<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission file number 1-8491
------------------------------------------
HECLA MINING COMPANY
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 82-0126240
- --------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6500 Mineral Drive
Coeur d'Alene, Idaho 83815-8788
- ---------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
208-769-4100
- ----------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for at least
the past 90 days. Yes XX . No .
---- ----
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding July 31, 1998
- ---------------------------- -------------------------
Common stock, par value 55,104,639 shares
$0.25 per share
<PAGE> 2
HECLA MINING COMPANY and SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
I N D E X*
Page
PART I. - Financial Information
Item l - Consolidated Balance Sheets - June 30,
1998 and December 31, 1997 3
- Consolidated Statements of Operations
and Comprehensive Income (Loss) - Three
Months and Six Months Ended June 30,
1998 and 1997 4
- Consolidated Statements of Cash Flows - Six
Months Ended June 30, 1998 and 1997 5
- Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
PART II. - Other Information
Item 1 - Legal Proceedings 30
Item 4 - Annual Meeting of Shareholders 34
Item 6 - Exhibits and Reports on Form 8-K 35
*Items omitted are not applicable.
-2-
<PAGE> 3
PART I - FINANCIAL INFORMATION
HECLA MINING COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,108 $ 3,794
Accounts and notes receivable 34,697 24,445
Income tax refund receivable 1,087 793
Inventories 20,701 22,116
Other current assets 2,212 1,416
--------- ---------
Total current assets 64,805 52,564
Investments 3,204 2,521
Restricted investments 7,207 7,926
Properties, plants and equipment, net 177,421 180,037
Other noncurrent assets 8,321 7,620
--------- ---------
Total assets $ 260,958 $ 250,668
========= =========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 13,381 $ 12,590
Accrued payroll and related benefits 3,343 2,436
Preferred stock dividends payable 2,012 2,012
Accrued taxes 1,179 1,016
Accrued reclamation and closure costs 5,668 6,914
--------- ---------
Total current liabilities 25,583 24,968
Deferred income taxes 300 300
Long-term debt 32,513 22,136
Accrued reclamation and closure costs 31,667 34,406
Other noncurrent liabilities 8,641 8,518
--------- ---------
Total liabilities 98,704 90,328
--------- ---------
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 1998 - 55,166,728;
issued 1997 - 55,156,324 13,792 13,789
Capital surplus 374,017 373,966
Accumulated deficit (220,325) (222,143)
Accumulated other comprehensive loss (4,919) (4,961)
Less treasury stock, at cost;
1998 and 1997 - 62,089 shares (886) (886)
--------- ---------
Total shareholders' equity 162,254 160,340
--------- ---------
Total liabilities and shareholders' equity $ 260,958 $ 250,668
========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-3-
<PAGE> 4
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollars and shares in thousands, except for per-share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales of products $ 45,655 $ 46,069 $ 85,784 $ 88,525
--------- --------- --------- ---------
Cost of sales and other direct production costs 36,487 34,234 67,014 68,160
Depreciation, depletion and amortization 5,048 5,051 10,174 9,403
--------- --------- --------- ---------
41,535 39,285 77,188 77,563
--------- --------- --------- ---------
Gross profit 4,120 6,784 8,596 10,962
--------- --------- --------- ---------
Other operating expenses:
General and administrative 2,136 1,912 4,277 4,033
Exploration 1,136 2,438 1,952 3,792
Depreciation and amortization 99 78 193 157
Provision for closed operations and
environmental matters 72 (41) 131 148
--------- --------- --------- ---------
3,443 4,387 6,553 8,130
--------- --------- --------- ---------
Income from operations 677 2,397 2,043 2,832
--------- --------- --------- ---------
Other income (expense):
Interest and other income 1,403 2,070 3,937 3,221
Miscellaneous expense (94) (308) (651) (777)
Gain on investments 1,155 - - 1,241 - -
Interest expense:
Interest costs (865) (585) (1,605) (1,420)
Less amount capitalized 317 116 588 477
--------- --------- --------- ---------
1,916 1,293 3,510 1,501
--------- --------- --------- ---------
Income before income taxes 2,593 3,690 5,553 4,333
Income tax benefit (provision) 403 (636) 290 (761)
--------- --------- --------- ---------
Net income 2,996 3,054 5,843 3,572
Preferred stock dividends (2,013) (2,013) (4,025) (4,025)
--------- --------- --------- ---------
Income (loss) applicable to common shareholders 983 1,041 1,818 (453)
--------- --------- --------- ---------
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on securities 61 (287) 42 (118)
--------- --------- --------- ---------
Other comprehensive income (loss) 61 (287) 42 (118)
--------- --------- --------- ---------
Comprehensive income (loss) $ 1,044 $ 754 $ 1,860 $ (571)
========= ========= ========= =========
Basic and diluted income (loss) per common share $ 0.02 $ 0.02 $ 0.03 $ (0.01)
========= ========= ========= =========
Cash dividends per common share $ - - $ - - $ - - $ - -
========= ========= ========= =========
Weighted average number of common
shares outstanding 55,102 55,091 55,098 53,960
========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-4-
<PAGE> 5
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Operating activities:
Net income $ 5,843 $ 3,572
Noncash elements included in net income:
Depreciation, depletion and amortization 10,367 9,560
Gain on disposition of properties,
plants and equipment (2,326) (1,089)
Gain on sale of investments (1,241) - -
Provision for reclamation and closure costs 287 474
Change in:
Accounts and notes receivable (10,252) (7,407)
Income tax refund receivable (294) 179
Inventories 1,415 3,104
Other current assets (796) 694
Accounts payable and accrued expenses 671 (5,330)
Accrued payroll and related benefits 907 (185)
Accrued taxes 163 (229)
Accrued reclamation and closure costs and
other noncurrent liabilities (4,149) (5,017)
--------- ---------
Net cash provided (used) by operating activities 595 (1,674)
--------- ---------
Investing activities:
Additions to properties, plants and equipment (8,825) (10,322)
Proceeds from disposition of properties,
plants and equipment 3,506 1,242
Proceeds from sale of investments 1,241 - -
Decrease in restricted investments 719 13,784
Purchase of investments and change in cash
surrender value of life insurance, net (641) (783)
Other, net (807) 1,740
--------- ---------
Net cash provided (used) by investing activities (4,807) 5,661
--------- ---------
Financing activities:
Common stock issued under stock and stock option plans 54 46
Common stock issuance, net of offering costs - - 23,400
Preferred stock dividends (4,025) (4,025)
Borrowings on long-term debt 26,500 27,000
Payments on long-term debt (16,003) (50,067)
--------- ---------
Net cash provided (used) by financing activities 6,526 (3,646)
--------- ---------
Net increase in cash and cash equivalents 2,314 341
Cash and cash equivalents at beginning of period 3,794 7,159
--------- ---------
Cash and cash equivalents at end of period $ 6,108 $ 7,500
========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-5-
<PAGE> 6
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The notes to the consolidated financial statements as
of December 31, 1997, as set forth in the Company's
1997 Annual Report on Form 10-K, substantially apply to
these interim consolidated financial statements and are
not repeated here. For additional information, please
refer to such notes.
Note 2. The financial information given in the accompanying
unaudited interim consolidated financial statements
reflects all adjustments which, in the opinion of
management, are necessary to a fair statement of the
results for the interim periods reported. All such
adjustments are of a normal recurring nature. All
financial statements presented herein are unaudited.
However, the balance sheet as of December 31, 1997, was
derived from the audited consolidated balance sheet
referenced in Note 1 above. Certain consolidated
financial statement amounts have been reclassified to
conform to the 1998 presentation. These
reclassifications had no effect on the net income
(loss) or accumulated deficit as previously reported.
Note 3. The components of the income tax provision (benefit)
for the six months ended June 30, 1998 and 1997 are as
follows (in thousands):
1998 1997
------ -----
Current:
State income taxes $ 181 $ 133
Federal (517) 9
Foreign income taxes 46 619
----- -----
Total $(290) $ 761
===== =====
The Company's income tax provision (benefit) for
the first half of 1998 and 1997 varies from the amount
that would have been provided by applying the statutory
rate to the income or loss before income taxes
primarily due to the availability of net operating
losses.
