-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HAcuIUav9D7IBDiLEAsUspBM/kiK0gCOmbQL6LJtNOBvVeiL0FR0DtEiQn+xGT2a LCOoUCl0If+jiy9ItgOt3Q== 0000897101-02-000692.txt : 20021007 0000897101-02-000692.hdr.sgml : 20021007 20021007170040 ACCESSION NUMBER: 0000897101-02-000692 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 20021007 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HECLA MINING CO/DE/ CENTRAL INDEX KEY: 0000719413 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 820126240 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-100395 FILM NUMBER: 02783370 BUSINESS ADDRESS: STREET 1: 6500 MINERAL DRIVE SUITE 200 STREET 2: NONE CITY: COEUR D'ALENE STATE: ID ZIP: 83815-8788 BUSINESS PHONE: 2087694100 MAIL ADDRESS: STREET 1: 6500 MINERAL DRIVE SUITE 200 STREET 2: NONE CITY: COEUR D'ALENE STATE: ID ZIP: 83815-8788 S-1 1 hecla024510_s1.txt HECLA MINING COMPANY FORM S-1 As filed with the Securities and Exchange Commission on October 7, 2002 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------ HECLA MINING COMPANY (Exact Name of Registrant as Specified in Its Charter) DELAWARE 8741 82-0126240 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) 6500 MINERAL DRIVE, SUITE 200 COEUR D'ALENE, IDAHO 83815-8788 (208) 769-4100 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------ JOHN GALBAVY CORPORATE COUNSEL AND ASSISTANT SECRETARY HECLA MINING COMPANY 6500 MINERAL DRIVE, SUITE 200 COEUR D'ALENE, IDAHO 83815-8788 (208) 769-4131 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPY TO: JOHN H. BITNER BELL, BOYD & LLOYD LLC 70 WEST MADISON STREET, SUITE 3300 CHICAGO, ILLINOIS 60602 (312) 807-4306 ------------------ Approximate date of commencement of proposed sale to the public: From time to time after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [ X ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------
CALCULATION OF REGISTRATION FEE ================================================================================================================================= PROPOSED PROPOSED AMOUNT TO MAXIMUM MAXIMUM TITLE OF EACH CLASS OF BE OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE - --------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.25 per share, and associated rights to purchase Series A Junior Participating Preferred Stock(2) 5,995,248(3) $3.57 $21,403,036 $1,969.08 =================================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c) under the Securities Act and based upon the average of the high and low prices of Hecla common stock as reported on the New York Stock Exchange on October 4, 2002. (2) Each share of Hecla common stock is accompanied by a series A junior participating preferred stock purchase right that trades with the Hecla common stock. The value attributed to those rights, if any, is reflected in the market price of the Hecla common stock. Prior to the occurrence of certain events, none of which has occurred as of this date, the rights will not be exercisable or evidenced separately from the Hecla common stock. (3) Represents 3,995,248 shares of our common stock currently held by certain selling stockholders and 2,000,000 shares of our common stock issuable upon exercise of warrants issued to another selling stockholder with an exercise price equal to $3.73 per share. ------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. The information contained in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities, in any state or jurisdiction where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED ________, 2002 PROSPECTUS 5,995,248 SHARES HECLA MINING COMPANY COMMON STOCK This prospectus covers 5,995,248 shares of our common stock that may be offered and sold from time to time by the stockholders identified in this prospectus, or by their donees, pledgees, transferees or other successors in interest, directly or through agents, brokers, or dealers designated from time to time at prevailing market prices at the time of sale, at prices related to such market prices, or in privately negotiated transactions at prices agreed upon by the parties. See "Plan of Distribution." We cannot assure you that the selling stockholders will sell all, or any portion of the common stock. None of our directors or executive officers is selling stock in this offering, and neither they nor we will receive any proceeds from the sale of the stock. We are registering the common stock offered under this prospectus to satisfy registration rights of the selling stockholders. We have agreed to bear all expenses of registration of our common stock offered by this prospectus. Certain of the shares to be sold hereunder are listed on the New York Stock Exchange, and the remaining shares are approved for listing on the New York Stock Exchange, subject to official notice of issuance. Our common stock is listed on the New York Stock Exchange under the symbol "HL." On October 4, 2002, the closing price of our common stock as reported on the New York Stock Exchange was $3.63 per share. --------------------------- INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6. --------------------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is , 2002 You should rely only on the information contained in this prospectus and any supplement. We have not authorized any other person to provide you with different or additional information. If anyone provides you with different or additional information, you should not rely on it. This prospectus is not an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus and any supplement is accurate as of its date only. Our business, financial condition, results of operations, and prospects may have changed since that date. --------------------- TABLE OF CONTENTS Page ---- Where You Can Find More Information............................................2 Prospectus Summary.............................................................3 Summary Financial Data.........................................................5 Risk Factors...................................................................6 Selling Stockholders..........................................................14 Plan Of Distribution..........................................................15 Special Note On Forward-Looking Statements....................................16 Use Of Proceeds...............................................................17 Price Range Of Common Stock And Dividend Policy...............................17 Selected Financial Data.......................................................18 Supplementary Financial Data..................................................19 Management's Discussion And Analysis Of Financial Condition And Results Of Operations...................................................................20 Business .....................................................................38 Management....................................................................55 Executive Compensation........................................................58 Principal Stockholders........................................................63 Description of Capital Stock..................................................64 Legal Matters.................................................................69 Experts .....................................................................69 Glossary of Certain Terms.....................................................69 Index to Consolidated Financial Statements...................................F-1 --------------------- WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly, and special reports, proxy statements, and other information with the Securities and Exchange Commission (SEC). You may read our filings at the web site maintained by the SEC at http://www.sec.gov. You may also read and copy our filings at the SEC's public reference rooms at Judiciary Plaza Building, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as well as at the SEC's regional office at 175 W. Jackson Boulevard, Suite 900, Chicago, Illinois 60604. You may obtain information about the operation of the SEC public reference room in Washington, D.C. by calling the SEC at 1-800-SEC-0330. You may obtain a copy of a filing from the SEC at prescribed rates by writing to the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 or from commercial document retrieval services. Our common stock and Series B cumulative convertible preferred stock (Series B preferred stock) are both listed on the New York Stock Exchange (NYSE). You can inspect and copy reports, proxy statements and other information about us at the NYSE's offices at 20 Broad Street, New York, New York 10005. This prospectus is part of a registration statement on Form S-1 that we filed with the SEC. The registration statement contains more information about us and our common stock, including certain exhibits and schedules. You can obtain a copy of the registration statement from the SEC in the manner described above. 2 A glossary of certain terms appears near the end of this prospectus under "Glossary of Certain Terms." PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and may not contain all of the information that you should consider before investing in our common stock. HECLA MINING COMPANY We are principally engaged in the exploration, development and mining of precious and nonferrous metals, including silver, gold, lead and zinc, with an emphasis on silver and gold. We own or have interests in a number of precious and nonferrous metals properties. Our principal producing metals properties include: * the Greens Creek silver mine, a large polymetallic mine in which we own a 29.73% interest, located near Juneau, Alaska; * the San Sebastian silver mine, located in the State of Durango, Mexico; * the Lucky Friday silver mine, located near Mullan, Idaho; and * the La Camorra gold mine, located in the State of Bolivar, Venezuela. Our strategy is to focus our efforts and resources on expanding our silver and gold reserves through exploration efforts, primarily on properties we already own. In 2002, we intend to explore for additional reserves at, or in the vicinity of, the San Sebastian mine in Mexico, the La Camorra mine in Venezuela and the Greens Creek mine in Alaska. In furtherance of our strategy, in 2001 and 2002, we sold certain subsidiaries that owned substantially all of our industrial minerals assets. We were originally incorporated in 1891. We are a Delaware corporation, with our principal executive offices located at 6500 Mineral Drive, Coeur d'Alene, Idaho 83815-8788, and our telephone number is (208) 769-4100. Our web site address is www.hecla-mining.com. Information contained in our web site is not incorporated by reference into this prospectus, and you should not consider information contained in our web site as part of this prospectus. See "Where you can find more information." THE OFFERING OF COMMON STOCK SECURITIES OFFERED FOR SALE BY THE SELLING STOCKHOLDERS..... 3,995,248 shares of common stock, $0.25 par value per share, currently held by certain selling stockholders and 2,000,000 shares of common stock issuable upon exercise of warrants issued to another selling stockholder, each accompanied by series A junior participating preferred stock purchase rights pursuant to our rights agreement. VOTING RIGHTS................... Each share of common stock is entitled to one vote per share on all matters submitted to a vote of stockholders (except for the election of two directors by holders of preferred stock in the case of preferred dividend arrearages, which arrearages currently exist). USE OF PROCEEDS................. The selling stockholders will receive all of the net proceeds of the sale of the common stock covered by this prospectus, as it may be supplemented. We will not receive any proceeds from sale of this common stock. 3 DIVIDENDS....................... We have not declared or paid any cash dividends for several years and we have no present intention of paying dividends in the foreseeable future (and our preferred dividend arrearages currently restrict us from paying any cash dividends on our common stock). STOCK EXCHANGE.................. Our common stock is listed on the New York Stock Exchange under the symbol "HL." Certain of the shares to be sold hereunder are listed on the New York Stock Exchange, and the remaining shares are approved for listing on the New York Stock Exchange, subject to official notice of issuance. 4 SUMMARY FINANCIAL DATA (in thousands, except per share data) The following table sets forth selected historical consolidated financial data for us for each of the years ended December 31, 1997 through 2001, derived from our audited financial statements. The following table also sets forth selected historical consolidated financial data for the three months ended June 30, 2001 and 2002, and the six months ended June 30, 2001 and 2002, derived from our unaudited consolidated financial statements. The data set forth below should be read in conjunction with, and is qualified in its entirety by reference to, our financial statements, beginning on page F-1 of this prospectus.
