plans and
amounts recognized in the Company's consolidated balance sheets
(in thousands):
December 31,
-----------------------
1997 1996
-------- --------
Actuarial present value of
benefit obligations:
Vested benefits $ 31,842 $ 29,917
Nonvested benefits 414 321
-------- --------
Accumulated benefit obligations 32,256 30,238
Effect of projected future salary
and wage increases 3,928 1,842
-------- --------
Projected benefit obligations $ 36,184 $ 32,080
======== ========
Plan assets $ 51,684 $ 44,984
Projected benefit obligations (36,184) (32,080)
-------- --------
Plan assets in excess of projected
benefit obligations 15,500 12,904
Unrecognized net gain (10,654) (9,260)
Unrecognized prior service cost 1,239 1,378
Unrecognized net asset
at January 1 (1,779) (2,213)
-------- --------
Pension asset recognized in
consolidated balance sheets $ 4,306 $ 2,809
======== ========
The projected benefit obligation was calculated by applying the
following rates:
1997 1996
---- ----
Discount rate 7.00% 7.50%
Long-term compensation increase 4.00% 4.00%
Long-term rate of return on plan assets 9.00% 9.00%
The Company provides certain postretirement benefits, principally
health care and life insurance benefits for qualifying retired
employees. The costs of these benefits are funded out of general
F-24
<PAGE> 98
corporate funds and are accrued over the period in which active
employees provide services to the Company. Net periodic
postretirement benefit costs include the following components (in
thousands):
1997 1996 1995
------ ------ ------
Service cost $ 15 $ 16 $ 13
Interest cost 143 145 154
Amortization of gain (56) (24) (18)
------ ------ ------
Net postretirement benefit cost $ 102 $ 137 $ 149
====== ====== ======
The following table sets forth the status of the postretirement
benefit programs (other than pensions) and amounts recognized in
the Company's consolidated balance sheets (in thousands):
December 31,
--------------------
1997 1996
-------- --------
Accumulated postretirement
benefit obligations:
Retirees $ 1,173 $ 1,236
Fully eligible, active plan
participants 454 441
Other active plan participants 288 234
-------- --------
1,915 1,911
Unrecognized net gain 601 571
-------- --------
Accumulated postretirement
benefit obligations recognized
in consolidated balance sheets $ 2,516 $ 2,482
======== ========
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 costs for 1997 or 1996.
1997 1996
------- -------
Discount rate 7.00% 7.50%
Trend rate for medical benefits 6.00% 6.00%
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, 1997
and 1996, amounted to approximately $3.1 million and $2.3
million,
F-25
<PAGE> 99
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 15% of their compensation to the plan. The Company
makes a matching contribution of 25% of an employee's
contribution up to, but not exceeding, 6% of the employee's
earnings. The Company's contribution was approximately $263,000
in 1997, $190,000 in 1996, and $173,000 in 1995.
NOTE 8: 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 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
declared and unpaid dividends which total $117,012,000 at
December 31, 1997.
F-26
<PAGE> 100
Shareholder Rights Plan
In 1996, the Company adopted a replacement 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 alterations,
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 $50 exercise price of the
right. The rights are nonvoting, may be redeemed at any time at
a price of one cent per right, and expire in May 2006.
Additional details are set forth in the Rights Agreement filed
with the Securities and Exchange Commission on May 10, 1996.
Stock Option Plans
At December 31, 1997, executives, key employees and directors had
been granted options to purchase common shares under stock option
plans described below. The Company has adopted the disclosure-
only provisions of SFAS 123. No compensation expense has been
recognized in 1997 or 1996 for unexercised options related to the
stock option plans. Had compensation cost for the Company's
stock option plans been determined based on the fair value at the
grant date for awards in 1997 and 1996 consistent with the
provisions of SFAS 123, the Company's loss and per share loss
applicable to common shareholders would have been increased to
the pro forma amounts indicated below (in thousands, except per
share amounts):
1997 1996 1995
-------- -------- --------
Loss applicable to common
shareholders:
As reported $ 8,533 $40,404 $109,769
Pro forma $ 9,229 $40,731 $109,826
Loss applicable to common
shareholders per share:
As reported $ 0.16 $ 0.79 $ 2.28
Pro forma $ 0.17 $ 0.81 $ 2.28
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
F-27
<PAGE> 101
1997 1996 1995
-------- -------- --------
Expected dividend yield 0.00% 0.00% 0.00%
Expected stock price
volatility 45.31% 42.65% 42.65%
Risk-free interest rate 6.42% 5.63% 7.89%
Expected life of options 4.1 years 4.1 years 4.1 years
The weighted average fair value of options granted in 1997, 1996,
and 1995 was $2.27, $3.40, and $4.17, respectively.
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. In 1995, 15,000 options under the
1987 plan were granted. Outstanding options under the 1987 plan
are immediately exercisable for periods up to ten years. During
1997, 1996, and 1995, respectively, 53,577, 47,000, and 0 options
to acquire shares expired under the 1987 plan. The ability to
grant further options under the plan expired on February 13,
1997.
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. There were no
options to acquire shares granted in 1995 under the 1995 plan.
During 1997 and 1996 respectively, 480,500 and 278,000 options to
acquire shares were granted to the Company's officers and key
employees of which 348,000 and 215,000, respectively, of these
options to acquire shares were granted with vesting requirements
of 20% on the grant date and 20% on each of the next four
anniversary dates from the grant date. During 1996, 1,500
options to acquire shares expired under the 1995 plan. At
December 31, 1997, there were 1,243,000 options to acquire shares
available for grant in the future under the 1995 plan.