-6-
<PAGE> 7
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
Note 4. Inventories consist of the following (in thousands):
June 30, Dec. 31,
1998 1997
--------- --------
Concentrates, bullion, metals
in transit and other products $ 5,654 $ 4,773
Industrial mineral products 6,611 9,230
Materials and supplies 8,436 8,113
-------- --------
$ 20,701 $ 22,116
======== ========
Note 5. 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
June 30, 1998, the Company has estimated and accrued an
allowance for liability for remedial activity costs at
the Bunker Hill Site of $6.6 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 or
longer 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
-7-
<PAGE> 8
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
control. The Company 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
In March 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 severally liable for response costs under
CERCLA for historic mining impacts in the Basin outside
the Bunker Hill Site. The Company answered the
complaint in May 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. Summary judgment motions
related to Federal Trusteeship of Natural Resources and
the Statute of Limitations applicable to the federal
government's natural resource damage claims are pending
before the Court.
In May 1998, the EPA announced that it had
commenced a remedial investigation/feasibility study
under CERCLA for the entire Basin, including Lake Coeur
d'Alene, in
-8-
<PAGE> 9
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
support of its response cost claims asserted in
its March 1996 lawsuit.
- State of Idaho Claims
In March 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 June 30, 1998, the Company's accrual for
remediation activity in the Basin, not including the
Bunker Hill Site, totaled approximately $0.6 million.
These expenditures are anticipated to be made over the
next three years. Depending on the results of the
aforementioned lawsuits, it is reasonably possible that
the Company's estimate of its obligation may change in
the near or longer 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 the
insurance carriers named in the litigation. The
Company has received a total of approximately $7.2
-9-
<PAGE> 10
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
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 June 30, 1998, 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 6. At June 30, 1998, there was $22.5 million outstanding
under the Company's $55.0 million revolving and term
loan credit facility (Loan Facility) classified as long-
term debt. The Company was in compliance with all
restrictive covenants of the Loan Facility as of
June 30, 1998. In addition to the borrowings under the
Loan Facility, the Company also has outstanding $9.8
million aggregate principal amount of tax-exempt, solid
waste disposal revenue bonds as of June 30, 1998. The
amount available to borrow under the Loan Facility is
reduced by the $9.8 million amount of tax-exempt, solid
waste bonds. At June 30, 1998, the Company had the
ability to borrow approximately an additional $20.0
million under the Loan Facility.
Note 7. The following table presents a reconciliation of the
numerators (net income or [loss]) and denominators
(shares) used in the basic and diluted income (loss)
per common share computations. Also shown is the
effect that has been given to preferred dividends in
arriving at income (loss) applicable to common
-10-
<PAGE> 11
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
shareholders for the three months and six months
ended June 30, 1998 and 1997 in computing basic and
diluted income (loss) per common share (in thousands).
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------------------------------------
1998 1997
---------------------------- ----------------------------
Net Per-Share Net Per-Share
Income Shares Amount Income Shares Amount
------- ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 2,996 $ 3,054
Less: Preferred
stock dividends (2,013) (2,013)
------- -------
Basic income applicable to
common shareholders 983 55,102 $ 0.02 1,041 55,091 $ 0.02
Effect of dilutive
securities - - 10 - - - - - - - -
------- ------ ------ ------- ------ ------
Diluted income applicable
to common shareholders $ 983 55,112 $ 0.02 $ 1,041 55,091 $ 0.02
======= ====== ====== ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------------------------
1998 1997
--------------------------- -----------------------------
Net Per-Share Net Per-Share
Income Shares Amount Income Shares Amount
------- ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 5,843 $ 3,572
Less: Preferred
stock dividends (4,025) (4,025)
------- -------
Basic income (loss) applicable
to common shareholders 1,818 55,098 $ 0.03 (453) 53,960 $(0.01)
Effect of dilutive
securities - - - - - - - - - - - -
------- ------ ------ ------- ------ ------
Diluted income (loss) applicable
to common shareholders $ 1,818 55,098 $ 0.03 $ (453) 53,960 $(0.01)
======= ====== ====== ======= ====== ======
</TABLE>
The foregoing calculations of diluted earnings per
share for each of the three months and six months then
ended June 30, 1998 and 1997 exclude the effects of
$115,000,000 of convertible preferred stock as such
conversion would be antidilutive. For the six months
ended June 30, 1998 and 1997, these calculations also
excluded the effects of 1,678,500 and 1,024,077 shares
of common stock issuable upon exercise of stock options
as of June 30, 1998 and 1997, respectively, as their
exercise would be antidilutive. For the three months
ended June 30, 1998 and 1997, these calculations also
excluded the effects of 1,198,000 and 1,024,077 shares
-11-
<PAGE> 12
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
of common stock issuable upon exercise of stock
options as of June 30, 1998 and 1997, respectively, as
their exercise would be antidulitive.
Note 8. 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
has applied this standard effective January 1, 1998.
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 expect the adoption of
this standard to have a material impact on the
financial condition or results of operations of the
Company.
In February 1998, Statement of Financial
Accounting Standards No. 132 (SFAS 132), "Employers'
Disclosures about Pensions and Other Postretirement
Benefits," was issued. SFAS 132 provides additional
information to facilitate financial analysis and
eliminates certain disclosures which are no longer
useful. The statement also standardizes disclosure for
retiree benefits. SFAS 132 is effective for fiscal
years beginning after December 15, 1997. The Company
has applied this standard effective January 1, 1998.
In June 1998, Statement of Financial Accounting
Standards No. 133 (SFAS 133). "Accounting for
Derivative Instruments and Hedging Activities" was
issued. SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain
derivative instruments embedded in other contracts,
-12-
<PAGE> 13
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
(collectively referred to as derivatives) and for
hedging activities. It requires that an entity
recognize all derivatives as either assets or
liabilities in the statement of financial position and
measure those instruments at fair value. SFAS 133 is
effective for all fiscal quarters of fiscal years
beginning after June 15, 1999, however, earlier
application of all of the provisions of this Statement
is encouraged as of the beginning of any fiscal
quarter. The Company does not believe the adoption of
this standard will have a material impact on the
financial condition or results of operations of the
Company.
-13-
<PAGE> 14
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Hecla Mining Company (Hecla or the Company) is
primarily involved in the exploration, development,
mining, and processing of gold, silver, lead, zinc, and
industrial minerals. As such, the Company's revenues
and profitability are strongly influenced by world
prices of gold, silver, lead, and zinc, which fluctuate
widely and are affected by numerous factors beyond the
Company's control, including inflation and worldwide
forces of supply and demand 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 that
involve risks and uncertainties, including the timely
development of existing properties and reserves and
future projects, the impact of metals prices and metal
production volatility, changing market conditions and
the regulatory environment and the other risks detailed
from time to time in the Company's Form 10-K and Form
10-Qs filed with the Securities and Exchange Commission
(see also "Investment Considerations" of Part I, Item 1
of the Company's 1997 Annual Report on Form 10-K). As
a result, actual results may differ materially from
those projected, expressed 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
-14-
<PAGE> 15
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
record income or (loss) in the range of $1.0
million to $(5.0) million 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.
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.
During the first six months of 1998, the Company
produced approximately 67,000 ounces of gold compared
to approximately 89,000 ounces of gold production in
the first six months of 1997. The decrease in gold
production in 1998 is the result of the suspension of
operations at the Grouse Creek mine in April 1997 and
decreased gold production at the La Choya mine in 1998,
partly offset by increased gold production at the
Rosebud mine where operations commenced in April 1997.
The Company's gold production in the first six months
of 1998 was from the following sources: the Rosebud
mine - approximately 32,000 ounces; the La Choya mine -
approximately 23,000 ounces; the Greens Creek mine -
approximately 8,000 ounces; and an additional 4,000
ounces from other sources. For the year ending
December 31, 1998, the Company expects to produce
between 120,000 and 128,000 ounces of gold compared to
actual 1997 gold production of approximately 174,000
ounces of gold. The 1998 estimated gold production
includes 60,000 to 64,000 ounces from the Company's
interest in the Rosebud mine, 41,000 to 44,000 ounces
-15-
<PAGE> 16
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
from the Company's La Choya mine, 16,000 to 17,000
ounces from the Company's interest in the Greens Creek
mine, and 3,000 ounces from other sources.