Three Months Six Months Ended June 30, Ended June 30, Years Ended December 31, -------------- -------------- -------------------------------------------------------- 2002 2001 2002 2001 2001 2000 1999(1) 1998 1997 ---- ---- ---- ---- ---- ---- ---- ---- ---- (unaudited) Sales of products $ 28,663 $ 24,561 $ 52,045 $ 40,978 $ 85,247 $ 75,850 $ 73,703 $ 75,108 $ 89,486 ======== ======== ======== ======== ======== ======== ======== ======== ======== Income (loss) from continuing operations $ 5,058 $ (1,288) $ 6,027 $ (4,898) $ (9,582) $(84,847) $(43,391) $ (4,674) $ (3,741) Income (loss) from discontinued operations(2) (303) (267) (786) 12,878 11,922 1,529 4,786 4,374 3,258 Preferred stock dividends (3) (2,013) (2,013) (4,025) (4,025) (8,050) (8,050) (8,050) (8,050) (8,050) Income (loss) applicable to common shareholders (4) $ 2,742 $ (3,568) $ 1,216 $ 3,955 $ (5,710) $(92,015) $(48,040) $ (8,350) $ (8,533) Income (loss) from continuing operations per common share $ 0.04 $ (0.05) $ 0.03 $ (0.13) $ (0.25) $ (1.39) $ (0.83) $ (0.23) $ (0.22) Basic and diluted income (loss) per common share $ 0.04 $ (0.05) $ 0.02 $ 0.06 $ (0.08) $ (1.38) $ (0.77) $ (0.15) $ (0.16) Total assets $156,228 $156,287 $156,228 $156,287 $153,116 $194,836 $268,357 $252,062 $250,668 Noncurrent portion of debt $ 7,545 $ 14,370 $ 7,545 $ 14,370 $ 11,948 $ 10,041 $ 55,095 $ 42,923 $ 22,136 ======== ======== ======== ======== ======== ======== ======== ======== ========
- -------------------------- (1) On January 1, 1999, we changed our method of accounting for start-up costs in accordance with Statement of Position 98-5 (SOP 98-5) "Reporting on the Costs of Start-up Activities." The impact of this change in accounting principle related to unamortized start-up costs associated with our 29.7331% interest in the Greens Creek Mine resulting in a $1.4 million cumulative effect of this charge in accounting principle for the year ended December 31, 1999. (2) In November 2000, our board of directors decided to sell Kentucky-Tennessee Clay Company, K-T Feldspar Corporation, K-T Clay de Mexico and certain other minor inactive minerals companies which represented the major remaining portion of its industrial minerals segment. Accordingly, the industrial minerals segment has been recorded as a discontinued operation as of and for each of the periods ended presented above. As of June 30, 2002 and 2001, and as of December 31, 2001 and 2000, only, the balance sheets have been reclassified to reflect the net assets of the industrial minerals segment as a discontinued operation. (3) As of June 30, 2002, we have not declared or paid $16.1 million of Series B preferred stock dividends. However, since the dividends are cumulative, they continue to be reported in determining the income (loss) applicable to common stockholders, but are excluded in the amount reported as cash dividends paid per preferred share. We completed an offer to acquire all of our currently outstanding Series B preferred stock in exchange for newly issued shares of our common stock on July 25, 2002. A total of 1,546,598 shares was validly tendered and exchanged, representing approximately 67.0% of the total number of shares of Series B preferred stock outstanding, into 10,826,186 shares of our common stock. In the third quarter of 2002, we expect to incur a non-cash dividend charge of approximately $17.6 million related to the completed exchange offering. The $17.6 million dividend represents the difference between the value of the common stock issued in the exchange offer and the value of the shares that were issuable under the stated conversion terms of the Series B preferred stock. The non-cash dividend charge will have no impact on our total shareholders' equity as the offset will be an increase in common stock and paid-in-capital. As a result of the completed exchange offering, the total charge to cumulative preferred dividends is anticipated to be $23.4 million for the year ending December 31, 2002. In 2003, the $8.0 million annual cumulative preferred dividends that have historically been included in income (loss) applicable to common shareholders will be reduced to approximately $2.6 million. The completed exchange offering also eliminated $10.9 million of previously undeclared and unpaid preferred stock dividends. (4) After recognizing a $0.8 million loss from discontinued operations and $4.0 million in preferred stock dividends, our income applicable to common stockholders for the six months ended June 30, 2002 was approximately $1.2 million, compared to income of $4.0 million in the same period in 2001, after recognizing $12.9 million in income from discontinued operations, due to a gain of $12.7 million on the sale of the majority of our industrial minerals assets and $4.0 million in preferred stock dividends. 5 RISK FACTORS You should carefully consider the risks and uncertainties described below, and all of the other information included in this prospectus, before you decide whether to purchase shares of our common stock. Any of the following risks could materially adversely affect our business, financial condition, or operating results and could negatively impact the value of our common stock. A glossary of certain terms appears near the end of this prospectus under "Glossary of Certain Terms." OUR CURRENT AND FUTURE CASH POSITION MAY NOT PROVIDE US WITH SUFFICIENT LIQUIDITY. We had cash and cash equivalents at June 30, 2002 of approximately $13.1 million. We believe cash requirements over the remainder of 2002 will be funded through a combination of current cash, future cash flows from operations, amounts available under existing loan agreements, proceeds from potential asset sales, and/or future debt or equity security issuances. Our ability to raise capital is highly dependent upon the commercial viability of our projects and the associated prices of the metals we produce. Because of the significant impact that changes in the prices of silver, gold, lead and zinc have on our financial condition, declines in these metals prices may negatively impact short-term liquidity and our ability to raise additional funding for long-term projects. In the event that cash balances decline to a level that cannot support our operations, our management will defer certain planned capital expenditures and exploration expenditures as needed to conserve cash. If our plans are not successful, operations and liquidity may be adversely affected. ALTHOUGH OUR OPERATIONS WERE PROFITABLE IN 2001 AND THE FIRST SIX MONTHS OF 2002, THERE CAN BE NO ASSURANCE THAT OUR OPERATIONS WILL REMAIN PROFITABLE. For the year ended December 31, 2001, we reported net income of $2.3 million (before preferred stock dividends of approximately $8.1 million), or $0.03 per share, compared to a net loss of approximately $84.0 million (before preferred stock dividends of approximately $8.1 million), or $1.26 per share of common stock for the year ended December 31, 2000. Dividends for our preferred stock brought the loss applicable to common stockholders for 2001 to $5.7 million, or $0.08 per share, compared to a loss of $92.0 million, or $1.38 per share in 2000, after dividends for our preferred stock (of which $4.0 million out of $8.1 million were declared and paid). The effects of the undeclared dividends are reflected in the loss applicable to common stockholders. We recorded net income, before Series B preferred stock dividends, of approximately $5.2 million ($0.07 per common share) and $8.0 million ($0.12 per common share) in the first six months of 2002 and 2001, respectively. Before preferred stock dividends, we recorded net income of approximately $4.8 million ($0.06 per common share) in the second quarter of 2002 compared to a net loss of approximately $1.6 million ($0.02 per common share) in the second quarter of 2001. Our net income for the six months ended June 30, 2002 and 2001, includes a loss from discontinued operations of approximately $0.8 million ($0.01 per common share) in the first six months of 2002 and income of approximately $12.9 million ($0.19 per common share) in the same period in 2001. The income from discontinued operations in 2001 is principally due to a gain of $12.7 million recognized on the sale of the majority of our industrial minerals segment in March 2001. We recorded a loss from discontinued operations of approximately $0.3 million and $0.3 million in the second quarters of 2002 and 2001, respectively. We completed an offer to acquire all of our currently outstanding Series B preferred stock in exchange for newly issued shares of our common stock on July 25, 2002. A total of 1,546,598 shares was validly tendered and exchanged, representing approximately 67.0% of the total number of shares of Series B preferred stock outstanding, into 10,826,186 shares of our common stock. In the third quarter of 2002, we expect to incur a non-cash dividend charge of approximately $17.6 million related to the completed exchange offering. The $17.6 million dividend represents the difference between the value of the common stock issued in the exchange offer and the value of the shares that were issuable under the stated conversion terms of the Series B preferred stock. The non-cash dividend charge will have no impact on our total shareholders' equity as the offset will be an increase in common stock and paid-in-capital. As a result of the completed exchange offering, the total charge to cumulative preferred dividends is anticipated to be $23.4 million for the year ending December 31, 2002. In 2003, the $8.0 million annual cumulative preferred dividends that have historically been included in income (loss) applicable to common shareholders will be reduced to approximately $2.6 million. The completed exchange offering also eliminated $10.9 million of previously undeclared and unpaid preferred stock dividends. 6 Our improvement in net income in 2001 and in the first six months of 2002 has been the result, in large part, of increased gold production, lower silver and gold production costs, lower interest expense, a gain on the sale of our subsidiary, Kentucky-Tennessee Clay Company and, recently, increased gold prices. Despite our recent improvement in net income, prior to 2001, we had incurred net losses from operations for each of the prior ten years. Many of the factors affecting our operating results are beyond our control, and we cannot foresee whether our operations will generate sufficient revenue for us to be profitable. While silver and gold prices improved in the first six months of 2002 over average prices in 2001, there can be no assurance such prices will continue at or above such levels. OUR PREFERRED STOCK HAS A LIQUIDATION PREFERENCE OF $50 PER SHARE, OR $37.7 MILLION, PLUS DIVIDENDS IN ARREARS OF APPROXIMATELY $5.2 MILLION. This means that if we were liquidated at this time, holders of our Series B preferred stock would be entitled to receive approximately $42.9 million from any liquidation proceeds before holders of our common stock would be entitled to receive any proceeds. WE ARE CURRENTLY INVOLVED IN ONGOING LITIGATION WHICH MAY ADVERSELY AFFECT US. There are several ongoing lawsuits in which we are involved. If any of these cases results in a substantial monetary judgment against us or is settled on unfavorable terms, our results of operations, financial condition and cash flows could be materially adversely affected. See "Business - Legal Proceedings." OUR EARNINGS MAY BE AFFECTED BY METALS PRICE VOLATILITY. The majority of our revenues is derived from the sale of silver, gold, lead and zinc and, as a result, our earnings are directly related to the prices of these metals. Silver, gold, lead and zinc prices fluctuate widely and are affected by numerous factors including: * expectations for inflation; * speculative activities; * relative exchange rate of the U.S. dollar; * global and regional demand and production; * political and economic conditions; and * production costs in major producing regions. These factors are beyond our control and are impossible for us to predict. If the market prices for these metals fall below our costs to produce them for a sustained period of time, we will experience additional losses and may have to discontinue development or mining at one or more of our properties. In the past, we have used limited hedging techniques to reduce our exposure to price volatility, but we may not be able to do so in the future. See "--Our hedging activities could expose us to losses." The following table sets forth the average daily closing prices of the following metals for 1980, 1985, 1990, 1995, 1997 and each year thereafter through September 2002. 7
1980 1985 1990 1995 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- (through 9/30/02) Gold (1) $612.56 $317.26 $383.46 $384.16 $331.10 $294.16 $278.77 $279.03 $271.00 305.79 (per oz.) Silver (2) 20.63 6.14 4.82 5.19 4.90 5.53 5.25 5.00 4.39 4.65 (per oz.) Lead (3) 0.41 0.18 0.37 0.29 0.28 0.24 0.23 0.21 0.22 0.21 (per lb.) Zinc (4) 0.34 0.36 0.69 0.47 0.60 0.46 0.49 0.51 0.40 0.35 (per lb.)
