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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

 

Commission file number 

 

1-8491

 

HECLA MINING COMPANY

(Exact name of registrant as specified in its Charter)

 

 

Delaware

 

77-0664171

 
 

State or Other Jurisdiction of

 

I.R.S. Employer

 
 

Incorporation or Organization

 

Identification No.

 
     
 

6500 Mineral Drive, Suite 200

   
 

Coeur d'Alene, Idaho

 

83815-9408

 
 

Address of Principal Executive Offices

 

Zip Code

 
     

208-769-4100

Registrant's Telephone Number, Including Area Code

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange

on which registered

Common Stock, par value $0.25 per share

HL

New York Stock Exchange

Series B Cumulative Convertible Preferred Stock, par value $0.25 per share

HL-PB

New York Stock Exchange

 

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filerAccelerated filer ☐
Non-accelerated filer ☐Smaller reporting company
  
Emerging growth company  

           

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes     No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Shares Outstanding August 1, 2022

Common stock, par value

$0.25 per share

 541,599,504

 

 

 
 

 

Hecla Mining Company and Subsidiaries

 

Form 10-Q

 

For the Quarter Ended June 30, 2022

 

INDEX*

 

   

Page

PART I - Financial Information 

 
     
 

Item 1 – Condensed Consolidated Financial Statements (Unaudited)

3
     
 

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income - Three Months Ended and Six Months Ended  June 30, 2022 and 2021

3

     
 

Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2022 and 2021

4

     
 

Condensed Consolidated Balance Sheets - June 30, 2022 and December 31, 2021

5

     
 

Condensed Consolidated Statements of Changes in Stockholders' Equity - Three Months Ended and Six Months Ended – June 30, 2022 and 2021

6

     
 

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

     
 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

23

     
 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

62

     
 

Item 4. Controls and Procedures

63

     

PART II - Other Information

 
     
 

Item 1 – Legal Proceedings

64

     
 

Item 1A – Risk Factors

64

     
 

Item 4 – Mine Safety Disclosures

66

     
 

Item 6 – Exhibits

67

     
 

Signatures

68

 

 

*Items 2, 3 and 5 of Part II are omitted as they are not applicable.

 

2

 

 

Part I - Financial Information

 

Item 1. Financial Statements

 

Hecla Mining Company and Subsidiaries

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)

(Dollars and shares in thousands, except for per-share amounts)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30, 2022

   

June 30, 2021

   

June 30, 2022

   

June 30, 2021

 

Sales

  $ 191,242     $ 217,983     $ 377,741     $ 428,835  

Cost of sales and other direct production costs

    115,907       110,320       221,679       207,029  

Depreciation, depletion and amortization

    38,072       45,732       73,370       92,474  

Total cost of sales

    153,979       156,052       295,049       299,503  

Gross profit

    37,263       61,931       82,692       129,332  

Other operating expenses:

                               

General and administrative

    9,692       11,104       17,986       19,111  

Exploration and pre-development

    11,200       11,241       24,008       17,931  

Care and maintenance costs

    5,242       5,786       11,447       10,104  

Provision for closed operations and environmental matters

    1,472       1,024       2,373       4,733  

Other operating expense

    1,945       3,634       4,408       7,282  

Total other operating expenses

    29,551       32,789       60,222       59,161  

Income from operations

    7,712       29,142       22,470       70,171  

Other income (expense):

                               

Interest expense

    (10,505 )     (10,271 )     (20,911 )     (21,015 )

Fair value adjustments, net

    (16,428 )     (18,063 )     (10,463 )     (19,938 )

Net foreign exchange gain (loss)

    4,482       (1,907 )     2,444       (3,971 )

Other income (expense)

    1,470       (287 )     2,975       (439 )

Total other expense

    (20,981 )     (30,528 )     (25,955 )     (45,363 )

(Loss) income before income and mining taxes

    (13,269 )     (1,386 )     (3,485 )     24,808  

Income and mining tax (provision) benefit

    (254 )     4,134       (5,885 )     (609 )

Net (loss) income

    (13,523 )     2,748       (9,370 )     24,199  

Preferred stock dividends

    (138 )     (138 )     (276 )     (276 )

(Loss) income applicable to common shareholders

  $ (13,661 )   $ 2,610     $ (9,646 )   $ 23,923  

Comprehensive income (loss):

                               

Net (loss) income

  $ (13,523 )   $ 2,748     $ (9,370 )   $ 24,199  

Change in fair value of derivative contracts designated as hedge transactions

    65,348       1,620       32,183       3,452  

Comprehensive income

  $ 51,825     $ 4,368     $ 22,813     $ 27,651  

Basic (loss) income per common share after preferred dividends

  $ (0.03 )   $ 0.01     $ (0.02 )   $ 0.04  

Diluted (loss) income per common share after preferred dividends

  $ (0.03 )   $ 0.01     $ (0.02 )   $ 0.04  

Weighted average number of common shares outstanding - basic

    539,401       535,531       538,943       534,819  

Weighted average number of common shares outstanding - diluted

    539,401       542,262       538,943       541,468  

Cash dividends declared per common share

  $ 0.00625     $ 0.01     $ 0.01225     $ 0.02  

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

 

3

 

 

Hecla Mining Company and Subsidiaries

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

   

Six Months Ended

 
   

June 30, 2022

   

June 30, 2021

 

Operating activities:

               

Net (loss) income

  $ (9,370 )   $ 24,199  

Non-cash elements included in net (loss) income:

               

Depreciation, depletion and amortization

    73,656       92,861  

Write-down of inventory

    754       6,431  

Fair value adjustments, net

    (14,185 )     5,214  

Provision for reclamation and closure costs

    3,271       6,183  

Stock compensation

    2,525       3,302  

Deferred income taxes

    (1,290 )     (7,745 )

Foreign exchange loss

    (3,442 )     4,455  

Other non-cash items, net

    982       1,071  

Change in assets and liabilities:

               

Accounts receivable

    19,199       (9,432 )

Inventories

    (8,352 )     5,719  

Other current and non-current assets

    (894 )     4,125  

Accounts payable and accrued liabilities

    17,119       (6,489 )

Accrued payroll and related benefits

    278       (5,351 )

Accrued taxes

    (5,683 )     (999 )

Accrued reclamation and closure costs and other non-current liabilities

    3,524       696  

Cash provided by operating activities

    78,092       124,240  

Investing activities:

               

Additions to properties, plants, equipment and mineral interests

    (55,807 )     (53,311 )

Proceeds from disposition of properties, plants and equipment

    730       131  

Purchases of investments

    (21,899 )      

Proceeds from sale of investments

    2,487        

Net cash used in investing activities

    (74,489 )     (53,180 )

Financing activities:

               

Acquisition of treasury shares

    (3,677 )     (4,525 )

Dividends paid to common and preferred stockholders

    (7,027 )     (10,991 )

Credit facility fees paid

    (74 )     (82 )

Repayments of finance leases

    (3,333 )     (3,770 )

Net cash used in financing activities

    (14,111 )     (19,368 )

Effect of exchange rates on cash

    (1,321 )     (28 )

Net (decrease) increase in cash, cash equivalents and restricted cash and cash equivalents

    (11,829 )     51,664  

Cash, cash equivalents and restricted cash and cash equivalents at beginning of period

    211,063       130,883  

Cash, cash equivalents and restricted cash and cash equivalents at end of period

  $ 199,234     $ 182,547  

Supplemental disclosure of cash flow information:

               

Cash paid for interest

  $ 18,749     $ 18,499  

Cash paid for income and mining taxes

  $ 11,888     $ 9,469  

Significant non-cash investing and financing activities:

               

Addition of finance lease obligations and right-of-use assets

  $ 5,051     $ 3,120  

Accounts receivable for proceeds on exchange of investments

  $     $ 1,832  

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

 

4

 

 

Hecla Mining Company and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except shares)

 

  

June 30, 2022

  

December 31, 2021

 

ASSETS

 

Current assets:

        

Cash and cash equivalents

 $198,193  $210,010 

Accounts receivable:

        

Trade

  17,828   36,437 

Other, net

  7,696   8,149 

Inventories:

        

Concentrates, doré, and stockpiled ore

  30,167   25,906 

Materials and supplies

  45,200   41,859 

Derivatives assets

  9,923   2,709 

Other current assets

  13,389   16,557 

Total current assets

  322,396   341,627 

Investments

  23,931   10,844 

Restricted cash

  1,041   1,053 

Properties, plants, equipment and mineral interests, net

  2,295,962   2,310,810 

Operating lease right-of-use assets

  11,649   12,435 

Deferred income taxes

  45,562   45,562 

Derivatives assets

  12,897   2,503 

Other non-current assets

  3,665   3,974 

Total assets

 $2,717,103  $2,728,808 

LIABILITIES

 

Current liabilities:

        

Accounts payable and accrued liabilities

 $84,997  $68,100 

Accrued payroll and related benefits

  26,945   28,714 

Accrued taxes

  8,341   12,306 

Finance and operating leases

  8,580   8,098 

Accrued interest

  14,435   14,454 

Derivatives liabilities

  4,228   19,353 

Other current liabilities

  109   99 

Accrued reclamation and closure costs

  10,594   9,259 

Total current liabilities

  158,229   160,383 

Finance and operating leases

  18,154   17,726 

Accrued reclamation and closure costs

  103,747   103,972 

Long-term debt

  507,841   508,095 

Deferred tax liability

  143,213   149,706 

Derivatives liabilities

  522   18,528 

Other non-current liabilities

  2,515   9,611 

Total liabilities

  934,221   968,021 

Commitments and contingencies (Notes 4, 7, 8, and 10)

          

STOCKHOLDERS' EQUITY

 

Preferred stock, 5,000,000 shares authorized:

        

Series B preferred stock, 25 cent par value, 157,816 shares issued and outstanding, liquidation preference — $7,891

  39   39 

Common stock, 25 cent par value, 750,000,000 authorized shares; issued June 30, 2022 — 548,037,253 shares and December 31, 2021 — 545,534,760 shares

  137,241   136,391 

Capital surplus

  2,043,621   2,034,485 

Accumulated deficit

  (370,048)  (353,651)

Accumulated other comprehensive income (loss)

  3,727   (28,456)

Less treasury stock, at cost; June 30, 2022 — 8,132,553 shares and December 31, 2021 — 7,395,295 shares issued and held in treasury

  (31,698)  (28,021)

Total stockholders’ equity

  1,782,882   1,760,787 

Total liabilities and stockholders’ equity

 $2,717,103  $2,728,808 

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

 

5

 

 

Hecla Mining Company and Subsidiaries

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(Dollars are in thousands, except for share and per share amounts)

 

  

Three Months Ended June 30, 2022

 
  

Series B

Preferred

Stock

  

Common

Stock

  

Capital Surplus

  

Accumulated

Deficit

  

Accumulated

Other

Comprehensive

Income

(Loss), net

  

Treasury

Stock

  

Total

 

Balances, April 1, 2022

 $39  $136,657  $2,036,417  $(353,007) $(61,621) $(29,942) $1,728,543 

Net loss

           (13,523)        (13,523)

Restricted stock units granted

        837            837 

Restricted stock units distributed (901,215 shares)

     225   (225)        (1,756)  (1,756)

Common stock dividends declared (0.0625 cents per common share)

           (3,380)        (3,380)

Series B Preferred Stock dividends declared (87.5 cents per share)

           (138)        (138)

Common stock issued for 401(k) match (143,200 shares)

     36   928            964 

Common stock issued to directors (98,310 shares)

     25   392            417 

Common stock issued to pension plans (1,190,000 shares)

     298   5,272            5,570 

Other comprehensive income

              65,348      65,348 

Balances, June 30, 2022

 $39  $137,241  $2,043,621  $(370,048) $3,727  $(31,698) $1,782,882 

 

  

Three Months Ended June 30, 2021

 
  

Series B

Preferred

Stock

  

Common

Stock

  

Capital Surplus

  

Accumulated

Deficit

  

Accumulated

Other

Comprehensive

Income

(Loss), net

  

Treasury

Stock

  

Total

 

Balances, April 1, 2021

 $39  $135,546  $2,021,072  $(351,449) $(31,057) $(23,496) $1,750,655 

Net income

           2,748         2,748 

Restricted stock units granted

        959            959 

Restricted stock units distributed (1,653,000 shares)

     413   (413)        (4,525)  (4,525)

Common stock dividends declared (1.125 cents per common share)

           (6,027)        (6,027)

Series B Preferred Stock dividends declared (87.5 cents per share)

           (138)        (138)

Common stock issued for 401(k) match (217,000 shares)

     54   1,235            1,289 

Common stock issued to pension plans (3,500,000 shares)

                     

Common stock issued to directors (207,000 shares)

     52   1,792            1,844 

Other comprehensive income

              1,620      1,620 

Balances, June 30, 2021

 $39  $136,065  $2,024,645  $(354,866) $(29,437) $(28,021) $1,748,425 

 

6

 

  

Six Months Ended June 30, 2022

 
  

Series B

Preferred

Stock

  

Common

Stock

  

Capital
Surplus

  

Accumulated

Deficit

  

Accumulated

Other

Comprehensive

Income

(Loss), net

  

Treasury

Stock

  

Total

 

Balances, January 1, 2022

 $39  $136,391  $2,034,485  $(353,651) $(28,456) $(28,021) $1,760,787 

Net loss

           (9,370)        (9,370)

Restricted stock units granted

        2,108            2,108 

Restricted stock units and performance stock units distributed (1,789,042 shares)

     447   (447)        (3,677)  (3,677)

Common stock dividends declared (1.25 cents per common share)

           (6,751)        (6,751)

Series B Preferred Stock dividends declared ($1.75 per share)

           (276)        (276)

Common stock issued for 401(k) match (321,110 shares)

     80   1,811            1,891 

Common stock issued to pension plans (1,190,000 shares)

     298   5,272            5,570 

Common stock issued to directors (98,310 shares)

     25   392            417 

Other comprehensive loss

              32,183      32,183 

Balances, June 30, 2022

 $39  $137,241  $2,043,621  $(370,048) $3,727  $(31,698) $1,782,882 

 

  

Six Months Ended June 30, 2021

 
  

Series B

Preferred

Stock

  

Common

Stock

  

Capital
Surplus

  

Accumulated

Deficit

  

Accumulated

Other

Comprehensive

Income

(Loss), net

  

Treasury

Stock

  

Total

 

Balances, January 1, 2021

 $39  $134,629  $2,003,576  $(368,074) $(32,889) $(23,496) $1,713,785 

Net income

           24,199         24,199 

Restricted stock units granted

        1,459            1,459 

Restricted stock units distributed (1,653,000 shares)

     413   (413)        (4,525)  (4,525)

Common stock dividends declared (2 cents per common share)

           (10,715)        (10,715)

Series B Preferred Stock dividends declared ($1.75 per share)

           (276)        (276)

Common stock issued for 401(k) match (382,000 shares)

     96   2,306            2,402 

Common stock issued to pension plans (3,500,000 shares)

     875   15,925            16,800 

Common stock issued to directors (207,000 shares)

     52   1,792            1,844 

Other comprehensive loss

              3,452      3,452 

Balances, June 30, 2021

 $39  $136,065  $2,024,645  $(354,866) $(29,437) $(28,021) $1,748,425 

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

 

7

 

 

Note 1.    Basis of Preparation of Financial Statements

 

The accompanying unaudited interim condensed consolidated financial statements of Hecla Mining Company and its subsidiaries (collectively, “Hecla,” “the Company,” “we,” “our,” or “us,” except where the context requires otherwise) have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required annually by generally accepted accounting principles in the United States (“GAAP”). Therefore, this information should be read in conjunction with Hecla Mining Company’s consolidated financial statements and notes contained in our annual report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”). The consolidated December 31, 2021 balance sheet data was derived from our audited consolidated financial statements. The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported. All such adjustments are, in the opinion of management, of a normal recurring nature. Operating results for the three- and six-month periods ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

 

The 2019 novel strain of coronavirus (“COVID-19”) was characterized as a global pandemic by the World Health Organization on March 11, 2020. We continue to take precautionary measures to mitigate the impact of COVID-19, including implementing operational plans and practices. As long as they are required, the operational practices implemented could continue to have an adverse impact on our operating results due to deferred production and revenues or additional costs. We incurred $0.1 million and $0.4 million in COVID-19 mitigation costs during the three and six months ended June 30, 2022 compared to $1.4 million and $3.0 million during the three and six months ended June 30, 2021, respectively. We continue to monitor the rapidly evolving situation and guidance from federal, state, local and foreign governments and public health authorities and may take additional actions based on their recommendations. The extent of the impact of COVID-19 on our business and financial results will also depend on future developments, including the duration and spread of the outbreak and the success of the current vaccination programs and the related impact on prices, demand, creditworthiness and other market conditions and governmental reactions, all of which are highly uncertain.

 

 

Note 2.    Business Segments and Sales of Products

 

We discover, acquire and develop mines and other mineral interests and produce and market (i) concentrates, containing silver, gold, lead and zinc, (ii) carbon material containing silver and gold, and (iii) doré containing silver and gold. We are currently organized and managed in four segments: Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations.

 

General corporate activities not associated with operating mines and their various exploration activities, as well as discontinued operations and idle properties, are presented as “other.”  Interest expense, interest income and income and mining taxes are considered general corporate items, and are not allocated to our segments.

 

8

 

The following tables present information about our reportable segments for the three and six months ended June 30, 2022 and 2021 (in thousands):

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Net sales to unaffiliated customers:

                               

Greens Creek

  $ 92,723     $ 113,763     $ 178,813     $ 212,172  

Lucky Friday

    35,880       39,645       73,920       68,767  

Casa Berardi

    62,639       56,122       124,740       129,033  

Nevada Operations

          8,450       268       18,687  

Other

          3             176  
    $ 191,242     $ 217,983     $ 377,741     $ 428,835  

Income (loss) from operations:

                               

Greens Creek

  $ 27,803     $ 56,433     $ 62,389     $ 101,033  

Lucky Friday

    5,528       11,737       14,299       18,060  

Casa Berardi

    (572 )     (529 )     (3,271 )     11,177  

Nevada Operations

    (9,728 )     (20,341 )     (21,963 )     (23,481 )

Other

    (15,319 )     (18,158 )     (28,984 )     (36,618 )
    $ 7,712     $ 29,142     $ 22,470     $ 70,171  

 

The following table presents identifiable assets by reportable segment as of June 30, 2022 and December 31, 2021 (in thousands):

 

   

June 30, 2022

   

December 31, 2021

 

Identifiable assets:

               

Greens Creek

  $ 580,692     $ 589,944  

Lucky Friday

    524,734       516,545  

Casa Berardi

    699,134       701,868  

Nevada Operations

    468,901       468,985  

Other

    443,642       451,466  
    $ 2,717,103     $ 2,728,808  

 

Sales by metal for the three- and six-month periods ended June 30, 2022 and 2021 were as follows (in thousands):

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2022

   

2021

   

2022

   

2021

 
                                 

Silver

  $ 70,050     $ 92,765     $ 136,382     $ 170,525  

Gold

    82,018       86,078       159,186       187,487  

Lead

    21,314       22,223       40,878       38,116  

Zinc

    31,176       30,037       66,814       59,228  

Less: Smelter and refining charges

    (13,316 )     (13,120 )     (25,519 )     (26,521 )
    $ 191,242     $ 217,983     $ 377,741     $ 428,835  

 

Sales included net gains of $11.3 million and $6.6 million for the second quarter and first half of 2022, respectively, on financially-settled forward contracts for silver, gold, lead and zinc contained in our sales. Sales included net losses of $3.3 million and $0.5 million for the second quarter and first half of 2021, respectively, on such contracts. See Note 8 for more information.

 

9

 

 

Note 3.   Income and Mining Taxes

 

Major components of our income and mining tax benefit (provision) for the three and six months ended June 30, 2022 and 2021 are as follows (in thousands):

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Current:

                               

Domestic

  $ (446 )   $ (3,036 )   $ (2,549 )   $ (5,313 )

Foreign

    (1,346 )     (826 )     (3,087 )     (3,112 )

Total current income and mining tax provision

    (1,792 )     (3,862 )     (5,636 )     (8,425 )
                                 

Deferred:

                               

Domestic

    (2,150 )     4,117       (7,241 )     4,436  

Foreign

    3,688       3,879       6,992       3,380  

Total deferred income and mining tax benefit

    1,538       7,996       (249 )     7,816  

Total income and mining tax benefit (provision)

  $ (254 )   $ 4,134     $ (5,885 )   $ (609 )

 

The income and mining tax benefit (provision) for the three and six months ended June 30, 2022 and 2021 varies from the amounts that would have resulted from applying the statutory tax rates to pre-tax income due primarily to the impact of taxation in foreign jurisdictions and non-recognition of net operating losses and foreign exchange gains and losses in certain jurisdictions.