In 1995, the Company adopted the Hecla Mining Company Stock Plan
for Nonemployee Directors (the Directors' Stock Plan), which is
F-28
<PAGE> 102
subject to termination by the Board of Directors at any time.
Each nonemployee director is credited with 1,000 shares of the
Company's common stock 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 earliest 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 delivery of shares on such date,
or in annual installments thereafter over 5, 10 or 15 years. The
shares of 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 both 1997 and 1996,
7,000 shares were credited to the nonemployee directors. At
December 31, 1997, there were 99,461 shares available for future
grants under the plan.
Transactions concerning stock options pursuant to all of the
above-described plans are summarized as follows:
Weighted Average
Shares Exercise Price
--------- ----------------
Outstanding, December 31, 1994 347,500 $10.35
Year ended December 31, 1995
Granted 15,000 $ 9.38
Exercised (12,500) $ 9.81
Expired (33,508) $ 8.62
--------
Outstanding, December 31, 1995 316,492 $10.51
--------
Year ended December 31, 1996
Granted 278,000 $ 8.28
Exercised - -
Expired (48,500) $10.57
--------
Outstanding, December 31, 1996 545,992 $ 9.37
--------
Year ended December 31, 1997
Granted 480,500 $ 5.63
Exercised - -
Expired (53,577) $10.50
--------
Outstanding, December 31, 1997 972,915 $ 7.46
========
F-29
<PAGE> 103
The following table presents information about the options
outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
Weighted Average
------------------------------
Range of Remaining
Shares Exercise Price Exercise Price Life (Years)
--------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C>
Exercisable options 351,600 $ 5.63 - $ 8.63 $ 6.72 9
Exercisable options 213,915 $ 9.32 - $12.25 $10.51 4
-------
Total exercisable options 565,515 $ 5.63 - $12.25 $ 8.15 7
Unexercisable options 407,400 $ 5.63 - $ 8.63 $ 6.49 9
-------
Total all options 972,915 $ 5.63 - $12.25 $ 7.46 8
=======
</TABLE>
The aggregate amounts charged (credited) to operations in
connection with the plans were $0, $0 and $(21,000) in 1997, 1996
and 1995, respectively.
Common Stock Offerings
In February 1997, the Company issued 3,950,000 shares of its
common stock realizing proceeds of approximately $23.4 million,
net of issuance costs of approximately $1.3 million. The Company
used $23.0 million of the net proceeds to pay down debt under its
revolving and term loan credit facility.
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 approximately $22.0 million were used principally to
reduce the outstanding borrowings under the Company's bank credit
agreement.
F-30
<PAGE> 104
NOTE 9: BUSINESS SEGMENTS (IN THOUSANDS)
1997 1996 1995
-------- -------- --------
Net sales to unaffiliated customers
Metals (including $29,189, $32,034
and $27,729 from Mexican operations
in 1997, 1996 and 1995) $ 89,486 $ 81,409 $ 79,810
Industrial minerals (including $5,051,
$4,204 and $2,664 in Mexico in 1997,
1996 and 1995) 74,462 76,843 67,391
Specialty metals - - - - 4,414
-------- -------- --------
$163,948 $158,252 $151,615
======== ======== ========
Income (loss) from operations
Metals (including $11,757, $7,734
and $6,396 from Mexican operations
in 1997, 1996 and 1995) $ 4,712 $(38,711) $(109,449)
Industrial minerals (including $68,
$92 and $(341) in Mexico in 1997,
1996 and 1995) 4,072 9,083 6,690
Specialty metals - - - - 255
General corporate (8,287) (8,083) (8,317)
-------- -------- ---------
$ 497 $(37,711) $(110,821)
======== ======== =========
Capital expenditures
Metals (including $240, $411 and
$2,319 in Mexico in 1997, 1996
and 1995) $ 20,560 $ 30,388 $ 32,838
Industrial minerals (including
$129, $93 and $183 in Mexico
in 1997, 1996 and 1995) 3,610 3,075 11,811
Specialty metals - - - - 81
General corporate 624 268 578
-------- -------- ---------
$ 24,794 $ 33,731 $ 45,308
======== ======== =========
Depreciation, depletion and amortization
Metals $ 16,233 $ 15,728 $ 18,859
Industrial minerals 4,776 4,723 4,580
Specialty metals - - - - 23
General corporate 311 338 367
-------- -------- ---------
$ 21,320 $ 20,789 $ 23,829
======== ======== =========
Identifiable assets
Metals (including $6,462, $7,268
and $15,702 in Mexico in 1997,
1996 and 1995) $150,857 $155,082 $ 144,246
Industrial minerals (including
$3,606, $3,513 and $4,888 in
Mexico in 1997, 1996 and 1995) 68,413 70,613 71,163
General corporate 23,960 34,520 35,998
Idle facilities 7,438 8,178 6,783
-------- -------- ---------
$250,668 $268,393 $ 258,190
======== ======== =========
F-31
<PAGE> 105
Net sales and identifiable assets of each segment are those that
are directly identified with those operations. General corporate
assets consist primarily of cash, receivables, investments and
corporate property, plant and equipment.
In June 1997, Statement of Financial Accounting Standards No. 131
(SFAS 131), "Disclosures about Segments of an Enterprise and
Related Information" was issued. SFAS 131 establishes standards
for the way that a public enterprise reports information about
operating segments in annual financial statements and requires
that those enterprises report selected information about
operating segments in interim financial reports issued to
shareholders. SFAS 131 is effective for fiscal years beginning
after December 15, 1997, and requires restatement of earlier
periods presented. The Company does not believe the application
of this standard will have a material effect on the Company's
presentation of its operating segments.