- --------------------------- (1) London Final (2) Handy & Harman (3) London Metals Exchange -- Cash (4) London Metals Exchange -- Special High Grade - Cash On October 4, 2002, the closing prices for gold, silver, lead and zinc were $320.30 per ounce, $4.50 per ounce, $0.19 per ounce and $0.33 per ounce. THE VOLATILITY OF METALS PRICES MAY ADVERSELY AFFECT OUR DEVELOPMENT AND EXPLORATION EFFORTS. Our ability to produce silver and gold in the future is dependent upon our exploration efforts, and our ability to develop new ore reserves. If prices for these metals decline, it may not be economically feasible for us to continue our development of a project or to continue commercial production at some of our properties. OUR DEVELOPMENT OF NEW ORE BODIES MAY COST MORE AND PROVIDE LESS RETURN THAN WE ESTIMATED. Our ability to sustain or increase our current level of production of metals partly depends on our ability to develop new ore bodies and/or expand existing mining operations. Before we can begin a development project, we must first determine whether it is economically feasible to do so. This determination is based on estimates of several factors, including: * reserves; * expected recovery rates of metals from the ore; * facility and equipment costs; * capital and operating costs of a development project; * future metals prices; * comparable facility and equipment costs; and * anticipated climate conditions. Development projects may have no operating history upon which to base these estimates, and these estimates are based in large part on our interpretation of geological data, a limited number of drill holes, and other sampling techniques. As a result, actual cash operating costs and returns from a development project may differ substantially from our estimates. 8 OUR ORE RESERVE ESTIMATES MAY BE IMPRECISE. Our ore reserve figures and costs are primarily estimates and are not guarantees that we will recover the indicated quantities of these metals. Reserves are estimates made by our technical personnel and no assurance can be given that the estimate of the amount of metal or the indicated level of recovery of these metals will be realized. Reserve estimation is an interpretive process based upon available data. Further, reserves are valued based on estimates of future costs and future prices. Our reserve estimates for properties that have not yet started may change based on actual production experience. In addition, the economic value of ore reserves may be adversely affected by: * declines in the market price of the various metals we mine; * increased production or capital costs; or * reduced recovery rates. Short-term operating factors relating to our ore reserves, such as the need to sequentially develop ore bodies and the processing of new or different ore grades, may adversely affect our profitability. We use forward sales contracts and other hedging techniques to partially offset the effects of a drop in the market prices of the metals we mine. However, if the price of metals that we produce declines substantially below the levels used to calculate reserves for an extended period, we could experience: * delays in new project development; * increased net losses; * reduced cash flow; * reductions in reserves; and * possible write-down of asset values. OUR AVAILABLE CASH AND CASH FLOWS MAY BE INADEQUATE TO FUND EXPANSION PROJECTS. Based upon our estimate of metals prices and metals production for 2002, we currently believe that our cash on hand, operating cash flows, amounts available under current credit facilities, proceeds from potential asset sales, and/or future debt or equity security issuances will be adequate to fund our: * anticipated minimum capital expenditure requirements; * idle property expenditures; * debt service; and * exploration expenditures. Cash flows from operations, however, could be significantly impacted if the market price of silver, gold, lead and zinc fluctuate. In the event that cash balances decline to a level that cannot support our operations, our management will defer certain planned capital and exploration expenditures as needed to conserve cash for operations. If our plans are not successful, operations and liquidity may be adversely affected. 9 OUR MINERAL EXPLORATION EFFORTS MAY NOT BE SUCCESSFUL. We must continually replace ore reserves depleted by production. Our ability to expand or replace depleted ore reserves depends on the success of our exploration program. Mineral exploration, particularly for silver and gold, is highly speculative. It involves many risks and is often nonproductive. Even if we find a valuable deposit of minerals, it may be several years before production is possible. During that time, it may become economically unfeasible to produce those minerals. Establishing ore reserves requires us to make substantial capital expenditures and, in the case of new properties, to construct mining and processing facilities. As a result of these costs and uncertainties, we may not be able to expand or replace our existing ore reserves as they are depleted by current production. OUR JOINT DEVELOPMENT AND OPERATING ARRANGEMENTS MAY NOT BE SUCCESSFUL. We often enter into joint venture arrangements in order to share the risks and costs of developing and operating properties. For instance, our Greens Creek mine is operated through a joint venture arrangement. Typically, this arrangement means that we own a percentage of the assets in the joint venture. Under the agreement governing the joint venture relationship, each party is entitled to indemnification from each other party and is only liable for the liabilities of the joint venture in proportion to its interest in the joint venture. However, if a party fails to perform its obligations under the joint venture agreement, we could incur losses in excess of our pro-rata share of the joint venture. In the event any party so defaults, the joint venture agreement provides certain rights and remedies to the remaining participants, including the right to sell the defaulting party's percentage interest and use the proceeds to satisfy the defaulting party's obligations. We currently believe that our joint venture partners will meet their obligations. WE FACE STRONG COMPETITION FROM OTHER MINING COMPANIES FOR THE ACQUISITION OF NEW PROPERTIES. Mines have limited lives and as a result, we continually seek to replace and expand our reserves through the acquisition of new properties. In addition, there is a limited supply of desirable mineral lands available in the United States and other areas where we would consider conducting exploration and/or production activities. Because we face strong competition for new properties from other mining companies, some of whom have greater financial resources than we do, we may be unable to acquire attractive new mining properties on terms that we consider acceptable. THE TITLES TO SOME OF OUR PROPERTIES MAY BE DEFECTIVE. Unpatented mining claims constitute a significant portion of our undeveloped property holdings. The validity of these unpatented mining claims is often uncertain and may be contested. In accordance with mining industry practice, we do not generally obtain title opinions until we decide to develop a property. Therefore, while we have attempted to acquire satisfactory title to our undeveloped properties, some titles may be defective. In Mexico a claim has been made, in one court, as to the validity of the ownership of the Velardena mill and, in another court, the validity of a lien that predates acquisition of the mill by our subsidiary. There is no assurance that we will win this litigation. Losing the litigation could result in an interruption of production or even the loss of the mill. OUR OPERATIONS MAY BE ADVERSELY AFFECTED BY RISKS AND HAZARDS ASSOCIATED WITH THE MINING INDUSTRY. Our business is subject to a number of risks and hazards including: * environmental hazards; * political and country risks; * industrial accidents; 10 * labor disputes; * unusual or unexpected geologic formations; * cave-ins; * explosive rock failures; and * flooding and periodic interruptions due to inclement or hazardous weather conditions. Such risks could result in: * damage to or destruction of mineral properties or producing facilities; * personal injury; * environmental damage; * delays in mining; * monetary losses; and * legal liability. For some of these risks, we maintain insurance to protect against these losses at levels consistent with our historical experience and industry practice. However, we may not be able to maintain this insurance, particularly if there is a significant increase in the cost of premiums. Insurance against environmental risks is generally too expensive for us and other companies in our industry, and, therefore, we do not maintain environmental insurance. To the extent we are subject to environmental liabilities, we would have to pay for these liabilities. Moreover, in the event that we are unable to fully pay for the cost of remedying an environmental problem, we might be required to suspend operations or enter into other interim compliance measures. OUR FOREIGN OPERATIONS ARE SUBJECT TO ADDITIONAL INHERENT RISKS. We currently conduct mining operations in Mexico and Venezuela and have exploration projects and operations in Mexico and South America. We anticipate that we will continue to conduct significant international operations in the future. Because we conduct operations internationally, we are subject to political and economic risks such as: * the effects of local political and economic developments; * exchange controls; * currency fluctuations; and * taxation and laws or policies of foreign countries and the United States affecting trade, investment and taxation. Consequently, our exploration, development and production activities outside of the United States may be substantially affected by factors beyond our control, any of which could materially adversely affect our financial position or results of operations. 11 WE FACE SUBSTANTIAL GOVERNMENTAL REGULATION AND ENVIRONMENTAL RISKS. Our business is subject to extensive federal, state and local laws and regulations governing development, production, labor standards, occupational health, waste disposal, use of toxic substances, environmental regulations, mine safety and other matters. We have been, and are currently involved in lawsuits in which we have been accused of violating environmental laws, and we may be subject to similar lawsuits in the future. See "Business - Legal Proceedings." New legislation and regulations may be adopted at any time that results in additional operating expense, capital expenditures or restrictions and delays in the mining, production or development of our properties. We maintain reserves for costs associated with mine closure, reclamation of land and other environmental matters. At June 30, 2002, our reserves for these matters totaled $51.7 million. We anticipate that we will make expenditures relating to these reserves over the next five to ten years. Future expenditures related to closure, reclamation and environmental expenditures are difficult to estimate due to: * the early stage of our investigation; * the uncertainties relating to the costs and remediation methods that will be required in specific situations; * the possible participation of other potentially responsible parties; and * changing environmental laws, regulations and interpretations. It is possible that, as new information becomes available, changes to our estimates of future closure, reclamation and environmental contingencies could materially adversely affect our future operating results. Various laws and permits require that financial assurances be in place for certain environmental and reclamation obligations and other potential liabilities. We currently have in place such financial assurances in the form of surety bonds. As of June 30, 2002, we also had set aside as restricted investments approximately $6.4 million as collateral for these bonds. The amount of the financial assurances and the amount required to be set aside by us as collateral for these financial assurances are dependent upon a number of factors, including our financial condition, reclamation cost estimates, development of new projects, and the total dollar value of financial assurances in place. There can be no assurance that we will be able to maintain or add to our current level of financial assurances. YOU MAY NOT BE ABLE TO SELL THE COMMON STOCK WHEN YOU WANT AND, IF YOU DO, YOU MAY NOT BE ABLE TO RECEIVE THE PRICE YOU WANT. Although our common stock has been actively traded on the New York Stock Exchange (NYSE), we cannot assure you that an active trading market for the common stock will continue or, if it does, at what prices the common stock may trade. OUR HEDGING ACTIVITIES COULD EXPOSE US TO LOSSES. From time to time, we engage in hedging activities, such as forward sales contracts and commodity put and call option contracts, to minimize the effect of declines in metals prices on our operating results. While these hedging activities may protect us against low metals prices, they may also limit the price we can receive on hedged products. As a result, we may be prevented from realizing possible revenues in the event that the market price of a metal exceeds the price stated in a forward sale or call option contract. We are also subject to posting margin if the margin free limit of $10.0 million in the aggregate for all our contracts is exceeded. As of June 30, 2002, our forward contract position had a negative value of $4.7 million. In addition, we may experience losses if a counterparty fails to purchase under a contract when the contract price exceeds the spot price of a commodity. 12 OUR BUSINESS DEPENDS ON GOOD RELATIONS WITH OUR EMPLOYEES. Certain of our employees are represented by unions. At June 30, 2002, there were 81 hourly employees at the Lucky Friday mine. The United Steelworkers of America is the bargaining agent for the Lucky Friday hourly employees. The current labor agreement expires on June 16, 2003. At June 30, 2002, there were 103 hourly and 40 salaried employees at the San Sebastian mine. The National Mine and Mill Workers Union represents process plant hourly workers at San Sebastian. Under labor law, wage adjustments are negotiated annually and other contract terms every two years. The contract at San Sebastian is due for negotiation of wages in July 2003 and for wages and other terms in July 2004. At June 30, 2002, there were 351 hourly and 42 salaried employees at our La Camorra Gold mine, most of whom are represented by the Mine Workers Union. The contract with respect to La Camorra will expire in March 2004. We anticipate that we will be able to negotiate a satisfactory contract with each union, but there can be no assurance that this can be done without a disruption to production. OUR STOCKHOLDER RIGHTS PLAN AND PROVISIONS IN OUR CERTIFICATE OF INCORPORATION, OUR BY-LAWS, AND DELAWARE LAW COULD DELAY OR DETER TENDER OFFERS OR TAKEOVER ATTEMPTS THAT MAY OFFER YOU A PREMIUM FOR YOUR COMMON STOCK. Our stockholder rights plan and provisions in our certificate of incorporation, our by-laws, and Delaware law could make it more difficult for a third party to acquire control of us, even if that transaction would be beneficial to you. These impediments include: * the rights issued in connection with the stockholder rights plan that will substantially dilute the ownership of any person or group that acquires 15% or more of our outstanding common stock unless the rights are first redeemed by our board of directors, in its discretion. Furthermore, our board of directors may amend the terms of these rights, in its discretion, including an amendment to lower the acquisition threshold to any amount greater than 10% of the outstanding common stock; * the classification of our board of directors into three classes serving staggered three-year terms; * the ability of our board of directors to issue shares of preferred stock with rights as it deems appropriate without stockholder approval; * a requirement that special meetings of our board of directors may be called only by our chief executive officer or a majority of our board of directors; * a requirement that special meetings of stockholders may only be called pursuant to a resolution approved by a majority of our entire board of directors; * a prohibition against action by written consent of our stockholders; * a requirement that our board members may only be removed for cause and by an affirmative vote of at least 80% of the outstanding voting stock; * a requirement that our stockholders comply with advance-notice provisions to bring director nominations or other matters before meetings of our stockholders; * a prohibition against certain business combinations with an acquirer of 15% or more of our common stock for three years after such acquisition unless the stock acquisition or the business combination is approved by our board prior to the acquisition of the 15% interest, or after such acquisition our board and the holders of two-thirds of the other common stock approve the business combination; and * a requirement that prohibits us from entering into some business combinations with interested stockholders without the affirmative vote of the holders of at least 80% of the voting power of the then outstanding shares of voting stock. 13 The existence of the stockholder rights plan and these provisions may deprive you of an opportunity to sell your stock at a premium over prevailing prices. The potential inability of our stockholders to obtain a control premium could adversely affect the market price for our common stock. For a description of our stockholder rights plan, see "Description of Common Stock - Rights." WE ARE DEPENDENT ON KEY PERSONNEL. We are currently dependent upon the ability and experience of our executive officers and there can be no assurance that we will be able to retain all of such officers. The loss of one or more of the officers could have a material adverse effect on our operations. We also compete with other companies both within and outside the mining industry in connection with the recruiting and retention of qualified employees knowledgeable in mining operations. SELLING STOCKHOLDERS The selling stockholders are Great Basin Gold Ltd., Hecla Mining Company Retirement Plan and Lucky Friday Pension Plan. Great Basin Gold Ltd. and its affiliate entered into an Earn-In Agreement on August 2, 2002 with us and our affiliate. Pursuant to the agreement, described in more detail under "Business - Exploration," Great Basin Gold Ltd. was issued a warrant to purchase 2,000,000 shares of our common stock as of the date of execution of the Earn-In Agreement. The warrant is exercisable on or before August 1, 2004 at $3.73 per share, but has not yet been exercised. In the event that we elect to conduct certain development activities, Great Basin will receive an additional warrant to purchase 1,000,000 shares of our common stock, and, upon completion of development activities, Great Basin will receive a final warrant to purchase 1,000,000 shares of our common stock. Under the terms of a registration rights agreement between us and Great Basin Gold Ltd., we are required to register the common stock that may be issued in the event that Great Basin exercises such warrants within four months after their issuance. Hecla Mining Company Retirement Plan and Lucky Friday Pension Plan (the Hecla Benefit Plans) are employee benefit plans in which certain of our employees can participate. The trustee for each Hecla Benefit Plan purchased our stock at the instruction of its independent fiduciary. In connection with the purchase, each plan received the right to request that we register the shares of common stock held by each plan. In connection with prudent investment strategy and in order to comply with certain guidelines governing the concentration and size of investments held by our employee benefit plans, our board has instructed management to work with the Hecla Benefit Plans and their investment managers to reduce the number of equity securities held by each plan, including our common stock. The following table sets forth the number of shares of common stock beneficially owned by each of the selling stockholders as of September 30, 2002, based on information provided to us by such selling stockholders. We are not able to state with certainty the amount of stock that will be held by each selling stockholder after the completion of this offering because each selling stockholder may offer all or some of its shares, and because there currently are no agreements, arrangements, or understandings with respect to the sale of any of the stock (other than registration rights agreements). The following table assumes that (i) Great Basin exercises its warrant and (ii) all of the shares of stock offered pursuant to this prospectus will be sold. The selling stockholders are not making any representation that any stock covered by this prospectus will be offered for sale. The selling stockholders reserve the right to accept or reject, in whole or in part, any proposed sale of stock.