 

For the three-month and six-month periods ended June 30, 2022, we used the annual effective tax rate method to calculate the tax provision, a change from the discrete method used for the three- and six-month periods ended June 30, 2021, due to reversal of valuation allowance in the fourth quarter of 2021. Valuation allowances on Nevada, Mexico and certain Canadian net operating losses were treated as discrete adjustments to the annual effective tax rate method calculation, partially causing the increase in the income tax rate for the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021.

 

 

Note 4.   Employee Benefit Plans

 

We sponsor defined benefit pension plans covering substantially all U.S. employees.  Net periodic pension cost for the plans consisted of the following for the three and six months ended June 30, 2022 and 2021 (in thousands):

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Service cost

  $ 1,566     $ 1,455     $ 3,131     $ 2,910  

Interest cost

    1,369       1,248       2,738       2,496  

Expected return on plan assets

    (3,363 )     (2,313 )     (6,726 )     (4,626 )

Amortization of prior service cost

    128       99       256       198  

Amortization of net loss

    512       1,125       1,024       2,250  

Net periodic pension cost

  $ 212     $ 1,614     $ 423     $ 3,228  

 

For the three- and six-month periods ended June 30, 2022 and 2021, the service cost component of net periodic pension cost is included in the same line items of our condensed consolidated financial statements as other employee compensation costs. The net expense related to all other components of net periodic pension cost of $1.4 million and $2.7 million, respectively, for the three- and six-month periods ended June 30, 2022, and $0.2 million and $0.3 million for the three- and six-month periods ended June 30, 2021, respectively, is included in other (expense) income on our condensed consolidated statements of operations and comprehensive income (loss).

 

10

 

During May 2022, we contributed $5.6 million in shares of our common stock to two of our defined benefit plans. In January 2021, we contributed $16.8 million in shares of our common stock to our supplemental executive retirement plan. We do not expect to be required to make additional contributions to our defined benefit pension plans in 2022, but may elect to do so.

 

 

Note 5.    (Loss) Income Per Common Share

 

We calculate basic (loss) income per common share on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted income per share is calculated using the weighted average number of shares of common stock outstanding during the period plus the effect of potential dilutive common shares during the period using the treasury stock and if-converted methods.

 

Potential dilutive shares of common stock include outstanding unvested restricted stock awards, stock units, warrants and convertible preferred stock for periods in which we have reported net income. For periods in which we report net losses, potential dilutive shares of common stock are excluded, as their conversion and exercise would be anti-dilutive.

 

The following table represents net (loss) income per common share – basic and diluted (in thousands, except income (loss) per share): 

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Numerator

                               

Net (loss) income

  $ (13,523 )   $ 2,748     $ (9,370 )   $ 24,199  

Preferred stock dividends

    (138 )     (138 )     (276 )     (276 )

Net (loss) income applicable to common shares

  $ (13,661 )   $ 2,610     $ (9,646 )   $ 23,923  
                                 

Denominator

                               

Basic weighted average common shares

    539,401       535,531       538,943       534,819  

Dilutive restricted stock units, warrants and deferred shares

          6,731             6,649  

Diluted weighted average common shares

    539,401       542,262       538,943       541,468  
                                 

Basic (loss) income per common share

  $ (0.03 )   $ 0.01     $ (0.02 )   $ 0.04  

Diluted (loss) income per common share

  $ (0.03 )   $ 0.01     $ (0.02 )   $ 0.04  

 

For the three and six months ended June 30, 2022, all outstanding restricted stock units, warrants and deferred shares were excluded from the computation of diluted loss per share, as our reported net losses for those periods would cause their conversion and exercise to have no effect on the calculation of loss per share. For the three months ended June 30, 2021, the calculation of diluted income per common share included (i) 2,960,950 restricted stock units, (ii) 1,635,675 warrants to purchase one share of common stock and (iii) 2,134,009 deferred shares of common stock that were dilutive. For the six months ended June 30, 2021, the calculation of diluted income per common share included (i) 2,923,515 restricted stock units, (ii) 1,591,935 warrants to purchase one share of common stock and (iii) 2,134,009 deferred shares that were dilutive.

 

11

 

 

Note 6.    Stockholders Equity

 

Stock-based Compensation Plans

 

The Company has stock incentive plans for executives, directors and eligible employees. Stock awards include performance shares, restricted stock and stock options. Stock-based compensation expense for restricted stock unit and performance-based grants (collectively "incentive compensation") to employees and shares issued to non-employee directors totaled $1.3 million and $2.5 million for the three and six months ended June 30, 2022, respectively, and $2.8 million and $3.3 million for the three and six months ended June 30, 2021, respectively. At June 30, 2022, there was $9.1 million of unrecognized stock-based compensation cost which is expected to be recognized over a weighted-average remaining vesting period of 2.4 years.

 

The following table summarizes the grants awarded during the six months ended June 30, 2022:

 

Grant date

Award type

 

Number granted

  

Grant date fair value

 

June 21, 2022

Restricted stock

  1,103,801   $4.43 

June 21, 2022

Performance based

  322,799   $3.78 

June 28, 2022

Directors retainer

  98,310   $4.24 

 

In connection with the vesting of incentive compensation, employees have in the past, at their election and when permitted by us, chosen to satisfy their minimum tax withholding obligations through net share settlement, pursuant to which the Company withholds the number of shares necessary to satisfy such withholding obligations and pays the obligations in cash.  As a result, in the first six months of 2022 we withheld 737,258 shares valued at approximately $3.7 million, or approximately $4.99 per share. In the first six months of 2021 we withheld 574,251 shares valued at approximately $4.5 million, or approximately $7.88 per share.

 

Common Stock Dividends

 

On May 5, 2022, our Board of Directors declared a quarterly cash dividend of $0.00625 per share of common stock, consisting of $0.00375 per share for the minimum dividend component of our common stock dividend policy and $0.0025 per share for the silver-linked dividend component of the policy, for a total dividend of $3.4 million paid in June 2022. The realized silver price of $24.68 in the first quarter of 2022 satisfied the criterion for the silver-linked dividend component of our common stock dividend policy.

 

 

Note 7.    Debt, Credit Facility and Leases

 

Our debt as of June 30, 2022 and December 31, 2021 consisted of our 7.25% Senior Notes due February 15, 2028 (“Senior Notes”) and our Series 2020-A Senior Notes due July 9, 2025 (the “IQ Notes”). The following tables summarize our long-term debt balances, excluding interest, as of June 30, 2022 and December 31, 2021 (in thousands):

 

  

June 30, 2022

 
  

Senior Notes

  

IQ Notes

  

Total

 

Principal

 $475,000  $37,433  $512,433 

Unamortized discount/premium and issuance costs

  (5,096)  504   (4,592)

Long-term debt balance

 $469,904  $37,937  $507,841 

 

12

 
  

December 31, 2021

 
  

Senior Notes

  

IQ Notes

  

Total

 

Principal

 $475,000  $38,051  $513,051 

Unamortized discount/premium and issuance costs

  (5,552)  596   (4,956)

Long-term debt balance

 $469,448  $38,647  $508,095 

 

The following table summarizes the scheduled annual future payments, including interest, for our Senior Notes, IQ Notes, and finance and operating leases as of June 30, 2022 (in thousands). The amounts for the IQ Notes are stated in U.S. dollars (“USD”) based on the USD/Canadian dollar (“CAD”) exchange rate as of June 30, 2022.

 

Twelve-month
period ending
June 30,

 

Senior Notes

  

IQ Notes

  

Finance Leases

  

Operating Leases

 

2023

 $34,438  $2,441  $6,424  $3,011 

2024

  34,438   2,441   5,220   2,041 

2025

  34,438   2,441   3,070   1,072 

2026

  34,438   37,528   1,213   1,059 

2027

  34,438         1,010 

Thereafter

  496,521         6,043 

Total

 $668,711  $44,851  $15,927  $14,236 

 

Credit Facility

 

In July 2018, we entered into a $250 million senior secured revolving credit facility which has a term ending on February 7, 2023. As of June 30, 2022 and December 31, 2021, no amounts were outstanding under the facility.

 

We are also able to obtain letters of credit under the facility, and for any such letters we are required to pay a participation fee of between 2.25% and 4.00% of the amount of the letters of credit based on our total leverage ratio, as well as a fronting fee to each issuing bank of 0.20% annually on the average daily dollar amount of any outstanding letters of credit. There were $14.9 million in letters of credit outstanding as of June 30, 2022. Letters of credit that are outstanding reduce availability under the revolving credit facility. See Note 12 regarding the termination of this Credit Facility and entry into a new facility.

 

We believe we were in compliance with all covenants under the credit agreement as of June 30, 2022. 

 

 

Note 8.    Derivative Instruments

 

General

 

Our current risk management policy provides that up to 75% of five years foreign currency, lead and zinc metals price and silver and gold price exposure may be covered under a derivatives program with certain other limitations. The silver and gold price program can only establish a floor (puts). We are currently do not have a silver and gold program. Our program also utilizes derivatives to manage price risk exposure created from when revenue is recognized from a shipment of concentrate until final settlement.

 

These instruments expose us to (i) credit risk in the form of non-performance by counterparties for contracts in which the contract price exceeds the spot price of the hedged commodity or foreign currency and (ii) price risk to the extent that the spot price exceeds the contract price for quantities of our production and/or forecasted costs covered under contract positions.

 

13

 

Foreign Currency

 

Our wholly-owned subsidiary owning the Casa Berardi operation is a USD-functional entity which routinely incurs expenses denominated in CAD.  Such expenses expose us to exchange rate fluctuations between the USD and CAD.  We have a program to manage our exposure to fluctuations in the exchange rate between the USD and CAD for this subsidiary's future operating costs denominated in CAD.  The program utilizes forward contracts to buy CAD, and each contract is designated as a cash flow hedge.  As of June 30, 2022, we have 161 forward contracts outstanding to buy a total of CAD$321.8 million having a notional amount of USD$247.9 million.  The CAD contracts are related to forecasted cash operating costs at Casa Berardi to be incurred from 2021 through 2024 and have CAD-to-USD exchange rates ranging between 1.2702 and 1.3333.  

 

As of June 30, 2022 and December 31, 2021, we recorded the following balances for the fair value of the contracts (in millions):

 

   

June 30,

   

December 31,

 

 

 

2022

   

2021

 
Balance sheet line item:            

Current derivatives assets

  $ 1.1     $ 2.7  

Non-current derivatives assets

    1.3       2.5  

Current derivative liabilities

    0.3        

Non-current derivative liabilities

    0.2        

 

Net unrealized gains of approximately $2.0 million related to the effective portion of the hedges were included in accumulated other comprehensive income (loss) as of June 30, 2022.  Unrealized gains and losses will be transferred from accumulated other comprehensive income (loss) to current earnings as the underlying operating expenses are recognized.  We estimate approximately 0.8 million in net unrealized gains included in accumulated other comprehensive income (loss) as of June 30, 2022, will be reclassified to current earnings in the next twelve months.  Net realized gains of approximately $0.8 million and $1.8 million on contracts related to underlying expenses which have been recognized were transferred from accumulated other comprehensive income (loss) and included in cost of sales and other direct production costs for the three and six months ended June 30, 2022, respectively.  No net unrealized gains or losses related to ineffectiveness of the hedges were included in current earnings for the six months ended June 30, 2022. Net gains of approximately $0.3 million and $0.7 million for the three and six months ended June 30, 2022, related to contracts not designated as hedges were included in fair value adjustments, net on our consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2022.

 

Metals Prices

 

We are currently using financially-settled forward contracts to manage the exposure to:

 

changes in prices of silver, gold, zinc and lead contained in our concentrate shipments between the time of shipment and final settlement; and

 

changes in prices of zinc and lead (but not silver and gold) contained in our forecasted future concentrate shipments.

 

14

 

The following tables summarize the quantities of metals committed under forward sales contracts at June 30, 2022 and December 31, 2021:

 

June 30, 2022

 

Ounces/pounds under contract (in 000's)

   

Average price per ounce/pound

 
   

Silver

   

Gold

   

Zinc

   

Lead

   

Silver

   

Gold

   

Zinc

   

Lead

 
   

(ounces)

   

(ounces)

   

(pounds)

   

(pounds)

   

(ounces)

   

(ounces)

   

(pounds)

   

(pounds)

 

Contracts on provisional sales

                                                               

2022 settlements

    1,729       3       6,504       3,638     $ 22.19     $ 1,836     $ 1.58     $ 0.90  

Contracts on forecasted sales

                                                               

2022 settlements

                38,030       34,778       N/A       N/A     $ 1.31     $ 0.98  

2023 settlements

                78,264       75,618       N/A       N/A     $ 1.30     $ 1.00  

2024 settlements

                78,760       31,526       N/A       N/A     $ 1.34     $ 1.01  

2025 settlements

                1,157             N/A       N/A     $ 1.37       N/A  

 

December 31, 2021

 

Ounces/pounds under contract (in 000's)

   

Average price per ounce/pound

 
   

Silver

   

Gold

   

Zinc

   

Lead

   

Silver

   

Gold

   

Zinc

   

Lead

 
   

(ounces)

   

(ounces)

   

(pounds)

   

(pounds)

   

(ounces)

   

(ounces)

   

(pounds)

   

(pounds)

 

Contracts on provisional sales

                                                               

2022 settlements

    1,814       6       13,371       4,575     $ 23.02     $ 1,812     $ 1.39     $ 0.96  

Contracts on forecasted sales

                                                               

2022 settlements

                57,706       59,194       N/A       N/A     $ 1.28     $ 0.98  

2023 settlements

                76,280       71,650       N/A       N/A     $ 1.29     $ 1.00  

 

Effective November 1, 2021, we designated the contracts for lead and zinc contained in our forecasted future shipments as hedges for accounting purposes, with gains and losses deferred to accumulated other comprehensive loss until the hedged product ships. Prior to November 1, 2021, these contracts had not been designated as hedges for hedge accounting and were therefore marked-to-market through earnings each period. The forward contracts for silver and gold contained in our concentrate shipments have not been designated as hedges and are marked-to-market through earnings each period. 

 

We recorded the following balances for the fair value of the forward contracts as of June 30, 2022 and forward and put option contracts as of December 31, 2021 (in millions):

 

   

June 30, 2022

   

December 31, 2021

 

 

 

Contracts in an
asset position

   

Contracts in
a liability
position

   

Net asset
(liability)

   

Contracts in
an asset
position

   

Contracts in a
liability
position

   

Net asset
(liability)

 
Balance sheet line item:                                    

Current derivatives assets

  $ 8.8     $     $ 8.8     $     $     $  

Non-current derivative assets

  $ 11.6     $       11.6     $     $     $  

Current derivatives liabilities

          (3.9 )     (3.9 )     0.7       (20.1 )     (19.4 )

Non-current derivatives liabilities

          (0.4 )     (0.4 )     0.4       (18.9 )     (18.5 )

 

Net unrealized gains of approximately $15.6 million related to the effective portion of the contracts designated as hedges were included in accumulated other comprehensive income (loss) as of June 30, 2022. Unrealized gains and losses will be transferred from accumulated other comprehensive income (loss) to current earnings as the underlying sales are recognized. We estimate approximately $6.0 million in net unrealized gains included in accumulated other comprehensive income (loss) as of June 30, 2022 would be reclassified to current earnings in the next twelve months. We recognized a net gain of $11.3 million, including a $4.2 million loss transferred from accumulated other comprehensive income (loss), during the three months ended June 30, 2022. For the six months ended June 30, 2022, we recognized a net gain of $6.6 million, including a $3.8 million loss transferred from accumulated other comprehensive income (loss). These losses were recognized on the contracts utilized to manage exposure to prices of metals in our concentrate shipments, which is included in sales.  The net losses and gains recognized on the contracts offset gains and losses related to price adjustments on our provisional concentrate sales due to changes to silver, gold, lead and zinc prices between the time of sale and final settlement.

 

15

 

We recognized net losses of  $17.3 million and $16.8 million during the second quarter and first half of  2021, respectively, on the contracts utilized to manage exposure to prices for forecasted future sales, which were not designated as hedges. The net losses on these contracts are included as a separate line item under other income (expense), as they relate to forecasted future sales, as opposed to sales that have already taken place but are subject to final pricing as discussed in the preceding paragraph. 

 

Credit-risk-related Contingent Features

 

Certain of our derivative contracts contain cross default provisions which provide that a default under our revolving credit agreement would cause a default under the derivative contract. As of June 30, 2022, we have not posted any collateral related to these contracts. The fair value of derivatives in a net liability position related to these agreements was $12.2 million as of June 30, 2022, which includes accrued interest but excludes any adjustment for nonperformance risk. If we were in breach of any of these provisions at June 30, 2022, we could have been required to settle our obligations under the agreements at their termination value of $12.2 million.

 

 

Note 9.    Fair Value Measurement

 

Fair value adjustments, net is comprised of the following:

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2022

   

2021

   

2022

   

2021

 

(Loss) gain on derivative contracts

  $ (689 )   $ (17,313 )   $ (893 )   $ (16,840 )

Unrealized gain (loss) on investments in equity securities

    (15,739 )     (750 )     (9,639 )     (4,256 )

Gain on disposition or exchange of investments

                69       1,158  

Total fair value adjustments, net

  $ (16,428 )   $ (18,063 )   $ (10,463 )   $ (19,938 )

 

Accounting guidance has established a hierarchy for inputs used to measure assets and liabilities at fair value on a recurring basis. The three levels included in the hierarchy are:

 

Level 1: quoted prices in active markets for identical assets or liabilities;

 

Level 2: significant other observable inputs; and

 

Level 3: significant unobservable inputs.

 

16

 

The table below sets forth our assets and liabilities that were accounted for at fair value on a recurring basis and the fair value calculation input hierarchy level that we have determined applies to each asset and liability category (in thousands).  

 

Description

 

Balance at

June 30, 2022

   

Balance at

December 31, 2021

 

Input

Hierarchy Level

Assets:

                 

Cash and cash equivalents:

                 

Money market funds and other bank deposits

  $ 198,193     $ 210,010  

Level 1

Current and non-current investments

                 

Equity securities

    23,931       14,470  

Level 1

Trade accounts receivable:

                 

Receivables from provisional concentrate sales

    17,828       36,437  

Level 2

Restricted cash balances:

                 

Certificates of deposit and other deposits

    1,041       1,053  

Level 1

Derivative contracts - current and non-current derivatives assets:

                 

Foreign exchange contracts

    2,414       5,207  

Level 2

Metal forward and put option contracts

    20,406        

Level 2

Total assets

  $ 263,813     $ 267,177    
                   

Liabilities:

                 

Derivative contracts - current derivatives liabilities and other non-current liabilities:

                 

Foreign exchange contracts

  $ 529     $ 8  

Level 2

Metal forward and put option contracts

    4,221       37,873  

Level 2

Total liabilities

  $ 4,750     $ 37,881    

 

Cash and cash equivalents consist primarily of money market funds and are valued at cost, which approximates fair value, and a small portion consists of municipal bonds having maturities of less than 90 days, which are recorded at fair value.

 

Current and non-current restricted cash balances consist primarily of certificates of deposit, U.S. Treasury securities, and other deposits and are valued at cost, which approximates fair value.

 

Our non-current available for sale securities consist of marketable equity securities of companies in the mining industry which are valued using quoted market prices for each security.

 

Trade accounts receivable from provisional concentrate sales are subject to final pricing and valued using quoted prices based on forward curves for the particular metals.  The embedded derivative contained in our concentrate sales is adjusted to fair market value through earnings each period prior to final settlement.

 

We use financially-settled forward contracts to manage exposure to changes in the exchange rate between USD and CAD, and the impact on CAD-denominated operating costs incurred at our Casa Berardi unit (see Note 8 for more information). The fair value of each contract represents the present value of the difference between the forward exchange rate for the contract settlement period as of the measurement date and the contract settlement exchange rate.

 

We use financially-settled forward contracts to manage the exposure to changes in prices of silver, gold, zinc and lead contained in our concentrate shipments that have not reached final settlement.  We also use financially-settled forward contracts to manage the exposure to changes in prices of silver, gold, zinc and lead contained in our forecasted future sales (see Note 8 for more information).  The fair value of each forward contract represents the present value of the difference between the forward metal price for the contract settlement period as of the measurement date and the contract settlement metal price.

 

At June 30, 2022, our Senior Notes and IQ Notes were recorded at their carrying value of $469.9 million and $37.9 million, respectively, net of unamortized initial purchaser discount/premium and issuance costs. The estimated fair values of our Senior Notes and IQ Notes were $453.3 million and $35.8 million, respectively, at June 30, 2022. Quoted market prices, which we consider to be Level 1 inputs, are utilized to estimate fair values of the Senior Notes. Unobservable inputs which we consider to be Level 3, including an assumed current annual yield of 8.2%, are utilized to estimate the fair value of the IQ Notes. See Note 7 for more information.

 

17

 

 

Note 10.    Commitments, Contingencies and Obligations

 

General

 

We follow GAAP guidance in determining our accruals and disclosures with respect to loss contingencies, and evaluate such accruals and contingencies for each reporting period. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable that a liability could be incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred.

