<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1998
Commission File No. 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)
Registrant's telephone number, including area code 208-769-4100
------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which each class is registered
- ------------------------------------------- ------------------------------
Common Stock, par value $0.25 per share )
Preferred Share Purchase Rights for )
Series B Cumulative Convertible Preferred) New York Stock Exchange
Stock, par value $0.25 per share ) ------------------------------
- --------------------------------------------
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes XX . No .
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the Registrant's voting Common Stock held
by non-affiliates was $203,198,279 as of February 26, 1999. There were
55,104,618 shares of the Registrant's Common Stock outstanding as of
February 26, 1999.
Documents incorporated by reference herein:
To the extent herein specifically referenced in Part III,
the information contained in the Proxy Statement for the 1999 Annual Meeting
of Shareholders of the Registrant, which will be filed with the Commission
pursuant to Regulation 14A within 120 days of the end of the Registrant's
1998 fiscal year is incorporated herein by reference. See Part III.
<PAGE> 2
PART I
ITEM 1. BUSINESS.(1)
GENERAL
Hecla Mining Company (the Company or Hecla), originally
incorporated in 1891, is principally engaged in the exploration,
development and mining of precious and nonferrous metals,
including gold, silver, lead and zinc, and certain industrial
minerals. The Company owns or has interests in a number of
precious and nonferrous metals properties and industrial minerals
businesses. In 1998, the Company's attributable gold and silver
production was approximately 127,000 ounces and 7.2 million
ounces, respectively. The Company also shipped approximately
1,115,000 tons of industrial minerals products during 1998,
including ball clay, kaolin, feldspar, and specialty aggregates.
Additionally, the Company shipped approximately 1,078,000 cubic
yards of landscape material from its MWCA subsidiary in 1998.
The principal executive offices of the Company are located at
6500 Mineral Drive, Coeur d'Alene, Idaho 83815-8788, telephone
(208) 769-4100.
Statements made which are not historical facts, such as
anticipated production, costs or sales performance are "forward
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and involve a number of risks and
uncertainties that could cause actual results to differ
materially from those projected or implied. These risks and
uncertainties include, but are not limited to, metals price
volatility, volatility of metals production, industrial minerals
market conditions and project development risks. (See Investment
Considerations).
The Company's principal producing metals properties include the
Lucky Friday silver mine, located near Mullan, Idaho, which is a
significant primary producer of silver in North America; the
Greens Creek silver mine, located near Juneau, Alaska, a large
polymetallic mine in which the Company owns a 29.7% interest,
where operations recommenced in July 1996; the Rosebud gold mine,
located near Winnemucca, Nevada, in which the Company owns a 50%
interest, and where operations began in March 1997; and the La
Choya gold mine, located in Sonora, Mexico, where mining was
completed in December 1998.
- --------------
(1) For difinitions of certain mining trms used int his
description, see "Glossary of Certain Mining Terms" at the end of
Item 1, of this Form 10-K, page 41.
-1-
<PAGE> 3
The following table presents certain information regarding the
Company's metal mining and development properties, including the
relative percentage each contributed to the Company's 1998
revenues:
Date Ownership Percentage of
Name of Property Acquired Interest 1998 Revenue(1)
- ---------------- -------- --------- ------------
La Choya 1991 100.0% 7.6%
Greens Creek 1988 29.7% 13.6%
Rosebud 1994 50.0% 12.6%
Lucky Friday 1958 100.0% 12.9%
American Girl 1994 47.0% 0.5%
___________________
(1) In addition to the percentage contributions of revenue from
the metal mines, the industrial minerals segment contributed
52.8% of revenue in 1998.
The Company's industrial minerals segment consists of Kentucky-
Tennessee Clay Company (ball clay and kaolin divisions), K-T
Feldspar Corporation, K-T Clay de Mexico, S.A. de C.V., and MWCA,
Inc. MWCA operates two divisions: the Colorado Aggregate
division and the Mountain West Products division. The Company's
industrial minerals segment is a significant producer of three of
the four basic ingredients required to manufacture ceramic and
porcelain products, including sanitaryware, pottery, dinnerware,
electric insulators, and tile. At current production rates, the
Company has over 20 years of Proven and Probable ore reserves of
ball clay, kaolin and feldspar.
The Company has experienced losses from operations for each of
the last eight years. For the year ended December 31, 1998, the
Company reported a net loss of approximately $0.3 million (before
preferred dividends of $8.1 million), or $0.01 per share of
common stock, compared to a net loss of approximately $0.5
million (before preferred stock dividends of $8.1 million), or
$0.01 per share of common stock, for the year ended December 31,
1997.
The Company's strategy is to focus its efforts and resources on
expanding its gold and silver reserves and industrial minerals
operations through a combination of acquisition and exploration
efforts. In order to provide funds for possible metals and
industrial minerals expansion projects, as well as to reduce
indebtedness, the Company has decided to attempt to sell MWCA,
Inc. in 1999, although there can be no assurance that the Company
will be successful. The Company has also implemented cost
cutting measures to preserve cash in the current low metals price
environment.
-2-
<PAGE> 4
The Company's domestic exploration plan for 1999 consists
primarily of exploring for additional reserves at, or in the
vicinity of, its domestic owned properties. The Company's
foreign exploration plan for 1999 will focus on exploration
targets in Mexico and South America. At the same time, the
Company will continue to evaluate acquisition and other
exploration opportunities.
The Company's revenues and profitability are strongly influenced
by global prices of silver, gold, lead and zinc. Metals prices
fluctuate widely and are affected by numerous factors beyond the
Company's control, including inflation and worldwide forces of
supply and demand. The aggregate effect of these factors on the
Company cannot be accurately predicted.
Sales of metal concentrates and metal products are made
principally to custom smelters and metal traders. Industrial
minerals are sold principally to domestic, Mexican, and other
foreign manufacturers and wholesalers. The percentage of revenue
contributed by each class of product is reflected in the
following table:
Years
------------------------
Product 1998 1997 1996
----------------- ---- ---- ----
Gold 21.2% 34.9% 40.7%
Silver, lead and zinc 26.0 19.7 10.7
Industrial minerals 44.4 38.4 40.0
All others(1) 8.4 7.0 8.6
(1) All others include sales from MWCA-Mountain West
Products division exclusive of scoria sales.
Refer to Note 9 of Notes to Consolidated Financial Statements
forming part of the Company's audited Consolidated Financial
Statements for the year ended December 31, 1998 (the Notes to
Consolidated Financial Statements) for information with respect
to export sales.
-3-
<PAGE> 5
The table below summarizes the Company's production and average
cash operating cost, average total cash cost, and average total
production cost per ounce for gold and silver for each period
indicated:
<TABLE>
<CAPTION>
Years
------------------------------------
Products 1998 1997 1996
-------- ----------- ---------- -----------
<S> <C> <C> <C>
Gold (ounces)(1) 127,433 174,164 169,376
Silver (ounces)(2) 7,244,657 5,147,009 3,024,911
Lead (tons) 34,455 24,995 22,660
Zinc (tons) 20,155 16,830 7,464
Average cost per ounce of gold produced:
Cash operating cost $ 177 $ 166 $ 273
Total cash cost $ 189 $ 173 $ 276
Total production cost $ 262 $ 239 $ 364
Average cost per ounce of silver produced:
Cash operating cost $ 3.96 $ 3.58 $ 4.24
Total cash cost $ 3.96 $ 3.58 $ 4.24
Total production cost $ 5.37 $ 5.42 $ 5.47
Industrial minerals
(tons shipped) 1,114,987 1,025,993 1,072,319
(1) The decrease in gold production from 1997 to 1998 is
principally due to decreased production at La Choya of
38,205 ounces due to completion of mining activities in
December 1998 and decreased production at Grouse Creek of
27,158 ounces due to the suspension of operations in April
1997. These decreases were partially offset by increased
production at Rosebud of 18,522 ounces due to operating a
full year in 1998 versus nine months in 1997. The increase
in gold production from 1996 to 1997 is principally due to
increased gold production of 46,974 ounces at the Rosebud
mine, where operations commenced in April 1997; and
increased gold production from the Greens Creek mine of
13,518 ounces due to the mine operating the entire year
after operations recommenced in July 1996. These increases
were partially offset by decreased gold production at the
Grouse Creek mine of 34,242 ounces due to the suspension of
operations in April 1997 and decreased gold production from
the American Girl mine of 17,824 ounces due to the
suspension of operations in the fourth quarter of 1996.
(2) Increased silver, lead, and zinc production from 1997 to
1998 is principally due to increased production at Lucky
Friday due to increased silver grade and increased tons
mined from the Lucky Friday expansion area in 1998 and
increased silver production at Rosebud due to increased tons
mined. These increases were partially offset by decreased
silver, lead, and zinc production at Greens Creek and other
idle properties. Increased silver, lead, and zinc
production from 1996 to 1997 is principally due to increased
silver, lead and zinc production from the Greens Creek mine
due to twelve months of operations at Greens Creek in 1997
following the recommencement of operations in July 1996.
</TABLE>
-4-
<PAGE> 6
METALS - SILVER SEGMENT
LUCKY FRIDAY MINE - IDAHO
The Lucky Friday, a deep underground silver and lead mine,
located in northern Idaho and 100% owned by the Company, has been
a producing mine for the Company since 1958.
The cash operating cost, total cash cost, and total production
cost per ounce of silver decreased from $5.47, $5.47, and $6.72,
respectively, in 1997 to $4.71, $4.71, and $5.59, respectively,
in 1998. The decreases were due principally to lower mining
costs, economies of scale and higher ore grade in the newly
developed Lucky Friday expansion area. In 1998, the expansion
area produced 73% of total tons milled.
The principal ore-bearing structure at the Lucky Friday mine
through 1997 was the Lucky Friday Vein, a fissure vein typical of
many in the Coeur d'Alene Mining District. The orebody is
located in the Revett Formation which is known to provide
excellent host rocks for a number of orebodies in the
Coeur d'Alene District. The Lucky Friday Vein strikes
northeasterly and dips steeply to the south, with an average
width of six to seven feet. Its principal ore minerals are
galena and tetrahedrite, with minor amounts of sphalerite and
chalcopyrite. The ore occurs as a single continuous orebody in
and along the Lucky Friday Vein. The major part of the orebody
has extended from the 1200-foot level to and below the 5930-foot
level, which is currently being developed.
During 1991, the Company discovered several mineralized
structures containing some high-grade silver ores in an area
known as the Gold Hunter property, about 5,000 feet northwest of
the then existing Lucky Friday workings. In an extensive
exploration program in 1992, the Company undertook an underground
evaluation of the Gold Hunter property mineralization. The
program referred to now as the "Lucky Friday Expansion Project,"
discovered mineralization containing significant amounts of
silver and lead in an area accessible from the 4050-foot level of
the Lucky Friday mine. The exploration program and a preliminary
feasibility study were completed during 1993. In 1994, the
Company approved the first phase of development of the Lucky
Friday expansion project. The first phase consisted primarily of
driving an access drift from the 4900-foot level of the Lucky
Friday workings, which intersected the Gold Hunter ore zone
approximately 850 feet below the previously explored area. The
access drift advanced 3,000 feet in 1995, and exploratory
drilling started in the second quarter of 1996. A final
feasibility study was completed in 1997, and the Company's Board
of Directors approved a $16.0 million development plan. Initial
production from the project was achieved in 1997, and full
production was reached on schedule in the second quarter of 1998.
The Company controls the Gold Hunter property under a long-term
operating agreement, which entitles the Company, as operator, to a
-5-
<PAGE> 7
79.08% interest in the net profits from operations from the Gold
Hunter properties. The Company will be obligated to pay a
royalty after it has recouped its costs to explore and develop
the properties. As of December 31, 1998, unrecouped costs
totaled approximately $33.0 million.
The principal mining method at the Lucky Friday mine is ramp
access, cut and fill. This method utilizes rubber tired
equipment to access the veins through ramps developed outside of
the orebody. Once a cut is taken along the strike of the vein,
it is backfilled with cemented tailings and the next cut is
accessed, either above or below, from the ramp system.
The ore produced from the mine is processed in a 1,100-ton-per-
day conventional flotation mill. In 1998, ore was processed at a
rate of approximately 1,037 tons per day at the Lucky Friday mine
site. The flotation process produces both a silver-lead
concentrate and a zinc concentrate. During 1998, approximately
94.6% of the silver, 93.4% of the lead, and 38.5% of the zinc
were economically recovered.
The Lucky Friday mine/mill facility, surface and underground
equipment are in good working condition. The mill was originally
constructed approximately 40 years ago. The Company maintains
and modernizes the plant and equipment on an ongoing basis to
keep the plant and equipment in good physical and operating
condition. The net book value of the Lucky Friday mine property
and its associated plant and equipment was approximately $41.3
million as of December 31, 1998.
Ultimate reclamation activities contemplated include
stabilization of tailings ponds and waste rock areas.
Reclamation expense recognized in 1998 was approximately $30,000,
including $16,000 for concurrent reclamation activities.
Even though recent historical total production costs have
exceeded revenues realized from the sale of recovered metals,
based upon management's estimates of metal to be recovered and
considering estimated future production costs and metals prices,
the Company's management believes that the carrying value of the
Lucky Friday mine is recoverable from future undiscounted cash
flows generated from operations and the estimated salvage value
of the surface plant, equipment and the value associated with
property rights. In evaluating the carrying value of the Lucky
Friday mine, the Company used metals prices of $5.50 per ounce
silver in 1999, $5.75 silver in 2000, and $6.00 silver
thereafter; $0.25 per pound lead in 1999 and 2000, and then $0.27
lead thereafter; and $0.50 per pound zinc in 1999, and then $0.55
zinc thereafter. These prices were utilized as the Company's
management believes that they are reasonable estimates of prices
over the remaining life of the mine.
In contrast to longer-term prices used for estimating life-of-
mine revenues and resultant cash flows, the Company uses near-term
-6-
<PAGE> 8
estimates of metal prices to estimate ore reserves as they more
closely reflect the current economic conditions at the
measurement date. Estimated future production costs were derived
from actual production costs currently being experienced at the
Lucky Friday mine, adjusted for anticipated changes resulting
from the execution of the Company's mine production plan. Based
upon these projected factors, the Company currently estimates
that future cash and total production costs per ounce of silver
produced over the remaining life of mine would be approximately
$4.51 and $5.91, respectively. As these amounts are derived from
numerous estimates, the most volatile of which are metal prices,
there can be no assurance that actual results will correspond to
these estimates.
Historically, the Lucky Friday silver-lead concentrate has been
shipped primarily to the ASARCO smelter in East Helena, Montana.
With the increased production in 1998 from the Gold Hunter
orebody, the silver-lead concentrates were shipped to five
different smelters in Canada, the United States, Mexico, and
Europe. In 1999, it is estimated that 45% of the Lucky Friday
production will be shipped to ASARCO's smelter in East Helena,
Montana, 35% to Met-Mex Penoles' smelter in Torreon, Coahuila,
Mexico, and 20% to Noranda's smelter in Belledune, New Brunswick,
Canada.
The Lucky Friday zinc concentrates are shipped to Cominco's
smelter in Trail, British Columbia, Canada.
Based on the Company's experience in operating deep mines in the
Coeur d'Alene Mining District, where the persistence of
mineralization to greater depths may be reliably inferred from
operating experience and geological data, the Company's policy is
to develop new levels at a minimum rate consistent with the
requirements for uninterrupted and efficient ore production. A
new level is developed and brought into production only to
replace diminishing ore reserves from levels being mined out.
The length and strength of the orebodies have not materially
diminished on the lowest developed level of the mine. Based upon
this factor, drilling data and extensive knowledge of the
geologic character of the deposit, and many years of operating
experience in the Lucky Friday mine and Coeur d'Alene Mining
District, there are no geologic factors known at present which
appear to prevent the assumed continuation of the Lucky Friday
and Gold Hunter orebodies for a considerable distance below the
lowermost working level. Although there can be no assurance of
the extent and quality of the mineralization which may be
developed at greater depths, the existing data and operating
experience justify, in the opinion of the Company's management
and based upon industry standards, the conclusion that the
mineralization will extend well below the lowest developed
levels.
Information with respect to the Lucky Friday mine's production,
Proven and Probable ore reserves, and average cost per ounce of
-7-
<PAGE> 9
silver produced for the past three years is set forth in the
table below:
<TABLE>
<CAPTION>
Years
----------------------------------
Production (100%) 1998 1997 1996
- ------------------- --------- --------- ---------
<S> <C> <C> <C>
Ore milled (tons) 263,502 193,399 188,272
Silver (ounces) 4,137,135 1,943,373 1,906,333
Gold (ounces) 925 853 947
Lead (tons) 27,708 19,270 20,971
Zinc (tons) 2,648 3,168 3,653
Proven and Probable
Ore Reserves(1)
- ---------------
Total tons 1,220,820 1,388,590 1,245,660
Silver (ounces per ton) 15.9 14.8 14.9
Lead (percent) 10.5 10.2 11.3
Zinc (percent) 1.8 1.9 2.2
Contained silver (ounces) 19,459,256 20,532,121 18,512,024
Contained lead (tons) 128,748 141,470 140,608
Contained zinc (tons) 21,965 25,703 26,872
Average Cost per Ounce
of Silver Produced
- ------------------
Cash operating costs $ 4.71 $ 5.47 $ 4.24
Total cash costs $ 4.71 $ 5.47 $ 4.24
Total production costs $ 5.59 $ 6.72 $ 5.47
_________________________________
(1) At the Lucky Friday mine, reserves lying above or between
developed levels are classified as Proven reserves.
Reserves lying below the lowest developed level, projected
to 200 feet below the lowest level or to one-half the
exposed strike length, whichever is less, are classified as
Probable reserves. Mineralization known to exist only from
drill-hole intercepts does not meet the Company's current
Proven or Probable reserve criteria and is excluded from
these reserve categories. For additional Proven and
Probable ore reserve assumptions, including assumed metals
prices, see Glossary of Certain Mining Terms.
</TABLE>
At December 31, 1998, there were 200 employees at the Lucky
Friday mine. The United Steelworkers of America is the
bargaining agent for the Lucky Friday hourly employees. The
current labor agreement expires on June 12, 1999. The Company
currently anticipates no work stoppage and that a satisfactory
contract can be renegotiated with the Lucky Friday hourly
employees, although there can be no assurance that the contract
can be renegotiated without a disruption to production. Avista
Corporation (formerly Washington Water Power Company) supplies
electrical power to the Lucky Friday mine.
-8-
<PAGE> 10
GREENS CREEK MINE - ADMIRALTY ISLAND, ALASKA
At December 31, 1998, the Company held a 29.7% interest in the
Greens Creek mine, located on Admiralty Island, near Juneau,
Alaska, through a joint venture arrangement with Kennecott Greens
Creek Mining Company, the manager of the mine and a wholly owned
subsidiary of Kennecott Corporation. The Greens Creek mine is a
polymetallic deposit containing silver, zinc, gold, and lead.
Greens Creek lies within the Admiralty Island National Monument,
an environmentally sensitive area. The Greens Creek property
includes 17 patented lode claims, and one patented millsite claim
in addition to property leased from the U.S. Forest Service.
Greens Creek also has obtained title to mineral rights on 7,500
acres of federal land adjacent to the mine properties. The
entire project is accessed and served by 13 miles of road and
consists of the mine, an ore concentrating mill, a tailings
impoundment area, a ship-loading facility, camp facilities and a
ferry dock.
In February 1993, as a result of depressed metals prices and a
glut in world concentrate markets, the decision was made to place
the mine on temporary shutdown. Commercial production ceased in
April 1993, and the mine and mill were placed on a care and
maintenance basis. Exploration and mine development activities
continued at the mine during the shutdown. Follow-up drilling on
previously identified targets was successful in identifying a new
ore zone, the Southwest Extension.
In January 1994, a feasibility study was initiated to determine
the advisability of placing the mine back into production. The
feasibility study was completed in the fourth quarter of 1994 and
in 1995 the decision was made to reopen the Greens Creek mine,
with commercial production estimated to recommence by early 1997.
Included in the reopening project were development of the
Southwest ore zone, purchase of new mine mobile equipment,
upgrading of ancillary facilities, improvement of environmental
control systems and modification of the process plant. The
reopening project was completed ahead of schedule, production
began in July 1996 and full production levels were achieved in
January 1997.
Environmental permitting during the reopening project included
obtaining regulatory agency approval of the updated General Plan
of Operations and Large Mine Permit. The approvals included
revisions to appendices regarding fresh water monitoring,
tailings site operation and maintenance, development rock
management and water systems operation. Other actions included
Forest Service approval to house production workers in a worker-
camp at Hawk Inlet, and State of Alaska legislative changes
allowing extended working shifts for miners. State of Alaska
permitting action included renewal of the Air Quality Permit by
the Alaska Department of Environmental Control. Permits that
were in-progress at the end of 1998 included the Alaska
Department of
-9-
<PAGE> 11
Environmental Control solid waste permit for tailings disposal
and renewal of the mine waste-water discharge permit. As part of
a settlement for civil penalties associated with past discharges,
Greens Creek is under an Administrative Consent Decree with the
Environmental Protection Agency.
Currently, Greens Creek is mining 1,500 tons per day underground
from the Southwest and West ore zones. Ore from the underground
trackless mine is milled at the mine site. The mill produces
gold/silver dore; and lead, zinc and bulk concentrates. The dore
is marketed to a precious metal refiner and the three concentrate
products are predominantly sold to a number of major smelters
worldwide. A lesser amount of the concentrates are sold to metal
merchants under short-term agreements. Concentrates are shipped
from a marine terminal located about nine miles from the mine
site. The Greens Creek mine uses electrical power provided by
diesel-powered generators located on-site.
A land exchange agreement was approved by Congress and signed
into law by President Clinton on April 1, 1996. The joint
venture secured private property equal to a value of $1.0 million
and transferred title to the USDA Forest Service. Greens Creek
thereby received access to approximately 7,500 acres of land with
potential mining resources surrounding the existing mine.
Production from new ore discoveries on the exchange lands will be
subject to the federal royalties included in the land exchange
agreement. The federal royalties are based on a defined
calculation that is similar to the calculation of net smelter
return, and are equal to 0.75% or 3% of the calculated amount
depending on the value of the ore extracted.
Exploration efforts in 1997 at Greens Creek discovered an
extension to the Southwest ore zone called the 200 South ore
deposit. Definition drilling during 1998 on the new 200 South ore
zone has resulted in important additions to the mine's Proven and
Probable ore reserves.
As of December 31, 1998, there were 266 employees at the Greens
Creek mine. The employees at the Greens Creek mine are not
represented by a bargaining agent. At December 31, 1998, the
Company's interest in the net book value of the Greens Creek mine
property and its associated plant and equipment was $70.8
million.
Based upon management's estimates of metal to be recovered and
considering estimated future production costs and metals prices,
the Company's management believes that the carrying value of the
Greens Creek mine is recoverable from future undiscounted cash
flows generated from operations. In evaluating the carrying
value of the Greens Creek mine, the Company used metals prices of
$300 per ounce of gold in 1999, $325 gold in 2000, and $350 gold
thereafter; $5.50 per ounce of silver in 1999, $5.75 silver in
2000, and $6.00 silver thereafter; $0.25 per pound of lead in
1999 and 2000, and $0.27 per pound lead thereafter; and $0.50 per
pound of zinc in 1999, and $0.55 zinc thereafter. These prices
-10-
<PAGE> 12
were utilized as the Company's management believes that they are
reasonable estimates of average prices over the remaining life of
the mine. In contrast to longer-term prices used for estimating
life-of-mine revenues and resultant cash flows, the Company uses
near-term estimates of metals prices, process recoveries and
smelter terms to estimate ore reserves as they more closely
reflect the current economic conditions at the measurement date.
Estimated future production costs were derived from actual
production costs experienced at the mine, adjusted, as necessary,
for anticipated changes resulting from the execution of the mine
manager's mine production plan. Based upon these projected
factors, the Company estimates that future cash and total
production costs per ounce of silver produced over the remaining
life of the mine would be $1.99 and $4.99, respectively. As
these amounts are derived from numerous estimates, the most
volatile of which are metals prices, there can be no assurance
that actual results will correspond to these estimates.
The Greens Creek deposit consists of zinc, lead, and iron
sulfides and copper-silver sulfides and sulfosalts with
substantial contained gold and silver values. The deposit has a
vein-like to blanket-like form of variable thickness. The ore is
thought to have been laid down by an "exhalative" process (i.e.,
volcanic-related rifts or vents deposited base and precious
metals onto an ocean floor). Subsequently, the mineralization was
folded and faulted by multiple generations of tectonic events.
The estimated ore reserves for the Greens Creek mine are computed
by Kennecott Greens Creek Mining Company's geology and
engineering staff with technical support from Kennecott
Corporation. Geologic interpretations and reserve methodology
are reviewed by the Company, but the reserve compilation is not
independently confirmed by the Company in its entirety.
Information with respect to the Company's 29.7% share of
production, Proven and Probable ore reserves, and average cost
per ounce of silver produced is set forth in the table below:
-11-
<PAGE> 13
<TABLE>
<CAPTION>
Years (Company's Interest)
------------------------------------------------
Production 1998 (29.7%) 1997 (29.7%) 1996(1)(29.7%)
---------- ------------- -------------- --------------
<S> <C> <C> <C>
Ore milled (tons) 160,567 145,676 42,737
Silver (ounces) 2,823,660 2,889,265 827,799
Gold (ounces) 18,008 16,604 3,086
Zinc (tons) 17,507 13,662 3,811
Lead (tons) 6,747 5,725 1,689
Proven and Probable
Ore Reserves(2,3,4)
-------------------
Total tons 2,901,028 2,494,085 2,642,000
Silver (ounces per ton) 15.4 18.6 19.5
Gold (ounces per ton) 0.14 0.15 0.15
Zinc (percent) 12.3 12.7 12.6
Lead (percent) 4.5 4.5 4.6
Contained gold (ounces) 411,946 369,173 398,046
Contained silver (ounces) 44,733,855 46,467,846 51,587,608
Contained zinc (tons) 357,407 317,497 333,849
Contained lead (tons) 130,836 112,234 120,096
Average Cost per
Ounce of Silver Produced(5)
---------------------------
Cash operating costs $ 2.86 $ 2.31 - -
Total cash costs $ 2.86 $ 2.31 - -
Total production costs $ 5.06 $ 4.55 - -
- ----------------------------------
(1) Operations were suspended in April 1993 and restarted in July 1996.
(2) For Proven and Probable ore reserve assumptions and definitions,
see Glossary of Certain Mining Terms.
(3) Ore reserves represent in-place material, diluted and adjusted for
expected mining recovery. Process plant recoveries of ore reserve
grades are expected to be 73% for silver, 62% for gold, 85% for zinc
and 78% for lead. Payable recoveries of ore reserve grades by smelters
and refiners are expected to be 63% for silver, 47% for gold, 67% for
zinc and 60% for lead.
(4) The decrease in contained silver in 1998 versus 1997 is a result of
reductions for 1998 production and Southwest Ore Zone adjustments due
to capping of high grades, restriction of the mineral envelope, and to
a lesser extent, smelter contract changes, and mining recovery and
dilution assumptions. These decreases were partially offset by the
addition of the new 200 South Ore Zone and the 5250 Ore Zone.
(5) The Greens Creek mine recommenced operations in July 1996, on a start-up
basis; as such, no cost per ounce amounts are reported for 1996.
</TABLE>
METALS - GOLD SEGMENT
ROSEBUD GOLD MINE - NEVADA
The Rosebud Gold Mine, in which the Company has a 50% interest,
is located in the Rosebud Mining District, in Pershing County,
Nevada. The Rosebud property consists of a 100% interest in
three patented lode-mining claims, 760 unpatented lode-mining
claims,
-12-
<PAGE> 14
and four additional patented lode-mining claims currently under
lease. Additionally, Rosebud has a 52% interest in 48 lode-
mining claims held under a joint venture agreement with N.A.
Degerstrom Inc. The total 815 claims cover approximately 16,840
acres and collectively comprise the "Rosebud mine." Patent
application has been made on the 13 claims that contain all of
the Proven and Probable ore reserves. The Rosebud mine may be
reached from Winnemucca, Nevada, by travelling west a distance of
approximately 58 miles on an all-weather gravel road. At
December 31, 1998, Hecla's interest in the net book value of
property, plant, and equipment at the Rosebud mine totaled $11.7
million.
On September 6, 1996, the Company and Santa Fe Pacific Gold
Corporation entered into a 50/50 joint venture agreement to
develop the Rosebud mine. Pursuant to the agreement, a limited
liability corporation (The Rosebud Mining Company, L.L.C.) was
established to develop the Rosebud gold property with each party
owning a 50% interest. In May 1997, Santa Fe was merged into
Newmont Gold Company (Newmont) thus becoming the successor in
interest to Santa Fe's portion of The Rosebud Mining Company,
L.L.C. Under the terms of the agreement, the Company manages the
mining activities and ore is hauled via truck approximately 110
miles to Newmont's Twin Creeks Pinon mill for processing.
Mine site construction began during September 1996 and was
completed during March 1997. Capital expenditures to bring the
mine into production totaled $18.7 million. Newmont funded the
first $12.5 million of mine-site development and also funded
costs of road and mill facility improvements which were completed
during 1997. Newmont also contributed to the joint venture
exploration property located near the Rosebud property, and has
funded the first $1.0 million in exploration expenditures, and
two-thirds of all exploration expenditures beyond the initial
$1.0 million.
In 1993, the Company sold, for $2.5 million, a 2.5% net smelter
return royalty and an option to purchase an additional 1.5% net
smelter return royalty on the Rosebud property to Euro-Nevada
Mining Corporation Inc. (Euro-Nevada). The option for the
additional 1.5% royalty was exercised, by Euro-Nevada, in the
fourth quarter of 1996. The proceeds of $2.5 million were
retained by Hecla under the terms of the agreement with Newmont.
Gold mineralization in the South, North and East Zones, as in
many other volcanic-hosted gold deposits, is erratically
distributed with numerous low-grade drill hole intercepts
interspersed with higher grade drill hole intercepts over an area
of approximately 1,000 feet east-west and 1,000 feet north-south.
Drilling has also intersected further mineralization proximal to
the mine.
Permitting related work, which began during 1994, was completed
during 1996.
Following completion of construction and mine development
activities, the mine commenced operations in March of 1997. The
-13-
<PAGE> 15
Company's share of production in 1997 was approximately 47,000
gold ounces and 169,000 silver ounces. The Company's share of
1998 production was approximately 65,000 gold ounces and 278,000
silver ounces.
Mine production during 1998 averaged in excess of 900 tons-per-
day of ore. Ore grades milled were 0.40 gold ounce per ton and
3.06 ounces of silver per ton. The ore produced from the mine is
processed in a conventional carbon-in-leach circuit. The mill
produces a high quality gold-silver dore. During 1998, 97.0% of
the gold and 54.4% of the silver processed at the mill were
economically recovered.
The cash operating cost, total cash cost, and total production
cost per ounce of gold were $157, $176, and $274, respectively,
for 1998 and $137, $156, and $263, respectively, for 1997. Mine
production levels for 1998 were higher than expected. However,
costs for trucking and milling were also higher than expected.
The following table presents information with respect to the
Company's 50% share of production, Proven and Probable ore
reserves, and the average cost per ounce of gold produced for the
Rosebud Project as of the dates indicated:
<TABLE>
<CAPTION>
Years
-------------------------------------------
1998 1997 1996
--------- --------- ---------
Production (50%)
- ----------------
<S> <C> <C> <C>
Ore milled 171,493 99,050 - -
Gold Recovered (ounces) 65,496 46,974 - -
Silver Recovered (ounces) 278,290 168,584 - -
Proven and Probable
Ore Reserves (1)(2)(3)
- ----------------------
Total tons 241,927 471,521 638,317
Gold (oz. per ton) 0.392 0.420 0.392
Contained gold (ounces) 94,808 197,817 249,942
Silver (ounces per ton) 1.80 2.92 2.70
Contained silver (ounces) 436,252 1,378,201 1,713,945
Average Cost per Ounce
of Gold Produced
- ----------------------
Cash operating costs $ 157 $ 137 - -
Total cash costs $ 176 $ 156 - -
Total production costs $ 274 $ 263 - -
-14-
<PAGE> 16
(1) The Proven and Probable ore reserves reflect only the
Company's share (50%) pursuant to the September 6, 1996 sale of a
50% interest in its Rosebud property.
(2) For Proven and Probable ore reserve assumptions, including
assumed metals prices, see Glossary of Certain Mining Terms.
(3) The decrease in tons of Proven and Probable ore reserves in
1998 compared to 1997 is primarily attributable to production
during 1998, reestimation of the East Zone using 108 new drill
holes, an increase in cutoff grade from 0.150 oz./ton to 0.180
oz./ton, and reclassification of reserve blocks that no longer
meet Proven and Probable criteria. The decrease in tons of
Proven and Probable ore reserves in 1997 compared to 1996 is
attributable to production during 1997 and a decrease in dilution
in the South Zone from 27.6% at a gold grade of 0.074 oz./ton and
a silver grade of 0.75 oz./ton to 13.8% at a gold grade of 0.077
oz./ton and a silver grade of 1.06 oz./ton. This reduction in
dilution for the South Zone is based on actual dilution figures
from production during 1997 and represents the subtraction of
40,800 tons (50%) grading 0.077 oz. Au/ton, 1.06 oz. Ag/ton from
the 1996 reserve.
</TABLE>
As of December 31, 1998, there were 104 employees at the Rosebud
Mine. The employees at the mine are not represented by a
bargaining agent. The Rosebud mine uses power provided by Sierra
Pacific Power.
LA CHOYA GOLD MINE - SONORA, MEXICO
The La Choya gold mine is located 30 miles south of the U.S.
border in the State of Sonora, Mexico, and is 100% owned by the
Company through a Mexican subsidiary, Minera Hecla, S.A. de C.V.
In May 1992, the Company exercised its option to purchase the
Mexican mineral concessions related to this property, which
includes a land position of over 16,000 acres.
The La Choya gold mine commenced operations in February 1994 and
produced approximately 80,000 ounces in 1996, 78,000 ounces in
1997, and 40,000 ounces in 1998. The Company expects to produce
10,000 ounces of gold in 1999 from La Choya. Proven and Probable
ore reserves were exhausted and the La Choya gold mine was shut
down on December 19, 1998. However, additional gold will be
recovered over the next one-and-a-half years from residual
leaching and rinsing of the leach pads. The ore was mined via
conventional open pit methods at a stripping ratio of 2.50:1
utilizing a cut-off grade of 0.012 ounce of gold per ton, crushed
to two inches in size, and then cyanide leached on a leach pad.
Uncrushed low-grade rock, grading down to 0.006 ounce of gold per
ton, was also dumped on the pads and leached. The gold in the
leach solution is processed in a carbon recovery plant to produce
a gold and silver dore, which is transported to the U.S. for
further refining. The average life-of-mine recovery of contained
gold ounces is estimated at approximately 85.1%.
-15-
<PAGE> 17
The Company conducted exploration drilling programs between 1994
and 1998 in an effort to expand the gold reserves and mine life
at La Choya. Drilling results in 1994 were successful in adding
approximately 55,000 ounces of contained gold to the Proven and
Probable ore reserve category. The 1995 program added
approximately 18,000 ounces to the existing ore reserve, and
approximately 50,000 ounces of gold were added during 1996. In
1997, approximately 21,000 ounces of gold were added to the
reserve as a result of mining more gold than was previously
estimated to be contained in the reserve. An exploration
drilling program was conducted early in 1998 to evaluate the
feasibility of pushing back the south highwall of the La Choya
open pit. This program resulted in an additional 18,000 ounces
of gold to the ore reserve.
Information with respect to the La Choya gold mine production,
Proven and Probable ore reserves, and average cost per ounce of
gold produced as of the dates indicated are set forth in the
following table:
<TABLE>
<CAPTION>
Years
-------------------------------------
Production (100%) 1998 1997 1996
----------------- ----------- ----------- -----------
<S> <C> <C> <C>
Ore processed (tons) 1,672,438 2,828,335 3,571,047
Gold (ounces) 39,965 78,170 80,171
Proven and Probable
Ore Reserves(1)
---------------
Total tons - - 632,844 3,005,231
Gold (oz. per ton) - - 0.018 0.024
Contained gold (oz.)(2) 11,883 46,545 115,418
Average Cost per Ounce
of Gold Produced
----------------
Cash operating costs $ 211 $ 183 $ 190
Total cash costs $ 211 $ 184 $ 190
Total production costs $ 242 $ 224 $ 305
______________________________
(1)For Proven and Probable ore reserve assumptions,
including assumed metals prices, see Glossary of Certain
Mining Terms.
(2)Contained gold ounces include estimated recoverable
gold ounces on the heap leach pads totaling approximately
12,000, 35,000, and 44,000 gold ounces at December 31,
1998, 1997, and 1996, respectively. These ounces were
placed on the pads during 1994-1998 and are currently
estimated to be recovered over the mine's remaining life.
</TABLE>
-16-
<PAGE> 18
Reclamation activities will be completed at the end of the mine's
life and will include rinsing of the heap leach pads, followed by
recontouring of the pads, and regrading and revegetating the
site. No reclamation expense was recognized in 1998 due to
estimated reclamation costs being fully accrued at December 31,
1997.
As of December 31, 1998, there were 75 employees at the La Choya
gold mine. The labor agreement with the National Union of Mine,
Metallurgical and Related Workers of the Mexican Republic was
terminated in December 1998.
As of December 31, 1998, the Company's net book value of the La
Choya mine property, plant and equipment totaled $2.6 million.
Electrical power is provided by on-site diesel generators.
INDUSTRIAL MINERALS SEGMENT
The Company's principal industrial minerals assets are its ball
clay operations in Kentucky, Tennessee, and Mississippi; its
kaolin operations in South Carolina and Georgia; its feldspar
operations in North Carolina; its clay slurry plant in Monterrey,
Mexico; its lawn and garden products operations in Idaho, western
Montana and South Dakota; and its specialty aggregate operations
(primarily scoria) in southern Colorado and northern New Mexico.
The Company conducts these operations through four wholly owned
subsidiaries: (1) Kentucky-Tennessee Clay Company (K-T Clay),
which operates its ball clay and kaolin divisions; (2) K-T
Feldspar Corporation (K-T Feldspar), which operates the feldspar
business; (3) K-T Clay de Mexico, S.A. de C.V. (K-T Mexico),
which operates the clay slurry plant business; and (4) MWCA,
Inc., which operates the lawn and garden products business and
the Company's specialty aggregate business.
K-T CLAY BALL CLAY DIVISION
K-T Clay is a major supplier of premium ball clay to North
America and worldwide. Ball clay, which is of sedimentary
origin, consists of several basic clay minerals along with a
slight amount of organic content, a combination of materials that
gives ball clay its unique character. The principal use of ball
clay is in the ceramic and porcelain fields, which includes use
for such items as pottery, dinnerware, tile, electrical
insulators and sanitaryware. Ball clay is also used in
refractories and abrasives and has applications in other
specialty industries as well.