Total Number Shares Total Number of of Shares Offered Shares Remaining Name Before Sale Hereby After Sale Percent of Class ---- ----------- ------ ---------- ---------------- Hecla Mining Company Retirement Plan....... 4,559,574 3,207,284 1,352,290 1.6% Lucky Friday Pension Plan.................. 1,127,509 787,964 339,545 0.4% Great Basin Gold Ltd....................... 2,000,000 2,000,000 0 0.0%
This prospectus also covers any additional shares of common stock that become issuable in connection with the stock being offered by reason of any stock dividend, stock split, recapitalization, or other similar transaction effected without the receipt of consideration which results in an increase in the number of our outstanding shares of common stock. In addition, each share of common stock is accompanied by a series A junior participating preferred stock purchase right entitling the holder to purchase additional shares of our common stock under certain circumstances. 14 PLAN OF DISTRIBUTION The stock covered by this prospectus may be offered, sold, or distributed from time to time by the selling stockholders named in this prospectus, or by their donees, pledgees, transferees, or other successors in interest. The selling stockholders may sell their stock at market prices prevailing at the time of sale, at prices related to such prevailing market prices at the time of sale, at negotiated prices, or at fixed prices, which may be changed, and which may represent a discount from the prevailing market price. Each selling stockholder reserves the right to accept or reject, in whole or in part, any proposed purchase of stock, whether the purchase is to be made directly or through agents. We are not aware that any selling stockholder has entered into any arrangements with any underwriters or broker-dealers regarding the sale of its shares of common stock. The selling stockholders may offer their stock at various times in one or more of the following transactions under this prospectus: * in ordinary brokers' transactions and transactions in which a broker solicits purchasers; * in transactions involving cross or block trades or otherwise on any national securities exchange or quotation system on which our common stock may be listed or quoted; * in transactions in which brokers, dealers, or underwriters purchase the stock as principal and resell the stock for their own accounts pursuant to this prospectus; * in transactions "at the market" to or through market makers in our common stock; * in other ways not involving market makers or established trading markets, including direct sales of stock to purchasers or sales of stock effected through agents; * in transactions in options, swaps, or other derivatives which may or may not be listed on an exchange; * in privately negotiated transactions; * in transactions to cover short sales; or * in a combination of any of the foregoing transactions. In addition, the selling stockholders also may sell their stock in private transactions or in accordance with Rule 144 under the Securities Act of 1933 (Securities Act), to the extent eligible thereunder, rather than under this prospectus. From time to time, one or more of the selling stockholders may pledge or grant a security interest in some or all of the stock owned by it. If a selling stockholder defaults in performance of the secured obligations, the pledgees or secured parties may offer and sell the stock from time to time. A selling stockholder also may transfer and donate stock in other circumstances. If a selling stockholder donates or otherwise transfers its stock, the number of shares of stock beneficially owned by it will decrease as and when it takes these actions. The plan of distribution for the stock offered and sold under this prospectus will otherwise remain unchanged, except that the transferees, donees, or other successors in interest will be selling stockholders for purposes of this prospectus. The selling stockholders may use brokers, dealers, underwriters, or agents to sell their stock. The persons acting as agents may receive compensation in the form of commissions, discounts, or concessions. This compensation may be paid by the selling stockholders or the purchasers of the stock for whom such persons may act as agent, or to whom they may sell as 15 principal, or both. The selling stockholders and any agents or broker-dealers that participate with it in the offer and sale of the stock may be deemed to be "underwriters" within the meaning of Section 2(a)(11) of the Securities Act. In addition, the broker-dealers' or their affiliates' commissions, discounts, or concessions may qualify as underwriters' compensation under the Securities Act. Neither we nor any selling stockholder can currently estimate the amount of that compensation. If a selling stockholder or any of its agents or broker-dealers qualifies as an "underwriter" within the meaning of the Securities Act, it will be subject to the prospectus delivery requirements of the Securities Act, and we will make copies of this prospectus and any supplements or amendments thereto available to them for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling stockholders and any other person participating in a distribution of the stock covered by this prospectus will be subject to applicable provisions of the Securities Exchange Act of 1934 (Exchange Act) and the rules and regulations under the Exchange Act, including Regulation M, which may limit the timing of purchases and sales of the stock by the selling stockholders and any other such person. Furthermore, under Regulation M, any person engaged in the distribution of stock may not simultaneously engage in market-making activities with respect to the stock being distributed for certain periods prior to the commencement of or during that distribution. All of the above may affect the marketability of the stock and the ability of any person or entity to engage in market-making activities with respect to the stock. We are registering the common stock under this prospectus to satisfy registration rights of the selling stockholders. Under our agreement with the selling stockholders, we are required to bear the expenses relating to the registration of this offering. The selling stockholders will bear any underwriting discounts or commissions, brokerage fees, or stock transfer taxes. We have agreed to indemnify the Hecla Benefit Plans against certain liabilities arising in connection with this offering, including liabilities under the Securities Act. The selling stockholders may agree to indemnify any agent, dealer, or broker-dealer that participates in transactions involving the shares of common stock against certain liabilities, including liabilities arising under the Securities Act. Upon our being notified by a selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of stock through a block trade, special offering, exchange distribution, or secondary distribution or a purchase by a broker or dealer, we will file with the SEC a supplement to this prospectus, if required, pursuant to Rule 424(b) under the Securities Act. In addition, upon our being notified by a selling stockholder that a donee, pledgee, transferee, or other successor in interest intends to sell more than 500 shares of stock, we will file with the SEC a supplement to this prospectus. SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS This prospectus includes forward-looking statements that reflect our current expectations and projections about our future results, performance, prospects, and opportunities. We have tried to identify these forward-looking statements by using words such as "may," "will," "expect," "anticipate," "believe," "intend," "plan," "estimate," and similar expressions. These forward-looking statements are based on information currently available to us and 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: * metals prices and price volatility; * amount of metals production; * costs of production; * remediation, reclamation, and environmental costs; * regulatory matters; * the results or settlements of pending litigation; 16 * cash flow; * revenue calculations; * the nature and availability of financing; and * project development risks. See "Risk Factors" for a description of these factors. Other matters, including unanticipated events and conditions, also may cause our actual future results to differ materially from these forward-looking statements. We cannot assure you that our expectations will prove to be correct. In addition, all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements mentioned above. You should not place undue reliance on these forward-looking statements. All of these forward-looking statements are based on our expectations as of the date of this prospectus. 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. USE OF PROCEEDS The selling stockholders are offering all of the shares of common stock covered by this prospectus. We will not receive any proceeds from the sales of these shares. PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY Our common stock is listed on the New York Stock Exchange under the symbol "HL." As of September 30, 2002, we had 8,673 common stockholders of record. Quarterly high and low stock prices, based on the New York Stock Exchange composite transactions, are shown below: Fiscal Year Quarter High ($) Low ($) - ----------- ------- -------- ------- 2002 First 1.99 0.90 Second 5.90 1.90 Third 5.20 2.20 2001 First 1.00 0.50 Second 1.70 0.66 Third 1.26 0.78 Fourth 1.27 0.77 2000 First 2.00 1.25 Second 1.50 1.00 Third 1.13 0.75 Fourth 0.94 0.50 We have not declared or paid any cash dividends on our capital stock or other securities for several years and do not anticipate paying any cash dividends in the foreseeable future. We are currently restricted from paying dividends on our common stock or repurchasing common stock until such time as we have paid the cumulative dividends on our Series B preferred stock. In addition, we have entered into loan documents that constrain our ability to pay dividends on our common stock or repurchase our common stock. 17 SELECTED FINANCIAL DATA (in thousands, except per share data and shareholder/employee data) The following table sets forth selected historical consolidated financial data for us for each of the years ended December 31, 1997 through 2001, derived from our audited financial statements. The following table also sets forth selected historical consolidated financial data for the three months ended June 30, 2001 and 2002, and the six months ended June 30, 2001 and 2002, derived from our unaudited consolidated financial statements. The data set forth below should be read in conjunction with, and is qualified in its entirety by reference to our financial statements, beginning on page F-1 of this prospectus.
Three Months Six Months Ended June 30, Ended June 30, Years Ended December 31, -------------- -------------- ---------------------------------------------------------- 2002 2001 2002 2001 2001 2000 1999(1) 1998 1997 ---- ---- ---- ---- ---- ---- ---- ---- ---- Sales of products $ 28,663 $ 24,561 $ 52,045 $ 40,978 $ 85,247 $ 75,850 $ 73,703 $ 75,108 $ 89,486 ========== ========== ========== ========== ========== ========== ========== ========== ========== Income (loss) from continuing operations $ 5,058 $ (1,288) $ 6,027 $ (4,898) $ (9,582) $ (84,847) $ (43,391) $ (4,674) $ (3,741) Income (loss) from discontinued operations (2) (303) (267) (786) 12,878 11,922 1,529 4,786 4,374 3,258 Preferred stock dividends (3) (2,013) (2,013) (4,025) (4,025) (8,050) (8,050) (8,050) (8,050) (8,050) Income (loss) applicable to common shareholders (4) $ 2,742 $ (3,568) $ 1,216 $ 3,955 $ (5,710) $ (92,015) $ (48,040) $ (8,350) $ (8,533) ========== ========== ========== ========== ========== ========== ========== ========== ========== Income (loss) from continuing operations per common share $ 0.04 $ (0.05) $ 0.03 $ (0.13) $ (0.25) $ (1.39) $ (0.83) $ (0.23) $ (0.22) ========== ========== ========== ========== ========== ========== ========== ========== ========== Basic and diluted income (loss) per common share $ 0.04 $ (0.05) $ 0.02 $ 0.06 $ (0.08) $ (1.38) $ (0.77) $ (0.15) $ (0.16) ========== ========== ========== ========== ========== ========== ========== ========== ========== Total assets $ 156,228 $ 156,287 $ 156,288 $ 156,287 $ 153,116 $ 194,836 $ 268,357 $ 252,062 $ 250,668 ========== ========== ========== ========== ========== ========== ========== ========== ========== Noncurrent portion of debt $ 7,545 $ 14,370 $ 7,545 $ 14,370 $ 11,948 $ 10,041 $ 55,095 $ 42,923 $ 22,136 ========== ========== ========== ========== ========== ========== ========== ========== ========== Cash dividends paid per common share $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- ========== ========== ========== ========== ========== ========== ========== ========== ========== Cash dividends paid per preferred share(4) $ -- $ -- $ -- $ -- $ -- $ 1.75 $ 3.50 $ 3.50 $ 3.50 ========== ========== ========== ========== ========== ========== ========== ========== ========== Common shares issued 75,153,312 66,920,980 75,153,312 66,920,980 73,068,796 66,859,752 66,844,575 55,166,728 55,156,324 Shareholders of record 8,704 9,703 8,704 9,703 8,926 9,273 9,714 10,162 10,636 Employees 701 790 701 790 701 1,195 1,277 1,184 1,202
- ----------------------------- (1) On January 1, 1999, we changed our method of accounting for start-up costs in accordance with Statement of Position 98-5 "Reporting on the Costs of Start-up Activities." The impact of this change in accounting principle related to unamortized start-up costs associated with our 29.7331% interest in the Greens Creek Mine resulting in a $1.4 million cumulative effect of this charge in accounting principle for the year ended December 31, 1999. (2) In November 2000, our board of directors decided to sell Kentucky-Tennessee Clay Company, K-T Feldspar Corporation, K-T Clay de Mexico and certain other minor inactive minerals companies, which represented the major remaining portion of its industrial minerals segment. Accordingly, the industrial minerals segment has been recorded as a discontinued operation as of and for each of the periods ended presented above. As of June 30, 2002 and 2001, and as of December 31, 2001 and 2000, only, the balance sheets have been reclassified to reflect the net assets of the industrial minerals segment as a discontinued operation. (3) As of June 30, 2002, we have not declared or paid $16.1 million of Series B preferred stock dividends. However, since the dividends are cumulative, they continue to be reported in determining the income (loss) applicable to common stockholders, but are excluded in the amount reported as cash dividends paid per preferred share. We completed an offer to acquire all of our currently outstanding Series B preferred stock in exchange for newly issued shares of our common stock on July 25, 2002. A total of 1,546,598 shares was validly tendered and exchanged, representing approximately 67.0% of the total number of shares of Series B preferred stock outstanding, into 10,826,186 shares of our common stock. In the third quarter of 2002, we expect to incur a non-cash dividend charge of approximately $17.6 million related to the completed exchange offering. The $17.6 million dividend represents the difference between the value of the common stock issued in the exchange offer and the value of the shares that were issuable under the stated conversion terms of the Series B preferred stock. The non-cash dividend charge will have no impact on our total shareholders' equity as the 18 offset will be an increase in common stock and paid-in-capital. As a result of the completed exchange offering, the total charge to cumulative preferred dividends is anticipated to be $23.4 million for the year ending December 31, 2002. In 2003, the $8.0 million annual cumulative preferred dividends that have historically been included in income (loss) applicable to common shareholders will be reduced to approximately $2.6 million. The completed exchange offering also eliminated $10.9 million of previously undeclared and unpaid preferred stock dividends. (4) After recognizing a $0.8 million loss from discontinued operations and $4.0 million in preferred stock dividends, our income applicable to common stockholders for the six months ended June 30, 2002 was approximately $1.2 million, compared to income of $4.0 million in the same period in 2001, after recognizing $12.9 million in income from discontinued operations, due to a gain of $12.7 million on the sale of the majority of our industrial minerals assets and $4.0 million in preferred stock dividends. SUPPLEMENTARY FINANCIAL DATA (in thousands, except share data) The following table sets forth supplementary financial data for us for the first and second quarters of 2002 and each quarter of the years ended December 31, 2000 through 2001, derived from unaudited consolidated financial statements. The data set forth below should be read in conjunction with, and is qualified in its entirety by reference to our financial statements, beginning on page F-1 of this prospectus.
