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<SEC-DOCUMENT>0000719413-01-500016.txt : 20010416
<SEC-HEADER>0000719413-01-500016.hdr.sgml : 20010416
ACCESSION NUMBER: 0000719413-01-500016
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010412
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: HECLA MINING CO/DE/
CENTRAL INDEX KEY: 0000719413
STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400]
IRS NUMBER: 820126240
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-08491
FILM NUMBER: 1601070
BUSINESS ADDRESS:
STREET 1: 6500 MINERAL DRIVE
STREET 2: NONE
CITY: COEUR D'ALENE
STATE: ID
ZIP: 83815-8788
BUSINESS PHONE: 2087694100
MAIL ADDRESS:
STREET 1: 6500 MINERAL DRIVE
STREET 2: NONE
CITY: COEUR D'ALENE
STATE: ID
ZIP: 83815-8788
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>hl10kful.txt
<DESCRIPTION>HECLA MINING COMPANY FORM 10-K DEC 31, 2000
<TEXT>
<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, 2000
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:
Title of each class Name of each exchange on
- ----------------------------------------- which each class is registered
Common Stock, par value $0.25 per share ) ------------------------------
Preferred Share Purchase Rights for )
Series B Cumulative Convertible Preferred)
Stock, par value $0.25 per share ) New York Stock Exchange
- ----------------------------------------- ------------------------------
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
nonaffiliates was $45,929,649 as of March 30, 2001. There were 66,797,636
shares of the Registrant's Common Stock outstanding as of March 30, 2001.
Documents incorporated by reference herein:
To the extent herein specifically referenced in Part III, the information
contained in the Proxy Statement for the 2001 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 2000 fiscal year is
incorporated herein by reference. See Part III.
<PAGE> 2
Part I
Item 1. Business.(1)
General
Hecla Mining Company (Hecla), originally incorporated in 1891, is
principally engaged in the exploration, development and mining of precious and
nonferrous metals, including gold, silver, lead, zinc and certain industrial
minerals. The principal executive offices of Hecla are located at 6500 Mineral
Drive, Coeur d'Alene, Idaho 83815-8788, telephone (208) 769-4100. Hecla is a
Delaware corporation.
Statements made which are not historical facts, such as anticipated
production, potential asset sales, 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 or
implied. These risks and uncertainties include, but are not limited to, metals
prices and price volatility, volatility of metals production, costs of
production, the proposed sale of the remaining assets of the Colorado Aggregate
division of MWCA, remediation, reclamation, and environmental costs, regulatory
matters, cash flow, revenue calculations, the nature and availability of
financing, and project development risks. (See Investment Considerations).
Hecla does not undertake to update any forward-looking statements.
Hecla's principal producing metals properties in 2000 included 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 Hecla owns a 29.73% interest;
the La Camorra gold mine, located in the State of Bolivar, Venezuela, which
Hecla acquired in June 1999 and where operations recommenced in October 1999;
and the Rosebud gold mine, located near Winnemucca, Nevada, in which Hecla owns
a 50% interest, and where operations were completed in August 2000. In 2000,
Hecla's attributable gold and silver production was approximately 146,000 ounces
and 8.0 million ounces, respectively.
(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 30.
<PAGE> 3
The following table presents certain information regarding Hecla's metal
mining and development properties, including the relative percentage each
contributed to Hecla's 2000 revenues:
Percentage
of
Date Ownership 2000
Name of Property Acquired Interest Revenue(1)
- ----------------- -------- ---------- ------------
La Camorra 1999 100.0% 32.7%
Lucky Friday 1958 100.0% 30.4%
Greens Creek 1988 29.73% 26.8%
Rosebud 1994 50.0% 8.7%
- ------------------
(1) In addition to the percentage contributions of revenue from the metal
mines, hedging activities contributed 1.4%.
In 2000, Hecla's industrial minerals segment consisted of Kentucky-
Tennessee Clay Company (K-T Clay) (ball clay and kaolin divisions), K-T Feldspar
Corporation (K-T Feldspar), K-T Clay de Mexico, S.A. de C.V. (K-T Mexico) and
MWCA, Inc. MWCA operated two divisions: the Colorado Aggregate division and
the Mountain West Products division.
Hecla completed a sales transaction for substantially all of the assets of
the Mountain West Products division of MWCA on March 15, 2000, for $8.5 million
in cash. On June 5, 2000, Hecla completed a sale of the landscape operations of
the Colorado Aggregate division of MWCA for $1.1 million in cash. On March 27,
2001, Hecla closed the sale of its wholly owned subsidiaries K-T Clay, K-T
Feldspar, K-T Mexico and certain other minor inactive industrial minerals
companies for $62.5 million, transferring all of its interest in each of the
companies subject to the agreement. It is also Hecla's intention to sell the
remaining assets of the Colorado Aggregate division. Based upon Hecla's Board
of Directors decision in November 2000 to sell the remaining industrial mineral
assets including K-T Clay, K-T Mexico and K-T Feldspar, the industrial minerals
segment has been recorded as a discontinued operation as of December 31, 2000,
and for each of the three years in the period ended December 31, 2000.
Hecla has experienced net losses for each of the last ten years. For the
year ended December 31, 2000, Hecla reported a net loss of approximately $84.0
million (before preferred stock dividends of $8.1 million), or $1.26 per share
of common stock, compared to a net loss of approximately $40.0 million (before
preferred stock dividends of $8.1 million), or $0.64 per share of common stock,
for the year ended December 31, 1999. The 2000 net loss was due to a variety of
factors, the most significant of which were a $40.2 million reduction in
carrying value of mining properties consisting of write-downs at the Lucky
Friday mine ($31.2 million), the Rosebud mine ($4.4 million), and the Noche
<PAGE> 4
Buena property ($4.7 million), a $16.4 million provision for closed operations
and environmental matters, including $10.2 million at Grouse Creek and $5.6
million at the Bunker Hill Superfund site, and increasingly lower metals prices.
Hecla's strategy is to focus its efforts and resources on expanding its
gold and silver reserves through both acquisition and exploration efforts.
Hecla's domestic exploration plan for 2001 consists primarily of exploring for
additional reserves at, or in the vicinity of, its domestic owned properties.
Hecla's foreign exploration plan for 2001 will focus on the Saladillo property
in Mexico and the La Camorra mine in Venezuela. At the same time, Hecla intends
to continue to evaluate other acquisition and exploration opportunities.
Hecla'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 Hecla's control, including inflation and worldwide
forces of supply and demand. The aggregate effect of these factors on Hecla
cannot be accurately predicted.
Sales of metal concentrates and metal products are made principally to
custom smelters and metals traders. The percentage of revenue contributed by
each class of product is reflected in the following table:
Years
---------------------------------
Product 2000 1999 1998
---------------- --------- --------- --------
Gold 44.7% 35.2% 44.9%
Silver, lead and zinc 55.3 64.8 55.1
For information with respect to export sales, refer to Note 2 and 12 of
Notes to Consolidated Financial Statements forming part of Hecla's audited
Consolidated Financial Statements for the year ended December 31, 2000.
The table below summarizes Hecla's production and average cash operating
cost, average total cash cost and average total production cost per ounce for
gold and silver, as well as average metals prices for each period indicated:
Years
-----------------------------------
2000 1999 1998
------- ------- -------
Gold (ounces)(1) 146,038 110,110 127,433
Silver (ounces)(2) 7,998,677 7,617,362 7,244,657
Lead (tons)(2) 39,430 35,195 34,455
Zinc (tons)(2) 25,054 23,299 20,155
<PAGE> 5
Average cost per ounce of gold produced:
Cash operating cost $ 208 $ 195 $ 177
Total cash cost $ 211 $ 205 $ 189
Total production cost $ 275 $ 298 $ 262
Average cost per ounce of silver produced:
Cash operating cost $ 4.02 $ 3.72 $ 3.96
Total cash cost $ 4.02 $ 3.72 $ 3.96
Total production cost $ 5.49 $ 5.25 $ 5.37
Industrial minerals
(tons shipped) 1,268,579 1,192,281 1,114,987
Average metal prices:
Gold - Realized ($/oz.) $ 284 $ 286 $ 301
Gold - London Final ($/oz.) $ 279 $ 279 $ 294
Silver - Handy & Harman ($/oz.) $ 5.00 $ 5.25 $ 5.53
Lead - LME Cash (cents/pound) $ 20.6 $ 22.8 $ 24.0
Zinc - LME Cash (cents/pound) $ 51.2 $ 48.8 $ 46.5
(1) The increase in gold production from 1999 to 2000 was principally due
to increased production at the La Camorra mine of 75,508 ounces due to
operating a full year in 2000 as compared to three months in 1999.
This increase was partly offset by decreased production of 32,403
ounces at the Rosebud mine, where mining operations were completed in
August 2000, and at the La Choya mine where mining activities were
completed in December 1998 and gold production was essentially
completed in 1999. The decrease in gold production from 1998 to 1999
was principally due to decreased production at the La Choya mine of
28,108 ounces resulting from completion of mining activities in
December 1998 and decreased production at the Rosebud mine of 9,167
ounces. These decreases were partly offset by production of 17,340
gold ounces at the La Camorra mine acquired by Hecla in June 1999.
(2) The increases in silver, lead and zinc production from 1999 to 2000
were principally due to increased tons mined and increased silver grade
from the Lucky Friday expansion area in 2000. The increases in silver,
lead and zinc production from 1998 to 1999 were principally due to
increased tons mined from the Lucky Friday expansion area in 1999 and
increased grade and tons mined at the Greens Creek mine.
<PAGE> 6
Metals - Silver Segment
Lucky Friday Mine - Idaho
The Lucky Friday mine, a deep underground silver and lead mine, located in
northern Idaho and 100% owned by Hecla, has been a producing mine for Hecla
since 1958.
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 6020-foot level, which is currently being developed.
During 1991, Hecla 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. A final
feasibility study was completed in 1997, and Hecla'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.
Hecla controls the Gold Hunter property under a long-term operating
agreement which entitles Hecla, as operator, to a 79.08% interest in the net
profits from operations from the Gold Hunter properties. Hecla will be
obligated to pay a royalty after it has recouped its costs to explore and
develop the properties. As of December 31, 2000, unrecouped costs totaled
approximately $30.0 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 2000, ore was processed at a rate of
approximately 1,051 tons per day at the Lucky Friday mine site. The flotation
process produces both a silver-lead concentrate and a zinc concentrate. During
2000, approximately 94.0% of the silver, 93.6% of the lead and 41.4% of the zinc
were economically recovered.
In the fourth quarter of 2000, the Company recorded an adjustment of $31.2
million to reduce the carrying value of the
<PAGE> 7
Lucky Friday mine property, plant and equipment in accordance with Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of." The adjustment was
necessitated by continuing low silver and lead prices, combined with further
declines in silver and lead prices during the fourth quarter of 2000. For the
first nine months of 2000, silver averaged $5.08 per ounce and lead averaged
$0.203 per pound. During the fourth quarter of 2000, silver decreased to an
average price of $4.75 per ounce and ended the year at $4.59 per ounce. Lead
averaged $0.214 per pound during the fourth quarter and ended the year at $0.214
per pound. Additionally, due to low metal prices in the fourth quarter, the
Company's management and Board of Directors deferred the decision to approve
additional capital expenditures which are needed to develop the next area of the
mine. In evaluating the carrying value of the Lucky Friday mine, Hecla used
metals prices of $5.25 per silver ounce; $0.25 per lead pound; and $0.50 per
zinc pound. The net book value of the Lucky Friday mine property and its
associated plant and equipment was approximately $4.3 million as of December 31,
2000.
Ultimate reclamation activities contemplated include stabilization of
tailings ponds and waste rock areas. Total reclamation expense recognized in
2000 was approximately $16,200 for reclamation activities performed in 2000.
Historically, the Lucky Friday silver-lead concentrate has been shipped
primarily to the ASARCO smelter in East Helena, Montana. With the increased
production starting in 1998 from the Gold Hunter orebody, the silver-lead
concentrates have been shipped to several different smelters in Canada, the
United States, Mexico and Europe. In 2001, it is anticipated that the Lucky
Friday silver-lead concentrate production will be shipped to Met-Mex Penoles'
smelter in Torreon, Coahuila, Mexico; to Cominco's smelter in Trail, British
Columbia, Canada; and to Noranda's smelter in Belledune, New Brunswick, Canada.
On February 2, 2001, ASARCO's East Helena smelter informed the Lucky Friday that
shipments should be stopped immediately. Lucky Friday concentrate that was
scheduled for East Helena was diverted to the remaining three smelters with no
adverse impact to the Lucky Friday operation.
The Lucky Friday zinc concentrates are shipped to Cominco's smelter in
Trail, British Columbia, Canada.
Information with respect to the Lucky Friday mine's production, average
cost per ounce of silver produced and Proven and Probable ore reserves for the
past three years is set forth in the table below:
<PAGE> 8
Years
------------------------------------
Production 2000 1999 1998
- ---------------------- --------- --------- ----------
Ore milled (tons) 321,719 309,953 263,502
Silver (ounces) 5,011,507 4,441,250 4,137,135
Gold (ounces) 537 655 925
Lead (tons) 31,946 27,613 27,708
Zinc (tons) 3,107 2,926 2,648
Average Cost per Ounce
of Silver Produced
- -----------------------
Cash operating costs $ 5.02 $ 4.90 $ 4.71
Total cash costs $ 5.02 $ 4.90 $ 4.71
Total production costs $ 5.83 $ 5.85 $ 5.59
Proven and Probable
Ore Reserves(1,2,3) 12/31/00 12/31/99 12/31/98
- ----------------------- --------- --------- ----------
Total tons 1,322,270 1,669,450 1,220,820
Silver (ounces per ton) 16.7 15.1 15.9
Lead (percent) 10.7 9.6 10.5
Zinc (percent) 1.4 1.6 1.8
Contained silver (ounces) 22,089,451 25,179,141 19,459,256
Contained lead (tons) 141,380 160,693 128,748
Contained zinc (tons) 18,546 26,895 21,965
- ---------------------
(1) For Proven and Probable ore reserve assumptions and definitions, see
Glossary of Certain Mining Terms.
(2) Hecla's Lucky Friday mine ore reserve grades increased and tonnage
decreased in 2000 compared to 1999 in part due to an increase in cash
cutoff grade of 4.38% in 2000, resulting in removing some lower grade tons
from reserve. Adjustments to reserves also reflect a new estimate of
reserves at year-end 2000 that incorporates diamond drilling data performed
during the year. The Lucky Friday mine ore reserves increased in 1999 from
1998 in metal content, but decreased in grade of silver, lead and zinc due
to additional diamond drilling and incorporation of the information in a
new, in-house estimate of reserves. The mine uses a combination of
geostatistical and traditional methods to estimate reserves.
(3) Reserves are in-place material that incorporate estimates of waste dilution
and expected mining recovery. Mill recoveries are expected to be 94% for
silver, 93% for lead and 45% for zinc for the in-place reserves stated
above.
At December 31, 2000, there were 225 employees at the Lucky Friday mine.
The United Steelworkers of America is the
<PAGE> 9
bargaining agent for the Lucky Friday hourly employees. The current labor
agreement expires on June 1, 2002. Avista Corporation supplies electrical power
to the Lucky Friday mine.
Greens Creek Mine - Admiralty Island, Alaska
At December 31, 2000, Hecla held a 29.73% interest in the Greens Creek
mine, located on Admiralty Island, near Juneau, Alaska, through a joint-venture
arrangement with Kennecott Greens Creek Mining Company (KGCMC), the manager of
the mine, and Kennecott Juneau Mining Company (KJMC), both wholly owned
subsidiaries 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 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.
Currently, Greens Creek is mining approximately 1,680 tons per day
underground from the 200 South, 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 on Admiralty Island
about nine miles from the mine site. The Greens Creek mine uses electrical
power provided by diesel-powered generators located on-site.
Pursuant to a 1996 land exchange agreement, the joint venture transferred
private property equal to a value of $1.0 million to the U.S. Forest Service and
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 resulted in important additions to the mine's
Proven and Probable ore reserves. Drilling continued in 1999, resulting in net
additions to the 200 South and other reserves, sufficient to approximately
replace production. Similar production replacement resulted from drilling in
2000.
<PAGE> 10
As of December 31, 2000, there were 268 employees at the Greens Creek mine.
The employees at the Greens Creek mine are not represented by a bargaining
agent. At December 31, 2000, Hecla's interest in the net book value of the
Greens Creek mine property and its associated plant and equipment was $63.5
million.
Based upon management's estimates of metal to be recovered and considering
estimated future production costs and metals prices, Hecla'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, Hecla used metals prices of $280 per gold ounce;
$5.25 per silver ounce; $0.25 per lead pound; and $0.50 per zinc pound.
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, Hecla estimates that future cash and total
production costs per ounce of silver produced over the remaining life of the
mine would be $2.52 and $5.30, 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 Hecla, but the reserve compilation is not
independently confirmed by Hecla in its entirety. Information with respect to
Hecla's 29.73% share of production, average cost per ounce of silver produced
and Proven and Probable ore reserves is set forth in the table below:
Years (reflects 29.73% interest)
---------------------------------------
Production 2000 1999 1998
- ----------------------- ---------- ---------- ----------
Ore milled (tons) 184,178 171,946 160,567
Silver (ounces) 2,754,067 3,050,849 2,823,660
Gold (ounces) 24,882 23,802 18,008
Zinc (tons) 21,947 20,373 17,507
Lead (tons) 7,484 7,582 6,747
<PAGE> 11
Average Cost per Ounce
of Silver Produced
- -----------------------
Cash operating costs $ 2.20 $ 1.99 $ 2.86
Total cash costs $ 2.20 $ 1.99 $ 2.86
Total production costs $ 4.87 $ 4.37 $ 5.06
Proven and Probable
Ore Reserves(1,2,3,4) 12/31/00 12/31/99 12/31/98
- ----------------------- ---------- ---------- ----------
Total tons 2,977,198 2,977,960 2,901,028
Silver (ounces per ton) 15.7 16.2 15.4
Gold (ounces per ton) 0.13 0.14 0.14
Zinc (percent) 11.9 11.9 12.3
Lead (percent) 4.4 4.5 4.5
Contained silver (ounces) 46,663,068 48,324,528 44,733,855
Contained gold (ounces) 396,891 403,552 411,946
Contained zinc (tons) 353,698 354,657 357,407
Contained lead (tons) 131,515 133,194 130,836
- ---------------------
(1) For Proven and Probable ore reserve assumptions and definitions, see
Glossary of Certain Mining Terms.
(2) Ore reserves represent in-place material, diluted and adjusted for expected
mining recovery. Payable recoveries of ore reserve grades by smelters and
refiners are expected to be 66% for silver, 50% for gold, 67% for zinc and
62% for lead.
(3) The changes in reserves in 2000 versus 1999 were due to production and a
property-wide reassessment of the ore zones. KGCMC made new estimates of
reserves based on drill programs for the West and Southwest ore zones. All
ore reserves were retabulated based on a new net smelter return model. The
decrease in silver ounces in 2000 versus 1999 is primarily attributable to
a downward revision in estimated silver grade in the Southwest zone.
(4) The changes in reserves in 1999 versus 1998 were due to production and a
reassessment of the ore zones. New reserve estimates were based on drill
programs for the 200 South, 5250, West, West Bench, and Deep Lower
Southwest zones. The increase in silver ounces in 1999 versus 1998 is
primarily attributable to upward revisions in estimated silver grade in the
200 South zone.
Metals - Gold Segment
La Camorra Gold Mine - Bolivar, Venezuela
The La Camorra mine is located in the eastern Venezuelan State of Bolivar,
approximately 120 miles southeast of Puerto
<PAGE> 12
Ordaz. It is 100% owned by Hecla through a Venezuelan subsidiary, Minera Hecla
Venezolana, C.A., and has been a producing mine for Hecla since October 1999.
Hecla acquired the La Camorra mine in June 1999 with the acquisition of Monarch
Resources Investments Limited.
At the time of acquisition, the tailings impoundment was at capacity.
Processing operations were suspended during the third quarter of 1999 to allow
additional tailings capacity to be constructed. During this period, mine
development was accelerated and remedial maintenance was carried out on the mine
and process plant equipment. Production under Hecla's control commenced on
October 1, 1999.
La Camorra is a high-grade underground gold mine that exploits two shear-
zone hosted quartz veins. It lies in the Botanamo greenstone belt of the
Precambrian Guayana Shield and is hosted by the Caballape Group of
volcaniclastics. The formations most likely date from Archean to Proterozoic
age and consist primarily of intermediate volcanics with subordinate
metasediments. Within the La Camorra concession, the gold mineralization is
associated with the near vertical Main and Betzy quartz veins occurring in a
west-northwest, east-southeast shear zone within medium- to coarse-grained
pyroclastics.
Gold occurs both as free particles in quartz and attached to or included in
pyrite. Locally, gold is also seen on chloritic partings.
In 1998, a core drilling program was initiated to test the depth extension
of the ore zones below the -400-meter level. Hecla believes the results of that
program confirm that ore-grade mineralization extends to depths below the levels
to which the current mine reserves have been delineated.
In addition, Hecla controls nine other exploration concessions near the La
Camorra mine encompassing 8,000 hectares.
Access to the underground workings is through a decline excavated at a -15%
grade. Ore is mined primarily by longhole stoping, with cut-and-fill stoping
used in some areas. Ore is extracted from the stopes using rubber-tired
equipment and hauled to the surface in mine haulage trucks. Subeconomic
material is used to backfill and stabilize mined-out stopes. The mine is
currently producing approximately 450 tons of ore per day.
The process plant uses a conventional carbon-in-leach process. The ore is
crushed in a modular two-staged crushing plant consisting of a primary jaw, a
secondary cone crusher and a double deck vibrating screen. The grinding circuit
includes a primary and a secondary ball mill. The ground ore is mixed with a
cyanide solution and clarified, followed by countercurrent carbon-in-leach gold
adsorption. The carbon is then stripped and the gold recovered and poured into
gold bars for shipment to a refiner. Plant recovery averages 95%.
<PAGE> 13
The plant was constructed in 1994 and is capable of processing
approximately 500 tons per day. Site infrastructure includes a water supply
system, maintenance shop, warehouse, living quarters, a dining facility,
administration building and a National Guard post. The Company also shares a
housing facility located near the town of El Callao with units for approximately
50 families. Mine electric power is purchased from Eleoriente (a state owned
electric company). Diesel-powered electric generators are available on-site for
operation of critical equipment during power outages. At December 31, 2000, the
net book value of the La Camorra mine property and its associated plant and
equipment was $30.9 million.
Hecla's reclamation plan has been approved by the Ministry of Environment
and Natural Resources. Planned activities include regrading and revegetation of
disturbed areas. A reclamation and closure accrual of $0.6 million had been
established as of December 31, 2000.
At December 31, 2000, there were 321 hourly and 63 salaried employees.
Most hourly workers are represented by the Mine Workers union. The present
contract will expire in November 2001, and Hecla anticipates a satisfactory
contract will be negotiated, although there can be no assurance that this can be
done without a disruption to production.
Information with respect to the La Camorra mine's production, average cost
per ounce of gold produced and Proven and Probable ore reserves is set forth in
the table below.