In the first six months of 1998, the Company
produced approximately 3.2 million ounces of silver
compared to the first six months of 1997 silver
production of 2.5 million ounces. The increase in
silver production in 1998 is principally the result of
increased silver production at the Lucky Friday mine
due to mining in the higher silver grade expansion area
in the 1998 period. The Company's silver production in
the first six months of 1998 was principally from the
Lucky Friday mine - approximately 1.8 million ounces,
the Greens Creek mine - approximately 1.3 million
ounces, and the Rosebud mine - approximately 0.1
million ounces. The Company's silver production for
1998 is expected to be between 6.9 and 7.1 million
ounces compared to 1997 production of approximately 5.1
million ounces. The 1998 estimated silver production
includes 4.1 to 4.2 million ounces from the Lucky
Friday mine, 2.5 to 2.6 million ounces from the
Company's interest in the Greens Creek mine and an
additional 0.3 million ounces from other sources.
The Company's shipments of industrial minerals,
including ball clay, kaolin, feldspar, and specialty
aggregates, are expected to increase in 1998 to
approximately 1,087,000 tons compared to 1,026,000 tons
in 1997. Additionally, the Company expects to ship
approximately 1,037,000 cubic yards of landscape
material from its Mountain West Products operation in
1998 compared to 891,000 cubic yards in 1997.
RESULTS OF OPERATIONS
FIRST SIX MONTHS 1998 COMPARED TO FIRST SIX MONTHS 1997
The Company reported net income of approximately
$5.8 million, or $0.11 per share on both a basic and
diluted basis, in the first six months of 1998
compared to net income of approximately $3.6 million,
or $0.07 per share on both a basic and diluted basis,
in the same period of 1997. After $4.0 million in
dividends to shareholders of the Company's Series B
Cumulative Convertible Preferred Stock, the Company's
income applicable to common shareholders for the first
six
-16-
<PAGE> 17
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
months of 1998 was $1.8 million, or $0.03 per
share on both a basic and diluted basis, compared to a
loss of $0.5 million, or $0.01 per common share on both
a basic and diluted basis, in the comparable 1997
period. The change in income in the first six months
of 1998 was attributable to a variety of factors, the
most significant of which are discussed below in
descending order of magnitude.
Comparing the average metal prices for the six
months of 1998 with the comparable 1997 period, gold
decreased by 14% to $297 per ounce from $347 per ounce,
silver increased by 22% to $5.97 per ounce from $4.89
per ounce, lead decreased by 17% to $0.246 per pound
from $0.296 per pound, and zinc decreased by 14% to
$0.480 per pound from $0.561 per pound. During the
first six months of 1998, the Company's realized gold
price per ounce decreased 19% from $373 per ounce in
the first six months of 1997 to $303 per ounce in the
same period in 1998.
Sales of the Company's products decreased by
approximately $2.7 million, or 3%, in the first six
months of 1998 as compared to the same period in 1997.
The decreased product sales resulted from lower sales
totaling approximately $12.3 million from the gold
operations due to decreased production at the Grouse
Creek and La Choya mines, and a lower gold price. The
decrease in sales from the gold operations was partly
offset by increased sales from the industrial minerals
segment of $6.4 million where sales improved at both
the K-T Clay companies and MWCA, and increased sales
from the silver operations of $3.1 million due to
increased production and a higher silver price, partly
offset by lower lead and zinc prices.
Cost of sales and other direct production costs
decreased approximately $1.1 million, or 2%, from the
first six months of 1997 to the comparable 1998 period
primarily attributable to (1) decreased production
costs of $9.2 million at the Grouse Creek mine where
operations were suspended in April 1997 and (2)
decreased production costs at the La Choya mine of $2.9
million, due to lower production. These decreases in
cost of sales and other direct production costs were
partially offset by increases in operating costs at
other operations including (1) increased production
-17-
<PAGE> 18
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
costs of $5.9 million at the industrial minerals
segment resulting from increased sales of products, a
litigation settlement at K-T Clay, and organizational
restructuring costs at MWCA; (2) increased production
costs at the Rosebud mine totaling approximately $4.0
million due to the commencement of operations in April
1997; and (3) increased production costs at the Greens
Creek mine of $1.5 million due to increased product
shipments and mill throughput.
Cost of sales and other direct production costs as
a percentage of sales increased from 77.0% in the first
half of 1997 to 78.1% in the comparable 1998 period.
The slight increase is primarily due to decreased
production and sales at the La Choya mine, partly
offset by the suspension of operations at the higher
cost Grouse Creek mine in April 1997, and the addition
of the lower cost Rosebud mine in April 1997.
Depreciation, depletion and amortization increased
approximately $0.8 million, or 8%, from the first six
months of 1997 to the comparable 1998 period primarily
due to (1) increased depreciation at the Rosebud mine
($1.7 million) the result of operating six months in
1998 versus three months in 1997; (2) increased
depreciation at the Lucky Friday mine ($0.4 million)
due to increased production in the 1998 period; and (3)
increased depreciation at the industrial minerals
segment ($0.2 million). These increases were partly
offset by decreased depreciation, depletion, and
amortization at (1) the La Choya mine of $1.3 million
due to fully depreciating the property, plant, and
equipment as of December 31, 1997 and (2) the Greens
Creek mine ($0.2 million).
Cash operating cost, total cash cost and total
production cost per gold ounce increased from $169,
$175 and $233 for the first six months of 1997 to $170,
$181 and $239 for the comparable 1998 period,
respectively.
Cash operating cost, total cash cost and total
production cost per silver ounce increased from $3.40,
$3.40 and $5.27 in the first six months of 1997 to
$4.06, $4.06 and $5.53 in the comparable 1998 period,
respectively. The increases in the cost per silver
ounce are due primarily to increased cost per ounce
-18-
<PAGE> 19
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
amounts at the Greens Creek mine due to decreased
silver production and the impact of lower gold, zinc,
and lead prices on by-product credits, partly offset by
decreased cost per ounce amounts at the Lucky Friday
mine resulting from increased silver production. Gold,
lead, and zinc are by-products of the Company's silver
operations, the revenues from which are netted against
production costs in the calculation of production cost
per ounce of silver.
Other operating expenses decreased $1.6 million,
or 19%, from the 1997 period to the 1998 period, due
principally to decreased exploration expenditures of
$1.8 million, most notably at Mexican exploration
properties. This decrease was partly offset by
increased general and administrative expenses of $0.2
million.
Other income was $3.5 million in the first six
months of 1998 compared to $1.5 million in the
comparable 1997 period. The $2.0 million increase was
primarily due to (1) a $1.2 million gain on sale of
investments in 1998 and (2) an increase in interest and
other income of $0.7 resulting from a gain on sale of
land located near the Coeur d'Alene office of $2.3
million, partly offset by a 1997 gain on sale of an 8%
interest in the Buckhorn Joint Venture, in Nevada, of
$1.1 million and decreased royalty income of $0.5
million. Total interest cost increased approximately
$0.2 million due to higher interest and fees associated
with the Company's tax-exempt solid waste disposal
bonds and the revolving and term loan facility.
Capitalized interest costs increased $0.1 million
principally due to increased capitalized interest at
the Lucky Friday expansion project partly offset by
decreased capitalized interest costs associated with
the Rosebud mine.
Income taxes decreased $1.1 million from a
provision of $0.8 million in 1997 to a benefit of $0.3
million in the 1998 period. The benefit in 1998
relates principally to the carry back of certain
environmental remediation expenditures for federal
income tax purposes.
-19-
<PAGE> 20
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1997
The Company had net income of approximately $3.0
million, or $.05 per share on both a basic and diluted
basis, in the second quarter of 1998 compared to net
income of approximately $3.1 million, or $0.06 per
share on both a basic and diluted basis, in the same
period of 1997. After $2.0 million in dividends to
shareholders of the Company's Series B Cumulative
Convertible Preferred Stock, the Company's net income
applicable to common shareholders for the second
quarters of 1998 and 1997 was $1.0 million, or $0.02
per share on both a basic and diluted basis. The
income in the second quarter of 1998 and the comparable
1997 period was attributable to a variety of factors,
the most significant of which are discussed below in
descending order of magnitude.