Mining of ball clay is accomplished through strip mining methods.
The mining activity requires definition drilling and the removal
of overburden in order to expose the clay strata to be mined.
Mining activity is selective based on clay grade and strata
control. The clays are mined with loaders and backhoes, loaded
into trucks and hauled to one of K-T Clay's plants for
processing. Processing of ball clay consists of shredding and
classification
-17-
<PAGE> 19
of clay by various grades, hammer or roller milling to reduce
particle size, drying and packaging. The clays can be shipped in
bulk or blended and bagged in order to meet a particular
customer's requirements. A particular clay or blend of several
clays can also be shipped to customers in a water slurry form in
tanker trucks or rail cars.
There are many grades of ball clay which K-T Clay mines,
processes and blends to meet the specifications and requirements
of its various customers. Different uses may require mixtures of
ball clay having substantially different physical properties, and
K-T Clay, through many years of experience and ongoing research
performed in its laboratories, possesses the expertise and
reserves of various types of ball clays that enables it to
respond to changes in customer requirements with minimal advance
notice. The marketing of ball clays is directed from K-T Clay's
resource center in Nashville, Tennessee. K-T Clay's marketing
personnel are trained in ceramic engineering or related technical
fields, which also enables K-T Clay to respond to changes in its
customer requirements.
K-T Clay mines and processes different grades of ball clays in
Kentucky, Tennessee, and Mississippi. K-T Clay has identified or
delineated deposits of ball clay on numerous properties. Such
properties are either owned in fee simple or held under long-term
lease. The royalties or other holding costs of leased properties
are consistent with the industry, and the expiration of any
particular lease would not affect K-T Clay's ability to operate
at current levels of operations. K-T Clay has sufficient mineral
reserve positions to maintain current operations in excess of 20
years. K-T Clay is also continuously exploring for new deposits
of ball clay, either to replace certain grades of clay that may
become mined out or to locate new deposits that can be mined at
lower cost.
Minimum standards for strip mining reclamation have been
established by various governmental agencies which affect K-T
Clay's ball clay mining operations. The Tennessee Surface Mining
Law and the Mississippi Geological Economics and Topographical
Survey, Division of Mining and Reclamation, require all ball clay
producers, including K-T Clay, to post a performance bond on
acreage to be disturbed. The release of the bond is dependent on
the successful grading, seeding and planting of spoil areas
associated with current mining operations. In addition, the
United States Environmental Protection Agency has issued
guidelines and performance standards which K-T Clay must meet.
K-T Clay may be required to obtain other licenses or permits from
time to time, but it is not expected that any such requirements
will have a material effect upon the Company's results of
operations or financial condition.
There were 158 people employed by K-T Clay at its ball clay
operations as of December 31, 1998. There were 78 hourly
employees represented by the United Steelworkers of America as of
-18-
<PAGE> 20
December 31, 1998. The employment of these employees is subject
to a four-year labor agreement which expires on February 8, 2000.
The net book value of the K-T ball clay division properties,
plants and equipment was $9.8 million at December 31, 1998.
K-T CLAY DE MEXICO, S.A. DE C.V.
In 1993, K-T Clay completed construction of its clay slurry plant
in Monterrey, Mexico, which now supplies clay slurry to the
Mexican ceramics industry. Prior to construction, semi-dried
clay was shipped to Mexico. The plant was built to provide K-T
Clay's Mexican customers with a high-quality clay product,
slurry, at an economical price and to ensure K-T was the vendor
of choice in Mexico. To reduce freight costs, a bulk air-floated
clay weighing substantially less than clay slurry is now shipped
by rail from K-T Clay's domestic operations to the K-T Mexico
slurry plant in Monterrey. The clay is then blended to customer
specifications and converted to a slurry form for final shipment
to its customers in the region. K-T Mexico also uses its
Monterrey facilities to blend complete prepared ceramic bodies
for its sanitaryware customers. The complete bodies, which are
supplied ready to use, utilize K-T's slurry and local ingredients
purchased in the domestic market.
At December 31, 1998, the net book value of K-T Mexico's property
and associated plant and equipment was $3.1 million. K-T Mexico
utilizes electrical power from the local public utility. There
were 36 people employed by K-T Mexico as of December 31, 1998,
who are represented by the Industrial Labor Union of Nuevo Leon.
The labor agreement is currently expired. There has been no work
stoppage at K-T Mexico, and the Company and the Union continue to
negotiate toward a reasonable contract, although there can be no
assurance that the contract can be renegotiated without a
disruption to production.
The decline of the Mexican peso has not significantly impacted
the results at K-T Mexico as both funding for operations and
sales are denominated in dollars. Further declines in the
Mexican peso, or accelerated levels of inflation in Mexico,
could, however, adversely impact the Company's Mexican
operations.
K-T CLAY KAOLIN DIVISION
K-T Clay acquired the kaolin operations and assets of Cyprus
Minerals Company's clay division on February 17, 1989, which
included kaolin mines and plants at Deepstep and Sandersville,
Georgia, and Aiken, South Carolina. On June 1, 1995, K-T Clay
acquired the operation and assets of the Langley plant of JM
Huber Corporation in Langley, South Carolina. Kaolin, or china
clay, is a nearly white clay of sedimentary origin, and is
consumed in a variety of end uses including ceramic whiteware,
textile grade fiberglass, rubber and paper filler, and
miscellaneous plastics, adhesives and pigment applications.
Kaolin is a unique industrial mineral because of its wide range
of chemical and physical
-19-
<PAGE> 21
properties. The K-T Clay kaolin division mines, processes, and
blends numerous grades of clay to meet the specifications and
requirements of its customers.
Markets for K-T Clay's kaolin products are similar to ball clay
and adverse shifts in market demand could occur due to mineral
substitution and decreased demand for end-use products, which
could adversely impact the demand for kaolin. Kaolin currently
competes with minerals such as calcium carbonate in many filler
applications, but the substitution of other minerals for kaolin
in ceramic and fiberglass applications is presently limited. The
marketing of kaolin to the ceramics industry is carried out by K-
T Clay's sales force. Marketing to other industries is done
through sales and distribution agents.
Kaolin is mined by open-pit methods. Orebodies are identified
and delineated by exploration drilling and overburden is removed
by scrapers down to favorable clay strata. Select mining of clay
is then accomplished by backhoe with over-the-road truck haulage
to the processing and stockpiling facilities. K-T Clay operates
kaolin mines in Georgia, serving its processing plants located at
Sandersville and Deepstep, Georgia. K-T Clay also operates
kaolin mines located in South Carolina, serving a processing
plant located in Langley, South Carolina.
Processing of the clays is completed by the air-floating method
where clay is shredded, dried, ground and separated by particle
size at the Sandersville, Deepstep, and Langley locations. In
addition, clay is processed into a water slurry mixture at the
Sandersville location.
K-T Clay's kaolin division holds in excess of 20 years of mineral
reserves based on current sales and product mix. Reserves are
held on fee simple and leased property. K-T Clay is also
continuously exploring for new deposits of kaolin, either to
replace certain grades of kaolin that may become mined out or to
locate new deposits that can be mined at lower cost.
The kaolin division operates its mines in Georgia and South
Carolina under mine permits issued by the Environmental
Protection Division, Department of Natural Resources of the State
of Georgia, and the Land Resource Conservation Commission,
Division of Mining and Reclamation of the State of South
Carolina. All kaolin division mines and processing plants have
current permit status and are in good standing.
There were 121 people employed by K-T Clay at its kaolin division
as of December 31, 1998, with less than 25% of the labor force
being represented by the Cement, Lime, Gypsum and Allied Workers
Division of International Brotherhood of Boilermakers. The
current labor contract at the Sandersville, Georgia, operation
expired on March 1, 1999. There has been no work stoppage at the
Sandersville operation, and the Company and the Union continue to
negotiate toward a reasonable contract, although there can be no
-20-
<PAGE> 22
assurance that the contract can be renegotiated without a
disruption to production.
Both the ball clay and kaolin divisions of K-T Clay's plants and
equipment have been operational in excess of 30 years. The
Company has upgraded and modernized these facilities over the
years and has a continuing maintenance program to maintain the
plant and equipment in good physical and operating condition. In
1998, a major expansion at the Gleason, Tennessee, ball clay
operation was completed to service a new customer in the
fiberglass industry. The expansion increased the plant's
capacity by 60,000 tons annually. The net book value of the K-T
Clay kaolin division property and its associated plant and
equipment was $13.6 million as of December 31, 1998. K-T Clay
utilizes power from several public utilities as well as local
utility cooperatives located in the vicinity of K-T Clay's
operating plants.
K-T FELDSPAR CORPORATION
The Company acquired the operations and assets of K-T Feldspar
Corporation on December 13, 1990, including sodium feldspar mines
and a processing plant located near Spruce Pine, North Carolina.
Feldspars are a mineral group that are the major constituents of
igneous rocks and important constituents of other major rock
types. The feldspars are the most widespread mineral group and
make up 60% of the earth's crust. Chemically the feldspars are
aluminosilicates that contain potassium, sodium and calcium.
K-T Feldspar mines, processes and blends sodium feldspar and
feldspar-silica products. It also produces by-product mica
concentrate and construction sand. K-T Feldspar products are
primarily used in the ceramic whiteware, glass and paint
industries.
Markets for feldspar have fluctuated slightly over time as a
result of mature market conditions. However, adverse shifts in
market demand could occur due to mineral substitution and
decreased demand for end-use products. Feldspar currently
competes with nepheline syenite and silica in some market
segments and substitution between minerals is linked to
economics, physical-chemical characteristics and supplier
reliability. The marketing of feldspar to the ceramics and
filler industries is carried out by K-T Clay's sales force and
through sales and distribution agents.
Feldspar ore is mined by open-pit methods using a 40-foot bench
mining plan. Ore is drilled and blasted, loaded by hydraulic
shovel or front-end loader into off-highway dump trucks and
transported to the processing plant. K-T Feldspar operates
several mine locations in the Spruce Pine, North Carolina area,
all serving the centrally located processing plant. Processing
of the feldspar ores consists of crushing, grinding, density
-21-
<PAGE> 23
separation, flotation, drying and high intensity magnetic
separation.
K-T Feldspar holds in excess of 20 years of mineral reserves
based on current sales, product mix and lease terms. Reserves
are held on fee simple and leased properties.
K-T Feldspar operates its mines and plant under permits issued by
the North Carolina Department of Natural Resources and Community
Development. All permits are in good standing.
K-T Feldspar's plant and equipment have been operational in
excess of 30 years. K-T Feldspar has upgraded and modernized
these facilities over the years and has a continuing maintenance
program to maintain the plant and equipment in good physical and
operating condition. The net book value of the K-T Feldspar
property and its associated plant and equipment was $5.4 million
as of December 31, 1998. Carolina Power & Light Company, a
regulated public utility, provides the electric power utilized
for operations at K-T Feldspar.
There were 48 employees employed by K-T Feldspar as of
December 31, 1998; none of whom are represented by a bargaining
agent.
MWCA, INC. - MOUNTAIN WEST PRODUCTS DIVISION
The Company acquired the operations and assets of Mountain West
in December 1993, including processing plants in Rexburg, Idaho,
and Superior, Montana. In April 1995, Mountain West purchased
the assets of Western Bark Company, which included processing
plants at Kamiah, Idaho, Osburn, Idaho, and Piedmont, South
Dakota. In 1997, Mountain West Products, Inc. and Colorado
Aggregate Company of New Mexico, both wholly owned subsidiaries
of the Company, were combined into MWCA, Inc. In order to
provide funds for possible metals and industrial minerals
expansion projects, as well as to reduce indebtedness, the
Company has decided to attempt to sell MWCA in 1999, although
there can be no assurance that the Company will be successful.
MWCA-Mountain West Products division's primary business is the
purchasing, processing and marketing of certain wood by-products
from lumber milling operations in the western intermountain
region. These products are sold as organic soil amendments,
organic landscape mulches and organic decorative landscape ground
cover.
The wood by-products are purchased by MWCA and transported by
truck for processing at its plants. The processing plants are
owned by MWCA and the sources of wood by-product supply are held
under contracts. The lumber mills, which supply the wood by-
products, are not owned by MWCA. MWCA's plants are located near
the current sources of the raw materials to reduce transportation
costs. The principal customers are lawn and garden retail
outlets, lawn and garden product distributors and discount retail
chain stores.
-22-
<PAGE> 24
Most of MWCA's sales are in the western U.S. and take place in
the first six months of the year due to the seasonality of the
market. The plants have operated in excess of 17 years at
Rexburg, ten years at Superior, ten years at Kamiah, and eight
years at Piedmont. In late 1996, the equipment and processing
capacity of the Osburn plant was consolidated with the Superior
plant due to close proximity of plants and operating
efficiencies. In late 1998, the Kamiah plant was closed and its
operations were consolidated with other plant operations. All
plants are maintained and upgraded continually and are in good
working order. The net book value of the associated plant and
equipment was approximately $4.9 million as of December 31, 1998.
Utah Power and Light, Montana Power Company, Idaho County Light,
and Black Hills Power provide electrical power utilized by the
operations at Rexburg, Superior, Kamiah, and Piedmont,
respectively.
Mountain West had 116 employees as of December 31, 1998; none of
whom are represented by a bargaining agent.
MWCA, INC. - COLORADO AGGREGATE DIVISION
MWCA-Colorado Aggregate division (CAC) mines and sells volcanic
rock (scoria) for use as briquettes in gas barbecue grills, as
decorative ground cover, and paints gravel bedding which is used
in aquariums. Volcanic scoria is a lightweight clinker-like
material produced during gaseous volcanic eruptions that form
cinder cones. These cones occur frequently in the geological
environment but are unique by density, texture and color.
The Company operates mines at Mesita, Colorado, and in northern
New Mexico as well as processing plants at San Acacio and
Antonito, Colorado, and Neosho, Missouri. All mining is open pit
with minimal requirements for the removal of overburden.
The principal customers for scoria briquettes are manufacturers
and retailers of gas barbecue grills. Landscapers, distributors
of landscaping materials, lawn and garden retailers and discount
chain stores are the principal customers for scoria landscape
stone. Pet supply retailers and discount chain stores are the
principal customers for aquarium gravel.
The Mesita mine is owned by CAC. Due to the seasonal nature of
CAC's business, it is usually anticipated that most of its annual
sales and profits will be generated in the first two quarters of
each calendar year. The Company has over five years of mineral
reserves at the Mesita, Colorado, location and has developed in
excess of 22 years of mineral reserves at the Red Hill mine, in
northern New Mexico, which is under lease from the Bureau of Land
Management. CAC purchases the rock used for aquarium gravel.
-23-
<PAGE> 25
CAC's plants and equipment have been operational in excess of 24
years. CAC has upgraded and modernized these facilities over the
years and has a continuing maintenance program to maintain the
plants and equipment in good physical and operating condition.
The net book value of CAC's property and its associated plants
and equipment was $3.4 million as of December 31, 1998. Public
Service Company of Colorado, San Luis Valley Rural Electric
Cooperative, and Empire District Electric Company provide the
electric power utilized for operations at CAC.
CAC had 79 employees as of December 31, 1998. The Teamsters
Union is the bargaining agent for CAC's hourly employees. The
current labor agreement expires on September 17, 2001.
OTHER PROPERTIES
REPUBLIC MINE - REPUBLIC, WASHINGTON
The Company owns the Republic gold mine located in the Republic
Mining District near Republic, Washington. In February 1995, the
Company completed operations at the Republic mine and has
commenced reclamation work in connection with the mine and mill
closure. The Company's land position in the Republic area
consists of approximately five square miles. In August 1995, the
Company entered into an agreement with Newmont to explore and
develop the Golden Eagle deposit on the Republic mine property.
Newmont conducted extensive exploration on the property and in
the third quarter of 1996 entered into a joint venture agreement
concerning the property. Newmont paid Hecla $2.5 million for an
immediate 75% interest in the joint venture. Newmont is required
to fund all expenditures necessary at the Golden Eagle through
the feasibility stage.
At December 31, 1998, the accrued reclamation and closure costs
balance totaled $4.3 million. Reclamation and closure efforts
commenced in 1995. During 1998, the reclamation accrual was
reduced by $0.5 million to reflect current estimates of remaining
work to be performed. Post-reclamation monitoring will be
conducted for approximately three years, following completion of
reclamation activities. Reclamation and closure cost
expenditures totaling approximately $0.2 million during 1998 were
charged against the previously established reclamation and
closure cost accrual.
The remaining net book value of the Republic mine property and
its associated plant and equipment was approximately $0.6 million
as of December 31, 1998.
There was one person employed by the Company at the Republic mine
at December 31, 1998.
-24-
<PAGE> 26
GROUSE CREEK MINE - IDAHO
The Grouse Creek gold mine is located in central Idaho, 27 miles
southwest of the town of Challis in the Yankee Fork Mining
District. Mineral rights comprising the mine cover 9.1 square
miles, and consist of 15 patented lode mining claims, and two
patented placer claims, 43 unpatented millsite claims, and 17
unpatented lode claims for which patent applications are pending.
The remainder of the mineral rights in the Yankee Fork Mining
District consist of 260 unpatented claims. The mine consists of
two distinct ore deposits: the Sunbeam deposit and the Grouse
deposit.
In 1994, the Company sold to Great Lakes Minerals Inc. (Great
Lakes) a 20% undivided interest in the mine. Pursuant to the
acquisition and joint venture agreements, Great Lakes was
required to fund its 20% pro-rata portion of all capital and
operating costs.
Mining in the Sunbeam pit began in late 1994, and operations in
1994 and 1995 experienced higher than expected operating costs
and less than expected operating margins resulting from higher
than expected start up costs and lower than expected ore grade.
Mining indicated that mill grade ore occurred in thinner, less
continuous structures than had been originally interpreted. The
Company thus recorded a write-down of the mine's carrying value
totaling $97.0 million in 1995 to properly reflect the net
realizable value of its interest in the Grouse Creek joint
venture.
In 1996, the Company completed metallurgical testing and economic
analysis of the Grouse deposit. Based upon this analysis, the
Company determined that ore contained in the Grouse deposit was
not economical at the then current metals prices. The Company
decided to suspend operations at the Grouse Creek mine following
completion of mining of the remaining ore in the Sunbeam pit. In
connection with this decision, the Company recorded 1996
adjustments for future severance, holding, reclamation, and
closure costs totaling $22.5 million, and adjustments to the
carrying value of property, plant, and equipment, and inventories
totaling $5.3 million.
In January 1997, Great Lakes and the Company entered into a
letter agreement terminating the Grouse Creek joint venture and
conveying Great Lakes' approximate 20% interest in the project to
the Company. Great Lakes retained a 5% defined net proceeds
interest in the project. The Company assumed 100% of the
interests and obligations associated with the property.
Following completion of mining in the Sunbeam pit in April 1997,
the Company placed the Grouse Creek mine on a care-and-
maintenance status. Under U.S. Forest Service agreements, the
care-and-maintenance period for the property can only extend to
June 2000. However, the Company may request a maximum of two
-25-
<PAGE> 27
one-year extensions to remain in a care-and-maintenance status
past the initial three-year period. On or before June 2000,
operations must either recommence, the Company must receive an
extension on the care-and-maintenance period, or the site must
initiate final reclamation.
The approved mining and reclamation plans for the facility will
remain in effect during the suspension period. During the period
that the property is on a care-and-maintenance basis, reclamation
activities will be undertaken as necessary to prevent degradation
of the property. During 1997, the milling facilities were
mothballed, and the following reclamation activities were
completed: the Sunbeam open cut was regraded and an interim cap
of compacted waste rock was placed on the floor; the waste rock
storage facility was regraded to comply with requirements in the
permits for permanent reclamation and an interim cap of compacted
waste rock was placed over the entire surface; the underground
adits were sealed and the surface facilities for the underground
mine were removed, then the site was regraded to comply with the
requirements in the permits for permanent reclamation; and
approximately 30 acres of exploration roads and other disturbed
areas were regraded, seeded and trees and shrubs planted for
final reclamation. During 1998, the permanent engineered soil
cap was constructed on the waste rock storage facility and
additional water treatment facilities were constructed.
Ultimately, the milling facilities will be removed and the
foundations buried. Concurrent reclamation practices will be
employed whenever possible. The original reclamation plan
concepts have been approved by the appropriate state and federal
agencies, and as new technology and new reclamation practices
evolve, they will be evaluated and, when applicable, proposed to
the appropriate agencies for approval. Following completion of
reclamation, post-reclamation monitoring will occur for about
five years. During 1998, the Company increased the accrual for
reclamation and closure costs by approximately $0.5 million to
reflect current estimates of remaining reclamation and closure
costs. As of December 31, 1998, the Company's accrual for
remaining holding, reclamation and closure costs totals $11.4
million, although it is possible that the estimate may change in
the future.
As of December 31, 1998, there were 22 employees at the Grouse
Creek mine. The employees are not represented by a bargaining
agent.
AMERICAN GIRL MINE - CALIFORNIA
The Company acquired the American Girl gold mine in March 1994 as
part of the Equinox Resources (Equinox) acquisition. The mine
property is located in Imperial County, California. The property
includes three mining areas: the Padre-Madre area, the American
Girl area, and the Oro Cruz area where production commenced in
late 1995.
-26-
<PAGE> 28
The mine is managed by MK Gold Company, the Company's joint
venture partner. The Company has a 47% interest in the mine with
MK Gold having the remaining 53% interest. MK Gold receives a
monthly management fee of 2% of certain specified costs of the
joint venture. Certain matters regarding the joint venture
require the approval of the joint venture management committee
which consists of two representatives of the Company and two
representatives of MK Gold.
MK Gold announced plans for suspension of American Girl mine
operations on September 5, 1996. The joint venture completed a
thorough evaluation of shutdown and alternative operating
strategies for the operation and determined no practical mining
and processing methods could be developed which would justify
continued operations. The remaining Oro Cruz underground
reserves were not economical due to high development costs and
the remaining surface reserves were not economical at current
metals prices due to higher mining costs and stripping ratio than
originally expected. As part of the suspension plan, the joint
venture agreed to a modified program and budget for the remainder
of 1996 which called for suspension of surface and underground
mining in mid-September 1996. Crushing and milling operations
ceased in mid-October 1996.
Reclamation activities began in September 1996 and full mine
reclamation is expected to be completed by mid-1999. Various
regulatory agencies then require approximately five years of post-
closure monitoring. Reclamation activity included limited
backfilling of mine pits, recontouring and revegetating pits and
heap leach pads. Final reclamation will include removal of
buildings and closure of two solution ponds. During 1998, the
Company decreased the accrual for reclamation and closure costs
by approximately $1.0 million to reflect current estimates of
remaining reclamation and closure costs. The reclamation accrual
at December 31, 1998, totaled $0.9 million.
The American Girl mine is held through a combination of patented
and unpatented claims either owned outright or through leases.
Properties are subject to underlying net smelter return royalties
ranging from 3.5% to 12.5% depending upon the lessor, gold price
and recovery of capital costs.
During production through October 1996, ore was processed by
leaching and conventional milling facilities owned by the joint
venture. Electric power is generated on-site by equipment owned
by the joint venture. As of December 31, 1998, there were five
full-time employees at the site. Employees are not represented
by a bargaining unit.
CACTUS MINE - CALIFORNIA
The Cactus mine consists of approximately 1,300 acres of
leasehold lands, mining claims and millsites, and fee property
located approximately 85 miles northeast of Los Angeles,
California, in
-27-
<PAGE> 29
the Mojave Mining District. The property is readily accessible
year-round by all-weather roads. The Company currently has a
63.75% effective interest in Cactus Gold Mines Company (Cactus)
and manages Cactus' two open-pit heap leach mines, the Middle
Buttes and Shumake. The Company, as manager of Cactus, receives
a management fee equal to 2% of net revenues of Cactus as defined
in the mining venture agreement and is reimbursed for costs
incurred on behalf of Cactus.
The Middle Buttes mine began production in August 1986 and
reclamation was completed in 1997. Post-closure monitoring is
currently in progress.
Development of the Shumake mine was completed in November 1988,
with commercial production beginning in December 1988. Mining
operations at the Shumake mine were completed in February 1992.
Nominal gold production was obtained during 1998 from solution
contained in the process ponds and drained from the heap.
Reclamation of the Shumake heap was substantially completed
during 1998. However, additional work remains to be done to
reclaim the process ponds and plant site. Following completion
of reclamation, approximately three years of post-reclamation
monitoring is required. An additional reclamation and closure
expense of $124,000 was recognized in 1998. At December 31,
1998, the accrual for estimated remaining reclamation and closure
costs totaled $0.5 million.
The book value of the Company's interest in the Cactus mine
property and its associated plant and equipment was fully
depreciated as of December 31, 1998. As of December 31, 1998,
there were two employees at the Cactus mine.
Cactus is owned 75% by Middle Buttes Partners Limited (MBPL) and
25% by Dakota Mining Corporation (Dakota). MBPL is a limited
partnership in which the Company is both the sole general partner
(52.50%) and a limited partner (11.25%). The Company, as general
partner of MBPL, receives 75% of the production from Cactus
subject to payment of 11.25% of the net cash flows to the other
limited partner of MBPL. Dakota has informed the Company that it
may not be able to fund its 25% share of remaining reclamation
and closure costs. As such, the Company may have to fund
Dakota's 25% share of remaining reclamation and closure costs.
YELLOW PINE - IDAHO
The Yellow Pine gold mine is located in Valley County, Idaho,
about 50 miles east of McCall in central Idaho, and is accessed
by secondary roads and air. The property consists of 26 patented
claims which are held by the Company under lease from the Bradley
Mining Company of San Francisco, California, and 57 unpatented
claims. The lease provides for production royalties equal to 6%
of net smelter returns plus 10% of cumulative cash flow, and also
provides for a minimum royalty payment of $3,500 per month
reduced by current production royalties. Production from the
oxide
-28-
<PAGE> 30
mineralization ceased in 1992; the operation has been undergoing
reclamation since that time. During 1998, reclamation of the
mine's Homestake open pit was completed and additional
recontouring and reclamation occurred at the facility site.
Mineralized sulfide material, estimated at between 15 and 20
million tons containing approximately 0.09 ounce of gold per ton,
is also located on the property. The Company continues to seek
other parties interested in the further exploration and
development of this extensive gold-bearing deposit. The net book
value of the Yellow Pine property, plant and equipment was fully
depreciated as of December 31, 1998. During 1998, the Company
accrued an additional $0.8 million for reclamation and closure
costs to reflect current estimates of remaining costs. As of
December 31, 1998, the Company's accrual for remaining
reclamation and closure totals $1.4 million. Following
completion of reclamation, approximately five years of post-
reclamation monitoring will be required.
DEVELOPMENT PROJECT
NOCHE BUENA GOLD PROJECT - SONORA, MEXICO
The Noche Buena project is located 44 miles northwest of Caborca,
Mexico, and 25 miles south of the Company's La Choya mine. The
Noche Buena project is in the state of Sonora and is 100% owned
by the Company through its Mexican subsidiary, Minera Hecla, S.A.
de C.V. Minera Hecla purchased the Noche Buena concessions from
MXUS, S.A. de C.V., a subsidiary of USMX, Inc., in October 1998
subsequent to acquiring an exploration option in November 1997.
There are 18,916 acres currently under concession and an
application has been filed for concessions to an additional
15,439 acres.
During 1998, Minera Hecla compiled data generated on the property
from previous exploration activities and drilled 8,200 meters of
core in 63 holes and 17,041 meters of reverse circulation in 130
drill holes. At December 31, 1998, the Company had identified a
resource of 11,525,000 tons grading 0.027 gold ounce per ton.
Reserve definition, leach pad condemnation, and step-out
exploration drilling will continue into 1999.
The detailed feasibility study for a conventional open-pit heap-
leach operation, using personnel and surplus equipment from the
Company's La Choya mine, is anticipated to be completed during
the second quarter of 1999.
Costs in the amount of $2.3 million have been capitalized as of
December 31, 1998.
EXPLORATION
The Company conducts exploration activities from its headquarters
in Coeur d'Alene, Idaho. The Company owns or controls patented
and unpatented mining claims, fee land, mineral concessions, and
-29-
<PAGE> 31
state and private leases in the United States, Mexico, and South
America. The Company's strategy regarding reserve replacement is
to concentrate its efforts on (1) existing operations where an
infrastructure already exists, (2) other properties presently
being developed and advanced-stage exploration properties that
have been identified as having potential for additional
discoveries, (3) advanced-stage exploration acquisition
opportunities, and (4) grass roots exploration opportunities.
The Company is currently concentrating its exploration activities
at the Lucky Friday silver mine, the Greens Creek silver mine, in
which the Company maintains a 29.73% interest, the Rosebud gold
mine, in which the Company maintains a 50% interest, and other
properties in Mexico, South America and Nevada. The Company
remains active in other exploration areas and is seeking advanced-
stage acquisition opportunities principally in the United States
and Mexico.
Mineral exploration, particularly for gold and silver, is highly
speculative in nature, involves many risks and frequently is
nonproductive. There can be no assurance that the Company's
mineral exploration efforts will be successful. Once
mineralization is discovered, it may take a number of years from
the initial phases of drilling until production is possible,
during which time the economic feasibility of production may
change. Substantial expenditures are required to establish ore
reserves through drilling to determine metallurgical processes to
extract the metals from the ore, and, in the case of new
properties, to construct mining and processing facilities. As a
result of these uncertainties, no assurance can be given that the
Company's exploration programs will result in the expansion or
replacement of existing ore reserves that are being depleted by
current production.
Properties are continually being added to or dropped from the
Company's inventory as a result of exploration and acquisition
activities. Exploration expenditures for the three years ended
December 31, 1998, 1997 and 1996 were approximately $4.9 million,
$7.4 million and $4.8 million, respectively. Exploration
expenditures for 1999 are estimated to be in the range of $4.0 to
$5.0 million.
HEDGING ACTIVITIES
The Company's policy guidelines for hedging gold, silver, lead,
and zinc production permit management to utilize various hedging
mechanisms and strategies for up to 50% of the Company's annual
estimated available metal production. Hedging contracts are
restricted to no longer than 36 months without approval of the
Company's Board of Directors and will be spread among a number of
available customers. At December 31, 1998, the Company had 7% of
1999 budgeted gold production and 7% of 1999 budgeted silver
production hedged utilizing forward sales contracts. There were
no hedging contracts for lead or zinc outstanding at December 31,
1998. None of the aforementioned activities have been entered
-30-
<PAGE> 32
into for speculative purposes at December 31, 1998. For
additional information regarding hedging activities, see Notes 1
and 2 of Notes to the Consolidated Financial Statements and
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations of this Form 10-K.
INDUSTRY SEGMENTS
Financial information with respect to industry segments is set
forth in Note 9 of Notes to the Consolidated Financial
Statements.
COMPETITION
The Company is engaged in the mining and processing of gold,
silver, other nonferrous metals, and industrial minerals in the
United States and Mexico. The Company encounters strong
competition from other mining companies in connection with the
acquisition of properties producing, or capable of producing,
gold, silver and industrial minerals. The Company also competes
with other companies both within and outside the mining industry
in connection with the recruiting and retention of qualified
employees knowledgeable in mining operations. Silver and gold
are worldwide commodities and, accordingly, the Company sells its
production at world market prices.
The Company cannot compare sales from its ball clay mining
operations with sales of other ball clay producers because the
principal competitors are either family-owned or divisions of
larger, diversified companies, but the Company believes that K-T
Clay is one of the more significant producers of ball clay in the
United States. The principal competitors of the Company in the
ball clay industry are H. C. Spinks Clay Company, Watts Blake
Bearne & Company, and Old Hickory Clay Company. With the
acquisition of kaolin assets from Cyprus Minerals Company in 1989
and JM Huber Corporation in 1995, the Company has also become an
important producer in the United States of ceramic-grade kaolin.
The principal competitors of the Company in the kaolin industry
are Albion Kaolin Company, Evans Clay Company, Wilkinson Clay,
and Dixie Clay. The Company, with the acquisition of Indusmin
Incorporated's feldspar assets, is also a major producer and
supplier of sodium feldspar products. The principal competitors
of the Company in the feldspar industry are Feldspar Corporation
and Unimin Corporation.
The Company competes with other producers of scoria and with
manufacturers of ceramic briquettes in the production and sale of
briquettes. The Company has limited information as to the size
of the barbecue briquette industry, but believes that it supplies
a major portion of the scoria briquettes used in gas barbecue
grills. Price and natural product characteristics, such as
color, uniformity of size, and lack of contained moisture and
density are important competitive considerations. The Company
believes that it has a significant portion of the landscape
scoria market east of the Continental Divide.
-31-
<PAGE> 33
The Company competes with other producers of lawn and garden and
soil products, decorative bark products and landscape mulches.
The principal competitors are either privately owned companies or
divisions of larger diversified companies that operate in
numerous regional markets. The Company has limited information
about the sales of competing products in its overall markets but
believes it supplies a significant portion of the market for its
product in the intermountain region of the United States.
REGULATION OF MINING ACTIVITY
The mining operations of the Company are subject to inspection
and regulation by the Mine Safety and Health Administration of
the Department of Labor (MSHA) under provisions of the Federal
Mine Safety and Health Act of 1977. It is the Company's policy
to comply with the directives and regulations of MSHA. In
addition, the Company generally takes such necessary actions as,
in its judgment, are required to provide for the safety and
health of its employees. MSHA directives have had no material
adverse impact on the Company's results of operations or
financial condition, and the Company believes that it is
substantially in compliance with the regulations promulgated by
MSHA.
All of the Company's exploration, development, and production
activities in the United States, Mexico, South America, and
Canada are subject to regulation by governmental agencies under
one or more of the various environmental laws. These laws
address emissions to the air, discharges to water, management of
wastes, management of hazardous substances, protection of natural
resources, protection of antiquities and reclamation of lands
which are disturbed. The Company believes that it is in
substantial compliance with applicable environmental regulations.
Many of the regulations also require permits to be obtained for
the Company's activities; these permits normally are subject to
public review processes resulting in public approval of the
activity. While these laws and regulations govern how the
Company conducts many aspects of its business, management of the
Company does not believe that they have a material adverse effect
on its results of operations or financial condition at this time.
The Company's projects are evaluated considering the cost and
impact of environmental regulation on the proposed activity. New
laws and regulations are evaluated as they develop to determine
the impact on, and changes necessary to, the Company's
operations. It is possible that future changes in these laws or
regulations could have a significant impact on some portion of
the Company's business, causing those activities to be
economically reevaluated at that time. The Company believes that
adequate provision has been made for disposal of mine waste and
mill tailings at all of its operating and nonoperating properties
in a manner that complies with current federal and state
environmental requirements.
-32-
<PAGE> 34
Environmental laws and regulations may also have an indirect
impact on the Company, such as increased cost for electricity due
to acid rain provisions of the Clean Air Act Amendments of 1990.
Charges by smelters to which the Company sells its metallic
concentrates and products have substantially increased over the
past several years because of requirements that smelters meet
revised environmental quality standards. The Company has no
control over the smelters' operations or their compliance with
environmental laws and regulations. If the smelting capacity
available to the Company was significantly reduced because of
environmental requirements, it is possible that the Company's
silver operations could be adversely affected.
The Company is also subject to regulations under the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended (CERCLA or Superfund), which regulates
and establishes liability for the release of hazardous
substances, and the Endangered Species Act (ESA), which
identifies endangered species of plants and animals and regulates
activities to protect these species and their habitats.
Revisions to CERCLA and ESA are being considered by Congress; the
impact on the Company of these revisions is not clear at this
time.
LEGISLATION
During the past five years, the U.S. Congress considered a number
of proposed amendments to the General Mining Law of 1872, as
amended (the General Mining Law), which governs mining claims and
related activities on federal lands. In 1992, a holding fee of
$100 per claim was imposed upon unpatented mining claims located
on federal lands. In October 1994, a one-year moratorium on
processing of new patent applications was approved. This
moratorium has been extended each year thereafter. In addition,
legislation to further amend the General Mining Law was
introduced in the U.S. Congress during 1996 and debated again in
1997 and 1998 with limited progress. The legislation would,
among other things, change the current patenting procedures,
impose royalties, and enact new reclamation, environmental
controls and restoration requirements. The royalty proposals
range from a 2% royalty on "net profits" from mining claims to an
8% royalty on the modified gross income/net smelter returns. The
extent of any such changes is not presently known and the
potential impact on the Company as a result of congressional
action is difficult to predict. Although a majority of the
Company's existing mining operations occur on private or patented
property, the proposed changes to the General Mining Law could
adversely affect the Company's ability to economically develop
mineral resources on federal lands.
EMPLOYEES
As of December 31, 1998, the Company and its subsidiaries
employed 1,184 people.
-33-
<PAGE> 35
INVESTMENT CONSIDERATIONS
The following Investment Considerations, together with other
information set forth in this Form 10-K, should be carefully
considered by current and future investors in the Company's
securities.
LIQUIDITY
Cash and cash equivalents at December 31, 1998 were $2.5 million.
In addition, the Company had the ability to borrow the remaining
$12.2 million under its existing $55.0 million revolving and term
loan credit facility (the Bank Agreement). Due to the low metals
price environment at December 31, 1998, the Company decided it
was necessary to adjust a number of the financial covenants and
the debt capacity calculation of its Bank Agreement. On
February 25, 1999, the Company received a commitment from the
lead bank under the Bank Agreement to amend the Bank Agreement
(see Note 5 of Notes to the Consolidated Financial Statements).
The amount available to borrow under the Bank Agreement, as to be
amended, is in part based on a cash earnings calculation which is
heavily reliant on the prices for the Company's metals products.
Accordingly, there can be no assurance that full availability can
be maintained for the life of the facility.
Based upon the Company's estimate of metals prices for 1999, the
Company currently believes that the Company's operating cash
flows and amounts available to borrow under the Bank Agreement
will be adequate to fund the combined total of anticipated
minimum capital expenditure requirements, idle property
expenditures, exploration expenditures, and the Company's
preferred dividend requirement. Additional cash flow will be
required to fund possible metals and industrial minerals
expansion projects or acquisitions and to reduce outstanding
debt. In an effort to preserve cash, reduce outstanding debt,
and to fund possible metals and industrial minerals expansion
projects or acquisitions, the Company has decided to market for
sale its MWCA subsidiary and certain other assets. In addition,
the Company has also implemented certain cost cutting measures to
attempt to further reduce operating cash costs in 1999. Without
the proceeds from the possible sale of MWCA and other assets,
successful implementation of cost cutting measures, and other
possible financings including equity offerings (all of which the
Company is actively pursuing), the Company may have limited
resources available to fund possible metals and industrial
minerals expansion projects or acquisitions, other cash
requirements, and to reduce outstanding debt. There can be no
assurance that the Company will be successful in its efforts to
sell its MWCA subsidiary and other assets, in its implementation
of cost cutting measures, or in its ability to complete other
possible financings including equity offerings.