Year
------------------------
Production 2000 1999
- ------------------ ---------- ----------
Ore processed (tons)(1) 138,216 39,048
Gold (ounces)(1) 92,848 17,340
Average Cost per Ounce
of Gold Produced
- ----------------------
Cash operating costs $ 188 $ 208
Total cash costs $ 188 $ 208
Total production costs $ 246 $ 260
Proven and Probable
Ore Reserves(2,3) 12/31/00 12/31/99
- -------------------- ---------- ----------
Total tons 591,464 577,003
Gold (ounces per ton) 0.634 0.544
Contained gold (ounces) 375,200 313,616
- --------------------
<PAGE> 14
(1) Production data for 1999 only includes three months of operations
since the recommencement of the mine in October 1999.
(2) For Proven and Probable ore reserve assumptions, including assumed
metals prices, see Glossary of Certain Mining Terms.
(3) The increase in tons of Proven and Probable ore reserves in 2000
compared to 1999 is attributable to: a) increasing the mining width
of the Betzy vein in 2000 to 2.0 meters from 1.4 meters; b) new in-
house resource estimates for both the Betzy and Main veins using
information from 103 new drill holes and mine production samples; and
c) reclassification of some resources to reserves, offset by mining.
Hecla's experience of 18 months mining the La Camorra veins indicated
an increase in grade in the reserve estimate for 2000 compared to
1999, attributable both to higher production sample grades and higher
realized mill grades than previously encountered. Ore reserves
represent in-house material, diluted and adjusted for expected mining
recovery. Mill recoveries are expected to be 95%. Ore reserves are
estimated in-house using geostatistical methods based on drill holes,
underground mine sampling and operations experience.
Rosebud Gold Mine - Nevada
The Rosebud gold mine, in which Hecla 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, 618 unpatented
lode-mining claims and four additional patented lode-mining claims currently
under lease. The total 625 claims cover approximately 12,500 acres and
collectively comprise the "Rosebud mine." The Rosebud mine may be reached from
Winnemucca, Nevada, by travelling west a distance of approximately 58 miles on
an all-weather gravel road.
In June 2000, Hecla and Newmont Gold Company, who holds the remaining 50%
interest, announced the planned closure of the Rosebud mine when it was
recognized that production would cease during the third quarter. Mining
activity was completed in July 2000, and milling activity was completed in
August 2000. In connection with the planned closure, Hecla recorded an
adjustment to the carrying value of its interest in the Rosebud property, plant,
and equipment of $4.4 million in the second quarter of 2000.
Total mine production through July 2000 averaged 714 tons per day of ore.
Ore grades milled were 0.269 gold ounce per ton and 1.08 ounces of silver per
ton. The ore produced from the mine was processed in a conventional carbon-in-
leach circuit. The mill produced a high quality gold-silver dore. During 2000,
94.6% of the gold and 55.7% of the silver processed at the mill were
<PAGE> 15
economically recovered. Hecla's share of 2000 production was approximately
23,900 gold ounces and 56,000 silver ounces.
Currently, the Rosebud property is being reclaimed per the closure
agreement with the Nevada Department of Environmental Protection.
The following table presents information with respect to Hecla's 50% share
of production, the average cost per ounce of gold produced and Proven and
Probable ore reserves for the Rosebud project as of the dates indicated:
Years (reflects 50% interest)
-------------------------------------
Production 2000 1999 1998
- --------------------- --------- --------- ---------
Ore milled 90,801 140,351 171,493
Gold recovered (ounces) 23,926 56,329 65,496
Silver recovered (ounces) 55,975 123,953 278,290
Average Cost per Ounce
of Gold Produced
- ------------------------
Cash operating costs $ 290 $ 184 $ 157
Total cash costs $ 301 $ 199 $ 176
Total production costs $ 392 $ 301 $ 274
Proven and Probable
Ore Reserves(1,2,3) 12/31/00 12/31/99 12/31/98
- ----------------------- --------- --------- ---------
Total tons - - 107,837 241,927
Gold (ounces per ton) - - 0.323 0.392
Silver (ounces per ton) - - 1.23 1.80
Contained gold (ounces) - - 34,857 94,808
Contained silver (ounces) - - 132,216 436,252
- ------------------
(1) For Proven and Probable ore reserve assumptions, including assumed metals
prices, see Glossary of Certain Mining Terms.
(2) Ore reserves were depleted in 2000 due to depletion from mining and poor
reserve performance in the North zone orebody. By mid-year, tons and
grades of ore remaining were insufficient to sustain the project and thus
were no longer termed ore reserves. Mining was completed in July 2000.
(3) The decrease in tons of Proven and Probable ore reserves in 1999 compared
to 1998 is primarily attributable to production during 1999, a decrease in
dilution applied to the East Zone, reestimation of the North Zone using 89
new drill holes, reestimation of the South Zone using 25 new drill holes
and reclassification of reserve blocks that no longer meet Proven and
Probable criteria.
<PAGE> 16
(4) Ore reserves represent in-place material, diluted and adjusted for expected
mining recovery. Ore reserve estimates are performed in-house using
geostatistical methods based on drilling, sampling of mine openings and
operations experience.
As of December 31, 2000, there were seven employees at the Rosebud mine.
The employees at the mine are not represented by a bargaining agent.
La Choya Gold Mine - Sonora, Mexico
The La Choya gold mine is located 30 miles south of the U.S. border in the
State of Sonora, Mexico, and is 100% owned by Hecla through a Mexican
subsidiary, Minera Hecla, S.A. de C.V.
The La Choya gold mine commenced operations in February 1994 and produced
approximately 331,000 ounces of gold between 1994 and 2000. On December 19,
1998, the mine was shut down because the Proven and Probable ore reserves were
exhausted. Since that date, the leach pads have been rinsed and drained and the
site has been reclaimed. The average life-of-mine recovery was 85.5%.
Information with respect to the La Choya gold mine production and average
cost per ounce of gold produced, as of the dates indicated, is set forth in the
following table:
Years
--------------------------------------
Production 2000 1999 1998
- ----------------------- ---------- ---------- ----------
Ore processed (tons) - - - - 1,672,438
Gold (ounces) 462 11,857 39,965
Average Cost per Ounce
of Gold Produced
- --------------------------
Cash operating costs $ - - $ 231 $ 211
Total cash costs $ - - $ 231 $ 211
Total production costs $ - - $ 341 $ 242
Proven and Probable
Ore Reserves(1,2,3) 12/31/00 12/31/99 12/31/98
- -------------------------- ---------- ---------- ----------
Total tons - - - - - -
Gold (ounces per ton) - - - - - -
Contained gold (ounces)(2) - - - - 11,883
- --------------------------
(1) For Proven and Probable ore reserve assumptions, including assumed metals
prices, see Glossary of Certain Mining Terms.
<PAGE> 17
(2) Contained gold ounces include estimated recoverable gold ounces on the heap
leach pads totaling approximately 12,000 gold ounces at December 31, 1998.
These ounces were placed on the pads during 1994-1998 and recovered over
the mine's remaining life.
Reclamation activities, consisting of rinsing the leach pads, recontouring
the waste dumps and leach pads, removing plant and equipment, and revegetating
the site, which were carried out during 1999 and 2000, will be completed during
the first quarter of 2001. During 2000, approximately $1.5 million was expended
on reclamation activities.
As of December 31, 2000, the net book value of the La Choya mine property,
plant and equipment was $0.7 million.
Discontinued Operations
Hecla'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; and its specialty aggregate operations (primarily scoria) in
southern Colorado. Hecla 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 Hecla's specialty aggregate business, and in 1999, operated its
lawn and garden products business. In March 2000, Hecla sold its lawn and
garden division of MWCA, Inc. In June 2000, Hecla completed the sale of the
landscape operations of the Colorado Aggregate division, with the intent to sell
the remaining assets in 2001. During the second and third quarters of 2000, the
Company through a financial advisor sought out parties who might be interested
in purchasing Hecla's ball clay, kaolin and feldspar businesses. A number of
parties expressed interest and undertook due diligence of the operations of K-T
Clay, K-T Feldspar and K-T Mexico. In November 2000 following approval of the
board of directors, the Company entered into a purchase and sale agreement for
the sale of its ball clay and kaolin operations through the sale of the stock of
K-T Clay and K-T Mexico to Zemex U.S. Corporation, a wholly owned subsidiary of
Zemex Corporation of Toronto, Canada, for a purchase price of $68.0 million. In
the transaction, Zemex Corporation agreed to guarantee the obligations of its
U.S. subsidiary under the purchase and sale agreement. In January 2001, Zemex
U.S. Corporation failed to meet its obligations under the purchase and sale
agreement to close the transaction as previously agreed to. Following Zemex
U.S. Corporation's failure to close the transaction, Hecla commenced litigation
against the parent company, Zemex Corporation, under its guarantee in federal
district court in Illinois claiming that its subsidiary Zemex U.S. Corporation
had failed to meet its obligations to purchase K-T Clay and K-T Mexico as
previously agreed. The Company initially sought the court to force Zemex
Corporation to perform its obligations under the guarantee agreement or to pay
damages incurred by Hecla resulting from Zemex U.S. Corporation's failure to
meet their obligations under the purchase agreement. Subsequently, Hecla
continued to seek out
<PAGE> 18
other purchasers for its ball clay, kaolin and feldspar operations and on
February 27, 2001, Hecla entered into a purchase and sale agreement with IMERYS
USA, Inc., to sell all of its ball clay, kaolin and feldspar operations through
the sale of its wholly owned subsidiaries K-T Clay, K-T Feldspar, K-T Mexico and
certain other minor industrial minerals companies holding assets related to
these industrial minerals businesses. The purchase price for this sale was
$62.5 million subject to customary post-closing adjustments. On March 27, 2001,
the Company closed the sales transaction to IMERYS USA, Inc. transferring all of
its interest in each of the companies subject to the agreement. Based on the
agreement for the sale of its interest in K-T Clay and K-T Mexico, Hecla
dismissed the claim in the Zemex litigation seeking Zemex's performance of the
purchase agreement. The Company continues to pursue the litigation seeking
damages against Zemex for its failure to meet its obligations under the November
2000 agreement. Based upon Hecla's Board of Directors decision in November 2000
to sell the remaining industrial minerals segment including K-T Clay, K-T Mexico
and K-T Feldspar, Hecla's Consolidated Financial Statements set forth in Item 8
below reflect the industrial minerals segment as a discontinued operation.
MWCA, Inc.
In 1999, Hecla decided to sell MWCA. Hecla completed a sales transaction
for the Mountain West Products division of MWCA in March 2000. Hecla also
completed a sale of the landscape operations of the Colorado Aggregate division
in June 2000. Hecla continues to market the remaining Colorado Aggregate
division assets, although there can be no assurance that a sales transaction
will be completed.
MWCA, Inc. - Colorado Aggregate Division
MWCA-Colorado Aggregate division (CAC) mines and sells volcanic rock
(scoria) for use as briquettes in gas barbecue grills and as decorative ground
cover. CAC also 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. In June
2000, Hecla completed a sales transaction for the landscape operations of CAC.
Hecla continues to market the remaining assets of CAC, although there can be no
assurance that a sales transaction will be completed.
CAC operates a mine at Mesita, Colorado, as well as processing plants at
San Acacio, Colorado, and Neosho, Missouri. All mining is open pit with minimal
requirements for removal of overburden.
The principal customers for scoria briquettes are manufacturers and
retailers of gas barbecue grills. Pet supply retailers and discount chain
stores are the principal customers for aquarium gravel. Due to the seasonal
nature of CAC's
<PAGE> 19
briquette business, it is usually anticipated that most of its annual briquette
sales and profits from briquette sales will be generated in the first two
quarters of each calendar year.
The Mesita mine is owned by CAC and contains over four years of mineral
reserves. CAC purchases the rock used for aquarium gravel.
CAC's plants and equipment have been operational in excess of 25 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 $0.8 million as of December 31, 2000.
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 42 employees as of December 31, 2000. The Teamsters Union is the
bargaining agent for CAC's hourly employees. The current labor agreement
expires on September 17, 2001.
Nonoperating Properties
Republic Mine - Republic, Washington
Hecla owns the Republic gold mine located in the Republic Mining District
near Republic, Washington. In February 1995, Hecla completed operations at the
Republic mine and has been conducting reclamation work in connection with the
mine and mill closure. Hecla's land position in the Republic area consists of
approximately five square miles. In August 1995, Hecla 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. In 2000, Echo Bay
acquired Newmont's interest in the property and completed a limited drilling
program.
At December 31, 2000, the accrued reclamation and closure costs balance
totaled $3.7 million. Reclamation and closure efforts commenced in 1995. Post-
reclamation monitoring will be conducted for approximately three years,
following completion of reclamation activities. Reclamation and closure cost
expenditures totaling approximately $0.1 million during 2000 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,
2000.
<PAGE> 20
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 five 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, Hecla 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. Hecla
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, Hecla completed metallurgical testing and economic analysis of the
Grouse deposit. Based upon this analysis, Hecla determined that ore contained
in the Grouse deposit was not economical at the then-current metals prices.
Hecla 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, Hecla 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 Hecla entered into a letter agreement
terminating the Grouse Creek joint venture and conveying Great Lakes'
approximate 20% interest in the project to Hecla. Great Lakes retained a 5%
defined net proceeds interest in the project. Hecla assumed 100% of the
interests and obligations associated with the property.
Following completion of mining in the Sunbeam pit in April 1997, Hecla
placed the Grouse Creek mine on a care-and-maintenance status. During the care-
and-maintenance period, reclamation had been undertaken to prevent degradation
of the property. During 1997, the milling facilities were mothballed and
earthwork completed to contain and control surface waters.
<PAGE> 21
In 1998, an engineered cap was constructed on the waste rock storage facility
and modifications were made to the water treatment facility. In 1999 and 2000,
activities included further work on the waste rock storage facility cover and
continued work controlling surface waters.
Hecla increased the reclamation accrual by $23.0 million in 1999 due to
anticipated changes to the closure plan, including increased dewatering
requirements and other expenditures. The changes to the reclamation plan at
Grouse Creek were necessitated principally by the need to dewater the tailings
impoundment rather than reclaim it as a wetland as originally planned.
During 2000, Hecla notified state and federal agencies that the Grouse
Creek property would proceed to a permanent suspension of operations. Hecla
signed an agreement with the state of Idaho and a voluntary administrative order
on consent with the US Forest Service and US Environmental Protection Agency in
which the Company agreed to dewater the tailings impoundment, complete a water
balance report and monitoring plan for the site and complete certain studies
necessary for closure of the tailings impoundment. A work plan for final
reclamation and closure of the tailings impoundment is to be submitted by Hecla
no later than one year prior to estimated completion of the tailings impoundment
dewatering.
Hecla increased the reclamation accrual by $10.2 million in 2000 based upon
updated cost estimates in accordance with Statement of Position 96-1
"Environmental Remediation Liabilities," due to the requirements of the
administrative order on consent. The reclamation and closure cost accrual for
the Grouse Creek mine totaled $34.8 million as of December 31, 2000, although it
is possible that the estimate may change in the future due to the assumptions
and estimates inherent in the accrual.
Development Project
Saladillo Exploration Projects - Durango, Mexico
The 222-square mile Saladillo concessions, located 56 miles northeast of
the city of Durango, were acquired through Hecla's acquisition of Monarch
Resources Investments Limited in 1999. Soil geochemistry, geophysics,
trenching, and reverse circulation drilling were used to explore the San
Sebastian target for high-grade gold and silver mineralization. So far,
economic grades of mineralization have been identified in at least five vein
systems at San Sebastian, in an area that is three kilometers long and one
kilometer wide.
In addition to exploration at San Sebastian, 34,319 tons of ore, grading
0.23 ounce of gold and 10.9 ounces of silver per ton, were mined from open cuts
along the Francine vein. Of this
<PAGE> 22
material, 20,203 tons of ore, grading 0.18 ounce of gold and 9.1 ounces of
silver per ton, were processed by BLM Minera Mexicana, S.A. de C.V. at its
cyanide leach plant near Velardena, Durango, resulting in production of 3,383
ounces of gold and 177,006 ounces of silver. Precipitates from BLM's mill were
refined at Penoles' refinery in Torreon, Coahuila.
Future plans for San Sebastian provide for continuation of ore production
from open cuts along the identified veins followed by underground development
and production from the Francine vein, provided suitable arrangements can be
negotiated for processing the ore produced.
Noche Buena Gold Project - Sonora, Mexico
The Noche Buena project is located 44 miles northwest of Caborca, and 25
miles south of the La Choya mine in the state of Sonora, Mexico and is 100%
owned by Hecla through its Mexican subsidiary, Minera Hecla, S.A. de C.V. There
are 18,916 hectares under concession.
Minera Hecla drilled 4,292 meters of core in 39 holes and 23,432 meters of
reverse circulation in 130 drill holes during 1998 and 1999. In addition,
column leach tests were run and an open-pit heap-leaching operation was
designed. Although an operating permit was received for Noche Buena during
2000, Noche Buena was placed on care and maintenance in August 1999. During the
second quarter of 2000, a carrying value adjustment of $4.7 million was made for
previously capitalized deferred development costs. Hecla will reevaluate this
project if gold prices return to higher levels; however, there can be no
assurance that it will ever be developed.
Exploration
Hecla conducts exploration activities from its headquarters in
Coeur d'Alene, Idaho. Hecla owns or controls patented and unpatented mining
claims, fee land, mineral concessions and state and private leases in the United
States, Mexico, Venezuela and other South American countries. Hecla'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. Hecla is currently concentrating its exploration activities at
the Greens Creek silver mine, in which Hecla maintains a 29.73% interest, the La
Camorra gold mine, the Saladillo property in Mexico, and other properties in
Mexico and Nevada. Hecla remains active in other exploration areas and
continues to seek advanced-stage acquisition opportunities principally in the
United States and Mexico.
<PAGE> 23
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 Hecla'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
Hecla'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 Hecla's inventory
as a result of exploration and acquisition activities. Exploration expenditures
for the three years ended December 31, 2000, 1999 and 1998 were approximately
$6.3 million, $5.5 million and $4.0 million, respectively. Exploration
expenditures for 2001 are estimated to be in the range of $2.0 to $3.0 million.
Hedging Activities
Hecla'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 Hecla's annual estimated available metal production.
Hedging contracts are restricted to no longer than 36 months without approval of
Hecla's Board of Directors and will be spread among a number of available
customers. As part of the acquisition of Monarch Resources Investments Limited
and associated project financing completed in 1999, Hecla's Board of Directors
approved a gold hedging program for the La Camorra mine totaling 306,045 gold
ounces over the period December 1999 to December 2004, at a flat forward price
of $288.25 per ounce. As of December 31, 2000, 231,168 ounces of gold remained
hedged associated with the La Camorra project financing. None of the
aforementioned activities have been entered into for speculative purposes as of
December 31, 2000. For additional information regarding hedging activities, see
Notes 1 and 4 of Notes to Consolidated Financial Statements, Item 7 Management's
Discussion and Analysis of Financial Condition and Results of Operations, and
Item 7A Quantitative and Qualitative Disclosure About Market Risk of this Form
10-K.
Industry Segments
Financial information with respect to industry segments is set forth in
Notes 2 and 12 of Notes to the Consolidated Financial Statements.
Geographic Areas
Financial information with respect to geographic areas is set forth in
Notes 2 and 12 of Notes to Consolidated Financial Statements.
<PAGE> 24
Competition
Hecla is engaged in the mining and processing of gold, silver, other
nonferrous metals in the United States, Mexico and Venezuela. Hecla encounters
strong competition from other mining companies in connection with the
acquisition of properties producing, or capable of producing, gold and silver.
Hecla 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, Hecla sells its production at world market prices.
Hecla competes with other producers of scoria and with manufacturers of
ceramic briquettes in the production and sale of briquettes. Hecla 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.
Regulation of Mining Activity
The mining operations of Hecla 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. MSHA
directives have had no material adverse impact on Hecla's results of operations
or financial condition and Hecla believes that it is substantially in compliance
with the regulations promulgated by MSHA.
All of Hecla's exploration, development and production activities in the
United States, Mexico and South America 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. Hecla
believes that it is in substantial compliance with applicable environmental
regulations. Many of the regulations also require permits to be obtained for
Hecla'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 Hecla conducts many aspects of its business, management
of Hecla does not believe that they have a material adverse effect on its
results of operations or financial condition at this time. Hecla'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, Hecla's operations. It is
possible that future changes in these laws or regulations could have a
significant impact on some portion of Hecla's business, causing those activities
to be
<PAGE> 25
economically reevaluated at that time. Hecla 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.
Environmental laws and regulations may also have an indirect impact on
Hecla, such as increased cost for electricity. Charges by smelters to which
Hecla sells its metallic concentrates and products have substantially increased
over the past several years because of requirements that smelters meet revised
environmental quality standards. Hecla has no control over the smelters'
operations or their compliance with environmental laws and regulations. If the
smelting capacity available to Hecla was significantly reduced because of
environmental requirements or otherwise, it is possible that Hecla's silver
operations could be adversely affected.
Hecla 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 Hecla of these revisions is not clear at
this time.
Legislation
From time to time, the U.S. Congress considers proposed amendments to the
General Mining Law of 1872, as amended, which governs mining claims and related
activities on federal lands. Legislation previously introduced in Congress
would have changed the current patent procedures, imposed certain royalties on
production and enacted new reclamation, environmental controls and restoration
requirements with respect to mining activities on federal lands. There was no
significant activity with respect to mining law reform in Congress in 2000, but
the extent of any such changes is not known and the potential impact on Hecla as
a result of congressional action is difficult to predict. Although a majority
of Hecla's existing mining operations occur on private or patented property,
changes to the General Mining Law, if adopted, could adversely affect Hecla's
ability to economically develop mineral resources on federal lands.
Employees
As of December 31, 2000, Hecla and its subsidiaries employed 1,195 people.
Investment Considerations
The following Investment Considerations, together with other information set
forth in this Form 10-K, should be carefully considered by current and future
investors in Hecla's securities.
<PAGE> 26
Liquidity
Cash and cash equivalents at December 31, 2000, were $1.4 million. In
addition, $1.7 million in cash was held at the industrial minerals operations
and reported as a component of "net assets of discontinued operations" on
Hecla's balance sheet as of December 31, 2000.
At December 31, 2000, Hecla had negative working capital of $15.8 million
and an accumulated deficit of $366.5 million. Hecla's current assets included
$44.0 million of net assets of discontinued operations and current liabilities
included $57.0 million of long-term debt which was due in April 2001. In March
2001, Hecla sold the majority of the subsidiaries which represented the
discontinued operations including K-T Clay, K-T Feldspar, and K-T Mexico for
$62.5 million and used the proceeds to pay off the $57.0 million debt.
Additionally, in order to provide Hecla additional liquidity, Hecla is currently
evaluating a number of financing alternatives including debt financing, sale of
royalty interest, and equity issuance. Hecla currently anticipates completing
one or more financing alternatives during 2001. Proceeds from these planned
financings will be available for general corporate purposes. Hecla also
continues to pursue the sale of the remaining assets of MWCA-Colorado Aggregate
Division which had $2.9 million of net assets at December 31, 2000. There can
be no assurance that Hecla will be successful in obtaining financing or in
completing a sales transaction for the remaining assets of the MWCA-Colorado
Aggregate Division.
Based upon Hecla's estimate of metals prices and metals production for
2001, Hecla currently believes that its operating cash flows, the cash proceeds
from the sale of K-T Clay, K-T Feldspar and K-T Mexico, proceeds from planned
financings, and the anticipated proceeds from the sale of the remaining assets
of the MWCA-Colorado Aggregate Division will be adequate to fund anticipated
minimum capital expenditures, idle property expenditures, and exploration
expenditures in 2001. Cash flows from operations, however, could be
significantly impacted if the market price of gold, silver, zinc and lead
fluctuate. In the event that cash balances decline to a level that cannot
support the operations of the Company, management will defer certain planned
capital and exploration expenditures as needed to conserve cash for operations.