Comparing the average metals prices for the second
quarter of 1998 with the comparable 1997 period, gold
decreased by 13% to $300 per ounce from $343 per ounce,
silver increased by 20% to $5.71 per ounce from $4.76
per ounce, lead decreased by 13% to $0.248 per pound
from $0.284 per pound, and zinc decreased by 19% to
$0.479 per pound from $0.590 per pound. During the
second quarter of 1998, the Company's realized gold
price per ounce decreased 17% from $371 per ounce in
the second quarter of 1997 to $307 per ounce in 1998.
Sales of the Company's products decreased by
approximately $0.4 million, or 1%, in the second
quarter of 1998 as compared to the same period in 1997.
The decreased product sales resulted from lower sales
totaling approximately $6.2 million from the gold
operations resulting from decreased production at the
Grouse Creek and La Choya mines, and a lower gold
price. The decrease in sales from the gold operations
were partly offset by increased sales from the
industrial minerals segment of $4.1 million where sales
improved at both the K-T Clay companies and MWCA, and
increased sales from the silver operations of $1.7
million due to increased production and a higher silver
price, partly offset by lower lead and zinc prices.
Cost of sales and other direct production costs
increased $2.3 million, or 7%, from the second quarter
-20-
<PAGE> 21
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
of 1997 to the comparable 1998 period primarily
due to (1) increased production costs at the Company's
industrial minerals segment of $4.0 million the result
of increased sales, a litigation settlement at K-T
Clay, and organizational restructuring costs at MWCA;
(2) increased costs at the Rosebud mine where
operations commenced in April 1997 ($1.3 million); and
(3) increased production costs at the Greens Creek mine
due to increased product shipments and higher mill
throughput ($0.9 million). These increases in cost of
sales and other direct production costs were partially
offset by decreases in operating costs at other
operations totaling $3.9 million. These decreases are
primarily attributable to (1) decreased production
costs at the Grouse Creek mine of $2.3 million due to
suspension of operations in April 1997 and (2)
decreased production costs at the La Choya mine
totaling approximately $1.4 million due to decreased
production.
Cost of sales and other direct production costs as
a percentage of sales from products increased from
74.3% in the second quarter of 1997 to 79.9% in the
comparable 1998 period. The increase is primarily due
to decreased production and sales at the La Choya mine
and higher costs as a percentage of sales at the
industrial minerals operation, partly offset by the
suspension of operations at the higher cost Grouse
Creek mine in April 1997, and the addition of the lower
cost Rosebud mine in April 1997.
Depreciation, depletion and amortization remained
constant at $5.0 million during the 1998 period,
primarily the result of increased depreciation,
depletion, and amortization at (1) the Greens Creek
mine ($0.2 million); (2) the Lucky Friday mine ($0.2
million); (3) the Rosebud mine ($0.1 million); and (4)
the industrial minerals segment ($0.1 million). These
increases were offset by decreases in depreciation,
depletion, and amortization at the La Choya mine of
$0.6 million the result of the property, plant and
equipment being fully depreciated as of December 31,
1997.
Cash operating cost, total cash cost and total
production cost per gold ounce increased from $146,
$155 and $225 for the second quarter of 1997 to $179,
-21-
<PAGE> 22
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
$192 and $253 for the second quarter of 1998,
respectively. The increase in the cash operating,
total cash and total production cost per gold ounce is
mainly attributed to lower production at the La Choya
mine and higher production costs at the Rosebud mine.
Cash operating and total cash cost per silver
ounce increased from $3.61 and $3.61 in the second
quarter of 1997 to $3.70 and $3.70 in the second
quarter of 1998, respectively. The slight increase is
due to higher per ounce costs at Greens Creek due to
lower silver production and lower by-product metal
prices, partly offset by lower per ounce amounts at
Lucky Friday as a result of increased silver
production. Total production costs per ounce decreased
slightly from $5.23 per ounce in the second quarter of
1997 to $5.14 per ounce in the second quarter of 1998
due to the same reasons discussed above combined with
the higher percentage of overall silver production
coming from the Lucky Friday mine which carries a lower
per ounce depreciation rate as compared to the Greens
Creek mine. 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 production cost per ounce of silver.
Other operating expenses decreased by $0.9
million, or 22%, from the 1997 period to the 1998
period, due principally to a decrease in exploration
expenditures of $1.3 million resulting from lower
expenditures at Mexican exploration targets, partly
offset by increased general and administrative costs of
$0.2 million and an increase in the provision for
closed operations and environmental matters of $0.1
million.
Other income was $1.9 million in the 1998 period
compared to $1.3 million in the 1997 period. The $0.6
million increase was primarily due to (1) a gain on
sale of investments of $1.2 million in 1998 and (2) a
decrease in miscellaneous expense of $0.2 million.
These favorable items were partly offset by (1) a
decrease in interest and other income of approximately
$0.7 million, most notably from the 1997 gain on sale
of an 8% interest in the Buckhorn Joint Venture in
Nevada of $1.1 million, partly offset by a 1998 gain on
sale of land located near the Coeur d'Alene office of
$0.5 million and (2) increased net interest costs of
-22-
<PAGE> 23
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
$0.1 million. Total interest cost increased $0.3
million due to increased borrowing in 1998 under the
Company's revolving and term loan facility than in
1997. Capitalized interest costs increased $0.2
million principally due to increased capitalized
interest costs associated with the Lucky Friday
expansion project.
Income taxes decreased $1.0 million from a
provision of $0.6 million in 1997 to a benefit of $0.4
million in the 1998 period. The benefit in 1998
relates principally to the carryback of certain
environmental remediation expenditures for federal
income tax purposes.
FINANCIAL CONDITION AND LIQUIDITY
A substantial portion of the Company's revenue is
derived from the sale of products, the prices of which
are affected by numerous factors beyond the Company's
control. Prices may change dramatically in short
periods of time and such changes have a significant
effect on revenues, profits and liquidity of the
Company. The Company is subject to many of the same
inflationary pressures as the U.S. economy in general.
The Company continues to implement cost-cutting
measures in an effort to reduce per unit production
costs. Management believes, however, that the Company
may not be able to continue to offset the impact of
inflation over the long term through cost reductions
alone. However, the market prices for products
produced by the Company have a much greater impact than
inflation on the Company's revenues and profitability.
Moreover, the discovery, development and acquisition of
mineral properties are in many instances unpredictable
events. Future metals prices, the success of
exploration programs, changes in legal and regulatory
requirements, and other property transactions can have
a significant impact on the need for capital.
At June 30, 1998, assets totaled approximately
$261.0 million and shareholders' equity totaled
approximately $162.3 million. Cash and cash
equivalents increased by $2.3 million to $6.1 million
at June 30, 1998 from $3.8 million at the end of 1997.
-23-
<PAGE> 24
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
During the first half of 1998, approximately $6.5
million of cash was provided by financing activities.
The major source of cash was borrowings of long-term
debt of $26.5 million. This source was partially
offset by uses of cash, including repayments of long-
term debt of $16.0 million, and payment of preferred
stock dividends of $4.0 million.
Operating activities provided approximately $0.6
million of cash during the first half of 1998. The
primary sources of cash were from Rosebud, Greens
Creek, La Choya, and the industrial minerals segment.
Significant uses of cash included (1) a $10.3 million
increase in accounts and notes receivable principally
due to seasonal sales at MWCA and increased sales at
Greens Creek, Lucky Friday, and the K-T Clay group and
(2) $4.1 million for reclamation activities and other
noncurrent liabilities. Principal noncash charges
included depreciation, depletion, and amortization of
approximately $10.4 million and provision for
reclamation and closure costs of $0.3 million.
The Company's investing activities used $4.8
million of cash during the first half of 1998. The
most significant uses of cash were (1) additions to
properties, plants, and equipment totaling $8.8
million, including significant additions at the Lucky
Friday mine of $4.4 million, the industrial minerals
segment of $2.1 million, the Greens Creek mine of $1.3
million, and other additions, including capitalized
interest of $1.0 million; (2) the purchase of
investments and increase in cash surrender value of
life insurance required cash of approximately $0.6
million. These uses of cash were partly offset by (1)
proceeds from disposition of properties, plants, and
equipment during the first six months of 1998 totaling
approximately $3.5 million, principally from sale of
land located near the Company's corporate headquarters;
(2) proceeds from the sale of investments of $1.2
million; and (3) the release of restricted investments
($0.7 million).