-34-
<PAGE> 36
RECURRING LOSSES
The Company has experienced losses from operations for each of
the last eight years. For the year ended December 31, 1998, the
Company reported a net loss of approximately $0.3 million (before
preferred stock dividends of $8.1 million) or $0.01 per share of
common stock compared to a net loss of approximately $0.5 million
(before preferred stock dividends of $8.1 million) or $0.01 per
share of common stock for the year ended December 31, 1997.
Without improvements in the current prices of metals, the Company
anticipates that its history of losses applicable to common
shareholders will continue. 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
Company will be profitable in the future.
METAL PRICE VOLATILITY
Because a significant portion of the Company's revenues are
derived from the sale of gold, silver, lead and zinc, the
Company's earnings are directly related to the prices of these
metals. Gold, silver, lead and zinc prices fluctuate widely and
are affected by numerous factors beyond the Company's control,
including expectations for inflation, speculative activities, the
relative exchange rate of the U.S. dollar, global and regional
demand and production, political and economic conditions and
production costs in major producing regions. The aggregate
effect of these factors, all of which are beyond the Company's
control, is impossible for the Company to predict. If the market
price for these metals falls below the Company's full production
costs and remains at such level for any sustained period, the
Company will experience additional losses and may determine to
discontinue the development of a project or mining at one or more
of its properties. While the Company has periodically used
limited hedging techniques to reduce a portion of the Company's
exposure to the volatility of gold, silver, lead and zinc prices,
there can be no assurance that it will be able to do so
effectively in the future (see Hedging Activities).
-35-
<PAGE> 37
The following table sets forth the average daily closing prices
of the following metals for 1980, 1985, 1990, 1993, and each year
thereafter through 1998.
<TABLE>
<CAPTION>
1980 1985 1990 1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gold(1)
(per oz.) $ 612.56 $ 317.26 $ 383.46 $ 359.77 $ 384.01 $ 384.16 $ 387.70 $ 331.10 $ 294.16
Silver(2)
(per oz.) 20.63 6.14 4.82 4.30 5.28 5.19 5.18 4.90 5.53
Lead(3)
(per lb.) 0.41 0.18 0.37 0.18 0.25 0.29 0.35 0.28 0.24
Zinc(4)
(per lb.) 0.34 0.36 0.69 0.44 0.45 0.47 0.46 0.60 0.46
- --------------------
(1)London Final.
(2)Handy & Harman.
(3)London Metals Exchange -- Cash.
(4)London Metals Exchange -- Special High Grade -- Cash.
</TABLE>
On February 26, 1999, the closing prices for gold, silver, lead,
and zinc were $287.05 per ounce, $5.53 per ounce, $0.24 per
pound, and $0.47 per pound, respectively.
VOLATILITY OF METALS PRODUCTION
The Company's future gold and silver production will be dependent
upon the Company's success in developing new reserves, as well as
exploration efforts (see Project Development Risks and
Exploration). If metals prices continue to decline, the Company
could determine that it is not economically feasible to continue
development of a project or continue commercial production at
some of its properties (see Metal Price Volatility).
PROJECT DEVELOPMENT RISKS
The Company from time to time engages in the development of new
orebodies both at newly acquired properties and presently
existing mining operations (collectively "Development Projects").
The Company's ability to sustain or increase its present level of
metals production is dependent in part on the successful
development of such new orebodies and/or expansion of existing
mining operations. The economic feasibility of any individual
Development Project and all such Development Projects
collectively is based upon, among other things, estimates of
reserves, metallurgical recoveries, and capital and operating
costs of such Development Projects, and future metal prices.
Development Projects are also subject to the successful
completion of feasibility studies, issuance of necessary permits
and receipt of adequate financing.
Development Projects may have no operating history upon which to
base estimates of future operating costs and capital
requirements.
-36-
<PAGE> 38
Particularly for Development Projects, estimates of reserves,
metal recoveries, and cash operating costs are to a large extent
based upon the interpretation of geologic data obtained from a
finite number of drill holes and other sampling techniques and
feasibility studies. Estimates of cash operating costs are then
derived based upon anticipated tonnage and grades of ore to be
mined and processed, the configuration of the orebody, expected
recovery rates of metals from the ore, comparable facility and
equipment costs, anticipated climate conditions and other
factors. As a result, it is possible that actual cash operating
costs and economic returns of any and all Development Projects
may materially differ from the costs and returns estimated.
RESERVES
The ore reserve figures presented in this Form 10-K and in the
Company's other SEC filings are, in large part, estimates made by
the Company's technical personnel, and no assurance can be given
that the indicated level of recovery of these metals will be
realized. Reserves estimated for properties that have not yet
commenced production may require revision based on actual
production experience. Market price fluctuations of the various
metals mined by the Company, as well as increased production
costs or reduced recovery rates, may render ore reserves
containing relatively lower grades of mineralization uneconomic
and may ultimately result in a restatement of reserves.
Moreover, short-term operating factors relating to the ore
reserves, such as the need for sequential development of
orebodies and the processing of new or different ore grades, may
adversely affect the Company's profitability in any particular
accounting period.
The metals prices used to determine ore reserves at a particular
mine are typically estimated by the entity managing the mine.
These metals prices may vary, depending on each entity's
assessment of metals prices over the near term and other factors
that such entity believes relevant. The Company estimates metals
prices for its ore reserve calculations, which approximate
current market prices, but these metals prices may vary from
current market prices based on a number of factors the Company
believes likely to influence metals prices over the near term.
For Proven and Probable ore reserve assumptions, including
assumed metals prices, see Glossary of Certain Mining Terms.
Declines in the market price of metals may also render ore
reserves containing relatively lower grades of mineralization
uneconomic to exploit unless the utilization of forward sales
contracts or other hedging techniques is sufficient to offset the
effects of a drop in the market price of the metals expected to
be mined from such reserves. If the Company's realized price for
the metals it produces, including hedging benefits, were to
decline substantially below the levels set for calculation of
reserves for an extended period, there could be material delays
in the development of new projects, increased net losses, reduced
cash flow, reductions in reserves and asset write-downs.
-37-
<PAGE> 39
JOINT DEVELOPMENT AND OPERATING ARRANGEMENTS
The Greens Creek mine, the Cactus property, and the American Girl
property are operated through joint venture arrangements. The
Company owns an undivided interest in the assets of the venture.
The Company's Rosebud mine is operated through a Limited
Liability Company (LLC) with the Company holding 50% of the
interest in the LLC. The LLC arrangement operates similar to
joint venture arrangements. Under the joint venture and LLC
agreements, the joint participants, including the Company, are
entitled to indemnification from the other participants and are
severally liable only for the liabilities of the participants in
proportion to their interest therein. If a participant defaults
on its obligations under the terms of a joint venture or LLC
agreement (including as a result of insolvency), the Company
could incur losses in excess of its pro-rata share of the joint
venture. In the event any participant so defaults, each
agreement provides certain rights and remedies to the remaining
participants. These include the right to force a dilution of the
percentage interest of the defaulting participant and the right
to utilize the proceeds from the sale of the defaulting parties'
share of products, or its joint venture interest in the
properties to satisfy the obligations of the defaulting
participant. Based on the information available to the Company,
the Company has no reason to believe that its joint venture or
LLC participants with respect to the Greens Creek, American Girl,
and Rosebud properties will be unable to meet their financial
obligations under the terms of the respective agreements.
Dakota, which has a 25% interest in the Cactus property, has
informed the Company that Dakota may not be able to fund its
share of remaining reclamation and closure costs at Cactus. The
Company's estimate of its 75% liability for reclamation and
closure costs at Cactus totals $0.5 million. The Company may
also have to fund Dakota's 25% share of the remaining closure and
reclamation obligation.
COMPETITION FOR PROPERTIES
Because mines have limited lives based on proven ore reserves,
the Company is continually seeking to replace and expand its
reserves. The Company encounters strong competition from other
mining companies in connection with the acquisition of properties
producing or capable of producing gold, silver, lead, zinc and
industrial minerals. As a result of this competition, some of
which is with companies with greater financial resources than the
Company, the Company may be unable to acquire attractive mining
properties on terms it considers acceptable. In addition, there
are a number of uncertainties inherent in any program relating to
the location of economic ore reserves, the development of
appropriate metallurgical processes, the receipt of necessary
governmental permits and the construction of mining and
processing facilities. Accordingly, there can be no assurance
that the Company's programs will yield new reserves to replace
and expand current reserves.
-38-
<PAGE> 40
TITLE TO PROPERTIES
The validity of unpatented mining claims, which constitute a
significant portion of the Company's undeveloped property
holdings in the United States, is often uncertain and may be
contested. Although the Company has attempted to acquire
satisfactory title to its undeveloped properties, the Company, in
accordance with mining industry practice, does not generally
obtain title opinions until a decision is made to develop a
property, with the attendant risk that some titles, particularly
titles to undeveloped properties, may be defective.
MINING RISKS AND INSURANCE
The business of mining is generally subject to a number of risks
and hazards, including environmental hazards, industrial
accidents, labor disputes, encountering unusual or unexpected
geologic formations, cave-ins, rockbursts, flooding and periodic
interruptions due to inclement or hazardous weather conditions.
Such risks could result in damage to, or destruction of, mineral
properties or producing facilities, personal injury,
environmental damage, delays in mining, monetary losses and
possible legal liability. Although the Company maintains
insurance within ranges of coverage it believes to be consistent
with industry practice, no assurance can be given that such
insurance will be available at economically feasible premiums.
Insurance against environmental risks (including potential for
pollution or other hazards as a result of disposal waste products
occurring from exploration and production) is not generally
available at economical terms to the Company or to other
companies within the industry. To the extent the Company is
subject to environmental liabilities, the payment of such
liabilities would reduce the funds available to the Company.
Should the Company be unable to fund fully the cost of remedying
an environmental problem, the Company might be required to
suspend operations or enter into interim compliance measures
pending completion of the required remedy.
FOREIGN OPERATIONS
The Company's La Choya gold mine is located in Sonora, Mexico,
and the Company's K-T Mexico clay slurry plant is located in
Monterrey, Mexico. The Company also has exploration projects and
mining investments in Mexico, Canada and South America. Such
projects and investments could be adversely affected by exchange
controls, currency fluctuations, political risks, taxation and
laws or policies of either foreign countries or the United States
affecting foreign trade, investment and taxation, which, in turn,
could affect the Company's current or future foreign operations.
HEDGING ACTIVITIES
Hedging activities are intended to minimize the effect of
declines in metals prices on results of operations for a period
of time.
-39-
<PAGE> 41
Although hedging activities may protect a company against low
metals prices, it may also limit the price that can be received
on hedged products, subject to forward sales and call options,
potentially resulting in the Company foregoing the realization of
revenues to the extent the market prices of metals exceed the
related metals price in a forward sale or call option contract.
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.
ENVIRONMENTAL LIABILITIES
Reserves for closure costs, reclamation and environmental matters
totaled $29.8 million and $41.3 million at December 31, 1998 and
1997, respectively. The Company anticipates that expenditures
relating to these reserves will be made over the next several
years.
Future closure, reclamation, and environmental related
expenditures are difficult to estimate in many circumstances due
to the early stages of investigation, the uncertainties relating
to specific reclamation and remediation methods and costs, the
possible participation of other potentially responsible parties
and changing environmental laws, regulations, and
interpretations. It is possible that changes to estimates of
future closure, reclamation, and environmental contingencies
could have a material effect on future operating results, as new
information becomes known.
-40-
<PAGE> 42
GLOSSARY OF CERTAIN MINING TERMS
Ball Clay -- A fine-grained, plastic, white firing clay used
principally for bonding in ceramic ware.
Cash Operating Costs -- Includes all direct and indirect
operating cash costs incurred at each operating mine,
excluding royalties and mine production taxes.
Cash Operating Costs Per Ounce -- Calculated based upon cash
operating costs, as defined herein, net of by-product
revenues from all metals other than the primary metal
produced at each mine, divided by the total ounces of the
primary metal produced.
Decline -- An underground passageway connecting one or more
levels in a mine, providing adequate traction for heavy,
self-propelled equipment. Such underground openings are
often driven in an upward or downward spiral, much the same
as a spiral staircase.
Development -- Work carried out for the purpose of opening
up a mineral deposit and making the actual ore extraction
possible.
Dilution -- The amount of waste which must be mined along
with the ore in order to obtain the ore.
Dore -- Unrefined gold and silver bullion bars consisting of
approximately 90% precious metals which will be further
refined to almost pure metal.
Exploration -- The searching for ore, usually by geological
surveys, geophysical prospecting, drilling, surface or
underground headings, drifts, or tunnels.
Feldspar -- A crystalline mineral consisting of aluminum
silicates and other elements that is an essential ingredient
for the ceramics industry, and also is used in the glass and
paint industries.
Grade -- The average assay of a ton of ore, reflecting metal
content.
Heap Leaching -- A process involving the percolation of a
cyanide solution through crushed ore heaped on an impervious
pad or base to dissolve minerals or metals out of the ore.
Kaolin -- Also known as china clay, kaolin is a white
alumina-silicate clay used in porcelain, paper, plastics,
rubber, paints, and many other products.
-41-
<PAGE> 43
Mill -- A processing plant that produces a concentrate of
the valuable minerals or metals contained in an ore. The
concentrate must then be treated in some other type of
plant, such as a smelter, to effect recovery of the pure
metal.
Mineral-Bearing Material -- Material for which quantitative
estimates are based on inferences from known mineralization,
or on drill-hole samples too few in number to allow for
classification as Probable ore reserves.
Mineralization - The process by which a mineral or minerals
are introduced into a rock, resulting in a valuable deposit.
Ore -- A mixture of valuable minerals and gangue (valueless
minerals) from which at least one of the minerals or metals
can be extracted at a profit.
Orebody -- A continuous, well-defined mass of material of
sufficient ore content to make extraction economically
feasible.
Patented Mining Claim -- A parcel of land originally located
on federal lands as an unpatented mining claim under the
General Mining Law, the title of which has been conveyed
from the federal government to a private party pursuant to
the patenting requirements of the General Mining Law.
Proven and Probable Ore Reserves -- Reserves that reflect
estimates of the quantities and grades of mineralized
material at the Company's mines which the Company believes
can be recovered and sold at prices in excess of the total
cash cost associated with extracting and processing the ore.
The estimates are based largely on current costs and on
projected prices and demand for the Company's products.
Mineral reserves are stated separately for each of the
Company's mines based upon factors relevant to each mine.
Reserves represent diluted in-place grades and do not
reflect losses in the recovery process. The Company's
estimates of Proven and Probable reserves for the Lucky
Friday mine, the Rosebud mine and the La Choya mine at
December 31, 1998 and 1997 are based on gold prices of $350
and $350 per ounce, silver prices of $5.50 and $5.20 per
ounce, lead prices of $0.26 and $0.29 per pound, and zinc
prices of $0.55 and $0.65 per pound, respectively. Proven
and Probable ore reserves for the Greens Creek mine are
based on calculations of reserves provided to the Company by
the operator of Greens Creek that have been reviewed but not
independently confirmed by the Company. Kennecott Greens
Creek Mining Company's estimates of Proven and Probable
reserves for the Greens Creek mine as of December 1998 and
1997 are derived from successive generations of reserve and
feasibility analyses
-42-
<PAGE> 44
for different areas of the mine each using a separate
assessment of metal prices. The weighted-average prices
used were:
December 31, December 31,
1998 1997
------------- -------------
Gold $ 327 $ 359
Silver 5.11 4.85
Lead 0.29 0.29
Zinc 0.56 0.56
Changes in reserves represent general indicators of the
results of efforts to develop additional reserves as
existing reserves are depleted through production. Grades
of ore fed to process may be different from stated reserve
grades because of variation in grades in areas mined from
time to time, mining dilution and other factors. Reserves
should not be interpreted as assurances of mine life or of
the profitability of current or future operations.
Probable Reserves -- Resources for which tonnage and grade
and/or quality are computed primarily from information
similar to that used for Proven reserves, but the sites for
inspection, sampling and measurement are farther apart or
are otherwise less adequately spaced. The degree of
assurance, although lower than that for Proven reserves, is
high enough to assume continuity between points of
observation.
Proven Reserves -- Resources for which tonnage is computed
from dimensions revealed in outcrops, trenches, workings or
drill holes and for which the grade and/or quality is
computed from the results of detailed sampling. The sites
for inspection, sampling and measurement are spaced so
closely and the geologic character is so well defined that
size, shape, depth and mineral content of reserves are well
established.
Reserves -- That part of a mineral deposit which could be
economically and legally extracted or produced at the time
of the reserve determination. Reserves are customarily
stated in terms of "Ore" when dealing with metalliferous
minerals.
Rockburst -- Explosive rock failures caused by the pressure
exerted by rock adjacent to mine openings far below the
surface.
Sand Fill -- The coarser fraction of concentrator tailings,
which is conveyed as a slurry in underground pipes to
support cavities left by extraction of ore.
-43-
<PAGE> 45
Shaft -- A vertical or steeply inclined excavation for the
purpose of opening and servicing a mine. It is usually
equipped with a hoist at the top which lowers and raises a
conveyance for handling personnel and materials.
Stope -- An underground excavation from which ore has been
extracted either above or below mine level.
Total Cash Costs -- Includes all direct and indirect
operating cash costs incurred at each operating mine.
Total Cash Costs Per Ounce -- Calculated based upon total
cash costs, as defined herein, net of by-product revenues
from all metals other than the primary metal produced at
each mine, divided by the total ounces of the primary metal
produced.
Total Production Costs -- Includes total cash costs, as
defined, plus depreciation, depletion, amortization, and
reclamation accruals relating to each operating mine.
Total Production Costs Per Ounce -- Calculated based upon
total production costs, as defined, net of by-product
revenues earned from all metals other than the primary metal
produced at each mine, divided by the total ounces of the
primary metal produced.
Troy Ounce -- Unit of weight measurement used for all
precious metals. The familiar 16-ounce avoirdupois pound
equals 14.583 Troy Ounces.
Underhand Mining -- The primary mining method employed in
the Lucky Friday mine utilizing mechanized equipment, a ramp
system and cemented sand fill. The method has proven
effective in reducing mining costs and rockburst activity.
Unpatented Mining Claim -- A parcel of property located on
federal lands pursuant to the General Mining Law and the
requirements of the state in which the unpatented claim is
located, the paramount title of which remains with the
federal government. The holder of a valid, unpatented lode
mining claim is granted certain rights including the right
to explore and mine such claim under the General Mining Law.
Vein -- A mineralized zone having a more or less regular
development in length, width and depth which clearly
separates it from neighboring rock.
Waste -- Barren rock in a mine, or mineralized material that
is too low in grade to be mined and milled at a profit.
-44-
<PAGE> 46
ITEM 2. PROPERTIES.
The Company's principal mineral properties are described in Item
1 above. The Company also has interests in a number of other
mineral properties in the United States, Canada, Mexico and South
America. Although some of such properties are known or believed
to contain significant quantities of mineralization, they are not
considered material to the Company's operations at the present
time. Encouraging results from further exploration or increases
in the market prices of certain metals could, in the future, make
such properties considerably more important to the business of
the Company taken as a whole.
The general corporate office of the Company is located in
Coeur d'Alene, Idaho, on a tract of land containing approximately
13 acres. The Company also owns and has subdivided approximately
34 adjacent acres presently held for sale.
The administrative office of the Company's ball clay, kaolin and
feldspar operations is located in Nashville, Tennessee.
Additionally, there are general offices and laboratory facilities
at each operating location. The Company also owns approximately
1,600 acres of land principally for use in connection with
milling and storage operations for the industrial minerals
operations. The administrative offices of K-T Clay de Mexico are
located with the clay slurry processing facility on a parcel of
land near Monterrey, Mexico.
The general offices of MWCA, Inc. are located in Rexburg, Idaho.
Bark processing facilities are located in Rexburg, Idaho,
Superior, Montana, and Piedmont, South Dakota. The Company owns
a parcel of land of approximately 20 acres in the vicinity of
Antonito, Colorado, on which are located building, storage and
shipping facilities utilized in its scoria business, and a
bagging plant for landscape scoria. The Company also owns a
bagging facility, utilized for scoria briquettes, located at San
Acacio, Colorado.
The Company believes that its existing facilities are sufficient
for their intended purposes.
ITEM 3. LEGAL PROCEEDINGS.
Contingencies
- - Bunker Hill Superfund Site
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 settled
-45-
<PAGE> 47
the Company's response-cost liability under Superfund at the
Bunker Hill Site. As of December 31, 1998, the Company has
estimated and accrued an allowance for liability for remedial
activity costs at the Bunker Hill Site of $5.0 million. These
estimated expenditures are anticipated to be made over the next
three to five years. As with any estimate of this nature, it is
reasonably possible that the Company's estimate of this
obligation may change in the near term.
Coeur d'Alene River Basin Natural Resource Damage Claims
- - Coeur d'Alene Tribe Claims
In July 1991, the Coeur d'Alene Indian Tribe (the Tribe) brought
a lawsuit, under CERCLA, in Idaho Federal District Court against
the Company and a number of other mining companies asserting
claims for damages to natural resources downstream from the
Bunker Hill Site over which the Tribe alleges some ownership or
control. The Company 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 (NRD) 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 Idaho Federal
District Court consolidated the Tribe's NRD litigation with the
U.S. Government's lawsuit for discovery and other limited
pretrial purposes.
On September 30, 1998, the Federal District Court granted the
Company's summary judgment motion with respect to the applicable
-46-
<PAGE> 48
statute of limitations and dismissed the United States' NRD claim
due to the failure of the EPA to comply with federal law and EPA
regulations in expanding the Natural Priority List site
boundaries to include the entire Coeur d'Alene River/Lake Coeur
d'Alene Basin which would have the effect of extending the
statute of limitations. The United States has appealed the
Federal District Court's decision to the Ninth Circuit Court of
Appeals. The case is proceeding through discovery. Summary
judgment motions related to i) the extent of Federal Trusteeship
over Natural Resources in the Coeur d'Alene Basin, ii) a
constitutional challenge to the retroactive application of
Superfund liability at the site, and iii) case management are
pending before the Federal District 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 (the 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 NRD claims and to grant the Company credit
against any such State claims for all expenditures made under the
Idaho Agreement and certain other Company contributions and
expenditures for environmental cleanup in the Basin.
At December 31, 1998, the Company's accrual for remediation
activity in the Basin, not including the Bunker Hill Site,
totaled approximately $0.4 million. These expenditures are
anticipated to be expended during 1999. 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
Idaho State District Court ruled that the primary insurance
companies had a duty to defend the Company in the Tribe's
-47-
<PAGE> 49
lawsuit. During 1995 and 1996, the Company entered into
settlement agreements with a number of the insurance carriers
named in the litigation. The Company has received a total of
approximately $7.2 million under the terms of the settlement
agreements. Thirty percent of these settlements were paid to the
EPA to reimburse the U.S. Government for past costs under the
Bunker Hill Site Consent Decree. Litigation is still pending
against one insurer with trial continued until the underlying
environmental claims against the Company are resolved or settled.
The remaining insurer is providing the Company with a partial
defense in all Basin environmental litigation. As of
December 31, 1998, the Company had not reduced its accrual for
reclamation and closure costs to reflect the receipt of any
anticipated insurance proceeds.
Other Claims
On October 22, 1998, the Company and certain affiliates were
served with a lawsuit filed in Superior Court of Kern County,
California. The complaint pertains to the Cactus Gold mine
located near Mojave, California. Seventy-four plaintiffs allege
that during the period from 1960 through the present, the named
defendants' operations and activities caused personal injury and
property damage to the plaintiffs. The plaintiffs seek monetary
damages of $29.6 billion for general negligence, nuisance,
trespass, statutory violations, ultra-hazardous activities,
strict liability, and other torts. The Company has provided
notice and demand for defense/indemnity to its insurance carriers
providing coverage for the Cactus Gold mine operation. To date,
the Company has not received any response from the carriers. The
Company has retained outside counsel to defend the Company in
advance of any response from the insurance companies. Based on a
preliminary review with outside counsel of the allegations in the
complaint as it relates to the historical operations at the
Cactus Gold mine, the Company believes the allegations are
without merit.
The Company is subject to other legal proceedings and claims
which have arisen in the ordinary course of its business and have
not been finally adjudicated. Although there can be no assurance
as to the ultimate disposition of these matters and the
proceedings disclosed above, it is the opinion of the Company's
management, based upon the information available at this time,
that the currently expected outcome of these matters,
individually or in the aggregate, will not have a material
adverse effect on the results of operations, financial condition
or cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
-48-
<PAGE> 50
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
(a) (i) Shares of the Common Stock are traded on
the New York Stock Exchange, Inc., New York, New
York.
(ii) The price range of the Common Stock on
the New York Stock Exchange for the past two years
was as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1998 - High $ 6.69 $ 7.13 $ 5.31 $ 5.25
- Low 4.44 4.81 3.19 3.50
1997 - High $ 7.25 $ 6.25 $ 6.13 $ 6.31
- Low 5.25 5.25 4.94 4.38
(b)As of December 31, 1998, there were 10,162 holders of
record of the Common Stock.
(c)There were no Common Stock cash dividends paid in
1998 or 1997. The amount and frequency of cash
dividends are significantly influenced by metals prices,
operating results and the Company's cash requirements.
-49-
<PAGE> 51
ITEM 6. SELECTED FINANCIAL DATA.
(dollars in thousands except for per-share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total revenue $ 165,148 $ 168,569 $ 166,882 $ 159,704 $ 130,569
========= ========= ========= ========= =========
Net loss $ (300) $ (483) $ (32,354) $(101,719) $ (24,613)
Preferred stock dividends (8,050) (8,050) (8,050) (8,050) (8,050)
--------- --------- --------- --------- ---------
Loss applicable to
common shareholders $ (8,350) $ (8,533) $ (40,404) $(109,769) $ (32,663)
========= ========= ========= ========= =========
Basic and diluted loss per
common share $ (0.15) $ (0.16) $ (0.79) $ (2.28) $ (0.74)
========= ========= ========= ========= =========
Total assets $ 252,062 $ 250,668 $ 268,393 $ 258,190 $ 344,582
========= ========= ========= ========= =========
Long-term debt - Notes and
contracts payable $ 42,923 $ 22,136 $ 38,208 $ 36,104 $ 1,960
========= ========= ========= ========= =========
Cash dividends per common
share $ - - $ - - $ - - $ - - $ - -
========= ========= ========= ========= =========
Cash dividends per preferred
share $ 3.50 $ 3.50 $ 3.50 $ 3.50 $ 3.50
========= ========= ========= ========= =========
Common shares issued 55,166,728 55,156,324 51,199,324 48,317,324 48,144,274
Shareholders of record 10,162 10,636 11,299 12,210 13,196
Employees 1,184 1,202 1,254 1,259 1,204
</TABLE>
-50-
<PAGE> 52
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.(1)
INTRODUCTION
Hecla Mining Company (Hecla or the Company) is primarily involved
in the exploration, development, mining, and processing of gold,
silver, lead, zinc, and industrial minerals. The Company's
revenues and profitability are strongly influenced by world
prices of gold, silver, lead, and zinc, which fluctuate widely
and are affected by numerous factors beyond the Company's
control, including inflation and worldwide forces of supply and
demand for precious and base metals. The aggregate effect of
these factors is not possible to accurately predict. In the
following descriptions, where there are changes that are
attributable to more than one factor, the Company presents each
attribute in descending order relative to the attribute's
importance to the overall change.
Except for the historical information contained in this
Management's Discussion and Analysis of Financial Condition and
Results of Operations, the matters discussed below are forward-
looking statements. Forward-looking statements involve risks and
uncertainties, including: the timely development of existing
properties and reserves and future projects, the impact of metals
prices and metals production volatility, changing market
conditions and the regulatory environment and the other risks
detailed below and elsewhere in this Form 10-K (see "Investment
Considerations" of Part I, Item 1 of this Form 10-K) and from
time to time, as necessary, in the Company's periodic reports
filed with the Securities and Exchange Commission. As a result,
actual results may differ materially from those projected or
implied. These forward-looking statements represent the
Company's judgment as of the date of this filing. The Company
disclaims, however, any intent or obligation to update these
forward-looking statements as circumstances change or develop.
In 1998, the Company produced approximately 127,000 ounces of
gold compared to approximately 174,000 ounces of gold in 1997.
The decrease in gold production during 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
resulting from the completion of mining in 1998. This was partly
offset by increased gold production at the Rosebud mine where
operations commenced in April 1997. The Company's gold
production in 1998 was from the following sources: the Rosebud
mine - approximately 65,000 ounces, the La Choya mine -
approximately 40,000 ounces, the Greens Creek mine -
approximately 18,000 ounces, and an additional 4,000 ounces from
other sources. In
- ---------------------
(1) For definitions of certain mining terms used in this
description, see "Glossary of Certain Mining Terms" at the end of
Item 1 of this Form 10-K, page 41.
-51-
<PAGE> 53
1999, the Company expects to produce between 77,000 and 83,000
ounces of gold. The 1999 estimated gold production includes
47,000 to 51,000 ounces from the Company's interest in the
Rosebud mine, 18,000 to 20,000 ounces from the Company's interest
in the Greens Creek mine, and 12,000 ounces from the La Choya
mine and other sources.
In 1998, the Company produced approximately 7.2 million ounces of
silver compared to 1997 production of approximately 5.1 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 in the
1998 period. The Company's silver production in 1998 was
principally from the Lucky Friday mine - approximately 4.1
million ounces, the Greens Creek mine - approximately 2.8 million
ounces, and the Rosebud mine - approximately 0.3 million ounces.
The Company's share of silver production for 1999 is expected to
be between 7.2 and 7.5 million ounces. The 1999 estimated silver
production includes 4.5 to 4.7 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 0.2 million
ounces from other sources.
In 1998, the Company shipped approximately 1,005,000 tons of
product from the Kentucky-Tennessee Clay (K-T Clay) group,
including ball clay, kaolin, and feldspar. The Company's
shipments of products from the K-T Clay group are expected to
increase in 1999 to approximately 1,090,000 tons. In 1998, the
Company shipped approximately 110,000 tons of specialty
aggregates from its MWCA-Colorado Aggregate division, and
approximately 1,078,000 cubic yards of landscape material from
its MWCA-Mountain West Products division. In order to provide
funds for possible metals and industrial minerals expansion, as
well as to reduce indebtedness, the Company has decided to
attempt to sell MWCA in 1999, although there can be no assurance
that the Company will be successful.
RESULTS OF OPERATIONS
1998 vs 1997
The Company incurred a net loss of approximately $0.3 million
($0.01 per common share) in 1998 compared to a net loss of
approximately $0.5 million ($0.01 per common share) in 1997.
After $8.1 million in dividends to holders of the Company's
Series B Cumulative Convertible Preferred Stock, the Company's
loss applicable to common shareholders for 1998 was approximately
$8.4 million, or $0.15 per common share, compared to $8.5
million, or $0.16 per common share in 1997. The change in the
loss applicable to common shareholders during 1998 was
attributable to a variety of factors, the most significant of
which are discussed below in descending order of magnitude.
-52-
<PAGE> 54
Comparing the average metal prices for 1998 with 1997, gold
decreased 11% from $331 per ounce to $294 per ounce, silver
increased 13% from $4.90 per ounce to $5.53 per ounce, lead
decreased 14% from $0.28 per pound to $0.24 per pound, and zinc
decreased 22% from $0.60 per pound to $0.47 per pound. During
1998, the Company's realized gold price per ounce decreased 15%
from $356 per ounce to $301 per ounce.
Sales of the Company's products decreased by approximately $4.7
million, or 2.9%, in 1998 compared to 1997. The decreased
product sales resulted from lower sales totaling approximately
$23.5 million from gold operations due to decreased production
and a lower gold price in the 1998 period. The decrease in sales
from gold operations was partly offset by increased sales from
the industrial minerals segment of $9.7 million where sales
improved at both K-T Clay and MWCA. In addition, there were
increased sales from silver operations of $9.1 million due
principally to increased production at the Lucky Friday mine and
a higher silver price, partly offset by lower gold, zinc, and
lead by-product prices.
Cost of sales and other direct production costs increased $1.2
million from $126.7 million in 1997 to $127.9 million in 1998,
primarily due to increases in operating costs at (1) the
industrial minerals segment of $8.5 million resulting from
increased sales of products at K-T Clay and MWCA, combined with
reorganization costs at MWCA and a patent litigation settlement
at K-T Clay; (2) the Lucky Friday mine totaling $4.8 million
resulting from increased production and sales from the newly
developed expansion area; (3) the Rosebud mine of $4.7 million
due to operating the mine for a full year in 1998 compared to
nine months in 1997 following the commencement of operations in
April 1997; and (4) the Greens Creek mine of $0.4 million. These
increases in operating costs were partly offset by (1) decreased
operating costs of $10.3 million at the Grouse Creek mine where
operations were suspended in April 1997; (2) decreased operating
costs at the La Choya mine of $6.3 million, due to decreased
production; and (3) decreased costs at other operations totaling
approximately $0.5 million.
Cost of sales and other direct production costs as a percentage
of sales increased from 77.3% in 1997 to 80.3% in 1998. The
increase is primarily due to the effects of decreased gold
production at the La Choya mine, and lower gold, zinc, and lead
prices in the 1998 period.
Depreciation, depletion and amortization increased $1.2 million,
or 5.7%, from 1997 to 1998 principally due to (1) increased
depreciation at the Rosebud mine ($1.5 million), the result of
operating twelve months in 1998 versus nine months in 1997; (2)
increased depreciation at the Lucky Friday mine ($1.2 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,
-53-
<PAGE> 55
depletion, and amortization at (1) the La Choya mine ($1.5
million) as a result of the majority of the current property,
plant, and equipment being fully depreciated as of December 31,
1997, and (2) the Greens Creek mine ($0.3 million).
Cash operating costs, total cash costs, and total production
costs per gold ounce increased from $166, $173, and $239 in 1997
to $177, $189, and $262 in 1998, respectively. The increases in
the cash operating, total cash and total production costs per
gold ounce were mainly attributed to increased per ounce costs at
both the La Choya mine, the result of decreased production, and
the Rosebud mine, the result of higher milling costs and mining
of lower grade gold ore.
Cash operating costs and total cash costs per silver ounce
increased from $3.58 and $3.58 in 1997 to $3.96 and $3.96 in
1998, respectively. The increases in cash costs per ounce
amounts are due primarily to increased costs per ounce amounts at
the Greens Creek mine due to the impact of lower gold, zinc, and
lead by-product prices, partly offset by decreased costs per
ounce amounts at Lucky Friday resulting from increased silver
production from higher grade ore, which was also offset by lower
by-product metal prices. Total production costs per silver ounce
decreased slightly from $5.42 per ounce in 1997 to $5.37 per
ounce in 1998 principally the result of lower depreciation and
depletion per ounce at the Lucky Friday mine due to increased ore
reserves. Gold, lead, and zinc are by-products of the Company's
silver production, the revenues from which are netted against
production costs in the calculation of the production costs per
ounce of silver.
Other operating expenses decreased by approximately $2.1 million,
or 13.6%, from 1997 to 1998, due principally to (1) a decrease in
exploration expenditures ($2.6 million), principally in Mexico at
the La Jojoba and El Porvenir properties, partly offset by
increased expenditures in Peru and Chile at the Alto Dorado and
Cacique sites; (2) non-recurrence of a reduction in carrying
value of mining properties ($0.7 million), the result of a $0.5
million adjustment in 1997 at the Lisbon Valley joint venture, a
uranium property, and a $0.2 million adjustment of material and
supplies inventory at the Grouse Creek mine in 1997; and (3)
decreased general and administrative expenditures ($0.4 million).
These items were partly offset by an increased provision for
closed operations and environmental matters totaling $1.5
million, consisting of (a) a provision in 1998 at the closed Star
mine versus a benefit in 1997 ($1.3 million); (b) a decreased
benefit from the American Girl mine in 1998 ($1.2 million); and
(c) other net increases of $0.3 million. These increases in the
provision were partly offset by a decreased provision at Grouse
Creek ($1.3 million).
Other income was approximately $3.3 million in 1998 compared to
$0.9 million in 1997. The $2.4 million increase was primarily
due to (1) a gain on investments in 1998 versus a loss in 1997
($1.5
-54-
<PAGE> 56
million); (2) an increase in interest and miscellaneous income in
1998 over 1997 ($1.3 million) resulting from gains on the sale of
land located near the Company's corporate headquarters ($3.0
million), partly offset by the 1997 gain on sale of an 8%
interest in the Buckhorn Joint Venture, in Nevada, of $1.1
million and decreased royalty income ($0.5 million); and (3)
decreased miscellaneous expense ($0.2 million). These items were
partly offset by increased total interest costs as a result of
increased borrowings under the Company's revolving and term loan
credit facility and increased interest expense and fees
associated with the Company's tax-exempt solid waste disposal
bonds. Capitalized interest costs increased $0.2 million due to
increased capitalized interest associated with the Lucky Friday
expansion project ($0.4 million), which was partly offset by
decreased capitalized interest at the Rosebud mine.
Income taxes reflect a benefit of $0.9 million in 1998 compared
to a provision of $1.9 million in 1997. The benefit in 1998
primarily relates to the resolution of outstanding foreign tax
matters in the Company's favor during 1998, combined with the
carryback of certain various 1998 expenditures to reduce U.S.
income taxes previously provided, partly offset by a provision
for various state income taxes. The provision in 1997 primarily
reflects the provisions for foreign income taxes as well as
various state income taxes, partially offset by the carryback of
certain 1997 expenditures to reduce U.S. income taxes previously
provided.
RESULTS OF OPERATIONS
1997 vs 1996
The Company incurred a net loss of approximately $0.5 million
($0.01 per common share) in 1997 compared to a net loss of
approximately $32.4 million ($0.63 per common share) in 1996.
After payment of $8.1 million in dividends to holders of the
Company's Series B Cumulative Convertible Preferred Stock, the
Company's loss applicable to common shareholders for 1997 was
approximately $8.5 million, or $0.16 per common share, compared
to $40.4 million, or $0.79 per common share in 1996. The smaller
loss in 1997 was due to various factors, the most significant of
which were 1996 adjustments, totaling $35.7 million for
severance, holding, reclamation, closure costs, and carrying
value adjustments at the Grouse Creek and American Girl mines.
Sales of the Company's products increased by approximately $5.7
million, or 3.6%, in 1997 compared to 1996, principally due to
increased sales totaling approximately $36.9 million, most
notably from the Greens Creek mine where operations recommenced
in July 1996, and the Rosebud mine where operations commenced in
April 1997. These factors were partially offset by decreased
sales of approximately $31.2 million principally at the Grouse
Creek mine where operations were completed in April 1997,
decreased sales at the American Girl mine where operations were
suspended in the
-55-
<PAGE> 57
fourth quarter of 1996, decreased sales at the La Choya mine
principally the result of lower average gold prices and slightly
lower production, decreased sales at MWCA-Mountain West Products
division primarily due to unfavorable weather conditions during
the selling season and resulting competitive pricing pressures in
the 1997 period, decreased sales at the Lucky Friday mine
principally due to decreased lead and silver prices, decreased
sales at K-T Clay's Kaolin division due to increased competition
and product substitution in export business to the fiberglass
industry, and decreased sales at K-T Feldspar resulting from a
weaker domestic ceramic market and losses to competition and
substitute products.