 

Johnny M Mine Area near San Mateo, McKinley County and San Mateo Creek Basin, New Mexico

 

In August 2012, Hecla Limited and the EPA entered into a Settlement Agreement and Administrative Order on Consent for Removal Action (“Consent Order”) regarding the Johnny M Mine Area near San Mateo, McKinley County, New Mexico. Mining at the Johnny M Mine was conducted for a limited period of time by a predecessor of Hecla Limited, and the EPA had previously asserted that Hecla Limited may be responsible under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) for environmental remediation and past costs incurred by the EPA at the site. Under the Consent Order, Hecla Limited agreed to pay (i) $1.1 million to the EPA for its past response costs at the site and (ii) any future response costs at the site under the Consent Order, in exchange for a covenant not to sue by the EPA. In December 2014, Hecla Limited submitted to the EPA the Engineering Evaluation and Cost Analysis (“EE/CA”) for the site which recommended on-site disposal of mine-related material. In January 2021, the parties began negotiating a new consent order to design and implement the on-site disposal response action recommended in the EE/CA. Based on the foregoing, we believe it is probable that Hecla Limited will incur a liability for the CERCLA removal action and we increased our accrual by $2.9 million to $9.0 million in the first quarter of 2021, primarily representing estimated costs to begin design and implementation of the remedy. It is possible that Hecla Limited’s liability will be more than $9.0 million, and any increase in liability could have a material adverse effect on Hecla Limited’s or our results of operations or financial position.

 

The Johnny M Mine is in an area known as the San Mateo Creek Basin (“SMCB”), which is an approximately 321 square mile area in New Mexico that contains numerous legacy uranium mines and mills. In addition to Johnny M, Hecla Limited’s predecessor was involved at other mining sites within the SMCB. The EPA appears to have deferred consideration of listing the SMCB site on CERCLA’s National Priorities List (“Superfund”) by removing the site from its emphasis list, and is working with various potentially responsible parties (“PRPs”) at the site in order to study and potentially address perceived groundwater issues within the SMCB. The EE/CA discussed above relates primarily to contaminated rock and soil at the Johnny M site, not groundwater and not elsewhere within the SMCB site. It is possible that Hecla Limited’s liability at the Johnny M Site, and for any other mine site within the SMCB at which Hecla Limited’s predecessor may have operated, will be greater than our current accrual of $9.0 million due to the increased scope of required remediation.

 

In July 2018, the EPA informed Hecla Limited that it and several other PRPs may be liable for cleanup of the SMCB site or for costs incurred by the EPA in cleaning up the site. The EPA stated it has incurred approximately $9.6 million in response costs to date. On May 2, 2022, Hecla Limited received a letter from an attorney representing a PRP notifying Hecla Limited that three PRPs will seek cost recovery and contribution from Hecla Limited under CERCLA for certain investigatory work performed by the PRPs at the SMCB site. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning the site, including the relative contributions of contamination by the various PRPs.

 

18

 

Carpenter Snow Creek and Barker-Hughesville Sites in Montana

 

In July 2010, the EPA made a formal request to Hecla for information regarding the Carpenter Snow Creek Superfund site located in Cascade County, Montana. The Carpenter Snow Creek site is located in a historic mining district, and in the early 1980s Hecla Limited leased 6 mining claims and performed limited exploration activities at the site. Hecla Limited terminated the mining lease in 1988.

 

In June 2011, the EPA informed Hecla Limited that it believes Hecla Limited, and several other PRPs, may be liable for cleanup of the site or for costs incurred by the EPA in cleaning up the site. The EPA stated in the letter that it has incurred approximately $4.5 million in response costs and estimated that total remediation costs may exceed $100 million. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning the site, including the relative contributions of contamination by various other PRPs.

 

In February 2017, the EPA made a formal request to Hecla for information regarding the Barker-Hughesville Mining District Superfund site located in Judith Basin and Cascade Counties, Montana. Hecla Limited submitted a response in April 2017. The Barker-Hughesville site is located in a historic mining district, and between approximately June and December 1983, Hecla Limited was party to an agreement with another mining company under which limited exploration activities occurred at or near the site.

 

In August 2018, the EPA informed Hecla Limited that it and several other PRPs may be liable for cleanup of the site or for costs incurred by the EPA in cleaning up the site. The EPA did not include an amount of its alleged response costs to date. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning past or anticipated future costs at the site and the relative contributions of contamination by various other PRPs.

 

Greens Creek and Lucky Friday Environmental Issues

 

On June 30, 2022, our Greens Creek mine received a Notice of Violation ( “NOV”) from the EPA alleging that the mine treated, stored, and disposed of certain hazardous waste without a permit in violation of the Resource Conservation and Recovery Act (“RCRA”), relating to the alleged presence of lead outside the concentrate storage building and the alleged improper reuse/recycling of certain materials produced from the on-site laboratories. The NOV contained two other less significant alleged violations. We disagree with several of EPA’s allegations on a factual and legal basis.

 

Currently, the EPA has not initiated any formal enforcement proceeding against our Greens Creek subsidiary. In civil judicial cases, EPA can seek statutory penalties up to $81,540 per day per violation and, in administrative settlements, EPA can seek administrative penalties up to $47,423 per day per violation plus the economic benefit of noncompliance. EPA typically pursues administrative penalties and assesses lower penalties on a per day basis. At this time, we cannot reasonably assess the amount of penalties EPA may seek, or predict the terms of any potential settlement with the EPA.

 

On July 12, 2022, our Lucky Friday mine received a NOV from the EPA alleging violations of the Clean Water Act (“CWA”) between 2018 and 2021 relating primarily to concentration levels of zinc and lead in the mine’s permitted water discharges.  Currently, the EPA has not initiated any formal enforcement proceeding against our Lucky Friday subsidiary.  In civil judicial cases, EPA can seek statutory penalties up to $59,973 per day per violation and, in administrative actions, EPA can seek administrative penalties up to $23,989 per day per violation with a maximum administrative penalty of $299,989 for all alleged violations.  EPA typically pursues administrative penalties.  At this time, we cannot reasonably assess the amount of penalties EPA may seek, or predict the terms of any potential settlement with the EPA.

 

19

 

Litigation Related to Klondex Acquisition

 

On May 24, 2019, a purported Hecla stockholder filed a putative class action lawsuit in the U.S. District Court for the Southern District of New York against Hecla and certain of our executive officers, one of whom is also a director. The complaint, purportedly brought on behalf of all purchasers of Hecla common stock from March 19, 2018 through and including May 8, 2019, asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and seeks, among other things, damages and costs and expenses. Specifically, the complaint alleges that Hecla, under the authority and control of the individual defendants, made certain material false and misleading statements and omitted certain material information regarding Hecla’s Nevada Operations. The complaint alleges that these misstatements and omissions artificially inflated the market price of Hecla common stock during the class period, thus purportedly harming investors. Filings with the court regarding our motion to dismiss the lawsuit were completed in the first quarter of 2021. We cannot predict the outcome of this lawsuit or estimate damages if plaintiffs were to prevail. We believe that these claims are without merit and intend to defend them vigorously.

 

Related to this class action lawsuit, Hecla has been named as a nominal defendant in a shareholder derivative lawsuit which also names as defendants certain current and past (i) members of Hecla’s board of directors and (ii) officers of Hecla. The case was filed on May 4, 2022 in the Delaware Chancery Court. In general terms, the suit alleges breaches of fiduciary duties by the individual defendants, waste of corporate assets and unjust enrichment, and seeks damages, purportedly on behalf of Hecla.

 

Debt

 

See Note 7 for information on the commitments related to our debt arrangements as of June 30, 2022.

 

Other Commitments

 

Our contractual obligations as of June 30, 2022 included open purchase orders and commitments of approximately $8.1 million, $19.1 million, $1.3 million and $3.4 million for various capital and non-capital items at Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations, respectively. We also have total commitments of approximately $15.9 million relating to scheduled payments on finance leases, including interest, primarily for equipment at our Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations units, and total commitments of approximately $14.2 million relating to payments on operating leases (see Note 7 for more information). As part of our ongoing business and operations, we are required to provide surety bonds, bank letters of credit, and restricted deposits for various purposes, including financial support for environmental reclamation obligations and workers compensation programs. As of June 30, 2022, we had surety bonds totaling $181.8 million and letters of credit totaling $14.9 million in place as financial support for future reclamation and closure costs, self-insurance, and employee benefit plans. The obligations associated with these instruments are generally related to performance requirements that we address through ongoing operations. As the requirements are met, the beneficiary of the associated instruments cancels or returns the instrument to the issuing entity. Certain of these instruments are associated with operating sites with long-lived assets and will remain outstanding until closure of the sites. We believe we are in compliance with all applicable bonding requirements and will be able to satisfy future bonding requirements as they arise.

 

Other Contingencies

 

We also have certain other contingencies resulting from litigation, claims, EPA investigations, and other commitments and are subject to a variety of environmental and safety laws and regulations incident to the ordinary course of business. We currently have no basis to conclude that any or all of such contingencies will materially affect our financial position, results of operations or cash flows. However, in the future, there may be changes to these contingencies, or additional contingencies may occur, any of which might result in an accrual or a change in current accruals recorded by us, and there can be no assurance that their ultimate disposition will not have a material adverse effect on our financial position, results of operations or cash flows.

 

20

 

 

Note 11.    Developments in Accounting Pronouncements

 

Accounting Standards Updates Adopted

 

In August 2020, the Financial Accounting Standards Board (“FASB") issued ASU No. 2020-06 Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The update is to address issues identified as a result of the complexity associated with applying generally accepted accounting principles to certain financial instruments with characteristics of liabilities and equity. The update is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years and with early adoption permitted. We adopted the update as of January 1, 2022, which did not have a material impact on our consolidated financial statements or disclosures.

 

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 2014-09, Revenue from Contracts with Customers (Topic 606). The update will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. The update is effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted. We adopted the new standard effective January 1, 2022, which did not have a material impact on our consolidated financial statements or disclosures.

 

Accounting Standards Updates to Become Effective in Future Periods

 

In 2017, the United Kingdom’s Financial Conduct Authority ("FCA") announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate ("LIBOR"), which have been widely used as reference rates for various securities and financial contracts, including loans, debt and derivatives. This announcement indicated that the continuation of LIBOR on the current basis would not be guaranteed after 2021. Subsequently in March 2021, the FCA announced some USD LIBOR tenors (overnight, 1 month, 3 month, 6 month and 12 month) will continue to be published until June 30, 2023. Regulators in the U.S. and other jurisdictions have been working to replace these rates with alternative reference interest rates that are supported by transactions in liquid and observable markets, such as the Secured Overnight Financing Rate ("SOFR"). Currently, our credit facility and certain of our derivative instruments reference LIBOR-based rates. Our credit facility contains provisions specifying alternative interest rate calculations to be employed when LIBOR ceases to be available as a benchmark and we have adhered to the ISDA 2020 IBOR Fallbacks Protocol, which will govern our derivatives upon the final cessation of USD LIBOR. ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended, helps limit the accounting impact from contract modifications, including hedging relationships, due to the transition from LIBOR to alternative reference rates that are completed by December 31, 2022. We do not expect a significant impact to our financial results, financial position or cash flows from the transition from LIBOR to alternative reference interest rates, but we will continue to monitor the impact of this transition until it is completed.

 

 

Note 12.    Subsequent Events

 

On July 5, 2022, we and Alexco Resource Corp. ("Alexco") a Canadian publicly traded company, announced a definitive agreement for one of our subsidiaries to acquire all of the outstanding common shares of Alexco that Hecla does not already own. Each outstanding common share of Alexco will be exchanged for 0.116 of a share of our common stock implying consideration of US$0.47 per Alexco common share. In addition, we will (i) provide interim financing to provide working capital and support the continued advancement of the development and exploration at Alexco's, Keno Hill mine, of which $20 million was advanced on July 19, 2022 and (ii) subscribe for additional common shares bringing Hecla's ownership stake to 9.9%, which also closed on July 19, 2022.

 

The Company has also entered into an agreement with Wheaton Precious Metals Corporation to terminate its silver streaming interest at Alexco’s Keno Hill property in exchange for US$135 million of Company common stock, conditional upon the completion of the Alexco acquisition.

 

21

 

On July 21, 2022, we entered into a Credit Agreement (“New Credit Agreement”) with the various financial institutions (the “Lenders”), Bank of Montreal and Bank of America, N.A. as letters of credit issuers, and Bank of America, N.A., as administrative agent for the Lenders and as swingline lender, to replace our Prior Credit Agreement, see Note 7 for additional information on this credit agreement. The New Credit Agreement is a $150 million senior secured revolving facility, with an option to be increased in an aggregate amount not to exceed $75 million. The revolving loans under the New Credit Agreement will have a maturity date of July 21, 2026. Proceeds of the revolving loans under the New Credit Agreement may be used to refinance the Prior Credit Agreement and for general corporate purposes. The interest rate on outstanding loans under the New Credit Agreement is, at the option of the Borrowers, one month, three months or six months Term SOFR plus (x) 0.10% for an interest period of one-month’s duration, (y) 0.15% for an interest period of three-month’s duration and (z) 0.25% for an interest period of six-month’s duration plus the Applicable Margin or Base Rate (which is the highest of (i) the Bank of America prime rate, (ii) the Federal Funds rate plus .50% and (iii) Term SOFR plus 1.00%, subject to the interest rate floors) plus the Applicable Margin. The “Applicable Margin” means (a) for the first fiscal quarter ending after the closing date, in the case of Term SOFR loans, 2.25% per annum, and, in the case of Base Rate loans, 1.25% per annum, and (b) thereafter, between 2.00% and 3.50% for Term SOFR loans or between 1.00% and 2.50% for Base Rate loans depending on our total leverage ratio. We are also required to pay quarterly in arrears a commitment fee of between 0.45000% to 0.78750%, depending on our total leverage ratio, of the actual daily amount by which the Aggregate Revolving Commitments exceed the sum of the Outstanding Amount of Revolving Loan and the Outstanding Amount of L/C Obligations. We are also required to pay a participation fee for letters of credit issued under the New Credit Agreement in an amount between 2.00% and 3.50% based on our total leverage ratio, as well as a fronting fee to each issuing bank at an agreed upon rate per annum on the average daily dollar amount of our letter of credit exposure.

 

Hecla Mining Company and certain of its subsidiaries are the borrowers under the New Credit Agreement, while certain of its other subsidiaries are guarantors of the borrowers’ obligations under the New Credit Agreement. As further security, the credit facility is collateralized by a mortgage on the Greens Creek mine, the equity interests of subsidiaries that own the Greens Creek mine or are part of the Greens Creek Joint Venture and our subsidiary Hecla Admiralty Company (the “Greens Creek Group”), and by all of the Green Creek Group’s rights and interests in the Greens Creek Joint Venture Agreement, and in all assets of the joint venture and of any member of the Greens Creek Group.

 

In connection with entry into the New Credit Agreement, the Company’s Prior credit agreement was terminated on July 21, 2022.

 

 

22

 

 

Forward-Looking Statements

 

Certain statements contained in this Form 10-Q, including in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk, are intended to be covered by the safe harbor provided for under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Our forward-looking statements include our current expectations and projections about future results, performance, results of litigation, prospects and opportunities, including reserves and other mineralization. We have tried to identify these forward-looking statements by using words such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “feel,” “plan,” “estimate,” “project,” “forecast” and similar expressions.  These forward-looking statements are based on information currently available to us and are expressed in good faith and believed to have a reasonable basis.  However, our forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements.

 

These risks, uncertainties and other factors include, but are not limited to, those set forth under Part I, Item 1A. Risk Factors in our 2021 Form 10-K and in Part II, Item 1.A. - Risk Factors in this Form 10-Q. Given these risks and uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements.  All subsequent written and oral forward-looking statements attributable to Hecla Mining Company or to persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.  Except as required by federal securities laws, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

 

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

 

In this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), “Hecla,” “the Company,” “we,” “us” and “our” refer to Hecla Mining Company and its consolidated subsidiaries, except where the context requires otherwise. You should read this discussion in conjunction with our consolidated financial statements, the related MD&A and the discussion of our Business and Properties in our 2021 Form 10-K filed with the United States Securities and Exchange Commission (the “SEC”). The results of operations reported and summarized below are not necessarily indicative of future operating results (refer to “Forward-Looking Statements” above for further discussion). References to “Notes” are Notes included in our Notes to Condensed Consolidated Financial Statements (Unaudited). Throughout MD&A, all references to losses or income per share are on a diluted basis.

 

Overview

 

Established in 1891, we believe we are the oldest operating precious metals mining company in the United States. We are the largest silver producer in the United States, producing over 40% of the United States silver production at our Greens Creek and Lucky Friday operations. We produce gold at our Casa Berardi operation in Quebec, Canada, and Greens Creek, and produced gold at our Nevada Operations segment prior to suspension of operations during 2021. Based upon our operational footprint, we believe we have low political and economic risk compared to other mines located in other parts of the world. Our exploration interests are located in the United States, Canada and Mexico. Our operating and strategic framework is based on expanding our production and locating and developing new resource potential in a safe and responsible manner.

 

Second Quarter 2022 Highlights

 

Operational:

 

 

Produced 3.6 million ounces of silver and 45,719 ounces of gold. See Consolidated Results of Operations below for information on total cost of sales and cash costs and AISC, after by-product credits, per silver and gold ounce for the three-month periods ended June 30, 2022 and 2021.

 

Continued mitigation of the impacts of COVID-19 through refinement of our operational plans and procedures to protect our workforce, operations and communities while maintaining liquidity.

 

Financial:

 

 

Reported sales of $191.2 million.

 

Generated $40.2 million in net cash provided by operating activities. See the Financial Liquidity and Capital Resources section below for further discussion.

 

Made capital expenditures (excluding lease additions and other non-cash items) of approximately $34.7 million, including $14.7 million at Greens Creek, $11.5 million at Lucky Friday, $8.1 million at Casa Berardi and $0.3 million at the Nevada Operations.

 

23

 

 

Generated $5.9 million in free cash flow. A reconciliation of the non-GAAP measure free cash flow to net cash provided by operating activities, the nearest GAAP measure, is included in the Reconciliation of Cash Flows From Operating Activities (GAAP) to Free Cash Flow (Non-GAAP) section below.

 

Returned $3.5 million, or 60% of free cash flows, to our shareholders through payment of dividends.

 

Spent $11.2 million on exploration and pre-development activities.

 

During April made an $11.0 million strategic investment in Alexco. Subsequent to June 30, 2022, we increased our investment in Alexco. See Note 12, of Notes to Condensed Consolidated Financial Statements (unaudited) regarding our proposed acquisition of Alexco.

 

Year to date 2022 Highlights

 

Operational:

 

 

Produced 7.0 million ounces of silver and 87,361 ounces of gold. See Consolidated Results of Operations below for information on total cost of sales and cash costs and AISC, after by-product credits, per silver and gold ounce for the six-month periods ended June 30, 2022 and 2021.

 

Continued our trend of strong safety performance, as our All Injury Frequency Rate (“AIFR”) for the year to date was 1.59, 24% below the U.S. national average for MSHA's “metal and nonmetal” category and within 10% of our AIFR of 1.45 for the full year of 2021.

 

Continued mitigation of the impacts of COVID-19 through refinement of our operational plans and procedures to protect our workforce, operations and communities while maintaining liquidity.

 

Financial:

 

 

Reported sales of $377.7 million.

 

Generated $78.1 million in net cash provided by operating activities. See the Financial Liquidity and Capital Resources section below for further discussion.

 

Made capital expenditures (excluding lease additions and other non-cash items) of approximately $55.8 million, including $17.8 million at Greens Creek, $21.2 million at Lucky Friday, $15.9 million at Casa Berardi and $1.2 million at the Nevada Operations.

 

Generated $22.3 million in free cash flow. A reconciliation of the non-GAAP measure free cash flow to net cash provided by operating activities, the nearest GAAP measure, is included in the Reconciliation of Cash Flows From Operating Activities (GAAP) to Free Cash Flow (Non-GAAP) section below.

 

Returned $7.0 million, or 31% of free cash flows, to our shareholders through payment of dividends.

 

Spent $24.0 million on exploration and pre-development activities.

 

Invested $21.9 million in junior mining companies, including an $11.0 investment in Alexco. See Note 12, of Notes to Condensed Consolidated Financial Statements (unaudited) regarding our proposed acquisition of Alexco.