The Company estimates that capital expenditures to
be incurred during the remainder of 1998 will be
approximately $8.7 million including capitalized
interest costs of $0.4 million. These capital
expenditures, excluding capitalized interest, consist
-24-
<PAGE> 25
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
primarily of (1) capitalized expenditures at the
Company's industrial minerals operations totaling
approximately $2.9 million; (2) capitalized
expenditures at Greens Creek of $2.2 million; (3)
development expenditures at the Lucky Friday expansion
project expected to total approximately $1.9 million;
and (4) other capitalized expenditures of $1.7 million.
These planned capital expenditures are anticipated to
be funded from operating activities, and amounts
available under the revolving term loan credit
facility. There can be no assurance that actual
capitalized expenditures will be as projected based
upon the uncertainties associated with capital
expenditure estimates, the Company's ability to
generate funds from operating activities, and the
availability of amounts under the revolving term loan
credit facility.
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
portion 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, issue debt securities, common
shares, preferred shares or warrants in an amount not
to exceed $100.0 million in the aggregate. To date,
the Company has issued $48.4 million of the Company's
common shares under the Registration Statement.
At June 30, 1998, there was $22.5 million
outstanding under the Company's $55.0 million revolving
and term loan credit facility classified as long-term
debt. The Company was in compliance with all
restrictive covenants of the facility as of June 30,
1998. In addition to the borrowings under the Loan
Facility, the Company also has outstanding $9.8 million
aggregate principal amount of tax-exempt, solid waste
disposal revenue bonds as of June 30, 1998. The amount
available to borrow under the Loan Facility was reduced
by the $9.8 million amount of tax-exempt, solid waste
disposal bonds. At June 30, 1998, the Company had the
ability to borrow approximately an additional $20.0
million under the Loan Facility.
-25-
<PAGE> 26
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
The Company's planned environmental and
reclamation expenditures for the balance of 1998 are
expected to be approximately $7.5 to $8.5 million,
principally for environmental and reclamation
activities at the Grouse Creek mine, the Bunker Hill
Superfund site, the Republic mine, the Coeur d'Alene
River Basin, the American Girl mine, the Yellow Pine
mine, the Durita property, and the Cactus mine. As
with any estimate of this nature, it is reasonably
possible that the Company's estimate of environmental
and reclamation expenditures may change.
Exploration expenditures for the balance of 1998
are estimated to be approximately $2.5 to $3.0 million.
The Company's exploration strategy is to focus further
exploration at, or in the vicinity of, its currently
owned domestic and foreign properties. Accordingly,
domestic exploration expenditures will be incurred
principally at the Greens Creek, Rosebud, and Lucky
Friday mines. 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 premium received,
for contracts which hedge the sales prices of
commodities are deferred and included in income as part
of the hedged transaction. Revenues from the
aforementioned contracts are recognized at the time
contracts are closed out by delivery of the underlying
commodity, or when the Company matches specific
production to a contract. For contracts where the net
position is settled in cash, revenues are recognized on
the original settlement date of the contracts. 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.
-26-
<PAGE> 27
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
At June 30, 1998, the Company had forward sales
commitments through June 30, 1999 for 6,000 ounces of
gold at an average price of $354 per ounce. The
estimated fair value of these forward sales commitments
was $270,000 as of June 30, 1998. The London Final
gold price at June 30, 1998, was $296. Additionally,
at June 30, 1998, the Company had forward sales
commitments through June 30, 1999 for 1,250,000 ounces
of silver at an average price of $6.18. If the
Company's forward silver sales commitments were closed
on June 30, 1998, the estimated fair value of these
commitments was approximately $728,000. The Handy &
Harman silver price at June 30, 1998 was $5.38. The
nature and purpose of the forward sales contracts,
however, do not presently expose the Company to any
significant net loss. All of the aforementioned
contracts were designated as hedges as of June 30,
1998.
As of June 30, 1998, the Company had settled 6,000
ounces of forward gold sales contracts with scheduled
deliveries from July through December 1998. The
Company received $347,000 upon settlement of these
contracts and will recognize this revenue over the
balance of 1998.
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
Part II. Item 1. Legal Proceedings). Although the
ultimate disposition of these matters and various other
pending legal actions and claims is not presently
determinable, it is the opinion of the Company's
management, based upon the information available at
this time, that the expected outcome of these suits and
proceedings will not have a material adverse effect on
the results of operations and financial condition of
the Company and its subsidiaries.
The Company utilizes software and related
technologies throughout its business that will be
affected by the "Year 2000 problem," 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
-27-
<PAGE> 28
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
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 is also addressing 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 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
has applied this standard effective January 1, 1998.
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 expect the adoption of
this standard to have a material impact on the
-28-
<PAGE> 29
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
financial condition or results of operations of
the Company.
In February 1998, Statement of Financial
Accounting Standards No. 132 (SFAS 132), "Employers'
Disclosures about Pensions and Other Postretirement
Benefits," was issued. SFAS 132 provides additional
information to facilitate financial analysis and
eliminates certain disclosures which are no longer
useful. The statement also standardizes disclosure for
retiree benefits. SFAS 132 is effective for fiscal
years beginning after December 15, 1997. The Company
has applied this standard effective January 1, 1998.
In June 1998, Statement of Financial Accounting
Standards No. 133 (SFAS 133). "Accounting for
Derivative Instruments and Hedging Activities" was
issued. SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain
derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for
hedging activities. It requires that an entity
recognize all derivatives as either assets or
liabilities in the statement of financial position and
measure those instruments at fair value. SFAS 133 is
effective for all fiscal quarters of fiscal years
beginning after June 15, 1999, however, earlier
application of all of the provisions of this Statement
is encouraged as of the beginning of any fiscal
quarter. The Company does not believe the adoption of
this standard will have a material impact on the
financial condition or results of operations of the
Company.
-29-
<PAGE> 30
PART II - OTHER INFORMATION
HECLA MINING COMPANY and SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
- 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
June 30, 1998, the Company has estimated and accrued an
allowance for liability for remedial activity costs at
the Bunker Hill Site of $6.6 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 or
longer 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 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
In March 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
-30-
<PAGE> 31
PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
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 severally liable for response costs under
CERCLA for historic mining impacts in the Basin outside
the Bunker Hill Site. The Company answered the
complaint in May 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. Summary judgment motions
related to Federal Trusteeship of Natural Resources and
the Statute of Limitations applicable to the federal
government's natural resource damage claims are pending
before the Court.
In May 1998, the EPA announced that it had
commenced a remedial investigation/feasibility study
under CERCLA for the entire Basin, including Lake Coeur
d'Alene, in support of its response cost claims
asserted in its March 1996 lawsuit.
- State of Idaho Claims
In March 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
-31-
<PAGE> 32
PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
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 June 30, 1998, the Company's accrual for
remediation activity in the Basin, not including the
Bunker Hill Site, totaled approximately $0.6 million.
These expenditures are anticipated to be made over the
next three years. Depending on the results of the
aforementioned lawsuits, it is reasonably possible that
the Company's estimate of its obligation may change in
the near or longer 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 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 June 30, 1998, the Company had not reduced its
accrual for reclamation and closure costs to reflect
the receipt of any anticipated insurance proceeds.
-32-
<PAGE> 33
PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
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.
-33-
<PAGE> 34
PART I - FINANCIAL INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
ITEM 4. ANNUAL MEETING OF SHAREHOLDERS
At the annual meeting of shareholders held on May 8,
1998 the following matters were voted on by the
Company's shareholders:
Election of Three Directors:
Votes Votes
For Withheld
----- --------
Ted Crumley 42,765,487 2,223,749
---------- ---------
Charles L. McAlpine 42,769,004 2,220,232
---------- ---------
Jorge E. Ordonez C. 42,766,746 2,222,490
---------- ---------
Approval of selection of
Coopers & Lybrand L.L.P. as
the Company's Auditors for 1998
Votes Votes
For Against Abstentions
----- ------- -----------
44,522,781 248,979 217,476
---------- ---------- -----------
-34-
<PAGE> 35
PART II - OTHER INFORMATION (Continued)
HECLA MINING COMPANY and SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12 - Fixed Charge Coverage Ratio Calculation
13 - Second Quarter Report to Shareholders for
the quarter ended June 30, 1998, for
release dated August 4, 1998.