NOTE 10: 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 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-32
<PAGE> 106
The estimated fair values of financial instruments are as follows
(in thousands):
December 31,
-----------------------------------------
1997 1996
------------------- -------------------
Carrying Fair Carrying Fair
Amounts Value Amounts Value
-------- -------- -------- --------
Financial assets
Cash and cash equivalents $ 3,794 $ 3,794 $ 7,159 $ 7,159
Accounts and notes receivable 24,445 24,445 24,168 24,168
Investments
Equity securities available
for sale 229 229 165 165
Restricted 7,926 7,926 21,771 21,771
Gold spot deferred contracts - - - - - - 299
Gold forward sales contracts - - 931 - - 43
Gold put options - - - - - - 772
Financial liabilities
Current liabilities 24,968 24,968 32,712 32,712
Long-term debt - principal 22,136 22,136 38,208 38,208
Gold call options - - - - - - 2
Silver forward sales contracts - - 701 - - - -
NOTE 11: LOSS PER COMMON SHARE
In accordance with SFAS 128, the following table presents a
reconciliation of the numerators (net loss) and denominators
(shares) used in the basic and diluted loss per common share
computations. Also shown is the effect that has been given to
preferred stock dividends in determining loss applicable to
common shareholders for the years ended December 31, 1997, 1996
and 1995 in computing basic and diluted loss per common share
(dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------ ------------------------------- --------------------------------
Per Share Per Share Per Share
Net Loss Shares Amount Net Loss Shares Amount Net Loss Shares Amount
-------- ------ --------- --------- ------ --------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loss before preferred
stock dividends $ (483) $ (32,354) $ (101,719)
Less: Preferred
stock dividends (8,050) (8,050) (8,050)
-------- --------- ----------
Basic loss applicable
to common
shareholders (8,533) 54,763 $ (0.16) (40,404) 51,133 $ (0.79) (109,769) 48,192 $ (2.28)
-------- ------ ------- --------- ------ ------- ---------- ------ -------
Effect of dilutive
securities(1)
Diluted loss applicable
to common
shareholders $ (8,533) 54,763 $ (0.16) $ (40,404) 51,133 $ (0.79) $ (109,769) 48,192 $ (2.28)
======== ====== ======= ========= ====== ======= ========== ====== =======
</TABLE>
F-33
<PAGE> 107
Dilutive Securities(1)
As of December 31, 1997, 1996, and 1995, there were 973,000,
546,000, and 316,000 shares available for issue under granted
stock options, respectively. These options were not included in
the computation of diluted loss per common share as a loss was
incurred in each of these years, and their inclusion would be
antidilutive. The Company also has 2.3 million shares of
convertible preferred stock outstanding that, if converted, would
be antidilutive, and were therefore excluded from the
determination of diluted loss per common share.
F-34
<PAGE> 108
HECLA MINING COMPANY and WHOLLY OWNED SUBSIDIARIES
FORM 10-K - December 31, 1997
INDEX TO EXHIBITS
Number and Description of Exhibits
----------------------------------
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 Rights Agreement dated as of May 10, 1996
between Hecla Mining Company and American
Stock Transfer & Trust Company, which
includes the form of Rights Certificate of
Designation setting forth the terms of the
Series A Junior Participating Preferred
Stock of Hecla Mining Company as Exhibit A
and the summary of Rights to Purchase
Preferred Shares as Exhibit B.2
10.1 Credit Agreement dated as of August 11, 1997,
among Registrant and Certain Subsidiaries
and NationsBank of Texas, N.A., as Agent,
and Certain Banks as Lenders.2
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, George
R. Johnson, Roger A. Kauffman, Jon T. Langstaff,
John P. Stilwell, and Michael B. White. Such
substantially identical agreements are not
included as separate Exhibits.)1,2
<PAGE> 109
INDEX TO EXHIBITS (continued)
Number and Description of Exhibits
----------------------------------
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
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(a) Amended and Restated Golden Eagle Earn-In
Agreement between Santa Fe Pacific Gold
Corporation and Hecla Mining Company dated
as of September 6, 1996.2
10.8(b) Golden Eagle Operating Agreement between Santa
Fe Pacific Gold Corporation and Hecla Mining
Company dated as of September 6, 1996.2
-2-
<PAGE> 110
INDEX TO EXHIBITS (continued)
Number and Description of Exhibits
----------------------------------
10.9 Limited Liability Company Agreement of the
Rosebud Mining Company, L.L.C. among Santa
Fe Pacific Gold Corporation and Hecla Mining
Company dated as of September 6, 1996.2
11. Computation of weighted average number of
common shares outstanding. Attached
12. Statement of Computation of Ratio of Earnings
to Fixed Charges. Attached
13. Hecla Mining Company Fourth Quarter and
Year-End Results for the Period Ended
December 31, 1997. Attached
21. List of subsidiaries of the Registrant. Attached
23.1 Consent of Coopers & Lybrand to incorpora-
tion by reference of their report dated
February 27, 1998, 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
27. Financial Data Schedule Attached
- -----------------------
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.
-3-
<PAGE> 111
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.