Comparing the average metals prices for 1996 with 1997, gold
decreased 15% from $388 per ounce to $331 per ounce, silver
decreased 5% from $5.18 per ounce to $4.90 per ounce, lead
decreased 20% from $0.35 per pound to $0.28 per pound, and zinc
increased 30% from $0.46 per pound to $0.60 per pound. During
1997, the Company's realized gold price per ounce decreased 9%
from $393 per ounce to $356 per ounce.
Cost of sales and other direct production costs decreased
slightly from $126.9 million in 1996 to $126.7 million in 1997,
primarily a result of (1) increased production costs of $13.8
million at the Greens Creek mine where operations recommenced in
July 1996; (2) increased production costs of $7.4 million at the
Rosebud mine, where operations commenced in April 1997; (3)
increased production costs of $1.2 million at the Lucky Friday
mine associated with increased production; and (4) production
cost increases at MWCA-Colorado Aggregate division, K-T Clay Ball
Clay division, and K-T Clay de Mexico in direct correlation to
increased sales at these operations. These increases in cost of
sales and other direct production costs were partially offset by
decreases in operating costs at other operations of approximately
$26.1 million. These decreases are primarily due to (1)
decreased production costs at the Grouse Creek mine of $15.4
million due to the suspension of operations in April 1997; (2)
decreased production costs at the American Girl mine of $8.6
million due to the suspension of operations in the fourth quarter
of 1996; (3) decreased production costs at La Choya of $0.9
million, the result of lower production levels; and (4) decreased
production costs at industrial minerals operations, including K-T
Kaolin, K-T Feldspar, and MWCA-Mountain West Products division
resulting from decreased sales volumes.
Cost of sales and other direct production costs as a percentage
of sales improved from 80.2% in 1996 to 77.3% in 1997. The
improvement is primarily due to the shutdown of the higher cost
American Girl mine in late 1996, and the suspension of operations
at the higher cost Grouse Creek mine in April 1997, as well as
the addition of the lower cost Rosebud and Greens Creek mines.
Depreciation, depletion and amortization increased $0.6 million,
or 2.7%, from 1996 to 1997 principally due to (1) Rosebud mine
depreciation expense ($4.8 million) resulting from the
-56-
<PAGE> 58
commencement of operations in April 1997; (2) increased
depreciation expense at the Greens Creek mine ($4.8 million)
resulting from the recommencement of operations in July 1996; and
(3) increased depreciation expense at the Lucky Friday mine
associated with increased production. These increases in
depreciation, depletion and amortization were partially offset by
decreases at (1) the La Choya mine ($6.0 million), the result of
a lower depletion rate in 1997 attributable to the 1996 increase
in total estimated recoverable ounces from the mine; (2)
decreased depreciation expense at the Grouse Creek mine ($2.2
million) resulting from the 1996 write-down of the remaining
carrying value of property, plant, and equipment; and (3)
decreased depreciation expense at the American Girl mine ($1.3
million) resulting from the suspension of operations at the
American Girl mine in late 1996.
Cash operating costs, total cash costs, and total production
costs per gold ounce decreased from $273, $276, and $364 in 1996
to $166, $173, and $239 in 1997, respectively. The decreases in
the cash operating, total cash and total production costs per
gold ounce were mainly attributed to the suspension of operations
at the higher cost American Girl and Grouse Creek mines, as well
as the commencement of production at the lower cost Rosebud mine.
The total production costs per ounce was also favorably impacted
by the decreased depletion rate per ounce at the La Choya mine in
1997 compared to 1996.
Cash operating costs, total cash costs, and total production
costs per silver ounce decreased from $4.24, $4.24, and $5.47 in
1996 to $3.58, $3.58, and $5.42 in 1997, respectively. The
decreases in cash costs per ounce amounts were due primarily to
recommencement of operations at the Greens Creek mine in July
1996, partially offset by increased per ounce costs at the Lucky
Friday mine resulting from decreased lead by-product credits in
the 1997 period. Gold, lead, and zinc are by-products of the
Company's silver production, the revenues from which are netted
against production costs in the calculation of the production
costs per ounce of silver.
Other operating expenses decreased by approximately $32.9
million, or 67.7%, from 1996 to 1997, due principally to a
decrease in the provision for closed operations and environmental
matters totaling $23.5 million, consisting of (a) the 1996
provision at the Grouse Creek mine ($22.5 million); (b) the 1996
provision for environmental matters within the Coeur d'Alene
River Basin ($2.7 million); (c) a benefit from the American Girl
mine in 1997 versus a provision in 1996 ($1.8 million); and (d)
reductions in the provision for closed operations and
environmental matters in 1997 at other properties, including
Kirkland Lake ($0.8 million), Republic ($0.7 million), Buckhorn
($0.6 million), Star ($0.3 million), and Escalante ($0.2
million). These decreases in the provision were partly offset by
increased provisions including (a) the receipt of $2.6 million in
insurance proceeds in 1996 related to the remediation liability
at Bunker Hill; and (b) increases in
-57-
<PAGE> 59
the provision for closed operations and environmental matters in
1997 at other properties including Grouse Creek ($1.8 million),
Cactus ($0.7 million), Durita ($0.7 million), Yellow Pine ($0.3
million), and other idle properties ($0.2 million). Also,
contributing to the decrease in other operating expenses was a
decrease in reduction in carrying value of mining properties of
$12.2 million, consisting of the Company's 1996 reduction in
carrying value of the Company's interest in the American Girl
mine ($7.6 million) and the Grouse Creek mine ($5.3 million),
partly offset by the 1997 reduction in mining properties related
to the Lisbon Valley joint venture, a uranium property ($0.5
million), and material and supplies inventory at the Grouse Creek
mine ($0.2 million). These decreases were partially offset by
increased exploration expenditures of $2.6 million, most notably
at the La Jojoba ($1.6 million) and El Porvenir ($1.3 million)
gold properties in Mexico, partly offset by other net exploration
decreases ($0.3 million); and increased general and
administrative expenses of $0.2 million.
Other income was approximately $0.9 million in 1997 compared to
$6.0 million in 1996. The $5.1 million decrease was primarily
due to (1) decreased interest and other income ($4.0 million)
resulting principally from the 1996 gain on sale of a royalty
interest in the Rosebud mine to Euro-Nevada ($2.5 million), 1996
gain on sale of the Apex mine ($1.0 million), 1996 sale of an
interest in the Golden Eagle joint venture ($0.6 million), other
1996 gains on the sales of assets, including land in Coeur
d'Alene ($0.6 million), and decreased interest income due to
release of restricted investments in 1997 ($0.5 million),
partially offset by the 1997 gain on sale of an 8% interest in
the Buckhorn joint venture, in Nevada, ($1.1 million); (2)
increased net interest cost of $1.0 million; and (3) increased
loss on investments of $0.4 million principally the result of a
write-down of an investment in common stock. These decreases
were partially offset by decreased miscellaneous expense in 1997
of $0.2 million. Total interest cost decreased $0.6 million in
1997, principally due to lower borrowings in 1997 under the
Company's revolving and term loan credit facility. Capitalized
interest costs decreased $1.6 million principally due to
decreased capitalized interest costs associated with the Greens
Creek development, the Rosebud mine which was completed in March
1997, and the American Girl mine, partly offset by increased
capitalized interest at the Lucky Friday expansion project.
Income taxes reflect a provision of $1.9 million in 1997 compared
to a provision of $0.7 million in 1996. The provision in 1997
primarily reflects the provisions for foreign income taxes as
well as a provision for various state income taxes, partially
offset by the carryback of certain various 1997 expenditures to
reduce U.S. income taxes previously provided. The provision in
1996 primarily reflects the provisions for foreign income taxes
as well as a provision for state income taxes, partially offset
by the carryback of certain 1996 expenditures to reduce U.S.
income taxes previously provided.
-58-
<PAGE> 60
FINANCIAL CONDITION AND LIQUIDITY
A substantial portion of the Company's revenue is derived from
the sale of products, the prices of which are affected by
numerous factors beyond the Company's control. Prices may change
dramatically in short periods of time and such changes have a
significant effect on revenues, profitability and liquidity of
the Company. The Company is subject to many of the same
inflationary pressures as the U.S. economy in general. The
Company continues to implement cost-cutting measures in an effort
to reduce per unit production costs. Management believes,
however, that the Company may not be able to continue to offset
the impact of inflation over the long term through cost
reductions alone. However, the market prices for products
produced by the Company have a much greater impact than inflation
on the Company's revenues and profitability. Moreover, the
discovery, development and acquisition of mineral properties are
in many instances unpredictable events. Future metals prices,
the success of exploration programs, changes in legal and
regulatory requirements, and other property transactions can have
a significant impact on the need for capital (see "Investment
Considerations" in this Form 10-K).
The variability of metals prices requires that the Company, in
assessing the impact of prices on recoverability of its metals
segment assets, exercise judgment as to whether price changes are
temporary or are likely to persist. The Company performs a
comprehensive evaluation of the recoverability of its assets on a
periodic basis. This evaluation includes a review of estimated
future net cash flows against the carrying value of the Company's
assets. Moreover, a review is made on a quarterly basis to
assess the impact of significant changes in market conditions and
other factors. Asset write-downs may occur if the Company
determines that the carrying values attributed to individual
assets are not recoverable given reasonable expectations for
future production and market conditions.
At December 31, 1998, assets totaled approximately $252.1 million
and shareholders' equity totaled approximately $151.7 million.
Cash and cash equivalents decreased by $1.3 million from $3.8
million at the end of 1997 to $2.5 million at December 31, 1998.
During 1998, $12.9 million of cash was provided by financing
activities. The major source of cash was borrowings on long-term
debt of $44.5 million. This source of cash was partially offset
by uses of cash including repayments on long-term debt of $23.7
million and payment of preferred stock dividends of $8.1 million.
Operating activities provided $2.0 million of cash during 1998.
The primary sources of cash were from the Rosebud mine, the La
Choya mine, the Greens Creek mine, and the Company's industrial
minerals operations. Partially offsetting these sources were (1)
decreases, totaling $12.6 million, in accrued reclamation and
other noncurrent liabilities principally for reclamation and
-59-
<PAGE> 61
closure activities at the Grouse Creek mine, the Bunker Hill
Superfund Site, the Cactus mine, the Coeur d'Alene River Basin,
the Durita site, the Republic mine, and the American Girl mine;
(2) gain on disposition of properties, plants, and equipment
($2.6 million), most notably for land located near the Company's
corporate headquarters; (3) gain on sale of investments ($1.1
million); and (4) other working capital items of $4.5 million.
Principal noncash charges included in operating activities
include (1) depreciation, depletion, and amortization costs of
approximately $22.6 million and (2) provisions for reclamation
and closure costs of approximately $0.6 million.
The Company's investing activities used $16.2 million of cash
during 1998. The most significant use of cash was $22.5 million
for properties, plants, and equipment additions described below
and the purchase of investments and increase in cash surrender
value of life insurance of $0.7 million. These uses were
partially offset by (1) proceeds from sales of assets ($3.7
million); (2) the release of $1.6 million in restricted assets;
and (3) proceeds of $1.3 million from the sale of investments.
During 1998, the most significant asset additions were $6.2
million at the Lucky Friday mine related to the expansion
project, $6.0 million at the industrial minerals operations
including a plant expansion at the Gleason, Tennessee ball clay
plant, $3.8 million at the La Choya mine for costs associated
with pushing the pit wall back, $3.0 million for capitalized
expenditures at Greens Creek, $2.3 million at the Noche Buena
project, and capitalized interest of approximately $1.0 million.
Due to recent declines in the prices of metals that the Company
produces, including gold, silver, lead, and zinc, the Company has
developed plans to generate and preserve cash during the current
low metals price environment. Gold (London Initial), silver
(Handy & Harman), lead (LME Cash), and zinc (LME Cash) closed the
year at $287 per ounce, $5.05 per ounce, $0.225 per pound, and
$0.415 per pound, respectively. The Company's 1999 plans include
marketing for sale its MWCA subsidiary and certain other assets.
The Company has also implemented certain cost cutting measures to
reduce operating cash costs in 1999. Without improvements in the
prices of metals, the Company anticipates that its history of
losses applicable to common shareholders will continue. There
can be no assurance that the Company will be successful in its
efforts to sell the MWCA subsidiary and other assets, or in its
implementation of cost cutting measures.
The Company currently estimates that minimum 1999 capital
expenditures will be approximately $6.8 million. These
expenditures consist primarily of (1) the Company's share of
capital expenditures at the Greens Creek mine ($3.5 million); (2)
capital expenditures at the Noche Buena project ($1.7 million);
(3) industrial minerals capital expenditures ($1.2 million); and
(4) capital expenditures at other operating locations ($0.4
million). These planned capital expenditures will depend, in
large part, on the Company's ability to obtain the required funds
-60-
<PAGE> 62
from operating activities, and amounts available under its
revolving and term loan credit facility. There can be no
assurance that actual capitalized expenditures will be as
projected based upon the uncertainties associated with the
estimates for capital projects, uncertainties associated with
possible development projects, and the Company's ability to
generate adequate funding for the projected capital expenditures.
The Company's estimate of its capital expenditure requirements
assumes, with respect to the Greens Creek and Rosebud properties,
that the Company's joint venture partners will not default with
respect to their respective portions of development costs and
capital expenditures.
Pursuant to a Registration Statement filed with the Securities
and Exchange Commission and declared effective in the third
quarter of 1995, the Company can, at its option, offer and sell
debt securities, common shares, preferred shares or warrants in
an amount not to exceed $100.0 million in the aggregate. To date,
the Company has issued $48.4 million of the Company's common
shares under the Registration Statement.
On September 30, 1998, the Company amended its revolving and term
loan credit facility (the Bank Agreement). Under the terms of
the Bank Agreement, the Company may borrow up to $55.0 million,
subject to certain limitations, on a revolving credit basis
through December 31, 2001, repayable in eight quarterly
installments beginning March 31, 2002. During the commitment
period, the Company pays an annual facility fee ranging from
$178,750 to $261,250, the amount of which is based on average
quarterly borrowings. The Bank Agreement includes certain
collateral provisions, including the pledging of the common stock
of certain of the Company's subsidiaries and providing the
lenders a security interest in accounts receivable. Under the
Bank Agreement, the Company is required to maintain certain
financial ratios, and meet certain net worth and indebtedness
tests for which the Company was in compliance at December 31,
1998. Amounts available under the Bank Agreement are based on a
defined debt to cash flow test. As of December 31, 1998, the
Company had borrowings of $42.8 million (including $9.8 million
in solid waste disposal revenue bonds) and the ability to borrow
the remaining $12.2 million under the facility. The interest
rate for borrowings under the Bank Agreement as of December 31,
1998, was 7.06%. Interest rates on the Bank Agreement are based
on LIBOR or the prime rate and may vary based upon the Company's
debt level.
On February 25, 1999, the Company received a commitment from the
lead bank under the Bank Agreement to amend the Bank Agreement.
Under the revised terms of the Bank Agreement, the amount
available to borrow will remain up to $55.0 million, subject to
certain limitations. The ability to borrow under the amended
Bank Agreement will be based upon historical cash earnings, as
defined, plus the value of a specified amount of eligible
accounts receivable and inventory. Under the revised terms, the
-61-
<PAGE> 63
Company will have to maintain certain financial ratios, and meet
certain net worth and indebtedness tests, and the Company will be
required to pay an annual facility fee in the range of $192,500-
$275,000, based on average quarterly borrowings. Collateral
provisions under the terms of the amended agreement will be
increased to include a secured interest in the Company's
inventory. Interest rates under the amended agreement will
continue to be based on LIBOR or the prime rate. All other terms
under the existing Bank Agreement remain as they were previously.
The Company's planned environmental and reclamation expenditures
for 1999 are expected to be between $9.0 and $10.0 million,
principally for environmental and reclamation activities at the
Grouse Creek mine, the Bunker Hill Superfund Site, the Coeur
d'Alene River Basin, and the American Girl, Yellow Pine, Cactus,
and Republic properties.
Exploration expenditures for 1999 are currently estimated to
range from $4.0 to $5.0 million. Depending on the results of
exploration activities, actual costs could be higher or lower
than estimated. The Company's exploration strategy will focus
further exploration at, or in the vicinity of, its currently
owned domestic and foreign properties, as well as grass roots and
advanced stage projects. Accordingly, 1999 domestic exploration
expenditures will be incurred principally at the Greens Creek,
Rosebud, and Lucky Friday properties. Foreign exploration
efforts in 1999 will center primarily on targets in Mexico and
South America.
In the normal course of its business, the Company uses forward
sales commitments and commodity put and call option contracts to
manage its exposure to fluctuations in the prices of certain
metals which it produces. Contract positions are designed to
ensure that the Company will receive a defined minimum price for
certain quantities of its production. Gains and losses, and the
related costs paid or premiums received, for contracts which
hedge the sales prices of commodities are deferred and included
in income as part of the hedged transaction. Revenues from these
contracts are recognized at the time the contracts are closed out
by delivery of the underlying commodity, when the Company matches
specific production to a contract, or upon settlement of the net
position in cash. The Company is exposed to certain losses,
generally the amount by which the contract price exceeds the spot
price of a commodity, in the event of nonperformance by the
counterparties to these agreements.
At December 31, 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 $371,000 at December 31, 1998. The
London Initial gold price at year end was $287 per ounce.
Additionally, at December 31, 1998, the Company had forward sales
commitments through June 30, 1999, for 500,000 ounces of silver
at an average price of $6.54. The estimated fair value of these
-62-
<PAGE> 64
forward sales commitments was $740,000 at December 31, 1998. The
Handy & Harman silver price at year end was $5.05 per ounce. The
nature and purpose of these forward sales contracts, however,
does not presently expose the Company to any significant net
loss. All of these contracts are designated as hedges at
December 31, 1998.
In November 1994, the Company entered into a court-approved
Consent Decree requiring the Company and certain other mining
companies to undertake specific remediation work with respect to
the Bunker Hill Superfund Site in northern Idaho. At December
31, 1998, the Company's allowance for Bunker Hill Superfund Site
remedial action costs was approximately $5.0 million. Although
the Company believes the allowance is adequate based on current
estimates of aggregate costs, the Company plans to reassess its
obligations under the Consent Decree during 1999. Depending on
the results of the reassessment, it is reasonably possible that
the Company's estimate of its obligation may change.
The Company is subject to a lawsuit filed by the Coeur d'Alene
Tribe and the U.S. Government claiming natural resource damages
and response costs in portions of the Coeur d'Alene River Basin
in northern Idaho and downstream. The claims have been made
against the Company and a number of mining companies under the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended (CERCLA or Superfund), based upon these
companies' historical mining practices. In May 1998, the
Environmental Protection Agency (EPA) announced that it had
commenced a remedial investigation/feasibility study under
Superfund for the entire Coeur d'Alene Basin, including Lake
Coeur d'Alene, in support of its response cost claims asserted in
one lawsuit.
In 1997, K-T Clay terminated shipments of 1% of annual ball clay
production, sold to animal feed producers, when the Food and Drug
Administration determined trace elements of dioxin were present
in poultry. Dioxin is inherently present in ball clays
generally. The Company believes $11.0 million of insurance
coverage is available for about $8.0 million in claims to date.
Although the outcome cannot be assured, the Company believes that
there will be no material adverse financial effect on the Company
from this matter.
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 (see Note 6 of Consolidated
Financial Statements). Although there can be no assurance as to
the ultimate disposition of these matters, it is the opinion of
the Company's management, based upon the information available at
this time, that the expected outcome of these suits and
proceedings will not have a material adverse effect on the
results of operations or financial condition of the Company and
its subsidiaries.
-63-
<PAGE> 65
YEAR 2000
The Company utilizes software and related technologies throughout
its business that will be affected by the "Year 2000 computer
problem," which is common to many corporations and governmental
entities. This problem concerns the inability of information
systems, primarily computer software programs and certain
hardware, to properly recognize and process date-sensitive
information as the Year 2000 approaches. Absent corrective
actions, computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than 2000.
This could result in system failures or miscalculations causing
disruptions to various activities and operations.
The Company has established thirteen teams to identify and
correct Year 2000 compliance issues. The Company's primary
information systems (IS) with non-compliant code are expected to
be modified or replaced with systems that are Year 2000
compliant. The Company is also evaluating its non-IS
applications, primarily systems embedded in processing and other
facilities. Additionally, the teams are responsible for
evaluating the Company's critical suppliers and vendors as to
their state of readiness for the Year 2000.
The Company's primary IS was originally evaluated in 1996, and
out of 2,300 programs, 850 were identified that required
modification. All of the 850 programs have been modified,
installed and tested by the Company's information services
department. End user testing is approximately 40% complete with
expected completion by March 31, 1999. The Company's other IS's
are currently being evaluated and progress is being made in
identifying non-compliant systems. Plans are also being made to
remediate the non-compliant systems. The Company currently
anticipates completing its evaluation of the other IS's, along
with plans for remediating non-compliant systems by March 31,
1999.
Inventories and assessments of non-IS systems have been completed
by all thirteen teams. Remediation efforts are currently being
implemented, where necessary. Contingency plans will be
developed for all major components in case of system failures
surrounding the Year 2000.
The Company is utilizing independent consultants to oversee the
Year 2000 project as well as to perform certain remediation
efforts. In addition, progress on the Year 2000 project is also
monitored by senior management, and reported to the Board of
Directors at each respective meeting.
The Company has identified critical suppliers, as well as other
essential service providers, and has surveyed their Year 2000
compliancy. Based on expected compliance dates expressed by some
of these critical suppliers and other service providers,
additional follow-up will be required to fully assess their state
-64-
<PAGE> 66
of readiness for the Year 2000. These follow-up activities will
occur throughout 1999. For other suppliers and service
providers, risk assessments and contingency plans, where
necessary, will be finalized by mid-year 1999. The Company has
taken the above described steps to address issues surrounding
suppliers and service providers; however, the Company has no
direct ability to influence other parties' compliance actions.
The Company believes it has taken the necessary actions to
mitigate the effect of Year 2000 risks, although the Company is
not able to eliminate the risks or to estimate the ultimate
effect Year 2000 will have on the Company's operating results and
financial condition.
Contingency plans for Year 2000 related business interruptions
are being developed and will include, but are not limited to, the
development of emergency backup recovery procedures, replacing
automated processes with manual processes, identification of
alternate suppliers, and increasing raw material supplies and
finished goods inventory prior to December 31, 1999. All plans
are expected to be completed by the end of the second quarter of
1999, but ongoing monitoring will continue throughout 1999.
The Company's most likely potential risk is a temporary inability
to process and ship its products, as well as the inability of
some customers to order and pay on a timely basis.
Incremental costs directly related to Year 2000 issues are
estimated to be $201,000 from 1998 to 2000, of which
approximately $108,000 has been spent as of December 31, 1998.
The Company's current estimate of expected costs is based upon
work performed to date, and depending on the results of future
work, the cost estimate may increase. This estimate assumes that
the Company will not incur significant Year 2000 costs on behalf
of its suppliers or customers.
The Company's Year 2000 efforts are ongoing and its overall plan,
as well as the consideration of contingency plans, will continue
to evolve as new information becomes available. While the
Company is taking steps it believes to be necessary to prevent
any major interruption to its business activities, that will
depend in part, upon the ability of third parties to be Year 2000
compliant.
NEW ACCOUNTING PRONOUNCEMENTS
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
-65-
<PAGE> 67
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 is presently evaluating the effect the
adoption of this standard will have on the Company's financial
condition, results of operations, and cash flows.
In April 1998, Statement of Position 98-5 (SOP 98-5), "Reporting
on the Costs of Start-up Activities" was issued. SOP 98-5
provides guidance on the financial reporting of start-up costs
and organizational costs. It requires costs of start-up and
organizational expenses to be expensed as incurred, as well as
the recognition of a cumulative effect of a change in accounting
principle for retroactive application of the standard. SOP 98-5
is effective for fiscal years beginning after December 15, 1998,
although earlier application is encouraged. The Company is
presently evaluating the effect the adoption of SOP 98-5 will
have on the Company's financial condition and results of
operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
The following discussion about the Company's risk-management
activities include "forward-looking statements" that involve risk
and uncertainties. Actual results could differ materially from
those projected in the forward-looking statements.
The following tables summarize the financial instruments and
derivative instruments held by the Company at December 31, 1998,
which are sensitive to changes in interest rates and commodity
prices. In the normal course of business, the Company also faces
risks that are either nonfinancial or nonquantifiable (See
"Investment Considerations" of Part I, Item 1 of this Form 10-K).
Interest-Rate Risk Management
At December 31, 1998, the Company's debt is subject to changes in
market interest rates and is sensitive to those changes. The
Company currently has no derivative instruments to offset the
risk of interest rate changes. The Company may choose to use
derivative instruments, such as interest rate swaps to manage the
risk associated with interest rate changes.
-66-
<PAGE> 68
The following table presents principal cash flows for debt
outstanding at December 31, 1998, by maturity date and the
related average interest rate. The variable rates are estimated
based on implied forward rates in the yield curve at the
reporting date.
Outstanding Debt
(in thousands)
<TABLE>
<CAPTION>
Fair
1999 2000 2001 2002 2003 Thereafter Total Value
------- ------- ------- ------- ------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bank credit agreement $ - - $ - - $ - - $16,500 $16,500 $ - - $33,000 $33,000
Average interest rate 6.78% 6.87% 7.07% 7.18% 7.35%
Revenue bonds $ - - $ - - $ - - $ - - $ - - $ 9,800 $ 9,800 $ 9,800
Average interest rate 3.30% 3.60% 3.75% 3.87% 3.97% 4.18%
</TABLE>
Commodity-Price Risk Management
The Company uses commodity forward sales commitments and
commodity put and call option contracts to manage its exposure to
fluctuation 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. The Company uses these instruments to reduce risk by
offsetting market exposures. The Company is exposed to certain
losses, generally the amount by which the contract price exceeds
the spot price of a commodity, in the event of nonperformance by
the counterparties to these agreements. The instruments held by
the Company are not leveraged and are held for purposes other
than trading. All of these contracts are designated as hedges at
December 31, 1998.
The Company enters into forward sales commitments to hedge a
portion of its annual production of certain metals that it
produces. At December 31, 1998, the Company had hedged
approximately 7% and 7% of its anticipated 1999 silver and gold
production, respectively.
-67-
<PAGE> 69
The following table provides information about the Company's
forward sales commitments at December 31, 1998. The table
presents the notional amount in ounces, the average forward sales
price, and the total-dollar contract amount expected by the
maturity dates, which occur between January 1, 1999, and June 30,
1999.
<TABLE>
<CAPTION>
Expected
Maturity Estimated
-------- Fair
1999 Value
-------- ------
<S> <C> <C>
Forward contracts: Gold sales (ounces) 6,000
Future price (per ounce) $354
Contract amount (in $000's) $2,124 $371
Silver sales (ounces) 500,000
Future price (per ounce) $6.54
Contract amount (in $000's) $3,270 $740
</TABLE>
-68-
<PAGE> 70
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14 of this Report for information with respect to the
financial statements filed as a part hereof, including financial
statements filed pursuant to the requirements of this Item 8.
SELECTED QUARTERLY DATA
(dollars in thousands except for per-share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
1998: Quarter Quarter Quarter Quarter Total
- ---- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales of products $ 40,129 $ 45,655 $ 38,611 $ 34,836 $ 159,231
Gross profit (loss) $ 4,476 $ 4,120 $ 3,029 $ (2,533) $ 9,092
Net income (loss) $ 2,847 $ 2,996 $ (641) $ (5,502) $ (300)
Preferred stock dividends $ (2,012) $ (2,013) $ (2,013) $ (2,012) $ (8,050)
Income (loss) applicable to
common shareholders $ 835 $ 983 $ (2,654) $ (7,514) $ (8,350)
Basic and diluted income
(loss) per common share $ 0.02 $ 0.02 $ (0.05) $ (0.14) $ (0.15)
1997:
- ----
Sales of products $ 42,456 $ 46,069 $ 41,204 $ 34,219 $ 163,948
Gross profit (loss) $ 4,178 $ 6,784 $ 5,438 $ (203) $ 16,197
Net income (loss) $ 518 $ 3,054 $ 935 $ (4,990) $ (483)
Preferred stock dividends $ (2,012) $ (2,013) $ (2,013) $ (2,012) $ (8,050)
Income (loss) applicable to
common shareholders $ (1,494) $ 1,041 $ (1,078) $ (7,002) $ (8,533)
Basic and diluted income
(loss) per common share $ (0.03) $ 0.02 $ (0.02) $ (0.13) $ (0.16)
</TABLE>
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES.
None.
-69-
<PAGE> 71
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Reference is made to the information with respect to the
directors of the Company set forth under the caption
"Election of Directors" in the Company's proxy statement to
be filed pursuant to Regulation 14A for the annual meeting
scheduled to be held on May 7, 1999 (the Proxy Statement),
which information is incorporated herein by reference.
Information with respect to executive officers of the
Company is set forth as follows:
Age at
May 7,
Name 1999 Position and Term Served
------------------- ------ ----------------------------
William B. Booth 48 Vice President - Investor and
Public Affairs since May 1994;
various administrative functions
with the Company since December
1985.
Arthur Brown 58 Chairman since June 1987; Chief
Executive Officer since May
1987; President since May 1986.
J. Gary Childress 51 Vice President - Industrial
Minerals since February 1994;
President and General Manager of
Kentucky-Tennessee Clay Company
from 1987 to 1994.
George R. Johnson 50 Vice President - Metal Mining
since 1996; Manager of Opera-
tions - Metal Mining from 1990
to 1996; Senior Project Engineer
from 1989 to 1990.
Roger A. Kauffman 55 Executive Vice President and
Chief Operating Officer since
June 1996; President and Chief
Operating Officer of Amax Gold
from 1994 to 1996; previously
employed with the Company from
1985 to 1994 serving as Vice
President -Industrial Minerals
from 1986 to 1994.
-70-
<PAGE> 72
Age at
May 7,
Name 1999 Position and Term Served
------------------- ------ ----------------------------
Jon T. Langstaff 62 Vice President - Human Resources
since May 1995; Personnel
Manager from 1982 to 1995.
John P. Stilwell 46 Vice President - Chief Financial
Officer since May 1996; Vice
President - Chief Financial
Officer and Treasurer from May
1996 to May 1997; Vice President
- Finance and Treasurer May 1994
to May 1996; Treasurer since
June 1991.
Michael B. White 48 Vice President - General Counsel
and Secretary since May 1992;
Secretary since November 1991;
Assistant Secretary from March
1981 to November 1991; General
Counsel since June 1986.
David F. Wolfe 55 Treasurer since May 1997;
Manager of Precious Metals
Marketing since 1993; Assistant
Treasurer from June 1985 to May
1997.
There are no family relationships between any of the executive
officers.
ITEM 11. EXECUTIVE COMPENSATION.
Reference is made to the information set forth under the caption
"Compensation of Executive Officers" in the Proxy Statement
(except the Report on the Compensation Committee on Executive
Compensation set forth therein) to be filed pursuant to
Regulation 14A, which information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Reference is made to the information set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management"
in the Proxy Statement to be filed pursuant to Regulation 14A,
which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to the information set forth under the caption
"Other Transactions" in the Proxy Statement to be filed pursuant
to Regulation 14A, which information is incorporated herein by
reference.
-71-
<PAGE> 73
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a)(1) Financial Statements
See Index to Financial Statements on Page F-1
(a)(2) Financial Statement Schedules
See Index to Financial Statements on Page F-1
(a)(3) Exhibits
See Exhibit Index following the financial
statements
(b) Reports on Form 8-K
Form 8-K, dated November 13, 1998, filed on
November 25, 1998, related to Company's By-Laws.
Form 8-K/A, dated November 13, 1998, filed on
December 7, 1998, related to Company's By-Laws.
-72-
<PAGE> 74
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this annual report to be signed on its behalf by the undersigned,
thereunto duly authorized, on March 10, 1999.
HECLA MINING COMPANY
By /s/ Arthur Brown
--------------------------------
Arthur Brown, Chairman
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
/s/ Arthur Brown 3/10/99 /s/ Theodore Crumley 3/10/99
- ------------------------------- --------------------------------
Arthur Brown Date Theodore Crumley Date
Chairman and Director Director
(principal executive officer)
/s/ Lewis E. Walde 3/10/99 /s/ Leland O. Erdahl 3/10/99
- ------------------------------- --------------------------------
Lewis E. Walde Date Leland O. Erdahl Date
Assistant Controller Director
(principal accounting officer)
/s/ John P. Stilwell 3/10/99 /s/ Charles L. McAlpine 3/10/99
- ------------------------------- --------------------------------
John P. Stilwell Date Charles L. McAlpine Date
Vice President - Chief Financial Director
Officer (principal financial
officer)
/s/ John E. Clute 3/10/99 /s/ Thomas J. O'Neil 3/10/99
- ------------------------------- --------------------------------
John E. Clute Date Thomas J. O'Neil Date
Director Director
/s/ Joe Coors, Jr. 3/10/99 /s/ Jorge E. Ordonez 3/10/99
- ------------------------------- --------------------------------
Joe Coors, Jr. Date Jorge E. Ordonez Date
Director Director
/s/ Paul A. Redmond 3/10/99
- -------------------------------
Paul A. Redmond Date
Director
-73-
<PAGE> 75
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements
- --------------------
Report of Independent Accountants F-2
Consolidated Balance Sheets at December 31,
1998 and 1997 F-3
Consolidated Statements of Operations and
Comprehensive Loss for the Years Ended
December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Changes in
Shareholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7 to F-36
Financial Statement Schedules*
- -----------------------------
*Financial statement schedules
have been omitted as not applicable
F-1
<PAGE> 76
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders of
Hecla Mining Company
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations and
comprehensive loss, changes in shareholders' equity and of cash
flows present fairly, in all material respects, the financial
position of Hecla Mining Company and subsidiaries at December 31,
1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 1 to the consolidated financial statements,
the Company changed its method of accounting for environmental
remediation liabilities in 1996.
/s/ PRICEWATERHOUSECOOPERS LLP
Spokane, Washington
February 8, 1999, except for Note 5, as to which the date is
February 25, 1999.
F-2
<PAGE> 77
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
---------
<TABLE>
<CAPTION>
ASSETS
December 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,480 $ 3,794
Accounts and notes receivable 25,919 24,445
Income tax refund receivable 1,087 793
Inventories 22,757 22,116
Other current assets 1,251 1,416
---------- ----------
Total current assets 53,494 52,564
Investments 3,406 2,521
Restricted investments 6,331 7,926
Properties, plants and equipment, net 178,168 180,037
Other noncurrent assets 10,663 7,620
---------- ----------
Total assets $ 252,062 $ 250,668
========== ==========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 12,172 $ 12,590
Accrued payroll and related benefits 2,852 2,436
Preferred stock dividends payable 2,012 2,012
Accrued taxes 772 1,016
Accrued reclamation and closure costs 6,537 6,914
---------- ----------
Total current liabilities 24,345 24,968
Deferred income taxes 300 300
Long-term debt 42,923 22,136
Accrued reclamation and closure costs 23,216 34,406
Other noncurrent liabilities 9,542 8,518
---------- ----------
Total liabilities 100,326 90,328
---------- ----------
Commitments and contingencies (Notes 1, 2, 3 and 6)
SHAREHOLDERS' EQUITY
Preferred stock, $0.25 par value, authorized 5,000,000 shares;
issued and outstanding - 2,300,000 shares,
liquidation preference $117,012 575 575
Common stock, $0.25 par value, authorized 100,000,000 shares;
issued 1998 - 55,166,728 shares, issued
1997 - 55,156,324 shares 13,792 13,789
Capital surplus 374,017 373,966
Accumulated deficit (230,493) (222,143)
Accumulated other comprehensive loss (5,269) (4,961)
Less treasury stock, at cost; 1998 - 62,110 common
shares, 1997 - 62,089 common shares (886) (886)
---------- ----------
Total shareholders' equity 151,736 160,340
---------- ----------
Total liabilities and shareholders' equity $ 252,062 $ 250,668
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
<PAGE> 78
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(dollars and shares in thousands, except per share amounts)
----------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Sales of products $ 159,231 $ 163,948 $ 158,252
Cost of sales and other direct production costs 127,933 126,742 126,878
Depreciation, depletion and amortization 22,206 21,009 20,451
---------- ---------- ----------
150,139 147,751 147,329
---------- ---------- ----------
Gross profit 9,092 16,197 10,923
---------- ---------- ----------
Other operating expenses:
General and administrative 7,583 7,976 7,745
Exploration 4,866 7,422 4,843
Depreciation and amortization 389 311 338
Provision for (benefit from) closed operations
and environmental matters 734 (724) 22,806
Reduction in carrying value of mining properties - - 715 12,902
---------- ---------- ----------
13,572 15,700 48,634
---------- ---------- ----------
Income (loss) from operations (4,480) 497 (37,711)
---------- ---------- ----------
Other income (expense):
Interest and other income 5,917 4,621 8,630
Miscellaneous expense (1,487) (1,643) (1,870)
Gain (loss) on investments 1,136 (405) (28)
Interest expense:
Interest costs (3,261) (2,462) (3,058)
Less amount capitalized 959 806 2,360
---------- ---------- ----------
3,264 917 6,034
---------- ---------- ----------
Income (loss) before income taxes (1,216) 1,414 (31,677)
Income tax benefit (provision) 916 (1,897) (677)
---------- ---------- ----------
Net loss (300) (483) (32,354)
Preferred stock dividends (8,050) (8,050) (8,050)
---------- ---------- ----------
Loss applicable to common shareholders (8,350) (8,533) (40,404)
---------- ---------- ----------
Other comprehensive loss, net of tax:
Unrealized losses on securities (115) (351) (195)
Reclassification adjustment for losses
included in net loss 96 320 63
Minimum pension liability adjustment (289) - - - -
---------- ---------- ----------
Other comprehensive loss (308) (31) (132)
---------- ---------- ----------
Comprehensive loss applicable to common shareholders $ (8,658) $ (8,564) $ (40,536)
========== ========== ==========
Basic and diluted loss per common share $ (0.15) $ (0.16) $ (0.79)
========== ========== ==========
Weighted average number of common shares outstanding 55,101 54,763 51,133
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
<PAGE> 79
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Operating activities
Net loss $ (300) $ (483) $ (32,354)
Noncash elements included in net loss:
Depreciation, depletion and amortization 22,595 21,320 20,789
Gain on disposition of properties, plants
and equipment (2,648) (1,111) (706)
(Gain) loss on investments (1,136) 405 28
Reduction in carrying value of mining properties - - 715 12,902
Provision for reclamation and closure costs 581 1,341 28,284
Change in:
Accounts and notes receivable (1,474) (277) 192
Income tax refund receivable (294) 469 (525)
Inventories (641) 548 (4,239)
Other current and noncurrent assets (1,747) 868 (479)
Accounts payable and accrued expenses (478) (4,787) 3,232
Accrued payroll and related benefits 416 (796) 15
Accrued taxes (244) (411) 385
Accrued reclamation and other noncurrent liabilities (12,587) (11,772) (5,210)
-------- -------- ---------
Net cash provided by operating activities 2,043 6,029 22,314
-------- -------- ---------
Investing activities
Additions to properties, plants and equipment (22,495) (24,794) (33,731)
Proceeds from disposition of properties, plants
and equipment 3,733 1,872 3,641
Proceeds from sale of investments 1,294 - - 130
Decrease (increase) in restricted investments 1,595 13,845 (4,368)
Purchase of investments and change in cash surrender
value of life insurance, net (734) (1,233) 75
Other, net 399 1,642 (480)
-------- -------- ---------
Net cash used by investing activities (16,208) (8,668) (34,733)
-------- -------- ---------
Financing activities
Common stock issued under stock and stock option plans 54 41 55
Issuance of common stock, net of offering costs - - 23,355 21,873
Dividends on preferred stock (8,050) (8,050) (8,050)
Borrowing on long-term debt 44,531 57,601 51,631
Repayment on long-term debt (23,684) (73,673) (48,918)
-------- -------- ---------
Net cash provided (used) by financing activities 12,851 (726) 16,591
-------- -------- ---------
Change in cash and cash equivalents
Net increase (decrease) in cash and cash equivalents (1,314) (3,365) 4,172
Cash and cash equivalents at beginning of year 3,794 7,159 2,987
-------- -------- ---------
Cash and cash equivalents at end of year $ 2,480 $ 3,794 $ 7,159
======== ======== =========
Supplemental disclosure of cash flow information
Cash paid during year for:
Interest, net of amount capitalized $ 1,784 $ 912 $ 249
======== ======== =========
Income tax payments, net of refunds $ 439 $ 333 $ 148
======== ======== =========
See Note 3 for noncash investing and financing activities.