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
Items 2, 3, and 5 of Part II are omitted from this report as
inapplicable.
-35-
<PAGE> 36
HECLA MINING COMPANY and SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HECLA MINING COMPANY
----------------------------------
(Registrant)
Date: August 10, 1998 By /s/ Arthur Brown
--------------------------------
Arthur Brown, Chairman, President
and Chief Executive Officer
Date: August 10, 1998 By /s/ Stanley E. Hilbert
-------------------------------
S. E. Hilbert,
Corporate Controller
(Chief Accounting Officer)
-36-
<PAGE> 37
EXHIBIT INDEX
Exhibit
No. Description
- -------- ----------------------
12 Fixed Charge Coverage Ratio Calculation
13 Second Quarter Report to Shareholders for the
quarter ended June 30, 1998, for release dated
August 4, 1998
27 Financial Data Schedule
-37-
<PAGE> 1
Exhibit 12
HECLA MINING COMPANY
FIXED CHARGE COVERAGE RATIO CALCULATION
For the Six Months Ended June 30, 1998 and 1997
(In thousands, except ratios)
<TABLE>
<CAPTION>
Six Months Six Months
1998 1997
------------ ------------
<S> <C> <C>
Income before income taxes $ 5,553 $ 4,333
Add: Fixed Charges 5,857 6,630
Less: Capitalized Interest (588) (477)
-------- --------
Net income before income taxes $ 10,822 $ 10,486
======== ========
Fixed charges:
Preferred stock dividends $ 4,025 $ 4,025
Income tax effect on preferred
stock dividends 172 857
Interest portion of rentals 55 328
Interest expense 1,605 1,420
-------- --------
Total fixed charges $ 5,857 $ 6,630
======== ========
Fixed Charge Ratio 1.85 1.60
Write-downs and other noncash charges:
DD&A(a) (mining activity) $ 10,174 $ 9,403
DD&A(a) (corporate) 193 157
Provision for closed operations
and environmental matters 131 148
-------- --------
$ 10,498 $ 9,708
======== ========
(a)"DD&A" is an abbreviation for "depreciation, depletion
and amortization."
</TABLE>
<PAGE> 1
[Hecla Logo] Exhibit 13
98-06
HECLA REPORTS SUCCESSFUL SECOND QUARTER
For the Period Ended June 30, 1998
For release: August 4, 1998
COEUR D'ALENE, IDAHO - Hecla Mining Company (HL & HL-PrB:NYSE) today
reported second quarter 1998 income applicable to common shareholders of $1
million, or 2 cents per common share, after the payment of a quarterly dividend
of $2 million to holders of preferred stock. The second quarter earnings for
1998 are virtually the same as the second quarter of 1997, when Hecla reported
earnings of $1 million, or 2 cents per common share. Second quarter 1998
results were positively impacted by good performance from operations, a gain on
the sale of Metaline Contact Mines stock of $1.2 million, lower exploration
expenditures compared to the same period last year, the sale of land near
Hecla's corporate headquarters in Coeur d'Alene, Idaho, and from reduced foreign
taxes and anticipated refund claims.
Year to date, Hecla has earned $1.8 million, or 3 cents per common share,
compared to a loss of $0.5 million, or 1 cent per common share, during the first
six months of 1997. Better performance in 1998 is attributable to improved
results from the silver and industrial minerals segments, as well as income from
the sale of property and investments. Both the industrial minerals and silver
segments have shown significantly better results in the first six months of this
year, compared to the same period last year. Hecla's gold operations have
exceeded expectations and continue to be profitable by maintaining very low-cost
production. However, falling gold prices and a decrease in production have
affected profits in that segment compared to the first six months of 1997.
Arthur Brown, Hecla's chairman and chief executive officer, said, "Precious
and base metals prices remain depressed, so we're especially pleased to be able
to report earnings for two consecutive quarters. We've made significant progress
in lowering our cash cost per ounce of silver from the first to second quarters.
Fortunately, Hecla has some excellent silver, gold and industrial mineral
properties. Through the good efforts of our people at those properties, we are
able to continue to produce gold and silver at low cash costs, which is key to
the company's long-term success."
METAL PRICES
The gold price remained depressed during the second quarter of 1998,
averaging $300 per ounce, compared to a price of $343 per ounce in the same
period a year ago, a 13% decrease. The silver price, on the other hand, has
improved from a year ago, averaging $5.71 per ounce during the second quarter of
1998, compared to $4.76 per ounce in the second quarter of 1997. However, the
silver price has suffered compared to the first quarter of this year, when it
averaged $6.24 per ounce. Lead and zinc, important by-products of Hecla's
silver mines, are both at significantly lower prices than a year ago. During
the second quarter of this year, lead averaged about 25 cents per pound compared
to 28 cents per pound in the second quarter of 1997, an 11% decrease. The zinc
price has dropped 19% from an average of 59 cents per pound in the second
quarter of 1997 to a price of 48 cents per pound during the second quarter of
this year.
<PAGE> 2
GOLD
Hecla's gold operations produced 67,000 ounces of gold during the first
half of 1998, at a total cash cost of $181 per ounce. The Rosebud mine in
northern Nevada produced 15,702 ounces of gold for Hecla's account in the second
quarter, bringing the total for the year to 32,291 ounces. The mine operated at
a total cash cost of production of $186 per ounce in the second quarter and has
reported an average total cash cost of $172 per ounce for the year so far. As
anticipated, cash costs at Rosebud during the second quarter were higher than
the same period a year ago because of a lower ore grade and the implementation
of a planned definition drilling program to upgrade zones of inferred resources
to proven and probable reserves where possible.
Work has begun at the La Choya mine in northern Mexico to lay back the pit
edge to expose an additional 20,000 ounces of gold ore. Mining operations at La
Choya will be completed by the end of the year, although heap leach gold
recovery will continue at least through 1999. Reclamation work is under way
concurrent with mining. The mine has been very profitable, and even now toward
the end of its life is producing gold at a low average total cash cost of $195
per ounce so far in 1998.
SILVER
The silver segment of Hecla's business is on track to meet production
expectations for the year, producing 3.2 million ounces during the first six
months. Silver operations have maintained a near break-even level in 1998,
despite depressed lead and zinc prices and a decrease in the price of silver
from the first to second quarter of 1998. Silver production costs have
decreased 17% since the first quarter of the year, with total cash costs
averaging $3.70 per ounce during the second quarter.
Work on the expansion at the Lucky Friday Unit in North Idaho continues on
schedule, and about 85% of production is now coming from the new area. The
transition to the expansion area should be completed in the third quarter of
this year. As a result of the expansion, the Lucky Friday ore grade has
improved from about 10 ounces of silver per ton in the second quarter of 1997 to
nearly 18 ounces of silver per ton during the second quarter of this year.
During that same time period, the average total cash cost per ounce has
decreased from $5.48 per ounce to $4.23 per ounce. The mine produced about 1.8
million ounces of silver during the first six months of 1998, compared to about
948,000 ounces during the same period last year.
The Greens Creek mine in Alaska produced 648,000 ounces of silver for
Hecla's account during the second quarter, at an average total cash cost of
$2.91 per ounce. Hecla holds a 30% interest in Greens Creek, which is a joint
venture with Kennecott Greens Creek Mining Company. In the first six months of
this year, Greens Creek produced 1.3 million ounces of silver for Hecla. Mining
and milling costs per ton at Greens Creek have improved by 11% from the first
six months of last year because of increased tonnage mined and less development
work this year compared to last year. However, the cash cost per ounce has
suffered in 1998 at Greens Creek because of depressed by-product metals prices
and a lower-than-planned ore grade being mined, yielding fewer ounces than
expected. The price of zinc, which has been depressed during the first six
months of the year, has a significant effect on the cash cost per ounce of
silver at the Greens Creek mine. Despite low by-product prices, Greens Creek
has shown a significant operational improvement from the first quarter to the
second quarter of this year, with cash costs decreasing from $3.55 per ounce of
silver in the first quarter to $2.91 per ounce in the
<PAGE> 3
second quarter. Hecla still anticipates meeting its overall goal of producing
7 million ounces of silver from the Lucky Friday and Greens Creek mines in 1998.