If management's plans are not successful, operations and liquidity may be
adversely affected.
<PAGE> 27
Recurring Losses
Hecla has experienced net losses for each of the last ten years. For the
year ended December 31, 2000, Hecla reported a net loss of approximately $84.0
million (before preferred stock dividends of $8.1 million), or $1.26 per share
of common stock, compared to a net loss of approximately $40.0 million (before
preferred stock dividends of $8.1 million), or $0.64 per share of common stock,
for the year ended December 31, 1999. Without improvements in the current
prices of metals, Hecla 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 Hecla's operations, there
can be no assurance that Hecla will be profitable in the future.
Metal Price Volatility
Because a significant portion of Hecla's revenues are derived from the sale
of gold, silver, lead and zinc, Hecla'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 Hecla'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 Hecla's control, is impossible
for Hecla to predict. If the market price for these metals falls below Hecla's
full production costs and remains at such level for any sustained period, Hecla
will experience additional losses and may determine to discontinue the
development of a project or mining at one or more of its properties. While
Hecla has periodically used limited hedging techniques to reduce a portion of
Hecla'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).
The following table sets forth the average daily closing prices of the
following metals for 1980, 1985, 1990, 1995 and each year thereafter through
2000.
<TABLE>
<CAPTION>
1980 1985 1990 1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gold(1)
(per oz.) $ 612.56 $ 317.26 $ 383.46 $ 384.16 $ 387.70 $ 331.10 $ 294.16 $ 278.77 $ 279.03
Silver(2)
(per oz.) 20.63 6.14 4.82 5.19 5.18 4.90 5.53 5.25 5.00
Lead(3)
(per lb.) 0.41 0.18 0.37 0.29 0.35 0.28 0.24 0.23 0.21
Zinc(4)
(per lb.) 0.34 0.36 0.69 0.47 0.46 0.60 0.46 0.49 0.51
-------------------------
(1)London Final.
(2)Handy & Harman.
(3)London Metals Exchange -- Cash.
(4)London Metals Exchange -- Special High Grade -- Cash.
</TABLE>
<PAGE> 28
On March 30, 2001, the closing prices for gold, silver, lead and zinc were
$257.70 per ounce, $4.32 per ounce, $0.22 per pound, and $0.45 per pound,
respectively.
Volatility of Metals Production
Hecla's future gold and silver production will be dependent upon Hecla's
success in developing new reserves as well as exploration efforts (see Project
Development Risks and Exploration). If metals prices remain at current low
levels or continue to decline, Hecla could determine that it is not economically
feasible to continue exploration or development of a project or continue
commercial production at some of its properties (see Metal Price Volatility).
Project Development Risks
Hecla, from time to time, engages in the development of new orebodies, both
at newly acquired properties and presently existing mining operations
(collectively "Development Projects"). Hecla'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 metals prices. Development Projects
are also subject to the successful completion of feasibility studies, issuance
of necessary permits and receipt of adequate financing.
Development Projects may have no operating history upon which to base
estimates of future operating costs and capital requirements. Particularly for
Development Projects, estimates of reserves, metal recoveries and cash operating
costs are to a large extent based upon the interpretation of geologic data
obtained from a limited 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 Hecla's other
SEC filings are, in large part, estimates made by Hecla'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
<PAGE> 29
by Hecla, 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 processing new or different ore
grades, may adversely affect Hecla'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. Hecla 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 Hecla 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 Hecla'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.
Joint Development and Operating Arrangements
The Greens Creek mine is operated through a joint-venture arrangement, and
Hecla owns an undivided interest in the assets of the venture. Hecla's Rosebud
mine was similarly operated through a Limited Liability Company (LLC) with Hecla
holding 50% of the interest in the LLC. Under the joint-venture and LLC
agreements, the joint participants, including Hecla, 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), Hecla 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
<PAGE> 30
information available to Hecla, Hecla has no reason to believe that its joint-
venture or LLC participants with respect to the Greens Creek and Rosebud
properties will be unable to meet their financial obligations under the terms of
the respective agreements.
Competition for Properties
Because mines have limited lives based on proven ore reserves, Hecla is
continually seeking to replace and expand its reserves. Hecla encounters strong
competition from other mining companies in connection with the acquisition of
properties producing or capable of producing gold, silver, lead and zinc. As a
result of this competition, some of which is with companies with greater
financial resources than Hecla, Hecla 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 Hecla's programs will
yield new reserves to replace and expand current reserves.
Title to Properties
The validity of unpatented mining claims, which constitute a significant
portion of Hecla's undeveloped property holdings in the United States, is often
uncertain and may be contested. Although Hecla has attempted to acquire
satisfactory title to its undeveloped properties, Hecla, 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, political and country risks,
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 Hecla 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 of waste products occurring
from exploration and production) is not generally available to Hecla or to other
companies within the industry at reasonable premiums. To the extent Hecla is
subject
<PAGE> 31
to environmental liabilities, the payment of such liabilities would reduce the
funds available to Hecla. Should Hecla be unable to fund fully the cost of
remedying an environmental problem, Hecla might be required to suspend
operations or enter into interim compliance measures pending completion of the
required remedy.
Foreign Operations
Hecla's La Choya gold mine is located in Sonora, Mexico, Hecla's Saladillo
project is located in Durango, Mexico, and Hecla's K-T Mexico clay slurry plant
is located in Monterrey, Mexico. Additionally, Hecla's La Camorra gold mine is
located in Bolivar State, Venezuela. Hecla also has exploration projects and
mining investments in Mexico and other countries in 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 Hecla'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. 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
certain options contracts, potentially resulting in Hecla foregoing the
realization of revenues to the extent the market prices of metals exceed the
related metals price in a forward sale or certain options contracts. Hecla 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
$58.7 million and $49.3 million at December 31, 2000 and 1999, respectively.
Hecla anticipates that expenditures relating to these reserves will be made over
the next several years.
Future closure, reclamation and environment-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.
<PAGE> 32
New York Stock Exchange Listing
On August 21, 2000, Hecla was notified by the New York Stock Exchange
(NYSE) that Hecla had fallen below NYSE listing criteria because the common
stock price had been under $1.00 per share for more than 30 days, and that Hecla
had six months to increase the stock price of its common stock to above $1.00
per share. Hecla's stock price did not increase to an average closing price
of $1.00 or more per share for a 30-day period at the end of the six-month
notification period. Hecla notified the NYSE that it will be seeking
shareholders' approval of a reverse split of common stock at the next annual
meeting to give Hecla the option to increase its common stock price to meet
NYSE's requirement and remain on the NYSE. Due to other NYSE listing criteria,
there can be no assurance that Hecla will be able to maintain the listing of its
common stock on the NYSE.
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 -- Searching for ore, usually by geological surveys,
geophysical prospecting, drilling, surface or underground headings, drifts
or tunnels.
<PAGE> 33
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.
Hectare -- Equivalent to 2.47 acres.
Kaolin -- Also known as china clay, kaolin is a white alumina-silicate clay
used in porcelain, paper, plastics, rubber, paints and many other products.
Mill -- A processing plant that produces a concentrate of the valuable
minerals or metals contained in an ore. The concentrate must then be
treated in some other type of plant, such as a smelter, to effect recovery
of the pure metal.
Mineral-Bearing Material -- Material for which quantitative estimates are
based on inferences from known mineralization, or on drill-hole samples too
few in number to allow for classification as Probable ore reserves.
Mineralization - The process by which a mineral or minerals are introduced
into a rock, resulting in a valuable deposit.
Ore -- A mixture of valuable minerals and gangue (valueless minerals) from
which at least one of the minerals or metals can be extracted at a profit.
Orebody -- A continuous, well-defined mass of material of sufficient ore
content to make extraction economically feasible.
Patented Mining Claim -- A parcel of land originally located on federal
lands as an unpatented mining claim under the General Mining Law, the title
of which has been conveyed from the federal government to a private party
pursuant to the patenting requirements of the General Mining Law.
Proven and Probable Ore Reserves -- Reserves that reflect estimates of the
quantities and grades of mineralized material at Hecla's mines which Hecla
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
Hecla's products. Mineral reserves are stated separately for each of
Hecla's mines based upon
<PAGE> 34
factors relevant to each mine. Reserves represent diluted in-place grades
and do not reflect losses in the recovery process. Hecla's estimates of
Proven and Probable reserves for the Lucky Friday mine, the Rosebud mine,
the La Camorra mine and the La Choya mine at December 31, 2000 and 1999 are
based on gold prices of $300 and $325 per ounce, silver prices of $5.50 and
$5.50 per ounce, lead prices of $0.25 and $0.25 per pound, and zinc prices
of $0.55 and $0.55 per pound, respectively. Proven and Probable ore
reserves for the Greens Creek mine are based on calculations of reserves
provided to Hecla by the operator of Greens Creek that have been reviewed
but not independently confirmed by Hecla. Kennecott Greens Creek Mining
Company's estimates of Proven and Probable ore reserves for the Greens
Creek mine as of December 2000 and 1999 are derived from successive
generations of reserve and feasibility analyses for different areas of the
mine each using a separate assessment of metal prices. The weighted
average prices used were:
December 31, December 31,
2000 1999
------------- ------------
Gold $ 295 $ 307
Silver $ 5.51 $ 5.11
Lead $ 0.25 $ 0.27
Zinc $ 0.55 $ 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 -- Reserves for which quantity and grade and/or quality
are computed 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 -- Reserves for which (a) quantity is computed from
dimensions revealed in outcrops, trenches, workings or drill holes; grade
and/or quality are computed from the results of detailed sampling, and (b)
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.
Reclamation -- The process of returning the land to another productive use
after mining has been completed.
<PAGE> 35
Remediation -- In the context of superfund or the hazardous waste law,
relates to those actions taken to investigate, prevent or minimize the
effects or potential effects on human health or the environment of a
release or threatened release of a hazardous substance.
Reserves -- That part of a mineral deposit which could be economically and
legally extracted or produced at the time of the reserve determination.
Reserves are customarily stated in terms of "ore" when dealing with
metalliferous minerals.
Rockburst -- Explosive rock failures caused by the pressure exerted by rock
adjacent to mine openings far below the surface.
Sand Fill -- The coarser fraction of concentrator tailings, which is
conveyed as a slurry in underground pipes to support cavities left by
extraction of ore.
Shaft -- A vertical or steeply inclined excavation for the purpose of
opening and servicing a mine. It is usually equipped with a hoist at the
top which lowers and raises a conveyance for handling personnel and
materials.
Stope -- An underground excavation from which ore has been extracted either
above or below mine level.
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.
<PAGE> 36
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.
Item 2. Properties.
Hecla's principal mineral properties are described in Item 1 above. Hecla
also has interests in a number of other mineral properties in the United States,
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 Hecla'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 valuable to
the business of Hecla taken as a whole.
The general corporate office of Hecla is located in Coeur d'Alene, Idaho,
on a tract of land containing approximately 13 acres. Hecla also owns and has
subdivided approximately three adjacent acres presently held for sale.
Hecla believes that its existing facilities are sufficient for their
intended purposes.
Item 3. Legal Proceedings.
Bunker Hill Superfund Site
In 1994, Hecla, as a potentially responsible party under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (CERCLA),
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 located at Kellogg, Idaho. The consent decree
settled Hecla's response-cost liability under CERCLA at the Bunker Hill site.
As of December 31, 2000, Hecla has estimated and accrued an allowance for
liability for remedial activity costs at the Bunker Hill site of $11.6 million.
These estimated expenditures are anticipated to be made over the next three to
five years. In August 2000, Sunshine Mining and Refining Company which was also
a party to the 1994 Consent Decree, filed for Chapter 11 bankruptcy and in
January 2001, the
<PAGE> 37
Federal District Court approved a new Consent Decree between Sunshine, the U.S.
Government and the Coeur d'Alene Indian Tribe which settled Sunshine's
environmental liabilities in the Coeur d'Alene Basin lawsuits described below
and released Sunshine from further obligations under the 1994 Consent Decree.
This action could increase Hecla's future share of obligations under the 1994
Consent Decree. Although Hecla believes the accrual is adequate based upon
current estimates of aggregate costs, it is reasonably possible that Hecla's
estimate of its obligations may change in the near or longer term.
Coeur d'Alene River Basin Environmental Claims
- Coeur d'Alene Indian Tribe Claims
In July 1991, the Coeur d'Alene Indian Tribe brought a lawsuit, under
CERCLA, in Idaho Federal District Court against Hecla 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 Tribe's natural resource damage litigation has been consolidated
with the United States' 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 Hecla. 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
in northern Idaho for 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 Hecla 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. Hecla has
asserted a number of defenses to the United States' claims.
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.
The first phase of the trial commenced on the consolidated Coeur d'Alene
Indian Tribe's and The United States' Federal District Court cases on January
22, 2001. In the first phase of the trial, the Court will be asked to determine
the extent of liability, if any, of the defendants for the plaintiffs' CERCLA
claims. If liability is determined in the first phase, a second trial will be
scheduled in late 2001 or early 2002 to address damages and remedy selection.
Two of the defendant mining companies, Coeur d'Alene Mines Corporation and
Sunshine Mining and Refining Company, settled their liabilities under the
litigation during the first quarter of 2001. Hecla and ASARCO are the only two
defendants remaining in the litigation.
<PAGE> 38
During 2000, Hecla was involved in settlement negotiations with
representatives of the U.S. government and the Coeur d'Alene Indian Tribe. The
Company also participated with certain of the other defendants in the litigation
in a state of Idaho led settlement effort. Settlement negotiations with the
U.S. government and the Coeur d'Alene Indian Tribe were discontinued in late
2000, but recommenced in March 2001.
As of December 31, 2000, Hecla has not accrued any amounts for potential
liability associated with the Coeur d'Alene River Basin environmental claims as
the amount, if any, is currently not estimable. It is reasonably possible that
Hecla's obligation may change in the near or longer term. An adverse ruling
against Hecla on liability and damages in this matter could have a material
adverse effect on the Company.
Insurance Coverage Litigation
In 1991, Hecla 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 Hecla and its
predecessors. Hecla believes the insurance companies have a duty to defend and
indemnify Hecla under their policies of insurance for all liabilities and claims
asserted against Hecla 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
Hecla in the Tribe's lawsuit. During 1995 and 1996, Hecla entered into
settlement agreements with a number of the insurance carriers named in the
litigation. Hecla 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 suspended until the underlying environmental claims against Hecla are
resolved or settled. The remaining insurer in the litigation, along with a
second insurer not named in the litigation, is providing Hecla with a partial
defense in all Basin environmental litigation. As of December 31, 2000, Hecla
had not reduced its accrual for reclamation and closure costs to reflect the
receipt of any anticipated insurance proceeds.
Other Claims
In 1997, Hecla's subsidiary, K-T Clay, terminated shipments (comprising
approximately 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. On
September 22, 1999, Riceland Foods (the primary purchaser of ball clay from K-T
Clay used in animal feed) commenced litigation against K-T Clay in State Court
in Arkansas to recover its losses and its insurance company's payments to
downstream users of its
<PAGE> 39
animal feed. The complaint alleges negligence, strict liability and breach of
implied warranties and seeks damages in excess of $7.0 million. Legal counsel
retained by the insurance company for K-T Clay had the case removed to Federal
Court in Arkansas. In July 2000, a second complaint was filed against K-T Clay
and Hecla in Arkansas State Court by another purchaser of animal feed containing
ball clay sold by K-T Clay. A third complaint was filed in the United States
District Court in Arkansas on August 31, 2000, by a successor in interest to a
third purchaser of ball clay sold by K-T Clay and used in the animal feed
industry. The two more recent lawsuits together allege damages totaling
approximately $1.7 million. These complaints contain similar allegations to the
Riceland Foods' case and legal counsel retained by the insurance carrier is
defending K-T Clay and Hecla in these lawsuits. The Company believes that these
claims comprise substantially all the potential claims related to this matter.
In January 2001, Hecla was dismissed from the only lawsuit in which it had been
named as defendant. In March 2001, prior to trial, K-T Clay settled the
Riceland Foods litigation against K-T Clay through settlement payment
substantially funded by K-T Clay's insurance carrier. K-T Clay contributed
$230,000 toward the Riceland Foods settlement. The defense of the remaining
lawsuits is being covered by insurance. The Company believes that $11.0 million
of insurance coverage is available to cover all three claims. On March 27,
2001, Hecla sold its interest in K-T Clay. However, Hecla agreed to indemnify
the purchaser of K-T Clay from all liability resulting from these dioxin claims
and litigation to the extent not covered by insurance. Although the outcome of
the remaining litigation or insurance coverage cannot be assured, Hecla
currently believes that there will be no material adverse effect on Hecla's
results of operations, financial condition or cash flows from this matter.
Hecla is subject to other legal proceedings and claims not disclosed above
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 other matters, it is the opinion of Hecla's management that
the outcome of these other matters will not have a material adverse effect on
the financial condition of Hecla.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
<PAGE> 40
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
------- ------- ------- -------
2000 - High $ 2.00 $ 1.50 $ 1.13 $ 0.94
- Low $ 1.25 $ 1.00 $ 0.75 $ 0.50
1999 - High $ 4.38 $ 3.25 $ 3.38 $ 3.13
- Low $ 2.50 $ 2.06 $ 1.94 $ 1.50
(iii) For discussion of the status of Hecla's Common Stock
listing on the New York Stock Exchange, see "Financial
Condition and Liquidity" section of Item 7 of this
Form 10-K.
(b) As of December 31, 2000, there were 9,273 shareholders of record
of the Common Stock.
(c) There were no Common Stock cash dividends paid in 2000 or 1999.
The amount and frequency of cash dividends are significantly
influenced by metals prices, operating results and Hecla's cash
requirements. Hecla is currently restricted from paying
dividends on common stock or repurchasing common stock until
such time Hecla has made current the cumulative dividends on
Hecla's Series B Cumulative Convertible Preferred Stock. At
December 31, Hecla has deferred $4.0 million of preferred stock
dividends.
<PAGE> 41
Item 6. Selected Financial Data.
(dollars in thousands except for per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total revenue $ 80,459 $ 78,731 $ 81,003 $ 94,067 $ 90,005
========= ========= ========= ========= =========
Loss from continued operations $ (84,847) $ (43,391) $ (4,674) $ (3,741) $ (40,644)
Income from discontinued
operations 1,529 4,786 4,374 3,258 8,290
Preferred stock dividends(1) (8,050) (8,050) (8,050) (8,050) (8,050)
Loss applicable to common shareholders $ (92,015) $ (48,040) $ (8,350) $ (8,533) $ (40,404)
========= ========= ========= ========= =========
Loss from continuing operations
per common share $ (1.39) $ (0.83) $ (0.23) $ (0.22) $ (0.95)
========= ========= ========= ========= =========
Basic and diluted loss per
common share $ (1.38) $ (0.77) $ (0.15) $ (0.16) $ (0.79)
========= ========= ========= ========= =========
Total assets $ 194,836 $ 268,357 $ 252,062 $ 250,668 $ 268,393
========= ========= ========= ========= =========
Long-term debt - Notes and
contracts payable $ 10,041 $ 55,095 $ 42,923 $ 22,136 $ 38,208
========= ========= ========= ========= =========
Cash dividends paid per common
share $ - - $ - - $ - - $ - - $ - -
========= ========= ========= ========= =========
Cash dividends paid per preferred
share(1) $ 1.75 $ 3.50 $ 3.50 $ 3.50 $ 3.50
========= ========= ========= ========= =========
Common shares issued 66,859,752 66,844,575 55,166,728 55,156,324 51,199,324
Shareholders of record 9,273 9,714 10,162 10,636 11,299
Employees 1,195 1,277 1,184 1,202 1,254
</TABLE>
(1) As of December 31, 2000, the Company has deferred the declaration and
payment of $4.0 million of preferred stock dividends. However, since the
dividends are cumulative, they continue to be reported as an increase to net
loss in determining the loss applicable to common shareholders, but are
excluded in the amount reported as cash dividends paid per preferred share.
In November 2000, Hecla's Board of Directors decided to sell K-T Clay,
K-T Feldspar and K-T Mexico, which represented the remaining portion of its
industrial minerals segment. Accordingly, the industrial minerals segment has
been recorded as a discontinued
<PAGE> 42
operation as of December 31, 2000, and for each of the five years in the period
ended December 31. As of December 31, 2000, only, the balance sheet has been
reclassified to reflect the net assets of the industrial minerals segment as a
discontinued operation.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.(1)
Introduction
Hecla Mining Company is involved in the exploration, development, mining
and processing of gold, silver, lead, zinc and industrial minerals. Hecla's
gold and silver segment 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 Hecla'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. On
February 27, 2001, Hecla signed an agreement to sell K-T Clay, K-T Feldspar, K-T
Mexico and certain other minor inactive industrial minerals companies. The
sales transaction closed on March 27, 2001. Hecla also intends to sell the
remaining assets of the Colorado Aggregate division of MWCA, which is a wholly
owned subsidiary of Hecla. As a result of Hecla's decision to sell the
industrial minerals segment, it is now accounted for as discontinued operations.
In the following descriptions, where there are changes that are attributable to
more than one factor, Hecla presents each attribute in descending order relative
to the attribute's importance to the overall change.
Except for the historical information contained in this Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
matters discussed below are forward-looking statements that involve risks and
uncertainties, including:
- potential asset sales,
- ability to repay indebtedness,
- the timely development of existing properties and reserves and future
projects,
- the impact of metal prices and metal production volatility,
- changing market conditions and the regulatory environment,
- limited access to capital markets, and
- ---------------------
(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 30.
<PAGE> 43
- other risks detailed below and elsewhere in this Form 10-K (see also
"Investment Considerations" of Part I, Item 1 of this Form 10-K).
As a result of the above factors and potentially others, actual results may
differ materially from those projected, forecasted or implied. These forward-
looking statements represent Hecla's judgment as of the date of this filing.
Hecla disclaims, however, any intent or obligation to update these forward-
looking statements as circumstances may change or develop.
During 2000, Hecla produced approximately 146,000 ounces of gold compared
to approximately 110,000 ounces in 1999. The following table displays the
actual gold production (in ounces) by operation for the years ended December 31,
2000, 1999 and 1998, and projected gold production for the year ending December
31, 2001:
Projected Actual Actual Actual
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
Operation 2001 2000 1999 1998
- ------------ ----------------- -------- -------- --------
La Camorra(1) 100,000 - 110,000 93,000 17,000 - -
Greens Creek(4) 22,000 - 24,000 25,000 24,000 18,000
Rosebud(3)(4) - - 24,000 56,000 65,000
Other sources(2) 1,000 - 20,000 4,000 13,000 44,000
----------------- ------- ------- -------
Totals 123,000 - 154,000 146,000 110,000 127,000
================= ======= ======= =======
(1) Production commenced under Hecla's ownership in October 1999 at the
La Camorra mine.
(2) Includes production from La Choya, the Saladillo project and other
sources.
(3) The Rosebud mine completed mining operations in July 2000 and milling
operations in August 2000.
(4) Reflects Hecla's portion.