 

Our current business strategy is to focus our financial and human resources in the following areas:

 

 

executing value enhancing transactions, such as with the proposed Alexco acquisition;

 

rapidly responding to the threats from the COVID-19 pandemic to protect our workforce, operations and communities while maintaining liquidity;

 

operating our properties safely, in an environmentally responsible and cost-effective manner;

 

maintaining and investing in exploration and pre-development projects in the vicinities of eleven mining districts and projects we believe to be under-explored and under-invested: Greens Creek on Alaska's Admiralty Island located near Juneau; North Idaho's Silver Valley in the historic Coeur d'Alene Mining District; the silver-producing district near Durango, Mexico; in the vicinity of our Casa Berardi mine and the Heva-Hosco project in the Abitibi region of northwestern Quebec, Canada; our projects located in two districts in Nevada; our projects in northwestern Montana; the Creede district of southwestern Colorado; the Kinskuch project in British Columbia, Canada; and the Republic mining district in Washington state;

 

24

 

 

improving operations at each of our mines, which includes incurring costs for new technologies and equipment;

 

expanding our proven and probable reserves, mineral resources and production capacity at our properties;

 

conducting our business with financial stewardship to preserve our financial position in varying metals price and operational environments;

 

advancing permitting of one or both of our Montana projects; and

 

continuing to seek opportunities to acquire and invest in mining and exploration properties and companies.

 

We strive to achieve excellent mine safety and health performance. We seek to implement this goal by: training employees in safe work practices; establishing, following and improving safety standards; investigating accidents, incidents and losses to avoid recurrence; involving employees in the establishment of safety standards; and participating in the National Mining Association’s CORESafety program. We seek to implement reasonable best practices with respect to mine safety and emergency preparedness. We respond to issues outlined in investigations and inspections by MSHA, the Commission of Labor Standards, Pay Equity and Occupational Health and Safety in Quebec, and the Mexico Ministry of Economy and Mining and continue to evaluate our safety practices. There can be no assurance that our practices will mitigate or eliminate all safety risks. Achieving and maintaining compliance with regulations will be challenging and may increase our operating costs. See Item 1A. Risk Factors - We face substantial governmental regulation, including the Mine Safety and Health Act, various environmental laws and regulations and the 1872 Mining Law in our 2021 Form 10-K.

 

Since its outbreak in 2020, the COVID-19 pandemic continues to impact our operational practices and we continue to incur incremental costs and modify our operational plans to keep our workforce safe. In 2020, the pandemic adversely impacted our expected production of gold at Casa Berardi and exploration drilling at Greens Creek. We incurred $0.1 million and $0.4 million in COVID-19 mitigation costs during the three and six months ended June 30, 2022 compared to $1.4 million and $3.0 million during the three and six months ended June 30, 2021, respectively. To mitigate the impact of COVID-19, we have taken precautionary measures, including implementing operational plans and practices and increasing our cash reserves. As long as they are required, the operational practices implemented could continue to have an adverse impact on our operating results due to additional costs or deferred production and revenues. There is uncertainty related to the potential additional impacts COVID-19 and any subsequent variants could have on our operations and financial results for the rest of 2022. In our 2021 Form 10-K, see Item IA. Risk Factors - Natural disasters, public health crises (including COVID-19), political crises, and other catastrophic events or other events outside of our control may materially and adversely affect our business or financial results and COVID-19 virus pandemic may heighten other risks for information on how restrictions related to COVID-19 have recently affected some of our operations.

 

A number of key factors may impact the execution of our strategy, including regulatory issues and metals prices. Metals prices can be very volatile and are influenced by a number of factors beyond our control (except on a limited basis through the use of derivative contracts). See Item 7. Critical Accounting Estimates in our 2021 Form 10-K and above in Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited). The average realized prices of gold and zinc were higher, with the average realized price for silver and lead lower, in the second three months of 2022 than in the comparable period last year, as illustrated by the table in Results of Operations below. While we believe longer-term global economic and industrial trends could result in continued demand for the metals we produce, prices have been volatile and there can be no assurance that current prices will continue.

 

Volatility in global financial markets and other factors can pose a significant challenge to our ability to access credit and equity markets, should we need to do so, and to predict sales prices for our products. To help mitigate this challenge, we utilize forward contracts to manage exposure to declines in the prices of (i) silver, gold, zinc and lead contained in our concentrates that have been shipped but have not yet settled, and (ii) zinc and lead that we forecast for future concentrate shipments. In addition, we have in place a $250 million revolving credit agreement, of which $14.9 million was used as of June 30, 2022 for letters of credit, leaving approximately $235.1 million available for borrowing.

 

Another challenge for us is the risk associated with environmental litigation and ongoing reclamation activities. As described in Item 1A. Risk Factors in our 2021 Form 10-K and above in Note 10 of Notes to Condensed Consolidated Financial Statements (Unaudited), it is possible that our estimate of these liabilities (and our ability to estimate liabilities in general) may change in the future, affecting our strategic plans. We are involved in various environmental legal matters and the estimate of our environmental liabilities and liquidity needs, as well as our strategic plans, may be significantly impacted as a result of these matters or new matters that may arise. We strive to ensure that our activities are conducted in compliance with applicable laws and regulations and attempt to resolve environmental litigation on terms as favorable to us as possible.

 

25

 

Consolidated Results of Operations

 

Sales by metal for the three- and six-month periods ended June 30, 2022 and 2021 were as follows:

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 

(in thousands)

 

2022

   

2021

   

2022

   

2021

 

Silver

  $ 70,050     $ 92,765     $ 136,382     $ 170,525  

Gold

    82,018       86,078       159,186       187,487  

Lead

    21,314       22,223       40,878       38,116  

Zinc

    31,176       30,037       66,814       59,228  

Less: smelter charges

    (13,316 )     (13,120 )     (25,519 )     (26,521 )

Sales of products

  $ 191,242     $ 217,983     $ 377,741     $ 428,835  

 

Sales by metal for the three- and six-month periods ended June 30, 2022 and 2021, and the approximate variances attributed to differences in metals prices, sales volumes and smelter terms, were as follows:

 

(in thousands)

 

Silver

   

Gold

   

Base metals

   

Less: smelter
and refining
charges

   

Total sales
of products

 

Three months ended June 30, 2021

  $ 92,765     $ 86,078     $ 52,260     $ (13,120 )   $ 217,983  

Variances - 2022 versus 2021:

                                       

Price

    (21,990 )     1,107       (1,052 )     1,360       (20,575 )

Volume

    (688 )     (5,167 )     1,282       100       (4,473 )

Smelter terms

    (37 )                 (1,656 )     (1,693 )

Three months ended June 30, 2022

  $ 70,050     $ 82,018     $ 52,490     $ (13,316 )   $ 191,242  

 

(in thousands)

 

Silver

   

Gold

   

Base metals

   

Less: smelter
and refining
charges

   

Total sales
of products

 

Six months ended June 30, 2021

  $ 170,525     $ 187,487     $ 97,344     $ (26,521 )   $ 428,835  

Variances - 2022 versus 2021:

                                       

Price

    (24,348 )     5,708       11,404       (16 )     (7,252 )

Volume

    (9,703 )     (33,924 )     (1,056 )     1,428       (43,255 )

Smelter terms

    (92 )     (85 )           (410 )     (587 )

Six months ended June 30, 2022

  $ 136,382     $ 159,186     $ 107,692     $ (25,519 )   $ 377,741  

 

The fluctuations in sales for the second quarter and first six months of 2022 compared to the same periods of 2021 were primarily due to the following two reasons:

 

 

Lower average realized prices for silver in the second quarter and first half of 2022, lower realized lead prices in the three months ended June 30, 2022, partially offset by higher realized gold and zinc prices in the second quarter and first half of 2022 and higher realized lead prices for the first half of 2022, all compared to the same periods of 2021. These price variances are illustrated in the following table:

 

26

 

     

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
     

2022

   

2021

   

2022

   

2021

 

Silver –

London PM Fix ($/ounce)

  $ 22.64     $ 26.69     $ 23.30     $ 26.49  
 

Realized price per ounce

  $ 20.68     $ 27.14     $ 22.45     $ 26.45  

Gold –

London PM Fix ($/ounce)

  $ 1,872     $ 1,816     $ 1,873     $ 1,807  
 

Realized price per ounce

  $ 1,855     $ 1,825     $ 1,867     $ 1,795  

Lead –

LME Final Cash Buyer ($/pound)

  $ 1.00     $ 0.96     $ 1.03     $ 0.94  
 

Realized price per pound

  $ 0.97     $ 1.04     $ 1.02     $ 0.99  

Zinc –

LME Final Cash Buyer ($/pound)

  $ 1.78     $ 1.32     $ 1.74     $ 1.29  
 

Realized price per pound

  $ 1.44     $ 1.35     $ 1.61     $ 1.34  

 

Average realized prices typically differ from average market prices primarily because concentrate sales are generally recorded as revenues at the time of shipment at forward prices for the estimated month of settlement, which differ from average market prices.  Due to the time elapsed between shipment of concentrates and final settlement with the customers, we must estimate the prices at which sales of our metals will be settled.  Previously recorded sales are adjusted to estimated settlement metals prices each period through final settlement.  For the second quarter and first six months of 2022, we recorded net negative price adjustments to provisional settlements of $15.7 million and $14.8 million, respectively, compared to net positive price adjustments to provisional settlements of $3.1 million and 3.6 million, respectively, in the second quarter and first six months of 2021. The price adjustments related to silver, gold, zinc and lead contained in our concentrate shipments were partially offset by gains and losses on forward contracts for those metals. See Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information.  The gains and losses on these contracts are included in revenues and impact the realized prices for silver, gold, lead and zinc.  Realized prices are calculated by dividing gross revenues for each metal (which include the price adjustments and gains and losses on the forward contracts discussed above) by the payable quantities of each metal included in concentrate, doré and carbon material shipped during the period.

 

 

Higher quantities of lead sold as a result of higher production at Lucky Friday was offset by lower silver, gold and zinc sales volumes, in the second quarter and first half of 2022 compared to 2021. See The Greens Creek Segment, The Lucky Friday Segment, The Casa Berardi Segment and The Nevada Operations Segment sections below for more information on metal production and sales volumes at each of our operating segments. Total metals production and sales volumes for each period are shown in the following table:

 

     

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
     

2022

   

2021

   

2022

   

2021

 

Silver -

Ounces produced

    3,645,454       3,524,783       6,970,162       6,984,229  
 

Payable ounces sold

    3,387,909       3,415,464       6,075,170       6,445,490  

Gold -

Ounces produced

    45,719       59,139       87,361       111,143  
 

Payable ounces sold

    44,225       47,168       85,278       104,454  

Lead -

Tons produced

    13,331       11,540       24,194       22,244  
 

Payable tons sold

    11,685       10,663       20,739       19,331  

Zinc -

Tons produced

    16,766       17,211       31,712       33,318  
 

Payable tons sold

    10,858       11,143       20,805       22,170  

 

The difference between what we report as “ounces/tons produced” and “payable ounces/tons sold” is attributable to the difference between the quantities of metals contained in the concentrates we produce versus the portion of those metals actually paid for by our customers according to the terms of our sales contracts. Differences can also arise from inventory changes incidental to shipping schedules, or variances in ore grades which impact the amount of metals contained in concentrates produced and sold.

 

27

 

Sales, total cost of sales, gross profit, Cash Cost, After By-product Credits, per Ounce (“Cash Cost”) (non-GAAP) and All-In Sustaining Cost, After By-product Credits, per Ounce (“AISC”) (non-GAAP) at our operating units for the three- and six-months ended June 30, 2022 and 2021 were as follows (in thousands, except for Cash Cost and AISC):

 

   

Silver

   

Gold

 
   

Greens

Creek

   

Lucky

Friday

   

Other

   

Total

Silver (2)

   

Casa

Berardi

   

Nevada Operations

   

Total

Gold

 

Three Months Ended June 30, 2022:

                                                       

Sales

  $ 92,723     $ 35,880     $     $ 128,603     $ 62,639     $     $ 62,639  

Total cost of sales

    (60,506 )     (30,348 )           (90,854 )     (61,870 )     (1,255 )     (63,125 )

Gross profit (loss)

  $ 32,217     $ 5,532             $ 37,749     $ 769     $ (1,255 )   $ (486 )

Cash Cost per silver or gold ounce (1)

  $ (3.29 )   $ 3.07     $     $ (1.14 )   $ 1,371           $ 1,371  

AISC per silver or gold ounce (1)

  $ 3.48     $ 9.91     $     $ 8.55     $ 1,641     $     $ 1,641  

Three Months Ended June 30, 2021:

                                                       

Sales

  $ 113,763     $ 39,645     $ 3     $ 153,411     $ 56,122     $ 8,450     $ 64,572  

Total cost of sales

    (55,488 )     (27,901 )     (1 )     (83,390 )     (54,669 )     (17,993 )     (72,662 )

Gross profit (loss)

  $ 58,275     $ 11,744     $ 2     $ 70,021     $ 1,453     $ (9,543 )   $ (8,090 )

Cash Cost per silver or gold ounce (1)

  $ (2.64 )   $ 8.07     $     $ 0.18     $ 1,199     $ 1,369     $ 1,254  

AISC per silver or gold ounce (1)

  $ 0.68     $ 14.10     $     $ 7.54     $ 1,434     $ 1,386     $ 1,419  

 

   

Silver

   

Gold

 
   

Greens

Creek

   

Lucky

Friday

   

Other

   

Total

Silver (2)

   

Casa

Berardi

   

Nevada

Operations

   

Total

Gold

 

Six Months Ended June 30, 2022:

                                                       

Sales

  $ 178,813     $ 73,920     $     $ 252,733     $ 124,740     $ 268     $ 125,008  

Total cost of sales

    (110,143 )     (59,613 )           (169,756 )     (124,038 )     (1,255 )     (125,293 )

Gross profit

  $ 68,670     $ 14,307     $     $ 82,977     $ 702     $ (987 )   $ (285 )

Cash Cost per silver or gold ounce (1)

  $ (2.09 )   $ 4.54     $     $ (0.07 )   $ 1,440     $     $ 1,440  

AISC per silver or gold ounce (1)

  $ 2.69     $ 11.27     $     $ 8.12     $ 1,721     $     $ 1,721  

Six Months Ended June 30, 2021:

                                                       

Sales

  $ 212,172     $ 68,767     $ 176     $ 281,115     $ 129,033     $ 18,687     $ 147,720  

Total cost of sales

    (108,668 )     (50,696 )     (95 )     (159,459 )     (114,596 )     (25,448 )     (140,044 )

Gross profit

  $ 103,504     $ 18,071     $ 81     $ 121,656     $ 14,437     $ (6,761 )   $ 7,676  

Cash Cost per silver or gold ounce (1)

  $ (1.65 )   $ 7.85     $     $ 0.79     $ 1,106     $ 1,371     $ 1,161  

AISC per silver or gold ounce (1)

  $ 1.14     $ 14.17     $     $ 7.38     $ 1,347     $ 1,393     $ 1,357  

 

 

(1)

A reconciliation of these non-GAAP measures to total cost of sales, the most comparable GAAP measure, can be found below in Reconciliation of Total Cost of Sales (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP).

 

 

(2)

The calculation of AISC, After By-product Credits, Per Ounce for our consolidated silver properties includes corporate costs for general and administrative expense and sustaining exploration and capital costs.

 

28

 

While revenue from zinc, lead and gold by-products is significant, we believe that identification of silver as the primary product of Greens Creek and Lucky Friday is appropriate because:

 

 

silver has historically accounted for a higher proportion of revenue than any other metal and is expected to do so in the future;

 

we have historically presented these units as a primary silver producer, based on the original analysis that justified putting the project into production, and believe that consistency in disclosure is important to our investors regardless of the relationships of metals prices and production from year to year;

 

metallurgical treatment maximizes silver recovery;

 

the Greens Creek and Lucky Friday deposits are massive sulfide deposits containing an unusually high proportion of silver; and in most of their working areas, Greens Creek and Lucky Friday utilize selective mining methods in which silver is the metal targeted for highest recovery.

 

Accordingly, we believe the identification of gold, lead and zinc as by-product credits at Greens Creek and Lucky Friday is appropriate because of their lower economic value compared to silver and due to the fact that silver is the primary product we intend to produce. In addition, we have not consistently received sufficient revenue from any single by-product metal to warrant classification of such as a co-product.

 

We periodically review our revenues to ensure that reporting of primary products and by-products is appropriate. Because for Greens Creek, Lucky Friday and San Sebastian we consider zinc, lead and gold to be by-products of our silver production, the values of these metals offset operating costs within our calculations of Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce.

 

We believe the identification of silver as a by-product credit is appropriate at Casa Berardi and Nevada Operations because of its lower economic value compared to gold and due to the fact that gold is the primary product we intend to produce there. In addition, we do not receive sufficient revenue from silver at Casa Berardi to warrant classification of such as a co-product. Because we consider silver to be a by-product of our gold production at Casa Berardi and Nevada Operations, the value of silver offsets operating costs within our calculations of Cash Cost, After By-product Credits, per Gold Ounce and AISC, After By-product Credits, per Gold Ounce.

 

For the second quarter we recorded loss applicable to common shareholders of $13.7 million (($0.03) per basic common share) compared to income applicable to common shareholders of $2.6 million (($0.01) per basic common share) in the second quarter of 2021. The variances in gross profit (loss) at our operating units as illustrated in the table above contributed to the results for the second quarter of 2022 compared to the same period in 2021. See The Greens Creek Segment, The Lucky Friday Segment, The Casa Berardi Segment and The Nevada Operations Segment sections below.

 

The impact of the lower gross profit in the period was partially offset by:

 

 

General and administrative expense decreased by $1.4 million primarily due to the lower value of the annual directors share grant reflecting a lower issuance date share price and lower number of shares issued following the retirement of two directors in May 2022.

 

Other operating expense decreased by $1.7 million primarily due to the receipt of $1.7 million in insurance proceeds related to a coverage lawsuit received during June 2022.

 

Net foreign exchange gains of $4.5 million versus a net loss of $1.9 million reflecting the depreciation of the CAD against the USD in 2022 versus an appreciation in 2021. The variances are primarily related to the impact of changes in the CAD-to-USD exchange rate on the remeasurement of our net monetary liabilities in Quebec.

 

Fair value adjustments, net were $1.6 million less than in the comparable quarter (see Note 9 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information).

 

29

 

For the first six months of 2022, we recorded loss applicable to common shareholders of $9.6 million ($0.02 per basic common share) compared to income applicable to common shareholders of $23.9 million ($0.04 per basic common share) in the first six months of 2021. The following factors contributed to the results for the first six months of 2022 compared to the same period in 2021:

 

 

Variances in gross profit (loss) at our operating units as illustrated in the table above. See The Greens Creek Segment, The Lucky Friday Segment, The Casa Berardi Segment, and The Nevada Operations Segment sections below.

 

Exploration and pre-development expense increased by $6.1 million reflecting increased exploration spending across the Company's exploration portfolio primarily at San Sebastian, Casa Berardi, Greens Creek and the Nevada Operations. Pre-development expense was for the development of a decline to the Hatter Graben area at the Hollister mine in Nevada.

 

Care and maintenance costs increased by $1.3 million due to the suspension of production at the Nevada Operations.

 

The impact of these factors in the period was partially offset by:

 

 

General and administrative expense decreased by $1.1 million primarily due to the lower value of the annual directors share grant reflecting a lower issuance date share price and lower number of shares issued following the retirement of two directors in May 2022.

 

Other operating expense decreased by $2.9 million primarily due to the receipt of $1.7 million in insurance proceeds related to a coverage lawsuit received during June 2022 and completion of projects to identify and implement potential operational improvements at Casa Berardi and Lucky Friday in 2021. A similar project is being undertaken at Greens Creek in 2022.

 

Net foreign exchange gains of $2.4 million in the first half of 2022 versus a net loss of $4.0 million, in the first half of 2021, reflecting the depreciation of the CAD against the USD in 2022 versus an appreciation in 2021. The variances are primarily related to the impact of changes in the CAD-to-USD exchange rate on the remeasurement of our net monetary liabilities in Quebec.

 

Provision for closed operations and environmental matters decreased by $2.4 million in the first half of 2022 compared to the first half of 2021 primarily due to a $2.9 million increase in the accrual for estimated costs at the Johnny M site in New Mexico in the first quarter of 2021 (see Note 10 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information).