First Second Third Fourth 2002 Quarter Quarter Quarter Quarter Total - --------------------------- ------- ------- ------- ------- ----- Sales of products(1) $ 23,383 $ 28,663 -- -- -- Gross profit(1) $ 3,734 $ 7,857 -- -- -- Net income $ 486 $ 4,755 -- -- -- Preferred stock dividends $ (2,012) $ (2,013) -- -- -- Income (loss) applicable to common shareholders $ (1,526) $ 2,742 -- -- -- Basic and diluted income (loss) per common share $ (0.02) $ 0.04 -- -- -- 2001 - --------------------------- Sales of products(1) $ 16,417 $ 24,561 $ 22,501 $ 21,768 $ 85,247 Gross profit(1) $ 852 $ 2,358 $ 270 $ 1,239 $ 4,719 Net income (loss) $ 9,535 $ (1,555) $ (2,456) $ (3,184) $ 2,340 Preferred stock dividends $ (2,012) $ (2,013) $ (2,013) $ (2,012) $ (8,050) Income (loss) applicable to common shareholders $ 7,523 $ (3,568) $ (4,469) $ (5,196) $ (5,710) Basic and diluted income (loss) per common share $ 0.11 $ (0.06) $ (0.06) $ (0.07) $ (0.08) 2000 - --------------------------- Sales of products(1) $ 17,628 $ 21,005 $ 20,044 $ 17,173 $ 75,850 Gross profit (loss)(1) $ (1,145) $ (1,252) $ (82) $ (2,850) $ (5,329) Net loss $ (7,319) $ (16,712) $ (3,622) $ (56,312) $ (83,965) Preferred stock dividends $ (2,012) $ (2,013) $ (2,013) $ (2,012) $ (8,050) Loss applicable to common shareholders $ (9,331) $ (18,725) $ (5,635) $ (58,324) $ (92,015) Basic and diluted loss per common share $ (0.14) $ (0.28) $ (0.08) $ (0.87) $ (1.38)
- ------------------------------ (1) In November 2000, we decided to sell our industrial minerals operations. As such, the industrial minerals segment is accounted for as a discontinued operation, and the above amounts reflect the accounting treatment of the industrial minerals segment as a discontinued operation. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION We are involved in the exploration, development, mining and processing of silver, gold, lead and zinc. Our silver and gold segment revenues and profitability are strongly influenced by world prices of silver, gold, lead and zinc, which fluctuate widely and are affected by numerous factors beyond our control, including inflation and worldwide forces of supply and demand for precious and base metals. The aggregate effect of these factors is not possible to accurately predict. On March 27, 2001, we completed a sale of the Kentucky-Tennessee Clay Company, K-T Feldspar Corporation, K-T Clay de Mexico and certain other minor inactive industrial minerals companies (collectively the K-T Group). On March 4, 2002, we completed a sale of the pet operations of the Colorado Aggregate division (CAC) of MWCA, one of our wholly owned subsidiaries. As a result of our decision in November 2000 to sell the businesses comprising our industrial minerals segment, it is accounted for as a discontinued operation. PRODUCTION During the quarter and six months ended June 30, 2002, we produced approximately 66,000 and 122,000 ounces of gold compared to approximately 50,000 and 86,000 ounces in the quarter and six months ended June 30, 2001. The following table displays the actual gold production (in thousands of ounces) by operation for the three months ended June 30, 2002 and 2001, actual gold production for the six months ended June 30, 2002 and 2001, projected gold production for the year ending December 31, 2002, and actual gold production for the year ended December 31, 2001:
Actual Actual Three Months Ended Six Months Ended Projected Actual June 30, June 30, June 30, June 30, Dec. 31, Dec. 31, Operation 2002 2001 2002 2001 2002 2001 - --------- ---- ---- ---- ---- ---- ---- La Camorra 46 40 86 68 165 152 Greens Creek (1) 9 6 16 13 30 26 San Sebastian (2) 11 4 20 5 40 16 Other -- -- -- -- -- 1 -------- -------- -------- -------- -------- -------- Totals 66 50 122 86 235 195 ======== ======== ======== ======== ======== ========
- ----------------------- (1) Reflects our portion. (2) Production commenced in May 2001 at the San Sebastian mine. 20 In the quarter and six months ended June 30, 2002, we produced approximately 2.3 and 4.3 million ounces of silver compared to approximately 2.0 and 4.1 million ounces in the quarter and six months ended June 30, 2001. The following table displays the actual silver production (in thousands of ounces) by operation for the three months ended June 30, 2002 and 2001, actual silver production for the six months ended June 30, 2002 and 2001, projected silver production for the year ending December 31, 2002, and actual silver production for the year ended December 31, 2001:
Actual Actual Three Months Ended Six Months Ended Projected Actual June 30, June 30, June 30, June 30, Dec. 31, Dec. 31, Operation 2002 2001 2002 2001 2002 2001 - --------- ---- ---- ---- ---- ---- ---- Lucky Friday 594 973 1,007 2,090 1,700 3,224 Greens Creek 859 760 1,688 1,726 3,200 3,260 San Sebastian 881 237 1,649 282 3,300 950 -------- -------- -------- -------- -------- -------- Totals 2,334 1,970 4,344 4,098 8,200 7,434 ======== ======== ======== ======== ======== ========
During 2001, we produced approximately 195,000 ounces of gold compared to approximately 146,000 ounces in 2000. The following table displays the actual gold production (in thousands of ounces) by operation for the years ended December 31, 2001, 2000 and 1999:
Actual Actual Actual Dec. 31, Dec. 31, Dec. 31, Operation 2001 2000 1999 --------- ---- ---- ---- La Camorra (1) 152 93 17 Greens Creek (2) 26 25 24 San Sebastian (3) 16 -- -- Rosebud (2)(4) -- 24 56 Other sources (2)(5) 1 4 13 -------- -------- -------- Totals 195 146 110 ======== ======== ========
- ------------------------ (1) Production commenced under our ownership in October 1999 at the La Camorra mine. (2) Reflects our portion. (3) Production commenced in May 2001 at the San Sebastian mine. (4) The Rosebud mine completed operations in the third quarter of 2000. (5) Includes production from La Choya and other sources. In 2001, we produced approximately 7.4 million ounces of silver compared to approximately 8.0 million ounces in 2000. The following table displays the actual silver production (in thousands of ounces) by operation for the years ended December 31, 2001, 2000 and 1999:
Actual Actual Actual Dec. 31, Dec. 31, Dec. 31, Operation 2001 2000 1999 --------- ---- ---- ---- Lucky Friday 3,224 5,012 4,441 Greens Creek 3,260 2,754 3,051 San Sebastian 950 -- -- Other sources -- 233 125 -------- -------- -------- Totals 7,434 7,999 7,617 ======== ======== ========
In 2000, we shipped approximately 1,078,000 tons of product from the K-T Group, which included ball clay, kaolin and feldspar, as well as approximately 61,000 tons of specialty aggregates from CAC and 130,000 cubic yards of landscape material from the Mountain West Products division (MWP) of MWCA. In 2001, we shipped approximately 261,000 tons from the industrial minerals group, including 20,000 tons from CAC. On March 27, 2001, we completed a sale of the K-T Group for $62.5 million subject to customary post-closing adjustments. We recorded a gain on the sale of the K-T Group of $12.7 million. 21 The proceeds were used to repay a term loan facility of $55.0 million and to repay amounts outstanding under a $2.0 million revolving bank agreement. The remaining net proceeds were available for general corporate purposes. On March 4, 2002, we completed a sale of the pet operations of CAC for approximately $1.6 million in cash. During 2000, we sold substantially all of the assets of MWP and the landscape operations of CAC. We continue to pursue a sale of the remaining assets of MWCA consisting of the briquette operations, although there can be no assurance that a sales transaction will occur. On April 30, 2001, our wholly owned subsidiary, Minera Hecla, S.A. de C.V. (Minera Hecla) acquired a processing mill at Velardena, Mexico, to process ore to be mined from the San Sebastian project on the Saladillo mining concessions located near Durango, Mexico. The purchase price of $7.4 million was financed by a credit facility between Minera Hecla and the lender. The credit facility is nonrecourse to us. Ore mined from the San Sebastian project is trucked approximately 120 kilometers to the processing mill. The mill has a rated capacity of 500 tonnes per day and produces a silver/gold precipitate which is sold to a precious metals refiner. Milling operations commenced in early May 2001 and production from San Sebastian during 2001 was approximately 1.0 million ounces of silver and 16,000 ounces of gold. On July 17, 2001, we announced that operations at our Lucky Friday silver mine would be reduced, effective October 2001, due to continued low silver and lead prices. Production totaled approximately 3.2 million ounces of silver in 2001, and will be further reduced to approximately 1.7 million ounces in 2002. The reduced production level will allow the mine to remain ready to increase production if and when silver and lead prices increase. Primary development at the mine will be suspended and mining will take place in currently developed areas. We estimate that with minimal additional development the mine can sustain the lower production levels through 2004. We currently anticipate that reduced operations will continue as long as the cost of operating is less than the cost of care and maintenance. RESULTS OF OPERATIONS In this section, we refer to a number of our properties by name. You can find additional information on these properties under "Business." THREE MONTHS AND SIX MONTHS ENDING JUNE 30, 2002 COMPARED TO THE SAME PERIOD IN 2001 We recorded net income, before preferred stock dividends, of approximately $5.2 million ($0.07 per common share) and $8.0 million ($0.12 per common share) in the first six months of 2002 and 2001, respectively. Before preferred stock dividends, we recorded net income of approximately $4.8 million ($0.06 per common share) in the second quarter of 2002 compared to a net loss of approximately $1.6 million ($0.02 per common share) in the second quarter of 2001. Our net income for the six months ended June 30, 2002 and 2001, includes a loss from discontinued operations of approximately $0.8 million ($0.01 per common share) in the first six months of 2002 and income of approximately $12.9 million ($0.19 per common share) in the same period in 2001. The income from discontinued operations in 2001 is principally due to a gain of $12.7 million recognized on the sale of the majority of our industrial minerals segment in March 2001. We recorded a loss from discontinued operations of approximately $0.3 million and $0.3 million in the second quarters of 2002 and 2001, respectively. On March 27, 2001, we completed a sale of the Kentucky-Tennessee Clay Company, Kentucky-Tennessee Feldspar Corporation, Kentucky-Tennessee Clay de Mexico and certain other minor inactive industrial minerals companies (collectively the K-T Group) and recorded a gain of $12.7 million in the first six months of 2001. On March 5, 2002, we completed a sale of the pet operations of Colorado Aggregate division (CAC) of MWCA, our wholly owned subsidiary for $1.6 million in cash. The sale of the pet operations did not result in a gain or loss. The quarters and six months ended June 30, 2002 and 2001 included $2.0 million and $4.0 million, respectively, in dividends to holders of our Series B Cumulative Convertible Preferred Stock. Although we have elected not to declare or pay the dividends for the quarters and six months ended June 30, 2002 and 2001, because these dividends are cumulative, the effects of the undeclared dividends are reflected in the income (loss) applicable to common shareholders, 22 but are excluded in the amount reported as cash dividends paid per preferred share. As of June 30, 2002, we have not declared or paid $16.1 million of Series B preferred stock dividends. However, since the dividends are cumulative, they continue to be reported in determining the income (loss) applicable to common stockholders, but are excluded in the amount reported as cash dividends paid per preferred share. We completed an offer to acquire all of our currently outstanding Series B preferred stock in exchange for newly issued shares of our common stock on July 25, 2002. A total of 1,546,598 shares was validly tendered and exchanged, representing approximately 67.0% of the total number of shares of Series B preferred stock outstanding, into 10,826,186 shares of our common stock. In the third quarter of 2002, we expect to incur a non-cash dividend charge of approximately $17.6 million related to the completed exchange offering. The $17.6 million dividend represents the difference between the value of the common stock issued in the exchange offer and the value of the shares that were issuable under the stated conversion terms of the Series B preferred stock. The non-cash dividend charge will have no impact on our total shareholders' equity as the offset will be an increase in common stock and paid-in-capital. As a result of the completed exchange offering, the total charge to cumulative preferred dividends is anticipated to be $23.4 million for the year ending December 31, 2002. In 2003, the $8.0 million annual cumulative preferred dividends that have historically been included in income (loss) applicable to common shareholders will be reduced to approximately $2.6 million. The completed exchange offering also eliminated $10.9 million of previously undeclared and unpaid preferred stock dividends. We recorded income applicable to common shareholders of approximately $1.2 million ($0.02 per common share) and $4.0 million ($0.06 per common share) in the first six months of 2002 and 2001, respectively. We recorded income applicable to common shareholders of approximately $2.7 million ($0.04 per common share) in the second quarter of 2002 compared to a loss applicable to common shareholders of approximately $3.6 million ($0.02 per common share) in the second quarter of 2001. The following table compares the average metal prices for the three months and six months ended June 30, 2002 with the comparable 2001 period:
Three Months Ended June 30, Metal 2002 2001 $ Change % Change - ------------------------- --------- --------- --------- --------- Gold-Realized ($/oz.) $ 304 $ 277 $ 27 10% Gold-London Final ($/oz.) $ 313 $ 268 $ 45 17% Silver-Handy & Harman ($/oz.) $ 4.75 $ 4.40 $ 0.35 8% Lead-LME Cash ($/pound) $ 0.216 $ 0.223 $ (0.007) (3)% Zinc-LME Cash ($/pound) $ 0.363 $ 0.453 $ (0.090) (20)% Six Months Ended June 30, Metal 2002 2001 $ Change % Change - ------------------------- --------- --------- --------- --------- Gold-Realized ($/oz.) $ 300 $ 278 $ 22 8% Gold-London Final ($/oz.) $ 302 $ 266 $ 36 14% Silver-Handy & Harman ($/oz.) $ 4.63 $ 4.48 $ 0.15 3% Lead-LME Cash ($/pound) $ 0.214 $ 0.217 $ (0.003) (1)% Zinc-LME Cash ($/pound) $ 0.357 $ 0.443 $ (0.086) (19)%
GOLD OPERATIONS - --------------- Sales of product increased by $0.6 million and cost of sales and other direct production costs as a percentage of sales from products decreased to 32.5% during the second quarter of 2002 from 48.3% in the second quarter of 2001. Sales of product increased by $5.2 million and cost of sales and other direct production costs as a percentage of sales from products decreased to 40.7% in the first six months of 2002 from 48.4% in the first six months of 2001. The improvement to sales, as well as to cost of sales and other direct production costs as a percentage of sales, for the quarter and six-month period are primarily due to increased mine equipment availability and improvements to 23 the crushing, milling and adsorption capacities, creating increases in tons milled and gold ounces produced. Also contributing to the improvements were increases in the average market price of gold, which increased 17% and 14%, respectively, in the second quarter and six months ended June 30, 2002, as compared to the same periods in 2001. During the first six months of 2002, La Camorra has produced approximately 86,000 ounces of gold at a total cash cost of $134 per gold ounce, a 27% increase in gold production when compared to approximately 68,000 ounces at a total cash cost of $137 per gold ounce during the first six months of 2001. Gold production at La Camorra is projected at approximately 165,000 ounces for the year ending December 31, 2002. SILVER OPERATIONS - ----------------- For the quarter and six months ended June 30, 2002, the segment reported gross profits of $2.8 million and $3.4 million compared to gross losses of $0.8 million and $1.5 million, respectively, for the quarter and six months ended June 30, 2001. Sales of products increased by $3.5 million and cost of sales and other direct production costs as a percentage of sales from products decreased to 65% in the second quarter of 2002 from 85.8% in the second quarter of 2001. Sales of products increased by $5.9 million and costs of sales and other direct production costs as a percentage of sales from products decreased to 67.3% in the first six months of 2002 from 84.1% in the first six months of 2001. The consolidated improvements in the silver segment primarily are a result of reducing production from the higher cost Lucky Friday mine, increasing production from the lower cost San Sebastian mine and lower costs at the Greens Creek mine. Our silver production totaled 2.3 million and 4.3 million ounces, respectively, for the quarter and six months ended June 30, 2002, as compared to 2.0 million and 4.1 million silver ounces, respectively, in the same periods in 2001. The average total cash cost decreased 39% and 33%, respectively, during the second quarter and six months ended June 30, 2002, when compared to the same periods during 2001. For the quarter and six months ended June 30, 2002, the San Sebastian mine, located in the State of Durango, Mexico, reported sales of $6.7 million and $12.1 million, compared to $2.5 million and $2.5 million in the same periods of 2001, the result of the commencement of operations in May 2001. During the first six months of 2002, San Sebastian has produced approximately 1.6 million ounces of silver at a low total cash cost of $1.38 per silver ounce. Silver and gold production at San Sebastian are estimated to be approximately 3.3 million ounces and 40,000 ounces, respectively, for the year ending December 31, 2002. The Greens Creek mine, a 29.73%-owned joint-venture arrangement with Kennecott Greens Creek Mining Company located on Admiralty Island, near Juneau, Alaska, reported sales of $7.0 million and $11.7 million for the quarter and six months ended June 30, 2002, as compared to $6.1 million and $10.5 million during the same periods in 2001, primarily due to higher tonnage throughput resulting in higher concentrate tons produced and better recoveries in the gravity circuit, leading to improved lead/silver/gold distributions. Although Greens Creek's silver production remained approximately the same at 1.7 million ounces for the first six months of 2002 and 2001, production of gold ounces and lead and zinc tons all increased by about 20%. The total cash cost per silver ounce decreased from $2.11 in the first six months of 2001 to $1.68 in the first six months of 2002. For the year ending December 31, 2002, production is forecasted to total approximately 3.2 million silver ounces, 30,000 ounces of gold and 8,000 and 24,000 tons of lead and zinc, respectively. The Lucky Friday mine, located in northern Idaho and a producing mine for us since 1958, reported sales of approximately $3.0 million during the second quarter of 2002, as compared to $4.6 million during the second quarter of 2001. For the six months ended 2002, Lucky Friday reported sales of $4.9 million, compared with $10.0 million during the same period in 2001. The decrease in sales in the quarter and six months ended June 30, 2002, are a reflection of the reduction to approximately 30% of historical production beginning October 2001, a decision made based on the continuous decline over a ten-year period of silver and lead prices. We estimate that with minimal additional development the mine can sustain the lower production levels through 2004. During the second quarter of 2002, the total cash cost per silver ounce decreased 20% to $3.91, from $4.90 during the second quarter of 2001. The total cash cost per silver ounce decreased from $4.71 in the first six months of 2001 to $4.29 in the first six months of 2002. During the second quarter and the first six months of 2002, 24 approximately $0.2 million and $0.4 million, respectively, of costs were classified as care-and-maintenance costs and excluded from the determination of the costs per ounce at Lucky Friday. Including the care-and-maintenance costs, the total cash cost per ounce total $4.25 for the second quarter and $4.70 for the six months ended. For the year ending December 31, 2002, production is forecasted to total approximately 1.7 million silver ounces and 9,000 tons of lead, as compared with total actual production for the year ended December 31, 2001, of 3.2 million silver ounces and 21,000 tons of lead, respectively. CORPORATE MATTERS - ----------------- Exploration expense increased $0.4 million (55%) and $0.4 million (34%), in the quarter and six months ended June 30, 2002, compared to the same periods in 2001, primarily due to increased exploration expenditures in Venezuela ($0.5 million and $0.7 million, respectively), at Greens Creek ($0.2 million and $0.2 million, respectively), partly offset by decreased expenditures in Mexico ($0.2 million and $0.3 million, respectively). Our provision for closed operations and environmental matters decreased $0.3 million (65%) and $0.7 million (74%), in the quarter and six months ending June 30, 2002, as compared to the same periods in 2001, principally due to decreased expenditures relating to the Coeur d'Alene Basin Litigation ($0.3 million and $0.6 million, respectively). Interest expense decreased $1.7 million, or 64%, in the first six months of 2002, compared to the first six months of 2001, primarily the result of repayment of a $55.0 million term loan facility in March 2001. Interest expense decreased $0.1 million in the second quarter 2002 as compared to the second quarter of 2001. Miscellaneous expense decreased $0.7 million (155%) and $0.9 million (111%), in the quarter and six months ending June 30, 2002, compared to the same periods in 2001, primarily due to a foreign exchange gain ($1.4 million and $1.6 million, respectively) in 2002 due to the devaluation of the Venezuelan Bolivar, offset by accruals for tax offset bonuses on employee stock option plans ($0.5 million and $0.5 million, respectively) and legal, consulting and accounting expenses regarding our Series B preferred stock tender offer and various other corporate matters. YEAR 2001 COMPARED TO YEAR 2000 We recorded a loss from continuing operations, before preferred stock dividends, of approximately $9.6 million, or $0.14 per share, in 2001 compared to a loss from continuing operations, before an extraordinary charge and preferred stock dividends, of approximately $84.8 million, or $1.27 per share, in 2000. After recognizing $11.9 million in income from discontinued operations and $8.1 million (which has not been declared or paid) in dividends to holders of our Series B preferred stock, our loss applicable to common stockholders for 2001 was approximately $5.7 million, or $0.08 per share, compared to a loss of $92.0 million, or $1.38 per share, in 2000 after recognition of $1.5 million in income from discontinued operations, a $0.6 million extraordinary charge for the write-off of debt issuance costs related to extinguished debt, and $8.1 million (only $4.0 million of which was declared or paid) in dividends to holders of our Series B preferred stock. Although we did not declare the dividends for the year 2001 and the third and fourth quarters of 2000, because these dividends are cumulative, the effect of the undeclared dividends are reflected in the loss applicable to common stockholders. During 2000, adjustments to the carrying value of mining properties totaled $40.2 million, including an adjustment of $31.2 million to reduce the carrying value of the Lucky Friday mine property, plant and equipment. Additionally during 2000, we recorded adjustments of $4.4 million for properties, plants and equipment and supply inventory at the Rosebud mine and $4.7 million for previously capitalized development costs at the Noche Buena gold property. During 2001, there were no adjustments to the carrying value of mining properties. Our provision for closed operations and environmental matters decreased $18.7 million from $20.0 million in 2000 to $1.3 million in 2001. The reduction resulted principally from a decrease at the Grouse Creek mine and the Bunker Hill Superfund site of $17.8 million, primarily due to 2000 environmental and reclamation accruals for future environmental and reclamation expenditures. 25 Sales of products increased by approximately $9.4 million, or 12%, from $75.8 million in 2000 to $85.2 million in 2001, primarily due to: * increased sales of $9.9 million from gold operations principally as a result of increased production at the La Camorra mine ($16.6 million), partly offset by the completion of mining activity at the Rosebud mine ($6.6 million) in the third quarter of 2000, and * decreased sales totaling approximately $0.5 million from silver operations primarily due to lower zinc and silver prices, lower production at the Lucky Friday mine ($7.4 million) and decreased hedging activities ($0.9 million) in the 2001 period. These factors are partly offset by increased sales at the San Sebastian mine, due to the commencement of operations in May 2001 ($7.8 million). The following table compares the average metal prices for the years ended December 31, 2001 and 2000:
Metal 2001 2000 $ Change % Change - ------------------------- --------- --------- --------- --------- Gold-Realized ($/oz.) $ 280 $ 284 $ (4) (1)% Gold-London Final ($/oz.) 272 279 (7) (3) Silver-Handy & Harman ($/oz.) 4.36 5.00 (0.64) (13) Led-LME Cash ($/pound) 0.216 0.206 0.010 5 Zinc-LME Cash ($/pound) 0.402 0.512 (0.110) (21)