In 2000, Hecla produced approximately 8.0 million ounces of silver compared
to approximately 7.6 million ounces in 1999. The following table displays the
actual silver production (in ounces) by operation for the years ended December
31, 2000, 1999 and 1998, and projected silver production for the year ending
December 31, 2001 (in thousands):
<PAGE> 44
Projected Actual Actual Actual
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
Operation 2001 2000 1999 1998
- ------------ ------------- -------- -------- --------
Lucky Friday 4,700 - 5,100 5,012 4,441 4,137
Greens Creek 2,800 - 3,200 2,754 3,051 2,824
Rosebud - - 56 124 278
Other sources 0 - 1,000 177 1 6
------------- ------- ------- -------
Totals 7,500 - 9,300 7,999 7,617 7,245
============= ======= ======= =======
In 2000, Hecla's shipments from the Kentucky-Tennessee Clay group, which
included ball clay, kaolin and feldspar, increased to approximately 1,078,000
tons from 1,072,000 tons of product in 1999. During 2000, Hecla also shipped
approximately 61,000 tons of specialty aggregates from the Colorado Aggregate
division of its subsidiary MWCA, and approximately 130,000 cubic yards of
landscape material from the Mountain West Products division of MWCA. On March
15, 2000, Hecla sold substantially all of the assets of its Mountain West
Products division of MWCA for $8.5 million in cash. The sale of Mountain West
Products resulted in a loss on disposal of $1.0 million. The proceeds from the
sales transaction were used to pay down amounts outstanding under Hecla's
previously existing revolving credit facility. On June 5, 2000, Hecla completed
a sale of the landscape operations of the Colorado Aggregate division of MWCA
for $1.1 million in cash. The sale of the Colorado Aggregate landscape
operations did not result in a gain or loss. Hecla continues to pursue a sale
of the remaining assets of the Colorado Aggregate division of MWCA, although
there can be no assurance that Hecla will complete a sales transaction.
On November 17, 2000, Hecla entered into an agreement with Zemex U.S.
Corporation guaranteed by its parent, Zemex Corporation of Toronto, Canada, to
sell the stock of K-T Clay and K-T Mexico, which included the ball clay and
kaolin operations, for a price of $68.0 million. On January 18, 2001, Zemex
U.S. Corporation failed to close on the transaction, and on January 22, 2001,
Hecla brought suit against the parent, Zemex Corporation, for its subsidiary's
failure to close on the purchase. Hecla is seeking damages from Zemex
Corporation for the failure of its subsidiary to meet its obligations under the
November 2000 agreement.
On February 27, 2001, Hecla entered into an agreement with IMERYS USA,
Inc., to sell K-T Clay, K-T Feldspar, K-T Mexico and related subsidiaries for
$62.5 million, subject to a working capital adjustment. The sale transaction
closed on March 27, 2001. Hecla anticipates recording a gain on this
transaction in the range of $11.0 to $13.0 million during the first quarter of
2001. Hecla utilized the proceeds from the sale of K-T Clay, K-T Feldspar and
K-T Mexico to repay Hecla's $55.0 million term loan facility which was due on
April 10, 2001, and to repay amounts outstanding under a $2.0 million revolving
bank credit line. The remaining proceeds are available for possible metals
expansion and for general corporate purposes.
<PAGE> 45
Results of Operations
With the Company's decision in November 2000 to dispose of the industrial
minerals segment, this segment has been accounted for as a discontinued
operation. Accordingly, the results of operations for all periods presented
have been reclassified to reflect the discontinued operations. Although the
Company does not anticipate a loss on the disposition of the entire segment, the
disposal of the MWP division, which is part of the industrial minerals segment,
was sold at a loss in March 2000. This loss has been recorded in the results of
discontinued operations for the year ended December 31, 2000.
2000 Compared to 1999
Hecla recorded a loss from continuing operations, before an extraordinary
charge and preferred stock dividends, of approximately $84.8 million, or $1.27
per common share, in 2000 compared to a loss from continuing operations, before
a cumulative effect of change in accounting principle and preferred stock
dividends, of approximately $43.4 million, or $0.70 per common share, in 1999.
After recognizing $1.5 million in income from discontinued operations, a $0.6
million extraordinary charge for the write-off of debt issuance costs related to
extinguished debt, and $8.1 million (only $4.0 million of which has been
declared and paid) in dividends to holders of Hecla's Series B Cumulative
Convertible Preferred Stock, Hecla's loss applicable to common shareholders for
2000 was approximately $92.0 million, or $1.38 per common share, compared to a
loss of $48.0 million, or $0.77 per common share, in 1999 after recognition of
$4.8 million in income from discontinued operations, a $1.4 million charge to
write off unamortized start-up costs associated with the Greens Creek mine, and
$8.1 million in dividends to holders of Hecla's Series B Cumulative Convertible
Preferred Stock. Although Hecla has failed to declare the dividend for the
third and fourth quarters of 2000, because these dividends are cumulative, the
effect of the undeclared dividends are reflected in the loss applicable to
common shareholders.
Adjustments to the carrying value of mining properties increased $40.0
million to $40.2 million in 2000 compared with an asset write-down totaling $0.2
million during 1999. In the fourth quarter of 2000, the Company recorded an
adjustment of $31.2 million to reduce the carrying value of the Lucky Friday
mine property, plant and equipment in accordance with Statement of Financial
Accounting Standard No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." The adjustment was necessitated
by continuing low silver and lead prices, combined with further declines in
silver and lead prices during the fourth quarter of 2000. For the first nine
months of 2000, silver averaged $5.08 per ounce and lead averaged $0.203 per
pound. During the fourth quarter of 2000, silver decreased to an average of
$4.75 per ounce and ended the year at $4.59 per ounce. Lead averaged $0.214 per
pound during the fourth quarter and ended the year at $0.214 per pound. Hecla
<PAGE> 46
continues to evaluate all available alternatives for developing the next level
of the Gold Hunter expansion area in the current metals price environment.
Additionally, during the second quarter of 2000, Hecla recorded adjustments of
$4.4 million for properties, plants and equipment and supply inventory at the
Rosebud mine, and $4.7 million for previously capitalized deferred development
costs at the Noche Buena gold property. The $4.4 million adjustment at the
Rosebud mine was necessitated due to the closure of the Rosebud mine previously
announced by Hecla and Newmont, Hecla's joint-venture partner. The Rosebud mine
completed mining activity in July 2000 and milling activities in August 2000.
At the Noche Buena property, Hecla suspended activities in 1999 due to the low
price for gold. Based upon the continuation of the lower gold price, an
adjustment to the carrying value of the Noche Buena property was recorded in the
second quarter of 2000.
Sales of products increased by approximately $2.1 million, or 2.9%, from
$73.7 million in 1999 to $75.8 million in 2000, primarily due to:
- increased sales of $8.0 million from gold operations principally
as a result of the acquisition of the La Camorra mine in June 1999,
partly offset by the completion of mining and milling activities at
the Rosebud mine in August 2000, and
- decreased sales totaling approximately $5.8 million from silver
operations primarily due to lower lead and silver prices, partly
offset by an increased zinc price and increased production of silver,
lead and zinc.
The following table compares the average metal prices for 2000 with 1999:
Metal 2000 1999 $ Change % Change
- ---------------------------- ------- ------- -------- --------
Gold-Realized ($/oz.) $ 284 $ 286 $ (2) (1)%
Gold-London Final ($/oz.) 279 279 - - - -
Silver-Handy & Harman ($/oz.) 5.00 5.25 (0.25) (5)
Lead-LME Cash ($/pound) 0.206 0.228 (0.022) (10)
Zinc-LME Cash ($/pound) 0.512 0.488 0.024 5
Cost of sales and other direct production costs increased approximately
$8.7 million, or 16%, from $54.4 million in 1999 to $63.1 million in 2000,
primarily due to:
- increased cost of sales from gold operations of $6.4 million due to the
acquisition of the La Camorra mine in June 1999, partly offset by lower
cost of sales at the Rosebud mine and the La Choya mine, both as a result
of the completion of mining activities, and
<PAGE> 47
- increased cost of sales from silver operations of $2.2 million resulting
from increased production of silver, lead and zinc at the Lucky Friday
and Greens Creek mines.
Cost of sales and other direct production costs as a percentage of sales
increased from 73.9% in 1999 to 83.2% in 2000. The increase was principally a
result of decreased margins in both the silver and gold segments. In the gold
segment, decreased gold production and higher unit cash costs at the Rosebud
mine negatively impacted the gross margin. In the silver segment, lower hedging
revenues combined with lower average lead and silver prices led to the reduced
margins.
Depreciation, depletion and amortization decreased $0.6 million, or 3%,
from $18.7 million in 1999 to $18.1 million in 2000, principally due to:
- decreased depreciation at the Rosebud mine of $3.5 million due to
completion of mining in July 2000 and milling in August 2000,
- decreased depreciation at the La Choya mine of $1.2 million, due to
completion of gold production in 1999 as a result of the completion of
mining activity in December 1998,
- decreased depreciation at the Lucky Friday mine of $0.2 million, and
- increased depreciation at the La Camorra mine of $4.3 million as a result
of a full year's production in 2000 as compared to three months of
production in 1999.
Exploration expense increased $0.8 million, or 14%, from $5.5 million in
1999 to $6.3 million in 2000. This increase is principally due to increased
expenditures at the Saladillo property in Mexico of $0.8 million, increased
exploration at the La Camorra mine of $0.6 million and increased expenditures at
the Rosebud mine of $0.4 million. These increases were partly offset by
decreased expenditures at the Cacique property of $0.4 million and other
properties, principally in Mexico, of $0.6 million.
Hecla's provision for closed operations and environmental matters decreased
$10.1 million from $30.1 million in 1999 to $20.0 million in 2000. The decrease
resulted principally from the 1999 environmental and reclamation expense
totaling $27.3 million for future environmental and reclamation expenditures at
the Grouse Creek mine and the Bunker Hill Superfund site, which decreased to
$12.2 million at Grouse Creek, $5.6 million at the Bunker Hill Superfund site
and $2.2 million at various other properties in 2000.
Interest expense increased $3.5 million in 2000 as compared to 1999,
primarily the result of increased average borrowings
<PAGE> 48
including the $11.0 million of the La Camorra project financing put in place in
June 1999, $3.0 million of subordinated debt that was outstanding for three
additional months in 2000 and the $55.0 million term loan facility put in place
in March 2000, replacing a prior revolving $55.0 million credit facility that
was in place in 1999. Higher average interest rates and increased loan fees
also contributed to the increase in interest expense as compared to 1999.
Hecla recorded income from discontinued operations of approximately $1.5
million, or $0.02 per common share, in 2000 compared to income of approximately
$4.8 million, or $0.08 per common share, in 1999. The decrease in 2000 compared
to 1999 is primarily due to:
- decreased sales totaling approximately $14.8 million, principally the
result of decreased shipments at the MWCA group of $16.9 million after
the sale of the Mountain West Products division of MWCA on March 15,
2000, and the sale of the landscape operations of Colorado Aggregate on
June 5, 2000. The decreases from MWCA were partly offset by increased
sales of $2.1 million from the K-T Clay group,
- a loss of $1.0 million on the sale of the Mountain West Products division
of MWCA in 2000.
- decreased cost of sales of $7.9 million, principally due to the partial
sale of MWCA, partly offset by increased costs at the K-T Clay group
resulting from increased sales and increased energy costs, and
- 1999 adjustments of $4.4 million made to the carrying value of MWCA,
An extraordinary charge of $0.6 million was recorded in 2000 to write off
previously unamortized debt issuance costs associated with the extinguishment of
Hecla's previous $55.0 million revolving credit facility.
A cumulative effect of change in accounting principle totaled $1.4 million
in 1999, due to the write off of unamortized start-up costs relating to Hecla's
29.73% ownership interest in the Greens Creek mine. The adjustment was the
result of the required application of Statement of Position No. 98-5, "Reporting
on the Costs of Start-up Activities."
Cash operating and total cash cost per gold ounce increased from $195 and
$205 in 1999 to $208 and $211 in 2000, respectively. The increases in the cash
operating and total cash cost per gold ounce were primarily attributable to
higher costs per ounce at the Rosebud mine associated with mining of lower grade
ore in 2000. Total production costs per gold ounce decreased from $298 per
ounce in 1999 to $275 per ounce in 2000. The decrease in the total production
cost per gold ounce was principally due to
<PAGE> 49
production from the lower cost La Camorra mine in 2000 and due to the write-down
of the carrying value of the Rosebud mine in the second quarter of 2000, which
eliminated the depreciation, depletion and amortization component of the total
production cost per ounce at Rosebud in the third quarter of 2000.
Cash operating, total cash and total production cost per silver ounce
increased from $3.72, $3.72 and $5.25 in 1999 to $4.02, $4.02 and $5.49 in 2000,
respectively. The increases in the cost per silver ounce were due primarily to
lower average lead prices which negatively impacted by-product credits partly
offset by increased production and a favorable zinc price.
Results of Operations
1999 Compared to 1998
Hecla recorded a loss from continuing operations, before the cumulative
effect of a change in accounting principle and preferred stock dividends, of
approximately $43.4 million, or $0.70 per common share, in 1999 compared to a
net loss from continuing operations of approximately $4.7 million, or $0.08 per
common share, in 1998. After income from discontinued operations, recognizing a
$1.4 million charge from an accounting change to write off unamortized start-up
costs associated with the Greens Creek mine, and after $8.1 million in dividends
to holders of Hecla's Series B Cumulative Convertible Preferred Stock, Hecla's
loss applicable to common shareholders for 1999 was approximately $48.0 million,
or $0.77 per common share, compared to a loss of $8.4 million, or $0.15 per
common share, in 1998. The increased loss in 1999 compared to 1998 was due to a
variety of factors, the most significant of which were 1999 environmental and
reclamation accruals totaling $27.3 million for future environmental and
reclamation expenditures at the Grouse Creek mine and the Bunker Hill Superfund
site.
Sales of products decreased by approximately $1.4 million, or 2%, from
$75.1 million in 1998 to $73.7 million in 1999, primarily due to:
- decreased sales of $9.2 million from gold operations, principally
a result of completion of mining operations at the La Choya mine in
December 1998, lower gold production in 1999 at the Rosebud mine and a
lower gold price in 1999. These factors were partly offset by
increased sales from the La Camorra mine acquired in 1999, and
- increased sales totaling approximately $7.8 million from silver
operations, primarily as a result of increased production and
shipments at the Lucky Friday and Greens Creek mines.
The following table compares the average metal prices for 1999 with 1998:
<PAGE> 50
Metal 1999 1998 $ Change % Change
--------------------- ------- ------- -------- --------
Gold-Realized ($/oz.) $ 286 $ 301 $ (15) (5.0)%
Gold-London Final ($/oz.) 279 294 (15) (5.1)
Silver-Handy & Harman ($/oz.) 5.25 5.53 (0.28) (5.1)
Lead-LME Cash ($/pound) 0.228 0.240 (0.012) (5.0)
Zinc-LME Cash ($/pound) 0.488 0.465 0.023 4.9
Cost of sales and other direct production costs decreased approximately
$0.4 million from $54.8 million in 1998 to $54.4 million in 1999, primarily due
to:
- decreased cost of sales at the La Choya mine of $5.7 million due to the
completion of mining in December 1998,
- decreased cost of sales at the Rosebud mine of $0.8 million due to
decreased tons mined and milled,
- elimination of cost of sales at the American Girl mine of $0.8 million
due to final gold sales in 1998,
- decreased cost of sales at the Greens Creek mine of $0.5 million,
principally due to the timing of concentrate shipments,
- increased cost of sales at the La Camorra mine of $3.9 million in 1999 as
a result of Hecla's purchase of the La Camorra mine in June 1999, and
- increased cost of sales at the Lucky Friday mine of $3.5 million, or 18%,
due to an 18% increase in tons milled.
Cost of sales and other direct production costs as a percentage of sales
increased from 73.0% in 1998 to 73.9% in 1999. The increase was principally a
result of decreased margins in the gold segment, partly offset by improved
margins in the silver segment.
Depreciation, depletion and amortization increased $1.5 million, or 9%,
from $17.2 million in 1998 to $18.7 million in 1999, principally due to:
- increased depreciation at the La Camorra mine of $0.9 million as a result
of Hecla's purchase of La Camorra in June 1999,
- increased depreciation at the Greens Creek mine of $0.7 million due to
increased production in the 1999 period,
<PAGE> 51
- increased depreciation at the Lucky Friday mine of $0.6 million due to
increased production in the 1999 period, and
- decreased depreciation at the Rosebud mine of $0.8 million due to
decreased gold production in the 1999 period.
Exploration expense increased $1.5 million, or 37%, from $4.1 million in
1998 to $5.5 million in 1999, principally due to increased expenditures in
Mexico of $1.5 million, primarily at the Saladillo property acquired by Hecla in
the Monarch Resources Investments Limited purchase, and at the Rosebud mine of
$0.4 million. These increases were partly offset by decreased expenditures at
other South American targets of $0.8 million.
Interest and other income decreased approximately $0.9 million, from $5.9
million in the 1998 period to $5.0 million in 1999. The decrease in 1999 was
principally the result of decreased gains on sale of land located near Hecla's
corporate headquarters in Coeur d'Alene, Idaho, of $2.3 million, partly offset
by a $1.3 million gain on the sale of the corporate airplane in 1999.
Gain on investments decreased $1.2 million from a gain in 1998 of $1.1
million to a loss in 1999 of $0.1 million. The gain in 1998 was primarily a
result of the sale of Metaline Contact Mine stock which was nonrecurring in
1999.
Interest expense, net of amounts capitalized, increased $2.3 million in
1999 as compared to the same period in 1998. The increase was the result of
decreased capitalized interest of $0.9 million, associated with the Lucky Friday
expansion project in 1998, interest and fees associated with project financing
and subordinated debt utilized for the acquisition of Monarch of $0.7 million
and increased interest expense under Hecla's revolving bank loan of $0.6 million
as a result of higher borrowings.
Income tax benefit decreased approximately $0.7 million, from $1.1 million
in 1998 to $0.4 million in the 1999 period. The decreased benefit is primarily
related to the lower benefits achieved from the carryback of certain 1998
expenditures to reduce U.S. income taxes previously provided.
Income from discontinued operations increased $0.4 million from $4.4
million in 1998 to $4.8 million in 1999. The increase in income in 1999 is
principally due to increased gross profit from MWCA of $2.4 million and from
K-T Clay of $1.8 million, and decreased exploration of $0.4 million, partly
offset by a write-down of the carrying value of MWCA of $4.4 million.
The cumulative effect of change in accounting principle totaled $1.4
million in 1999, due to the write off of unamortized start-up costs relating to
Hecla's 29.73% ownership interest in the Greens Creek mine. The adjustment was
the result of the required application of Statement of Position No. 98-5,
"Reporting on the Costs of Start-up Activities."
<PAGE> 52
Cash operating and total cash cost per gold ounce increased from $177 and
$189 in 1998 to $195 and $205 in 1999, respectively. The increases in the cash
operating and total cash cost per gold ounce were primarily attributable to the
decrease in production at the Rosebud mine and higher per ounce costs at the La
Choya mine resulting from the cessation of mining in December 1998. Total
production costs per gold ounce increased from $262 per ounce in 1998 to $298
per ounce in 1999. The increase in the total production cost per gold ounce was
primarily attributable to increased depreciation charges associated with the La
Choya pit expansion completed in 1998.
Cash operating, total cash and total production cost per silver ounce
decreased from $3.96, $3.96 and $5.37 in 1998 to $3.72, $3.72 and $5.25 in 1999,
respectively. The decreases in the cost per silver ounce were due primarily to
positive impacts of increased by-product zinc and lead production, as well as
increased silver production. Gold, lead and zinc are by-products of Hecla's
silver production, the revenues from which are offset against production costs
in the calculation of costs per ounce of silver.
Financial Condition and Liquidity
A substantial portion of Hecla's revenue is derived from the sale of
products, the prices of which are affected by numerous factors beyond Hecla's
control. Prices may change dramatically in short periods of time and such
changes have a significant effect on revenues, profitability and liquidity of
Hecla. Hecla is also subject to many of the same inflationary pressures as the
U.S. economy in general. Hecla continues to seek and implement cost-cutting
measures in an effort to reduce per unit production costs. Management believes,
however, that Hecla may not be able to continue to offset the impact of
inflation over the long term through cost reductions alone. Market prices for
products produced by Hecla have a much greater impact than inflation on Hecla'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).
At December 31, 2000, assets totaled approximately $194.8 million and
shareholders' equity totaled approximately $44.7 million. Cash and cash
equivalents decreased by $1.3 million from $2.7 million at the end of 1999 to
$1.4 million at December 31, 2000. The cash balance at December 31, 2000,
excludes approximately $1.7 million in cash at Hecla's industrial mineral
operations which is included in "Net assets of discontinued operations" on
Hecla's balance sheet. During 2000, operating activities used approximately
$5.7 million of cash. Significant uses of cash included cash required for
reclamation and environmental expenditures and other noncurrent liabilities of
<PAGE> 53
$9.5 million, cash paid for interest of $8.4 million, funding of general and
administrative expenses of $7.3 million and funding of exploration expenditures
of $6.3 million. The primary sources of cash were from the industrial minerals
operations, the Greens Creek mine, the La Camorra mine and via reduced accounts
and notes receivable. Principal noncash charges included reduction in carrying
value of mining properties for the Lucky Friday mine, the Rosebud mine and the
Noche Buena property of $40.2 million, depreciation, depletion and amortization
of $22.4 million, provisions for reclamation and closure costs of $17.6 million,
a $1.0 million loss on disposal of discontinued operations, an extraordinary
charge of $0.6 million for the write off of debt issuance costs related to
extinguished debt and a gain on the disposition of plant, property and equipment
of $1.5 million.
Investing activities required $1.2 million of cash during 2000. The
significant uses of cash included $15.2 million for capital expenditures,
including significant additions at the Greens Creek mine of $4.8 million, the La
Camorra mine of $4.5 million, K-T Mexico of $2.9 million and at the Lucky Friday
mine of $1.8 million. The major sources of cash were proceeds from the sale of
discontinued operations of $9.6 million, proceeds from the sale of properties,
plants and equipment of $2.7 million and proceeds from investment sales and
receipt of cash surrender value of life insurance policies of $1.4 million.
Financing activities provided $5.6 million of cash during 2000. The major
source of cash was borrowings on debt of $80.5 million. This source of cash was
partially offset by repayments on debt of $67.1 million and payment of preferred
stock dividends of $6.0 million. In order to preserve cash, Hecla did not
declare and pay the third and fourth quarter 2000 dividends to holders of
Hecla's preferred stock.
On March 31, 2000, Hecla entered into a new $55.0 million term loan
facility due on April 10, 2001. Proceeds from the term loan facility were
utilized to repay amounts outstanding under the previous bank credit agreement,
to fund a restricted account to repay revenue bonds, to repay the subordinated
debt and to fund general corporate purposes. As security for the loan, Hecla
pledged the common stock of certain of Hecla's subsidiaries and certain other
assets. Interest rates are based on LIBOR plus 2.25%. At December 31, 2000,
$55.0 million was outstanding under the new term loan facility and classified as
current portion of long-term debt.
On June 30, 2000, Hecla entered into a new $3.0 million subordinated debt
facility. Proceeds from the subordinated debt were available for general
corporate purposes. Interest rates are based on LIBOR plus a margin of 4.0%.
The loan is to be repaid in equal installments on June 30, 2003, December 31,
2003, and June 30, 2004.