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
<PAGE> 80
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996
(dollars and shares in thousands, except per share amounts)
------------
<TABLE>
<CAPTION>
Accumulated
Preferred Stock Common Stock Other
--------------- --------------- Capital Accumulated Comprehensive Treasury
Shares Amount Shares Amount Surplus Deficit Loss Stock
------ ------ ------ ------- --------- --------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995 2,300 $ 575 48,317 $12,079 $ 330,352 $(173,206) $(4,798) $ (886)
Net loss (32,354)
Preferred stock dividends
($3.50 per share) (8,050)
Stock issued for cash,
net of issuance costs 2,875 719 21,154
Stock issued to directors 7 2 53
Other comprehensive loss (132)
----- ------ ------ ------- --------- --------- ------- -------
Balances, December 31, 1996 2,300 575 51,199 12,800 351,559 (213,610) (4,930) (886)
Net loss (483)
Preferred stock dividends
($3.50 per share) (8,050)
Stock issued for cash,
net of issuance costs 3,950 987 22,368
Stock issued to directors 7 2 39
Other comprehensive loss (31)
----- ------ ------ ------- --------- --------- ------- -------
Balances, December 31, 1997 2,300 575 55,156 13,789 373,966 (222,143) (4,961) (886)
Net loss (300)
Preferred stock dividends
($3.50 per share) (8,050)
Stock issued under stock
option plans 2 1 11
Stock issued to directors 9 2 40
Other comprehensive loss (308)
----- ------ ------ ------- --------- --------- ------- -------
Balances, December 31, 1998 2,300 $ 575 55,167 $13,792 $ 374,017 $(230,493) $(5,269) $ (886)
===== ====== ====== ======= ========= ========= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 81
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION -- The accompanying consolidated
financial statements include the accounts of Hecla Mining Company
(Hecla or the Company), its majority-owned subsidiaries and its
proportionate share of the accounts of the joint ventures in
which it participates. All significant intercompany transactions
and accounts are eliminated in consolidation.
The Company's revenues and profitability are largely dependent on
world prices for gold, silver, lead, and zinc, which fluctuate
widely and are affected by numerous factors beyond the Company's
control, including inflation and worldwide forces of supply and
demand. The aggregate effect of these factors is not possible to
accurately predict.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ materially from those
estimates.
Certain consolidated financial statement amounts have been
reclassified to conform to the 1998 presentation. These
reclassifications had no effect on the net loss, comprehensive
loss or accumulated deficit as previously reported.
B. COMPANY'S BUSINESS AND CONCENTRATIONS OF CREDIT RISK -- The
Company is engaged in mining and mineral processing activities,
including exploration, extraction, processing, and reclamation.
The Company's principal products are metals (primarily gold,
silver, lead, and zinc) and industrial minerals (primarily clay,
aggregate and landscape products). Substantially all of the
Company's operations are conducted in the United States and
Mexico. Sales of metals products are made principally to
domestic and foreign custom smelters and metal traders. The
Company sells substantially all of its metallic concentrates to
smelters which are subject to extensive regulations including
environmental protection laws. The Company has no control over
the smelters' operations or their compliance with environmental
laws and regulations. If the smelting capacity available to the
Company were significantly reduced because of environmental
requirements or otherwise, it is possible that the Company's
silver operations could be adversely affected. Industrial
minerals are sold principally to domestic and Mexican
manufacturers and wholesalers.
F-7
<PAGE> 82
The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. The Company places
its cash and temporary cash investments with institutions of high
credit-worthiness. At times, such investments may be in excess
of the federal insurance limit. The Company routinely assesses
the financial strength of its customers and, as a consequence,
believes that its trade accounts receivable credit risk exposure
is limited.
C. INVENTORIES -- Inventories are stated at the lower of
average cost or estimated net realizable value.
D. INVESTMENTS -- The Company uses the equity method to account
for investments in common stock of operating companies 20% to 50%
owned. Investments in nonoperating companies that are not
intended for resale or are not readily marketable are valued at
the lower of cost or net realizable value. Marketable equity
securities are categorized as available for sale.
Realized gains and losses on the sale of securities are
recognized on a specific identification basis. Unrealized gains
and losses are included as a component of accumulated other
comprehensive loss, net of related deferred income taxes, unless
a permanent impairment in value has occurred, which is then
charged to operations.
Restricted investments held at December 31, 1998 and 1997,
primarily represent investments in money market funds. These
investments are restricted primarily for reclamation funding or
surety bonds.
E. PROPERTIES, PLANTS AND EQUIPMENT -- Properties, plants and
equipment are stated at the lower of cost or estimated net
realizable value. Maintenance, repairs and renewals are charged
to operations. Betterments of a major nature are capitalized.
When assets are retired or sold, the costs and related allowances
for depreciation and amortization are eliminated from the
accounts and any resulting gain or loss is reflected in
operations. Idle facilities, placed on a standby basis, are
carried at the lower of net carrying value or estimated net
realizable value.
Management of the Company reviews the net carrying value of all
facilities, including idle facilities, on a periodic basis.
These reviews consider, among other factors, (1) the net
realizable value of each major type of asset, on a property-by-
property basis, to reach a judgment concerning possible permanent
impairment of value and any need for a write-down in asset value;
(2) the ability of the Company to fund all care, maintenance and
standby costs; (3) the status and usage of the assets, while in a
standby mode, to thereby determine whether some form of
amortization is appropriate; and (4) current estimates of metal
prices that affect the decision to continue operations, reopen or
make a disposition of the assets. The Company estimates the net
F-8
<PAGE> 83
realizable value of each property based on the estimated
undiscounted future cash flows that will be generated from
operations at each property, the estimated salvage value of the
surface plant and equipment and the value associated with
property interests. These estimates of undiscounted future cash
flows are dependent upon estimates of metal to be recovered from
proven and probable ore reserves and, where appropriate, from the
continuity of existing, developed orebodies, future production
costs and future metals prices over the estimated remaining mine
life. If undiscounted cash flows are less than the carrying
value of a property, an impairment loss is recognized based upon
the estimated expected future net cash flows from the property
discounted at an interest rate commensurate with the risk
involved.
Management's estimates of metals prices, recoverable proven and
probable ore reserves, and operating, capital and reclamation
costs are subject to risks and uncertainties of change affecting
the recoverability of the Company's investment in various
projects. Although management has made its best estimate of these
factors based on current conditions and information, it is
reasonably possible that changes could occur in the near term
which could adversely affect management's estimate of net cash
flows expected to be generated from its operating properties and
the need for asset impairment write-downs.
Depreciation is based on the estimated useful lives of the assets
and is computed using straight-line, declining-balance, and unit-
of-production methods. Depletion is computed using the unit-of-
production method.
Management's calculations of proven and probable ore reserves are
based on engineering and geological estimates including minerals
prices and operating costs. Changes in the geological and
engineering interpretation of various orebodies, minerals prices
and operating costs may change the Company's estimates of proven
and probable reserves. It is reasonably possible that certain of
the Company's estimates of proven and probable reserves will
change in the near term resulting in a change to amortization and
reclamation accrual rates in future reporting periods.
F. MINE EXPLORATION AND DEVELOPMENT -- Exploration costs are
charged to operations as incurred, as are normal development
costs at operating mines. Major mine development expenditures
are capitalized at operating properties and at new mining
properties not yet producing.
G. RECLAMATION OF MINING AREAS -- All of the Company's
operations are subject to reclamation and closure requirements.
Minimum standards for mine reclamation have been established by
various governmental agencies which affect certain operations of
the Company. A reserve for mine reclamation costs has been
established for restoring certain abandoned and currently
disturbed mining areas based upon estimates of cost to comply
with
F-9
<PAGE> 84
existing reclamation standards. Mine reclamation costs for
operating properties are accrued using the unit-of-production
method and charged to cost of sales and other direct production
costs. The estimated amount of metals or minerals to be
recovered from a mine site is based on internal and external
geological data and is reviewed by management on a periodic
basis. Changes in such estimated amounts which affect
reclamation cost accrual rates are reflected on a prospective
basis unless they indicate there is a current impairment of an
asset's carrying value and a decision is made to permanently
close the property, in which case they are recognized currently
and charged to provision for closed operations and environmental
matters. It is reasonably possible that the Company's estimate
of its ultimate accrual for reclamation costs will change in the
near term due to possible changes in laws and regulations, and
interpretations thereof, and changes in cost estimates.
H. REMEDIATION OF MINING AREAS -- The Company accrues costs
associated with environmental remediation obligations when it is
probable that such costs will be incurred and they are reasonably
estimable. Accruals for estimated losses from environmental
remediation obligations generally are recognized no later than
completion of the remedial feasibility study and are charged to
provision for closed operations and environmental matters. Costs
of future expenditures for environmental remediation are not
discounted to their present value. Such costs are based on
management's current estimate of amounts that are expected to be
incurred when the remediation work is performed within current
laws and regulations. Recoveries of environmental remediation
costs from other parties are recorded as assets when their
receipt is deemed probable.
In 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1, "Environmental Remediation
Liabilities" (SOP 96-1). The Company adopted the provisions of
SOP 96-1 during 1996. The adoption of the provisions of SOP 96-1
had no material effect on the results of operations or financial
condition of the Company.
It is reasonably possible that, due to uncertainties associated
with defining the nature and extent of environmental
contamination, application of laws and regulations by regulatory
authorities, and changes in remediation technology, the ultimate
cost of remediation could change in the future. The Company
periodically reviews its accrued liabilities for such remediation
costs as evidence becomes available indicating that its
remediation liability has potentially changed.
I. INCOME TAXES -- The Company records deferred tax liabilities
and assets for the expected future income tax consequences of
events that have been recognized in its financial statements.
Deferred tax liabilities and assets are determined based on the
temporary differences between the financial statement carrying
amounts and the tax bases of assets and liabilities using enacted
F-10
<PAGE> 85
tax rates in effect in the years in which the temporary
differences are expected to reverse.
J. BASIC AND DILUTED LOSS PER COMMON SHARE -- Basic earnings
per share (EPS) is calculated by dividing loss applicable to
common shareholders by the weighted-average number of common
shares outstanding for the year. Diluted EPS reflects the
potential dilution that could occur if potentially dilutive
securities were exercised or converted to common stock. Due to
the losses in 1998, 1997, and 1996, potentially dilutive
securities were excluded from the calculation of diluted EPS as
they were anti-dilutive. Therefore, there was no difference in
the calculation of basic and diluted EPS in 1998, 1997, and 1996.
K. REVENUE RECOGNITION -- Sales of metal products sold directly
to smelters are recorded when title and risk of loss transfer to
the smelter, at estimated metal prices. Recorded values are
adjusted periodically and upon final settlement. Metal in
products tolled (rather than sold to smelters) is sold under
contracts for future delivery; such sales are recorded at
contractual amounts when products are available to be processed
by the smelter or refinery. Sales of industrial minerals are
recognized as the minerals are shipped.
L. INTEREST EXPENSE -- Interest costs incurred during the
construction of qualifying assets are capitalized as part of the
asset cost.
M. CASH EQUIVALENTS -- The Company considers cash equivalents
to consist of highly liquid investments with a remaining maturity
of three months or less when purchased.
N. FOREIGN CURRENCY TRANSLATION -- The Company operates in
Mexico with its two wholly owned subsidiaries: Minera Hecla,
S.A. de C.V. (Minera Hecla) and K-T Clay de Mexico, S.A. de C.V.
(K-T Mexico). The functional currency for Minera Hecla and K-T
Mexico is the U.S. dollar. Accordingly, the Company translates
the monetary assets and liabilities of both subsidiaries at the
period-end exchange rate while nonmonetary assets and liabilities
are translated at historical rates. Income and expense accounts
are translated at the average exchange rate for each period.
Translation adjustments and transaction gains and losses are
reflected in the net loss for the period.
Prior to the second quarter of 1995, K-T Mexico's functional
currency was the Mexican peso. During the second quarter of
1995, K-T Mexico commenced invoicing its customers in U.S.
dollars instead of the Mexican peso. This change indicated a
change in the functional currency from the Mexican peso to the
U.S. dollar. The change in the functional currency has been
accounted for prospectively commencing in the second quarter of
1995. Accumulated translation adjustments from prior periods are
included as a separate component of shareholders' equity. The
F-11
<PAGE> 86
translated amounts for nonmonetary assets prior to the change
have become the accounting bases for those assets.
O. RISK MANAGEMENT CONTRACTS -- In the normal course of its
business, the Company uses derivative commodity instruments to
manage its exposure to fluctuations in the prices of certain
metals which it produces. The Company does not hold or issue
derivative instruments for trading purposes.
The Company uses forward sales and commodity put and call options
to hedge anticipated sales of certain metal products it produces.
The Company also utilizes forward contracts to sell its unhedged
production of metal products.
The Company accounts for commodity put and call options by
deferring any gains and losses, and the related costs paid or
premium received, for contracts which hedge the sales prices of
commodities until the hedged position is settled. Gains and
losses, and the related costs paid or premiums received are
included in sales on the original settlement date of the
contracts. The Company recognizes revenue on forward sales
contracts designated as hedges at the time the Company matches
specific production to a forward contract, or upon settlement of
the net position in cash. For contracts where the net position
is settled in cash, revenues are recognized on the original
settlement date of the contracts. In the case of matching
specific production to a contract, the revenue may be recognized
in a period prior to the receipt of cash, in which case a
receivable is established for the expected receipt, although this
time period is typically less than two months. Specific criteria
required for commodity put and call options and forward sales
contracts accounting include the Company's ability to produce the
underlying commodity prior to the contract settlement date, the
existence of price risk associated with the underlying commodity,
the designation of the transaction at the time the contract is
entered into as a hedge against price volatility, and whether
this type of transaction effectively reduces the price risk
associated with the underlying commodity.
The Company also uses forward contracts as a means to sell
available production. Revenue from these contracts is recognized
at the time the contracts are entered into, with a corresponding
receivable, as the commodity has already been produced and is
available for delivery. Upon delivery of the underlying
commodity on the settlement date, cash is received from the sale.
The only criterion for utilizing this method is the availability
of produced metal at the time the contract is entered into.
P. ACCOUNTING FOR STOCK OPTIONS -- In October 1995, the
Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123). SFAS 123 establishes financial
accounting and reporting standards for stock-based employee
compensation plans. SFAS 123 encourages all entities to adopt a
F-12
<PAGE> 87
fair value based method of accounting, but allows an entity to
continue to measure compensation cost for those plans using the
intrinsic value method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company adopted only the disclosure provisions
of SFAS 123 in 1996.
Q. COMPREHENSIVE LOSS -- 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 loss and its components in a full set of
general purpose financial statements. The Company adopted SFAS
130 in 1998. Accordingly, prior periods presented have been
reclassified to reflect this new standard.
R. NEW ACCOUNTING PRONOUNCEMENTS -- 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 is presently evaluating the effect the adoption of this
standard will have on the Company's financial condition, results
of operations, and cash flows.
In April 1998, Statement of Position 98-5 (SOP 98-5), "Reporting
on the Costs of Start-up Activities" was issued. SOP 98-5
provides guidance on the financial reporting of start-up costs
and organizational costs. It requires costs of start-up
activities and organizational costs to be expensed as incurred,
as well as the recognition of a cumulative effect of a change in
accounting principle for retroactive application of the standard.
SOP 98-5 is effective for fiscal years beginning after December
15, 1998. The Company is presently evaluating the effect the
adoption of SOP 98-5 will have on the Company's financial
condition and results of operations.
F-13
<PAGE> 88
NOTE 2: INVENTORIES
Inventories consist of the following (in thousands):
December 31,
1998 1997
-------- --------
Concentrates, bullion, metals in transit
and other products $ 3,879 $ 4,773
Industrial minerals products 10,240 9,230
Materials and supplies 8,638 8,113
-------- --------
$ 22,757 $ 22,116
======== ========
At December 31, 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 and forward sales commitments through
June 30, 1999, for 500,000 ounces of silver at an average price
of $6.54 per ounce. All of the aforementioned contracts are
designated as hedges at December 31, 1998. The Company is
exposed to certain losses, generally the amount by which the
contract price exceeds the spot price of a commodity, in the
event of nonperformance by the counterparties to these
agreements. The London Initial gold price at December 31, 1998,
was $287 per ounce. The Handy & Harman silver price at December
31, 1998, was $5.05 per ounce.
NOTE 3: PROPERTIES, PLANTS AND EQUIPMENT
The major components of properties, plants and equipment are (in
thousands):
December 31,
1998 1997
--------- ---------
Mining properties $ 19,485 $ 21,076
Development costs 147,384 146,988
Plants and equipment 245,216 231,107
Land 4,926 6,158
--------- ---------
417,011 405,329
Less accumulated depreciation,
depletion and amortization 238,843 225,292
--------- ---------
Net carrying value $ 178,168 $ 180,037
========= =========
The net carrying values of the major mining properties of the
Company that were on a standby or idle basis at December 31, 1998
and 1997, were approximately $1.0 million and $2.8 million,
respectively.
In 1998, the Company sold 11 parcels of land located near the
Company's corporate headquarters and realized a gain of
approximately $3.0 million. Proceeds included cash receipts of
F-14
<PAGE> 89
$3.3 million and issuance of three notes receivable totaling $0.9
million.
In 1997, as a result of the expiration of the underlying lease
agreement, the Company recorded an adjustment, totaling $0.5
million, to reduce the carrying value of its interest in the
Lisbon Valley joint venture.
On January 31, 1997, Great Lakes Minerals Inc. (Great Lakes) and
the Company entered into a letter agreement terminating the
Grouse Creek joint venture and conveying Great Lakes' interest in
the Grouse Creek mine to Hecla. Great Lakes retained a 5%
defined net proceeds interest in the project. The Company has
assumed 100% of the interests and obligations associated with the
property.
In 1996, based on its periodic reviews of the status of various
mining properties, the Company determined that certain
adjustments were necessary to properly reflect estimated net
realizable values. These adjustments, totaling $12.9 million,
consisted of write-downs of properties, plant and equipment,
inventories and production notes payable for the Company's
interest in the American Girl mine ($7.6 million), and
properties, plant and equipment and inventories for the Company's
interest in the Grouse Creek mine ($5.3 million).
On September 6, 1996, Hecla and Santa Fe Pacific Gold Corporation
(Santa Fe), which was subsequently acquired by Newmont Gold
Company (Newmont), entered into a joint venture agreement with
respect to the development and operation of the Rosebud mine.
Pursuant to the agreement, a limited liability corporation was
established with each party owning a 50% interest in the mine.
No gain or loss was recognized in connection with the agreement.
Under the terms of the agreement, Hecla manages the mining
activities and Newmont manages mill processing. Total mine-site
capital expenditures to bring the mine into production were $18.7
million; all of which had been expended through December 31,
1997. Under the terms of the agreement, Newmont funded the first
$12.5 million of mine-site development and also funded costs of
road and mill facility improvements. Newmont also contributed
exploration property adjacent to the Rosebud property, and funded
the first $1.0 million in exploration expenditures in 1997, and
will fund two-thirds of future exploration expenditures beyond
the initial $1.0 million.
In 1996, Euro-Nevada Mining Corporation Inc. (Euro-Nevada)
exercised its option to purchase an additional 1.5% Net Smelter
Return (NSR) royalty on the Rosebud property for $2.5 million,
the proceeds of which were retained by Hecla under the terms of
the agreement with Newmont. After the exercise of its option,
Euro-Nevada holds a 4% NSR royalty on production from the Rosebud
property. The Company recognized a gain of $2.5 million in 1996
associated with this transaction.
F-15
<PAGE> 90
In 1996, the Company and Santa Fe entered into a joint venture
agreement for the Golden Eagle property located adjacent to the
Company's Republic property. This agreement was assumed by
Newmont as part of its acquisition of Santa Fe. Newmont
purchased an immediate 75% interest in the joint venture for $2.5
million. The Company recorded a gain on the transaction totaling
$0.6 million. Under the agreement, Newmont is to fund all
expenditures at the property through the economic feasibility
stage.
NOTE 4: INCOME TAXES
Major components of the Company's income tax provision (benefit)
for the years ended December 31, 1998, 1997, and 1996 are as
follows (in thousands):
1998 1997 1996
------- ------- -------
Current:
Federal $ (509) $ 24 $ (749)
State 227 345 341
Foreign (634) 1,528 1,085
------- ------- -------
Income tax provision (benefit) $ (916) $ 1,897 $ 677
======= ======= =======
Domestic and foreign components of income (loss) before income
taxes for the years ended December 31, 1998, 1997, and 1996 are
as follows (in thousands):
1998 1997 1996
------- ------- --------
Domestic $(1,177) $(4,922) $(36,468)
Foreign (39) 6,336 4,791
------- ------- --------
Total $(1,216) $ 1,414 $(31,677)
======= ======= ========
F-16
<PAGE> 91
The components of the net deferred tax liability were as follows
(in thousands):
December 31,
1998 1997
--------- ---------
Deferred tax assets:
Accrued reclamation costs $ 10,130 $ 14,039
Investment valuation differences 2,113 2,062
Capital loss carryover 1,633 2,373
Postretirement benefits other
than pensions 1,034 1,051
Deferred compensation 1,332 1,059
Accounts receivable 456 456
Foreign net operating losses 3,478 2,634
Federal net operating losses 91,323 83,715
State net operating losses 10,022 8,372
Tax credit carryforwards 3,070 3,487
Miscellaneous 1,446 1,446
--------- ---------
Total deferred tax assets 126,037 120,694
Valuation allowance (115,654) (112,478)
--------- ---------
Net deferred tax assets 10,383 8,216
--------- ---------
Deferred tax liabilities:
Properties, plants and equipment (7,786) (5,815)
Deferred income (58) (134)
Pension costs (2,085) (1,461)
Inventories (454) (806)
Deferred state income taxes, net (300) (300)
--------- ---------
Total deferred tax liabilities (10,683) (8,516)
--------- ---------
Net deferred tax liability $ (300) $ (300)
========= =========
The Company recorded a valuation allowance to reflect the
estimated amount of deferred tax assets which may not be realized
principally due to the expiration of net operating losses and tax
credit carryforwards. The changes in the valuation allowance for
the years ended December 31, 1998, 1997, and 1996 are as follows
(in thousands):
1998 1997 1996
--------- --------- ---------
Balance at beginning of year $(112,478) $(107,937) $ (97,705)
Increase related to nonutilization
of net operating loss carry-
forwards and nonrecognition of
deferred tax assets due to
uncertainty of recovery (3,176) (4,541) (10,232)
--------- --------- ---------
Balance at end of year $(115,654) $(112,478) $(107,937)
========= ========= =========
F-17
<PAGE> 92
The annual tax provision (benefit) is different from the amount
which would be provided by applying the statutory federal income
tax rate to the Company's pretax income (loss). The reasons for
the difference are (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Computed "statutory"
provision (benefit) $ (413) (34)% $ 481 34% $(10,770) (34)%
Nonutilization of net
operating losses and
effect of foreign taxes (730) (60) 1,188 84 11,716 37
State income taxes, net
of federal tax benefit 227 19 228 16 (269) (1)
-------- ---- -------- ---- -------- ----
$ (916) (75)% $ 1,897 134% $ 677 2%
======== ==== ======== ==== ======== ====
</TABLE>
As of December 31, 1998, for income tax purposes, the Company has
operating loss carryovers of $268.0 million and $140.0 million,
for regular and alternative minimum tax purposes, respectively.
These operating loss carryovers substantially expire over the
next 15 years, the majority of which expire between 2006 and
2012. In addition, the Company has foreign tax operating losses
of approximately $10.0 million which expire prior to 2003 and
investment tax credit carryovers of $0.6 million which expire
prior to 2002. Approximately $17.0 million and $8.0 million of
regular and alternative minimum tax loss carryovers,
respectively, are subject to limitations in any given year due to
mergers. The Company has approximately $1.2 million in
alternative minimum tax credit carryovers eligible to reduce
future regular tax liabilities.
NOTE 5: LONG-TERM DEBT AND CREDIT AGREEMENT
Long-term debt consists of the following (in thousands):
December 31,
1998 1997
--------- ----------
Revolving credit agreement $ 33,000 $ 12,000
Revenue bonds 9,800 9,800
Other long-term debt 213 486
--------- ----------
43,013 22,286
Less current portion (90) (150)
--------- ----------
$ 42,923 $ 22,136
========= ==========
F-18
<PAGE> 93
Future minimum debt repayments associated with long-term debt as
of December 31, 1998 are as follows (in thousands):
Year ending December 31,
------------------------
1999 $ 90
2000 98
2001 9
2002 16,508
2003 16,508
Thereafter 9,800
-------
Total long-term debt repayments $43,013
=======
Revolving Credit Agreement
On August 11, 1997, the Company entered into a revolving and term
loan credit facility to replace the prior facility. On
September 30, 1998, the Company amended its revolving and term
loan credit facility (as amended, the Bank Agreement). Under the
terms of the Bank Agreement, the Company may borrow up to $55.0
million, subject to certain limitations, on a revolving credit
basis through December 31, 2001, repayable in eight quarterly
installments beginning March 31, 2002. During the commitment
period, the Company pays an annual facility fee ranging from
$178,750 to $261,250, the amount of which is based on average
quarterly borrowings. The Bank Agreement includes certain
collateral provisions, including the pledging of the common stock
of certain of the Company's subsidiaries and providing the
lenders a security interest in accounts receivable. Under the
Bank Agreement, the Company is required to maintain certain
financial ratios, and meet certain net worth and indebtedness
tests for which the Company was in compliance at December 31,
1998. Amounts available for borrowing under the Bank Agreement
are based on a defined debt to cash flow test. At December 31,
1998, the Company had borrowings of $33.0 million under the Bank
Agreement. The amount available to borrow is reduced by the $9.8
million amount of tax-exempt solid waste disposal bonds
outstanding (described below). At December 31, 1998, the
Company had the ability to borrow an additional $12.2 million
under the Bank Agreement. The interest rate for borrowing under
the Bank Agreement as of December 31, 1998 was 7.06%. Interest
rates are based on LIBOR or the prime rate and may vary based
upon the Company's debt level.
On February 25, 1999, the Company received a commitment from the
lead bank under the Bank Agreement to amend the Bank Agreement.
Under the revised terms of the Bank Agreement, the amount
available to borrow will remain up to $55.0 million, subject to
certain limitations. The ability to borrow under the amended
Bank Agreement will be based upon historical cash earnings, as
defined, plus the value of a specified amount of eligible
accounts receivable and inventory. Under the revised terms, the
F-19
<PAGE> 94
Company will have to maintain certain financial ratios, and meet
certain net worth and indebtedness tests, and the Company will be
required to pay an annual facility fee in the range of $192,500-
$275,000, based on average quarterly borrowings. Collateral
provisions under the terms of the amended agreement will be
increased to include a secured interest in the Company's
inventory. Interest rates under the amended agreement will
continue to be based on LIBOR or the prime rate. All other terms
under the existing Bank Agreement remain as they were previously.
Revenue Bonds
On July 30, 1997, the Company issued $9.8 million aggregate
principal amount of tax-exempt, solid waste disposal revenue
bonds. The net proceeds of approximately $9.6 million from the
issuance were initially used to pay down debt under the Company's
existing revolving and term loan credit facility. The bonds
mature on July 1, 2007. The payment of the unpaid principal and
up to $140,959 of interest (35 days at an annual rate of 15%) on
the bonds is collateralized by an irrevocable, direct-pay letter
of credit, which will expire on July 31, 1999, unless extended.
The letter of credit has a fee of 1.7% of the amount of the
letter of credit. The bonds initially bear interest at the
weekly rate as determined by the remarketing agent. At the
Company's option, the weekly rate may be converted to a fixed
rate or variable rate. While the bonds bear interest at the
weekly rate or the flexible rate, the bonds are redeemable at the
option of the Company, in whole or in increments of $100,000,
upon at least 30 days written notice. Certain restrictions are
applicable to optional redemptions while the bonds bear interest
at the fixed rate. At December 31, 1998, there was $9.8 million
in revenue bonds outstanding. The interest rate on the bonds as
of December 31, 1998, was 4.2%.
NOTE 6: COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases various facilities and equipment under
noncancelable operating lease arrangements. The major facilities
and equipment leases are for terms of three to seven years.
Future minimum lease payments under these noncancelable operating
leases as of December 31, 1998, are as follows (in thousands):
Year ending December 31,
------------------------
1999 $ 3,811
2000 2,935
2001 2,084
2002 1,399
2003 390
Thereafter 153
-------
Total minimum lease payments $10,772
=======
F-20
<PAGE> 95
Rent expense incurred for operating leases during the years ended
December 31, 1998, 1997, and 1996 was approximately $3.9 million,
$4.8 million, and $4.2 million, respectively.
Contingencies
- - Bunker Hill Superfund Site
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 settled
the Company's response-cost liability under Superfund at the
Bunker Hill Site. As of December 31, 1998, the Company has
estimated and accrued an allowance for liability for remedial
activity costs at the Bunker Hill Site of $5.0 million. These
estimated expenditures are anticipated to be made over the next
three to five years. As with any estimate of this nature, it is
reasonably possible that the Company's estimate of this
obligation may change in the near term.
Coeur d'Alene River Basin Natural Resource Damage Claims
- - Coeur d'Alene Tribe Claims
In July 1991, the Coeur d'Alene Indian Tribe (the Tribe) brought
a lawsuit, under CERCLA, in Idaho Federal District Court against
the Company and a number of other mining companies asserting
claims for damages to natural resources downstream from the
Bunker Hill Site over which the Tribe alleges some ownership or
control. The Company 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 (NRD) 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
F-21
<PAGE> 96
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 Idaho Federal
District Court consolidated the Tribe's NRD litigation with the
U.S. Government's lawsuit for discovery and other limited
pretrial purposes.
On September 30, 1998, the Federal District Court granted the
Company's summary judgment motion with respect to the applicable
statute of limitations and dismissed the United States' NRD claim
due to the failure of the EPA to comply with federal law and EPA
regulations in expanding the Natural Priority List site
boundaries to include the entire Coeur d'Alene River/Lake Coeur
d'Alene Basin which would have the effect of extending the
statute of limitations. The United States has appealed the
Federal District Court's decision to the Ninth Circuit Court of
Appeals. The case is proceeding through discovery. Summary
judgment motions related to i) the extent of Federal Trusteeship
over Natural Resources in the Coeur d'Alene Basin, ii) a
constitutional challenge to the retroactive application of
Superfund liability at the site, and iii) case management are
pending before the Federal District 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 (the 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 NRD claims and to grant the Company credit
against any such State claims for all expenditures made under the
Idaho Agreement and certain other Company contributions and
expenditures for environmental cleanup in the Basin.
At December 31, 1998, the Company's accrual for remediation
activity in the Basin, not including the Bunker Hill Site,
totaled approximately $0.4 million. These expenditures are
anticipated to be expended during 1999. Depending on the results
of the aforementioned lawsuits, it is reasonably possible that
F-22
<PAGE> 97
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
Idaho State District Court ruled that the primary insurance
companies had a duty to defend the Company in the Tribe's
lawsuit. During 1995 and 1996, the Company entered into
settlement agreements with a number of the insurance carriers
named in the litigation. The Company has received a total of
approximately $7.2 million under the terms of the settlement
agreements. Thirty percent of these settlements were paid to the
EPA to reimburse the U.S. Government for past costs under the
Bunker Hill Site Consent Decree. Litigation is still pending
against one insurer with trial continued until the underlying
environmental claims against the Company are resolved or settled.
The remaining insurer is providing the Company with a partial
defense in all Basin environmental litigation. As of
December 31, 1998, the Company had not reduced its accrual for
reclamation and closure costs to reflect the receipt of any
anticipated insurance proceeds.
Other Claims
On October 22, 1998, the Company and certain affiliates were
served with a lawsuit filed in Superior Court of Kern County,
California. The complaint pertains to the Cactus Gold mine
located near Mojave, California. Seventy-four plaintiffs allege
that during the period from 1960 through the present, the named
defendants' operations and activities caused personal injury and
property damage to the plaintiffs. The plaintiffs seek monetary
damages of $29.6 billion for general negligence, nuisance,
trespass, statutory violations, ultra-hazardous activities,
strict liability, and other torts. The Company has provided
notice and demand for defense/indemnity to its insurance carriers
providing coverage for the Cactus Gold mine operation. To date,
the Company has not received any response from the carriers. The
Company has retained outside counsel to defend the Company in
advance of any response from the insurance companies. Based on a
preliminary review with outside counsel of the allegations in the
complaint as it relates to the historical operations at the
Cactus Gold mine, the Company believes the allegations are
without merit.
F-23
<PAGE> 98
In 1997, K-T Clay terminated shipments of 1% of annual ball clay
production, sold to animal feed producers, when the Food and Drug
Administration determined trace elements of dioxin were present
in poultry. Dioxin is inherently present in ball clays
generally. The Company believes $11.0 million of insurance
coverage is available for about $8.0 million in claims to date.
Although the outcome cannot be assured, the Company believes that
there will be no material adverse financial effect on the Company
from this matter.
The Company is subject to other legal proceedings and claims
which have arisen in the ordinary course of its business and have
not been finally adjudicated. Although there can be no assurance
as to the ultimate disposition of these matters and the
proceedings disclosed above, it is the opinion of the Company's
management, based upon the information available at this time,
that the currently expected outcome of these matters,
individually or in the aggregate, will not have a material
adverse effect on the results of operations, financial condition
or cash flows of the Company.
NOTE 7: EMPLOYEE BENEFIT PLANS
The Company and certain subsidiaries sponsor defined benefit
pension plans covering substantially all employees. The Company
also provides certain postretirement benefits, principally health
care and life insurance benefits for qualifying retired
employees.
F-24
<PAGE> 99
The following tables provide a reconciliation of the changes in
the plans' benefit obligations and fair value of assets over the
two-year period ended December 31, 1998, and a statement of the
funded status as of December 31 of each year (in thousands):
<TABLE>
<CAPTIPN>
Pension Benefits Other Benefits
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 37,991 $ 33,615 $ 1,915 $ 1,881
Service cost 1,111 1,007 18 15
Interest cost 2,581 2,443 134 143
Plan amendments 183 - - - - - -
Actuarial (gain) loss 1,739 2,639 77 (56)
Benefits paid (2,293) (1,713) (89) (68)
-------- -------- -------- --------
Benefit obligation at end of year 41,312 37,991 2,055 1,915
-------- -------- -------- --------
Change in plan assets
Fair value of plan assets at
beginning of year 51,684 44,984 - - - -
Actual return on plan assets 1,688 8,245 - - - -
Employer contributions 169 168 89 68
Benefits paid (2,293) (1,713) (89) (68)
-------- -------- -------- --------
Fair value of plan assets at end of year 51,248 51,684 - - - -
-------- -------- -------- --------
Funded status at end of year 9,936 13,693 (2,055) (1,915)
Unrecognized net actuarial gain (5,028) (10,039) (158) (601)
Unrecognized transition asset (1,313) (1,742) - - - -
Unrecognized prior-service cost 1,796 1,819 - - - -
-------- -------- -------- --------
Net amount recognized in consolidated
balance sheets $ 5,391 $ 3,731 $ (2,213) $ (2,516)
======== ======== ======== ========
</TABLE>
The following table provides the amounts recognized in the
consolidated balance sheets as of December 31 of both years (in
thousands):
Pension Benefits Other Benefits
1998 1997 1998 1997
-------- -------- -------- --------
Prepaid benefit costs $ 6,405 $ 4,487 $ - - $ - -
Accrued benefit liability (2,285) (756) (2,213) (2,516)
Intangible asset 982 - - - - - -
Accumulated other comprehensive loss 289 - - - - - -
------- ------- ------- -------
Net amount recognized $ 5,391 $ 3,731 $(2,213) $(2,516)
======= ======= ======= =======
The benefit obligation was calculated by applying the following
weighted-average assumptions:
Pension Benefits Other Benefits
1998 1997 1998 1997
-------- -------- -------- --------
Discount rate 6.50% 7.00% 6.50% 7.00%
Expected rate on plan assets 9.00% 9.00% - - - -
Rate of compensation increase 4.00% 4.00% - - - -
F-25
<PAGE> 100
Net periodic pension cost (income) for the plans consisted of the
following in 1998, 1997, and 1996 (in thousands):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 1,111 $ 1,007 $ 925 $ 18 $ 15 $ 16
Interest cost 2,581 2,443 2,287 134 143 145
Expected return on plan assets (4,557) (3,962) (3,500) - - - - - -
Amortization of transition asset (429) (429) (415) - - - - - -
Amortization of unrecognized prior
service cost 206 206 102 - - - - - -
Amortization of unrecognized net
gain from earlier periods (403) (380) 18 77 (56) (24)
------- ------- ------- ------- ------- -------
Net periodic pension cost (income) $(1,491) $(1,115) $ (583) $ 229 $ 102 $ 137
======= ======= ======= ======= ======= =======
</TABLE>
The projected benefit obligation, accumulated benefit obligation,
and fair value of plan assets for pension plans with accumulated
benefit obligations in excess of plan assets were $5,447,000,
$4,808,000, and $2,953,000, respectively, as of December 31,
1998, and $1,807,000, $1,187,000, and $0, respectively, as of
December 31, 1997.