- ----------- -------------------------------------------
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)(e) and 4.5 (10-Q for June 30, 1993)
4.2 4 (Current Report on Form 8-K dated
May 10, 1996)
10.1 10.1 (10-Q for September 30, 1997)
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(a) 10.11(a) (10-Q for September 30, 1996)
10.8(b) 10.11(b) (10-Q for September 30, 1996)
10.9 10.12 (10-Q for September 30, 1996)
-4-
<PAGE> 1
FORM 10-K DECEMBER 31, 1997
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, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Shares of common stock issued at
beginning of period 51,199,324 48,317,324 48,144,274
The incremental effect of the issuance of
new shares for cash, net of issuance costs 3,620,833 2,875,000 - -
The incremental effect of the issuance
of new shares under Stock Option and
Employee Stock Ownership Plans 5,084 3,230 110,263
---------- ---------- ----------
54,825,241 51,195,554 48,254,537
Less:
Weighted average treasury shares held 62,087 62,075 62,291
---------- ---------- ----------
Weighted average number of common shares
outstanding during the period 54,763,154 51,133,479 48,192,246
========== ========== ==========
</TABLE>
<PAGE> 1
Exhibit 12
HECLA MINING COMPANY
FIXED CHARGE COVERAGE RATIO CALCULATION
For the years ended December 31, 1993, 1994, 1995, 1996 and 1997
and the three months ended December 31, 1996 and 1997
(In thousands, except ratios)
<TABLE>
<CAPTION>
4th Qtr 4th Qtr
1993 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) before income
taxes and extraordinary item $ (18,720) $ (24,248) $(101,410) $ (31,667) $ 1,414 $ 888 $ (4,479)
Add: Fixed Charges 9,385 10,857 10,551 11,651 11,126 2,985 2,655
Less: Capitalized Interest (3,533) (1,751) (1,516) (2,360) (806) (646) (197)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) before
income taxes and
extraordinary item $ (12,868) $ (15,142) $ (92,375) $ (22,376) $ 11,734 $ 3,227 $ (2,021)
========= ========= ========= ========= ========= ========= =========
Fixed charges:
Preferred stock dividends $ 4,070 $ 8,050 $ 8,050 $ 8,050 $ 8,050 $ 2,012 $ 2,012
Interest portion of rentals - - 166 541 543 614 139 111
Interest expense 5,224 2,606 1,960 3,058 2,462 834 532
Amortization of LYONs 91 35 - - - - - - - - - -
--------- --------- --------- --------- --------- --------- ---------
Total fixed charges $ 9,385 $ 10,857 $ 10,551 $ 11,651 $ 11,126 $ 2,985 $ 2,655
========= ========= ========= ========= ========= ========= =========
Fixed Charge Ratio (a) (a) (a) (a) 1.05 1.08 (a)
Inadequate coverage $ 22,253 $ 25,999 $ 102,926 $ 34,027 $ - - $ - - $ 4,676
========= ========= ========= ========= ========= ========= =========
Write-downs and other noncash charges:
DD&A(b) (mining activity) $ 13,526 $ 14,233 $ 23,462 $ 20,451 $ 21,009 $ 5,265 $ 5,872
DD&A(b) (corporate) 669 524 367 338 311 82 78
Provision for (benefit from)
closed operations 2,327 11,353 4,615 22,806 (724) 115 (963)
Reduction in carrying value of
mining properties 2,561 7,864 97,387 12,902 715 - - 715
--------- --------- --------- --------- --------- --------- ---------
$ 19,083 $ 33,974 $ 125,831 $ 56,497 $ 21,311 $ 5,462 $ 5,702
========= ========= ========= ========= ========= ========= =========
</TABLE>
(a) Earnings for period inadequate to cover fixed charges.
(b) "DD&A" is an abbreviation for "depreciation, depletion and amoritization."
<PAGE> 1
[Hecla Logo] Exhibit 13
98-01
HECLA REPORTS FOURTH QUARTER AND YEAR-END RESULTS
For the Period Ended December 31, 1997
For release: February 5, 1998
COEUR D'ALENE, IDAHO - Low metals prices and lower-than-
expected profits from the industrial minerals division contributed
to a fourth quarter 1997 loss applicable to common shareholders of
$7 million, or 13 cents per share, for Hecla Mining Company (HL &
HL-PrB:NYSE). This compares to a loss of $1.9 million, or 4 cents
per share, during the fourth quarter of 1996.
For 1997, Hecla's net loss was approximately $500,000 from
operations. However, payment of the regular dividend to owners of
Hecla's preferred stock brought the total 1997 loss to common
shareholders to $8.5 million, or 16 cents per share, compared to a
1996 loss of $40.4 million, or 79 cents per share. The improved
results in 1997 compared to the previous year are primarily
attributable to the closure of two high-cost gold mines in 1996
which resulted in asset write-downs and provisions for closure and
environmental costs.
Contributing to the fourth quarter and year-end loss was the
effect of the low lead price on the Lucky Friday mine. Revenue
from this base metal is credited to the cash cost per ounce of
silver. A depressed lead price in 1997 resulted in the higher-than-
expected average cash cost per ounce of silver at Lucky Friday of
$5.47. Costs at Lucky Friday were also affected by lower
production in the fourth quarter. Output was reduced due to a
tightening of available North American smelter capacity for Lucky
Friday concentrate. New processing contracts have now been put in
place with smelters in the U.S. and Mexico. This mine is expected
to operate at full capacity in 1998, although concentrate treatment
costs will be higher than in the past. Discussions are in progress
with other North American smelters in an effort to decrease
smelting and transportation costs, and ensure long-term treatment
of Lucky Friday concentrates.
Although the Greens Creek silver/zinc/gold lead mine showed a
profit for 1997, it did not achieve the level of silver production
anticipated at the beginning of the year, mainly because the grade
of ore mined during the year was lower than expected.