 

30

 

The Greens Creek Segment

 

Dollars are in thousands (except per ounce and per ton amounts)

 

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Sales

  $ 92,723     $ 113,763     $ 178,813     $ 212,172  

Cost of sales and other direct production costs

    (46,877 )     (40,996 )     (85,094 )     (79,355 )

Depreciation, depletion and amortization

    (13,629 )     (14,492 )     (25,049 )     (29,313 )

Total cost of sales

    (60,506 )     (55,488 )     (110,143 )     (108,668 )

Gross profit

  $ 32,217     $ 58,275     $ 68,670     $ 103,504  

Tons of ore milled

    209,558       214,931       421,245       409,011  

Production:

                               

Silver (ounces)

    2,410,598       2,558,447       4,840,380       5,143,317  

Gold (ounces)

    12,413       12,859       23,815       26,125  

Zinc (tons)

    13,396       14,610       25,890       27,964  

Lead (tons)

    5,184       5,627       10,067       10,551  

Payable metal quantities sold:

                               

Silver (ounces)

    2,266,001       2,471,833       4,038,392       4,719,107  

Gold (ounces)

    10,552       11,820       18,474       22,367  

Zinc (tons)

    8,495       9,215       16,587       18,311  

Lead (tons)

    4,251       4,619       7,314       8,264  

Ore grades:

                               

Silver ounces per ton

    14.02       14.52       13.93       15.23  

Gold ounces per ton

    0.08       0.08       0.08       0.09  

Zinc percent

    7.2 %     7.6 %     6.9 %     7.6 %

Lead percent

    3.0 %     3.1 %     2.9 %     3.1 %

Total production cost per ton

  $ 197.84     $ 171.13     $ 194.98     $ 176.58  

Cash Cost, After By-product Credits, Per Silver Ounce (1)

  $ (3.29 )   $ (2.64 )   $ (2.09 )   $ (1.65 )

AISC, After By-Product Credits, per Silver Ounce (1)

  $ 3.48     $ 0.68     $ 2.69     $ 1.14  

Capital additions

  $ 14,668     $ 6,339       17,760       11,231  

 

 

(1)

A reconciliation of these non-GAAP measures to total cost of sales, the most comparable GAAP measure, can be found below in Reconciliation of Total Cost of Sales (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP).

 

The $26.1 million and $34.8 million decreases in gross profit for the second quarter and first six months of 2022, respectively, compared to the same periods of 2021 were primarily due to: (i) lower payable metals sold for all metals produced reflecting lower grade material mined and processed, (ii) lower realized prices for silver and lead, partially offset by higher gold and zinc realized prices, and (iii) higher production costs reflecting the impact of more lower grade material processed and inflationary cost increases in consumables, labor and contractor costs.

 

31

 

The charts below illustrate the factors contributing to the variances in Cash Cost, After By-product Credits, Per Silver Ounce for the second quarter and first six months of 2022 compared to the same periods of 2021.

 

a1.jpg

 

a2.jpg

 

32

 

The following table summarizes the components of Cash Cost, After By-product Credits, per Silver Ounce:

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Cash Cost, Before By-product Credits, per Silver Ounce

  $ 22.21     $ 19.08     $ 22.01     $ 19.03  

By-product credits

    (25.50 )     (21.72 )     (24.10 )     (20.68 )

Cash Cost, After By-product Credits, per Silver Ounce

  $ (3.29 )   $ (2.64 )   $ (2.09 )   $ (1.65 )

 

The following table summarizes the components of AISC, After By-product Credits, per Silver Ounce:

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2022

   

2021

   

2022

   

2021

 

AISC, Before By-product Credits, per Silver Ounce

  $ 28.98     $ 22.40     $ 26.79     $ 21.82  

By-product credits

    (25.50 )     (21.72 )     (24.10 )     (20.68 )

AISC, After By-product Credits, per Silver Ounce

  $ 3.48     $ 0.68     $ 2.69     $ 1.14  

 

The decrease in Cash Cost, After By-product Credits, per Silver Ounce for the second quarter and first six months of 2022 compared to 2021 was primarily due to higher by-product credits.

 

The increase in AISC, After By-product Credits, per Silver Ounce for the second quarter and first six months of 2022 compared to 2021 was primarily due to higher sustaining capital of $14.7 million and $20.6 million for the second quarter and first six months of 2022, respectively,  compared to $6.3 million and $11.2 million in 2021, reflecting the costs being incurred on camp construction and higher definition and development drilling during 2022 compared to 2021.

 

33

 

The Lucky Friday Segment

 

Dollars are in thousands (except per ounce and per ton amounts)

 

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Sales

  $ 35,880     $ 39,645     $ 73,920     $ 68,767  

Cost of sales and other direct production costs

    (21,486 )     (20,499 )     (42,719 )     (36,958 )

Depreciation, depletion and amortization

    (8,862 )     (7,402 )     (16,894 )     (13,738 )

Total cost of sales

    (30,348 )     (27,901 )     (59,613 )     (50,696 )

Gross profit

  $ 5,532     $ 11,744     $ 14,307     $ 18,071  

Tons of ore milled

    97,497       82,442       175,222       163,513  

Production:

                               

Silver (ounces)

    1,226,477       913,294       2,114,335       1,777,195  

Lead (tons)

    8,147       5,913       14,127       11,693  

Zinc (tons)

    3,370       2,601       5,822       5,354  

Payable metal quantities sold:

                               

Silver (ounces)

    1,121,712       934,258       2,021,166       1,698,081  

Lead (tons)

    7,434       6,045       13,425       11,067  

Zinc (tons)

    2,362       1,929       4,217       3,859  

Ore grades:

                               

Silver ounces per ton

    13.17       11.60       12.67       11.39  

Lead percent

    8.81 %     7.55 %     8.52 %     7.53 %

Zinc percent

    3.90 %     3.44 %     3.77 %     3.57 %

Total production cost per ton

  $ 211.45     $ 199.48     $ 227.30     $ 188.30  

Cash Cost, After By-product Credits, per Silver Ounce (1)

  $ 3.07     $ 8.07     $ 4.54     $ 7.85  

AISC, After By-product Credits, per Silver Ounce (1)

  $ 9.91     $ 14.10     $ 11.27     $ 14.17  

Capital additions

  $ 11,501     $ 5,731     $ 21,153     $ 11,643  

 

 

(1)

A reconciliation of these non-GAAP measures to total cost of sales, the most comparable GAAP measure, can be found below in Reconciliation of Total Cost of Sales (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP).

 

Gross profit for the three months ended June 30, 2022 decreased by $6.2 million compared to the comparable period in 2021, as the impact of increased sales from mining and processing more high grade material and volumes thereof did not offset the combination of lower realized silver and lead prices compared to 2021, and increased production costs from more ore mined and processed and inflationary cost increases in consumables and contractor maintenance costs. Gross profit for the six month period June 30, 2022 decreased by $3.8 million compared to the comparable period in 2021, as increased sales from a combination of mining and processing more high grade material and higher volumes did not offset the impact of lower silver and lead realized prices and higher production costs.     

 

34

 

The charts below illustrate the factors contributing to Cash Cost, After By-product Credits, Per Silver Ounce for the second quarter and first six months of 2022 compared to the same periods of 2021.

 

a3.jpg
 
a4.jpg

 

35

 

The following table summarizes the components of Cash Cost, After By-product Credits, per Silver Ounce:

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Cash Cost, Before By-product Credits, per Silver Ounce

  $ 21.65     $ 25.49     $ 23.74     $ 24.97  

By-product credits

    (18.58 )     (17.42 )     (19.20 )     (17.12 )

Cash Cost, After By-product Credits, per Silver Ounce

  $ 3.07     $ 8.07     $ 4.54     $ 7.85  

 

The following table summarizes the components of AISC, After By-product Credits, per Silver Ounce:

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2022

   

2021

   

2022

   

2021

 

AISC, Before By-product Credits, per Silver Ounce

  $ 28.49     $ 31.52     $ 30.47     $ 31.29  

By-product credits

    (18.58 )     (17.42 )     (19.20 )     (17.12 )

AISC, After By-product Credits, per Silver Ounce

  $ 9.91     $ 14.10       11.27     $ 14.17  

 

The decrease in Cash Cost and AISC, After By-product Credits, per Silver Ounce for the three and six month periods ended June 30, 2022 compared to the three and six month periods ended June 30,  2021 was due to higher silver production resulting from increased grades and volumes processed, higher by-product credits due to higher realized zinc prices, and concentrate quality improvement resulting in higher lead and zinc production, with AISC, After By-product Credits, per Silver Ounce partially offset by higher sustaining capital spending. 

 

The Casa Berardi Segment

 

Dollars are in thousands (except per ounce and per ton amounts)

 

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Sales

  $ 62,639     $ 56,122     $ 124,740     $ 129,033  

Cost of sales and other direct production costs

    (46,411 )     (36,430 )     (92,733 )     (73,405 )

Depreciation, depletion and amortization

    (15,459 )     (18,239 )     (31,305 )     (41,191 )

Total cost of sales

    (61,870 )     (54,669 )     (124,038 )     (114,596 )

Gross profit

  $ 769     $ 1,453     $ 702     $ 14,437  

Tons of ore milled

    401,618       374,683       787,771       743,086  

Production:

                               

Gold (ounces)

    33,306       31,333       63,546       67,523  

Silver (ounces)

    8,379       7,917       15,447       18,592  

Payable metal quantities sold:

                               

Gold (ounces)

    33,672       30,615       66,738       71,484  

Silver (ounces)

    196       8,059       9,250       16,774  

Ore grades:

                               

Gold ounces per ton

    0.10       0.10       0.09       0.11  

Silver ounces per ton

    0.02       0.03       0.02       0.03  

Total production cost per ton

  $ 113.07     $ 99.36     $ 115.46     $ 99.52  

Cash Cost, After By-product Credits, per Gold Ounce (1)

  $ 1,371     $ 1,199     $ 1,440     $ 1,106  

AISC, After By-product Credits, per Gold Ounce (1)

  $ 1,641     $ 1,434     $ 1,721     $ 1,347  

Capital additions

  $ 8,093     $ 12,153     $ 15,901     $ 26,000  

 

 

(1)

A reconciliation of these non-GAAP measures to total cost of sales, the most comparable GAAP measure, can be found below in Reconciliation of Total Cost of Sales (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP).

 

36

 

Gross profit decreased by $0.7 million and $13.7 million for the second quarter and first half of 2022, respectively, compared to the same periods of 2021. The decrease for the second quarter and first half of 2022 was due to higher cost of sales resulting from increased production costs due to: (i) higher ore tonnage, (ii) mill contractor costs related to maintenance and optimization activities, (iii) higher underground maintenance costs resulting from repairs and replacements of major components for the production fleet and (iv) higher fuel and other consumables costs which have been negatively impacted by current inflationary pressures. The impact of higher costs of sales was partially offset by increased sales due to higher average realized gold prices and volume in the second quarter of 2022. Lower sales volume in the first half of 2022 compared to 2021 due to lower grades mined and processed meant gross profit was not favorably impacted by higher realized prices in the period.

 

Total capital additions decreased by $4.1 million and $10.1 million in the second quarter of 2022 and first half of 2022 respectively, compared to the same periods of 2021, reflecting lower development costs following commissioning of the new 160 zone open pit mine in the fourth quarter of 2021.

 

The charts below illustrate the factors contributing to Cash Cost, After By-product Credits, Per Gold Ounce for the second quarter and first half of 2022 and 2021:

 

pic5.jpg

 

37

 

pic6.jpg

 

The following table summarizes the components of Cash Cost, After By-product Credits, per Gold Ounce:

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Cash Cost, Before By-product Credits, per Gold Ounce

  $ 1,377     $ 1,206     $ 1,446     $ 1,113  

By-product credits

    (6 )     (7 )     (6 )     (7 )

Cash Cost, After By-product Credits, per Gold Ounce

  $ 1,371     $ 1,199     $ 1,440     $ 1,106  

 

The following table summarizes the components of AISC, After By-product Credits, per Gold Ounce:

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2022

   

2021

   

2022

   

2021

 

AISC, Before By-product Credits, per Gold Ounce

  $ 1,647     $ 1,441     $ 1,727     $ 1,354  

By-product credits

    (6 )     (7 )     (6 )     (7 )

AISC, After By-product Credits, per Gold Ounce

  $ 1,641     $ 1,434     $ 1,721     $ 1,347  

 

The increase in Cash Cost After By-product Credits, per Gold Ounce for the second quarter and first half of 2022 compared to the same periods in 2021 was primarily due to higher production costs, as discussed above, partially offset by higher gold production in the second quarter of 2022 compared with the same period in 2021. The lower production in 2022 also negatively impacted AISC, After By-product Credits, per Gold Ounce, however this was partially offset by lower sustaining capital spent in 2022 compared to 2021.

 

38

 

The Nevada Operations Segment

 

Dollars are in thousands (except per ounce and per ton amounts)

 

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Sales

  $     $ 8,450     $ 268     $ 18,687  

Cost of sales and other direct production costs

    (1,133 )     (12,394 )     (1,133 )     (17,216 )

Depreciation, depletion and amortization

    (122 )     (5,599 )     (122 )     (8,232 )

Total cost of sales

    (1,255 )     (17,993 )     (1,255 )     (25,448 )

Gross (loss)

  $ (1,255 )   $ (9,543 )   $ (987 )   $ (6,761 )

Tons of ore milled

          38,947             55,406  

Production:

                               

Gold (ounces)

          14,947             17,495  

Silver (ounces)

          45,125               45,125  

Payable metal quantities sold:

                               

Gold (ounces)

          4,732       65       10,555  

Silver (ounces)

          1,214       6,363       8,035  

Ore grades:

                               

Gold ounces per ton

          0.410       0.343       0.343  

Silver ounces per ton

          1.24       0.88       0.88  

Production cost per ton

  $     $ 161.5     $ 220.68     $ 220.68  

Cash Cost, After By-product Credits, per Gold Ounce (1)

          $ 1,369     $     $ 1,371  

AISC, After By-product Credits, per Gold Ounce (1)

  $     $ 1,386     $     $ 1,393  

Capital additions

  $ 297     $ 77     $ 1,173     $ 166  

 

 

(1)

A reconciliation of these non-GAAP measures to total cost of sales, the most comparable GAAP measure, can be found below in Reconciliation of Total Cost of Sales (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP).

 

The decreases in gross loss for the second quarter and first half of 2022 compared to the same periods of 2021 were primarily the result of lower sales volumes and lower write-downs of ore stockpiled to estimated net realizable value. Development ceased at Fire Creek in the second quarter of 2019 when the decision was made to limit near-term production to areas of the mine where development was already completed. Mining of non-refractory ore at Fire Creek in areas where development had already been performed was completed in the fourth quarter of 2020. During 2021, production and revenue were generated from processing of the stockpiled non-refractory ore at the Midas mill and third-party processing of refractory ore in a roaster and autoclave facility, respectively. Fire Creek was placed on care-and-maintenance in the second quarter of 2021 after processing of the remaining non-refractory ore stockpile.

 

Exploration activities and pre-development activities related to the Hatter Graben area at Hollister are ongoing. Care and maintenance costs are reported in a separate line item on our consolidated statements of operations and excluded from the calculations of cost of sales and other direct production costs and depreciation, depletion and amortization, total production costs per ton and Cash Cost and AISC, After By-product Credits, per Gold Ounce.

 

39

 

See Item 1A. Risk Factors - Operation, Development, Exploration and Acquisition Risks in our 2021 Form 10-K for a discussion of certain risks relating to our recent and ongoing analysis of the carrying value of the Nevada assets.

 

 

Corporate Matters

 

Employee Benefit Plans

 

Our defined benefit pension plans provide a significant benefit to our employees, but represent a significant liability to us. The liability recorded for the underfunded status of our plans was $4.7 million and $6.0 million as of June 30, 2022 and December 31, 2021, respectively. During May 2022, we contributed $5.6 million in shares of our common stock to two of our defined benefit plans. We do not expect to make additional contributions to our defined benefit pension plans in 2022, but may choose to do so. While the economic variables which will determine future funding requirements are uncertain, we expect contributions to continue to be required in future years under current plan provisions, and we periodically examine the plans for affordability and competitiveness. See Note 6 of Notes to Consolidated Financial Statements in our 2021 Form 10-K for more information.

 

Income Taxes

 

During the second quarter and first six months of 2022, an income and mining tax provision of approximately $0.3 million and $5.9 million resulted in an effective tax rate of 1.9% and 168.9% for the respective  periods. This compares to an income and mining tax benefit of $4.1 million and provision of $0.6 million for the second quarter and first six months of 2021, or an effective tax rate of 298.3% and 2.5%, for the respective periods. The comparability of our income and mining tax (provision) benefit and effective tax rate for the reported periods was impacted by multiple factors, primarily: (i) mining taxes; (ii) variations in our income before income taxes; (iii) geographic distribution of that income; (iv) foreign exchange rates including non-recognition of foreign exchange gains and losses; (v) percentage depletion; and (vi) the non-recognition of tax assets. The effective tax rate will fluctuate, sometimes significantly, period to period. For the period ended March 31, 2022, we used the annual effective tax rate method to calculate the tax provision, a change from the discrete method used for the period ended March 31, 2021, due to reversal of valuation allowance in the fourth quarter of 2021. 

 

Each reporting period we assess our deferred tax balances based on a review of long-range forecasts and quarterly activity. A valuation allowance is provided for deferred tax assets for which it is more likely than not the related tax benefits will not be realized. We analyze our deferred tax assets and, if it is determined that we will not realize all or a portion of our deferred tax assets, we will record or increase a valuation allowance. Conversely, if it is determined we will ultimately more likely than not be able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced. There are a number of factors that impact our ability to realize our deferred tax assets. Valuation allowances are provided on deferred tax assets in our Nevada, Mexico, and certain Canadian jurisdictions. For additional information, please see Item 1A - Risk Factors in our 2021 Form 10-K.

 

Reconciliation of Total Cost of Sales to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP)

 

The tables below present reconciliations between the most comparable GAAP measure of total cost of sales to the non-GAAP measures of (i) Cash Cost, Before By-product Credits, (ii) Cash Cost, After By-product Credits, (iii) AISC, Before By-product Credits and (iv) AISC, After By-product Credits for our operations and for the Company for the three- and six-month periods ended June 30, 2022 and 2021.

 

Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce are measures developed by precious metals companies (including the Silver Institute and the World Gold Council) in an effort to provide a uniform standard for comparison purposes. There can be no assurance, however, that these non-GAAP measures as we report them are the same as those reported by other mining companies.

 

40

 

Cash Cost, After By-product Credits, per Ounce is an important operating statistic that we utilize to measure each mine's operating performance. We use AISC, After By-product Credits, per Ounce as a measure of our mines' net cash flow after costs for exploration, pre-development, reclamation, and sustaining capital. This is similar to the Cash Cost, After By-product Credits, per Ounce non-GAAP measure we report, but also includes on-site exploration, reclamation, and sustaining capital costs. Current GAAP measures used in the mining industry, such as cost of goods sold, do not capture all the expenditures incurred to discover, develop and sustain silver and gold production. Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce also allow us to benchmark the performance of each of our mines versus those of our competitors. As a silver and gold mining company, we also use these statistics on an aggregate basis - aggregating the Greens Creek and Lucky Friday mines to compare our performance with that of other silver mining companies, and aggregating Casa Berardi and Nevada Operations for comparison with other gold mining companies. Similarly, these statistics are useful in identifying acquisition and investment opportunities as they provide a common tool for measuring the financial performance of other mines with varying geologic, metallurgical and operating characteristics.

 

Cash Cost, Before By-product Credits and AISC, Before By-product Credits include all direct and indirect operating cash costs related directly to the physical activities of producing metals, including mining, processing and other plant costs, third-party refining expense, on-site general and administrative costs, royalties and mining production taxes. AISC, Before By-product Credits for each mine also includes on-site exploration, reclamation, and sustaining capital costs. AISC, Before By-product Credits for our consolidated silver properties also includes corporate costs for general and administrative expense and sustaining exploration and capital costs. By-product credits include revenues earned from all metals other than the primary metal produced at each unit. As depicted in the tables below, by-product credits comprise an essential element of our silver unit cost structure, distinguishing our silver operations due to the polymetallic nature of their orebodies.

 

In addition to the uses described above, Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce provide management and investors an indication of operating cash flow, after consideration of the average price received from production. We also use these measurements for the comparative monitoring of performance of our mining operations period-to-period from a cash flow perspective. 

 

The Casa Berardi, Nevada Operations and combined gold properties information below reports Cash Cost, After By-product Credits, per Gold Ounce and AISC, After By-product Credits, per Gold Ounce for the production of gold, their primary product, and by-product revenues earned from silver, which is a by-product at Casa Berardi and Nevada Operations. Only costs and ounces produced relating to units with the same primary product are combined to represent Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce. Thus, the gold produced at our Casa Berardi and Nevada Operations units is not included as a by-product credit when calculating Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce for the total of Greens Creek and Lucky Friday, our combined silver properties. Similarly, the silver produced at our other two units is not included as a by-product credit when calculating the gold metrics for Casa Berardi and Nevada Operations.