<PAGE> 54
On October 12, 2000, Hecla entered into a $2.0 million revolving credit
facility through January 15, 2001. The term of the revolving facility was
subsequently extended through April 1, 2001. This revolving credit facility is
collateralized by Hecla's corporate office building. As of December 31, 2000,
$1.0 million was outstanding under the revolving credit facility.
At December 31, 2000, Hecla's wholly owned subsidiary, Hecla Resources
Investments Limited (HRIL), had $10.3 million outstanding under a credit
agreement utilized to finance the acquisition of the La Camorra gold mine in
Venezuela. At December 31, 2000, HRIL was in compliance with restrictive
covenants related to the available ore reserves and financial performance of the
La Camorra mine. At December 31, 2000, $7.0 million of the project financing
debt was classified as long-term debt, with the remaining $3.3 million
classified as current portion of long-term debt.
Hecla currently estimates that capital expenditures in 2001 will be in the
range of $8.0 to $10.0 million, principally for expenditures at the Greens Creek
and La Camorra mines. Expenditures for environmental remediation and
reclamation are estimated in the range of $10.0 million to $14.0 million,
principally for activities at the Grouse Creek property and the Bunker Hill
Superfund site. Hecla also estimates that exploration expenditures in 2001 will
be in the range of $1.5 million to $3.0 million for expenditures at the
Saladillo property in Mexico, the Greens Creek mine and the La Camorra mine.
These expenditures will be dependent upon Hecla's ability to generate sufficient
operating cash flows, proceeds generated from the potential sale of assets and
possible offerings of equity and/or debt securities. There can be no assurance
that Hecla will be successful in generating adequate funding for planned capital
expenditures, environmental remediation and reclamation expenditures and for
exploration expenditures.
Reserves for closure costs, reclamation and environmental matters totaled
$58.7 million at December 31, 2000. Hecla anticipates that expenditures
relating to these reserves will be made over the next several years. Although
Hecla believes the allowance is adequate based on current estimates of aggregate
costs, Hecla plans to periodically reassess its environmental and reclamation
obligations as new information is developed. Depending on the results of any
reassessment, it is reasonably possible that Hecla's estimate of its obligations
may change in the near term.
Hecla 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. As of
January 31, 2001, Hecla has not declared and paid the equivalent of two
quarterly dividends. Holders of the Preferred Shares have no voting rights
except if Hecla does not
<PAGE> 55
declare and 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 Hecla's Articles of
Incorporation.
At December 31, 2000, Hecla had negative working capital of $15.8 million
and an accumulated deficit of $366.5 million. Hecla's current assets included
$44.0 million of net assets of discontinued operations and current liabilities
included $57.0 million of long-term debt which was due in April 2001. In March
2001, Hecla sold the majority of the subsidiaries which represented the
discontinued operations including K-T Clay, K-T Feldspar, and K-T Mexico for
$62.5 million and used the proceeds to pay off the $57.0 million debt.
Additionally, in order to provide Hecla additional liquidity, Hecla is currently
evaluating a number of financing alternatives including debt financing, sale of
royalty interest, and equity issuance. Hecla currently anticipates completing
one or more financing alternatives during 2001. Proceeds from these planned
financings will be available for general corporate purposes. Hecla also
continues to pursue the sale of the remaining assets of MWCA-Colorado Aggregate
Division which had $2.9 million of net assets at December 31, 2000. There can
be no assurance that Hecla will be successful in obtaining financing or in
completing a sales transaction for the remaining assets of the MWCA-Colorado
Aggregate Division.
Based upon Hecla's estimate of metals prices and metals production for
2001, Hecla currently believes that its operating cash flows, the cash proceeds
from the sale of K-T Clay, K-T Feldspar and K-T Mexico, proceeds from planned
financings, and the anticipated proceeds from the sale of the remaining assets
of the MWCA-Colorado Aggregate Division will be adequate to fund anticipated
minimum capital expenditures, idle property expenditures, and exploration
expenditures in 2001. Cash flows from operations, however, could be
significantly impacted if the market price of gold, silver, zinc and lead
fluctuate. In the event that cash balances decline to a level that cannot
support the operations of the Company, management will defer certain planned
capital and exploration expenditures as needed to conserve cash for operations.
If management's plans are not successful, operations and liquidity may be
adversely affected.
Hecla brought suit in January 2001 against Zemex Corporation of Toronto,
Canada, under its guarantee for its subsidiary Zemex U.S. Corporation's failure
to close on the sale of K-T Clay and K-T Mexico. Hecla had announced the agreed
upon sale in November 2000 for $68.0 million and is seeking damages incurred for
Zemex U.S. Corporation's failure to purchase K-T Clay and K-T Mexico as agreed.
On August 21, 2000, Hecla was notified by the New York Stock Exchange
(NYSE) that Hecla had fallen below NYSE listing criteria because the common
stock price had been under $1.00 per share for more than 30 days, and that Hecla
had six months to increase the stock price of its common stock to above $1.00
per share. Hecla's stock price did not increase to an average closing price of
$1.00 or more per share for a 30-day period at the end of the six-month
notification period. Hecla notified the NYSE that it will be seeking
shareholders' approval of a reverse split of common stock at the next annual
meeting to give Hecla the option to increase its common stock price to meet
NYSE's requirement and remain on the NYSE. Due to other NYSE listing criteria,
there can be no assurance that Hecla will be able to maintain the listing of its
common stock on the NYSE.
<PAGE> 56
Pursuant to a Registration Statement filed with the Securities and Exchange
Commission and declared effective in the third quarter of 1995, Hecla can, at
its option, issue debt securities, common shares, preferred shares or warrants
in an amount not to exceed $100.0 million in the aggregate. As of December 31,
2000, Hecla has issued $62.2 million of Hecla's common shares and warrants
under the Registration Statement. Due to the current market capitalization of
the Company, there can be no assurance as to the availability of this
Registration Statement.
For information on hedged positions and derivative instruments, see Item 7A
"Quantitative and Qualitative Disclosure About Market Risk."
Hecla is subject to legal proceedings and claims that have not been finally
adjudicated (see Part II, Item 3, Legal Proceedings and Note 9 of Notes to
Consolidated Financial Statements). The ultimate disposition of these matters
and various other pending legal actions and claims are not presently
determinable. However, an adverse determination in certain of these matters may
have a material adverse effect on the financial position of Hecla and its
subsidiaries.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 was amended in June 2000 with the
issuance of SFAS 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities." SFAS 133, which Hecla adopted effective January 1, 2001,
requires that derivatives be recognized as assets or liabilities and be measured
at fair value. Gains or losses resulting from changes in the fair value of
derivatives in each period are to be accounted for either in current earnings or
other comprehensive income depending on the use of the derivatives and whether
they qualify for hedge accounting. The key criterion for hedge accounting is
that the hedging relationship must be highly effective in achieving offsetting
changes in the fair value or cash flows of the hedging instruments and the
hedged items.
At December 31, 2000, Hecla's hedging contracts, used to reduce exposure to
precious metal prices, consisted of forward sales contracts and a gold lease
rate swap. Hecla intends to physically deliver metals in accordance with the
terms of the forward sales contracts, as such Hecla has elected to designate the
contracts as normal sales in accordance with SFAS 138, and as a result these
contracts are not required to be accounted for as derivatives under SFAS 133.
Hecla recorded a cumulative effect of a change in accounting principle in other
comprehensive loss of approximately $0.1 million loss related to the gold lease
rate swap upon adoption of SFAS No. 133 on January 1, 2001.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
The following discussion about Hecla's risk-management activities includes
"forward-looking statements" that involve risk and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements.
<PAGE> 57
The following tables summarize the financial instruments and derivative
instruments held by Hecla at December 31, 2000, which are sensitive to changes
in interest rates and commodity prices. Hecla believes that there has not been
a material change in its market risk since the end of its last fiscal year. In
the normal course of business, Hecla 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, 2000, Hecla's debt was subject to changes in market
interest rates and was sensitive to those changes. Hecla currently has no
derivative instruments to offset the risk of interest rate changes. Hecla may
choose to use derivative instruments, such as interest rate swaps to manage the
risk associated with interest rate changes.
The following table presents principal cash flows for debt outstanding at
December 31, 2000, 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.
<TABLE>
<CAPTION>
(in thousands)
Expected Maturity Date
------------------------------------------------ Fair
2001 2002 2003 2004 Thereafter Total Value
--------- --------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Bank credit agreement $ 55,000 $ - - $ - - $ - - $ - - $ 55,000 $ 55,000
Average interest rate 8.30% - - - - - - - -
Subordinated debt $ - - $ - - $ 2,000 $ 1,000 $ - - $ 3,000 $ 3,000
Average interest rate 9.79% 9.69% 9.93% 10.11% - -
Project financing debt $ 3,250 $ 3,000 $ 3,000 $ 1,000 $ - - $ 10,250 $ 10,250
Average interest rate 8.29% 8.19% 8.43% 8.61% - -
Revolving credit facility $ 1,024 - - - - - - - - $ 1,024 $ 1,024
Average interest rate 10.5% - - - - - - - -
</TABLE>
<PAGE> 58
Commodity-Price Risk Management
Hedging
Hecla uses commodity forward sales commitments, commodity swap contracts
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 Hecla will receive a defined minimum price
for certain quantities of its production. Hecla uses these instruments to
reduce risk by offsetting market exposures. Hecla 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 Hecla are not leveraged and are held for
purposes other than trading. All of these contracts were designated as hedges
at December 31, 2000.
The following table provides information about Hecla's forward sales
commitments and commodity swap contracts at December 31, 2000. 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 31, 2001 and December 31, 2004.
<TABLE>
<CAPTION>
Expected Expected Expected Expected Estimated
Maturity Maturity Maturity Maturity Fair
2001 2002 2003 2004 Value
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Forward contracts:
Gold sales (ounces) 62,010 60,428 59,802 48,928
Future price (per ounce) $ 288 $ 288 $ 288 $ 288
Contract amount (in $000's) $ 17,874 $ 17,418 $ 17,238 $ 14,103 $ (1,935)
</TABLE>
In addition to the above contracts, Hecla has a quarterly Gold Lease Rate
Swap at a fixed rate of 1.5% on 215,611 ounces of the above gold forward
contracts. The ounces covered under the swap are adjusted each quarter, in
accordance with the expiration of the gold forward contracts. The estimated
cost to close out the Gold Lease Rate Swap at December 31, 2000, was $136,174.
Trading
On July 30, 1999, Hecla sold call options for 300,000 ounces of silver
through June 30, 2000, at an average strike price of $5.50. Hecla sold the call
options to provide additional cash flow. The sale of the options are designed
to provide some price protection, to the extent of the amount of the call
premium received, in the event of a decline in the price of silver. These
contracts also limit the maximum that Hecla may receive on a portion of Hecla's
silver production to the strike price of the options plus the premium received.
During 2000, Hecla recognized revenue of $66,000 from expired call option
contracts. There are no call options outstanding at December 31, 2000.
<PAGE> 59
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.
<TABLE>
<CAPTION>
Selected Quarterly Data
(dollars in thousands except for per share amounts)
First Second Third Fourth
2000 Quarter Quarter Quarter Quarter Total
------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales of products(A) $ 17,628 $ 21,005 $ 20,044 $ 17,173 $ 75,850
Gross loss(A) $ (1,145) $ (1,252) $ (82) $ (2,850) $ (5,329)
Net loss $ (7,319) $ (16,712) $ (3,622) $ (56,312) $ (83,965)
Preferred stock dividends $ (2,012) $ (2,013) $ (2,013) $ (2,012) $ (8,050)
Loss applicable to
common shareholders $ (9,331) $ (18,725) $ (5,635) $ (58,324) $ (92,015)
Basic and diluted loss
per common share $ (0.14) $ (0.28) $ (0.08) $ (0.87) $ (1.38)
1999
-------------------------
Sales of products(A) $ 18,959 $ 17,390 $ 17,298 $ 20,056 $ 73,703
Gross profit (loss)(A) $ 1,514 $ 966 $ (558) $ (1,316) $ 606
Net income (loss) $ (1,499) $ 2,335 $ (34,002) $ (6,824) $ (39,990)
Preferred stock dividends $ (2,012) $ (2,013) $ (2,013) $ (2,012) $ (8,050)
Income (loss) applicable to
common shareholders $ (3,511) $ 322 $ (36,015) $ (8,836) $ (48,040)
Basic and diluted income
(loss) per common share $ (0.06) $ 0.01 $ (0.54) $ (0.13) $ (0.77)
</TABLE>
(A) In November 2000, the Company decided to sell its industrial mineral
operations. As such, the industrial minerals segment is accounted for as a
discontinued operation, and the above amounts have been restated to reflect
the accounting treatment of the industrial minerals segment as a
discontinued operation.
Item 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosures.
None.
<PAGE> 60
Part III
Item 10. Directors and Executive Officers of the Registrant.
Information with respect to directors and executive officers of Hecla is
set forth as follows:
Age at
June 8, Director Position and Committee
Board of Directors 2001 Since Assignments
- ------------------- ------ -------- -----------------------------
Arthur Brown 60 1983 Chairman of the Board,
President and Chief Executive
Officer of Hecla Mining
Company (1,6)
John E. Clute 66 1981 Dean of Gonzaga University
School of Law (1,4,5)
Joe Coors, Jr. 59 1990 Retired Chairman of the Board
and CEO of CoorsTec, Inc. (2,3,5)
Ted Crumley 56 1995 Senior Vice President and
Chief Financial Officer of
Boise Cascade Corporation (1,2,5)
Leland Erdahl 72 1984 Former President and Chief
Executive Officer of Ranchers
Exploration and Development
Corporation and retired Chief
Financial Officer of Amax
Gold, Inc. (1,4,5,7)
Charles L. McAlpine 67 1989 Former President of Arimathaea
Resources Inc. and former
President of Campbell
Chibougamau Mines Ltd. (3,4,7)
Jorge E. Ordonez C. 61 1994 President and Chief Executive
Officer of Ordonez Profesional
S.C., Vice President of Minera
Montoro, S.A. de C.V. (2,3,4,7)
Paul A. Redmond 64 1988-94 Retired Chairman and Chief
1998 Executive Officer of
Washington Water Power (now
Avista Corp.) (1,4,5)
Additional information with respect to the directors of Hecla is set forth
under the caption "Election of Directors" in Hecla's proxy statement to be filed
pursuant to Regulation 14A for the annual meeting scheduled to be held on June
8, 2001, (the Proxy Statement), which information is incorporated herein by
reference.
<PAGE> 61
Age at
June 8,
Executive Officers 2001 Position and Term Served
------------------ -------- --------------------------------
William B. Booth 50 Vice President - Environmental
and Public Affairs since May
2000; Vice President - Investor
and Public Affairs from May 1994
to May 2000; various administrative
functions with Hecla since
December 1985.
Arthur Brown 60 Chairman since June 1987; Chief
Executive Officer since May
1987; President since May 1986.
J. Gary Childress 53 Vice President - Industrial
Minerals since February 1994;
President and General Manager of
Kentucky-Tennessee Clay Company
from 1987 to 1994.
Vicki J. Veltkamp 44 Vice President - Investor and
Public Relations since May 2000;
various administrative functions
with Hecla from 1988 to 1993,
and 1995 to 2000.
Michael B. White 50 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 57 Treasurer since May 1997;
Manager of Precious Metals
Marketing since 1993; Assistant
Treasurer from June 1985 to May
1997.
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.
<PAGE> 62
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 in the Proxy Statement to be
filed pursuant to Regulation 14A, which information is incorporated herein by
reference.
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 10, 2000, filed on November 14, 2000,
related to a News Release for deferral of the January 1, 2001,
preferred dividend payment
Form 8-K dated November 17, 2000, filed on November 28, 2000,
related to stock purchase agreement between Hecla Mining Company
and Zemex U.S. Corporation
<PAGE> 63
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 April 11,
2001.
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 4/11/2001 /s/ Paul A. Redmond 4/11/2001
- ---------------------------------- --------------------------------
Arthur Brown Date Paul A. Redmond Date
Chairman and Director Director
(principal executive officer)
/s/ Lewis E. Walde 4/11/2001 /s/ Theodore Crumley 4/11/2001
- --------------------------------- --------------------------------
Lewis E. Walde Date Theodore Crumley Date
Controller Director
(principal accounting officer)
/s/ Allan J. Lang 4/11/2001 /s/ Leland O. Erdahl 4/11/2001
- ---------------------------------- --------------------------------
Allan J. Lang Date Leland O. Erdahl Date
Director of Finance Director
(principal financial officer)
/s/ John E. Clute 4/11/2001 /s/ Charles L. McAlpine 4/11/2001
- ---------------------------------- ---------------------------------
John E. Clute Date Charles L. McAlpine Date
Director Director
/s/ Joe Coors, Jr. 4/11/2001 /s/ Jorge E. Ordonez 4/11/2001
- ---------------------------------- --------------------------------
Joe Coors, Jr. Date Jorge E. Ordonez Date
Director Director
<PAGE> 64
Index to Financial Statements
Page
Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 2000 and 1999
Consolidated Statements of Operations and Comprehensive Income (Loss)
for the Years Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
Financial Statement Schedules*
*Financial statement schedules
have been omitted as not applicable
<PAGE> 65
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 income (loss), changes
in shareholders' equity and of cash flows present fairly, in all material
respects, the financial position of Hecla Mining Company and its subsidiaries
(the Company) at December 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000, in conformity with accounting principles generally accepted in the
United States of America. 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 auditing standards generally accepted in the
United States of America, 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 our opinion.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for start-up costs in 1999 as required by a
Statement of Position issued by the American Institute of Certified Public
Accountants.
/s/ PricewaterhouseCoopers LLP
Spokane, Washington
March 28, 2001
<PAGE> 66
Hecla Mining Company and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
__________
<TABLE>
<CAPTION>
December 31,
-------------------------
2000 1999
---------- ----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,373 $ 2,719
Accounts and notes receivable 11,164 29,202
Inventories 11,269 24,033
Other current assets 2,105 2,548
Net assets of discontinued operations 44,057 - -
---------- ----------
Total current assets 69,968 58,502
Investments 502 2,130
Restricted investments 6,268 5,998
Properties, plants and equipment, net 108,343 191,026
Other noncurrent assets 9,755 10,701
---------- ----------
Total assets $ 194,836 $ 268,357
========== ==========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 7,520 $ 12,135
Accrued payroll and related benefits 4,732 4,394
Preferred stock dividends payable - - 2,012
Current portion of long-term debt 59,274 782
Accrued taxes 2,188 2,369
Current portion of accrued reclamation and closure costs 12,060 8,384
---------- ----------
Total current liabilities 85,774 30,076
Deferred income taxes 300 300
Long-term debt 10,041 55,095
Accrued reclamation and closure costs 46,650 40,941
Other noncurrent liabilities 7,326 9,244
---------- ----------
Total liabilities 150,091 135,656
---------- ----------
Commitments and contingencies (Notes 1, 4, 8 and 9)
SHAREHOLDERS' EQUITY
Preferred stock, $0.25 par value, authorized 5,000,000 shares;
issued and outstanding - 2,300,000 shares,
liquidation preference $119,025 575 575
Common stock, $0.25 par value, authorized 100,000,000 shares;
issued 2000 - 66,859,752 shares, issued 1999 - 66,844,575 shares 16,715 16,711
Capital surplus 400,236 400,205
Accumulated deficit (366,523) (278,533)
Accumulated other comprehensive loss (4,858) (4,871)
Less stock held by grantor trust; 2000 - 139,467 common shares,
1999 - 132,290 common shares (514) (500)
Less treasury stock, at cost; 2000 - 62,114 common shares,
1999 - 62,111 common shares (886) (886)
---------- ----------
Total shareholders' equity 44,745 132,701
---------- ----------
Total liabilities and shareholders' equity $ 194,836 $ 268,357
========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> 67
Hecla Mining Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Dollars and shares in thousands, except per share amounts)
__________
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Continuing operations:
Sales of products $ 75,850 $ 73,703 $ 75,108
---------- ---------- ----------
Cost of sales and other direct production costs 63,088 54,435 54,812
Depreciation, depletion and amortization 18,091 18,662 17,170
---------- ---------- ----------
81,179 73,097 71,982
---------- ---------- ----------
Gross profit (loss) (5,329) 606 3,126
---------- ---------- ----------
Other operating expenses:
General and administrative 7,303 7,121 7,181
Exploration 6,332 5,540 4,053
Depreciation and amortization 282 321 389
Provision for closed operations and environmental matters 20,029 30,100 734
Reduction in carrying value of mining properties 40,240 175 - -
---------- ---------- ----------
74,186 43,257 12,357
---------- ---------- ----------
Loss from operations (79,515) (42,651) (9,231)
---------- ---------- ----------
Other income (expense):
Interest and other income 4,609 5,028 5,895
Miscellaneous expense (1,809) (1,487) (1,307)
Gain (loss) on investments - - (96) 1,136
Interest expense:
Interest costs (8,119) (4,607) (3,269)
Less amount capitalized - - 19 959
---------- ---------- ----------
(5,319) (1,143) 3,414
---------- ---------- ----------
Loss from continuing operations before income taxes, extraordinary
charge and cumulative effect of change
in accounting principle (84,834) (43,794) (5,817)
Income tax benefit (provision) (13) 403 1,143
---------- ---------- ----------
Loss from continuing operations before extraordinary charge, and
cumulative effect of change in accounting principle (84,847) (43,391) (4,674)
Discontinued operations:
Income, net of income tax 2,572 4,786 4,374
Loss on partial disposal, net of income tax (1,043) - - - -
Extraordinary charge, net of income tax (647) - - - -
Cumulative effect of change in accounting principle, net of income tax - - (1,385) - -
---------- ---------- ----------
Net loss (83,965) (39,990) (300)
Preferred stock dividends (8,050) (8,050) (8,050)
---------- ---------- ----------
Loss applicable to common shareholders (92,015) (48,040) (8,350)
---------- ---------- ----------
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities 13 13 (115)
Reclassification adjustment for losses included in net loss - - 96 96
Minimum pension liability adjustment - - 289 (289)
---------- ---------- ----------
Other comprehensive income (loss) 13 398 (308)
---------- ---------- ----------
Comprehensive loss applicable to common shareholders $ (92,002) $ (47,642) $ (8,658)
========== ========== ==========
Basic and diluted income (loss) per common share:
Loss from continuing operations $ (1.39) $ (0.83) $ (0.23)
Income from discontinued operations 0.02 0.08 0.08
Extraordinary charge (0.01) - - - -
Cumulative effect of change in accounting principle - - (0.02) - -
---------- ---------- ----------
Basic and diluted loss per common share $ (1.38) $ (0.77) $ (0.15)
========== ========== ==========
Weighted average number of common shares outstanding 66,791 62,347 55,101
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> 68
Hecla Mining Company and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
__________
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities:
Net loss $ (83,965) $ (39,990) $ (300)
Noncash elements included in net loss:
Depreciation, depletion and amortization 22,363 23,738 22,595
Cumulative effect of change in accounting principle - - 1,385 - -
Extraordinary item 647 - - - -
Loss on partial sale of discontinued operations 1,043 - - - -
Gain on disposition of properties, plants and equipment (1,460) (2,133) (2,648)
Loss (gain) on investments - - 96 (1,136)
Reduction in carrying value of mining properties 40,240 4,577 - -
Provision for reclamation and closure costs 17,601 28,614 581
Change in net assets of discontinued operations 1,347 - - - -
Change in assets and liabilities:
Accounts and notes receivable 6,486 (1,691) (1,474)
Income tax refund receivable - - 1,079 (294)
Inventories (108) (317) (641)
Other current and noncurrent assets 100 (1,324) (1,747)
Accounts payable and accrued expenses (1,266) (4,788) (478)
Accrued payroll and related benefits 669 1,542 416
Accrued taxes 97 1,597 (244)
Accrued reclamation and closure cost and other noncurrent liabilities (9,528) (9,429) (12,587)
---------- ---------- ----------
Net cash provided (used) by operating activities (5,734) 2,956 2,043
---------- ---------- ----------
Investing activities:
Proceeds from partial sale of discontinued operations 9,562 - - - -
Purchase of Monarch Resources Investments Limited, net of
cash acquired - - (9,183) - -
Additions to properties, plants and equipment (15,210) (13,467) (22,495)
Proceeds from disposition of properties, plants and equipment 2,671 2,476 3,733
Proceeds from the sale of investments 283 311 1,294
Decrease (increase) in restricted investments (270) 333 1,595
Purchase of investments and change in cash surrender
value of life insurance, net 1,354 54 (734)
Other, net 381 133 399
---------- ---------- ----------
Net cash used by investing activities (1,229) (19,343) (16,208)
---------- ---------- ----------
Financing activities:
Common stock issued for warrants and stock option plans 35 277 54
Issuance of common stock, net of offering costs - - 11,865 - -
Dividends paid on preferred stock (6,037) (8,050) (8,050)
Payments for debt issuance costs (1,811) (1,255) - -
Borrowings against cash surrender value of life insurance - - 925 - -
Borrowings on long-term debt 80,524 54,063 44,531
Repayments on long-term debt (67,094) (41,199) (23,684)
---------- ---------- ----------
Net cash provided by financing activities 5,617 16,626 12,851
---------- ---------- ----------
Change in cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents (1,346) 239 (1,314)
Cash and cash equivalents at beginning of year 2,719 2,480 3,794
---------- ---------- ----------
Cash and cash equivalents at end of year $ 1,373 $ 2,719 $ 2,480
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest, net of amount capitalized $ 8,376 $ 4,377 $ 1,784
========== ========== ==========
Income tax payments (refunds), net $ 54 $ (847) $ 439
========== ========== ==========
See Notes 3 and 5 for noncash investing and financing activities.