The industrial minerals segment continues to make a solid
contribution to earnings, but for the first time in 11 years, the
segment failed to show an increase in sales revenue, and operating
profit was $4.9 million less than in 1996. Mountain West Products,
Hecla's decorative bark subsidiary, had an operating loss of
$975,000 in 1997, compared to operating income of $1.3 million in
1996. Depressed spring sales, additional market competition and a
write-down of stockpiled inventory to reflect lower prices in the
market contributed to the loss. Looking ahead, Mountain West has
reorganized its sales staff and strategy and has regained some key
customers for 1998.
At Kentucky-Tennessee Clay Company, decreased sales and
tonnage in the kaolin and feldspar divisions negatively impacted
operating income by about $1.6 million. In response, the
divisions will continue to focus on lowering costs and aggressively
bidding for new business.
Arthur Brown, Hecla's chairman and chief executive officer,
said, "Although we did not achieve the higher expectations with
which we started the year, the bottom line in 1997 was still much
improved over the previous two years. And although we have good,
low-cost operations, we faced the same struggle with depressed
metals prices that other precious metals companies are facing.
Despite heavy downward pressure from falling prices, our stock held
up well on a percentage basis in comparison to most other precious
metals companies."
Contact Bill Booth, vice president-investor and public affairs,
or Vicki Veltkamp, manager-corporate communications
6500 Mineral Drive Coeur d'Alene, Idaho 83815-8788 208/769-4100
FAX 208/769-4159
<PAGE> 2
PRICES
Despite a late-year rally, the average silver price decreased
in 1997 to $4.90 per ounce compared to $5.18 per ounce in 1996.
The gold price decreased significantly in 1997, ending the year
with an average price of $331 per ounce, 15% below 1996's average
gold price of $388 per ounce. Lead, which has a significant impact
on the cost per ounce at Hecla's Lucky Friday silver mine, suffered
a 19% decrease in price, from a 35.1 cent per pound average in 1996
to 28.3 cents per pound in 1997. Each penny change in the price of
lead translates to an approximate $500,000 impact. The zinc price
increased 28%, from an average of 46.5 cents per pound in 1996 to
59.7 cents per pound in 1997.
1997 HIGHLIGHTS
Production and Costs: Increased precious metals production
and lower costs were highlights for Hecla in 1997. Hecla produced
5.1 million ounces of silver at a total cash cost of $3.58 per
ounce in 1997, compared to 3 million ounces of silver at a total
cash cost of $4.24 per ounce in 1996. The company produced
174,164 ounces of gold at a total cash cost of $173 per ounce in
1997, compared to 169,376 ounces in 1996 at a total cash cost of
$276 per ounce. The significant decrease in Hecla's gold
production cost is a result of excellent performance by the Rosebud
and La Choya mines and the closure of two high-cost gold mines.
Gold: In April 1997, the Rosebud mine commenced production
ahead of schedule and under budget, contributing nearly 47,000
ounces of gold to Hecla's account for the year. The La Choya gold
mine produced over 78,000 ounces of gold in 1997.
Silver: Progress continued in 1997 on the development of the
Lucky Friday expansion area. Increased production levels from the
new area are expected by mid-year 1998. The deposit should allow
Lucky Friday to double production to 4 million ounces of silver in
1998.
Star Phoenix: In 1997, the Idaho State Supreme Court reversed
a 1994 judgement of $20 million against Hecla. The ruling released
$10 million in restricted cash previously held in escrow.
New Director: Hecla was pleased to welcome Paul A. Redmond
back to Hecla's board of directors. Mr. Redmond is chairman and
chief executive officer of Washington Water Power.
CONCLUSION
Brown concluded, "In 1997, we were able to increase production
and lower our costs for both gold and silver. Our balance sheet is
in good shape, and we are anticipating improvements in our
industrial minerals segment in 1998. All of these are good reasons
for us to look forward to our future with optimism."
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.
Statements made which are not historical facts, such as
anticipated production, costs or sales performance are "forward-
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and involve a number of risks and
uncertainties that could cause actual results to differ materially
from those projected or implied. These risks and uncertainties
include, but are not limited to, metals prices volatility,
volatility of metals production, industrial minerals market
conditions and project development risks. Refer to the company's
Form 10-Q and 10-K reports for a more detailed discussion of
factors that may impact expected future results.