INDUSTRIAL MINERALS
Hecla's industrial minerals segment has shown a 9% improvement in gross
profit during the first half of the year compared to the same period in 1997.
Higher-than-expected sales were reported at Kentucky-Tennessee Clay Company.
MWCA, a landscaping products subsidiary, is reporting a 17% increase in sales
compared to the first six months of last year. Overall, the industrial minerals
division is performing well in 1998.
OTHER
Long-term debt for the company at the end of the second quarter was $32.5
million, down from $36 million at the end of the first quarter. Proceeds from
borrowings in the first half of the year have been used for working capital
requirements at Hecla's silver and industrial minerals operations, as well as
for capital expenditures relating to the expansion at Lucky Friday.
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, anticipated, expected 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
<PAGE> 4
HECLA MINING COMPANY
(dollars in thousands, except per share, per ounce and per pound amounts -
unaudited)
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
- --------------------------------------------------------------------------------------------
HIGHLIGHTS June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
- --------------------------------------------------------------------------------------------
FINANCIAL DATA
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue $ 47,058 $ 48,139 $ 89,721 $ 91,746
Gross profit 4,120 6,784 8,596 10,962
Net income 2,996 3,054 5,843 3,572
Income (loss) applicable to
common shareholders 983 1,041 1,818 (453)
Basic and diluted income (loss)
per common share 0.02 0.02 0.03 (0.01)
Cash flow provided (used) by
operating activities 7,871 7,141 595 (1,674)
- --------------------------------------------------------------------------------------------
SALE OF PRODUCTS BY SEGMENT
- --------------------------------------------------------------------------------------------
Gold operations $ 8,375 $ 14,549 $ 17,630 $ 29,924
Silver operations 9,914 8,240 20,036 16,916
Industrial minerals 27,366 23,280 48,118 41,685
--------- --------- --------- ---------
Total sales $ 45,655 $ 46,069 $ 85,784 $ 88,525
- --------------------------------------------------------------------------------------------
GROSS PROFIT (LOSS) BY SEGMENT
- --------------------------------------------------------------------------------------------
Gold operations $ 1,483 $ 4,797 $ 3,488 $ 7,827
Silver operations (334) (925) (1) (1,565)
Industrial minerals 2,971 2,912 5,109 4,700
--------- --------- --------- ---------
Total gross profit $ 4,120 $ 6,784 $ 8,596 $ 10,962
OTHER DATA
- --------------------------------------------------------------------------------------------
EBITDA BY SEGMENT (1)
- --------------------------------------------------------------------------------------------
Gold operations $ 2,845 $ 6,818 $ 6,306 $ 10,565
Silver operations 1,767 922 4,735 2,711
Industrial minerals 4,207 4,095 7,671 7,090
--------- ---------- --------- ---------
Total EBITDA $ 8,819 $ 11,835 $ 18,712 $ 20,366
- --------------------------------------------------------------------------------------------
PRODUCTION SUMMARY - TOTALS
- --------------------------------------------------------------------------------------------
Gold - Ounces 31,402 45,429 66,956 89,333
Silver - Ounces 1,691,242 1,280,306 3,221,649 2,524,504
Lead - Tons 8,548 6,415 16,655 12,997
Zinc - Tons 4,607 4,354 8,862 8,562
Industrial minerals - Tons shipped 310,726 272,253 592,927 519,463
Average cost per ounce of gold produced:
Cash operating costs ($/oz.) 179 146 170 169
Total cash costs ($/oz.) 192 155 181 175
Total production costs ($/oz.) 253 225 239 233
Average cost per ounce of silver produced:
Cash operating costs ($/oz.) 3.70 3.61 4.06 3.40
Total cash costs ($/oz.) 3.70 3.61 4.06 3.40
Total production costs ($/oz.) 5.14 5.23 5.53 5.27
- --------------------------------------------------------------------------------------------
AVERAGE METAL PRICES
- --------------------------------------------------------------------------------------------
Gold - Realized ($/oz.) 307 371 303 373
Gold - London Final ($/oz.) 300 343 297 347
Silver - Handy & Harman ($/oz.) 5.71 4.76 5.97 4.89
Lead - LME Cash (cents/pound) 24.8 28.4 24.6 29.6
Zinc - LME Cash (cents/pound) 47.9 59.0 48.0 56.1
(1) EBITDA represents earnings before interest, income taxes, depreciation,
depletion, amortization and items classified as other operating expenses not
occurring at the operating site. The company believes EBITDA is helpful in
understanding cash flow generated from operations that is available for income
taxes, debt service, capital expenditures, and other nonsite operating expenses.
</TABLE>
<PAGE> 5
HECLA MINING COMPANY
Consolidated Statements of Operations and Comprehensive Income (Loss)
(dollars and shares in thousands, except per share amounts - unaudited)
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
----------------------------- -----------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales of products $ 45,655 $ 46,069 $ 85,784 $ 88,525
--------- ---------- ---------- ----------
Cost of sales and other direct
production costs 36,487 34,234 67,014 68,160
Depreciation, depletion and
amortization 5,048 5,051 10,174 9,403
--------- ---------- ---------- ----------
41,535 39,285 77,188 77,563
--------- ---------- ---------- ----------
Gross profit 4,120 6,784 8,596 10,962
--------- ---------- ---------- ----------
Other operating expenses:
General and administrative 2,136 1,912 4,277 4,033
Exploration 1,136 2,438 1,952 3,792
Depreciation and amortization 99 78 193 157
Provision for (benefit from) closed
operations and environmental matters 72 (41) 131 148
--------- ---------- ---------- ----------
3,443 4,387 6,553 8,130
--------- ---------- ---------- ----------
Income from operations 677 2,397 2,043 2,832
--------- ---------- ---------- ----------
Other income (expense):
Interest and other income 1,403 2,070 3,937 3,221
Miscellaneous expense (94) (308) (651) (777)
Gain on investments 1,155 - - 1,241 - -
Interest expense:
Total interest cost (865) (585) (1,605) (1,420)
Less amount capitalized 317 116 588 477
--------- ---------- ---------- ----------
1,916 1,293 3,510 1,501
--------- ---------- ---------- ----------
Income before income taxes 2,593 3,690 5,553 4,333
Income tax (provision) benefit 403 (636) 290 (761)
--------- ---------- ---------- ----------
Net income 2,996 3,054 5,843 3,572
Preferred stock dividends (2,013) (2,013) (4,025) (4,025)
--------- ---------- ---------- ----------
Income (loss) applicable to common
shareholders 983 1,041 1,818 (453)
--------- ---------- ---------- ----------
Other comprehensive income (loss),
net of tax:
Unrealized holding gains (losses)
on securities 61 (287) 42 (118)
--------- ---------- ---------- ----------
Other comprehensive income (loss) 61 (287) 42 (118)
--------- ---------- ---------- ----------
Comprehensive income (loss) $ 1,044 $ 754 $ 1,860 $ (571)
========= ========== ========== ==========
Basic and diluted income (loss)
per common share $ 0.02 $ 0.02 $ 0.03 $ (0.01)
========= ========== ========== ==========
Weighted average number of common
shares outstanding 55,102 55,091 55,098 53,960
========= ========== ========== ==========
</TABLE>
<PAGE> 6
HECLA MINING COMPANY
Consolidated Balance Sheets
(dollars and shares in thousands - unaudited)
<TABLE>
<CAPTION>
June 30, 1998 Dec. 31, 1997
- ------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,108 $ 3,794
Accounts and notes receivable 34,697 24,445
Income tax refund receivable 1,087 793
Inventories 20,701 22,116
Other current assets 2,212 1,416
---------- ----------
Total current assets 64,805 52,564
Investments 3,204 2,521
Restricted investments 7,207 7,926
Properties, plants and equipment, net 177,421 180,037
Other noncurrent assets 8,321 7,620
---------- ----------
Total assets $ 260,958 $ 250,668
========== ==========
- ------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 13,381 $ 12,590
Accrued payroll and related benefits 3,343 2,436
Preferred stock dividends payable 2,012 2,012
Accrued taxes 1,179 1,016
Accrued reclamation and closure costs 5,668 6,914
---------- ----------