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> 69
Hecla Mining Company and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 2000, 1999 and 1998
(Dollars and shares in thousands, except per share amounts)
_______________
<TABLE>
<CAPTION>
Accumulated Stock
Preferred Stock Common Stock Other Held by
---------------- ----------------- Capital Accumulated Comprehensive Grantor Treasury
Shares Amount Shares Amount Surplus Deficit Loss Trust Stock
------ -------- ------ --------- --------- ----------- ------------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1997 2,300 $ 575 55,156 $ 13,789 $ 373,966 $ (221,143) $ (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)
Net loss (39,990)
Preferred stock dividends
($3.50 per share) (8,050)
Stock issued for cash,
net of issuance costs 4,739 1,184 10,681
Stock issued under stock
option and warrant plans 99 25 232
Stock issued to directors 8 2 18
Stock issued in connection
with acquisition of Monarch
Resources Investments
Limited 6,700 1,675 14,290
Stock issued and held by
grantor trust 132 33 967 (500)
Other comprehensive income 398
----- ------ ------ -------- --------- ---------- --------- ------ ------
Balances, December 31, 1999 2,300 575 66,845 16,711 400,205 (278,533) (4,871) (500) (886)
Net loss (83,965)
Preferred stock dividends
($1.75 per share) (4,025)
Stock issued to directors 8 2 19
Stock issued and held by
grantor trust 7 2 12 (14)
Other comprehensive income 13
----- ------ ------ -------- --------- ---------- --------- ------ ------
Balances, December 31, 2000 2,300 $ 575 66,860 $ 16,715 $ 400,236 $ (366,523) $ (4,858) $ (514) $ (886)
===== ====== ====== ======== ========= ========== ========= ====== ======
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> 70
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.
Hecla'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 Hecla'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 accounting
principles generally accepted in the United States of America 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 2000 presentation. These reclassifications had no effect on the
net loss, comprehensive income (loss) or accumulated deficit as previously
reported. Included in these reclassifications is the reclassification of
Hecla's industrial minerals segment from an operating segment to a discontinued
segment (see Note 2).
B. Company's Business and Concentrations of Credit Risk -- Hecla is engaged in
mining and mineral processing activities, including exploration, extraction,
processing and reclamation. Hecla's principal products are metals (primarily
gold, silver, lead and zinc) and industrial minerals (primarily clay, aggregate
and landscape products). Substantially all of Hecla's operations are conducted
in the United States, Mexico and Venezuela. Sales of metals products are made
principally to domestic and foreign custom smelters and metal traders. Hecla
sells substantially all of its metallic concentrates to smelters which are
subject to extensive regulations including environmental protection laws. Hecla
has no control over the smelters' operations or their compliance with
environmental laws and regulations. If the smelting capacity available to Hecla
was significantly reduced because of environmental requirements or otherwise, it
is possible that Hecla's silver operations could be adversely affected.
Industrial minerals are sold principally to domestic and Mexican manufacturers
and wholesalers.
<PAGE> 71
Hecla's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash equivalents and trade accounts
receivable. Hecla 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. Hecla 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 -- Marketable equity securities are categorized as available
for sale and carried at quoted market value.
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 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 Hecla reviews the net carrying value of all facilities,
including idle facilities, on a periodic basis. Hecla estimates the net
realizable value of each property based on the estimated undiscounted future
cash flows that will be generated from operations at each property, the
estimated salvage value of the surface plant and equipment and the value
associated with property interests. These estimates of undiscounted future cash
flows are dependent upon estimates of metal to be recovered from proven and
probable ore reserves, 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
<PAGE> 72
costs are subject to risks and uncertainties of change affecting the
recoverability of Hecla's investment in various projects. Although management
has made a reasonable 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.
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 Hecla's estimates of
proven and probable ore reserves. It is reasonably possible that certain of
Hecla's estimates of proven and probable ore reserves will change in the near
term resulting in a change to amortization and reclamation accrual rates in
future reporting periods.
Depreciation is based on the estimated useful lives of the assets and is
computed using straight-line and unit-of-production methods. Depletion is
computed using the unit-of-production method.
F. Mine Exploration and Development -- Exploration costs and ongoing
development costs at operating mines are charged to operations as incurred.
Major mine development expenditures are capitalized at operating properties and
at new mining properties not yet producing.
G. Reclamation of Mining Areas -- All of Hecla'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 Hecla. A reserve for mine reclamation costs has been established
for restoring certain abandoned and currently disturbed mining areas based upon
estimates of cost to comply with existing reclamation standards. Mine
reclamation costs for operating properties are accrued using the unit-of-
production method and charged to cost of sales and other direct production
costs. The estimated amount of metals or minerals to be recovered from a mine
site is based on internal and external geological data and is reviewed by
management on a periodic basis. Changes in such estimated amounts which affect
reclamation cost accrual rates are accounted for prospectively from the date of
the change 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 Hecla'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.
<PAGE> 73
H. Remediation of Mining Areas -- Hecla accrues costs associated with
environmental remediation obligations at the most likely estimate 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.
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. Hecla
periodically reviews its accrued liabilities for such remediation costs as
evidence becomes available indicating that its remediation liability has
potentially changed.
I. Income Taxes -- Hecla records deferred tax liabilities and assets for the
expected future income tax consequences of events that have been recognized in
its financial statements. Deferred tax liabilities and assets are determined
based on the temporary differences between the financial statement carrying
amounts and the tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the temporary differences are expected to reverse.
J. Basic and Diluted Loss Per Common Share -- 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 2000, 1999 and
1998, potentially dilutive securities were excluded from the calculation of
diluted EPS as they were antidilutive. Therefore, there was no difference in
the calculation of basic and diluted EPS in 2000, 1999 and 1998.
K. Revenue Recognition -- Sales of metal products sold directly to smelters
are recorded when title and risk of loss transfer to the smelter at current
metals spot prices. Recorded values are adjusted monthly until final settlement
at month-end metals prices. Sales of metal in products tolled (rather than sold
to smelters) are recorded at contractual amounts when title and risk of loss
transfer to the buyer. Sales of industrial minerals are recognized as the
minerals are shipped and title transferred. Shipping and handling fees charged
to the customer are included in revenues. Actual costs of shipping and handling
are reported in cost of sales.
L. Interest Expense -- Interest costs incurred during the construction of
qualifying assets are capitalized as part of the asset cost.
<PAGE> 74
M. Cash Equivalents -- Hecla considers cash equivalents to consist of highly
liquid investments with a remaining maturity of three months or less when
purchased.
N. Foreign Currency Translation -- Hecla 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). Hecla also operates in Venezuela
with its wholly owned subsidiary Minera Hecla Venezolana, C.A. The functional
currency for Minera Hecla, K-T Mexico and Minera Hecla Venezolana is the U.S.
dollar. Accordingly, Hecla translates the monetary assets and liabilities of
these 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.
O. Risk Management Contracts -- Hecla uses derivative financial instruments as
part of an overall risk-management strategy. These instruments are used as a
means of hedging exposure to precious metals prices. Hecla does not hold or
issue derivative financial instruments for trading purposes.
Hecla uses forward sales contracts to hedge its exposure to precious metals
prices. The underlying hedged production is designated at the inception of the
hedge. Deferral accounting is applied only if the derivatives continue to
reduce the price risk associated with the underlying hedged production.
Contracted prices on forward sales contracts and options are recognized in
product sales as the designated production is delivered or sold. In the event
of early settlement of hedge contracts, gains and losses are deferred and
recognized in income at the originally designated delivery date.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 was amended in June 2000 with the
issuance of SFAS 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities." SFAS 133, which Hecla will adopt effective January 1,
2001, requires that derivatives be recognized as assets or liabilities and be
measured at fair value. Gains or losses resulting from changes in the fair
value of derivatives in each period are to be accounted for either in current
earnings or other comprehensive income depending on the use of the derivatives
and whether they qualify for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in the fair value or cash flows of the hedging
instruments and the hedged items.
At December 31, 2000, Hecla's hedging contracts, used to reduce exposure to
precious metal prices, consisted of forward sales contracts and a gold lease
rate swap. Hecla intends to physically deliver metals in accordance with the
terms of the forward sales contracts, as such Hecla has elected to designate the
contracts as normal sales in accordance with SFAS 138, and as a result these
contracts are not required to be accounted for as derivatives under SFAS 133.
Hecla recorded a cumulative effect of a change in accounting principle in other
comprehensive loss of approximately $0.1 million loss related to the gold lease
rate swap upon adoption of SFAS No. 133 on January 1, 2001.
<PAGE> 75
P. Accounting for Stock Options -- Hecla measures compensation cost for stock
option plans using the intrinsic value method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Hecla also provides the required disclosures of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123).
Q. New Accounting Pronouncements -- 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. Hecla adopted SOP 98-5 as required on January 1,
1999. The impact of this change in accounting principle related to unamortized
start-up costs associated with Hecla's 29.73% ownership interest in the Greens
Creek mine. The $1.4 million cumulative effect of this change in accounting
principle is included in the consolidated statement of operations for the year
ended December 31, 1999. Due to the availability of net operating losses, there
was no tax effect associated with the change.
R. Liquidity and Basis of Presentation -- The accompanying financial
statements have been prepared assuming the Company will continue as a going
concern. At December 31, 2000, Hecla had negative working capital of $15.8
million and an accumulated deficit of $366.5 million. Hecla's current assets
included $44.0 million of net assets of discontinued operations and current
liabilities included $57.0 million of long-term debt which was due in April
2001. In March 2001, Hecla sold the majority of the subsidiaries which
represented the discontinued operations including K-T Clay, K-T Feldspar, and
K-T Mexico for $62.5 million and used the proceeds to pay off the $57.0 million
debt. Additionally, in order to provide Hecla additional liquidity, Hecla is
currently evaluating a number of financing alternatives including debt
financing, sale of royalty interest, and equity issuance. Hecla currently
anticipates completing one or more financing alternatives during 2001. Proceeds
from these planned financings will be available for general corporate purposes.
Hecla also continues to pursue the sale of the remaining assets of MWCA-Colorado
Aggregate Division which had $2.9 million of net assets at December 31, 2000.
There can be no assurance that Hecla will be successful in obtaining financing
or in completing a sales transaction for the remaining assets of the
MWCA-Colorado Aggregate Division.
Based upon Hecla's estimate of metals prices and metals production for
2001, Hecla currently believes that its operating cash flows, the cash proceeds
from the sale of K-T Clay, K-T Feldspar and K-T Mexico, proceeds from planned
financings, and the anticipated proceeds from the sale of the remaining assets
of the MWCA-Colorado Aggregate Division will be adequate to fund anticipated
minimum capital expenditures, idle property expenditures, and exploration
expenditures in 2001. Cash flows from operations, however, could be
significantly impacted if the market price of gold, silver, zinc and lead
fluctuate. In the event that cash balances decline to a level that cannot
support the operations of the Company, management will defer certain planned
capital and exploration expenditures as needed to conserve cash for operations.
If management's plans are not successful, operations and liquidity may be
adversely affected.
<PAGE> 76
Note 2: Discontinued Operations
During 1999, Hecla actively marketed for sale its MWCA subsidiary. Based
upon anticipated sales proceeds, Hecla determined that certain adjustments were
necessary to properly reflect the estimated net realizable value of MWCA. These
adjustments, totaling $4.4 million, consisted of write-downs of property, plant
and equipment of $3.2 million, and a write-down of other noncurrent assets of
$1.2 million during the year ended December 31, 1999.
On March 15, 2000, Hecla sold substantially all of the assets of its
Mountain West Products (MWP) division of MWCA for $8.5 million in cash. The
sale of MWP resulted in a loss on disposal of $1.0 million. The proceeds from
the sales transaction were used to pay down amounts outstanding under Hecla's
previously existing revolving credit facility. On June 5, 2000, Hecla completed
a sale of the landscape operations of the Colorado Aggregate division (CAC) of
MWCA for $1.1 million in cash. The sale of the CAC landscape operations did not
result in a gain or loss. Hecla also intends to sell the remaining assets of
the Colorado Aggregate division of MWCA. On March 27, 2001, Hecla completed a
sale of K-T Clay, K-T Feldspar, K-T Mexico and certain other minor industrial
minerals companies for $62.5 million subject to customary post-closing
adjustments. Hecla anticipates recording a gain on the sale of K-T Clay, K-T
Feldspar and K-T Mexico in the range of $11.0 million to $13.0 million in the
first quarter of 2001. The proceeds were used to repay the term loan facility
of $55.0 million due on April 10, 2001, and to repay amounts outstanding under
a $2.0 million revolving bank agreement. The remaining net proceeds are
available for general corporate purposes.
Based on Hecla's Board of Directors decision in November 2000 to sell K-T
Clay, K-T Feldspar and K-T Mexico, which represented the remaining portion of
its industrial minerals segment, the industrial minerals segment has been
recorded as a discontinued operation as of December 31, 2000, and for each of
the three years in the period ended December 31, 2000. Therefore, the Company's
Statements of Operations for the years ended December 31, 1999 and 1998, have
been reclassified to reflect the industrial minerals segment as a discontinued
operation. However, the December 31, 1999, balance sheet has not been
reclassified to reflect the net assets of the industrial minerals segment as a
discontinued operation. Selected financial information related to the
discontinued operations is presented below.
<PAGE> 77
The net assets of discontinued operations at December 31, 2000, consist of:
ASSETS
Cash and cash equivalents $ 1,750
Accounts and notes receivable 9,528
Inventories 5,035
Other current assets 433
Properties, plants and equipment, net 32,174
Other noncurrent assets 1,126
----------
Total assets $ 50,046
==========
LIABILITIES
Accounts payable and accrued expenses $ 4,808
Accrued payroll and related benefits 510
Accrued taxes 41
Accrued reclamation and closure costs 414
Other noncurrent liabilities 216
----------
Total liabilities 5,989
----------
Net assets of discontinued operations $ 44,057
==========
<PAGE> 78
A summary of operating results of discontinued operations for the three
years ended December 31 are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Sales of products $ 75,054 $ 89,911 $ 84,123
--------- --------- ---------
Cost of sales 67,114 75,041 73,121
Depreciation, depletion and amortization 3,990 4,755 5,036
--------- --------- ---------
71,104 79,796 78,157
--------- --------- ---------
Gross profit 3,950 10,115 5,966
--------- --------- ---------
Other operating expenses:
General and administrative 355 328 402
Exploration 242 394 813
Reduction in carrying value of mining properties - - 4,402 - -
--------- --------- ---------
597 5,124 1,215
--------- --------- ---------
Income from operations 3,353 4,991 4,751
--------- --------- ---------
Other income (expense):
Interest and other income 9 35 22
Miscellaneous expense (516) (94) (180)
Interest expense (59) (28) 8
--------- --------- ---------
(566) (87) (150)
--------- --------- ---------
Income from discontinued operations before
income taxes and loss on disposal 2,787 4,904 4,601
Income tax provision (215) (118) (227)
--------- --------- ---------
Income from discontinued operations
before loss on disposal 2,572 4,786 4,374
Loss on partial disposal of segment (1,043) - - - -
--------- --------- ---------
Net income from discontinued operations $ 1,529 $ 4,786 $ 4,374
========= ======== =========
</TABLE>
The businesses held for sale recorded a net loss of $1.9 million from mid-
November 2000 (the measurement date of the discontinued operation) to December
31, 2000.
The following is sales information by geographic area for the years ended
December 31 (in thousands):
2000 1999 1998
-------- -------- --------
United States $ 52,293 $ 69,573 $ 63,818
Canada 4,225 4,533 3,448
Mexico 12,771 11,062 11,323
Japan 421 488 334
Taiwan 1,275 885 857
Venezuela 1,000 810 1,436
Italy 849 876 1,255
Other foreign 2,220 1,684 1,652
-------- -------- --------
$ 75,054 $ 89,911 $ 84,123
======== ======== ========
<PAGE> 79
The following is sales information by country of origin for the years ended
December 31 (in thousands):
2000 1999 1998
-------- -------- ---------
United States $ 64,309 $ 80,940 $ 76,838
Mexico 10,745 8,971 7,285
-------- -------- ---------
$ 75,054 $ 89,911 $ 84,123
======== ======== =========
Hecla's industrial minerals operations lease various facilities and
equipment under noncancelable operating lease arrangements. The major
facilities and equipment leases are for terms of two to six years. Future
minimum lease payments under these noncancelable operating leases as of
December 31, 2000, are as follows (in thousands):
Year ending December 31,
--------------------------------
2001 $ 2,846
2002 2,103
2003 1,086
2004 438
2005 102
---------
Total minimum lease payments $ 6,575
=========
Rent expense incurred for these operating leases during the years ended
December 31, 2000, 1999 and 1998, was approximately $3.6 million, $3.5 million
and $3.5 million, respectively.
Hecla brought suit in January 2001 against Zemex Corporation of Toronto,
Canada, under its guarantee for its subsidiary's, Zemex U.S. Corporation,
failure to close on the sale of K-T Clay and K-T Mexico. Hecla had announced
the agreed upon sale in November 2000 and is seeking damages incurred for
Zemex U.S. Corporation's failure to purchase K-T Clay and K-T Mexico as agreed.
Note 3: Acquisition of Monarch Resources Investments Limited
On June 25, 1999, Hecla acquired from Monarch Resources Limited all of the
outstanding stock of Monarch Resources Investments Limited, or MRIL, a Bermuda
company, as well as two subsidiaries owned by MRIL. MRIL's principal assets
include the La Camorra gold mine, located in Bolivar State in Venezuela, and the
Saladillo silver exploration property located in the Durango region of Mexico.
The acquisition price of $25.0 million consisted of $9.0 million in cash and
6,700,250 Hecla common shares which are subject to certain trading restrictions.
In addition, MRIL's seller, Monarch Resources Limited, will receive a royalty
payment on future production from purchased assets that exceed the resource at
the time of acquisition. Following Hecla's purchase of MRIL, the newly acquired
subsidiary was renamed Hecla Resources Investments Limited (HRIL).
<PAGE> 80
The acquisition of MRIL has been accounted for as a purchase and,
accordingly, Hecla's consolidated financial statements include the financial
position, results of operations and cash flows of MRIL prospectively from June
25, 1999. Approximately $18.7 million of the total purchase price has been
allocated to the mineral properties at La Camorra and is amortized on a units-
of-production basis over the La Camorra mine life.
Note 4: Inventories
Inventories consist of the following (in thousands):
December 31,
2000 1999
--------- ---------
Concentrates, bullion, metals in transit
and other products $ 5,932 $ 3,947
Industrial minerals products - - 9,275
Materials and supplies 5,337 10,811
--------- ---------
$ 11,269 $ 24,033
========= =========
At December 31, 2000, Hecla had forward sales commitments through December
31, 2004, for 231,168 ounces of gold at an average price of $288.25 per ounce.
The aforementioned contracts were designated as hedges at December 31, 2000.
Hecla 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 AM gold price at December
29, 2000, was $272.65 per ounce.
Note 5: Properties, Plants and Equipment
The major components of properties, plants and equipment are (in thousands):
December 31,
2000 1999
---------- ----------
Mining properties $ 8,563 $ 19,748
Development costs 114,054 165,610
Plants and equipment 173,012 223,514
Land 1,100 4,415
---------- ----------
296,729 413,287
Less accumulated depreciation,
depletion and amortization 188,386 222,261
---------- ----------
Net carrying value $ 108,343 $ 191,026
========== ==========
In the fourth quarter of 2000, Hecla recorded an adjustment of $31.2
million to reduce the carrying value of the Lucky Friday silver mine property,
plant and equipment in accordance with Statement of Financial Accounting
Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets
<PAGE> 81
to be Disposed Of." The adjustment at Lucky Friday was necessitated due to
continued low silver and lead prices combined with further declines in silver
and lead prices during the fourth quarter of 2000. For the first nine months of
2000, silver averaged $5.08 per ounce and lead averaged $0.203 per pound.
During the fourth quarter of 2000, silver decreased to an average price of $4.75
per ounce and ended the year at $4.59 per ounce. Lead averaged $0.214 per pound
during the fourth quarter and ended the year at $0.214 per pound. Additionally,
during the second quarter of 2000, Hecla recorded adjustments of $4.4 million
for properties, plants and equipment and supply inventory at the Rosebud mine,
and $4.7 million for previously capitalized deferred development costs at the
Noche Buena gold property. The $4.4 million adjustment at the Rosebud mine was
necessitated due to the planned closure of the Rosebud mine by Hecla and its
joint-venture partner. The Rosebud mine completed mining activity in July 2000
and milling activities in August 2000. At the Noche Buena property, Hecla
suspended activities in 1999 due to a low price for gold. Based upon the
continuation of the lower gold price, an adjustment to the carrying value of the
Noche Buena property was recorded.
In 1998, Hecla sold 11 parcels of land located near Hecla's corporate
headquarters and realized a gain of approximately $3.0 million. Proceeds
included cash receipts of $3.3 million and issuance of three notes receivable
totaling $0.9 million.