Hecla Mining Company news releases can be accessed on the
Internet at: http://www.hecla-mining.com
You can also request a free fax of this entire news release from
BusinessWire NewsOnDemand at 800-344-7826
Contact Bill Booth, vice president-investor and public affairs,
or Vicki Veltkamp, manager-corporate communications
6500 Mineral Drive Coeur d'Alene, Idaho 83815-8788 208/769-4100
FAX 208/769-4159
<PAGE> 3
HECLA MINING COMPANY
(dollars in thousands, except per share, per ounce and per pound
amounts - unaudited)
<TABLE>
<CAPTION>
Fourth Quarter Ended Year Ended
-------------------------------- ---------------------------------
HIGHLIGHTS Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1996
- ------------------------------------------------------------------------------------------------------
FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue $ 34,880 $ 40,996 $ 168,569 $ 166,882
Gross profit (loss) (203) 1,600 16,197 10,923
Net income (loss) (4,990) 135 (483) (32,354)
Loss applicable to
common shareholders (7,002) (1,877) (8,533) (40,404)
Basic and dilutive loss per share (0.13) (0.04) (0.16) (0.79)
Cash flow provided (used) by
operating activities (206) (4,534) 6,029 22,314
- ------------------------------------------------------------------------------------------------------
SALE OF PRODUCTS BY SEGMENT
- ------------------------------------------------------------------------------------------------------
Gold operations $ 12,395 $ 17,741 $ 56,257 $ 65,550
Silver operations 6,807 4,569 33,229 15,859
Industrial minerals 15,017 14,810 74,462 76,843
----------- ------------- ------------- -------------
Total sales $ 34,219 $ 37,120 $ 163,948 $ 158,252
- ------------------------------------------------------------------------------------------------------
GROSS PROFIT (LOSS) BY SEGMENT
- ------------------------------------------------------------------------------------------------------
Gold operations $ 3,119 $ 1,336 $ 14,978 $ 2,067
Silver operations (2,097) (738) (3,786) (1,027)
Industrial minerals (1,225) 1,002 5,005 9,883
----------- ------------- ------------- -------------
Total gross profit (loss) $ (203) $ 1,600 $ 16,197 $ 10,923
- ------------------------------------------------------------------------------------------------------
PRODUCTION SUMMARY - TOTALS
- ------------------------------------------------------------------------------------------------------
Gold - Ounces 43,673 47,637 174,164 169,376
Silver - Ounces 1,273,722 1,261,791 5,147,009 3,024,911
Lead - Tons 6,096 6,596 24,995 22,660
Zinc - Tons 4,147 4,090 16,830 7,464
Industrial minerals - Tons shipped 237,802 247,821 1,025,993 1,072,319
Average cost per ounce of gold produced:
Cash operating costs ($/oz.) 159 281 166 273
Total cash costs ($/oz.) 167 281 173 276
Total production costs ($/oz.) 239 338 239 364
Average cost per ounce of silver produced:
Cash operating costs ($/oz.) 4.33 4.58 3.58 4.24
Total cash costs ($/oz.) 4.33 4.58 3.58 4.24
Total production costs ($/oz.) 6.09 5.81 5.42 5.47
- ------------------------------------------------------------------------------------------------------
AVERAGE METAL PRICES
- ------------------------------------------------------------------------------------------------------
Gold - Realized ($/oz.) 319 384 351 393
Gold - London Final ($/oz.) 307 376 331 388
Silver - Handy & Harman ($/oz.) 5.27 4.85 4.90 5.18
Lead - LME Cash (cents/pound) 25.6 32.4 28.3 35.1
Zinc - LME Cash (cents/pound) 53.8 46.7 59.7 46.5
Contact Bill Booth, vice president-investor and public affairs,
or Vicki Veltkamp, manager-corporate communications
6500 Mineral Drive Coeur d'Alene, Idaho 83815-8788 208/769-4100
FAX 208/769-4159
</TABLE>
<PAGE> 4
HECLA MINING COMPANY
Consolidated Statements of Operations
(dollars and shares in thousands, except per share amounts -
unaudited)
<TABLE>
<CAPTION>
Fourth Quarter Ended Year Ended
----------------------------- -----------------------------
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales of products $ 34,219 $ 37,120 $ 163,948 $ 158,252
------------ ------------ ------------ ------------
Cost of sales and other direct
production costs 28,550 30,255 126,742 126,878
Depreciation, depletion and
amortization 5,872 5,265 21,009 20,451
------------ ------------ ------------ ------------
34,422 35,520 147,751 147,329
------------ ------------ ------------ ------------
Gross profit (loss) (203) 1,600 16,197 10,923
------------ ------------ ------------ ------------
Other operating expenses:
General and administrative 1,992 2,102 7,976 7,745
Exploration 1,892 1,443 7,422 4,843
Depreciation and amortization 78 82 311 338
Provision for (benefit from) closed
operations and environmental matters (963) 115 (724) 22,806
Reduction in carrying value of mining
properties 715 - - 715 12,902
------------ ------------ ------------ ------------
3,714 3,742 15,700 48,634
------------ ------------ ------------ ------------
Income (loss) from operations (3,917) (2,142) 497 (37,711)
------------ ------------ ------------ ------------
Other income (expense):
Interest and other income 661 3,876 4,621 8,630
Miscellaneous expense (483) (658) (1,643) (1,870)
Loss on investments (405) - - (405) (28)
Interest expense:
Total interest cost (532) (834) (2,462) (3,058)
Less amount capitalized 197 646 806 2,360
------------ ----------- ------------ ------------
(562) 3,030 917 6,034
------------ ----------- ------------ ------------
Income (loss) before income taxes (4,479) 888 1,414 (31,677)
Income tax provision (511) (753) (1,897) (677)
------------ ----------- ------------ ------------
Net income (loss) (4,990) 135 (483) (32,354)
Preferred stock dividends (2,012) (2,012) (8,050) (8,050)
------------ ----------- ------------ ------------
Loss applicable to common
shareholders $ (7,002) $ (1,877) $ (8,533) $ (40,404)
============ =========== ============ ============
Basic and dilutive loss per share $ (0.13) $ (0.04) $ (0.16) $ (0.79)
============ =========== ============ ============
Weighted average number of common
shares outstanding 55,094 51,137 54,763 51,133
============ =========== ============ ============
Contact Bill Booth, vice president-investor and public affairs,
or Vicki Veltkamp, manager-corporate communications
6500 Mineral Drive Coeur d'Alene, Idaho 83815-8788 208/769-4100
FAX 208/769-4159
</TABLE>
<PAGE> 5
HECLA MINING COMPANY
Consolidated Balance Sheets
(dollars and shares in thousands - unaudited)
<TABLE>
<CAPTION>
Dec. 31, 1997 Dec. 31, 1996
- ------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,794 $ 7,159
Accounts and notes receivable 24,445 24,168
Income tax refund receivable 793 1,262
Inventories 22,116 22,879
Other current assets 1,416 2,284