Cost of sales and other direct production costs decreased approximately $3.0 million, or 5%, from $63.1 million in 2000 to $60.1 million in 2001, primarily due to: * decreased cost of sales at the Rosebud mine ($7.5 million) due to the completion of mining activity in the third quarter of 2000, * decreased cost of sales at the Lucky Friday mine ($5.3 million) resulting from decreased production of silver and lead, * increased cost of sales at the San Sebastian mine ($6.2 million) due to the commencement of operations in May 2001, and * increased cost of sales from the La Camorra and Greens Creek mines ($3.0 million and $1.1 million) due to increased production. Cost of sales and other direct production costs as a percentage of sales decreased from 83.2% in 2000 to 70.4% in 2001. The change was due to increased margins from gold operations resulting from increased production, increased gold ore grade and better efficiencies at the La Camorra mine, decreased production and sales at the Rosebud mine due to the completion of mining activity in 2000, partly offset by lower hedging revenues and lower margins from the silver segment due to lower silver and zinc prices. Depreciation, depletion and amortization increased $2.4 million, or 13%, from $18.1 million in 2000 to $20.5 million in 2001, principally due to: * increased depreciation from the La Camorra mine due to increased production ($4.7 million), * increased depreciation at the San Sebastian mine ($1.0 million), due to the commencement of operations in May 2001, 26 * decreased depreciation at the Lucky Friday mine ($1.6 million), due to the write-down of assets in December 2000, and * decreased depreciation at the Rosebud mine ($2.0 million), due to the completion of mining activity in the third quarter of 2000. Exploration expense decreased $4.2 million, or 66%, from $6.3 million in 2000 to $2.1 million in 2001. This decrease is principally due to reduced exploration activity in Mexico ($1.4 million), decreased expenditures at the Rosebud mine ($1.3 million), due to completion of operations in the third quarter of 2000, and decreased expenditures at La Camorra and in other South American countries ($0.8 million). Interest expense decreased $4.2 million in 2001 as compared to 2000, primarily the result of the repayment of the $55.0 million term loan facility in March 2001 and decreased loan fees during 2001 as compared to the 2000 period. Interest and other income decreased $1.1 million from $4.6 million in 2000 to $3.5 million in 2001, principally a result of the gains recognized during 2000 on the sale of assets and lower interest income in 2001. Miscellaneous expense increased $1.1 million from $1.8 million in 2000 to $3.0 million in 2001, primarily due to a pension curtailment adjustment related to the Lucky Friday Pension Plan associated with the cut back in operations at the mine. We recorded income from discontinued operations of approximately $11.9 million, or $0.17 per share, in 2001 compared to income of approximately $1.5 million, or $0.02 per share, in 2000. On March 27, 2001, we completed a sale of the K-T Group for $62.5 million, subject to customary post-closing adjustments, and recorded a gain of $12.7 million on the sale in 2001. Other factors contributing to the change include: * decreased sales of approximately $53.4 million, a direct result of the sale of the K-T Group ($47.8 million), as well as decreased shipments at the MWCA group ($5.6 million) due to the sale of MWP in March 2000 and the landscape operation of CAC in June 2000, * decreased cost of sales of $47.0 million, directly due to the lower sales at the K-T Group and the partial sale of MWCA during 2000, * decreased depreciation, depletion and amortization of $2.9 million, due to the sale of the K-T Group and the partial sale of MWCA in 2000, * a loss of $1.0 million on the sale of MWP in 2000, and * legal fees during 2001 associated with litigation concerning the failed sale for the K-T Group in January 2001 ($0.8 million). An extraordinary charge of $0.6 million was recorded in 2000 to write off previously unamortized debt issuance costs associated with the extinguishment of debt. Cash operating, total cash and total production cost per gold ounce decreased from $208, $211 and $275 in 2000 to $133, $133 and $200 in 2001, respectively. The decreases in cost per gold ounce were primarily attributable to increased gold production at the La Camorra mine, as well as the completion of mining activity in the third quarter of 2000 at the Rosebud mine. Cash operating, total cash and total production cost per silver ounce decreased from $4.02, $4.02 and $5.49 in 2000 to $3.55, $3.57 and $5.09 in 2001, respectively. The decreases in the cost per silver ounce were due primarily to the addition of the low-cost San Sebastian mine, which commenced operations in May 2001, and the positive impacts of Greens Creek's increased silver production during 2001, resulting from a higher silver grade and increased tons mined. The total cost per ounce was also positively impacted by decreased per ounce depreciation at the Lucky Friday mine due to the write-down of the majority of 27 property, plant and equipment in the fourth quarter of 2000. During the fourth quarter of 2001, approximately $0.4 million of costs were classified as care-and-maintenance costs and included in the determination of the costs per ounce at Lucky Friday. Excluding the $0.4 million in costs, the cash operating, total cash and total production costs per ounce total $3.49, $3.52 and $5.04, respectively, for 2001. YEAR 2000 COMPARED TO YEAR 1999 We recorded a loss from continuing operations, before an extraordinary charge and preferred stock dividends, of approximately $84.8 million, or $1.27 per share, in 2000 compared to a loss from continuing operations, before a cumulative effect of change in accounting principle and preferred stock dividends, of approximately $43.4 million, or $0.70 per share, in 1999. After recognizing $1.5 million in income from discontinued operations, a $0.6 million extraordinary charge for the write-off of debt issuance costs related to extinguished debt, and $8.1 million (only $4.0 million of which has been declared and paid) in dividends to holders of our Series B preferred stock, our loss applicable to common shareholders for 2000 was approximately $92.0 million, or $1.38 per share, compared to a loss of $48.0 million, or $0.77 per share, in 1999 after recognition of $4.8 million in income from discontinued operations, a $1.4 million charge to write off unamortized start-up costs associated with the Greens Creek mine, and $8.1 million in dividends to holders of our Series B preferred stock. Although we did not declare the dividend for the third and fourth quarters of 2000, because these dividends are cumulative, the effect of the undeclared dividends is reflected in the loss applicable to common shareholders. Adjustments to the carrying value of mining properties increased $40.0 million to $40.2 million in 2000 compared with an asset write-down totaling $0.2 million during 1999. In the fourth quarter of 2000, we recorded an adjustment of $31.2 million to reduce the carrying value of the Lucky Friday mine property, plant and equipment in accordance with Statement of Financial Accounting Standard No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The adjustment was necessitated by continuing low silver and lead prices, combined with further declines in silver and lead prices during the fourth quarter of 2000. For the first nine months of 2000, silver averaged $5.08 per ounce and lead averaged $0.203 per pound. During the fourth quarter of 2000, silver decreased to an average of $4.75 per ounce and ended the year at $4.59 per ounce. Lead averaged $0.214 per pound during the fourth quarter and ended the year at $0.214 per pound. We continue to evaluate all available alternatives for developing the next level of the Gold Hunter expansion area in the current metals price environment. Additionally, during the second quarter of 2000, we recorded adjustments of $4.4 million for properties, plants and equipment and supply inventory at the Rosebud mine, and $4.7 million for previously capitalized deferred development costs at the Noche Buena gold property. The $4.4 million adjustment at the Rosebud mine was necessitated due to the closure of the Rosebud mine previously announced by us and Newmont, our joint-venture partner. The Rosebud mine completed mining activity in July 2000 and milling activities in August 2000. At the Noche Buena property, we suspended activities in 1999 due to the low price for gold. Based upon the continuation of the lower gold price, an adjustment to the carrying value of the Noche Buena property was recorded in the second quarter of 2000. Sales of products increased by approximately $2.1 million, or 2.9%, from $73.7 million in 1999 to $75.8 million in 2000, primarily due to: * increased sales of $8.0 million from gold operations principally as a result of the acquisition of the La Camorra mine in June 1999, partly offset by the completion of mining and milling activities at the Rosebud mine in August 2000, and * decreased sales totaling approximately $5.8 million from silver operations primarily due to lower lead and silver prices, partly offset by an increased zinc price and increased production of silver, lead and zinc. 28 The following table compares the average metals prices for 2000 with 1999:
Metal 2000 1999 $ Change % Change - ------------------------- --------- --------- --------- --------- Gold-Realized ($/oz.) $ 284 $ 286 $ (2) (1)% Gold-London Final ($/oz.) 279 279 -- -- Silver-Handy & Harman ($/oz.) 5.00 5.25 (0.25) (5) Led-LME Cash ($/pound) 0.206 0.228 (0.022) (10) Zinc-LME Cash ($/pound) 0.512 0.488 0.024 5
Cost of sales and other direct production costs increased approximately $8.7 million, or 16%, from $54.4 million in 1999 to $63.1 million in 2000, primarily due to: * increased cost of sales from gold operations of $6.4 million due to the acquisition of the La Camorra mine in June 1999, partly offset by lower cost of sales at the Rosebud mine and the La Choya mine, both as a result of the completion of mining activities, and * increased cost of sales from silver operations of $2.2 million resulting from increased production of silver, lead and zinc at the Lucky Friday and Greens Creek mines. Cost of sales and other direct production costs as a percentage of sales increased from 73.9% in 1999 to 83.2% in 2000. The increase was principally a result of decreased margins in both the silver and gold segments. In the gold segment, decreased gold production and higher unit cash costs at the Rosebud mine negatively impacted the gross margin. In the silver segment, lower hedging revenues combined with lower average lead and silver prices led to the reduced margins. Depreciation, depletion and amortization decreased $0.6 million, or 3%, from $18.7 million in 1999 to $18.1 million in 2000, principally due to: * decreased depreciation at the Rosebud mine of $3.5 million due to completion of mining in July 2000 and milling in August 2000, * decreased depreciation at the La Choya mine of $1.2 million, due to completion of gold production in 1999 as a result of the completion of mining activity in December 1998, * decreased depreciation at the Lucky Friday mine of $0.2 million, and * increased depreciation at the La Camorra mine of $4.3 million as a result of a full year's production in 2000 as compared to three months of production in 1999. Exploration expense increased $0.8 million, or 14%, from $5.5 million in 1999 to $6.3 million in 2000. This increase is principally due to increased expenditures at the Saladillo property in Mexico of $0.8 million, increased exploration at the La Camorra mine of $0.6 million and increased expenditures at the Rosebud mine of $0.4 million. These increases were partly offset by decreased expenditures at the Cacique property of $0.4 million and other properties, principally in Mexico, of $0.6 million. Our provision for closed operations and environmental matters decreased $10.1 million from $30.1 million in 1999 to $20.0 million in 2000. The decrease resulted principally from the 1999 environmental and reclamation expense totaling $27.3 million for future environmental and reclamation expenditures at the Grouse Creek mine and the Bunker Hill Superfund site, which decreased to $12.2 million at Grouse Creek, $5.6 million at the Bunker Hill Superfund site and $2.2 million at various other properties in 2000. Interest expense increased $3.5 million in 2000 as compared to 1999, primarily the result of increased average borrowings including the $11.0 million of the La Camorra project financing put in place in June 1999, $3.0 million of 29 subordinated debt that was outstanding for three additional months in 2000 and the $55.0 million term loan facility put in place in March 2000, replacing a prior revolving $55.0 million credit facility that was in place in 1999. Higher average interest rates and increased loan fees also contributed to the increase in interest expense as compared to 1999. We recorded income from discontinued operations of approximately $1.5 million, or $0.02 per share, in 2000 compared to income of approximately $4.8 million, or $0.08 per share, in 1999. The decrease in 2000 compared to 1999 is primarily due to: * decreased sales totaling approximately $14.8 million, principally the result of decreased shipments at the MWCA group of $16.9 million after the sale of the Mountain West Products division of MWCA on March 15, 2000, and the sale of the landscape operations of CAC on June 5, 2000. The decreases from MWCA were partly offset by increased sales of $2.1 million from the K-T Clay Group, * a