 

41

 

In thousands (except per ounce amounts)

 

Three Months Ended June 30, 2022

 
   

Greens

Creek

   

Lucky

Friday

   

Corporate(2)

   

Total

Silver

 

Total cost of sales

  $ 60,506     $ 30,348     $     $ 90,854  

Depreciation, depletion and amortization

    (13,629 )     (8,862 )           (22,491 )

Treatment costs

    8,778       4,803             13,581  

Change in product inventory

    (1,102 )     503             (599 )

Reclamation and other costs

    (1,005 )     (256 )           (1,261 )

Cash Cost, Before By-product Credits (1)

    53,548       26,536               80,084  

Reclamation and other costs

    705       282             987  

Sustaining exploration

    929             769       1,698  

Sustaining capital

    14,668       8,110       99       22,877  

General and administrative

                    9,692       9,692  

AISC, Before By-product Credits (1)

    69,850       34,928       10,560       115,338  

By-product credits:

                               

Zinc

    (32,828 )     (8,227 )           (41,055 )

Gold

    (20,364 )                 (20,364 )

Lead

    (8,271 )     (14,543 )           (22,814 )

Total By-product credits

    (61,463 )     (22,770 )           (84,233 )

Cash Cost, After By-product Credits

  $ (7,915 )   $ 3,766     $     $ (4,149 )

AISC, After By-product Credits

  $ 8,387     $ 12,158     $ 10,560     $ 31,105  

Divided by ounces produced

    2,410       1,226               3,636  

Cash Cost, Before By-product Credits, per Ounce

  $ 22.21     $ 21.65             $ 22.03  

By-product credits per ounce

    (25.50 )     (18.58 )             (23.17 )

Cash Cost, After By-product Credits, per Ounce

  $ (3.29 )   $ 3.07             $ (1.14 )

AISC, Before By-product Credits, per Ounce

  $ 28.98     $ 28.49             $ 31.85  

By-product credits per ounce

    (25.50 )     (18.58 )             (23.17 )

AISC, After By-product Credits, per Ounce

  $ 3.48     $ 9.91             $ 8.68  

 

42

 

In thousands (except per ounce amounts)

 

Three months ended

June 30, 2022

 
   

Casa

Berardi

   

Total

Gold

 

Total cost of sales

  $ 61,870     $ 61,870  

Depreciation, depletion and amortization

    (15,459 )     (15,459 )

Treatment costs

    457       457  

Change in product inventory

    (793 )     (793 )

Reclamation and other costs

    (209 )     (209 )

Cash Cost, Before By-product Credits (1)

    45,866       45,866  

Reclamation and other costs

    209       209  

Sustaining exploration

    1,178       1,178  

Sustaining capital

    7,597       7,597  

AISC, Before By-product Credits (1)

    54,850       54,850  

By-product credits:

               

Silver

    (188 )     (188 )

Total By-product credits

    (188 )     (188 )

Cash Cost, After By-product Credits

  $ 45,678     $ 45,678  

AISC, After By-product Credits

  $ 54,662     $ 54,662  

Divided by ounces produced

    33       33  

Cash Cost, Before By-product Credits, per Ounce

  $ 1,377     $ 1,377  

By-product credits per ounce

    (6 )     (6 )

Cash Cost, After By-product Credits, per Ounce

  $ 1,371     $ 1,371  

AISC, Before By-product Credits, per Ounce

  $ 1,647     $ 1,647  

By-product credits per ounce

    (6 )     (6 )

AISC, After By-product Credits, per Ounce

  $ 1,641     $ 1,641  

 

43

 

In thousands (except per ounce amounts)

 

Three months ended June 30, 2022

 
   

Total Silver

   

Total Gold

   

Total

 

Total cost of sales

  $ 90,854     $ 61,870     $ 152,724  

Depreciation, depletion and amortization

    (22,491 )     (15,459 )     (37,950 )

Treatment costs

    13,581       457       14,038  

Change in product inventory

    (599 )     (793 )     (1,392 )

Reclamation and other costs

    (1,261 )     (209 )     (1,470 )

Cash Cost, Before By-product Credits (1)

    80,084       45,866       125,950  

Reclamation and other costs

    987       209       1,196  

Sustaining exploration

    1,698       1,178       2,876  

Sustaining capital

    22,877       7,597       30,474  

General and administrative

    9,692             9,692  

AISC, Before By-product Credits (1)

    115,338       54,850       170,188  

By-product credits:

                       

Zinc

    (41,055 )           (41,055 )

Gold

    (20,364 )           (20,364 )

Lead

    (22,814 )           (22,814 )

Silver

          (188 )     (188 )

Total By-product credits

    (84,233 )     (188 )     (84,421 )

Cash Cost, After By-product Credits

  $ (4,149 )   $ 45,678     $ 41,529  

AISC, After By-product Credits

  $ 31,105     $ 54,662     $ 85,767  

Divided by ounces produced

    3,636       33          

Cash Cost, Before By-product Credits, per Ounce

  $ 22.03     $ 1,377          

By-product credits per ounce

    (23.17 )     (6 )        

Cash Cost, After By-product Credits, per Ounce

  $ (1.14 )   $ 1,371          

AISC, Before By-product Credits, per Ounce

  $ 31.72     $ 1,647          

By-product credits per ounce

    (23.17 )     (6 )        

AISC, After By-product Credits, per Ounce

  $ 8.55     $ 1,641          

 

 

44

 

In thousands (except per ounce amounts)

 

Three Months Ended June 30, 2021

 
   

Greens

Creek

   

Lucky

Friday

   

Corporate

and other( 2)

   

Total

Silver

 

Total cost of sales

  $ 55,488     $ 27,901     $ 1     $ 83,390  

Depreciation, depletion and amortization

    (14,492 )     (7,402 )           (21,894 )

Treatment costs

    8,924       4,686             13,610  

Change in product inventory

    (435 )     (1,596 )           (2,031 )

Reclamation and other costs

    (672 )     (325 )     (1 )     (998 )

Cash Cost, Before By-product Credits (1)

    48,813       23,264             72,077  

Reclamation and other costs

    847       264             1,111  

Sustaining exploration

    1,300             450       1,750  

Sustaining capital

    6,339       5,244             11,583  

General and administrative

                    11,104       11,104  

AISC, Before By-product Credits (1)

    57,299       28,772       11,554       97,625  

By-product credits:

                               

Zinc

    (26,510 )     (5,093 )           (31,603 )

Gold

    (20,438 )                 (20,438 )

Lead

    (8,605 )     (10,799 )           (19,404 )

Total By-product credits

    (55,553 )     (15,892 )           (71,445 )

Cash Cost, After By-product Credits

  $ (6,740 )   $ 7,372           $ 632  

AISC, After By-product Credits

  $ 1,746     $ 12,880       11,554     $ 26,180  

Divided by ounces produced

    2,558       913               3,471  

Cash Cost, Before By-product Credits, per Ounce

  $ 19.08     $ 25.49             $ 20.76  

By-product credits per ounce

    (21.72 )     (17.42 )             (20.58 )

Cash Cost, After By-product Credits, per Ounce

  $ (2.64 )   $ 8.07             $ 0.18  

AISC, Before By-product Credits, per Ounce

  $ 22.40     $ 31.52             $ 28.12  

By-product credits per ounce

    (21.72 )     (17.42 )             (20.58 )

AISC, After By-product Credits, per Ounce

  $ 0.68     $ 14.10             $ 7.54  

 

45

 

In thousands (except per ounce amounts)

 

Three Months Ended June 30, 2021

 
   

Casa

Berardi

   

Nevada

Operations

   

Total

Gold

 

Total cost of sales

  $ 54,669     $ 17,993     $ 72,662  

Depreciation, depletion and amortization

    (18,239 )     (5,599 )     (23,838 )

Treatment costs

    535       1,719       2,254  

Change in product inventory

    1,015       12,583       13,598  

Reclamation and other costs

    (215 )     (218 )     (433 )

Exclusion of Nevada Operations costs

          (4,914 )     (4,914 )

Cash Cost, Before By-product Credits (1)

    37,765       21,564       59,329  

Reclamation and other costs

    215       218       433  

Sustaining exploration

    1,103             1,103  

Sustaining capital

    6,064       44       6,108  

AISC, Before By-product Credits (1)

    45,147       21,826       66,973  

By-product credits:

                       

Silver

    (209 )     (1,103 )     (1,312 )

Total By-product credits

    (209 )     (1,103 )     (1,312 )

Cash Cost, After By-product Credits

  $ 37,556     $ 20,461     $ 58,017  

AISC, After By-product Credits

  $ 44,938     $ 20,723     $ 65,661  

Divided by ounces produced

    31       15       46  

Cash Cost, Before By-product Credits, per Ounce

  $ 1,206     $ 1,443     $ 1,282  

By-product credits per ounce

    (7 )     (74 )     (28 )

Cash Cost, After By-product Credits, per Ounce

  $ 1,199     $ 1,369     $ 1,254  

AISC, Before By-product Credits, per Ounce

  $ 1,441     $ 1,460     $ 1,447  

By-product credits per ounce

    (7 )     (74 )     (28 )

AISC, After By-product Credits, per Ounce

  $ 1,434     $ 1,386     $ 1,419  

 

46

 

In thousands (except per ounce amounts)

 

Three Months Ended June 30, 2021

 
   

Total

Silver

   

Total

Gold

   

Total

 

Total cost of sales

  $ 83,390     $ 72,662     $ 156,052  

Depreciation, depletion and amortization

    (21,894 )     (23,838 )     (45,732 )

Treatment costs

    13,610       2,254       15,864  

Change in product inventory

    (2,031 )     13,598       11,567  

Reclamation and other costs

    (998 )     (433 )     (1,431 )

Exclusion of Nevada Operations costs

          (4,914 )     (4,914 )

Cash Cost, Before By-product Credits (1)

    72,077       59,329       131,406  

Reclamation and other costs

    1,111       433       1,544  

Sustaining exploration

    1,750       1,103       2,853  

Sustaining capital

    11,583       6,108       17,691  

General and administrative

    11,104             11,104  

AISC, Before By-product Credits (1)

    97,625       66,973       164,598  

By-product credits:

                       

Zinc

    (31,603 )           (31,603 )

Gold

    (20,438 )           (20,438 )

Lead

    (19,404 )           (19,404 )

Silver

          (1,312 )     (1,312 )

Total By-product credits

    (71,445 )     (1,312 )     (72,757 )

Cash Cost, After By-product Credits

  $ 632     $ 58,017     $ 58,649  

AISC, After By-product Credits

  $ 26,180     $ 65,661     $ 91,841  

Divided by ounces produced

    3,471       46          

Cash Cost, Before By-product Credits, per Ounce

  $ 20.76     $ 1,282          

By-product credits per ounce

    (20.58 )     (28 )        

Cash Cost, After By-product Credits, per Ounce

  $ 0.18     $ 1,254          

AISC, Before By-product Credits, per Ounce

  $ 28.12     $ 1,447          

By-product credits per ounce

    (20.58 )     (28 )        

AISC, After By-product Credits, per Ounce

  $ 7.54     $ 1,419          

 

47

 

In thousands (except per ounce amounts)

 

Six Months Ended June 30, 2022

 
   

Greens

Creek

   

Lucky

Friday

   

Corporate(1)

   

Total

Silver

 

Total cost of sales

  $ 110,143     $ 59,613     $     $ 169,756  

Depreciation, depletion and amortization

    (25,049 )     (16,894 )           (41,943 )

Treatment costs

    17,892       8,480             26,372  

Change in product inventory

    5,436       (402 )           5,034  

Reclamation and other costs

    (1,872 )     (619 )           (2,491 )

Cash Cost, Before By-product Credits (1)

    106,550       50,178             156,728  

Reclamation and other costs

    1,410       564             1,974  

Sustaining exploration

    1,094             1,485       2,579  

Sustaining capital

    20,624       13,671       147       34,442  

General and administrative

                    17,986       17,986  

AISC, Before By-product Credits (1)

    129,678       64,413       19,618       213,709  

By-product credits:

                               

Zinc

    (61,479 )     (14,204 )           (75,683 )

Gold

    (38,947 )                 (38,947 )

Lead

    (16,237 )     (26,379 )           (42,616 )

Total By-product credits

    (116,663 )     (40,583 )           (157,246 )

Cash Cost, After By-product Credits

  $ (10,113 )   $ 9,595           $ (518 )

AISC, After By-product Credits

  $ 13,015     $ 23,830     $ 19,618     $ 56,463  

Divided by ounces produced

    4,840       2,114               6,954  

Cash Cost, Before By-product Credits, per Ounce

  $ 22.01     $ 23.74             $ 22.54  

By-product credits per ounce

    (24.10 )     (19.20 )             (22.61 )

Cash Cost, After By-product Credits, per Ounce

  $ (2.09 )   $ 4.54             $ (0.07 )

AISC, Before By-product Credits, per Ounce

  $ 26.79     $ 30.47             $ 30.73  

By-product credits per ounce

    (24.10 )     (19.20 )             (22.61 )

AISC, After By-product Credits, per Ounce

  $ 2.69     $ 11.27             $ 8.12  

 

48

 

In thousands (except per ounce amounts)

 

Six Months Ended

June 30, 2022

 
   

Casa

Berardi

   

Total

Gold

 

Total cost of sales

  $ 124,038     $ 124,038  

Depreciation, depletion and amortization

    (31,305 )     (31,305 )

Treatment costs

    915       915  

Change in product inventory

    (1,356 )     (1,356 )

Reclamation and other costs

    (419 )     (419 )

Cash Cost, Before By-product Credits (1)

    91,873       91,873  

Reclamation and other costs

    419       419  

Sustaining exploration

    2,572       2,572  

Sustaining capital

    14,878       14,878  

AISC, Before By-product Credits (1)

    109,742       109,742  

By-product credits:

               

Silver

    (354 )     (354 )

Total By-product credits

    (354 )     (354 )

Cash Cost, After By-product Credits

  $ 91,519     $ 91,519  

AISC, After By-product Credits

  $ 109,388     $ 109,388  

Divided by ounces produced

    64       64  

Cash Cost, Before By-product Credits, per Ounce

  $ 1,446     $ 1,446  

By-product credits per ounce

    (6 )     (6 )

Cash Cost, After By-product Credits, per Ounce

  $ 1,440     $ 1,440  

AISC, Before By-product Credits, per Ounce

  $ 1,727     $ 1,727  

By-product credits per ounce

    (6 )     (6 )

AISC, After By-product Credits, per Ounce

  $ 1,721     $ 1,721  

 

49

 

In thousands (except per ounce amounts)

 

Six Months Ended June 30, 2022

 
   

Total Silver

   

Total Gold

   

Total

 

Total cost of sales

  $ 169,756     $ 124,038     $ 293,794  

Depreciation, depletion and amortization

    (41,943 )     (31,305 )     (73,248 )

Treatment costs

    26,372       915       27,287  

Change in product inventory

    5,034       (1,356 )     3,678  

Reclamation and other costs

    (2,491 )     (419 )     (2,910 )

Cash Cost, Before By-product Credits (1)

    156,728       91,873       248,601  

Reclamation and other costs

    1,974       419       2,393  

Sustaining exploration

    2,579       2,572       5,151  

Sustaining capital

    34,442       14,878       49,320  

General and administrative

    17,986             17,986  

AISC, Before By-product Credits (1)

    213,709       109,742       323,451  

By-product credits:

                       

Zinc

    (75,683 )           (75,683 )

Gold

    (38,947 )           (38,947 )

Lead

    (42,616 )           (42,616 )

Silver

          (354 )     (354 )

Total By-product credits

    (157,246 )     (354 )     (157,600 )

Cash Cost, After By-product Credits

  $ (518 )   $ 91,519     $ 91,001  

AISC, After By-product Credits

  $ 56,463     $ 109,388     $ 165,851  

Divided by ounces produced

    6,954       64          

Cash Cost, Before By-product Credits, per Ounce

  $ 22.54     $ 1,446          

By-product credits per ounce

    (22.61 )     (6 )        

Cash Cost, After By-product Credits, per Ounce

  $ (0.07 )   $ 1,440          

AISC, Before By-product Credits, per Ounce

  $ 30.73     $ 1,727          

By-product credits per ounce

    (22.61 )     (6 )        

AISC, After By-product Credits, per Ounce

  $ 8.12     $ 1,721          

 

50

 

In thousands (except per ounce amounts)

 

Six Months Ended June 30, 2021

 
   

Greens

Creek

   

Lucky

Friday

   

Corporate

and other(2)

   

Total

Silver

 

Total cost of sales

  $ 108,668     $ 50,696     $ 95     $ 159,459  

Depreciation, depletion and amortization

    (29,313 )     (13,738 )           (43,051 )

Treatment costs

    19,465       9,664             29,129  

Change in product inventory

    (34 )     (1,689 )           (1,723 )

Reclamation and other costs

    (932 )     (559 )     (95 )     (1,586 )

Cash Cost, Before By-product Credits (1)

    97,854       44,374               142,228  

Reclamation and other costs

    1,695       528               2,223  

Sustaining exploration

    1,423             885       2,308  

Sustaining capital

    11,231       10,698             21,929  

General and administrative

                19,111       19,111  

AISC, Before By-product Credits (1)

    112,203       55,600     $ 19,996       187,799  

By-product credits:

                               

Zinc

    (49,277 )     (9,846 )           (59,123 )

Gold

    (41,434 )                   (41,434 )

Lead

    (15,625 )     (20,574 )           (36,199 )

Total By-product credits

    (106,336 )     (30,420 )           (136,756 )

Cash Cost, After By-product Credits

  $ (8,482 )   $ 13,954     $     $ 5,472  

AISC, After By-product Credits

  $ 5,867     $ 25,180     $ 19,996     $ 51,043  

Divided by ounces produced

    5,143       1,777               6,920  

Cash Cost, Before By-product Credits, per Ounce

  $ 19.03     $ 24.97             $ 20.55  

By-product credits per ounce

    (20.68 )     (17.12 )             (19.76 )

Cash Cost, After By-product Credits, per Ounce

  $ (1.65 )   $ 7.85             $ 0.79  

AISC, Before By-product Credits, per Ounce

  $ 21.82     $ 31.29             $ 27.14  

By-product credits per ounce

    (20.68 )     (17.12 )             (19.76 )

AISC, After By-product Credits, per Ounce

  $ 1.14     $ 14.17             $ 7.38  

 

51

 

In thousands (except per ounce amounts)

 

Six Months Ended June 30, 2021

 
   

Casa

Berardi

   

Nevada

Operations

   

Total

Gold

 

Total cost of sales

  $ 114,596     $ 25,448     $ 140,044  

Depreciation, depletion and amortization

    (41,191 )     (8,232 )     (49,423 )

Treatment costs

    1,249       1,730       2,979  

Change in product inventory

    968       11,499       12,467  

Reclamation and other costs

    (423 )     (245 )     (668 )

Exclusion of Nevada Operations costs

          (5,103 )     (5,103 )

Cash Cost, Before By-product Credits (1)

    75,199       25,097       100,296  

Reclamation and other costs

    423       245       668  

Sustaining exploration

    2,010             2,010  

Sustaining capital

    13,822       133       13,955  

AISC, Before By-product Credits (1)

    91,454       25,475       116,929  

By-product credits:

                       

Silver

    (487 )     (1,103 )     (1,590 )

Total By-product credits

    (487 )     (1,103 )     (1,590 )

Cash Cost, After By-product Credits

  $ 74,712     $ 23,994     $ 98,706  

AISC, After By-product Credits

  $ 90,967     $ 24,372     $ 115,339  

Divided by ounces produced

    68       17       85  

Cash Cost, Before By-product Credits, per Ounce

  $ 1,113     $ 1,434     $ 1,180  

By-product credits per ounce

    (7 )     (63 )     (19 )

Cash Cost, After By-product Credits, per Ounce

  $ 1,106     $ 1,371     $ 1,161  

AISC, Before By-product Credits, per Ounce

  $ 1,354     $ 1,456     $ 1,376  

By-product credits per ounce

    (7 )     (63 )     (19 )

AISC, After By-product Credits, per Ounce

  $ 1,347     $ 1,393     $ 1,357  

 

52

 

In thousands (except per ounce amounts)

 

Six Months Ended June 30, 2021

 
   

Total

Silver

   

Total

Gold

   

Total

 

Total cost of sales

  $ 159,459     $ 140,044       299,503  

Depreciation, depletion and amortization

    (43,051 )     (49,423 )     (92,474 )

Treatment costs

    29,129       2,979       32,108  

Change in product inventory

    (1,723 )     12,467       10,744  

Reclamation and other costs

    (1,586 )     (668 )     (2,254 )

Suspension of Nevada Operations costs

          (5,103 )     (5,103 )

Cash Cost, Before By-product Credits (1)

    142,228       100,296       242,524  

Reclamation and other costs

    2,223       668       2,891  

Sustaining exploration

    2,308       2,010       4,318  

Sustaining capital

    21,929       13,955       35,884  

General and administrative

    19,111             19,111  

AISC, Before By-product Credits (1)

    187,799       116,929       304,728  

By-product credits:

                       

Zinc

    (59,123 )           (59,123 )

Gold

    (41,434 )           (41,434 )

Lead

    (36,199 )           (36,199 )

Silver

          (1,590 )     (1,590 )

Total By-product credits

    (136,756 )     (1,590 )     (138,346 )

Cash Cost, After By-product Credits

  $ 5,472     $ 98,706     $ 104,178  

AISC, After By-product Credits

  $ 51,043     $ 115,339     $ 166,382  

Divided by ounces produced

    6,920       85          

Cash Cost, Before By-product Credits, per Ounce

  $ 20.55     $ 1,180          

By-product credits per ounce

    (19.76 )     (19 )        

Cash Cost, After By-product Credits, per Ounce

  $ 0.79     $ 1,161          

AISC, Before By-product Credits, per Ounce

  $ 27.14     $ 1,376          

By-product credits per ounce

    (19.76 )     (19 )        

AISC, After By-product Credits, per Ounce

  $ 7.38     $ 1,357          

 

(1)

Includes all direct and indirect operating costs related to the physical activities of producing metals, including mining, processing and other plant costs, third-party refining and marketing expense, on-site general and administrative costs and royalties, before by-product revenues earned from all metals other than the primary metal produced at each operation. AISC, Before By-product Credits also includes on-site exploration, reclamation, and sustaining capital costs.