------------- -------------
Total current assets 52,564 57,752
Investments 2,521 1,723
Restricted investments 7,926 21,771
Properties, plants and equipment, net 180,037 177,755
Other noncurrent assets 7,620 9,392
------------- -------------
Total assets $ 250,668 $ 268,393
============= =============
- ------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 12,590 $ 17,377
Accrued payroll and related benefits 2,436 3,232
Preferred stock dividends payable 2,012 2,012
Accrued taxes 1,016 1,427
Accrued reclamation and closure costs 6,914 8,664
------------- -------------
Total current liabilities 24,968 32,712
Deferred income taxes 300 359
Long-term debt 22,136 38,208
Accrued reclamation and closure costs 34,406 45,953
Other noncurrent liabilities 8,518 5,653
------------- -------------
Total liabilities 90,328 122,885
------------- -------------
- ------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------
Preferred stock 575 575
Common stock 13,789 12,800
Capital surplus 373,966 351,559
Accumulated deficit (222,143) (213,610)
Net unrealized loss on investments (63) (32)
Foreign currency translation adjustment (4,898) (4,898)
Treasury stock (886) (886)
------------- -------------
Total shareholders' equity 160,340 145,508
------------- -------------
Total liabilities and shareholders' equity $ 250,668 $ 268,393
============= =============
Common shares outstanding at end of period 55,094 51,137
============= =============
Contact Bill Booth, vice president-investor and public affairs,
or Vicki Veltkamp, manager-corporate communications
6500 Mineral Drive Coeur d'Alene, Idaho 83815-8788 208/769-4100
FAX 208/769-4159
</TABLE>
<PAGE> 6
HECLA MINING COMPANY
Consolidated Statements of Cash Flows
(in thousands - unaudited)
<TABLE>
<CAPTION>
Year Ended
-----------------------------
Dec. 31, 1997 Dec. 31, 1996
- ---------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Net loss $ (483) $ (32,354)
Noncash elements included in net loss:
Depreciation, depletion and amortization 21,320 20,789
Gain on disposition of properties, plants and equipment (1,111) (706)
Loss on investments 405 28
Reduction in carrying value of mining properties 715 12,902
Provision for reclamation and closure costs 1,341 28,284
Change in:
Accounts and notes receivable (277) 192
Income tax refund receivable 469 (525)
Inventories 548 (4,239)
Other current assets 868 (479)
Accounts payable and accrued expenses (4,787) 3,232
Accrued payroll and related benefits (796) 15
Accrued taxes (411) 385
Accrued reclamation and other noncurrent liabilities (11,772) (5,210)
------------- -------------
Net cash provided by operating activities 6,029 22,314
------------- -------------
- ---------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
- ---------------------------------------------------------------------------------------------
Additions to properties, plants and equipment (24,794) (33,731)
Proceeds from disposition of properties, plants and equipment 1,872 3,641
Proceeds from sale of investments - - 130
Decrease (increase) in restricted investments 13,845 (4,368)
Purchase of investments and increase in cash surrender
value of life insurance (1,233) (726)
Other, net 1,642 (480)
------------- -------------
Net cash used by investing activities (8,668) (35,534)
------------- -------------
- ---------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
- ---------------------------------------------------------------------------------------------
Issuance of common stock, net of offering costs 23,396 21,928
Dividends on preferred stock (8,050) (8,050)
Borrowings, net of repayments, against cash
surrender value of life insurance - - 801
Borrowing on long-term debt 57,601 51,631
Repayment on long-term debt (73,673) (48,918)
------------- -------------
Net cash provided (used) by financing activities (726) 17,392
------------- -------------
Net increase (decrease) in cash and cash equivalents (3,365) 4,172
Cash and cash equivalents at beginning of period 7,159 2,987
------------- -------------
Cash and cash equivalents at end of period $ 3,794 $ 7,159
============= =============
Contact Bill Booth, vice president-investor and public affairs,
or Vicki Veltkamp, manager-corporate communications
6500 Mineral Drive Coeur d'Alene, Idaho 83815-8788 208/769-4100
FAX 208/769-4159
</TABLE>
<PAGE> 7
HECLA MINING COMPANY
Production Data
<TABLE>
<CAPTION>
Fourth Quarter Ended Year Ended
----------------------------- -----------------------------
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1996
- --------------------------------------------------------------------------------------------
LA CHOYA UNIT
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tons of ore processed 777,301 799,971 2,828,335 3,571,047
Days of operation 92 92 365 366
Mining cost per ton $1.93 $2.97 $2.28 $2.61
Ore grade crushed - Gold (oz./ton) 0.027 0.028 0.029 0.026
Gold produced (oz.) 20,291 20,449 78,170 80,171
Silver produced (oz.) 2,173 1,796 8,130 7,708
Average cost per ounce of gold produced:
Cash operating costs $180 $213 $183 $190
Total cash costs $181 $214 $184 $190
Total production costs $223 $329 $224 $305
- --------------------------------------------------------------------------------------------
ROSEBUD UNIT (Reflects Hecla's 50% share) (1)
- --------------------------------------------------------------------------------------------
Tons of ore mined 37,619 - - 112,841 - -
Tons of ore milled 35,327 - - 99,050 - -
Days of operation 92 - - 275 - -
Mining cost per ton $28.66 - - $28.33 - -
Milling cost per ton $11.59 - - $12.18 - -
Ore grade milled - Gold (oz./ton) 0.501 - - 0.494 - -
Ore grade milled - Silver (oz./ton) 2.98 - - 2.96 - -
Gold produced (oz.) 17,833 - - 46,974 - -
Silver produced (oz.) 55,979 - - 168,584 - -
Average cost per ounce of gold produced:
Cash operating costs $136 - - $137 - -
Total cash costs $151 - - $156 - -
Total production costs $259 - - $263 - -
- --------------------------------------------------------------------------------------------
LUCKY FRIDAY UNIT
- --------------------------------------------------------------------------------------------
Tons of ore milled 44,687 48,913 193,399 188,272
Days of operation 63 62 254 252
Mining cost per ton $43.90 $45.75 $43.73 $50.61
Milling cost per ton $8.61 $6.96 $7.98 $6.99
Ore grade milled - Silver (oz./ton) 11.55 10.77 10.33 10.26
Silver produced (oz.) 498,200 496,777 1,943,373 1,906,333
Lead produced (tons) 4,645 5,167 19,270 20,971
Zinc produced (tons) 750 846 3,168 3,653
Average cost per ounce of silver produced:
Cash operating costs $6.33 $4.58 $5.47 $4.24
Total cash costs $6.33 $4.58 $5.47 $4.24
Total production costs $7.46 $5.81 $6.72 $5.47
(cont.)