Total current liabilities 25,583 24,968
Deferred income taxes 300 300
Long-term debt 32,513 22,136
Accrued reclamation and closure costs 31,667 34,406
Other noncurrent liabilities 8,641 8,518
---------- ----------
Total liabilities 98,704 90,328
---------- ----------
- ------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------
Preferred stock 575 575
Common stock 13,792 13,789
Capital surplus 374,017 373,966
Accumulated deficit (220,325) (222,143)
Accumulated other comprehensive loss (4,919) (4,961)
Treasury stock (886) (886)
---------- ----------
Total shareholders' equity 162,254 160,340
---------- ----------
Total liabilities and shareholders' equity $ 260,958 $ 250,668
========== ==========
Common shares outstanding at end of period 55,105 55,094
========== ==========
</TABLE>
<PAGE> 7
HECLA MINING COMPANY
Consolidated Statements of Cash Flows
(dollars in thousands - unaudited)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
June 30, 1998 June 30, 1997
- -------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 5,843 $ 3,572
Noncash elements included in net income:
Depreciation, depletion and amortization 10,367 9,560
Gain on disposition of properties, plants and equipment (2,326) (1,089)
Gain on investments (1,241) - -
Provision for reclamation and closure costs 287 474
Change in:
Accounts and notes receivable (10,252) (7,407)
Income tax refund receivable (294) 179
Inventories 1,415 3,104
Other current assets (796) 694
Accounts payable and accrued expenses 671 (5,330)
Accrued payroll and related benefits 907 (185)
Accrued taxes 163 (229)
Accrued reclamation and other noncurrent liabilities (4,149) (5,017)
---------- ----------
Net cash provided (used) by operating activities 595 (1,674)
========== ==========
- -------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
- -------------------------------------------------------------------------------------------------
Additions to properties, plants and equipment (8,825) (10,322)
Proceeds from disposition of properties, plants and equipment 3,506 1,242
Proceeds from sale of investments 1,241 - -
Decrease in restricted investments 719 13,784
Purchase of investments and increase in cash surrender
value of life insurance (641) (783)
Other, net (807) 1,740
---------- ----------
Net cash provided (used) by investing activities (4,807) 5,661
---------- ----------
- -------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
- -------------------------------------------------------------------------------------------------
Common stock issued under stock and stock option plans 54 46
Issuance of common stock, net of offering costs - - 23,000
Dividends on preferred stock (4,025) (4,025)
Borrowings on long-term debt 26,500 27,000
Repayment on long-term debt (16,003) (50,067)
---------- ----------
Net cash provided (used) by financing activities 6,526 (3,646)
---------- ----------
Net increase in cash and cash equivalents 2,314 341
Cash and cash equivalents at beginning of period 3,794 7,159
---------- ----------
Cash and cash equivalents at end of period $ 6,108 $ 7,500
========== ==========
</TABLE>
<PAGE> 8
HECLA MINING COMPANY
Production Data
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
---------------------------- ----------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
- --------------------------------------------------------------------------------------------------
LA CHOYA UNIT
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tons of ore processed 101,903 580,664 834,146 1,332,619
Days of operation 91 91 181 181
Mining cost per ton $2.63 $2.09 $1.69 $2.59
Ore grade crushed - Gold (oz./ton) 0.014 0.026 0.018 0.031
Gold produced (oz.) 9,953 18,820 23,360 39,175
Silver produced (oz.) 1,114 2,154 2,622 4,089
Average cost per ounce of gold produced:
Cash operating costs $200 $160 $194 $183
Total cash costs $201 $161 $195 $184
Total production costs $203 $200 $195 $224
- --------------------------------------------------------------------------------------------------
ROSEBUD UNIT (Reflects Hecla's 50% share) (1)
- --------------------------------------------------------------------------------------------------
Tons of ore mined 44,381 38,180 83,876 38,180
Tons of ore milled 42,844 32,539 81,411 32,539
Days of operation 91 91 181 91
Mining cost per ton $24.97 $28.12 $26.66 $28.12
Milling cost per ton $14.00 $10.83 $12.42 $10.83
Ore grade milled - Gold (oz./ton) 0.379 0.405 0.412 0.405
Ore grade milled - Silver (oz./ton) 2.81 2.97 3.06 2.97
Gold produced (oz.) 15,702 12,227 32,291 12,227
Silver produced (oz.) 60,053 54,234 121,990 54,234
Average cost per ounce of gold produced:
Cash operating costs $166 $123 $153 $123
Total cash costs $186 $144 $172 $144
Total production costs $284 $263 $271 $263
- --------------------------------------------------------------------------------------------------
LUCKY FRIDAY UNIT
- --------------------------------------------------------------------------------------------------
Tons of ore milled 57,754 50,334 114,976 97,691
Days of operation 64 64 127 127
Mining cost per ton $47.88 $44.47 $44.64 $45.46
Milling cost per ton $8.37 $7.33 $8.38 $7.16
Ore grade milled - Silver (oz./ton) 17.85 9.86 16.60 9.94
Silver produced (oz.) 981,281 488,014 1,817,411 947,561
Lead produced (tons) 6,881 5,031 13,576 10,135
Zinc produced (tons) 622 838 1,303 1,757
Average cost per ounce of silver produced:
Cash operating costs $4.23 $5.48 $4.65 $4.97
Total cash costs $4.23 $5.48 $4.65 $4.97
Total production costs $5.05 $6.73 $5.53 $6.27
</TABLE>
(cont.)
<PAGE> 9
HECLA MINING COMPANY
Production Data (cont.)
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
---------------------------- ----------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
- --------------------------------------------------------------------------------------------------
GREENS CREEK (Reflects Hecla's 29.73% share)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tons of ore milled 39,921 36,283 76,318 73,063
Days of operation 91 91 181 181
Mining cost per ton $29.10 $37.65 $30.77 $36.55
Milling cost per ton $19.67 $22.08 $21.04 $21.60
Ore grade milled - Silver (oz./ton) 21.34 24.26 21.86 24.40
Silver produced (oz.) 648,008 682,956 1,278,518 1,383,793
Gold produced (oz.) 4,385 3,918 8,378 7,840
Lead produced (tons) 1,667 1,384 3,079 2,862
Zinc produced (tons) 3,985 3,516 7,559 6,805
Average cost per ounce of silver produced:
Cash operating costs $2.91 $2.28 $3.23 $2.32
Total cash costs $2.91 $2.28 $3.23 $2.32
Total production costs $5.28 $4.15 $5.55 $4.59
- --------------------------------------------------------------------------------------------------
OTHER (2)
- --------------------------------------------------------------------------------------------------
Gold produced (oz.) 1,362 10,464 2,927 30,091
Silver produced (oz.) 786 52,948 1,108 134,827
(1) The Rosebud mine commenced operations in April 1997.
(2) Includes the company's share of production from the Grouse Creek mine and
other sources.
</TABLE>
CAPITAL EXPENDITURES
(dollars in thousands)
Six Months Ended
--------------------------------------
June 30, 1998 June 30, 1997
------------- -------------
Rosebud (50%*) $ 46 $ 4,256
Lucky Friday 4,375 2,701
Greens Creek (29.73%*) 1,349 751
La Choya 374 - -
Industrial minerals 2,069 1,739
Capitalized interest 588 477
Other 24 398
---------- ----------
Total Capitalized $ 8,825 $ 10,322
========== ==========
Hecla's share
HEDGED POSITIONS
As of June 30, 1998
Silver: 1,250,000 ounces hedged @ average price of $6.18.
Gold: 6,000 ounces hedged @ average price of $354.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,108
<SECURITIES> 0
<RECEIVABLES> 34,697
<ALLOWANCES> 0
<INVENTORY> 20,701
<CURRENT-ASSETS> 64,805
<PP&E> 410,635
<DEPRECIATION> (233,214)
<TOTAL-ASSETS> 260,958
<CURRENT-LIABILITIES> 25,583
<BONDS> 9,800
0
575
<COMMON> 13,792
<OTHER-SE> 147,887
<TOTAL-LIABILITY-AND-EQUITY> 260,958
<SALES> 85,784
<TOTAL-REVENUES> 89,721
<CGS> 67,014
<TOTAL-COSTS> 77,188
<OTHER-EXPENSES> 6,553
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,017
<INCOME-PRETAX> 5,553
<INCOME-TAX> (290)
<INCOME-CONTINUING> 5,843
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,843
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