 

(2)

AISC, Before By-product Credits for our consolidated silver properties includes corporate costs for general and administrative expense, exploration and sustaining capital.

 

(3)

Production was suspended at the Hollister mine in the third quarter of 2019 and at the Midas mine and Aurora mill in late 2019, and at the Midas mill and Fire Creek mine in mid-2021. Care and maintenance costs at Nevada Operations totaling $4.7 million and $5.2 million for the second quarter of 2022 and 2021, respectively, are reported in a separate line item on our consolidated statements of operations and excluded from the calculations of total cost of sales, Cash Cost, Before By-product Credits, Cash Cost, After By-product Credits, AISC, Before By-product Credits, and AISC, After By-product Credits.

 

53

 

Reconciliation of Cash Provided by Operating Activities (GAAP) to Free Cash Flow (non-GAAP)

 

The non-GAAP measure of free cash flow is calculated as net cash provided by operating activities (GAAP) less additions to properties, plants, equipment and mineral interests (GAAP). Management believes that, when presented in conjunction with comparable GAAP measures, free cash flow is useful to investors in evaluating our operating performance. The following table reconciles net cash provided by operating activities to free cash flow:

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Net cash provided by operating activities (GAAP)

  $ 40,183     $ 86,304     $ 78,092     $ 124,240  

Less: Additions to properties, plants, equipment and mineral interests (GAAP)

    (34,329 )     (31,898 )     (55,807 )     (53,311 )

Free cash flow

  $ 5,854     $ 54,406     $ 22,285     $ 70,929  

 

Financial Liquidity and Capital Resources

 

We have a disciplined cash management strategy of maintaining financial flexibility to execute our capital priorities and provide long-term value to our shareholders. Consistent with that strategy, we aim to maintain sufficient liquidity to fund debt service costs, operations, capital development and exploration projects, while returning cash to stockholders through dividends and potential share repurchases.

 

At June 30, 2022, we had $198.2 million in cash and cash equivalents, of which $23.8 million was held in foreign subsidiaries' local currency that we anticipate utilizing for near-term operating, exploration or capital costs by those foreign subsidiaries. We also have USD cash and cash equivalent balances held by our foreign subsidiaries that, if repatriated, may be subject to withholding taxes. We expect that there would be no additional tax burden upon repatriation after considering the cash cost associated with the withholding taxes. We believe that our liquidity and capital resources from our U.S. operations are adequate to fund our U.S. operations and corporate activities.

 

As discussed in Overview above, we continue to address the COVID-19 outbreak and face uncertainty related to the potential additional impacts it could have on our operations. The impacts of COVID-19 and increasing or prolonged restrictions, if required, on our operations could require access to additional sources of liquidity, which may not be available to us.

 

Pursuant to our common stock dividend policy described in Note 12 of Notes to Consolidated Financial Statements in our 2021 Form 10-K, our board of directors declared and paid dividends on common stock totaling $3.4 million in the first and second quarters of 2022 and $4.7 million and $6.0 million in the first and second quarters of 2021, respectively. Our dividend policy has a silver-linked component which ties the amount of declared common stock dividends to our realized silver price for the preceding quarter. Another component of our common stock dividend policy anticipates paying an annual minimum dividend.

 

54

 

For illustrative purposes only, the table below summarizes potential dividend amounts under our dividend policy.

 

Quarterly

Average Realized

Silver Price ($ per

ounce)

   

Quarterly Silver-

Linked Dividend ($

per share)

   

Annualized

Silver-Linked

Dividend ($ per

share)

   

Annualized

Minimum

Dividend ($

per share)

   

Annualized

Dividends per

Share: Silver-

Linked and

Minimum ($

per share)

 
$20     $0.0025     $0.01     $0.015     $0.025  
$25     $0.0100     $0.04     $0.015     $0.055  
$30     $0.0150     $0.06     $0.015     $0.075  
$35     $0.0250     $0.10     $0.015     $0.115  
$40     $0.0350     $0.14     $0.015     $0.155  
$45     $0.0450     $0.18     $0.015     $0.195  
$50     $0.0550     $0.22     $0.015     $0.235  

 

The declaration and payment of dividends on common stock is at the sole discretion of our board of directors, and there can be no assurance that we will continue to declare and pay common stock dividends in the future.

 

Pursuant to our stock repurchase program described in Note 12 of Notes to Consolidated Financial Statements in our 2021 Form 10-K, we are authorized to repurchase up to 20 million shares of our outstanding common stock from time to time in open market or privately negotiated transactions, depending on prevailing market conditions and other factors.  The repurchase program may be modified, suspended or discontinued by us at any time. Whether or not we engage in repurchases from time to time may depend on a variety of factors, including not only price and cash resources, but customary black-out restrictions, whether we have any material inside information, limitations on share repurchases or cash usage that may be imposed by our credit agreement or in connection with issuances of securities, alternative uses for cash, applicable law, and other investment opportunities from time to time. As of June 30, 2022 and December 31, 2021, 934,100 shares had been purchased in prior periods at an average price of $3.99 per share, leaving 19.1 million shares that may yet be purchased under the program. We have not repurchased any shares since June 2014. The closing price of our common stock at August 1, 2022, was $4.49 per share.

 

Pursuant to an equity distribution agreement dated February 18, 2021, we may offer and sell up to 60 million shares of our common stock from time to time to or through sales agents in “at-the-market” (ATM) offerings. Sales of the shares, if any, will be made by means of ordinary brokers transactions or as otherwise agreed between the Company and the agents as principals. Whether or not we engage in sales from time to time may depend on a variety of factors, including share price, our cash resources, customary black-out restrictions, and whether we have any material inside information. The agreement can be terminated by us at any time. Any shares issued under the equity distribution agreement are registered under the Securities Act of 1933, as amended, pursuant to a shelf registration statement on Form S-3. No shares have been sold under the agreement as of June 30, 2022.

 

As a result of our current cash balances, the performance of our current and expected operations, current metals prices, proceeds from potential at-the-market sales of common stock, and availability under our revolving credit facility, we believe we will be able to meet our obligations and other potential cash requirements during the next 12 months from the date of this report.  Our obligations and other uses of cash may include, but are not limited to: debt service obligations related to the Senior Notes and IQ Notes; principal and interest payments under our revolving credit facility; deferral of revenues, care-and-maintenance and other costs related to addressing the impacts of COVID-19 on our operations; capital expenditures at our operations; potential acquisitions of other mining companies or properties; regulatory matters; litigation; potential repurchases of our common stock under the program described above; and payment of dividends on common stock, if declared by our board of directors. We currently estimate a range of approximately $150 to 160  million will be spent in 2022 on capital expenditures, primarily for equipment, infrastructure, and development at our mines, including $60.9 million already incurred as of June 30, 2022, before any lease financing. We also estimate exploration and pre-development expenditures will total approximately $45.0 million in 2022, including $24.0 million already incurred as of June 30, 2022.  Our expenditures for these items and our related plans for 2022 may change based upon our financial position, metals prices, and other considerations.  Our ability to fund the activities described above will depend on our operating performance, metals prices, our ability to estimate revenues and costs, sources of liquidity available to us, including the revolving credit facility, and other factors.  A sustained downturn in metals prices, significant increase in operational or capital costs or other uses of cash, our inability to access the credit facility or the sources of liquidity discussed above, or other factors beyond our control could impact our plans.

 

55

 

We may defer some capital investment and/or exploration and pre-development activities, engage in asset sales or secure additional capital if necessary to maintain liquidity. We also may pursue additional acquisition opportunities, which could require additional equity issuances or other forms of financing. There can be no assurance that such financing will be available to us.

 

Our liquid assets include (in millions):

 

   

June 30, 2022

   

December 31, 2021

 

Cash and cash equivalents held in U.S. dollars

  $ 174.4     $ 196.2  

Cash and cash equivalents held in foreign currency

    23.8       13.8  

Total cash and cash equivalents

    198.2       210.0  

Marketable equity securities - non-current

    23.9       14.4  

Total cash, cash equivalents and investments

  $ 222.1     $ 224.4  

 

Cash and cash equivalents decreased by $11.8 million in the first six months of 2022. Cash held in foreign currencies represents balances in Canadian dollars and Mexican Pesos (“MXN”), with the $10.0 million increase in the first half of 2022 resulting from increases in CAD and MXN held. The value of non-current marketable equity securities increased by $9.5 million.

 

   

Six Months Ended

 
   

June 30, 2022

   

June 30, 2021

 

Cash provided by operating activities (in millions)

  $ 78.1     $ 124.2  

 

Cash provided by operating activities in the first half of 2022 of $78.1 million represented a $46.1 million decrease compared to the $124.2 million provided by operating activities in the first half of 2021. The variance was the result of lower net income, as adjusted for non-cash items, a reduction in accounts receivable of $14.6 and an increase in accounts payable of $17.1 million, partially offset by an increase in inventory of $8.4 million and smaller decreases to accrued taxes and accrued reclamation and other non-current liabilities.

 

   

Six Months Ended

 
   

June 30, 2022

   

June 30, 2021

 

Cash used in investing activities (in millions)

  $ (74.5 )   $ (53.2 )

 

During the first half of 2022, we invested $55.8 million in capital expenditures, excluding $5.1 million in non-cash finance lease additions, an increase of $2.5 million compared to the same period in 2021. The variance was primarily due to increased spending at Lucky Friday and Greens Creek partially offset by lower Casa Berardi spend. During the first half of 2022, we acquired investments in other mining companies for a total of $21.9 million, and disposed of an investment generating proceeds of $2.5 million.  

 

   

Six Months Ended

 
   

June 30, 2022

   

June 30, 2021

 

Cash used in financing activities (in millions)

  $ (14.1 )   $ (19.4 )

 

During the first six months of 2022 and 2021, we paid cash dividends on our common and preferred stock totaling $7.0 million and $11.0 million, respectively. Due to lower realized silver prices during 2022 to date, the dividends paid on our common stock were $4 million lower than in the prior year, reflecting our dividend policy discussed above. We made repayments on our finance leases of $3.3 million and $3.8 million in the six-month periods ended June 30, 2022 and 2021, respectively. We acquired treasury shares for $3.7 million and $4.5 million in the first half of 2022 and 2021, respectively, as a result of employees' elections to utilize net share settlement to satisfy their tax withholding obligations related to incentive compensation paid in stock.

 

56

 

The effect of changes in foreign exchange rates resulted in a $1.3 million decrease in cash and cash equivalents in the first half of 2022 compared to a decrease of $28 thousand in the first half of 2021, with the variance due to depreciation of the CAD and MXN relative to the USD in the 2022 period.

 

Contractual Obligations, Contingent Liabilities and Commitments

 

The table below presents our fixed, non-cancelable contractual obligations and commitments primarily related to our Senior Notes, IQ Notes, credit facility, outstanding purchase orders, certain capital expenditures and lease arrangements as of June 30, 2022 (in thousands):

 

   

Payments Due By Period

 
   

Less than 1

year

   

1-3 years

   

4-5 years

   

More than

5 years

   

Total

 

Purchase obligations (1)

  $ 31,918     $     $     $     $ 31,918  

Credit facility(2)

    1,072                         1,072  

Finance lease commitments (3)

    6,423       8,291       1,213             15,927  

Operating lease commitments (4)

    3,011       3,113       2,069       6,043       14,236  

Senior Notes (5)

    34,438       68,875       68,875       496,523       668,711  

IQ Notes (6)

    2,441       4,882       37,528             44,851  

Total contractual cash obligations

  $ 79,303     $ 85,161     $ 109,685     $ 502,566     $ 776,715  

 

 

(1)

Consists of open purchase orders and commitments of approximately $8.1 million at the Greens Creek unit, $1.3 million at the Casa Berardi unit, $19.1 million at the Lucky Friday unit and $3.4 million at the Nevada Operations unit. 

 

 

(2)

We have a $250 million revolving credit agreement which is currently undrawn. We had $14.9 million in letters of credit outstanding as of June 30, 2022. The amounts in the table above assume no additional amounts will be drawn in future periods, and include only the standby fee on the current undrawn balance. For more information on our credit facility, see Note 7 of Notes to Condensed Consolidated Financial Statements (Unaudited).

 

 

(3)

Includes scheduled finance lease payments of $12.2 million, $2.2 million, $1.5 million and $0.1 million (including interest), respectively, for equipment at our Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations units.  

 

 

(4)

We enter into operating leases in the normal course of business.  Substantially all lease agreements have fixed payment terms based on the passage of time.  Some lease agreements provide us with the option to renew the lease or purchase the leased property.  Our future operating lease obligations would change if we exercised these renewal options and if we entered into additional operating lease arrangements.

 

 

(5)

On February 19, 2020, we completed an offering of $475 million in aggregate principal amount of our Senior Notes due February 15, 2028. The Senior Notes bear interest at a rate of 7.25% per year, with interest payable on February 15 and August 15 of each year. See Note 7 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information.

 

 

(6)

On July 9, 2020, we entered into a note purchase agreement pursuant to which we issued our IQ Notes for CAD$50 million (approximately USD$36.8 million at the time of the transaction) in aggregate principal amount. The IQ Notes bear interest on amounts outstanding at a rate of 6.515% per year, payable on January 9 and July 9 of each year. See Note 7 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information.

 

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We record liabilities for costs associated with mine closure, reclamation of land and other environmental matters.  At June 30, 2022, our liabilities for these matters totaled $114.3 million. Future expenditures related to closure, reclamation and environmental expenditures at our sites are difficult to estimate, although we anticipate we will incur expenditures relating to these obligations over the next 30 years. For additional information relating to our environmental obligations, see Note 10 of Notes to Condensed Consolidated Financial Statements (Unaudited).

 

Critical Accounting Estimates

 

There have been no significant changes to the critical accounting estimates disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K.

 

Off-Balance Sheet Arrangements         

 

At June 30, 2022, we had no existing off-balance sheet arrangements, as defined under SEC regulations, that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

Guarantor Subsidiaries

 

Presented below are Hecla’s unaudited interim condensed consolidating financial statements as required by Rule 3-10 of Regulation S-X of the Securities Exchange Act of 1934, as amended, resulting from the guarantees by certain of Hecla's subsidiaries of the Senior Notes and IQ Notes (see Note 7 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information). The Guarantors consist of the following of Hecla's 100%-owned subsidiaries: Hecla Limited; Silver Hunter Mining Company; Rio Grande Silver, Inc.; Hecla MC Subsidiary, LLC; Hecla Silver Valley, Inc.; Burke Trading, Inc.; Hecla Montana, Inc.; Revett Silver Company; RC Resources, Inc.; Troy Mine Inc.; Revett Exploration, Inc.; Revett Holdings, Inc.; Mines Management, Inc.; Newhi, Inc.; Montanore Minerals Corp.; Hecla Alaska LLC; Hecla Greens Creek Mining Company; Hecla Admiralty Company; Hecla Juneau Mining Company; Klondex Holdings Inc.; Klondex Gold & Silver Mining Co.; Klondex Midas Holdings Limited; Klondex Aurora Mine Inc.; Klondex Hollister Mine Inc; and Hecla Quebec, Inc. We completed the offering of the Senior Notes on February 19, 2020 under our shelf registration statement previously filed with the SEC. We issued the IQ Notes in four equal tranches between July and October 2020.

 

The unaudited interim condensed consolidating financial statements below have been prepared from our financial information on the same basis of accounting as the unaudited interim condensed consolidated financial statements set forth elsewhere in this report. Investments in the subsidiaries are accounted for under the equity method. Accordingly, the entries necessary to consolidate Hecla, the Guarantors, and our non-guarantor subsidiaries are reflected in the intercompany eliminations column. In the course of preparing consolidated financial statements, we eliminate the effects of various transactions conducted between Hecla and its subsidiaries and among the subsidiaries. While valid at an individual subsidiary level, such activities are eliminated in consolidation because, when taken as a whole, they do not represent business activity with third-party customers, vendors, and other parties. Examples of such eliminations include the following:

 

 

Investments in subsidiaries. The acquisition of a company results in an investment in debt or equity capital on the records of the parent company and a contribution to debt or equity capital on the records of the subsidiary. Such investments and capital contributions are eliminated in consolidation.

 

 

Capital contributions. Certain of Hecla's subsidiaries do not generate cash flow, either at all or that is sufficient to meet their capital needs, and their cash requirements are routinely met with inter-company advances from their parent companies. Generally on an annual basis, when not otherwise intended as debt, the boards of directors of such parent companies declare contributions of capital to their subsidiary companies, which increase the parents' investment and the subsidiaries' additional paid-in capital. In consolidation, investments in subsidiaries and related additional paid-in capital are eliminated.

 

58

 

 

Debt.  At times, inter-company debt agreements have been established between certain of Hecla's subsidiaries and their parents. The related debt liability and receivable balances, accrued interest expense (if any) and income activity (if any), and payments of principal and accrued interest amounts (if any) by the subsidiary companies to their parents are eliminated in consolidation.

 

 

Dividends.  Certain of Hecla's subsidiaries which generate cash flow routinely provide cash to their parent companies through inter-company transfers. On at least an annual basis, the boards of directors of such subsidiary companies declare dividends to their parent companies, which reduces the subsidiaries' retained earnings and increases the parents' dividend income. In consolidation, such activity is eliminated.

 

 

Deferred taxes. Our ability to realize deferred tax assets and liabilities is considered for two consolidated tax groups of subsidiaries within the United States: The Nevada U.S. Group and the Hecla U.S. Group. Within each tax group, all subsidiaries' estimated future taxable income contributes to the ability of their tax group to realize all such assets and liabilities. However, when Hecla's subsidiaries are viewed independently, we use the separate return method to assess the realizability of each subsidiary's deferred tax assets and whether a valuation allowance is required against such deferred tax assets. In some instances, a parent company or subsidiary may possess deferred tax assets whose realization depends on the future taxable incomes of other subsidiaries on a consolidated-return basis, but would not be considered realizable if such parent or subsidiary filed on a separate stand-alone basis. In such a situation, a valuation allowance is assessed on that subsidiary's deferred tax assets, with the resulting adjustment reported in the eliminations column of the guarantor and parent's financial statements, as is the case in the unaudited interim financial statements set forth below. The separate return method can result in significant eliminations of deferred tax assets and liabilities and related income tax provisions and benefits. Non-current deferred tax asset balances are included in other non-current assets on the consolidating balance sheets and make up a large portion of that item, particularly for the guarantor balances.

 

Separate financial statements of the Guarantors are not presented because the guarantees by the Guarantors are joint and several and full and unconditional, except for certain customary release provisions, including: (1) the sale or disposal of all or substantially all of the assets of the Guarantor; (2) the sale or other disposition of the capital stock of the Guarantor; (3) the Guarantor is designated as an unrestricted entity in accordance with the applicable provisions of the indenture; (4) Hecla ceases to be a borrower as defined in the indenture; and (5) upon legal or covenant defeasance or satisfaction and discharge of the indenture.