Contact Bill Booth, vice president-investor and public affairs,
or Vicki Veltkamp, manager-corporate communications
6500 Mineral Drive Coeur d'Alene, Idaho 83815-8788 208/769-4100
FAX 208/769-4159
</TABLE>
<PAGE> 8
HECLA MINING COMPANY
Production Data (cont.)
<TABLE>
<CAPTION>
Fourth Quarter Ended Year Ended
----------------------------- -----------------------------
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1996
- --------------------------------------------------------------------------------------------
GREENS CREEK (Reflects Hecla's 29.73% share) (2)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tons of ore milled 36,420 30,580 145,676 42,737
Days of operation 92 - - 365 - -
Mining cost per ton $44.32 - - $39.58 - -
Milling cost per ton $25.80 - - $23.15 - -
Ore grade milled - Silver (oz./ton) 25.31 24.84 25.68 23.61
Silver produced (oz.) 716,601 683,190 2,889,265 827,799
Gold produced (oz.) 4,473 2,766 16,604 3,086
Lead produced (tons) 1,451 1,429 5,725 1,689
Zinc produced (tons) 3,397 3,244 13,662 3,811
Average cost per ounce of silver produced:
Cash operating costs $2.94 - - $2.31 - -
Total cash costs $2.94 - - $2.31 - -
Total production costs $5.13 - - $4.55 - -
- --------------------------------------------------------------------------------------------
OTHER (3)
- --------------------------------------------------------------------------------------------
Gold produced (oz.) 1,076 24,422 32,416 86,119
Silver produced (oz.) 769 80,028 137,657 283,071
(1) The Rosebud mine commenced operations in April 1997.
(2) The Greens Creek mine recommenced operations on July 29, 1996, on
a start-up basis. Full production was achieved in January 1997.
(3) Includes the Company's share of production from the Grouse Creek
and American Girl mines and other sources.
</TABLE>
CAPITAL EXPENDITURES
Year Ended
---------------------------------
(dollars in thousands)
Dec. 31, 1997 Dec. 31, 1996
------------- -------------
Rosebud (50%*) $ 6,027 $ 591
Lucky Friday 11,215 2,504
Greens Creek (29.73%*) 2,266 19,031
American Girl (47%*) - - 1,643
Grouse Creek - - 3,809
Industrial minerals 3,587 3,024
Capitalized interest 806 2,360
Other 893 769
------------- -------------
Total Capitalized $ 24,794 $ 33,731
============= =============
*Hecla's share
HEDGED POSITIONS
As of December 31, 1997
Silver: 2,160,000 ounces hedged @ average price of $5.68.
Gold: 17,000 ounces hedged @ average price of $354.
Contact Bill Booth, vice president-investor and public affairs,
or Vicki Veltkamp, manager-corporate communications
6500 Mineral Drive Coeur d'Alene, Idaho 83815-8788 208/769-4100
FAX 208/769-4159
<PAGE> 1
FORM 10-K DECEMBER 31, 1997
COMMISSION FILE NO. 1-8491
EXHIBIT 21
HECLA MINING COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF REGISTRANT
December 31, 1997
State or Country Percentage of
in Which Voting Securities
Organized Owned
---------------- ----------------
CoCa Mines Inc. Colorado 100 (A)
ConSil Corp. Idaho 78.50 (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)
MWCA, Inc. Idaho 100 (A)
(A) Included in the consolidated financial statements filed herewith.
<PAGE> 1
Exhibit 23.1
Form 10-K December 31, 1997
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 environmental remediation liabilities
in 1996 and impairment of long-lived assets in 1995, dated
February 5, 1998, on our audits of the consolidated financial
statements of Hecla Mining Company and subsidiaries as of
December 31, 1997 and 1996, and for the years ended December 31,
1997, 1996 and 1995, which report is included in this Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Spokane, Washington
February 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,794
<SECURITIES> 0
<RECEIVABLES> 24,445
<ALLOWANCES> 0
<INVENTORY> 22,116
<CURRENT-ASSETS> 52,564
<PP&E> 405,329
<DEPRECIATION> (225,292)
<TOTAL-ASSETS> 250,668
<CURRENT-LIABILITIES> 24,968
<BONDS> 9,800
0
575
<COMMON> 13,789
<OTHER-SE> 145,976
<TOTAL-LIABILITY-AND-EQUITY> 250,668
<SALES> 163,948
<TOTAL-REVENUES> 168,569
<CGS> 126,742
<TOTAL-COSTS> 147,751
<OTHER-EXPENSES> 15,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,656
<INCOME-PRETAX> 1,414
<INCOME-TAX> (1,897)
<INCOME-CONTINUING> (483)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (483)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