The Company has a nonqualified Deferred Compensation Plan which
permits eligible officers, directors and key employees to defer a
portion of their compensation. In November 1998, the Company
amended the plan to permit participants to transfer all or a
portion of their deferred compensation amounts into a Company
common stock account to be held in trust until distribution. The
deferred compensation, together with Company matching amounts and
accumulated interest, is distributable in cash after retirement
or termination of employment, and at December 31, 1998 and 1997,
amounted to approximately $3.9 and $3.1 million, respectively.
The Company has an employees' Capital Accumulation Plan which is
available to all salaried and certain hourly employees after
completion of six months of service. Employees may contribute
from 2% to 15% of their compensation to the plan. The Company
makes a matching contribution of 25% of an employee's
contribution up to, but not exceeding, 6% of the employee's
earnings. The Company's contribution was approximately $274,000
in 1998, $263,000 in 1997, and $190,000 in 1996.
The Company has an employee's 401k plan which is available to all
hourly employees at the Company's Lucky Friday mine after
completion of six months of service. Employees may contribute
from 2% to 15% of their compensation to the plan. The Company
makes a matching contribution of 25% of an employee's
contribution up to, but not exceeding, 5% of the employee's
earnings. The Company's contribution was approximately $46,000
in 1998, $34,000 in 1997, and $36,000 in 1996.
F-26
<PAGE> 101
NOTE 8: SHAREHOLDERS' EQUITY
Preferred Stock
The Company has 2.3 million shares of Series B Cumulative
Convertible Preferred Stock (the Preferred Shares) outstanding.
Holders of the Preferred Shares are entitled to receive
cumulative cash dividends at the annual rate of $3.50 per share
payable quarterly, when and if declared by the Board of
Directors.
The Preferred Shares are convertible, in whole or in part, at the
option of the holders thereof, into shares of common stock at an
initial conversion price of $15.55 per share of common stock.
The Preferred Shares were not redeemable by the Company prior to
July 1, 1996. After such date, the shares are redeemable at the
option of the Company at any time, in whole or in part, initially
at $52.45 per share and thereafter at prices declining ratably on
each July 1 to $50.00 per share on or after July 1, 2003.
Holders of the Preferred Shares have no voting rights except if
the Company fails to pay the equivalent of six quarterly
dividends. If these dividends are not paid, the holders of
Preferred Shares, voting as a class, shall be entitled to elect
two additional directors. The holders of Preferred Shares also
have voting rights related to certain amendments to the Company's
Articles of Incorporation.
The Preferred Shares rank senior to the common stock and any
outstanding shares of Series A Preferred Shares. The Preferred
Shares have a liquidation preference of $50.00 per share plus all
declared and unpaid dividends which total $117,012,000 at
December 31, 1998.
Shareholder Rights Plan
In 1996, the Company adopted a replacement Shareholder Rights
Plan. Pursuant to this plan, holders of common stock received
one preferred share purchase right for each common share held.
The rights will be triggered once an Acquiring Person, as defined
in the plan, acquires 15% or more of the Company's outstanding
common shares. The 15% triggering threshold may be reduced by
the Board of Directors to not less than 10%. When exercisable,
the right would, subject to certain adjustments and alterations,
entitle rightholders, other than the Acquiring Person or group,
to purchase common stock of the Company or the acquiring company
having a market value of twice the $50 exercise price of the
right. The rights are nonvoting, may be redeemed at any time at
a price of one cent per right, and expire in May 2006.
Additional details regarding the rights are set forth in the
Rights Agreement filed with the Securities and Exchange
Commission on May 10, 1996.
F-27
<PAGE> 102
Stock Based Plans
At December 31, 1998, executives, key employees and directors had
been granted options to purchase common shares or were credited
with common shares under the stock based plans described below.
The Company has adopted the disclosure-only provisions of SFAS
123. No compensation expense has been recognized in 1998, 1997,
or 1996 for unexercised options related to the stock option
plans. Had compensation cost for the Company's stock option
plans been determined based on the fair value at the grant date
for awards in 1998, 1997, and 1996 consistent with the provisions
of SFAS 123, the Company's loss and per share loss applicable to
common shareholders would have been increased to the pro forma
amounts indicated below (in thousands, except per share amounts):
1998 1997 1996
-------- -------- --------
Loss applicable to common
shareholders:
As reported $ 8,350 $ 8,533 $ 40,404
Pro forma $ 9,420 $ 9,229 $ 40,731
Loss applicable to common
shareholders per share:
As reported $ 0.15 $ 0.16 $ 0.79
Pro forma $ 0.17 $ 0.17 $ 0.81
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
1998 1997 1996
-------- -------- --------
Expected dividend yield 0.00% 0.00% 0.00%
Expected stock price volatility 49.57% 45.31% 42.65%
Risk-free interest rate 4.79% 6.42% 5.63%
Expected life of options 4.1 years 4.1 years 4.1 years
The weighted average fair value of options granted in 1998, 1997,
and 1996 was $2.45, $2.27, and $3.40, respectively.
The Company adopted a nonstatutory stock option plan in 1987.
The plan provides that options may be granted to certain officers
and key employees to purchase common stock at a price of not less
than 50% of the fair market value at the date of grant. The plan
also provides that options may be granted with a corresponding
number of stock appreciation rights and/or tax offset bonuses to
assist the optionee in paying the income tax liability that may
exist upon exercise of the options. All of the outstanding stock
options under the 1987 plan were granted at an exercise price
equal to the fair market value at the date of grant and with an
associated tax offset bonus. Outstanding options under the 1987
plan are immediately exercisable for periods up to ten years.
During 1998, 1997, and 1996, respectively, 12,000, 53,577, and
47,000 options to acquire shares expired under the 1987 plan.
The
F-28
<PAGE> 103
ability to grant further options under the plan expired on
February 13, 1997.
In 1995, the shareholders of the Company approved the 1995 Stock
Incentive Plan which provides for a variety of stock-based grants
to the Company's officers and key employees. The plan provides
for the grant of stock options, stock appreciation rights,
restricted stock and performance units to eligible officers and
key employees of the Company. Stock options under the plan are
required to be granted at 100% of the market value of the stock
on the date of the grant. The terms of such options shall be no
longer than ten years from the date of grant. During 1998, 1997,
and 1996, respectively, 708,000, 480,500, and 278,000 options to
acquire shares were granted to the Company's officers and key
employees of which 585,000, 348,000, and 215,000, respectively,
of these options to acquire shares were granted with vesting
requirements of 20% on the grant date and 20% on each of the next
four anniversary dates from the grant date. During 1998 and
1996, respectively, 11,500 and 1,500 options to acquire shares
expired under the 1995 plan. At December 31, 1998, there were
546,500 options to acquire shares available for future grant
under the 1995 plan.
In 1995, the Company adopted the Hecla Mining Company Stock Plan
for Nonemployee Directors (the Directors' Stock Plan), which may
be terminated by the Board of Directors at any time. Each
nonemployee director is credited with 1,000 shares of the
Company's common stock on May 30 of each year. Nonemployee
directors joining the Board of Directors after May 30 of any year
are credited with a pro-rata number of shares based upon the date
they join the Board. All credited shares are held in trust for
the benefit of each director until delivered to the Director.
Delivery of the shares from the trust occurs upon the earliest of
(1) death or disability; (2) retirement; (3) a cessation of the
director's service for any other reason; or (4) a change in
control of the Company. Subject to certain restrictions,
directors may elect to receive delivery of shares on such date or
in annual installments thereafter over 5, 10, or 15 years. The
shares of common stock credited to nonemployee directors pursuant
to the Directors' Stock Plan may not be sold until at least six
months following the date they are delivered. The maximum number
of shares of common stock which may be granted pursuant to the
Directors' Stock Plan is 120,000. During 1998, 1997, and 1996,
respectively, 8,404, 7,000, and 7,000 shares were credited to the
nonemployee directors. During 1998, 1997, and 1996, $42,000,
$41,000, and $55,000, respectively, were charged to operations
associated with the Directors' Stock Plan. At December 31, 1998,
there were 91,057 shares available for grant in the future under
the plan.
F-29
<PAGE> 104
Transactions concerning stock options pursuant to all of the
above-described stock option plans are summarized as follows:
Weighted Average
Shares Exercise Price
------------ -----------------
Outstanding, December 31, 1995 316,492 $ 10.51
Year ended December 31, 1996
Granted 278,000 $ 8.28
Expired (48,500) $ 10.57
---------
Outstanding, December 31, 1996 545,992 $ 9.37
Year ended December 31, 1997
Granted 480,500 $ 5.63
Expired (53,577) $ 10.50
---------
Outstanding, December 31, 1997 972,915 $ 7.46
Year ended December 31, 1998
Granted 708,000 $ 5.88
Exercised (2,000) $ 5.63
Expired (23,500) $ 8.85
Outstanding, December 31, 1998 1,655,415 $ 6.76
=========
The following table displays exercisable stock options and the
weighted-average exercise price of the exercisable options as of
December 31, 1998, 1997, and 1996:
1998 1997 1996
------- ------- -------
Exercisable options 892,615 565,515 373,992
Weighted-average exercise price $ 7.34 $ 8.15 $ 9.84
The following table presents information about the stock options
outstanding as of December 31, 1998:
<TABLE>
<CAPTION>
Weighted Average
Range of Remaining
Shares Exercise Price Exercise Price Life (Years)
--------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
Exercisable options 690,700 $ 5.63 - $ 8.63 $ 6.43 9
Exercisable options 201,915 $ 9.32 - $12.25 $10.47 4
---------
Total exercisable options 892,615 $ 5.63 - $12.25 $ 7.34 7
Unexercisable options 762,800 $ 5.63 - $ 8.63 $ 6.09 9
---------
Total all options 1,655,415 $ 5.63 - $12.25 $ 6.76 8
=========
</TABLE>
No amounts were charged (credited) to operations in connection
with the stock option plans in 1998, 1997, or 1996.
F-30
<PAGE> 105
Common Stock Offering
In February 1997, the Company issued 3,950,000 shares of its
common stock realizing proceeds of approximately $23.4 million,
net of issuance costs of approximately $1.3 million. The shares
were sold under the Company's existing Registration Statement
which provides for the issuance of up to $100.0 million of equity
and debt securities. The Company used $23.0 million of the net
proceeds to pay down debt under its existing revolving and term
loan credit facility.
On January 23, 1996, 2,875,000 shares of the Company's common
stock were sold under the Company's existing Registration
Statement. The net proceeds from the offering of approximately
$22.0 million were used principally to reduce outstanding
borrowings under the Company's revolving and term loan credit
facility.
NOTE 9: BUSINESS SEGMENTS
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS 131). SFAS 131 supersedes
Statement of Financial Accounting Standards No. 14, "Financial
Reporting for Segments of a Business Enterprise" replacing the
"industry segment" approach with the "management" approach. The
management approach designates the internal organization that is
used by management for making operating decisions and assessing
performance as the source of the Company's reportable segments.
SFAS 131 also requires disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS 131
revised the disclosure of segment information.
Prior to 1998, the Company presented two business segments: metals
and industrial minerals. With the adoption of SFAS 131, the metals
segment was further segregated between gold and silver operations.
Accordingly, prior year's segment information has been restated to
present the Company's three reportable segments - Metals-Gold,
Metals-Silver, and Industrial Minerals.
The accounting policies of the segments are the same as those
described in Note 1. Segment data excludes intrasegment revenues.
The Company evaluates the performance of its segments and allocates
resources to them based on income (loss) from operations.
The Company is organized and managed primarily on the basis of the
principal products being produced from its ten operating units.
Two of the operating units have been aggregated into the Metals-
Gold segment, two of the operating units have been aggregated into
the Metals-Silver segment, and six operating units have been
combined to form the Industrial Minerals segment. General
corporate activities not associated with operating units as well as
idle properties are presented as Other.
F-31
<PAGE> 106
The tables below present information about reportable segments as
of and for the years ended December 31 (in thousands):
1998 1997 1996
--------- --------- ---------
Net sales to unaffiliated customers:
Metals-Gold (including $11,626, $26,918,
and $32,034 from Mexico in 1998,
1997, and 1996) $ 32,791 $ 56,257 $ 65,550
Metals-Silver 42,317 33,229 15,859
Industrial Minerals (including $7,285,
$5,051, and $4,204 from Mexico in 1998,
1997, and 1996) 84,123 74,462 76,843
--------- --------- ---------
$ 159,231 $ 163,948 $ 158,252
========= ========= =========
Income (loss) from operations:
Metals-Gold (including $2,046, $11,757,
and $7,734 from Mexico in 1998,
1997, and 1996) $ 269 $ 7,339 $ (36,998)
Metals-Silver (1,196) (4,619) (1,720)
Industrial Minerals (including $278,
$68, and $92 from Mexico in 1998,
1997, and 1996) 5,153 4,072 9,083
Other (8,706) (6,295) (8,076)
--------- --------- ---------
$ (4,480) $ 497 $ (37,711)
========= ========= =========
Capital expenditures:
Metals-Gold (including $3,789, $240,
and $411 in Mexico in 1998,
1997, and 1996) $ 6,233 $ 6,536 $ 7,440
Metals-Silver 10,130 14,018 22,909
Industrial Minerals (including $375,
$129, and $93 in Mexico in 1998,
1997, and 1996) 6,100 3,610 3,075
Other 32 630 307
--------- --------- ---------
$ 22,495 $ 24,794 $ 33,731
========= ========= =========
Depreciation, depletion, and amortization:
Metals-Gold $ 7,522 $ 7,526 $ 12,241
Metals-Silver 9,648 8,707 3,487
Industrial Minerals 5,036 4,776 4,723
Other 389 311 338
--------- --------- ---------
$ 22,595 $ 21,320 $ 20,789
========= ========= =========
F-32
<PAGE> 107
1998 1997 1996
--------- --------- ---------
Other significant non-cash items:
Metals-Gold $ 145 $ 2,433 $ 36,166
Metals-Silver 211 183 17
Industrial Minerals 223 226 173
Other 734 (1,777) (7)
--------- --------- ---------
$ 1,313 $ 1,065 $ 36,349
========= ========= =========
Identifiable assets:
Metals-Gold (including $7,947, $6,462,
and $7,268 in Mexico in 1998,
1997, and 1996) $ 23,808 $ 28,304 $ 37,733
Metals-Silver 127,499 122,553 117,349
Industrial Minerals (including $4,141,
$3,606 and $3,513, in Mexico in 1998,
1997, and 1996) 71,593 68,413 70,613
Other 29,162 31,398 42,698
--------- --------- ---------
$ 252,062 $ 250,668 $ 268,393
========= ========= =========
The following is sales information by geographic area for the years
ended December 31 (in thousands):
1998 1997 1996
--------- --------- ---------
United States $ 113,722 $ 124,917 $ 141,203
Foreign 45,509 39,031 17,049
--------- --------- ---------
$ 159,231 $ 163,948 $ 158,252
========= ========= =========
The following is long-lived asset information by geographic area as
of December 31 (in thousands):
1998 1997 1996
--------- --------- ---------
United States $ 170,058 $ 176,955 $ 171,950
Foreign 8,110 3,082 5,805
--------- --------- ---------
$ 178,168 $ 180,037 $ 177,755
========= ========= =========
F-33
<PAGE> 108
Significant export sales, as a percentage of total foreign sales,
were as follows for the years ended December 31:
1998 1997 1996
--------- --------- ---------
Canada 19.7% 28.2% 27.7%
Mexico 43.9% 17.8% 32.9%
Belgium 0.0% 13.6% 0.0%
Japan 5.5% 13.4% 2.3%
England 15.3% 11.4% 5.6%
Sales to significant metals customers, including both the Metals-
Gold and Metals-Silver segments, as a percentage of total sales
from the Metals-Gold and Metals-Silver segments, were as follows
for the years ended December 31:
1998 1997 1996
--------- --------- ---------
Customer A 24.0% 30.1% 31.2%
Customer B 12.3% 19.8% 29.5%
Customer C 19.5% 12.8% 16.0%
Customer D 10.3% 0.0% 0.0%
NOTE 10: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined
using available market information and appropriate valuation
methodologies. However, considerable judgment is required to
interpret market data and to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current
market exchange.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value. Potential income tax
ramifications related to the realization of unrealized gains and
losses that would be incurred in an actual sale or settlement
have not been taken into consideration.
The carrying amounts for cash and cash equivalents, accounts and
notes receivable, restricted investments, and current liabilities
are a reasonable estimate of their fair values. Fair value for
equity securities investments is determined by quoted market
prices. Fair value of forward contracts is supplied by the
Company's counterparties and reflect the difference between the
contract prices and forward prices available on the date of
valuation. The fair value of long-term debt is based on the
discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for debt with similar
remaining maturities.
F-34
<PAGE> 109
The estimated fair values of financial instruments are as follows
(in thousands):
December 31,
1998 1997
------------------- -------------------
Carrying Fair Carrying Fair
Amounts Value Amounts Value
-------- -------- -------- --------
Financial assets:
Cash and cash equivalents $ 2,480 $ 2,480 $ 3,794 $ 3,794
Accounts and notes receivable 25,919 25,919 24,445 24,445
Investments
Equity securities available
for sale 72 72 229 229
Restricted 6,331 6,331 7,926 7,926
Gold forward sales contracts - - 371 - - 931
Silver forward sales contracts - - 740 - - - -
Financial liabilities:
Current liabilities 24,345 24,345 24,968 24,968
Long-term debt - principal 42,923 42,923 22,136 22,136
Silver forward sales contracts - - - - - - 701
NOTE 11: LOSS PER COMMON SHARE
The following table presents a reconciliation of the numerators
(net loss) and denominators (shares) used in the basic and
diluted loss per common share computations. Also shown is the
effect that has been given to preferred dividends in arriving at
loss applicable to common shareholders for the years ended
December 31, 1998, 1997, and 1996 in computing basic and diluted
loss per common share.
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------- ----------------------------- ------------------------------
Per-Share Per-Share Per-Share
Net Loss Shares Amount Net Loss Shares Amount Net Loss Shares Amount
----------------------------- ----------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loss before preferred
stock dividends $ (300) $ (483) $ (32,354)
Less: Preferred
stock dividends (8,050) (8,050) (8,050)
--------- --------- ---------
Basic loss per common share
Loss applicable
to common
shareholders (8,350) 55,101 (0.15) (8,533) 54,763 (0.16) (40,404) 51,133 (0.79)
Effect of dilutive
securities(1)
--------- ------ ------- --------- ------ ------- --------- ------ -------
Diluted loss per
common share $ (8,350) 55,101 $ (0.15) $ (8,533) 54,763 $ (0.16) $ (40,404) 51,133 $ (0.79)
========= ====== ======= ========== ====== ======= ========= ====== =======
(1) Dilutive Securities
As of December 31, 1998, 1997, and 1996, there were 1,655,000,
973,000, and 546,000 shares available for issue under granted
stock options, respectively. These options were not included in
the computation of diluted loss per common share as a loss was
incurred in each of these years, and their inclusion would be
anti-dilutive. The Company also has 2.3 million shares of
convertible preferred stock outstanding that, if converted, would
be anti-dilutive, and were therefore excluded from the
determination of diluted loss per share.
</TABLE>
F-35
<PAGE> 110
NOTE 12: OTHER COMPREHENSIVE LOSS
Due to availability of net operating losses, there is no tax
effect associated with any component of other comprehensive loss.
The following table lists the beginning balance, yearly activity,
and ending balance of each component of accumulated other
comprehensive loss (in thousands):
<TABLE>
<CAPTION>
Minimum Accumulated
Foreign Unrealized Pension Other
Currency Gains (Losses) Liability Comprehensive
Items on Securities Adjustment Loss
--------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
Balance December 31, 1995 $ (4,898) $ 100 $ - - $ (4,798)
1996 change - - (132) - - (132)
-------- -------- -------- --------
Balance December 31, 1996 (4,898) (32) - - (4,930)
1997 change - - (31) - - (31)
-------- -------- -------- --------
Balance December 31, 1997 (4,898) (63) - - (4,961)
1998 change - - (19) (289) (308)
-------- -------- -------- --------
Balance December 31, 1998 $ (4,898) $ (82) $ (289) $ (5,269)
======== ======== ======== ========
</TABLE>
F-36
<PAGE> 111
HECLA MINING COMPANY and WHOLLY OWNED SUBSIDIARIES
FORM 10-K - December 31, 1998
INDEX TO EXHIBITS
Number and Description of Exhibits
----------------------------------
3.1(a) Certificate of Incorporation of the
Registrant as amended to date.(2)
3.1(b) Certificate of Amendment of Certificate
of Incorporation of the Registrant,
dated as of May 16, 1991.(2)
3.2 By-Laws of the Registrant as amended
to date.(2)
4.1(a) Certificate of Designations, Preferences
and Rights of Series A Junior
Participating Preferred Stock of the
Registrant.(2)
4.1(b) Certificate of Designations, Preferences
and Rights of Series B Cumulative Convertible
Preferred Stock of the Registrant.2
4.2 Rights Agreement dated as of May 10, 1996
between Hecla Mining Company and American
Stock Transfer & Trust Company, which
includes the form of Rights Certificate of
Designation setting forth the terms of the
Series A Junior Participating Preferred
Stock of Hecla Mining Company as Exhibit A
and the summary of Rights to Purchase
Preferred Shares as Exhibit B.(2)
10.1 Credit Agreement dated as of August 11, 1997,
among Registrant and Certain Subsidiaries
and NationsBank of Texas, N.A., as Agent,
and Certain Banks as Lenders.(2)
10.2 Employment agreement dated November 10,
1989 between Hecla Mining Company and
Arthur Brown. (Registrant has substantially
identical agreements with each of Messrs.
William B. Booth, J. Gary Childress, George
R. Johnson, Roger A. Kauffman, Jon T. Langstaff,
John P. Stilwell, and Michael B. White. Such
substantially identical agreements are not
included as separate Exhibits.)(1,2)
<PAGE> 112
INDEX TO EXHIBITS (continued)
Number and Description of Exhibits
----------------------------------
10.3(a) Form of Executive Deferral Plan Master
Document, as amended, effective November 13,
1998.(1,2) Attached
10.3(b) Form of Director Deferral Plan Master
Plan Document effective January 1, 1995.(1,2)
10.4(a) 1987 Nonstatutory Stock Option Plan of the
Registrant.(1,2)
10.4(b) Hecla Mining Company 1995 Stock Incentive
Plan.(1,2)
10.4(c) Hecla Mining Company Stock Plan for Non-
employee Directors.(1,2)
10.5(a) Hecla Mining Company Retirement Plan for
Employees and Supplemental Retirement and
Death Benefit Plan.(1,2)
10.5(b) Supplemental Excess Retirement Master
Plan Document.(1,2)
10.5(c) Hecla Mining Company Nonqualified Plans
Master Trust Agreement.(1,2)
10.6 Form of Indemnification Agreement dated
May 27, 1987 between Hecla Mining Company
and each of its Directors and Officers.(1,2)
10.7 Summary of Short-term Performance Payment
Plan.(1,2)
10.8(a) Amended and Restated Golden Eagle Earn-In
Agreement between Santa Fe Pacific Gold
Corporation and Hecla Mining Company dated
as of September 6, 1996.(2)
10.8(b) Golden Eagle Operating Agreement between Santa
Fe Pacific Gold Corporation and Hecla Mining
Company dated as of September 6, 1996.(2)
-2-
<PAGE> 113
INDEX TO EXHIBITS (continued)
Number and Description of Exhibits
----------------------------------
10.9 Limited Liability Company Agreement of the
Rosebud Mining Company, L.L.C. among Santa
Fe Pacific Gold Corporation and Hecla Mining
Company dated as of September 6, 1996.(2)
10.10 Restated Mining Venture Agreement among
Kennecott Greens Creek Mining Company,
Hecla Mining Company and CSX Alaska Mining
Inc. dated May 6, 1994.(2)
11. Computation of weighted average number of
common shares outstanding. Attached
12. Statement of Computation of Ratio of Earnings
to Fixed Charges. Attached
13. Hecla Mining Company Fourth Quarter and
Year-End Results for the Period Ended
December 31, 1998.(2) Attached
21. List of subsidiaries of the Registrant. Attached
23.1 Consent of PricewaterhouseCoopers LLP to
incorporation by reference of their report
dated February 8, 1999, except for Note 5,
as to which the date is February 25, 1999,
on the Consolidated Financial Statements
of the Registrant in the Registrant's
Registration Statements on Form S-3, No.
33-72832, and No. 33-59659, Form S-8,
No. 33-7833, No. 33-41833, No. 33-14758,
No. 33-40691, No. 33-60095 and No.
33-60099.(2) Attached
27. Financial Data Schedule Attached
- ------------------------
1. Indicates a management contract or compensatory plan or
arrangement.
2. These exhibits were filed in SEC File No. 1-8491 as
indicated on the following page and are incorporated herein
by this reference thereto.
-3-
<PAGE> 114
Corresponding Exhibit in Annual Report on
Form 10-K, Quarterly Report on Form 10-Q,
Current Report on Form 8-K, Proxy Statement
or Registration Statement, as Indicated
Exhibit in Below; All References are to SEC File
this Report No. 1-8491.
- ----------- -----------
3.1(a) & (b) 3.1 (10-K for 1987)
3.2 2 (Current Report on Form 8-K dated
November 13, 1998)
4.1(a) & (b) 4.1(d)(e) and 4.5 (10-Q for June 30, 1993)
4.2 4 (Current Report on Form 8-K dated
May 10, 1996)
10.1 10.1 (10-Q for September 30, 1997)
10.2 10.2(b) (10-K for 1989)
10.3(b) 10.3(b) (10-K for 1994)
10.4(a) B (Proxy Statement dated March 20, 1987)
10.4(b) A (Proxy Statement dated March 27, 1995)
10.4(c) B (Proxy Statement dated March 27, 1995)
10.5(a) 10.11(a) (10-K for 1985)
10.5(b) 10.5(b) (10-K for 1994)
10.5(c) 10.5(c) (10-K for 1994)
10.6 10.15 (10-K for 1987)
10.7 10.7 (10-K for 1994)
10.8(a) 10.11(a) (10-Q for September 30, 1996)
10.8(b) 10.11(b) (10-Q for September 30, 1996)
10.9 10.12 (10-Q for September 30, 1996)
10.10 A (10-Q for June 30, 1994)
-4-
<PAGE> 1
EXHIBIT 10.3(a)
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
- -----------------------------------------------------------------
Effective January 1, 1995
As Amended and Restated as of November 13, 1998.
<PAGE> 2
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
- -----------------------------------------------------------------
PURPOSE
The purpose of this Plan is to provide specified benefits to a
select group of management and highly compensated Employees who
contribute materially to the continued growth, development and
future business success of Hecla Mining Company, a Delaware
corporation, and its subsidiaries, if any, that sponsor this
Plan. This Plan shall be unfunded for tax purposes and for
purposes of Title I of ERISA.
ARTICLE 1
Definitions
-----------
For purposes hereof, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following
indicated meanings:
1.1 "Account Balance" shall mean with respect to a
Participant, a credit on the records of the Employer
equal to (i) the sum of the Deferral Account balance and
the Employer Matching Account balance, (ii) less all
distributions made in accordance with the Plan. The
Account Balance, and each other specified account
balance, shall be a bookkeeping entry only and shall be
utilized solely as a device for the measurement and
determination of the amounts to be paid to a
Participant, or his or her designated Beneficiary,
pursuant to this Plan.
1.2 "Annual Bonus" shall mean any compensation, in addition
to Base Annual Salary, paid annually to a Participant as
an Employee under any Employer's annual bonus and
incentive plans.
1.3 "Annual Deferral Amount" shall mean (i) that portion of
a Participant's Base Annual Salary that a Participant
elects to have and is actually deferred, in accordance
with Article 3, for any one Plan Year, plus (ii) that
portion of a Participant's Annual Bonus that is actually
deferred, in accordance with Article 3, during any one
Plan Year. In the event of a Participant's Retirement,
Disability (if deferrals cease in accordance with
Section 8.1), death or a Termination of Employment prior
to the end of a Plan Year, such year's Annual Deferral
Amount shall be the actual amount withheld prior to such
event.
<PAGE> 3
1.4 "Base Annual Salary" shall mean the annual compensation,
excluding bonuses, commissions, overtime, relocation
expenses, incentive payments, non-monetary awards,
directors fees and other fees, and including automobile
allowances, paid to a Participant for employment
services rendered to any Employer, before reduction for
compensation deferred pursuant to all qualified,
non-qualified and Code Section 125 plans of any
Employer.
1.5 "Beneficiary" shall mean one or more persons, trusts,
estates or other entities, designated in accordance with
Article 9, that are entitled to receive benefits under
this Plan upon the death of a Participant.
1.6 "Beneficiary Designation Form" shall mean the form
established from time to time by the Committee that a
Participant completes, signs and returns to the
Committee to designate one or more Beneficiaries.
1.7 "Board" shall mean the board of directors of the
Company.
1.8 "Business Day" shall mean a day upon which the New York
Stock Exchange is open for trading.
1.9 "Change in Control" shall mean the first to occur of any
of the following events:
(a) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")(a "Person") of
beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (i) the then outstanding
shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding
voting securities of the Company entitled to vote
generally in the election of directors (the
"Outstanding Company Voting Securities"),
provided, however, that for purposes of this
subsection (a), the following acquisitions shall
not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any
acquisition by the Company, (iii) any acquisition
by any employee benefit plan related trust)
sponsored or maintained by the Company or any
corporation controlled by the Company or (iv) any
acquisition by any corporation pursuant to a
transaction which compiles with clauses (i),
(ii), and (iii) of subsection (c) below; or
<PAGE> 4
(b) Individuals who, as of October 1, 1994
constitute the Board (the "Incumbent Board") cease
for any reason to constitute at least a majority
of the Board, provided, however, that any
individual becoming a director subsequent to
October 1, 1994, whose election, or nomination for
election by the Company's shareholders, was
approved by a vote of at least a majority of the
directors then comprising the Incumbent Board
shall be considered as though such individual were
a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose
initial assumption of office occurs as a result of
an actual or threatened election contest with
respect to the election or removal of directors or
other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than
the Board; or
(c) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all
or substantially all of the assets of the Company
(a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or
substantially all of the individuals and entities
who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of
common stock and the combined voting power of the
then outstanding voting securities entitled to
vote generally in the election of directors, as
the case may be, of the corporation which as a
result of such transaction owns the Company or all
or substantially all of the Company's assets
either directly or through one or more
subsidiaries) in substantially the same
proportions as their ownership, immediately prior
to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from
such Business Combination or any employee benefit
plan (or related trust) of the Company or such
corporation resulting from such Business
Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the
corporation resulting from such Business
Combination or the combined voting power of the
then outstanding voting securities of such
corporation except to the extent that such
<PAGE> 5
ownership existed prior to the Business
Combination and (iii) at least a majority of the
members of the board of directors of the
corporation resulting from such Business
Combination were members of the Incumbent Board at
the time of the execution of the initial
agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company
of a complete liquidation or dissolution of the
Company.
1.10 "Claimant" shall have the meaning set forth in
Section 14.1.
1.11 "Code" shall mean the Internal Revenue Code of 1986, as
may be amended from time to time.
1.12 "Committee" shall mean the committee described in
Article 12.
1.13 "Company" shall mean Hecla Mining Company, a Delaware
corporation.
1.14 "Crediting Rate" shall mean, for each Plan Year, the
Moody's Rate for that Plan Year, which shall be an
interest rate that is published in Moody's Bond Record
under the heading of "Moody's Corporate Bond Yield
Averages--Av. Corp" and is (i) in the case of the Plan's
first Plan Year, the average corporate bond yield for
the month of September 1994, and (ii) in the case of any
subsequent Plan Year, the average corporate bond yield
for the month of March of the Plan Year that precedes
the Plan Year for which the rate is to be used.
1.15 "Deferral Amount" shall mean (i) the sum of all of a
Participant's Annual Deferral Amounts, plus (ii)
interest credited in accordance with all the applicable
interest crediting provisions of this Plan that relate
to the Participant's Deferral Account, less (iii) all
distributions made to the Participant or his or her
Beneficiary pursuant to this Plan that relate to the
Participant's Deferral Account.
1.16 "Deduction Limitation" shall mean the following
described limitation on the annual benefit that may be
distributed pursuant to the provisions of this Plan.
Except as otherwise provided, this limitation shall be
applied to all distributions under this Plan. If an
Employer determines in good faith prior to a Change in
Control that there is a reasonable likelihood that any
compensation paid to a Participant for a taxable year of
the Employer would not be deductible by the Employer
<PAGE> 6
solely by reason of the limitation under Code Section
162(m), then to the extent deemed necessary by the
Employer to ensure that the entire amount of any
distribution to the Participant pursuant to this Plan
prior to the Change in Control is deductible, the
Employer may defer all or any portion of a distribution
under this Plan. Any amounts deferred pursuant to this
limitation shall continue to be credited with interest
in accordance with Section 3.5 below. The amounts so
deferred and interest thereon shall be distributed to
the Participant or his or her Beneficiary (in the event
of the Participant's death) at the earliest possible
date, as determined by the Employer in good faith, on
which the deductibility of compensation paid or payable
to the Participant for the taxable year of the Employer
during which the distribution is made will not be
limited by Section 162(m), or if earlier, the effective
date of a Change in Control.
1.17 "Disability" shall mean a period of disability during
which a Participant qualifies for benefits under the
Participant's Employer's long-term disability plan, or,
if a Participant does not participate in such a plan, a
period of disability during which the Participant would
have qualified for benefits under such a plan had the
Participant been a participant in such a plan, as
determined in the sole discretion of the Committee. If
the Participant's Employer does not sponsor such a plan
or discontinues to sponsor such a plan, a Disability
shall be determined by the Committee in its sole
discretion.
1.18 "Disability Benefit" shall mean the benefit set forth in
Article 8.
1.19 "Election Form" shall mean the form established from
time to time by the Committee that a Participant
completes, signs and returns to the Committee to make an
election under the Plan.
1.20 "Employee" shall mean a person who is an employee of any
Employer.
1.21 "Employer(s)" shall mean the Company and/or any of its
subsidiaries that have been selected by the Board to
participate in the Plan.
1.22 "Employer Matching Amount" shall mean any amount
credited by the Company to a Participant's account for a
Plan Year in accordance with Section 3.7 below.
<PAGE> 7
1.23 "Employer Matching Account" shall mean (i) the sum of
the Participant's Employer Matching Amounts, plus (ii)
interest credited in accordance with all the applicable
interest crediting provisions of this Plan that relate
to the Participant's Employer Matching Amount, less
(iii) all distributions made to the Participant or his
or her Beneficiary pursuant to this Plan that relate to
the Participant's Employer Matching Account.
1.24 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as may be amended from time to
time.
1.25 "Participant" shall mean any Employee (i) who is
selected to participate in the Plan, (ii) who elects to
participate in the Plan, (iii) who signs a Plan
Agreement, an Election Form and a Beneficiary
Designation Form, (iv) whose signed Plan Agreement,
Election Form and Beneficiary Designation Form are
accepted by the Committee, (v) who commences
participation in the Plan, and (vi) whose Plan Agreement
has not terminated.
1.26 "Plan" shall mean the Company's Executive Deferral Plan,
which shall be evidenced by this instrument and by each
Plan Agreement, as may be amended from time to time.
1.27 "Plan Agreement" shall mean a written agreement, as may
be amended from time to time, which is entered into by
and between an Employer and a Participant. Each Plan
Agreement executed by a Participant shall provide for
the entire benefit to which such Participant is entitled
to under the Plan, and the Plan Agreement bearing the
latest date of acceptance by the Committee shall govern
such entitlement.
1.28 "Plan Year" shall, for the first Plan Year, begin on
January 1, 1995, and end on May 31, 1995. For each Plan
Year thereafter, the Plan Year shall begin on June 1 of
each year and continue through May 31.
1.29 "Preferred Rate" shall mean, for each Plan Year, an
interest rate that is equal to the Crediting Rate
multiplied by 1.23.
1.30 "Pre-Retirement Survivor Benefit" shall mean the benefit
set forth in Article 6.
1.31 "Retirement", "Retires" or "Retired" shall mean, with
respect to an Employee, severance from employment from
all Employers for any reason other than a leave of
absence, death or Disability on or after the earlier of
the attainment of (a) age sixty-five (65) or (b) age
fifty-five with ten (10) Years of Service.
<PAGE> 8
1.32 "Retirement Benefit" shall mean the benefit set forth in
Article 5.
1.33 "Short-Term Payout" shall mean the payout set forth in
Section 4.1.
1.34 "Termination Benefit" shall mean the benefit set forth
in Article 7.
1.35 "Termination of Employment" shall mean the ceasing of
employment with all Employers, voluntarily or
involuntarily, for any reason other than Retirement,
Disability, death or an authorized leave of absence.
Without limiting the generality of the foregoing, if an
Employer other than the Company ceases to be a
subsidiary of the Company, all of the Participants who
remain employed by such Employer shall be considered to
have experienced a Termination of Employment at the time
of such cessation unless the Company determines
otherwise.
1.36 "Stock" shall mean Hecla Mining Company, common stock,
par value $0.25, or any other equity securities of the
Company designated by the Committee.
1.37 "Stock Rate" shall mean a rate of return such that an
amount allocated to the Stock Rate shall be credited or
debited, as the case may be, as if 100% of such amount
were invested in Stock, with any dividends paid on such
Stock being deemed immediately reinvested in Stock.
1.38 "Stock Rate Account" shall have that meaning as set
forth in Section 3.8(d)(2).
1.39 "Trust" shall mean the trust established pursuant to
that certain Master Trust Agreement, dated as of October
1, 1994, between the Company and the trustee named
therein, as amended from time to time.
1.40 "Unforeseeable Financial Emergency" shall mean an
unanticipated emergency that is caused by an event
beyond the control of the Participant that would result
in severe financial hardship to the Participant
resulting from (i) a sudden and unexpected illness or
accident of the Participant or a dependent of the
Participant, (ii) a loss of the Participant's property
due to casualty, or (iii) such other extraordinary and
unforeseeable circumstances arising as a result of
events beyond the control of the Participant, all as
determined in the sole discretion of the Committee.
1.41 "Window Period" shall mean the time period beginning
December 1, 1998 and ending March 31, 1999, inclusive.