 

59

 

Unaudited Interim Condensed Consolidating Balance Sheets

   

As of June 30, 2022

 
   

Parent

   

Guarantors

   

Non-Guarantors

   

Eliminations

   

Consolidated

 
   

(in thousands)

 

Assets

                                       

Cash and cash equivalents

  $ 151,846     $ 30,923     $ 15,424     $     $ 198,193  

Other current assets

    11,861       111,008       1,334             124,203  

Properties, plants, equipment and mineral interests, net

    1,913       2,285,819       8,230             2,295,962  

Intercompany receivable (payable)

    (226,858 )     (208,167 )     217,705       217,320        

Investments in subsidiaries

    1,415,938                   (1,415,938 )      

Other non-current assets

    359,373       28,272       (116,425 )     (172,475 )     98,745  

Total assets

  $ 1,714,073     $ 2,247,855     $ 126,268     $ (1,371,093 )   $ 2,717,103  

Liabilities and Stockholders' Equity

                                       

Current liabilities

  $ (590,549 )   $ 250,516     $ (1,940 )   $ 500,202     $ 158,229  

Long-term debt

    507,841       172,397       (522 )     (153,721 )     525,995  

Non-current portion of accrued reclamation

          101,001       2,746             103,747  

Non-current deferred tax liability

    13,980       430,867             (301,634 )     143,213  

Other non-current liabilities

    (81 )     2,422       696             3,037  

Stockholders' equity

    1,782,882       1,290,652       125,288       (1,415,940 )     1,782,882  

Total liabilities and stockholders' equity

  $ 1,714,073     $ 2,247,855     $ 126,268     $ (1,371,093 )   $ 2,717,103  

 

Unaudited Interim Condensed Consolidating Statements of Operations

   

Three Months Ended June 30, 2022

 
   

Parent

   

Guarantors

   

Non-Guarantors

   

Eliminations

   

Consolidated

 
   

(in thousands)

 

Revenues

  $ 11,323     $ 179,919     $     $     $ 191,242  

Cost of sales

    746       (116,653 )                 (115,907 )

Depreciation, depletion, amortization

          (38,072 )                 (38,072 )

General and administrative

    (4,497 )     (5,036 )     (159 )           (9,692 )

Exploration and pre-development

    (148 )     (8,700 )     (2,352 )           (11,200 )
Fair value adjustments, net     (1,553 )     (4,231 )     (10,644 )           (16,428 )

Equity in earnings of subsidiaries

    (12,559 )                 12,559        

Other expense

    (3,237 )     (1,688 )     (1,179 )     (7,108 )     (13,212 )

Income (loss) before income taxes

    (9,925 )     5,539       (14,334 )     5,451       (13,269 )

(Provision) benefit from income taxes

    (3,598 )     (3,763 )           7,107       (254 )

Net income (loss)

    (13,523 )     1,776       (14,334 )     12,558       (13,523 )

Preferred stock dividends

    (138 )                       (138 )

Income (loss) applicable to common stockholders

  $ (13,661 )   $ 1,776     $ (14,334 )   $ 12,558     $ (13,661 )

Net income (loss)

    (13,523 )     1,776       (14,334 )     12,558       (13,523 )

Changes in comprehensive income (loss)

    65,348                         65,348  

Comprehensive income (loss)

  $ 51,825     $ 1,776     $ (14,334 )   $ 12,558     $ 51,825  

 

60

 

   

Six Months Ended June 30, 2022

 
   

Parent

   

Guarantors

   

Non-Guarantors

   

Eliminations

   

Consolidated

 
   

(in thousands)

 

Revenues

  $ 6,553     $ 371,188     $     $     $ 377,741  

Cost of sales

    1,796       (223,475 )                 (221,679 )

Depreciation, depletion, amortization

          (73,370 )                 (73,370 )

General and administrative

    (8,890 )     (8,800 )     (296 )           (17,986 )

Exploration and pre-development

    (294 )     (19,346 )     (4,368 )           (24,008 )
Fair value adjustments, net     (1,297 )     (2,292 )     (6,874 )           (10,463 )

Equity in earnings of subsidiaries

    (8,347 )                 8,347        

Other expense

    8,114       (23,574 )     (381 )     (17,879 )     (33,720 )

Income (loss) before income taxes

    (2,365 )     20,331       (11,919 )     (9,532 )     (3,485 )

(Provision) benefit from income taxes

    (7,005 )     (16,769 )     11       17,878       (5,885 )

Net income (loss)

    (9,370 )     3,562       (11,908 )     8,346       (9,370 )

Preferred stock dividends

    (276 )                       (276 )

Income (loss) applicable to common stockholders

  $ (9,646 )   $ 3,562     $ (11,908 )   $ 8,346     $ (9,646 )

Net income (loss)

    (9,370 )     3,562       (11,908 )     8,346       (9,370 )

Changes in comprehensive income (loss)

    32,183                         32,183  

Comprehensive income (loss)

  $ 22,813     $ 3,562     $ (11,908 )   $ 8,346     $ 22,813  

 

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Unaudited Interim Condensed Consolidating Statements of Cash Flows

   

Six Months Ended June 30, 2022

 
   

Parent

   

Guarantors

   

Non-Guarantors

   

Eliminations

   

Consolidated

 
   

(in thousands)

 

Cash flows from operating activities

  $ 10,940     $ 65,524     $ (3,189 )   $ 4,817     $ 78,092  

Cash flows from investing activities:

                                       

Additions to properties, plants, and equipment

          (55,798 )     (9 )           (55,807 )

Other investing activities, net

    146,768       (2,060 )     (16,622 )     (146,768 )     (18,682 )

Cash flows from financing activities:

                                       

Dividends paid to stockholders

    (7,027 )                       (7,027 )

Payments on debt

          (3,333 )                 (3,333 )

Other financing activity

    (173,943 )     11,652       16,591       141,949       (3,751 )

Effect of exchange rate changes on cash

          843       (2,167 )     3       (1,321 )

Changes in cash, cash equivalents and restricted cash and cash equivalents

    (23,262 )     16,828       (5,395 )             (11,829 )

Beginning cash, cash equivalents and restricted cash and cash equivalents

    175,108       15,135       20,820             211,063  

Ending cash, cash equivalents and restricted cash and cash equivalents

  $ 151,846     $ 31,963     $ 15,425     $     $ 199,234  

 

 

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

 

The following discussion about our exposure to market risks and risk management activities includes forward-looking statements that involve risks and uncertainties, as well as summarizes the financial instruments held by us at June 30, 2022, which are sensitive to changes in commodity prices and foreign exchange rates and are not held for trading purposes.  Actual results could differ materially from those projected in the forward-looking statements.  In the normal course of business, we also face risks that are either non-financial or non-quantifiable (See Item 1A. Risk Factors of our 2021 Form 10-K).

 

Metals Prices

 

Changes in the market prices of silver, gold, lead and zinc can significantly affect our profitability and cash flow. Metals prices can and often do fluctuate widely and are affected by numerous factors beyond our control (see Item 1A Risk Factors A substantial or extended decline in metals prices would have a material adverse effect on us in our 2021 Form 10-K). We utilize financially-settled forward and put option contracts to manage our exposure to changes in prices for silver, gold, zinc and lead.

 

Provisional Sales

 

Sales of all metals products sold directly to customers, including by-product metals, are recorded as revenues when all performance obligations have been completed and the transaction price can be determined or reasonably estimated.  For concentrate sales, revenues are generally recorded at the time of shipment at forward prices for the estimated month of settlement. Due to the time elapsed between shipment to the customer and the final settlement with the customer we must estimate the prices at which sales of our metals will be settled. Previously recorded sales are adjusted to estimated settlement metals prices until final settlement by the customer.  Changes in metals prices between shipment and final settlement will result in changes to revenues previously recorded upon shipment.  Metals prices can and often do fluctuate widely and are affected by numerous factors beyond our control (see Item 1A Risk Factors A substantial or extended decline in metals prices would have a material adverse effect on us in our 2021 Form 10-K).  At June 30, 2022, metals contained in concentrate sales and exposed to future price changes totaled 2.2 million ounces of silver, 2,840 ounces of gold, 5,828 tons of zinc, and 4,669 tons of lead.  If the price for each metal were to change by 10%, the change in the total value of the concentrates sold would be approximately $8.1 million.  As discussed in Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited), we utilize a program designed and intended to mitigate the risk of negative price adjustments with limited mark-to-market financially-settled forward contracts for our silver, gold, zinc and lead sales.

 

62

 

Commodity-Price Risk Management

 

See Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited) and Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2021 Form 10-K for a description of our commodity-price risk management program.

 

Foreign Currency Risk Management

 

We operate or have mining interests in Canada and Mexico, which exposes us to risks associated with fluctuations in the exchange rates between the USD and the CAD and MXN, respectively.  We have determined the functional currency for our Canadian and Mexican operations is the USD.  As such, foreign exchange gains and losses associated with the re-measurement of monetary assets and liabilities from CAD and MXN to USD are recorded to earnings each period.  For the three and six months ended June 30, 2022 we recognized a net foreign exchange gain of $4.5 million and $2.4 million respectively, compared to a net foreign exchange loss of $1.9 million and $4.0 million, respectively for the comparable periods in 2021.  Foreign currency exchange rates are influenced by a number of factors beyond our control.  A 10% change in the exchange rate between the USD and CAD from the rate at June 30, 2022 would have resulted in a change of approximately $7.7 million in our net foreign exchange gain or loss.  A 10% change in the exchange rate between the USD and MXN from the rate at June 30, 2022 would have resulted in a change of approximately $0.1 million in our net foreign exchange gain or loss.   We do not hedge the remeasurement of monetary assets and liabilities.  We do hedge some of our operating and capital costs denominated in foreign currency.

 

See Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited) and Note 11 of Notes to Consolidated Financial Statements in our 2021 Form 10-K for a description of our foreign currency risk management.

 

 

Item 4.    Controls and Procedures

 

An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures as required by Securities Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report.  Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures, including controls and procedures designed to ensure that information required to be disclosed by us is accumulated and communicated to our management (including our CEO and CFO), were effective as of June 30, 2022, in assuring them in a timely manner that material information required to be disclosed in this report has been properly recorded, processed, summarized and reported. There were no changes in our internal control over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Internal control systems, no matter how well designed and operated, have inherent limitations. Therefore, even a system which is determined to be effective cannot provide absolute assurance that all control issues have been detected or prevented. Our systems of internal controls are designed to provide reasonable assurance with respect to financial statement preparation and presentation.

 

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Part II - Other Information

 

Hecla Mining Company and Subsidiaries

 

Item 1.    Legal Proceedings

 

For information concerning legal proceedings, refer to Note 10 of Notes to Condensed Consolidated Financial Statements (Unaudited), which is incorporated by reference into this Item 1.

 

Item 1A.    Risk Factors

 

Item 1A. Risk Factors of our 2021 Form 10-K sets forth information relating to important risks and uncertainties that could materially adversely affect our business, financial condition or operating results.  

 

On July 4, 2022, we entered into an arrangement agreement with Alexco Resource Corp. (“Alexco”) pursuant to which we would acquire all of the issued and outstanding common stock of Alexco. See Note 12 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information. The proposed acquisition is subject to approval by Alexco’s stockholders and receipt of certain regulatory approvals. The information below includes additional risk factors related to the potential acquisition.

 

Risk Factors Relating to the Acquisition

 

The acquisition of Alexco may not be completed on the terms or timeline currently contemplated or at all. Failure to complete the acquisition could negatively impact our stock price and future business and financial results.

 

The completion of the transactions contemplated by the arrangement agreement is subject to certain conditions, including (1) approval and adoption by Alexco shareholders, (2) approval by the Supreme Court of British Columbia and receipt of certain other regulatory approvals, (3) the absence of certain legal impediments and (4) other customary closing conditions. There can be no assurance the acquisition will be consummated on the terms or timeline currently contemplated, or at all. We have expended and will continue to expend a significant amount of time and resources on the acquisition, and a failure to consummate the acquisition as currently contemplated, or at all, could have a material adverse effect on our business and results of operations.

 

If the acquisition is not completed, our ongoing business may be adversely affected and we will be subject to several risks, including the following:

 

 

having to pay substantial other costs and expenses relating to the proposed transaction, such as legal, accounting, financial advisor, filing, printing and mailing fees and integration costs that have already been incurred and will continue to be incurred until closing;

 

the focus of our management on the acquisition instead of on pursuing other opportunities that could be beneficial to us; and

 

the market price of our common stock could decline to the extent that the current market price reflects a market assumption that the acquisition will be completed;

 

in each case, without realizing any of the anticipated benefits of having the acquisition completed. In addition, if the acquisition is not completed, we may experience negative reactions from the financial markets and from our employees and other stakeholders. We could also be subject to litigation related to any failure to complete the acquisition or to perform our obligations under the arrangement agreement. If the acquisition is not completed, we cannot assure our stockholders that these risks will not materialize and will not materially affect our business, financial results and stock price.

 

The agreement for the acquisition of Alexco may be terminated by us in certain circumstances, including in the event of the occurrence of an Alexco material adverse effect.

 

Both we and Alexco have the right to terminate the arrangement agreement in certain circumstances. Accordingly, there can be no assurance that the arrangement agreement will not be terminated by either us or Alexco before the completion of the acquisition. For example, we have the right, in certain circumstances, to terminate the arrangement agreement if an Alexco material adverse effect, as defined in the agreement, occurs.

 

64

 

The exchange ratio is fixed and will not be adjusted in the event of any change in either our or Alexcos stock price.

 

Upon the closing of the acquisition, each share of Alexco common stock (other than shares already owned by us) will be converted into the right to receive 0.116 of a share of our common stock. This exchange ratio was fixed in the arrangement agreement and will not be adjusted for changes in the market price of either our common stock or Alexco common stock. Changes in the price of our common stock prior to the acquisition will affect the market value that Alexco shareholders will receive on the date of the acquisition. Stock price changes may result from a variety of factors (many of which are beyond the control of us orAlexco), including, without limitation, the following:

 

 

changes in our or Alexco’s businesses, operations, performance and prospects;

 

changes in market assessments of the business, operations and prospects of us or Alexco;

 

investor behavior and strategies, including market assessments of the likelihood that the acquisition will be completed;

 

interest rates, metals prices, general market and economic conditions and other factors generally affecting the price of our and Alexco’s common stock; and

 

federal, state, provincial and local legislation, governmental regulation and legal developments in the businesses in which we and Alexco operate.

 

The price of our common stock at the closing of the acquisition may vary from its price on the date the arrangement agreement was executed, on the date of this Form 10-Q and on the date of the shareholder meeting of Alexco. As a result, the market value represented by the exchange ratio will also vary.

 

Any delay in completing the acquisition may reduce or eliminate the expected benefits from the acquisition.

 

In addition to the required Alexco shareholder approval and adoption, the acquisition is subject to a number of other conditions beyond our and Alexco’s control that may prevent, delay or otherwise materially adversely affect its completion. We and Alexco cannot predict whether and when these other conditions will be satisfied. Furthermore, obtaining the required approval and adoption could delay the completion of the acquisition for a significant period of time or prevent it from occurring. Any delay in completing the acquisition could cause us not to realize some or all of the benefits that we expect to achieve if the acquisition is successfully completed within its expected time frame.

 

The acquisition will involve substantial costs.

 

We and Alexco have incurred and expect to continue to incur substantial costs and expenses relating directly to the transaction, including fees and expenses payable to legal, accounting and financial advisors and other professional fees relating to the transaction, insurance premium costs, fees and costs relating to regulatory filings and notices, printing and mailing costs and other transaction-related costs, fees and expenses.

 

Risk Factors Relating to Us Following the Acquisition

 

We will incur transaction and integration costs in connection with the acquisition.

 

We and Alexco expect to incur transaction fees and other costs related to the acquisition. In addition to transaction costs related to the acquisition, we will incur integration costs following the completion of the acquisition as we integrate the Alexco business with that of ours.

 

After completion of the acquisition, we may fail to realize anticipated benefits.

 

The success of the acquisition will depend, in part, on our ability to realize the anticipated benefits from the acquisition of Alexco. If we are not able to successfully integrate Alexco into our operations within the anticipated time frame, or at all, the anticipated benefits of the acquisition may not be realized fully or at all or may take longer to realize than expected.

 

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The market price of our common stock following the acquisition may decline as a result of the acquisition.

 

The market price of our common stock following the acquisition may decline as a result of the acquisition for a number of reasons, including the unsuccessful integration of Alexco and our business, our failure to achieve the perceived benefits of the acquisition, including financial results, or declines in the mining industry, the market price of silver, our business or the economy as a whole. These factors are, to some extent, beyond our control.

 

Uncertainties associated with the acquisition may cause a loss of management personnel and other key employees of Alexco which could adversely affect future business and operations following the acquisition.

 

Hecla and Alexco are dependent on the experience and industry knowledge of their officers, other key employees and hourly employees at the mine sites to execute their business plans and conduct operations. Success after the acquisition will depend in part upon its ability to retain key employees of Alexco, as well as hourly employees. Current and prospective employees of Alexco may experience uncertainty about their future roles with Hecla following the acquisition, which may materially adversely affect the ability of Alexco to attract and retain key personnel during the pendency of the acquisition. Accordingly, no assurance can be given that Hecla will be able to retain key employees or hourly employees of Alexco. Losses of such personnel could adversely affect the business and operations of Hecla after the acquisition is complete.

 

The Alexco properties and any others we may acquire may not produce as expected and may not generate additional reserves, and may come with liabilities beyond those known at the time of acquisition.

 

The properties we acquire in the acquisition of Alexco, if consummated, or in other acquisitions may not produce as expected, may not generate reserves beyond those known at the time of acquisition, may be in an unexpected condition and we may be subject to increased costs and liabilities, including environmental liabilities. Although we review properties prior to acquisition in a manner consistent with industry practices, such reviews are not capable of identifying all potential adverse conditions. Generally, it is not feasible to review in depth every individual property involved in each acquisition. Even a detailed review of records and properties may not necessarily reveal existing or potential problems or permit a buyer to become sufficiently familiar with the properties to fully assess their condition, any deficiencies, and development potential.

 

Our number of outstanding common shares will increase as a result of the acquisition and the stream termination agreement and our stock price could be affected.

 

As indicated in Note 12, we have also entered into an agreement with Wheaton Precious Metals ("WPM") to terminate WPM’s silver streaming interest at Alexco’s Keno Hill property in exchange for $135 million of our common stock, conditional upon completion of the acquisition. As a result, if the acquisition is completed, it will result, together with the stream termination agreement, in the issuance of common stock that is expected to represent approximately [__]% of our outstanding common stock following completion of the transactions. This increase in the number of shares of our common stock outstanding could have a negative effect on our stock price.

 

Item 2. Unregistered Sales of Securities and Use of Proceeds

 

On May 19, 2022, we issued 290,0000 unregistered shares of our common stock to the Lucky Friday Pension Plan Trust and 900,000 shares to the Hecla Mining Company Retirement Plan Trust in private placements in order to fund those defined benefit pension plans. The private placements were exempt from registration under the Securities Act of 1933 pursuant to section 4(a)(2) of that Act. The shares will be registered for resale on a registration statement on Form S-3 to be filed with the SEC within 120 days of May 19, 2022. We did not receive any cash proceeds from the issuance of the shares. The shares had a value of approximately $5.6 million at the time of issuance.

 

Item 4. Mine Safety Disclosures

 

The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in exhibit 95 to this Quarterly Report.

 

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Item 6.    Exhibits

 

 Hecla Mining Company and Wholly Owned Subsidiaries

Form 10-Q – June 30, 2022

Index to Exhibits

 

 

4.1 Registration Rights Agreement, dated as of May 19, 2022, among Hecla Mining Company, as Issuer, and the Hecla Mining company Retirement Plan Trust, which is the funding vehicle for the Hecla Mining Company Retirement Plan, a tax-qualified employee benefit pension plan sponsored by Hecla Mining Company, and the Lucky Friday Pension Plan Trust, which is the funding vehicle for the Lucky Friday Pension Plan.*
   
10.1 Credit Agreement dated as of July 21, 2022, among Hecla Mining Company, Hecla Limited, Hecla Alaska LLC , Hecla Greens Creek Mining Company, and Hecla Juneau Mining Company, as the Borrowers, Bank of America, N.A., as Administrative Agent for the Lenders, and various Lenders. Filed as exhibit 10.1 to Registrant’s Form 8-K filed on July 21, 2022 and incorporated herein by reference.
   
10.2 Assignment and Amendment Agreement dated as of July 25, 2022, among Hecla Mining Company, Alexco Resource Corp., and 1080980 B.C. Ltd. *
   
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
   
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
   
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
   
32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
   
95 Mine safety information listed in Section 1503 of the Dodd-Frank Act. *
   
99.1 Contribution Agreement, dated as of May 19, 2022, among Hecla Mining Company, as sponsor of the Hecla Mining Company Retirement Plan, the Retirement Committee, as the named fiduciary of the Hecla Mining Company Retirement Plan, and U.S. Bank National Association, as trustee of the Hecla Mining Company Retirement Plan Trust.*
   
99.2 Contribution Agreement, dated as of May 19, 2022, among Hecla Mining Company, Hecla Limited as sponsor of the Lucky Friday Pension Plan, the Pension Committee, as the named fiduciary of the Lucky Friday Pension Plan, and U.S. Bank National Association, as trustee of  the Hecla Mining Company Retirement Plan Trust. *
   
101.INS Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. **
   
101.SCH Inline XBRL Taxonomy Extension Schema.**
   
101.CAL Inline XBRL Taxonomy Extension Calculation.**
   
101.DEF Inline XBRL Taxonomy Extension Definition.**
   
101.LAB Inline XBRL Taxonomy Extension Labels.**
   
101.PRE Inline XBRL Taxonomy Extension Presentation.**
   
104 Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

___________________

 

* Filed herewith.

 

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

Items 3 and 5 of Part II are not applicable and are omitted from this report.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

   

HECLA MINING COMPANY

   

(Registrant)

         

Date:

August 4, 2022

By:

/s/ Phillips S. Baker, Jr.

     

Phillips S. Baker, Jr., President,

     

 

Chief Executive Officer and Director
         

Date:

August 4, 2022

By:

/s/ Russell D. Lawlar

     

Russell D. Lawlar, Senior Vice President,

     

 

Chief Financial Officer and Treasurer

 

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