Note 6: Environmental and Reclamation Adjustments
During 2000, Hecla recorded charges of $16.4 million for future
environmental and reclamation expenditures at the Grouse Creek property, the
Bunker Hill Superfund site and other idle properties. During the fourth quarter
of 2000, an Administrative Order on Consent was entered into with the US
Environmental Protection Agency, requiring Hecla to commence dewatering of the
tailings impoundment at Grouse Creek in 2001. Due to the Administrative Order
on Consent, updated cost estimates were determined in accordance with Statement
of Position 96-1, "Environmental Remediation Liabilities." At the Bunker Hill
Superfund site, estimated future costs were increased based upon results of
sampling activities completed through 2000 and current cost estimates to
remediate residential yards and commercial properties. Although Hecla has
updated its current cost estimates for the Grouse Creek property, the Bunker
Hill Superfund site and other idle properties, Hecla will continue to reassess
its obligations as new information is developed. Depending on the results of
any reassessment, it is reasonably possible that Hecla's estimate of its
obligations may change in the near term.
In 1999, Hecla recorded charges totaling $27.3 million for future
environmental and reclamation expenditures at the Grouse Creek property and the
Bunker Hill Superfund site. The accrual
<PAGE> 82
adjustment at Grouse Creek was based upon anticipated changes to the closure
plan developed in 1999, including increased dewatering requirements and other
expenditures. The changes to the reclamation plan at Grouse Creek were
necessitated principally by the need to dewater the tailings impoundment rather
than reclaim it as a wetland as originally planned. At the Bunker Hill Superfund
site, estimated future costs were increased based upon results of sampling
activities completed through 1999 and current cost estimates to remediate
residential yards and commercial properties.
Note 7: Income Taxes
Major components of Hecla's income tax provision (benefit) for the years
ended December 31, 2000, 1999 and 1998, relating to continuing operations are as
follows (in thousands):
2000 1999 1998
------ ------ --------
Current:
Federal $ - - $ - - $ (509)
Foreign 13 (403) (634)
------ ------ --------
Income tax provision (benefit) $ 13 $ (403) $ (1,143)
======= ====== ========
For the years ended December 31, 2000, 1999 and 1998, income tax provision
related to discontinued operations was $215,000, $118,000, and $227,000,
respectively.
Domestic and foreign components of income (loss) before income taxes for
the years ended December 31, 2000, 1999 and 1998, are as follows (in thousands):
2000 1999 1998
---------- ---------- ----------
Domestic $ (79,645) $ (38,781) $ (6,066)
Foreign (5,189) (5,013) 249
---------- ---------- ----------
Total $ (84,834) $ (43,794) $ (5,817)
========== ========== ==========
<PAGE> 83
The components of the net deferred tax liability were as follows (in thousands):
December 31,
-----------------------
2000 1999
--------- ---------
Deferred tax assets:
Accrued reclamation costs $ 19,945 $ 16,785
Investment valuation differences 2,172 2,172
Capital loss carryover 603 603
Postretirement benefits other than pensions 1,303 1,177
Deferred compensation 1,493 1,731
Accounts receivable 456 456
Foreign net operating losses 10,420 13,699
Federal net operating losses 105,105 91,687
Property, plant and equipment 12,049 - -
State net operating losses 13,327 11,288
Tax credit carryforwards 1,989 2,344
Miscellaneous 1,355 1,522
--------- ---------
Total deferred tax assets 170,216 143,464
Valuation allowance (167,109) (139,852)
--------- ---------
Net deferred tax assets 3,107 3,612
--------- ---------
Deferred tax liabilities:
Properties, plants and equipment - - (833)
Pension costs (3,107) (2,561)
Inventories - - (218)
Deferred state income taxes, net (300) (300)
--------- ---------
Total Deferred tax liability (3,407) (3,912)
--------- ---------
Net deferred tax liability $ (300) $ (300)
========= =========
<PAGE> 84
Hecla 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, 2000, 1999 and 1998, are as
follows (in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $ (139,852) $ (115,654) $ (112,478)
Increase due to exclusion of net
deferred tax liability associated
with discontinued operations (3,266) - - - -
Increase related to nonutilization of net
operating loss carry-forwards and
nonrecognition of deferred tax
assets due to uncertainty
of recovery (23,991) (24,198) (3,176)
---------- ---------- ----------
Balance at end of year $ (167,109) $ (139,852) $ (115,654)
========== ========== ==========
</TABLE>
The annual tax provision (benefit) is different from the amount which would
be provided by applying the statutory federal income tax rate to Hecla's pretax
income (loss). The reasons for the difference are (in thousands):
<TABLE>
<CAPTION>
2000 1999 1998
-------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Computed "statutory"
benefit $ (28,844) (34)% $ (14,890) (34)% $ (1,978) (34)%
Nonutilization of net
operating losses and
effect of foreign taxes 28,857 34 14,487 33 835 14
--------- --- --------- --- --------- ---
$ 13 - -% $ (403) (1)% $ (1,143) (20)%
========= === ========= === ========= ===
</TABLE>
As of December 31, 2000, for income tax purposes, Hecla has operating loss
carryovers of $309 million and $202 million for regular and alternative minimum
tax purposes, respectively. These operating loss carryovers substantially
expire over the next 15 to 20 years, the majority of which expire between 2002
and 2020. In addition, Hecla has foreign tax operating losses of approximately
$31.0 million which expire prior to 2003 and investment tax credit carryovers of
$0.1 million which expire prior to 2002. Approximately $13.0 million of regular
tax loss carryovers are subject to limitations in any given year due to mergers.
Hecla has approximately $0.9 million in alternative minimum tax credit
carryovers eligible to reduce future regular tax liabilities.
<PAGE> 85
Note 8: Long-Term Debt and Credit Agreement
Long-term debt consists of the following (in thousands):
December 31,
2000 1999
--------- ---------
Term loan facility $ 55,000 $ - -
Revolving credit agreement - - 32,500
Revenue bonds - - 9,800
Project financing debt 10,250 10,500
Subordinated bank debt 3,000 3,000
Revolving bank debt 1,024 - -
Other long-term debt 41 77
--------- ---------
69,315 55,877
Less current portion (59,274) (782)
--------- ---------
$ 10,041 $ 55,095
========= =========
Future minimum debt repayments associated with long-term debt as of
December 31, 2000, are as follows (in thousands):
Year ending December 31
------------------------------
2001 $ 59,274
2002 3,041
2003 5,000
2004 2,000
--------
Total long-term debt repayments $ 69,315
========
Term Loan Facility
On March 31, 2000, Hecla entered into a new $55.0 million term loan
facility due on April 10, 2001. As security for the loan, Hecla pledged the
common stock of certain of Hecla's subsidiaries and certain other assets.
Proceeds for the term loan facility were utilized to repay amounts outstanding
under the previous bank credit agreement, to fund a restricted account to repay
revenue bonds, to repay the subordinated debt and to fund general corporate
purposes. The interest rate is based on LIBOR plus 2.25% and was 8.9% as of
December 31, 2000. At December 31, 2000, $55.0 million was outstanding under
the new term loan facility and classified as current portion of long-term debt.
On March 27, 2001, Hecla completed a sales transaction for K-T Clay, K-T
Feldspar and K-T Mexico for $62.5 million plus customary post-closing
adjustments. The proceeds from the sale of K-T Clay were partially utilized to
repay the $55.0 million term loan facility.
In connection with refinancing the previously existing debt, Hecla recorded
a $0.6 million extraordinary charge in the first quarter of 2000 to write-off
capitalized issuance costs associated with the extinguished debt. Due to the
availability of net operating losses, there was no tax effect associated with
the charge.
<PAGE> 86
At December 31, 1999, $32.5 million and $9.8 million were outstanding under
the previous revolving credit agreement and the previously outstanding revenue
bonds, respectively.
Revolving Bank Debt
On October 12, 2000, Hecla entered into a new $2.0 million revolving bank
agreement due on January 15, 2001. The due date was subsequently extended to
April 1, 2001. Amounts available under the bank agreement are available for
general corporate purposes. As collateral for the loan, Hecla pledged its
corporate office building. The interest rate is based on the prime lending rate
plus 1% and was 10.5% at December 31, 2000. At December 31, 2000, $1.0 million
was outstanding under the revolving bank agreement and classified as current
portion of long-term debt. Amounts outstanding under the revolving bank
agreement were repaid on March 28, 2001.
Project Financing and Subordinated Debt
On June 25, 1999, Hecla's wholly owned subsidiary, HRIL, entered into a
credit agreement to provide project financing of up to $11.0 million,
nonrecourse to Hecla, to finance the acquisition of Monarch Resources
Investments Limited. HRIL granted a security interest over the stock of its
Venezuelan subsidiary, certain Venezuelan real property assets and all cash
proceeds of the newly acquired La Camorra mine. HRIL must maintain compliance
with certain financial and other restrictive covenants related to the available
ore reserves and financial performance of the La Camorra mine. HRIL borrowed
$10.5 million pursuant to the terms of the project financing agreement, which is
repayable in nine semiannual payments beginning June 30, 2000. At December 31,
2000, HRIL had $10.25 million outstanding.
The HRIL project financing agreement requires the Company to maintain
hedged gold positions sufficient to cover all dollar loans, operating
expenditures, taxes, royalties and similar fees projected for the project
through December 31, 2004.
In June 1999, HRIL sold forward 306,045 ounces of gold at a flat forward
price of $288.25 per ounce. Portions of these forward contracts mature
quarterly from December 1999 through December 2004. At December 31, 2000, there
were 231,168 ounces of gold sold forward. The forward sales agreement assumes
that beginning June 30, 2000, the ounces of gold committed to forward sales at
the end of each quarter thereafter can be leased at a rate of 1.5% for each
following quarter. The Company entered into a quarterly Gold Lease Rate Swap at
a fixed rate of 1.5% on the outstanding notional volume of the flat forward
sale. Settlement is made quarterly with the Company receiving the fixed rate
and paying the current floating gold lease rate.
In connection with the project financing agreement, as of June 25, 1999,
Hecla entered into a subordinated loan agreement which provided a $3.0 million
zero coupon loan, repayable in three
<PAGE> 87
semiannual payments beginning June 30, 2003. The subordinated debt was repaid
during 2000 and was subsequently reinstated on June 30, 2000. The entire $3.0
million subordinated loan was outstanding at December 31, 2000.
The interest rates for borrowings under the project financing and
subordinated debt agreements were 9.26% and 10.21%, respectively, as of
December 31, 2000. The interest rates are based on LIBOR rates.
Note 9: Commitments and Contingencies
Bunker Hill Superfund Site
In 1994, Hecla, as a potentially responsible party under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (CERCLA),
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 located at Kellogg, Idaho. The consent decree
settled Hecla's response-cost liability under CERCLA at the Bunker Hill site.
As of December 31, 2000, Hecla has estimated and accrued an allowance for
liability for remedial activity costs at the Bunker Hill site of $11.6 million.
These estimated expenditures are anticipated to be made over the next three to
five years. In August 2000, Sunshine Mining and Refining Company which was also
a party to the 1994 Consent Decree, filed for Chapter 11 bankruptcy and in
January 2001, the Federal District Court approved a new Consent Decree between
Sunshine, the U.S. Government and the Coeur d'Alene Indian Tribe which settled
Sunshine's environmental liabilities in the Coeur d'Alene Basin lawsuits
described below and released Sunshine from further obligations under the 1994
Consent Decree. This action could increase Hecla's future share of obligations
under the 1994 Consent Decree. Although Hecla believes the accrual is adequate
based upon current estimates of aggregate costs, it is reasonably possible that
Hecla's estimate of its obligations may change in the near or longer term.
Coeur d'Alene River Basin Environmental Claims
- Coeur d'Alene Indian Tribe Claims
In July 1991, the Coeur d'Alene Indian Tribe brought a lawsuit, under
CERCLA, in Idaho Federal District Court against Hecla 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 Tribe's natural resource damage litigation has been consolidated
with the United States' litigation described below.
<PAGE> 88
- 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 Hecla. 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
in northern Idaho for 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 Hecla 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. Hecla has
asserted a number of defenses to the United States' claims.
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.
The first phase of the trial commenced on the consolidated Coeur d'Alene
Indian Tribe's and The United States' Federal District Court cases on January
22, 2001. In the first phase of the trial, the Court will be asked to determine
the extent of liability, if any, of the defendants for the plaintiffs' CERCLA
claims. If liability is determined in the first phase, a second trial will be
scheduled in late 2001 or early 2002 to address damages and remedy selection.
Two of the defendant mining companies, Coeur d'Alene Mines Corporation and
Sunshine Mining and Refining Company, settled their liabilities under the
litigation during the first quarter of 2001. Hecla and ASARCO are the only
defendants remaining in the litigation.
During 2000, Hecla was involved in settlement negotiations with
representatives of the U.S. government and the Coeur d'Alene Indian Tribe. The
Company also participated with certain of the other defendants in the litigation
in a state of Idaho led settlement effort. Settlement negotiations with the
U.S. government and the Coeur d'Alene Indian Tribe were discontinued in late
2000, but recommenced in March 2001.
As of December 31, 2000, Hecla has not accrued any amounts for potential
liability associated with the Coeur d'Alene River Basin environmental claims as
the amount, if any, is currently not estimable. It is reasonably possible that
Hecla's obligation may change in the near or longer term. An adverse ruling
against Hecla on liability and damages in this matter could have a material
adverse effect on the Company.
<PAGE> 89
Insurance Coverage Litigation
In 1991, Hecla 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 Hecla and its
predecessors. Hecla believes the insurance companies have a duty to defend and
indemnify Hecla under their policies of insurance for all liabilities and claims
asserted against Hecla 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
Hecla in the Tribe's lawsuit. During 1995 and 1996, Hecla entered into
settlement agreements with a number of the insurance carriers named in the
litigation. Hecla 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 suspended until the underlying environmental claims against Hecla are
resolved or settled. The remaining insurer in the litigation, along with a
second insurer not named in the litigation, is providing Hecla with a partial
defense in all Basin environmental litigation. As of December 31, 2000, Hecla
had not reduced its accrual for reclamation and closure costs to reflect the
receipt of any anticipated insurance proceeds.
Other Claims
In 1997, Hecla's subsidiary, K-T Clay, terminated shipments (comprising
approximately 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. On
September 22, 1999, Riceland Foods (the primary purchaser of ball clay from K-T
Clay used in animal feed) commenced litigation against K-T Clay in State Court
in Arkansas to recover its losses and its insurance company's payments to
downstream users of its animal feed. The complaint alleges negligence, strict
liability and breach of implied warranties and seeks damages in excess of $7.0
million. Legal counsel retained by the insurance company for K-T Clay had the
case removed to Federal Court in Arkansas. In July 2000, a second complaint was
filed against K-T Clay and Hecla in Arkansas State Court by another purchaser of
animal feed containing ball clay sold by K-T Clay. A third complaint was filed
in the United States District Court in Arkansas on August 31, 2000, by a
successor in interest to a third purchaser of ball clay sold by K-T Clay and
used in the animal feed industry. The two more recent lawsuits together allege
damages totaling approximately $1.7 million. These complaints contain similar
allegations to the Riceland Foods' case and legal counsel retained by the
insurance carrier is defending K-T Clay and Hecla in these lawsuits. The
Company believes that these claims comprise substantially all the potential
claims related to this
<PAGE> 90
matter. In January 2001, Hecla was dismissed from the only lawsuit in which it
had been named as a defendant. In March 2001, prior to trial, K-T Clay settled
the Riceland Foods litigation against K-T Clay through settlement payment
substantially funded by K-T Clay's insurance carrier. K-T Clay contributed
$230,000 toward the Riceland Foods settlement. The defense of the remaining
lawsuits is being covered by insurance. The Company believes that $11.0 million
of insurance coverage is available to cover all three claims. On March 27,
2001, Hecla sold its interest in K-T Clay. However, Hecla agreed to indemnify
the purchaser of K-T Clay from all liability resulting from these dioxin claims
and litigation to the extent not covered by insurance. Although the outcome of
the remaining litigation or insurance coverage cannot be assured, Hecla
currently believes that there will be no material adverse effect on Hecla's
results of operations, financial condition or cash flows from this matter.
Hecla is subject to other legal proceedings and claims not disclosed above
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 other matters, it is the opinion of Hecla's management that
the outcome of these other matters will not have a material adverse effect on
the financial condition of Hecla.
Note 10: Employee Benefit Plans
Hecla and certain subsidiaries sponsor defined benefit pension plans
covering substantially all employees. Hecla also provides certain
postretirement benefits, principally health care and life insurance benefits for
qualifying retired employees.
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, 2000, and a statement of the funded status as of December 31, 2000
and 1999 (in thousands):
<PAGE> 91
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------------- --------------------
2000 1999 2000 1999
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 43,811 $ 41,312 $ 2,418 $ 2,055
Service cost 1,406 1,289 24 23
Interest cost 2,989 2,611 169 155
Plan amendments 7 1,481 - - 429
Actuarial (gain) loss 405 (373) (98) (117)
Benefits paid (2,624) (2,509) (136) (127)
--------- --------- -------- --------
Benefit obligation at end of year 45,994 43,811 2,377 2,418
--------- --------- -------- --------
Change in plan assets:
Fair value of plan assets at
beginning of year 58,721 51,248 - - - -
Actual return on plan assets 11,023 9,821 - - - -
Employer contributions 165 161 136 127
Benefits paid (2,624) (2,509) (136) (127)
--------- --------- -------- --------
Fair value of plan assets at end of year 67,285 58,721 - - - -
--------- --------- -------- --------
Funded status at end of year 21,292 14,910 (2,377) (2,418)
Unrecognized net actuarial gain (15,674) (10,666) (352) (269)
Unrecognized transition asset (455) (884) - - - -
Unrecognized prior service cost 2,756 3,065 285 361
--------- --------- -------- --------
Net amount recognized in consolidated
balance sheets $ 7,919 $ 6,425 $ (2,444) $ (2,326)
========= ========= ======== ========
</TABLE>
The following table provides the amounts recognized in the consolidated
balance sheets as of December 31, 2000 and 1999 (in thousands):
Pension Benefits Other Benefits
------------------ --------------------
2000 1999 2000 1999
------- ------- -------- --------
Prepaid benefit costs $ 9,524 $ 7,768 $ - - $ - -
Accrued benefit liability (1,940) (2,411) (2,444) (2,326)
Intangible asset 335 1,068 - - - -
------- ------- -------- --------
Net amount recognized $ 7,919 $ 6,425 $ (2,444) $ (2,326)
======= ======= ======== ========
The benefit obligation was calculated by applying the following weighted
average assumptions:
Pension Benefits Other Benefits
---------------- --------------
2000 1999 2000 1999
----- ----- ----- -----
Discount rate 7.00% 7.00% 7.00% 7.00%
Expected rate on plan assets 9.00% 9.00% - - - -
Rate of compensation increase 3.50% 4.00% - - - -
<PAGE> 92
Net periodic pension cost (income) for the plans consisted of the following
in 2000, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------------------ ---------------------------------
2000 1999 1998 2000 1999 1998
--------- ---------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 1,406 $ 1,289 $ 1,111 $ 24 $ 23 $ 18
Interest cost 2,989 2,611 2,581 169 155 134
Expected return on plan assets (5,192) (4,516) (4,557) - - - - - -
Amortization of transition asset (426) (152) (429) 75 - - - -
Amortization of unrecognized prior
service cost 315 211 206 - - - - - -
Amortization of unrecognized net
gain from earlier periods (420) (316) (403) (14) (116) 77
--------- --------- --------- -------- -------- ---------
Net periodic pension cost (income) $ (1,328) $ (873) $ (1,491) $ 254 $ 62 $ 229
========= ========= ========= ======== ======== =========
</TABLE>
Information related to the defined benefit plans of the industrial minerals
segment, which is reported as a discontinued operation as of December 31, 2000,
is included in the preceding tables. Summarized information with respect to
these plans is as follows (in thousands):
Benefit obligation at December 31, 2000 $ 4,044
========
Fair value of plan assets at December 31, 2000 $ 4,027
========
Net prepaid benefit cost at December 31, 2000 $ 163
========
Net periodic pension cost for the year ended December 31, 2000 $ 129
========
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 $2,989,000, $2,417,000 and $665,000, respectively, as
of December 31, 2000, and $5,695,000, $5,315,000 and $3,491,000, respectively,
as of December 31, 1999.
Hecla has a nonqualified Deferred Compensation Plan which permits eligible
officers, directors and key employees to defer a portion of their compensation.
In November 1998, Hecla 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. As of December 31, 2000 and
1999, a total of 139,467 and 132,290 shares, respectively, of Hecla's common
stock are held in the grantor trust. Shares held in the grantor trust are
valued at fair value at the time of issuance, are recorded in the contra equity
account "Stock held by grantor trust," and are legally outstanding for
registration purposes and dividend payments. The shares held in the grantor
trust are considered outstanding for purposes of calculating loss per share.
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, 2000 and 1999, amounted to approximately $3.6
and $4.0 million, respectively.
<PAGE> 93
Hecla 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.
Hecla makes a matching contribution of 25% of an employee's contribution up to,
but not exceeding, 6% of the employee's earnings. Hecla's contribution was
approximately $232,700 in 2000, and $274,000 in 1999 and 1998.
Hecla has an employee's 401(k) plan which is available to all hourly
employees at Hecla's Lucky Friday mine after completion of six months of
service. Employees may contribute from 2% to 15% of their compensation to the
plan. Hecla makes a matching contribution of 25% of an employee's contribution
up to, but not exceeding, 5% of the employee's earnings. Hecla's contribution
was approximately $60,000 in 2000, $50,000 in 1999 and $46,000 in 1998.
Note 11: Shareholders' Equity
Preferred Stock
Hecla 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. As of
January 31, 2001, Hecla has failed to pay the equivalent of two quarterly
dividends of $4.0 million.
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 Hecla prior to July 1, 1996. After such date, the shares are redeemable at
the option of Hecla 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 Hecla fails
to pay the equivalent of six quarterly dividends. As of January 31, 2001, Hecla
has failed to pay the equivalent of two quarterly dividends totaling $4,025,000.
If four additional quarterly 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 Hecla's Articles of Incorporation.
The Preferred Shares rank senior as to dividends and upon liquidation 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
undeclared and unpaid dividends. Such preference aggregates total $119,025,000
at December 31, 2000.
<PAGE> 94
Shareholder Rights Plan
In 1996, Hecla 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 Hecla'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 Hecla 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.
Stock Based Plans
At December 31, 2000, 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. Hecla has adopted the disclosure-
only provisions of SFAS 123. No compensation expense has been recognized in
2000, 1999 or 1998 for unexercised options related to the stock option plans.
Had compensation cost for Hecla's stock option plans been determined based on
the fair market value at the grant date for awards in 2000, 1999 and 1998
consistent with the provisions of SFAS 123, Hecla'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):
<TABLE>
<CAPTION>
2000 1999 1998
-------- --------- ---------
<S> <C> <C> <C>
Loss applicable to common shareholders:
As reported $ 92,015 $ 48,040 $ 8,350
Pro forma $ 92,937 $ 49,060 $ 9,420
Loss applicable to common
shareholders per share:
As reported $ 1.38 $ 0.77 $ 0.15
Pro forma $ 1.39 $ 0.79 $ 0.17
</TABLE>
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:
2000 1999 1998
------------------------------------
Expected dividend yield 0.00% 0.00% 0.00%
Expected stock price volatility 49.03% 50.87% 49.57%
Risk-free interest rate 6.74% 4.79% 4.79%
Expected life of options 4.1 years 4.1 years 4.1 years
<PAGE> 95
The weighted average fair value of options granted in 2000, 1999 and 1998
was $0.51, $1.19 and $2.45, respectively.