<PAGE> 9
1.42 "Years of Plan Participation" shall mean the total
number of full Plan Years a Participant has been a
Participant in the Plan prior to his or her Termination
of Employment (determined without regard to whether
deferral elections are made under this Plan). For
purposes of a Participant's first Plan Year of
participation only, any partial Plan Year of
participation shall be treated as a full Plan Year. In
addition, during any period of time during which a
Participant is suffering a Disability, he or she will
not be credited with any additional Years of Plan
Participation.
1.43 "Years of Service" shall mean the total number of full
years in which a Participant has been employed by one or
more Employers. For purposes of this definition, a year
of employment shall be a 365 day period (or 366 day
period in the case of a leap year) that, for the first
year of employment, commences on the Employee's date of
hiring and that, for any subsequent year, commences on
an anniversary of that hiring date. Any partial year of
employment shall not be counted.
ARTICLE 2
Selection; Enrollment; Eligibility
----------------------------------
2.1 SELECTION BY COMMITTEE. Participation in the Plan shall
be limited to a select group of management and highly
compensated Employees of the Employers. From that
group, the Committee shall select, in its sole
discretion, Employees to participate in the Plan.
2.2 ENROLLMENT REQUIREMENTS. As a condition to
participation, each selected Employee shall complete,
execute and return to the Committee within 30 days of
selection a Plan Agreement, an Election Form and a
Beneficiary Designation Form. In addition, the
Committee shall establish from time to time such other
enrollment requirements as it determines in its sole
discretion are necessary.
2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided an
Employee selected to participate in the Plan has met all
enrollment requirements set forth in this Plan and
required by the Committee, including returning all
required documents to the Committee within 30 days of
selection, that Employee shall start participation in
the Plan on the first day of the month following the
month in which the Employee completes all enrollment
requirements. If an Employee fails to meet all such
requirements within the required 30 day period, that
Employee shall not be eligible to participate in the
<PAGE> 10
Plan until the first day of the Plan Year following the
delivery to and acceptance by the Committee of the
required documents.
ARTICLE 3
Deferral Commitments/Interest Crediting
---------------------------------------
3.1 MINIMUM DEFERRAL.
(a) MINIMUM. For each Plan Year, a Participant
may elect to defer Base Annual Salary in an
amount that is not less than $2,000 for each
deferral elected. For each calendar year, a
Participant may elect to defer Annual Bonus that
is not less than $2,000 for each deferral elected.
If no elections are made, the amount deferred
shall be zero.
(b) SHORT PLAN YEAR BASE ANNUAL SALARY. If a
Participant first becomes a Participant after the
first day of a Plan Year, or in the case of the
first Plan Year of the Plan itself, the minimum
Base Annual Salary deferral shall be an amount
equal to the minimum set forth above, multiplied
by a fraction, the numerator of which is the
number of complete months remaining in the Plan
Year and the denominator of which is 12.
3.2 MAXIMUM DEFERRAL. For each Plan Year, a Participant may
elect to defer up to 50% of Base Annual Salary. For
each calendar year, a Participant may elect to defer up
to 100% of Annual Bonus.
3.3 ELECTION TO DEFER; EFFECT OF ELECTION FORM.
(a) FIRST PLAN YEAR. In connection with a
Participant's commencement of participation in the
Plan, the Participant shall make an irrevocable
deferral election for the Plan Year in which the
Participant commences participation in the Plan,
along with such other elections as the Committee
deems necessary or desirable under the Plan. For
these elections to be valid, the Election Form
must be completed and signed by the Participant,
timely delivered to the Committee (in accordance
with Section 2.2 above) and accepted by the
Committee.
(b) SUBSEQUENT PLAN YEARS. For each succeeding
Plan Year, an irrevocable deferral election for
that Plan Year, and such other elections as the
Committee deems necessary or desirable under the
<PAGE> 11
Plan, shall be made by timely delivering to
the Committee, in accordance with its rules and
procedures, before the end of the Plan Year
preceding the Plan Year for which the election is
made, a new Election Form. If no such Election
Form is timely delivered for a Plan Year, the
Annual Deferral Amount shall be zero for that Plan
Year.
3.4 WITHHOLDING OF ANNUAL DEFERRAL AMOUNTS. For each Plan
Year, the Base Annual Salary portion of the Annual
Deferral Amount shall be withheld from each regularly
scheduled Base Annual Salary payroll in equal amounts,
as adjusted from time to time for increases and
decreases in Base Annual Salary. The Annual Bonus
portion of the Annual Deferral Amount shall be withheld
at the time the Annual Bonus is or otherwise would be
paid to the Participant, whether or not this occurs
during the Plan Year itself.
3.5 EMPLOYER MATCHING AMOUNT.
(a) MATCH AGAINST AMOUNTS ALLOCATED TO PREFERRED
RATE. For each Plan Year, a Participant's Account
Balance shall be credited as of the last day of
that Plan Year with an Employer Matching Amount
which is equal to 12.5% of the balance of that
portion of the Participant's Annual Deferral
Amount which is (i) actually withheld during the
Plan Year and (ii) allocated to the Preferred Rate
in accordance with Section 3.8(c).
(b) MATCH AGAINST AMOUNTS ALLOCATED TO STOCK
RATE. For each Plan Year, a Participant's Account
Balance shall be credited as of the last day of
that Plan Year with an Employer Matching Amount
which is equal to 37.5% of the balance of that
portion of the Participant's Annual Deferral
Amount which is (i) actually withheld during the
Plan Year and (ii) allocated to the Stock Rate in
accordance with Section 3.8.
(c) LIMITATION. Notwithstanding the provisions of
Section 3.5(a) and Section 3.5(b) above, the
Annual Deferral Amount that is taken into account
in determining the Employer Matching Amounts under
both Section 3.5(a) and Section 3.5(b) for a Plan
Year shall not exceed the difference between (i)
20% multiplied by the sum of (a) the Participant's
Base Annual Salary for the Plan Year and (b) the
portion of the Participant's Annual Bonus that is
paid in that Plan Year, and (ii) the portion of
the Participant's Base Annual Salary and/or Annual
Bonus that is deferred for the Plan Year by the
<PAGE> 12
Participant under the Company's 401(k) Plan
(such difference being referred to herein as the
"Limitation"). If, for a Plan Year, the sum of
the Employer Matching Amounts calculated under
Section 3.5(a) and Section 3.5(b) above exceeds
the Limitation, then both (i) that portion of the
Annual Deferral Amount that is allocated to the
Preferred Rate and is taken into account in
determining the Employer Matching Amount under
Section 3.5(a), and (ii) that portion of the
Annual Deferral Amount that is allocated to the
Stock Rate and is taken into account in
determining the Employer Matching Amount under
Section 3.5(b), will be reduced pro rata, one
against the other, until the Limitation is equal
to zero.
3.6 INVESTMENT OF TRUST ASSETS. The Trustee of the Trust
shall be authorized, upon written instructions received
from the Committee or investment manager appointed by
the Committee, to invest and reinvest the assets of the
Trust in accordance with the applicable Trust Agreement,
including the disposition of stock and reinvestment of
the proceeds in one or more investment vehicles
designated by the Committee.
3.7 VESTING.
(a) Except as otherwise provided in Section 7.1
below, a Participant shall at all times be 100%
vested in his or her Deferral Account (including
his or her Stock Rate Account) and his or her
Employer Matching Amounts credited under Section
3.5(a) above.
(b) A Participant shall be vested in his or her
Employer Matching Amounts credited under Section
3.5(b) above in accordance with the following
schedule:
COMPLETION OF YEARS VESTED PERCENTAGE OF EMPLOYER MATCHING
OF PLAN PARTICIPATION AMOUNTS CREDITED UNDER SECTION 3.5(b)
Less than Five Years 33 1/3%
Five Years or More 100%
Despite the foregoing schedule, if the
Participant was a participant in the 1985 Hecla
Mining Company Deferred Compensation Plan for
Executive Officers, then for purposes of this
Section 3.7, he or she shall be treated as having
completed five Years of Plan Participation at the
time of his or her commencement of participation
in this Plan.
<PAGE> 13
3.8 CREDITING/DEBITING OF ACCOUNT BALANCES. In accordance
with, and subject to, the rules and procedures that are
established from time to time by the Committee, in its
sole discretion, amounts shall be credited or debited to
a Participant's Account Balance in accordance with the
following rules:
(a) ELECTION OF MEASUREMENT RATES. In
connection with each Election Form delivered to
the Committee, a Participant shall elect one or
more Measurement Rate(s) (as described in Section
3.8(c) below) to be used to determine the
additional amounts to be credited (or debited) to
his or her Account Balance for the Plan Year to
which such Election Form relates.
(b) PROPORTIONATE ALLOCATION. In making any
election described in Section 3.8(a) above, the
Participant shall specify on the Election Form, in
increments of 5%, the percentage of his or her
Annual Deferral Amount to be allocated to a
Measurement Rate (as if the Participant were
making an investment which carried that
Measurement Rate with that portion of his or her
Account Balance). If a Participant fails to make
an allocation to a Measurement Rate, then he or
she shall be deemed to have made an allocation of
100% of his or her Annual Deferral Amount to the
Preferred Rate.
(c) MEASUREMENT RATES. The Participant may elect
one or more of the following Measurement Rates
(the "Measurement Rates") for the purpose of
crediting additional amounts to his or her Account
Balance:
(i) the Preferred Rate; or
(ii) the Stock Rate.
As necessary, the Committee may, in its sole
discretion, discontinue, substitute or add a
Measurement Rate. Each such action will take
effect as of the first day of the calendar quarter
that follows by thirty (30) days the day on which
the Committee gives Participants advance written
notice of such change. The performance of each
elected Measurement Rate (either positive or
negative) will be determined by the Committee, in
its reasonable discretion, based on the
performance of the Measurement Rates themselves.
A Participant's Account Balance shall be credited
or debited as set forth in Section 3.8(d) below,
based on the performance of each Measurement Rate
selected by the Participant, AS DETERMINED BY THE
COMMITTEE IN ITS SOLE DISCRETION.
<PAGE> 14
(d) CREDITING OR DEBITING METHOD.
(i) PREFERRED RATE. Prior to any
distribution of benefits under Articles 4,
5, 6, 7, or 8, interestInterest shall be
credited and compounded annually on the
portion of a Participant's Account Balance
that is allocated to the Preferred Rate
(the "Preferred Rate Account") as though
(i) that portion of the Participant's
Annual Deferral Amount which he or she
allocated to the Preferred Rate for that
Plan Year was withheld at the beginning of
the Plan Year, or, in the case of the first
year of Plan participation, was withheld on
the date that the Participant commenced
participation in the Plan, and (ii) the
Employer Matching Amount relating to that
portion of the Participant's Annual
Deferral Amount which was allocated to the
Preferred Rate for the Plan Year was
credited on the last day of the Plan Year.
The rate of interest for crediting shall be
the Preferred Rate, except as otherwise
provided in this Plan. In the event of
Retirement, Disability, death, Termination
Of Employment or reallocation election
(pursuant to Section 3.12 below) prior to
the end of a Plan Year, the basis for that
year's interest crediting will be a
fraction of the full year's interest, based
on the number of full months that the
Participant was employed by the Employer
during the Plan Year prior to the
occurrence of such event. If a
distribution is made under this Plan, for
purposes of crediting interest, the Account
Balance shall be reduced as of the first
day of the month in which the distribution
is made.
(ii) STOCK RATE. Prior to any
distribution of benefits under Articles 4,
5, 6, 7, or 8, anAn amount shall be
credited to a Participant's Account Balance
as though that portion of the Participant's
Annual Deferral Amount which he or she
allocated to the Stock Rate for that Plan
Year were credited to a separate account on
the lastfirst day of the Plan Year, or, in
the case of the first year of Plan
participation, was credited on the date
that the Participant commenced
participation in the Plan (such account
being referred to herein as the "Stock Rate
Account"). The Stock Rate Account balance
shall be deemed invested in Stock as of the
first day of the Plan Year,
<PAGE> 15
using for such purpose the average closing
price for a share of Stock on the New York
Stock Exchange during the Plan Year (the
"Applicable Period"); provided that, in the
case of a Participant's first year of Plan
participation, or in the event of a
Participant's Retirement, Disability, death
or Termination Of Employment during a Plan
Year, the Applicable Period shall be the
period of the Participant's participation
during the Plan Year. The Employer
Matching Amount relating to that portion of
the Participant's Annual Deferral Amount
which was allocated to the Stock Rate for
the Plan Year shall be deemed invested in
Stock on the last day of the Plan Year,
using for such purpose the average closing
price for a share of Stock on the New York
Stock Exchange during the Plan Year, and
shall be distributed to the Stock Rate
Account. The entire balance of the Stock
Rate Account shall then be distributed
intoallocated to the Account Balance.
(e) NO ACTUAL INVESTMENT. Notwithstanding any
other provision of this Plan that may be
interpreted to the contrary, the Measurement Rates
are to be used for measurement purposes only, and
a Participant's election of any such Measurement
Rate, the allocation to his or her Account Balance
thereto, the calculation of additional amounts and
the crediting or debiting of such amounts to a
Participant's Account Balance shall not be
considered or construed in any manner as an actual
investment of his or her Account Balance in any
such fund, stock or other investment vehicle. In
the event that the Company or the Trustee (as that
term is defined in the Trust), in its own
discretion, decides to invest funds in any vehicle
related to any or all of the Measurement Rates, no
Participant shall have any rights in or to such
investments themselves. Without limiting the
foregoing, a Participant's Account Balance shall
at all times be a bookkeeping entry only and shall
not represent any investment made on his or her
behalf by the Company or the Trust; the
Participant shall at all times remain an unsecured
creditor of the Company.
(f) EMPLOYEES OF SUBSIDIARIES. Notwithstanding
any other provision of this Plan that may be
interpreted to the contrary, a Participant who is
an Employee of an Employer that is not the Company
shall neither (i) allocate any portion of his or
<PAGE> 16
her Annual Deferral Amount to the Stock Rate
pursuant to the remainder of this Section 3.8, nor
(ii) reallocate any portion of his or her Account
Balance to the Stock Rate pursuant to Section
3.12.
(g) STOCK RATE ACCOUNT LIMITATION.
Notwithstanding any other provision of this Plan
that may be interpreted to the contrary, no
Participant shall be permitted to allocate any
Deferral Amounts to the Stock Rate Account under
the Plan, which amounts, in the aggregate, would
result in a deemed investment in such account of
more than 500,000 shares of Stock.
3.9 FICA AND OTHER TAXES. For each Plan Year in which an
Annual Deferral Amount is being withheld from a
Participant, or an Employer Matching Amount is being
credited to a Participant, the Participant's Employer(s)
shall withhold from that portion of the Participant's
Base Annual Salary and Bonus that is not being deferred,
in a manner determined by the Employer(s), the
Participant's share of FICA and other employment taxes
on such Annual Deferral Amount and Employer Matching
Amount. If necessary, the Committee may reduce the
Annual Deferral Amount in order to comply with this
Section 3.9.
3.10 DISTRIBUTIONS. The Participant's Employer(s), or the
trustee of the Trust, shall withhold from any payments
made to a Participant under this Plan all federal, state
and local income, employment and other taxes required to
be withheld by the Employer(s), or the trustee of the
Trust, in connection with such payments, in amounts and
in a manner to be determined in the sole discretion of
the Employer(s) and the trustee of the Trust. Such
withholdings may include the withholding of Stock that
would otherwise be delivered to a Participant. Any
portion of a Participant's Account that is allocated to
the Stock Rate Account shall be delivered to the
Participant only in Stock, notwithstanding any other
provision of this Plan; provided, that cash shall be
paid in lieu of any fractional share of Stock.
3.11 SPECIAL RULE FOR AMOUNTS ALLOCATED TO STOCK RATE. The
portion of each Participant's Account that is allocated
to the Stock Rate (if any) shall be valued for all
purposes under the Plan at the closing price of shares
of Stock on the New York Stock Exchange as of the
relevant date.
<PAGE> 17
3.12 REALLOCATION ELECTION; INCENTIVE. At any time during
the Window Period, each Participant who has a positive
Account Balance may elect, in dollar increments, the
dollar amount of his or her Account Balance to be
allocated to the Preferred Rate or to the Stock Rate
(any such amount so allocated to the Stock Rate, the
"Stock Reallocation Amount"). This election shall be
made on an Election Form provided by and in a manner
prescribed by the Company. The Stock Reallocation
Amount shall be deemed invested in Stock, using for such
purpose the average closing price for a share of Stock
on the New York Stock Exchange for the last two full
calendar months preceding the date such election is
made, and shall be credited to the Participant's Account
Balance as of the last business day of the last month
preceding such election date. In addition, the Company
shall credit the Participant's Account Balance with an
amount equal to 25% of the Participant's Stock
Reallocation Amount, similarly deemed invested in Stock,
using for such purpose the same average closing price
for a share of Stock and the same crediting date
described in the preceding sentence. If a Participant
fails to make an election under this Section 3.12, he or
she shall be deemed to have allocated 100% of his or her
Account Balance during and after the Window Period to
the Preferred Rate. Any election under this Section
3.12 shall be irrevocable. Notwithstanding the
foregoing, the Company reserves the right to offer
similar reallocation opportunities, which may include
similar Company incentives, from time to time and at its
sole discretion.
ARTICLE 4
Short-Term Payout; Unforeseeable Financial Emergencies;
Withdrawal Payout
-----------------
4.1 SHORT-TERM PAYOUT. Subject to the Deduction Limitation,
in connection with each election to defer an Annual
Deferral Amount, a Participant may elect to receive a
future "Short-Term Payout" from the Plan with respect to
that Annual Deferral Amount. The Short-Term Payout
shall be (i) in the case of amounts allocated to the
Preferred Rate Account, a lump sum payment in an amount
that is equal to the Annual Deferral Amount plus
interest credited in the manner provided in Section 3.5
above on that amount, but using the applicable interest
rate set forth in Section 7.1 below; and (ii) in the
case of the Stock Rate Account, (A) that number of
shares of Stock credited to the Participant's Stock Rate
below.Account with respect to such Annual Deferral
Amounts, plus (B) that number of shares of Stock that
have subsequently been credited to the Participant's
Stock
<PAGE> 18
Rate Account with respect to deemed dividends on the
shares described in clause (A), in any. No Short-Term
Payout shall be available for any Employer Matching
Amount. Subject to the other terms and conditions of
this Plan, each Short-Term payout elected shall be paid
within 60 days of the first day of the Plan Year that is
the latter of (i) the first day of the Plan Year that is
3 years after the first day of the Plan Year to which
the applicable Annual Deferral Amount election relates,
or (ii) the first day of any Plan Year thereafter
elected by the Participant on the Election Form electing
the Annual Deferral Amount.
4.2 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE
FINANCIAL EMERGENCIES. If the Participant experiences
an Unforeseeable Financial Emergency, the Participant
may petition the Committee to (i) suspend any deferrals
required to be made by a Participant and/or (ii) receive
a partial or full payout from the Plan. The payout
shall not exceed the lesser of the Participant's Account
Balance, calculated as if such Participant were
receiving a Termination Benefit, or the amount
reasonably needed to satisfy the Unforeseeable Financial
Emergency. If, subject to the sole discretion of the
Committee, the petition for a suspension and/or payout
is approved, suspension shall take effect upon the date
of approval and any payout shall be made within 60 days
of the date of approval. The payment of any amount
under this Section 4.2 shall not be subject to the
Deduction Limitation.
ARTICLE 5
Retirement Benefit
------------------
5.1 RETIREMENT BENEFIT. Subject to the Deduction
Limitation, a Participant who Retires shall receive, as
a Retirement Benefit, his or her Account Balance.
5.2 PAYMENT OF RETIREMENT BENEFITS.
(a) A Participant, in connection with his or her
commencement of participation in the Plan and/or
first allocation to the Stock Rate Account, shall
elect on an Election Form to receive the
Retirement Benefit in a lump sum or in equal
monthly payments (the latter determined in
accordance with Section 3.6 above) over a period
of 60, 120 or 180 months. the timing of such
Retirement Benefit. The Participant may change his
or her election to an allowable alternative payout
period by submitting a new Election Form to the
Committee, provided that any such Election Form is
submitted at least 3 years prior to the
Participant's Retirement and is accepted by the
Committee in its sole discretion. The Election
Form most recently accepted by the Committee shall
<PAGE> 19
govern the payout of the Retirement Benefit.
Except as otherwise provided in Section 5.2(c)
below, the lump sum payment shall be made, or
installment payments shall commence, no later than
60 days after the date the Participant Retires.
(b) The portion of the Participant's Account
Balance as shares of Stock shall be payable
that is allocated to the Preferred Rate Account
may be paid in a lump sum or in equal monthly
payments (the latter determined in accordance
with Section 3.6 above) over a period of 60, 120
or 180 months.
(c) The portion of the Participant's Account
Balance that is allocated to the Stock Rate
Account may be paid in one or more of the
following ways: (i) in a lump sum; (ii) in a
lump sum on January 2 of the calendar year
subsequent to the calendar year in which the
Participant Retired, was Disabled, or died; (iii)
in 5 annual installments; or (iv) in 5 annual
installments commencing on January 2 of the
calendar year subsequent to the calendar year in
which the Participant Retired, was Disabled, or
died. If the Stock Rate Account is to be
distributed to the Participant in 5 annual
installments, it first shall be divided into 5
tentative installments. If the tentative
installments are comprised of other than whole
numbers, then the tentative installments shall be
recalculated as follows: (i) the first four
installments shall be rounded down to whole
numbers, and (ii) the payment of any fractional
amounts shall be deferred until the fifth and
final installment. Any dividend accruing on Stock
during the five year installment period shall be
credited to the Stock Rate Account as if it
contained shares of Stock, with the dividend then
being reinvested in Stock and accrued until the
fifth installment.
5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFITS. If a
Participant dies after Retirement but before the Retire
ment Benefit is paid in full, the Participant's unpaid
Retirement Benefit payments shall continue and shall be
paid to the Participant's Beneficiary (a) over the
remaining number of months and in the same amounts as
that benefit would have been paid to the Participant had
the Participant survived, or (b) in a lump sum, if
requested by the Beneficiary and allowed in the sole
discretion of the Committee, that is equal to the
Participant's unpaid remaining Account Balance.
<PAGE> 20
ARTICLE 6
Pre-Retirement Survivor Benefit
-------------------------------
6.1 PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the
Deduction Limitation, and except as provided in Section
6.3 below, if a Participant dies before he or she
Retires, experiences a Termination of Employment or
suffers a Disability, the Participant's Beneficiary
shall receive a Pre-Retirement Survivor Benefit equal to
the Participant's Account Balance.
6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFITS. A
Participant, in connection with his or her commencement
of participation in the Plan, shall elect on an Election
Form whether the Pre-Retirement Survivor Benefit shall
be received by his or her Beneficiary in a lump sum or
in equal monthlyinstallment payments (the latter
determined in accordance with Section 5.2 3.6 above)
over a period of 60, 120 or 180 months.above). The
Participant may change this election to an allowable
alternative payout period by submitting a new Election
Form to the Committee, which form must be accepted by
the Committee in its sole discretion. The Election Form
most recently accepted by the Committee prior to the
Participant's death shall govern the payout of the
Participant's Pre-Retirement Survivor Benefit. Despite
the foregoing, if the Participant's Account Balance at
the time of his or her death is less than $25,000, or
the Beneficiary petitions the Committee for a lump sum
payment, payment of the Pre-Retirement Survivor Benefit
may be made, in the sole discretion of the Committee, in
a lump sum or in installment payments that do not exceed
five years in duration. The lump sum payment shall be
made, or installment payments shall commence, no later
than 60 days after the date the Committee is provided
with proof that is satisfactory to the Committee of the
Participant's death.
6.3 RESTRICTION IN THE EVENT OF SUICIDE OR FALSELY PROVIDED
INFORMATION. In the event of a Participant's suicide
within 2 years after the Participant first becomes a
Participant, or in the event the Participant's death is
determined to be from a bodily or mental cause or
causes, the information about which was withheld,
knowingly concealed, or falsely provided by the
Participant if requested to furnish evidence of good
health, the Pre-Retirement Survivor Benefit shall be
equal to the sum of the Participant's Annual Deferral
Amounts, without interest and without all Employer
Matching Amounts, all determined as of his or her date
of death.
<PAGE> 21
ARTICLE 7
Termination Benefit
-------------------
7.1 TERMINATION BENEFITS. Subject to the Deduction
Limitation, if a Participant experiences a Termination
of Employment prior to his or her Retirement, death or
Disability, the Participant shall receive a Termination
Benefit, which shall be equal to the Participant's
vested Account Balance, with interest credited in the
manner provided in Section 3.5 above, but using the
applicable interest rate set forth in the following
schedule:
COMPLETION OF YEARS OF PLAN APPLICABLE RATE
PARTICIPATION
Less than five years Crediting Rate
Five or more years Preferred Rate
Despite the foregoing schedule, if the Participant was a
participant in the 1985 Hecla Mining Company Deferred
Compensation Plan for Executive Officers, then for
purposes of this Section 7.1, he or she shall be treated
as having completed five Years of Plan Participation at
the time of his or her commencement of participation in
this Plan.
7.2 PAYMENT OF TERMINATION BENEFIT. The Termination Benefit
shall be paid in a lump sum within 60 days of the
Termination of Employment.
ARTICLE 8
Disability Waiver and Benefit
-----------------------------
8.1 DISABILITY WAIVER.
(a) ELIGIBILITY. By participating in the Plan,
all Participants are eligible for this waiver.
(b) WAIVER OF DEFERRAL; CREDIT FOR PLAN YEAR OF
DISABILITY. A Participant who is determined by
the Committee to be suffering from a Disability
shall be excused from fulfilling that portion of
the Annual Deferral Amount commitment that would
otherwise have been withheld from a Participant's
Base Annual Salary and/or Annual Bonus for the
Plan Year during which the Participant first
suffers a Disability. During the period of
Disability, the Participant shall not be allowed
to make any additional deferral elections.
<PAGE> 22
(c) RETURN TO WORK. If a Participant returns to
employment with an Employer after a Disability
ceases, the Participant may elect to defer an
Annual Deferral Amount for the Plan Year following
his or her return to employment and for every Plan
Year thereafter while a Participant in the Plan;
provided such deferral elections are otherwise
allowed and an Election Form is delivered to and
accepted by the Committee for each such election
in accordance with Section 3.3 above.
8.2 DISABILITY BENEFIT. A Participant suffering a
Disability shall, for benefit purposes under this Plan,
continue to be considered to be employed and shall be
eligible for the benefits provided for in Articles 4, 5,
6 or 7 in accordance with the provisions of those
Articles. Notwithstanding the above, the Committee
shall have the right, in its sole and absolute
discretion and for purposes of this Plan only, to
terminate a Participant's employment at any time after
such Participant is determined to be suffering from a
permanent Disability.
ARTICLE 9
Beneficiary Designation
-----------------------
9.1 BENEFICIARY. Each Participant shall have the right, at
any time, to designate his or her Beneficiary(ies) (both
primary as well as contingent) to receive any benefits
payable under the Plan to a beneficiary upon the death
of a Participant. The Beneficiary designated under this
Plan may be the same as or different from the
Beneficiary designation under any other plan of an
Employer in which the Participant participates.
9.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT. A
Participant shall designate his or her Beneficiary by
completing and signing the Beneficiary Designation Form,
and returning it to the Committee or its designated
agent. A Participant shall have the right to change a
Beneficiary by completing, signing and otherwise
complying with the terms of the Beneficiary Designation
Form and the Committee's rules and procedures, as in
effect from time to time. If the Participant names
someone other than his or her spouse as a Beneficiary, a
spousal consent, in the form designated by the
Committee, must be signed by that Participant's spouse
and returned to the Committee. Upon the acceptance by
the Committee of a new Beneficiary Designation Form, all
Beneficiary designations previously filed shall be
cancelled. The Committee shall be entitled to rely on
the last Beneficiary Designation Form filed by the
<PAGE> 23
Participant and accepted by the Committee prior to his
or her death.
9.3 ACKNOWLEDGMENT. No designation or change in designation
of a Beneficiary shall be effective until received,
accepted and acknowledged in writing by the Committee or
its designated agent.
9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to
designate a Beneficiary as provided in Sections 9.1, 9.2
and 9.3 above or, if all designated Beneficiaries
predecease the Participant or die prior to complete
distribution of the Participant's benefits, then the
Participant's designated Beneficiary shall be deemed to
be his or her surviving spouse. If the Participant has
no surviving spouse, the benefits remaining under the
Plan to be paid to a Beneficiary shall be payable to the
executor or personal representative of the Participant's
estate.
9.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt
as to the proper Beneficiary to receive payments
pursuant to this Plan, the Committee shall have the
right, exercisable in its discretion, to cause the
Participant's Employer to withhold such payments until
this matter is resolved to the Committee's satisfaction.
9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under
the Plan to a Beneficiary shall fully and completely
discharge all Employers and the Committee from all
further obligations under this Plan with respect to the
Participant, and that Participant's Plan Agreement shall
terminate upon such full payment of benefits.
ARTICLE 10
Leave of Absence
----------------
10.1 PAID LEAVE OF ABSENCE. If a Participant is authorized
by the Participant's Employer for any reason to take a
paid leave of absence from the employment of the
Employer, the Participant shall continue to be
considered employed by the Employer and the Annual
Deferral Amount shall continue to be withheld during
such paid leave of absence in accordance with Section
3.3.
10.2 UNPAID LEAVE OF ABSENCE. If a Participant is authorized
by the Participant's Employer for any reason to take an
unpaid leave of absence from the employment of the
Employer, the Participant shall continue to be
considered employed by the Employer and the Participant
shall be excused from making deferrals until the earlier
of the date the leave of absence expires or the
<PAGE> 24
Participant returns to a paid employment status. Upon
such expiration or return, deferrals shall resume for
the remaining portion of the Plan Year in which the
expiration or return occurs, based on the deferral
election, if any, made for that Plan Year. If no
election was made for that Plan Year, no deferral shall
be withheld.
ARTICLE 11
Termination, Amendment or Modification
--------------------------------------
11.1 TERMINATION. Any Employer reserves the right to
terminate the Plan at any time with respect to its
participating Employees by the actions of its board of
directors. Upon the termination of the Plan, all Plan
Agreements of a Participant shall terminate and his or
her Account Balance, determined as if he or she had
experienced a Termination of Employment on the date of
Plan termination or, if Plan termination occurs after
the date upon which the Participant was eligible to
Retire, the Participant had Retired on the date of Plan
termination, shall be paid to the Participant as
follows. Prior to a Change in Control, an Employer
shall have the right, in its sole discretion, and
notwithstanding any elections made by the Participant,
to pay such benefits in a lump sum or in monthly
installments for up to 5 years, with interest or
dividend reinvestments credited during the installment
period as provided in Section 3.6.Section 3.8(d). After
a Change in Control, the Employer shall be required to
pay such benefits in a lump sum. The termination of the
Plan shall not adversely affect any Participant or
Beneficiary who has become entitled to the payment of
any benefits under the Plan as of the date of
termination; provided however, that the Employer shall
have the right to accelerate installment payments by
paying the present value equivalent of such payments,
using the Crediting Rate for the Plan Year in which the
termination occurs as the discount rate, in a lump sum
or pursuant to a different payment schedule.
11.2 AMENDMENT. Any Employer may, at any time, amend or
modify the Plan in whole or in part with respect to that
Employer by the actions of its board of directors;
provided, however, that no amendment or modification
shall be effective to decrease or restrict the value of
a Participant's Account Balance in existence at the time
the amendment or modification is made, calculated as if
the Participant had experienced a Termination of
Employment as of the effective date of the amendment or
modification, or, if the amendment or modification
occurs after the date upon which the Participant was
eligible to Retire, the Participant had Retired as of
<PAGE> 25
the effective date of the amendment or modification.
The amendment or modification of the Plan shall not
affect any Participant or Beneficiary who has become
entitled to the payment of benefits under the Plan as of
the date of the amendment or modification; provided,
however, that the Employer shall have the right to
accelerate installment payments by paying the present
value equivalent of such payments, using the Crediting
Rate for the Plan Year of the amendment or modification
as the discount rate, in a lump sum or pursuant to a
different payment schedule.
11.3 INTEREST RATE IN THE EVENT OF A CHANGE IN CONTROL AND
INTEREST. If a Change in Control occurs, the applicable
interest rate to be used in determining a Participant's
benefitPreferred Rate Account in connection with a
Termination of Employment after the Change in
Control, or a Plan termination, amendment or
modification under Sections 11.1 and 11.2, shall be the
Preferred Rate. However, the Crediting Rate for the
applicable Plan Year, and not the Preferred Rate, shall
be used as the discount rate for determining present
value.
11.4 EFFECT OF PAYMENT. The full payment of the applicable
benefit under Articles 5, 6, 7 or 8 of the Plan shall
completely discharge all obligations to a Participant
and his or her designated Beneficiaries under this Plan
and the Participant's Plan Agreement shall terminate.
ARTICLE 12
Administration
--------------
12.1 COMMITTEE DUTIES. This Plan shall be administered by a
Committee which shall consist of the Board, or such
committee as the Board shall appoint. Members of the
Committee may be Participants under this Plan. The
Committee shall also have the discretion and authority
to (i) make, amend, interpret, and enforce all
appropriate rules and regulations for the administration
of this Plan (including, but not limited to, rules
deemed necessary by the Committee to insure compliance
with Rule 16-b of the Securities Exchange Act of 1934)
and (ii) decide or resolve any and all questions
including interpretations of this Plan, as may arise in
connection with the Plan.
12.2 AGENTS. In the administration of this Plan, the
Committee may, from time to time, employ agents and
delegate to them such administrative duties as it sees
fit (including acting through a duly appointed
representative) and may from time to time consult with
counsel who may be counsel to any Employer.
<PAGE> 26
12.3 BINDING EFFECT OF DECISIONS. The decision or action of
the Committee with respect to any question arising out
of or in connection with the administration,
interpretation and application of the Plan and the rules
and regulations promulgated hereunder shall be final and
conclusive and binding upon all persons having any
interest in the Plan.
12.4 INDEMNITY OF COMMITTEE. All Employers shall indemnify
and hold harmless the members of the Committee against
any and all claims, losses, damages, expenses or
liabilities arising from any action or failure to act
with respect to this Plan, except in the case of willful
misconduct by the Committee or any of its members.
12.5 EMPLOYER INFORMATION. To enable the Committee to
perform its functions, each Employer shall supply full
and timely information to the Committee on all matters
relating to the compensation of its Participants, the
date and circumstances of the Retirement, Disability,
death or Termination of Employment of its Participants,
and such other pertinent information as the Committee
may reasonably require.
ARTICLE 13
Other Benefits and Agreements
-----------------------------
13.1 COORDINATION WITH OTHER BENEFITS. The benefits provided
for a Participant and Participant's Beneficiary under
the Plan are in addition to any other benefits available
to such Participant under any other plan or program for
employees of the Participant's Employer. The Plan shall
supplement and shall not supersede, modify or amend any
other such plan or program except as may otherwise be
expressly provided.
13.2 ROLLOVER OF BENEFITS. The Company, in its sole
discretion, may designate that the benefits under any
nonqualified plan sponsored by the Company may be rolled
over to this Plan. If such a designation is made, the
Participant's account balance under that plan shall be
added to his or her Account Balance under this Plan and
any such transferred account balance shall become
subject to the terms and conditions of this Plan. Upon
the completion of that rollover, the Participant's
participation in the deferred compensation plan shall
cease and he or she shall have no further interest in
that plan, unless otherwise specified by the Company.
The Committee, in its sole discretion, shall provide
rules and procedures with respect to any elections or
beneficiary designations that may be required as a
result of the rollover.
<PAGE> 27
ARTICLE 14
Claims Procedures
-----------------
14.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary
of a deceased Participant (such Participant or
Beneficiary being referred to below as a "Claimant") may
deliver to the Committee a written claim for a
determination with respect to the amounts distributable
to such Claimant from the Plan. If such a claim relates
to the contents of a notice received by the Claimant,
the claim must be made within 60 days after such notice
was received by the Claimant. The claim must state with
particularity the determination desired by the Claimant.
All other claims must be made within 180 days of the
date on which the event that caused the claim to arise
occurred. The claim must state with particularity the
determination desired by the Claimant.
14.2 NOTIFICATION OF DECISION. The Committee shall consider
a Claimant's claim within a reasonable time, and shall
notify the Claimant in writing:
(a) that the Claimant's requested determination
has been made, and that the claim has been allowed
in full; or
(b) that the Committee has reached a conclusion
contrary, in whole or in part, to the Claimant's
requested determination, and such notice must set
forth in a manner calculated to be understood by
the Claimant:
(i) the specific reason(s) for the
denial of the claim, or any part of it;
(ii) specific reference(s) to pertinent
provisions of the Plan upon which such
denial was based;
(iii) a description of any additional
material or information necessary for
the Claimant to perfect the claim,
and an explanation of why such material
or information is necessary; and
(iv) an explanation of the claim review
procedure set forth in Section 14.3
below.
14.3 REVIEW OF A DENIED CLAIM. Within 60 days after
receiving a notice from the Committee that a claim has
been denied, in whole or in part, a Claimant (or the
Claimant's duly authorized representative) may file with
the Committee a written request for a review of the
<PAGE> 28
denial of the claim. Thereafter, but not later than
30 days after the review procedure began, the Claimant
(or the Claimant's duly authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other
documents; and/or
(c) may request a hearing, which the Committee,
in its sole discretion, may grant.
14.4 DECISION ON REVIEW. The Committee shall render its deci
sion on review promptly, and not later than 60 days
after the filing of a written request for review of the
denial, unless a hearing is held or other special
circumstances require additional time, in which case the
Committee's decision must be rendered within 120 days
after such date. Such decision must be written in a
manner calculated to be understood by the Claimant, and
it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan
provisions upon which the decision was based; and
(c) such other matters as the Committee deems
relevant.
14.5 LEGAL ACTION. A Claimant's compliance with the
foregoing provisions of this Article 14 is a mandatory
prerequisite to a Claimant's right to commence any legal
action with respect to any claim for benefits under this
Plan.
ARTICLE 15
Trust
-----
15.1 ESTABLISHMENT OF THE TRUST. The Company shall establish
the Trust, and the Employers shall at least annually
transfer over to the Trust such assets as the Employers
determine, in their sole discretion, are necessary to
provide for their respective future liabilities created
with respect to the Annual Deferral Amounts and interest
credits for that year.
15.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The
provisions of the Plan and the Plan Agreement shall
govern the rights of a Participant to receive
distributions pursuant to the Plan. The provisions of
the Trust shall govern the rights of the Employers,
Participants and the creditors of the Employers to the
<PAGE> 29
assets transferred to the Trust. Each Employer shall at
all times remain liable to carry out its obligations
under the Plan. Each Employer's obligations under the
Plan may be satisfied with Trust assets distributed
pursuant to the terms of the Trust, and any such
distribution shall reduce the Employer's obligations
under this Agreement.
ARTICLE 16
Miscellaneous
-------------
16.1 UNSECURED GENERAL CREDITOR. Participants and their
Beneficiaries, heirs, successors and assigns shall have
no legal or equitable rights, interests or claims in any
property or assets of an Employer. Any and all of an
Employer's assets shall be, and remain, the general,
unpledged unrestricted assets of the Employer. An
Employer's obligation under the Plan shall be merely
that of an unfunded and unsecured promise to pay money
in the future.
16.2 EMPLOYER'S LIABILITY. An Employer's liability for the
payment of benefits shall be defined only by the Plan
and the Plan Agreement, as entered into between the
Employer and a Participant. An Employer shall have no
obligation to a Participant under the Plan except as
expressly provided in the Plan and his or her Plan
Agreement.
16.3 NONASSIGNABILITY. Neither a Participant nor any other
person shall have any right to commute, sell, assign,
transfer, pledge, anticipate, mortgage or otherwise
encumber, transfer, hypothecate or convey in advance of
actual receipt, the amounts, if any, payable hereunder,
or any part thereof, which are, and all rights to which
are expressly declared to be, unassignable and non-
transferable, except that the foregoing shall not apply
to any family support obligations set forth in a court
order. No part of the amounts payable shall, prior to
actual payment, be subject to seizure or sequestration
for the payment of any debts, judgments, alimony or
separate maintenance owed by a Participant or any other
person, nor be transferable by operation of law in the
event of a Participant's or any other person's
bankruptcy or insolvency.
16.4 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions
of this Plan shall not be deemed to constitute a
contract of employment between any Employer and the
Participant. Such employment is hereby acknowledged to
be an "at will" employment relationship that can be
terminated at any time for any reason, or no reason,
with or without cause, and with or without notice,
<PAGE> 30
unless expressly provided in a written employment
agreement. Nothing in this Plan shall be deemed to
give a Participant the right to be retained in the
service of any Employer, or to interfere with the right
of any Employer to discipline or discharge the
Participant at any time.
16.5 FURNISHING INFORMATION. A Participant or his or her
Beneficiary will cooperate with the Committee by
furnishing any and all information requested by the
Committee and take such other actions as may be
requested in order to facilitate the administration of
the Plan and the payments of benefits hereunder,
including but not limited to taking such physical
examinations as the Committee may deem necessary.
16.6 TERMS. Whenever any words are used herein in the
masculine, they shall be construed as though they were
in the feminine in all cases where they would so apply;
and whenever any words are used herein in the singular
or in the plural, they shall be construed as though they
were used in the plural or the singular, as the case may
be, in all cases where they would so apply.
16.7 CAPTIONS. The captions of the articles, sections and
paragraphs of this Plan are for convenience only and
shall not control or affect the meaning or construction
of any of its provisions.
16.8 GOVERNING LAW. Subject to ERISA, the provisions of this
Plan shall be construed and interpreted according to the
laws of the State of Idaho without regard to its
conflicts of laws principles.
16.9 NOTICE. Any notice or filing required or permitted to
be given to the Committee under this Plan shall be
sufficient if in writing and hand-delivered, or sent by
registered or certified mail, to the address below:
Hecla Mining Company
Executive Deferral Plan
6500 Mineral Drive
Coeur d'Alene, Idaho 83814-8788
Attn: Jon T. Langstaff
Such notice shall be deemed given as of the date of
delivery or, if delivery is made by mail, as of the date
shown on the postmark on the receipt for registration or
certification.
Any notice or filing required or permitted to be given
to a Participant under this Plan shall be sufficient if
in writing and hand-delivered, or sent by mail, to the
last known address of the Participant.
<PAGE> 31
16.10 SUCCESSORS. The provisions of this Plan shall bind and
inure to the benefit of the Participant's Employer and
its successors and assigns and the Participant and the
Participant's designated Beneficiaries.
16.11 SPOUSE'S INTEREST. The interest in the benefits
hereunder of a spouse of a Participant who has
predeceased the Participant shall automatically pass to
the Participant and shall not be transferable by such
spouse in any manner, including but not limited to such
spouse's will, nor shall such interest pass under the
laws of intestate succession.
16.12 VALIDITY. In case any provision of this Plan shall be
illegal or invalid for any reason, said illegality or
invalidity shall not affect the remaining parts hereof,
but this Plan shall be construed and enforced as if such
illegal or invalid provision had never been inserted
herein.
16.13 INCOMPETENT. If the Committee determines in its
discretion that a benefit under this Plan is to be paid
to a minor, a person declared incompetent or to a person
incapable of handling the disposition of that person's
property, the Committee may direct payment of such
benefit to the guardian, legal representative or person
having the care and custody of such minor, incompetent
or incapable person. The Committee may require proof of
minority, incompetency, incapacity or guardianship, as
it may deem appropriate prior to distribution of the
benefit. Any payment of a benefit shall be a payment
for the account of the Participant and the Participant's
Beneficiary, as the case may be, and shall be a complete
discharge of any liability under the Plan for such
payment amount.
16.14 COURT ORDER. The Committee is authorized to make any
payments directed by court order in any action in which
the Plan or the Committee has been named as a party.
16.15 DISTRIBUTION IN THE EVENT OF TAXATION.
(a) GENERAL. If, for any reason, all or any
portion of a Participant's benefit under this Plan
becomes taxable to the Participant prior to
receipt, a Participant may petition the Committee
for a distribution of that portion of his or her
benefit that has become taxable. Upon the grant
of such a petition, which grant shall not be
unreasonably withheld, a Participant's Employer
shall distribute to the Participant immediately
available funds in an amount equal to the taxable
portion of his or her benefit (which amount shall
not exceed a Participant's unpaid Account Balance
<PAGE> 32
under the Plan). If the petition is granted, the
tax liability distribution shall be made within 90
days of the date when the Participant's petition
is granted. Such a distribution shall affect and
reduce the benefits to be paid under this Plan.
(b) TRUST. If the Trust terminates in
accordance with Section 3.6(e) of the Trust and
benefits are distributed from the Trust to a
Participant in accordance with that Section, the
Participant's benefits under this Plan shall be
reduced to the extent of such distributions.
IN WITNESS WHEREOF, the Company has signed this Plan
document as of November 13, 1998.
"Company"
HECLA MINING COMPANY,
a Delaware corporation
By: /s/ Michael B. White
---------------------------
Title: Vice-President
------------------------
<PAGE> 1
FORM 10-K DECEMBER 31, 1998
COMMISSION FILE NO. 1-8491
EXHIBIT 11
HECLA MINING COMPANY AND SUBSIDIARIES
CALCULATION OF WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Shares of common stock issued at
beginning of period 55,156,324 51,199,324 48,317,324
The incremental effect of the issuance of
new shares for cash, net of issuance costs - - 3,620,833 2,875,000
The incremental effect of the issuance
of new shares under Stock Option and
Employee Stock Ownership Plans 7,238 5,084 3,230
---------- ---------- ----------
55,163,562 54,825,241 51,195,554
Less:
Weighted average treasury shares held 62,091 62,087 62,075
---------- ---------- ----------
Weighted average number of common shares
outstanding during the period 55,101,471 54,763,154 51,133,479
========== ========== ==========
</TABLE>
<PAGE> 1
Exhibit 12
HECLA MINING COMPANY
FIXED CHARGE COVERAGE RATIO CALCULATION
For the years ended December 31, 1994, 1995, 1996, 1997 and 1998
and the three months ended December 31, 1997 and 1998
(In thousands, except ratios)
<TABLE>
<CAPTION>
4th Qtr 4th Qtr
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) before income
taxes and extraordinary item $ (24,248) $(101,410) $ (31,667) $ 1,414 $ (1,216) $ (4,479) $ (6,122)
Add: Fixed Charges 10,857 10,551 11,651 11,126 11,384 2,655 2,876
Less: Capitalized Interest (1,751) (1,516) (2,360) (806) (959) (197) (9)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) before
income taxes and
extraordinary item $ (15,142) $ (92,375) $ (22,376) $ 11,734 $ 9,209 $ (2,021) $ (3,255)
========= ========= ========= ========= ========= ========= =========
Fixed charges:
Preferred stock dividends $ 8,050 $ 8,050 $ 8,050 $ 8,050 $ 8,050 $ 2,012 $ 2,012
Interest portion of rentals 166 541 543 614 73 111 10
Interest expense 2,606 1,960 3,058 2,462 3,261 532 854
Amortization of LYONs 35 - - - - - - - - - - - -
--------- --------- --------- --------- --------- --------- ---------
Total fixed charges $ 10,857 $ 10,551 $ 11,651 $ 11,126 $ 11,384 $ 2,655 $ 2,876
========= ========= ========= ========= ========= ========= =========
Fixed Charge Ratio (a) (a) (a) 1.05 (a) (a) (a)
Inadequate coverage $ 25,999 $ 102,926 $ 34,027 $ - - $ 2,175 $ 4,676 $ 6,131
========= ========= ========= ========= ========= ========= =========
Write-downs and other noncash charges:
DD&A(b) (mining activity) $ 14,233 $ 23,462 $ 20,451 $ 21,009 $ 22,206 $ 5,872 $ 6,354
DD&A(b) (corporate) 524 367 338 311 389 78 96
Provision for (benefit from)
closed operations 11,353 4,615 22,806 (724) 734 (963) 271
Reduction in carrying value of
mining properties 7,864 97,387 12,902 715 - - 715 - -
--------- --------- --------- --------- --------- --------- ---------
$ 33,974 $ 125,831 $ 56,497 $ 21,311 $ 23,329 $ 5,702 $ 6,721
========= ========= ========= ========= ========= ========= =========
(a) Earnings for period inadequate to cover fixed charges.
(b) "DD&A" is an abbreviation for "depreciation, depletion and amoritization."
</TABLE>
<PAGE> 1
Exhibit 13
[Hecla Logo] 99-03
PRECIOUS AND BY-PRODUCT METALS PRICES PUSH HECLA RESULTS DOWN
COMPANY REPORTS QUARTER AND YEAR-END LOSS
For the Period Ended December 31, 1998
For Release: February 11,1999
COEUR D'ALENE, IDAHO -- Depressed lead, zinc and gold prices contributed to
a fourth quarter loss for Hecla Mining Company (HL & HL-PrB:NYSE) of $7.5
million, or 14 cents per share, compared to a loss of $7.0 million, or 13 cents
per share, during the fourth quarter of 1997.
For the full year 1998, Hecla's net loss was approximately $300,000 before
dividends to preferred shareholders. Following the dividend payments to owners
of preferred stock, the total loss applicable to common shareholders was
approximately $8.4 million, or 15 cents per share. This compares to a loss in
1997 of $8.5 million, or 16 cents per share.
PRODUCTION & COSTS
Hecla's silver production increased 41% to 7.2 million ounces in 1998 from
5.1 million ounces in 1997. Increased production is due primarily to the
successful expansion of the Lucky Friday mine in northern Idaho into a new,
higher-grade ore body. Costs per ounce decreased at Lucky Friday due to the
expansion. However, because of lower by-product metals revenue for lead and
zinc, the total average cash cost per ounce for all silver produced by the
company increased from $3.58 per ounce in 1997 to $3.96 in 1998. Hecla produced
127,433 ounces of gold in 1998, at an average total cash cost per ounce of $189,
compared to 174,164 ounces of gold at $173 per ounce in 1997.
Hecla Mining Company Chairman and Chief Executive Officer Arthur Brown
said, "In addition to depressed precious metals prices, the low prices of lead
and zinc negatively impacted Hecla because we use the revenue from those by-
product metals to offset our cost per ounce at our silver operations. Despite
disappointing financial results, we enjoyed very good operating performance from
all of our mines. Our silver production increased for the fourth consecutive
year, and our gold operations and industrial minerals cash flow remain strong."
Brown said goals and challenges for 1999 include adding to gold reserves,
increasing silver production and reducing long-term debt.
METALS PRICES
All four major metals produced by Hecla suffered from low prices in 1998,
with gold averaging $294 per ounce compared to $331 in 1997. Although better
than last year, the silver price continues to remain below our expectations at
an average of $5.53 per ounce. Zinc, an important by-product at the Greens
Creek silver mine in Alaska, plummeted from an average price of 60 cents per
pound in 1997 to 47 cents per pound in 1998. Lead also decreased from 1997's
average price of 28 cents per pound to 24 cents in 1998.
PROJECTS
Exploration efforts were expanded in 1998 to help achieve Hecla's goal of
growth in precious metals reserves. At the Noche Buena gold property in Sonora,
Mexico, Hecla has identified more than 250,000 ounces of gold resource. Noche
Buena is the most advanced of the company's projects, and a detailed feasibility
study to determine a production decision is expected to be completed in the
first half of 1999. During 1998, Hecla
Contact Bill Booth, vice president-investor and public affairs, or Vicki
Veltkamp, manager-corporate communications
6500 Mineral Drive Coeur d'Alene, Idaho 83815-8788 208/769-4100 FAX 208/769-4159
<PAGE> 2
compiled data on Noche Buena from previous exploration activities, as well as
drilling 193 core and reverse circulation holes. Reserve definition, leach pad
condemnation, step-out drilling and other feasibility work will continue into
1999.
Hecla increased its presence in South America in 1998 by acquiring the
Cacique, Chile, and Alto Dorado, Peru, gold exploration projects. Cacique is
located in Chile's productive Maricunga gold belt. A drilling program will
begin this quarter to test a surface bulk minable gold target that shows
promise, based on trenching and previous drilling results. The Peruvian gold
project, Alto Dorado, consists of five separate mineralized zones.
Mineralization was discovered on this early-stage project during 1998, and work
will continue there in 1999.
As part of the company's Nevada reconnaissance program, Hecla added the
Sunset gold property in Mineral County to its exploration portfolio. A number
of ore-grade intercepts have been encountered in the drilling programs so far.
Drilling will continue during 1999.
In the meantime, Hecla continues to aggressively explore around its
existing mines. Drilling programs are under way at the Rosebud gold mine and
the Lucky Friday and Greens Creek silver mines.
LUCKY FRIDAY
The successful on-time, on-budget completion of the expansion at Lucky
Friday was a highlight of 1998 and contributed to annual silver production
doubling at the mine to 4.1 million ounces for the year. Total cash costs per
ounce of silver at Lucky Friday decreased by 76 cents to $4.71.
Operations at the Lucky Friday were temporarily suspended for 14 days
during the end of January and beginning of February 1999 to repair the #2 shaft,
which is used as the mine's secondary escapeway. The mine went back into full
operation on February 8. The shaft was damaged by a groundfall on the 2450
level. No damage occurred to the operating portion of the mine, but in
compliance with safety regulations, the mine did not operate until the secondary
escapeway was repaired. During the temporary shutdown of the mine, the mill
continued to process stockpiled ore for the balance of the month of January.
The temporary suspension of operations should not materially impact the
projected production of approximately 4.5 million ounces of silver at Lucky
Friday during 1999, although first quarter production at the mine is expected to
be reduced by approximately 8%.
GREENS CREEK
Hecla has a 29.73% interest in the Greens Creek silver/zinc/lead/gold mine
in Alaska, which contributed about 2.8 million ounces of silver to Hecla's
account in 1998, at a total cash cost per ounce of $2.86. During 1998, a land
exchange was completed with the U.S. Forest Service, giving geologists access to
about 7,500 acres surrounding the mine for exploration purposes.
GOLD
The Rosebud underground gold mine in Nevada had a successful year,
producing more than 65,000 ounces of gold for Hecla in 1998 at a total cash cost
of $176 per ounce.
La Choya gold reserves were mined out in December, and after five years of
operation mining has shut down at the northern Mexico mine. However, additional
gold will be recovered until mid-2000 from residual leaching of the ore pads.
La Choya produced nearly 40,000 ounces of gold at a total cash cost of $211 per
ounce in 1998.
Contact Bill Booth, vice president-investor and public affairs, or Vicki
Veltkamp, manager-corporate communications
6500 Mineral Drive Coeur d'Alene, Idaho 83815-8788 208/769-4100 FAX 208/769-4159
<PAGE> 3
INDUSTRIAL MINERALS
In 1998, Hecla's industrial minerals segment reported its highest sales
revenue ever and increased profitability over 1997. In addition to record
sales, a major expansion of Kentucky-Tennessee Clay Company's ball clay plant in
Tennessee was successfully completed. K-T Clay is a wholly owned subsidiary of
Hecla.
In January 1999, Hecla made the decision to sell MWCA, Inc., a lawn and
garden market subsidiary. MWCA, Inc. is headquartered in Rexburg, Idaho, and
produces bark and aggregates for landscaping purposes. The decision to sell
MWCA, Inc. was made in order to provide a sharper focus on Hecla's primary
mission of mining and processing minerals. The company expects a transaction to
be completed during the first half of 1999 and intends to use the proceeds from
the sale for precious metals acquisitions, additional K-T Clay expansion, debt
reduction and other corporate purposes.
FINANCIAL
Very strong assets and good working capital underpin Hecla's balance sheet.
However, lower-than-anticipated metals prices affected the company's cash flow
in 1998, resulting in increased bank debt. The proceeds from bank borrowings
were used mainly for capital expansion projects. A combination of anticipated
operating cash flow and proceeds from the sale of MWCA, Inc. in 1999 is expected
to be used to decrease bank debt.
Hecla benefited in 1998 from a gain of $3 million on the sale of surplus
land in Coeur d'Alene, Idaho, and the 1998 precious metals hedging program,
which increased revenues by $1.5 million. A tax credit of about $700,000 during
the year was somewhat offset by a foreign exchange loss when the peso fell
against the dollar.
RESERVES
During 1998, Hecla reevaluated ore reserves based on decreased metals
prices and other factors. The evaluation resulted in little change at the Lucky
Friday silver mine, which shows 19.5 million ounces of silver in proven and
probable reserves as of December 31, 1998.
At the Greens Creek mine, information derived from production experience,
drilling and sampling in the Southwest Ore Zone was used to update the geologic
model and resulted in decreased silver reserves from that area of the mine.
However, newly discovered reserves nearly offset the decrease, with Greens Creek
reporting 44.7 million ounces of proven and probable silver reserves to Hecla's
account. The new overall reserve is lower grade, averaging 15.4 ounces of
silver per ton, compared to 18.6 ounces per ton a year ago. Further exploration
efforts continue to identify proven and probable reserves that will increase
Greens Creek ore reserves and extend the mine's life.
Rosebud ore reserves were also reestimated based on a higher cutoff grade.
As of December 31, 1998, Hecla's share of the Rosebud gold mine proven and
probable reserves is 94,800 ounces of gold. After adjusting for 1998's
production of 65,000 ounces, the decrease amounts to 38,500 fewer ounces of gold
compared to a year ago.
Contact Bill Booth, vice president-investor and public affairs, or Vicki
Veltkamp, manager-corporate communications
6500 Mineral Drive Coeur d'Alene, Idaho 83815-8788 208/769-4100 FAX 208/769-4159
<PAGE> 4
<TABLE>
<CAPTION>
Ore Reserves - Proven and Probable at December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------
Grade Contained
---------------------------------- -------- ---------- ------- -------
Tons Gold Silver Lead Zinc Gold Silver Lead Zinc
Mine - (Hecla interest in %) (000) oz/ton (oz/ton) (%) (%) (ounces) (ounces) (tons) (tons)
- ---------------------------- ----- ------ -------- ----- -------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lucky Friday 1,221 - - 15.9 10.5 1.8 - - 19,459,256 128,748 21,965
Greens Creek (29.73%) 2,901 0.142 15.4 4.5 12.3 411,946 44,733,855 130,836 357,407
Rosebud (50.0%) 242 0.392 1.80 - - - - 94,808 436,252 - - - -
- ---------------------------- ------- ---------- ------- -------
TOTAL 506,754 64,629,363 259,585 379,373
- ---------------------------- ------- ---------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
Ore Reserves - Proven and Probable at December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------
Grade Contained
---------------------------------- -------- ---------- ------- -------
Tons Gold Silver Lead Zinc Gold Silver Lead Zinc
Mine - (Hecla interest in %) (000) oz/ton (oz/ton) (%) (%) (ounces) (ounces) (tons) (tons)
- ---------------------------- ----- ------ -------- ----- -------- -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
La Choya 633 0.018 - - - - - - 46,545(1) - - - - - -
Lucky Friday 1,389 - - 14.8 10.2 1.9 - - 20,532,121 141,470 25,703
Greens Creek (29.73%) 2,494 0.148 18.6 4.5 12.7 369,173 46,467,846 112,234 317,497
Rosebud (50.0%) 472 0.420 2.92 - - - - 197,817 1,378,201 - - - -
- ---------------------------- ------- ---------- ------- -------
TOTAL 613,535 68,378,168 253,704 343,200
- ----------------------------
</TABLE>
1 Includes 35,022 recoverable ounces on heap leach pads.
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, exploration project uncertainties, 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 undertakes no obligation to
publicly update or revise any forward-looking statements.
Hecla Mining Company news releases can be accessed on the
Internet at: http://www.hecla-mining.com
Contact Bill Booth, vice president-investor and public affairs, or Vicki
Veltkamp, manager-corporate communications
6500 Mineral Drive Coeur d'Alene, Idaho 83815-8788 208/769-4100 FAX 208/769-4159
<PAGE> 5
<TABLE>
<CAPTION>
HECLA MINING COMPANY
(dollars in thousands, except per share, per ounce and per pound amounts - unaudited)
Fourth Quarter Ended Year Ended
----------------------------- -----------------------------
HIGHLIGHTS Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
- ---------------------------------------------------------------------------------------------------------
FINANCIAL DATA
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue $ 36,072 $ 34,880 $ 165,148 $ 168,569
Gross profit (loss) (2,533) (203) 9,092 16,197
Net loss (5,502) (4,990) (300) (483)
Loss applicable to common shareholders (7,514) (7,002) (8,350) (8,533)
Basic and diluted loss per common share (0.14) (0.13) (0.15) (0.16)
Cash flow provided (used) by operating
activities 756 (206) 2,043 6,029
- ---------------------------------------------------------------------------------------------------------
SALE OF PRODUCTS BY SEGMENT
- ---------------------------------------------------------------------------------------------------------
Gold operations $ 8,011 $ 12,395 $ 32,791 $ 56,257
Silver operations 10,827 6,807 42,317 33,229
Industrial minerals 15,998 15,017 84,123 74,462
---------- ---------- ---------- -----------
Total sales $ 34,836 $ 34,219 $ 159,231 $ 163,948
- ---------------------------------------------------------------------------------------------------------
GROSS PROFIT (LOSS) BY SEGMENT
- ---------------------------------------------------------------------------------------------------------
Gold operations $ (86) $ 3,119 $ 3,926 $ 14,978
Silver operations (1,486) (2,097) (800) (3,786)
Industrial minerals (961) (1,225) 5,966 5,005
---------- ---------- ---------- -----------
Total gross profit (loss) $ (2,533) $ (203) $ 9,092 $ 16,197
OTHER DATA
- ---------------------------------------------------------------------------------------------------------
EBITDA BY SEGMENT(1)
- ---------------------------------------------------------------------------------------------------------
Gold operations $ 2,502 $ 5,672 $ 11,448 $ 22,504
Silver operations 1,047 (2) 8,848 4,921
Industrial minerals 268 (1) 10,988 9,781
---------- ---------- ---------- -----------
Total EBITDA $ 3,817 $ 5,669 $ 31,284 $ 37,206
- ---------------------------------------------------------------------------------------------------------
PRODUCTION SUMMARY - TOTALS
- ---------------------------------------------------------------------------------------------------------
Gold - Ounces 32,030 43,673 127,433 174,164
Silver - Ounces 1,893,724 1,273,722 7,244,657 5,147,009
Lead - Tons 9,120 6,096 34,455 24,995
Zinc - Tons 5,790 4,147 20,155 16,830
Industrial minerals - Tons shipped 245,313 237,802 1,114,987 1,025,993
Average cost per ounce of gold produced:
Cash operating costs ($/oz.) 190 159 177 166
Total cash costs ($/oz.) 200 167 189 173
Total production costs ($/oz.) 301 239 262 239
Average cost per ounce of silver produced:
Cash operating costs ($/oz.) 4.18 4.33 3.96 3.58
Total cash costs ($/oz.) 4.18 4.33 3.96 3.58
Total production costs ($/oz.) 5.60 6.09 5.37 5.42
- ---------------------------------------------------------------------------------------------------------
AVERAGE METAL PRICES
- ---------------------------------------------------------------------------------------------------------
Gold - Realized ($/oz.) 301 329 301 356
Gold - London Final ($/oz.) 294 307 294 331
Silver - Handy & Harman ($/oz.) 4.96 5.27 5.53 4.90
Lead - LME Cash (cents/pound) 22.5 25.6 24.0 28.3
Zinc - LME Cash (cents/pound) 43.3 53.8 46.5 59.7
</TABLE>
(1) EBITDA represents earnings before interest, income taxes, depreciation,
depletion, amortization and items classified as other operating expenses not
occurring at the operating sites. 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.
<PAGE> 6
HECLA MINING COMPANY
Consolidated Statements of Operations and Comprehensive Loss
(dollars and shares in thousands, except per share amounts - unaudited)
<TABLE>
<CAPTION>
Fourth Quarter Ended Year Ended
------------------------------ ------------------------------
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales of products $ 34,836 $ 34,219 $ 159,231 $ 163,948
--------- --------- --------- ---------
Cost of sales and other direct
production costs 31,015 28,550 127,933 126,742
Depreciation, depletion and
amortization 6,354 5,872 22,206 21,009
--------- --------- --------- ---------
37,369 34,422 150,139 147,751
--------- --------- --------- ---------
Gross profit (loss) (2,533) (203) 9,092 16,197
--------- --------- --------- ---------
Other operating expenses:
General and administrative 1,637 1,992 7,583 7,976
Exploration 1,518 1,892 4,866 7,422
Depreciation and amortization 96 78 389 311
Provision for (benefit from) closed
operations and environmental matters 271 (963) 734 (724)
Reduction in carrying value of
mining properties - - 715 - - 715
---------- --------- --------- ---------
3,522 3,714 13,572 15,700
---------- --------- --------- ---------
Income (loss) from operations (6,055) (3,917) (4,480) 497
---------- --------- --------- ---------
Other income (expense):
Interest and other income 1,236 661 5,917 4,621
Miscellaneous expense (300) (483) (1,487) (1,643)
Gain (loss) on investments (158) (405) 1,136 (405)
Interest expense:
Total interest cost (854) (532) (3,261) (2,462)
Less amount capitalized 9 197 959 806
---------- --------- --------- ---------
(67) (562) 3,264 917
---------- --------- --------- ---------
Income (loss) before income taxes (6,122) (4,479) (1,216) 1,414
Income tax benefit (provision) 620 (511) 916 (1,897)
---------- --------- ---------
- --- -------------
Net loss (5,502) (4,990) (300) (483)
Preferred stock dividends (2,012) (2,012) (8,050) (8,050)
---------- --------- --------- ---------
Loss applicable to common shareholders (7,514) (7,002) (8,350) (8,533)
---------- --------- --------- ---------
Other comprehensive income (loss), net of tax:
Unrealized losses on securities (16) (86) (115) (351)
Reclassification adjustment for losses
included in net loss 158 320 96 320
Minimum pension liability adjustment (289) - - (289) - -
---------- --------- --------- ---------
Other comprehensive income (loss) (147) 234 (308) (31)
---------- --------- --------- ---------
Comprehensive loss $ (7,661) $ (6,768) $ (8,658) $ (8,564)
========== ========= ========= =========
Basic and diluted loss per common share $ (0.14) $ (0.13) $ (0.15) $ (0.16)
========== ========= ========= =========
Weighted average number of common
shares outstanding 55,105 55,094 55,101 54,763
========== ========= ========= =========
</TABLE>
<PAGE> 7
HECLA MINING COMPANY
Consolidated Balance Sheets
(dollars and shares in thousands - unaudited)
<TABLE>
<CAPTION>
Dec. 31, 1998 Dec. 31, 1997
- ---------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,480 $ 3,794
Accounts and notes receivable 25,919 24,445
Income tax refund receivable 1,087 793
Inventories 22,757 22,116
Other current assets 1,251 1,416
--------- ---------
Total current assets 53,494 52,564
Investments 3,406 2,521
Restricted investments 6,331 7,926
Properties, plants and equipment, net 178,168 180,037
Other noncurrent assets 10,663 7,620
--------- ---------
Total assets $ 252,062 $ 250,668
========= =========
- ---------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 12,172 $ 12,590
Accrued payroll and related benefits 2,852 2,436
Preferred stock dividends payable 2,012 2,012
Accrued taxes 772 1,016
Accrued reclamation and closure costs 6,537 6,914
--------- ---------
Total current liabilities 24,345 24,968
Deferred income taxes 300 300
Long-term debt 42,923 22,136
Accrued reclamation and closure costs 23,216 34,406
Other noncurrent liabilities 9,542 8,518
--------- ---------
Total liabilities 100,326 90,328
--------- ---------
- ---------------------------------------------------------------------------
SHAREHOLDERS" EQUITY
- ---------------------------------------------------------------------------
- ------
Preferred stock 575 575
Common stock 13,792 13,789
Capital surplus 374,017 373,966
Accumulated deficit (230,493) (222,143)
Accumulated other comprehensive loss (5,269) (4,961)
Treasury stock (886) (886)
--------- ---------
Total shareholders' equity 151,736 160,340
--------- ---------
Total liabilities and shareholders' equity $ 252,062 $ 250,668
========= =========
Common shares outstanding at end of period 55,105 55,094
========= =========
</TABLE>
<PAGE> 8
HECLA MINING COMPANY
Consolidated Statements of Cash Flows
(dollars in thousands - unaudited)
<TABLE>
<CAPTION>
Year Ended
-------------------------------
Dec. 31, 1998 Dec. 31, 1997
- --------------------------------------------------------------------------------------
OPERATING ACTIVITIES
- --------------------------------------------------------------------------------------
<S> <C> <C>
Net loss $ (300) $ (483)
Noncash elements included in net income:
Depreciation, depletion and amortization 22,595 21,320
Gain on disposition of properties,
plants and equipment (2,648) (1,111)
(Gain) loss on investments (1,136) 405
Reduction in carrying value of mining properties - - 715
Provision for reclamation and closure costs 581 1,341
Change in:
Accounts and notes receivable (1,474) (277)
Income tax refund receivable (294) 469
Inventories (641) 548
Other current and noncurrent assets (1,747) 868
Accounts payable and accrued expenses (478) (4,787)
Accrued payroll and related benefits 416 (796)
Accrued taxes (244) (411)
Accrued reclamation and other noncurrent liabilities (12,587) (11,772)
---------- ----------
Net cash provided by operating activities 2,043 6,029
---------- ----------
- --------------------------------------------------------------------------------------
INVESTING ACTIVITIES
- --------------------------------------------------------------------------------------
Additions to properties, plants and equipment (22,495) (24,794)
Proceeds from disposition of properties,
plants and equipment 3,733 1,872
Proceeds from sale of investments 1,294 - -
Decrease in restricted investments 1,595 13,845
Purchase of investments and increase in cash surrender
value of life insurance, net (734) (1,233)
Other, net 399 1,642
---------- ----------
Net cash used by investing activities (16,208) (8,668)
---------- ----------
- --------------------------------------------------------------------------------------
FINANCING ACTIVITIES
- --------------------------------------------------------------------------------------
Common stock issued under stock and stock option plans 54 41
Issuance of common stock, net of offering costs - - 23,355
Dividends on preferred stock (8,050) (8,050)
Borrowings on long-term debt 44,531 57,601
Repayment on long-term debt (23,684) (73,673)
---------- ----------
Net cash provided (used) by financing activities 12,851 (726)
---------- ----------
Net decrease in cash and cash equivalents (1,314) (3,365)
Cash and cash equivalents at beginning of period 3,794 7,159
---------- ----------
Cash and cash equivalents at end of period $ 2,480 $ 3,794
========== ==========
</TABLE>
<PAGE> 9
HECLA MINING COMPANY
Production Data
<TABLE>
<CAPTION>
Fourth Quarter Ended Year Ended
----------------------------- -----------------------------
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
- ---------------------------------------------------------------------------------------------------------------
LA CHOYA UNIT
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tons of ore processed 570,554 777,301 1,672,438 2,828,335
Days of operation 92 92 365 365
Mining cost per ton $1.84 $1.93 $1.59 $2.28
Ore grade crushed - Gold (oz./ton) 0.020 0.027 0.019 0.029
Gold produced (oz.) 11,292 20,291 39,965 78,170
Silver produced (oz.) 992 2,173 4,264 8,130
Average cost per ounce of gold produced:
Cash operating costs $226 $180 $211 $183
Total cash costs $226 $181 $211 $184
Total production costs $329 $223 $242 $224
- ---------------------------------------------------------------------------------------------------------------
ROSEBUD UNIT (Reflects Hecla's 50% share)(1)
- ---------------------------------------------------------------------------------------------------------------
Tons of ore mined 39,727 37,619 169,492 112,841
Tons of ore milled 41,362 35,327 171,493 99,050
Days of operation 92 92 365 275
Mining cost per ton $28.37 $28.66 $26.88 $28.33
Milling cost per ton $11.56 $11.59 $14.66 $12.18
Ore grade milled - Gold (oz./ton) 0.384 0.501 0.400 0.494
Ore grade milled - Silver (oz./ton) 2.71 2.98 3.06 2.96
Gold produced (oz.) 14,946 17,833 65,496 46,974
Silver produced (oz.) 64,488 55,979 278,290 168,584
Average cost per ounce of gold produced:
Cash operating costs $163 $136 $157 $137
Total cash costs $181 $151 $176 $156
Total production costs $279 $259 $274 $263
- ---------------------------------------------------------------------------------------------------------------
LUCKY FRIDAY UNIT
- ---------------------------------------------------------------------------------------------------------------
Tons of ore milled 78,125 44,687 263,502 193,399
Days of operation 63 63 254 254
Mining cost per ton $50.95 $43.90 $47.62 $43.73
Milling cost per ton $6.99 $8.61 $7.52 $7.98
Ore grade milled - Silver (oz./ton) 15.95 11.55 16.60 10.33
Silver produced (oz.) 1,167,810 498,200 4,137,135 1,943,373
Lead produced (tons) 7,185 4,645 27,708 19,270
Zinc produced (tons) 721 750 2,648 3,168
Average cost per ounce of silver produced:
Cash operating costs $5.00 $6.33 $4.71 $5.47
Total cash costs $5.00 $6.33 $4.71 $5.47
Total production costs $5.89 $7.46 $5.59 $6.72
</TABLE>
(cont.)
<PAGE> 10
HECLA MINING COMPANY
Production Data (cont.)
<TABLE>
<CAPTION>
Fourth Quarter Ended Year Ended
----------------------------- ----------------------------
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec.31, 1997
- ---------------------------------------------------------------------------------------------------------------
GREENS CREEK (Reflects Hecla's 29.73% share)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tons of ore milled 43,331 36,420 160,567 145,676
Days of operation 92 92 365 365
Mining cost per ton $24.10 $44.32 $28.81 $39.58
Milling cost per ton $18.76 $25.80 $20.62 $23.15
Ore grade milled - Silver (oz./ton) 19.90 25.31 22.74 25.68
Silver produced (oz.) 660,234 716,601 2,823,660 2,889,265
Gold produced (oz.) 4,982 4,473 18,008 16,604
Lead produced (tons) 1,935 1,451 6,747 5,725
Zinc produced (tons) 5,069 3,397 17,507 13,662
Average cost per ounce of silver produced:
Cash operating costs $2.73 $2.94 $2.86 $2.31
Total cash costs $2.73 $2.94 $2.86 $2.31
Total production costs $5.08 $5.13 $5.06 $4.55
- ---------------------------------------------------------------------------------------------------------------
OTHER(2)
- ---------------------------------------------------------------------------------------------------------------
Gold produced (oz.) 810 1,076 3,964 32,416
Silver produced (oz.) 200 769 1,308 137,657
</TABLE>
(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.
CAPITAL EXPENDITURES
(dollars in thousands)
Year Ended
-----------------------------------
Dec. 31, 1998 Dec. 31, 1997
--------------- ---------------
Lucky Friday $ 6,183 $ 11,215
Greens Creek (29.73%*) 3,024 2,266
Rosebud (50%*) 118 6,027
La Choya 3,789 240
Noche Buena 2,326 - -
Industrial minerals 6,030 3,587
Capitalized interest 959 806
Other 66 653
------------- ------------
Total Capitalized $ 22,495 $ 24,794
============= ============
*Hecla's share
HEDGED POSITIONS
As of Dec. 31, 1998
Silver: 500,000 ounces hedged @ average price of $6.54.
Gold: 6,000 ounces hedged @ average price of $354.
<PAGE> 1
FORM 10-K DECEMBER 31, 1998
COMMISSION FILE NO. 1-8491
EXHIBIT 21
HECLA MINING COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF REGISTRANT
December 31, 1998
State or Country Percentage of
in Which Voting Securities
Organized Owned
---------------- -----------------
Equinox Resources, Inc. Nevada 100 (A)
Kentucky-Tennessee Clay Company Delaware 100 (A)
K-T Clay de Mexico, S.A. de C.V. Mexico 100 (A)
K-T Feldspar Corporation North Carolina 100 (A)
Minera Hecla, S.A. de C.V. Mexico 100 (A)
MWCA, Inc. Idaho 100 (A)
(A) Included in the consolidated financial statements filed herewith.
<PAGE> 1
Exhibit 23.1
Form 10-K December 31, 1998
Commission File No. 1-8491
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Hecla Mining Company and subsidiaries on Forms S-3
(File No. 33-72832 and No. 33-59659) and Forms S-8 (File No. 33-
7833, 33-41833, 33-14758, 33-40691, 33-60095 and 33-60099) of our
report, which includes an explanatory paragraph concerning
changes in accounting for environmental remediation liabilities
in 1996, dated February 8, 1999, except for Note 5, as to which
the date is February 25, 1999, on our audits of the consolidated
financial statements of Hecla Mining Company and subsidiaries as
of December 31, 1998 and 1997, and for the years ended
December 31, 1998, 1997 and 1996, which report is included in
this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Spokane, Washington
March 5, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,480
<SECURITIES> 0
<RECEIVABLES> 25,919
<ALLOWANCES> 0
<INVENTORY> 22,757
<CURRENT-ASSETS> 53,494
<PP&E> 417,011
<DEPRECIATION> (238,843)
<TOTAL-ASSETS> 252,062
<CURRENT-LIABILITIES> 24,345
<BONDS> 9,800
0
575
<COMMON> 13,792
<OTHER-SE> 137,369
<TOTAL-LIABILITY-AND-EQUITY> 252,062
<SALES> 159,231
<TOTAL-REVENUES> 165,148
<CGS> 127,933
<TOTAL-COSTS> 150,139
<OTHER-EXPENSES> 13,572
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,302
<INCOME-PRETAX> (1,216)
<INCOME-TAX> 916
<INCOME-CONTINUING> (300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (300)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>