Hecla 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 2000, 1999 and 1998, respectively, 23,500, 58,500 and 12,000 options to
acquire shares expired under the 1987 plan. The ability to grant further
options under the plan expired on February 13, 1997.
In 1995, the shareholders of Hecla approved the 1995 Stock Incentive Plan
which provides for a variety of stock-based grants to Hecla'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 Hecla. The 1995 stock option plan has 3,000,000 shares authorized.
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 2000, 1999 and 1998,
respectively, 481,000, 739,500 and 708,000 options to acquire shares were
granted to Hecla's officers and key employees of which 385,000, 630,000 and
585,000, respectively, of these options to acquire shares were granted with
vesting requirements. Under the vesting requirements, 33% of the options were
available on the date of the grant, with an additional 33% available on each of
the next two anniversary periods. During 2000 and 1999, respectively, 947,500
and 27,000 options to acquire shares expired under the 1995 plan. At
December 31, 2000, there were 1,300,500 options to acquire shares available for
future grant under the 1995 plan.
In 1995, Hecla 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 Hecla'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 Hecla. Subject to certain
restrictions, directors may
<PAGE> 96
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 2000, 1999 and 1998, respectively, 8,000, 8,000
and 8,404 shares were credited to the nonemployee directors. During 2000, 1999
and 1998, $9,000, $20,000 and $42,000, respectively, were charged to operations
associated with the Directors' Stock Plan. At December 31, 2000, there were
75,057 shares available for grant in the future under the plan.
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, 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
Year ended December 31, 1999
Granted 739,500 $2.88
Exercised (1,500) $2.88
Expired (85,500) $10.14
----------
Outstanding, December 31, 1999 2,307,915 $5.39
Year ended December 31, 2000
Granted 481,000 $1.31
Exercised - - $ - -
Expired (973,415) $4.40
----------
Outstanding, December 31, 2000 1,815,500 $4.85
==========
The following table displays exercisable stock options and the weighted
average exercise price of the exercisable options as of December 31, 2000, 1999
and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ----------
<S> <C> <C> <C>
Exercisable options 1,322,533 1,302,215 892,615
Weighted average exercise price $ 5.36 $ 6.06 $ 7.34
</TABLE>
<PAGE> 97
The following table presents information about the stock options
outstanding as of December 31, 2000:
<TABLE>
<CAPTION>
Weighted Average
-----------------------------
Range of Remaining
Shares Exercise Price Exercise Price Life (years)
---------- --------------- -------------- ------------
<S> <C> <C> <C> <C>
Exercisable options 163,833 $ 1.31 - $ 1.31 $ 1.31 9
Exercisable options 274,500 $ 2.88 - $ 2.88 $ 2.88 8
Exercisable options 764,700 $ 5.63 - $ 8.63 $ 6.42 7
Exercisable options 119,500 $ 9.38 - $10.50 $ 9.93 3
----------
Total exercisable options 1,322,533 $ 1.31 - $10.50 $ 5.36 7
Unexercisable options 492,967 $ 1.31 - $ 5.88 $ 3.45 8
----------
Total all options 1,815,500 $ 1.31 - $10.50 $ 4.85 7
==========
</TABLE>
No amounts were charged to operations in connection with the stock option
plans in 2000, 1999 or 1998.
Common Stock Offerings
In March 1999, Hecla issued 155,955 shares of its common stock realizing
proceeds of approximately $0.5 million, net of issuance costs. In May 1999,
Hecla issued 4,582,852 shares of its common stock realizing proceeds of
approximately $11.4 million, net of approximately $0.6 million of issuance
costs. In connection with the shares sold in May, Hecla issued 1,603,998
warrants to purchase Hecla common stock. Each warrant entitles the holder to
purchase one share of common stock at an exercise price equal to the lesser of
(i) $3.19, and (ii) 102% of the volume weighted average price on the NYSE for
each trading day during the ten consecutive trading days immediately preceding
the date that notice of exercise is given to Hecla. These warrants are
exercisable until May 11, 2002. In September 1999, 97,000 warrants were
exercised and Hecla issued 97,000 shares of its common stock. Proceeds of $0.3
million were realized from the exercise of the warrants. At December 31, 2000,
1,506,998 warrants remain outstanding.
Shares of the equity offerings were sold under Hecla's existing
Registration Statement on Form S-3 which provides for the issuance of up to
$100.0 million of equity and debt securities. As of December 31, 2000, Hecla
has issued $62.2 million of Hecla's common shares and warrants under the
Registration Statement. Hecla used the net proceeds from the equity offerings
for general corporate purposes including repayment of indebtedness. Due to the
current market capitalization of the Company, there can be no assurance as to
the availability of this Registration Statement.
<PAGE> 98
Note 12: Business Segments
In 1998, Hecla adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). SFAS 131 adopted the "management" approach to designating business
segments. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of Hecla's reportable segments. SFAS 131 also requires disclosures
about products and services, geographic areas and major customers.
The accounting policies of the segments are the same as those described in
Note 1. Segment data excludes intrasegment revenues. Hecla evaluates the
performance of its segments and allocates resources to them based on income
(loss) from operations.
Hecla is organized and managed primarily on the basis of the principal
products being produced from its eleven operating units. Three 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. During
November 2000, the industrial minerals segment was designated as a discontinued
operation. For further discussion, see "Discontinued Operations" Note 2 to
financial statements. General corporate activities not associated with
operating units, as well as idle properties, are presented as Other.
The tables below present information about reportable segments as of and
for the years ended December 31 (in thousands). Information related to the
statement of operations data relates to continuing operations only. See Note 2
for information related to the industrial minerals segment operations. Balance
sheet data includes the industrial minerals segment classified as discontinued
operations as of December 31, 2000.
<PAGE> 99
<TABLE>
<CAPTION>
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net sales to unaffiliated customers:
Metals-Gold $ 31,573 $ 23,588 $ 32,791
Metals-Silver 44,277 50,115 42,317
---------- ---------- ----------
$ 75,850 $ 73,703 $ 75,108
========== ========== ==========
Loss from operations:
Metals-Gold $ (13,982) $ (6,848) $ 269
Metals-Silver (37,699) 1,913 (1,196)
Other (27,834) (37,716) (8,304)
---------- ---------- ----------
$ (79,515) $ (42,651) $ (9,231)
========== ========== ==========
Capital expenditures:
Metals-Gold $ 4,592 $ 7,788 $ 6,233
Metals-Silver 6,670 3,418 10,130
Industrial Minerals - - 2,221 6,100
Discontinued operations 3,921 - - - -
Other 27 40 32
---------- ---------- ----------
$ 15,210 $ 13,467 $ 22,495
========== ========== ==========
Depreciation, depletion and amortization:
Metals-Gold $ 7,282 $ 7,706 $ 7,522
Metals-Silver 10,809 10,956 9,648
Other 282 321 389
---------- ---------- ----------
$ 18,373 $ 18,983 $ 17,559
========== ========== ==========
Other significant noncash items:
Metals-Gold $ 9,241 $ 240 $ 145
Metals-Silver 31,759 1,911 211
Industrial Minerals - - 4,638 223
Discontinued operations 159 - - - -
Other 17,329 27,787 734
---------- ---------- ----------
$ 58,488 $ 34,576 $ 1,313
========== ========== ==========
</TABLE>
2000 1999 1998
--------- --------- ---------
Identifiable assets:
Metals-Gold $ 42,667 $ 56,018 $ 23,808
Metals-Silver 81,572 121,814 127,499
Industrial Minerals - - 65,580 71,593
Discontinued operations 44,057 - - - -
Other 26,540 24,945 29,162
--------- --------- ---------
$ 194,836 $ 268,357 $ 252,062
========= ========= =========
<PAGE> 100
The following is sales information for continuing operations by geographic
area for the years ended December 31 (in thousands):
2000 1999 1998
-------- -------- --------
United States $ 25,147 $ 37,725 $ 49,752
Canada 15,274 14,791 5,515
Mexico 6,193 5,100 8,658
United Kingdom 22,417 8,903 6,746
Japan 3,556 2,268 2,162
Other foreign 3,263 4,916 2,275
-------- -------- --------
$ 75,850 $ 73,703 $ 75,108
======== ======== ========
The following is sales information for continuing operations by country of
origin for the years ended December 31 (in thousands):
2000 1999 1998
-------- -------- --------
United States $ 51,019 $ 66,246 $ 63,482
Venezuela 24,780 4,248 - -
Mexico 51 3,209 11,626
-------- -------- --------
$ 75,850 $ 73,703 $ 75,108
======== ======== ========
The following is properties, plants and equipment information for continuing
operations by geographic area as of December 31 (in thousands):
2000 1999 1998
--------- --------- ---------
United States $ 75,073 $ 148,645 $ 170,059
Venezuela 30,852 31,490 - -
Mexico 2,418 10,858 8,056
Other South America - - 33 53
--------- --------- ---------
$ 108,343 $ 191,026 $ 178,168
========= ========= =========
At December 31, 2000, properties, plants and equipment by geographic location
of the discontinued operations segment are as follows:
2000
--------
United States $ 26,347
Mexico 5,801
South America 26
--------
$ 32,174
========
<PAGE> 101
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:
2000 1999 1998
----- ----- ------
Customer A 24.9% 5.8% 0.0%
Customer B 16.3% 12.1% 6.3%
Customer C 15.5% 14.5% 2.1%
Customer D 12.7% 20.7% 19.5%
Customer E 8.2% 6.9% 10.3%
Customer F 1.3% 0.0% 24.0%
Customer G 0.0% 4.1% 12.3%
Note 13: 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 Hecla 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, commodity
swap contracts and options contracts are supplied by Hecla'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 and at December 31, 2000 and 1999
approximates fair value. The discount rate is estimated using the rates
currently offered for debt with similar remaining maturities.
<PAGE> 102
The estimated fair values of financial instruments are as follows (in
thousands):
December 31,
-----------------------------------
2000 1999
---------------- ----------------
Carrying Fair Carrying Fair
Amounts Value Amounts Value
-------- ------- -------- -------
Financial assets:
Silver forward sales contracts $ - - $ - - $ - - $ 90
Lead swap contracts - - - - - - 136
Financial liabilities:
Gold forward sales contracts - - 1,935 - - 7,611
Gold lease rate swap - - 136 - - 2,019
Zinc swap contracts - - - - - - 560
Silver call options - - - - 33 33
<PAGE> 103
Note 14: 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 declared and
undeclared cumulative preferred dividends in arriving at loss applicable to
common shareholders for the years ended December 31, 2000, 1999 and 1998, in
computing basic and diluted loss per common share (dollars and shares in
thousands, except per share amounts). For the year ended December 31, 2000,
only $4.0 million of the $8.1 million dividends below have been declared and
paid.
<TABLE>
<CAPTION>
2000 1999 1998
-------------------------------- ------------------------------ ------------------------------
Per Share Per Share Per Share
Net Loss Share Amount Net Loss Shares Amount Net Loss Shares Amount
---------- ------- --------- --------- ------- --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loss before extraordinary
charge and cumulative
effect of change in
accounting principle $ (83,318) $ (38,605) $ (300)
Extraordinary charge, net
of tax (647) - - - -
Cumulative effect of change
in accounting principle,
net of tax - - (1,385) - -
---------- --------- --------
Loss before preferred
stock dividends $ (83,965) $ (39,990) $ (300)
Less: Preferred
stock dividends (8,050) (8,050) (8,050)
---------- --------- --------
Basic loss per common share
Loss applicable
to common
shareholders (92,015) 66,791 $ (1.38) (48,040) 62,347 $ (0.77) (8,350) 55,101 $ (0.15)
Effect of dilutive
securities(1) - - - - - - - - - - - - - - - - - -
---------- ------- -------- --------- ------- ------- -------- ------- -------
Diluted loss per
common share $ (92,015) 66,791 $ (1.38) $ (48,040) 62,347 $ (0.77) $ (8,350) 55,101 $ (0.15)
========== ======= ======== ========= ======= ======= ======== ======= =======
</TABLE>
(1) Dilutive Securities
As of December 31, 2000, 1999 and 1998, there were 1,816,000, 2,308,000 and
1,655,000 shares available for issue under granted stock options, respectively.
These options were not included in the computation of diluted loss per common
share as a loss was incurred in each of these years, and their inclusion would
be antidilutive. Hecla also has 2.3 million shares of convertible preferred
stock outstanding that, if converted, would be antidilutive, and were therefore
excluded from the determination of diluted loss per share. The 1999 and 2000
calculation also excludes 1,506,998 warrants to purchase common stock, as their
exercise would be antidilutive.
<PAGE> 104
Note 15: Other Comprehensive Loss
Due to the 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, 1997 $ (4,898) $ (63) $ - - $ (4,961)
1998 change - - (19) (289) (308)
--------- ---------- ---------- ----------
Balance December 31, 1998 (4,898) (82) (289) (5,269)
1999 change - - 109 289 398
--------- ---------- ---------- ----------
Balance December 31, 1999 (4,898) 27 - - (4,871)
2000 change - - 13 - - 13
--------- ---------- ---------- ----------
Balance December 31, 2000 $ (4,898) $ 40 $ - - $ (4,858)
========= ========== ========== ==========
</TABLE>
<PAGE> 105
<TABLE>
<CAPTION>
Hecla Mining Company and Wholly Owned Subsidiaries
Form 10-K - December 31, 2000
Index to Exhibits
<S> <C> <C>
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(a) Credit Agreement dated as of May 7, 1999, among
Registrant and Certain Subsidiaries and NationsBank,
N.A., as Agent, and Certain Lenders.(2)
10.1(b) First Amendment to Restated Credit Agreement dated
as of June 25, 1999 among NationsBank, N.A. and
Registrant.(2)
10.1(c) Second Amendment to Restated Credit Agreement dated
as of August 31, 1999 among NationsBank, N.A. and
Registrant.(2)
10.1(d) Third Amendment to Restated Credit Agreement
dated as of December 20, 1999, among NationsBank,
N.A. and Registrant.(2)
10.1(e) Fourth Amendment to Restated Credit Agreement
dated as of December 30, 1999, among NationsBank,
N.A. and Registrant.(2)
<PAGE> 106
Hecla Mining Company and Wholly Owned Subsidiaries
Form 10-K - December 31, 2000
Index to Exhibits
Number and Description of Exhibits
10.2 Employment agreement dated June 1, 2000, between
Hecla Mining Company and Arthur Brown. (Registrant
has substantially identical agreements with each of
Messrs. William B. Booth, J. Gary Childress, Vicki J.
Veltkamp, and Michael B. White. Such substantially
identical agreements are not included as separate
Exhibits.)(1,2)
10.3(a) Form of Executive Deferral Plan Master Document, as
amended, effective November 13, 1998.(1,2)
10.3(b) Form of Director Deferral Plan Master Plan Document
effective January 1, 1995.(1,2)
10.4(a) 1987 Nonstatutory Stock Option Plan of the Registrant.(1,2)
10.4(b) Hecla Mining Company 1995 Stock Incentive Plan.(1,2)
10.4(c) Hecla Mining Company Stock Plan for Nonemployee
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 Documents.(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)
10.9 Limited Liability Company Agreement of the Rosebud
Mining Company, LLC 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)
10.11 Credit Agreement dated as of June 25, 1999, among Monarch
Monarch Resources Investments Limited as Borrower,
Monarch Minera Suramericana, C.A. as an additional
obligor and Standard Bank London Limited as
Collateral and Administrative Agent.(2)
<PAGE> 107
Hecla Mining Company and Wholly Owned Subsidiaries
Form 10-K - December 31, 2000
Index to Exhibits
Number and Description of Exhibits
10.12 Subordinated Loan Agreement dated as of June 25, 1999,
among Hecla Mining Company as Borrower and Standard
Bank London Limited as Initial Lender, Collateral and
Administrative Agent.(2)
10.13 Subordination Agreement dated as of June 25, 1999, among
NationsBank, N.A. as Senior Creditor, Standard Bank
London Limited as Subordinated Creditor and Hecla
Mining Company.(2)
10.14 Facility Agreement dated March 24, 2000, among Hecla
Mining Company as Borrower and Standard Bank London
Limited as Initial Lender, Collateral Agent and
Administrative Agent.(2)
10.15 Subordinated Loan Agreement dated June 29, 2000, among
Hecla Mining Company as Borrower and Standard Bank
London Limited as Lender.(2)
10.16 Subordination Agreement dated June 29, 2000, among Hecla
Mining Company and Standard Bank London Limited as
Senior Creditor and Subordinated Creditor.(2)
10.17 Variable Rate Commercial Revolving Loan dated October 12,
2000, among Hecla Mining Company as Borrower and Idaho
Independent Bank as Lender.(2)
10.18 Stock Purchase Agreement dated November 17, 2000,
between Hecla Mining Company and Zemex U.S.
Corporation.(2)
11. Computation of weighted average number of common
shares outstanding. Attached
12. Statement of Computation of Ratio of Earnings to
Fixed Charges. Attached
21. List of subsidiaries of the Registrant. Attached
23.1 Consent of PricewaterhouseCoopers LLP to incorporation
by reference of its report dated March 28, 2001, on the
Consolidated Financial Statements of the Registrant in
the Registrant's Registration Statements on Form S-3,
No. 33-72832, No. 33-59659, Form S-8, No. 33-7833, No.
33-41833, No. 33-14758 and No. 33-60099.2 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.
<PAGE> 108
Corresponding Exhibit in Annual Report on
Form 10-K, Quarterly Report on Form 10-Q,
Current Report on Form 8-K, Proxy Statement
Exhibit in or Registration Statement, as Indicated Below;
this Report All References are to SEC File 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(a) 10.2 (10-Q for June 30, 1999)
10.1(b) 10.2(a) (10-Q for June 30, 1999)
10.1(c) 10.1(c) (10-K for 1999)
10.1(d) 10.1(d) (10-K for 1999)
10.1(e) 10.1(e) (10-K for 1999)
10.2 10.2 (10-Q for September 30, 2000)
10.3(a) 10.3(a) (10-K for 1998)
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)
10.11 10.3 (10-Q for June 30, 1999)
10.12 10.4 (10-Q for June 30, 1999)
10.13 10.5 (10-Q for June 30, 1999)
10.14 10 (Current Report on Form 8-K dated
March 24, 2000)
10.15 10.1 (10-Q for June 30, 2000)
10.16 10.2 (10-Q for June 30, 2000)
10.17 10.14 (10-Q for September 30, 2000)
10.18 10.1 (Current Report on Form 8-K dated
November 17, 2000)
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-11
<SEQUENCE>2
<FILENAME>exh11.txt
<DESCRIPTION>WEIGHTED AVERAGE NUMBER OF COMMON SHARES
<TEXT>
<PAGE> 1
FORM 10-K DECEMBER 31, 2000
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, 2000, 1999 and 1998
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Shares of common stock issued at
beginning of period 66,844,575 55,166,728 55,156,324
The incremental effect of the issuance
of stock related to MRIL acquisition - - 3,908,479 - -
The incremental effect of the issuance of
new shares for cash, net of issuance costs - - 3,185,198 - -
The incremental effect of the issuance of
stock held by grantor trust 3,589 110,241 - -
The incremental effect of the issuance
of new shares under Stock Option and
Warrant Plans 5,333 38,041 7,238
----------- ----------- -----------
66,853,497 62,408,687 55,163,562
Less:
Weighted average treasury shares held 62,112 62,110 62,091
----------- ----------- -----------
Weighted average number of common shares
outstanding during the period 66,791,385 62,346,577 55,101,471
=========== =========== ===========
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>3
<FILENAME>exh12.txt
<DESCRIPTION>FIXED CHARGE COVERAGE RATIO CALCULATION
<TEXT>
<PAGE> 1
Exhibit 12
HECLA MINING COMPANY
FIXED CHARGE COVERAGE RATIO CALCULATION
For the years ended December 31, 1996, 1997, 1998, 1999 and 2000
and the three months ended December 31, 1999 and 2000
(dollars in thousands, except ratios)
<TABLE>
<CAPTION>
4th Qtr 4th Qtr
1996 1997 1998 1999 2000 1999 2000
--------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net loss from continuing operations
before income taxes, extraordinary
charge and cumulative effect of
change in accounting principle $ (31,667) $ 1,414 $ (5,817) $ (43,794) $ (84,834) $ (6,648) $ (54,611)
Income (loss) from discontinued
operations, net - - - - 4,374 4,786 1,529 614 (1,701)
Add: Fixed Charges 11,651 11,126 11,392 12,791 16,283 3,561 4,346
Less: Capitalized Interest (2,360) (806) (959) (19) - - - - - -
--------- -------- --------- --------- --------- --------- ---------
Adjusted income (loss) before
income taxes, extraordinary item,
and cumulative effect of change
in accounting principle $ (22,376) $ 11,734 $ 8,990 $ (26,236) $ (67,022) $ (2,473) $ (51,966)
========= ======== ========= ========= ========= ========= =========
Fixed charges:
Preferred stock dividends $ 8,050 $ 8,050 $ 8,050 $ 8,050 $ 8,050 $ 2,012 $ 2,012
Interest portion of rentals 543 614 73 134 114 30 29
Total interest costs 3,058 2,462 3,269 4,607 8,119 1,519 2,305
--------- -------- -------- --------- --------- --------- ---------
Total fixed charges $ 11,651 $ 11,126 $ 11,392 $ 12,791 $ 16,283 $ 3,561 $ 4,346
========= ======== ======== ========= ========= ========= =========
Fixed Charge Ratio (a) 1.05 (a) (a) (a) (a) (a)
Inadequate coverage $ 34,027 $ - - $ 2,402 $ 39,027 $ 83,305 $ 6,034 $ 56,312
========= ======== ======== ========= ========= ========= =========
Write-downs and other noncash charges:
DD&A(b) (mining activity) $ 20,451 $ 21,009 $ 17,170 $ 18,662 $ 18,091 $ 4,921 $ 4,065
DD&A(b) (corporate) 338 311 389 321 282 73 69
Provision for (benefit from)
closed operations 22,806 (724) 734 30,100 20,029 1,567 16,010
Reduction in carrying value of
mining properties 12,902 715 - - 175 40,240 - - 31,168
--------- -------- -------- --------- --------- --------- ---------
$ 56,497 $ 21,311 $ 18,293 $ 49,258 $ 78,642 $ 6,561 $ 51,312
========= ======== ======== ========= ========= ========= =========
(a) Earnings for period inadequate to cover fixed charges.
(b) "DD&A" is an abbreviation for "depreciation, depletion and amoritization."
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>4
<FILENAME>exh21.txt
<DESCRIPTION>SUBSIDIARIES OF REGISTRANT
<TEXT>
<PAGE> 1
FORM 10-K DECEMBER 31, 2000
COMMISSION FILE NO. 1-8491
EXHIBIT 21
HECLA MINING COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF REGISTRANT
December 31, 2000
State or Country Percentage of
in Which Voting Securities
Organized Owned
----------------- -----------------
Equinox Resources, Inc. Nevada 100 (A)
Hecla Resources Investments Limited Bermuda 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.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>5
<FILENAME>exh231.txt
<DESCRIPTION>CONSENT OF INDEPENDENT ACCOUNTANTS
<TEXT>
<PAGE> 1
Exhibit 23.1
Form 10-K December 31, 2000
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements 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 Hecla
Mining Company and subsidiaries of our report dated April 6, 2001, relating to
the financial statements which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Spokane, Washington
March 28, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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