loss of $1.0 million on the sale of the Mountain West Products division of MWCA in 2000, * decreased cost of sales of $7.9 million, principally due to the partial sale of MWCA, partly offset by increased costs at the K-T Clay Group resulting from increased sales and increased energy costs, and * 1999 adjustments of $4.4 million made to the carrying value of MWCA. An extraordinary charge of $0.6 million was recorded in 2000 to write off previously unamortized debt issuance costs associated with the extinguishment of our previous $55.0 million revolving credit facility. A cumulative effect of change in accounting principle totaled $1.4 million in 1999, due to the write off of unamortized start-up costs relating to our 29.73% ownership interest in the Greens Creek mine. The adjustment was the result of the required application of Statement of Position No. 98-5, "Reporting on the Costs of Start-up Activities." Cash operating and total cash cost per gold ounce increased from $195 and $205 in 1999 to $208 and $211 in 2000, respectively. The increases in the cash operating and total cash cost per gold ounce were primarily attributable to higher costs per ounce at the Rosebud mine associated with mining of lower-grade ore in 2000. Total production costs per gold ounce decreased from $298 per ounce in 1999 to $275 per ounce in 2000. The decrease in the total production costs per gold ounce was principally due to production from the lower-cost La Camorra mine in 2000 and due to the write-down of the carrying value of the Rosebud mine in the second quarter of 2000, which eliminated the depreciation, depletion and amortization component of the total production cost per ounce at Rosebud in the third quarter of 2000. Cash operating, total cash and total production cost per silver ounce increased from $3.72, $3.72 and $5.25 in 1999 to $4.02, $4.02 and $5.49 in 2000, respectively. The increases in the cost per silver ounce were due primarily to lower average lead prices which negatively impacted by-product credits partly offset by increased production and a favorable zinc price. FINANCIAL CONDITION AND LIQUIDITY Our financial condition continues to improve, with a current ratio of 1.4 to 1 at June 30, 2002, compared to 1 to 1 at December 31, 2001, and cash and cash equivalents of $13.1 million at June 30, 2002, an increase of $5.5 million from December 31, 2001. We believe cash requirements over the remainder of 2002 will be funded through a combination of current cash, future cash flows from operations, amounts available under existing loan agreements proceeds from potential asset sales, and/or future debt or equity security issuances. Our ability to raise capital is highly dependent upon the commercial viability of our projects and the associated prices of metals we produce. Because of the significant impact that changes in the prices of silver, gold, lead and zinc have on our financial condition, declines in these metals prices may negatively impact short-term liquidity and our ability to raise additional funding for long-term projects. There can be no assurance that we will be successful in generating adequate funding for planned capital expenditures, environmental remediation and reclamation expenditures and for exploration expenditures. 30 OPERATING ACTIVITIES Operating activities provided approximately $6.6 million of cash during the first six months of 2002. Significant sources of cash included cash provided by La Camorra and San Sebastian and changes in accrued payroll and related benefits of $0.6 million. Significant uses of cash included changes in accounts and notes receivable ($6.1 million), changes in inventories ($3.4 million), cash required for reclamation activities and other noncurrent liabilities ($2.2 million) and changes in other current and concurrent assets ($0.9 million). Principal noncash elements included charges for depreciation, depletion and amortization of $11.8 million, a change in the net assets of discontinued operations ($0.9 million) and an increase in the provision for reclamation and closure costs ($0.8 million). Operating activities provided approximately $8.0 million of cash during 2001. Significant sources of cash included cash provided by La Camorra, reduced accounts and notes receivable ($4.5 million) and increased accrued payroll and related benefits ($3.1 million). Significant uses of cash included cash required for reclamation activities and other noncurrent liabilities ($7.8 million). Principal non cash charges included charges for depreciation, depletion and amortization of $20.7 million, partly offset by a $12.7 million gain on the sale of the K-T Group. INVESTING ACTIVITIES Investing activities provided $1.3 million of cash during the first six months of 2002. The major use of cash was for additions to properties, plants and equipment ($6.1 million), primarily at the La Camorra, Greens Creek and San Sebastian mines. We currently anticipate that capital expenditures for the remainder of 2002 will be in the range of $6.0 million to $6.5 million, principally for expenditures at the La Camorra, Greens Creek and San Sebastian mines. The cash used for additions to properties, plants and equipment is partially offset by proceeds received on the sale of the corporate headquarters building, which was completed on April 8, 2002, located in Coeur d'Alene, Idaho ($5.6 million), as well as the sale of the pet operations of CAC during the first quarter of 2002 for $1.6 million in cash. We continue to pursue the sale of the remaining assets of CAC, although there can be no assurance a sales transaction will take place. Investing activities provided $42.5 million of cash during 2001. The most significant source of cash was from the sale of the K-T Group ($59.8 million), representing an initial purchase price of $62.5 million less expenses and post closing adjustments, partly offset by additions to properties, plants and equipment totaling $17.9 million, principally at the San Sebastian mine to acquire the Velardena mill ($7.7 million), at the Greens Creek mine ($5.3 million) and at the La Camorra mine ($4.7 million). FINANCING ACTIVITIES During the first six months of 2002, financing activities used approximately $2.3 million in cash, primarily for the repayment of debt of $8.2 million. The repayment of debt was partly offset by borrowings of $3.3 million and proceeds of $2.6 million for common stock issued for outstanding warrants and employee stock options exercised. As of June 30, 2002, we had outstanding debt of $14.1 million, including $6.5 million due to be repaid in the next twelve months. The outstanding debt included project financing facilities for the La Camorra mine in Venezuela ($5.0 million) and the Velardena mill at the San Sebastian mine in Mexico ($6.1 million) and a $3.0 million subordinated loan. During 2001, approximately $44.4 million of cash was used by financing activities. The major use of cash was repayment of debt of $66.2 million, including our $55.0 million term loan facility. This use was partly offset by borrowings of $15.9 million, including $7.4 million at Minera Hecla to finance the Velardena mill purchase. In addition, we received net proceeds of approximately $5.5 million in a private placement of 5.7 million common shares to our pension plans. 31 As of December 31, 2001, we had outstanding debt of $19.0 million, including $7.0 million due to be repaid in the next 12 months. The outstanding debt included project financing facilities for the La Camorra mine in Venezuela ($6.5 million) and the San Sebastian mill in Mexico ($6.7 million), a $3.0 million subordinated loan and $2.8 million outstanding under a $3.0 million revolving credit facility. ENVIRONMENTAL On August 16, 2001, we entered into an agreement in principle with the United States and the State of Idaho to settle the governments' claims for natural resource damages and cleanup costs related to the historic mining practices in the Coeur d'Alene Basin in northern Idaho. Since August 2001, we and EPA have continued to negotiate a final consent decree based upon the terms set forth in the Agreement in Principle. Due to a number of changes that have occurred since the signing of the Agreement in Principle, including improvements in the environmental conditions at Grouse Creek and lower estimated cleanup costs in the Coeur d'Alene Basin as well as our improved financial condition, the terms of the multiple properties settlement approach set forth in the Agreement in Principle no longer appears favorable to us. Therefore, the United States, the State of Idaho and we agreed to discontinue utilizing the Agreement in Principle as a settlement vehicle. However, we continue to negotiate the terms of a settlement with the United States and the State of Idaho that would be limited to resolving our environmental cleanup liabilities for historic mining practices in the Coeur d'Alene Basin. As of June 30, 2002, we have accrued $41.8 million related to Grouse Creek, Yellow Pine, the Bunker Hill Superfund site and other properties located within the Coeur d'Alene Basin. These properties are included in the August 2001 Agreement in Principle which has been abandoned. We have accrued what management believes is the best estimate of the liability as of June 30, 2002, however, it is reasonably possible that our obligation may change in the near or long term depending on a number of factors, including finalization of settlement terms or a ruling from the courts. In addition, an adverse ruling against us for liability and damages in this matter could have a material adverse effect on us. Reserves for closure costs, reclamation and environmental matters totaled $51.7 million at June 30, 2002. We anticipate that expenditures relating to these reserves will be made over the next five to ten years. Although we believe the reserve is adequate based on current estimates of aggregate costs, we periodically reassess our environmental and reclamation obligations as new information is developed. Depending on the results of the reassessment, it is reasonably possible that our estimate of our obligations may change in the near or long term. Expenditures for environmental remediation and reclamation for the remainder of 2002 are estimated in the range of $4.5 to $5.2 million, principally for activities at the Grouse Creek property and the Bunker Hill Superfund site. EXPLORATION Exploration expense increased $0.4 million (55%) and $0.4 million (34%), in the quarter and six months ending June 30, 2002, compared to the same periods in 2001, primarily due to increased exploration expenditures in Venezuela ($0.5 million and $0.7 million, respectively), at Greens Creek ($0.2 million and $0.2 million, respectively), partly offset by decreased expenditures in Mexico ($0.2 million and $0.3 million, respectively). We currently estimate that exploration expenditures for 2002 will be in the range of $5.0 to $7.0 million at or in the vicinity of the San Sebastian, Greens Creek and La Camorra mines, and at the Hollister Development Block in Nevada and on the Block B concessions in Venezuela. See "The Company - Exploration." OTHER On June 13, 2002, we announced our intent to offer to holders of our Series B preferred stock to exchange each of their preferred shares for seven shares of our common stock. Holders of the Series B preferred stock had until July 25, 2002, to tender their preferred shares. A total of 1,546,598 shares was validly tendered and exchanged representing approximately 67.0% of the total number of preferred shares outstanding (2.3 million), into 10,826,186 shares of our common stock. 32 In the third quarter of 2002, we expect to incur a non-cash dividend charge of approximately $17.6 million related to the completed exchange offering. The $17.6 million dividend represents the difference between the value of the common stock issued in the exchange offer and the value of the shares that were issuable under the stated conversion terms of the preferred stock. The non-cash dividend charge will have no impact on our total shareholders' equity as the offset will be an increase in common stock and paid-in-capital. As a result of the completed exchange offering, the total charge to cumulative preferred dividends is anticipated to be $23.4 million for the year ending December 31, 2002. In 2003, the $8.0 million annual cumulative preferred dividends that have historically been included in income (loss) applicable to common shareholders will be reduced to approximately $2.6 million. The completed exchange offering also eliminated $10.9 million of previously undeclared and unpaid preferred stock dividends. Holders of the preferred shares are entitled to receive cumulative cash dividends at the annual rate of $3.50 per share payable quarterly, when and if declared by the board of directors and have voting rights related to certain amendments to our Articles of Incorporation. As of July 31, 2002, we have not declared and paid the equivalent of eight quarterly dividends, entitling holders of the preferred shares to elect two directors at our annual shareholders' meeting. On May 10, 2002, holders of the preferred shares, voting as a class, elected two additional directors. For information on hedged positions and derivative instruments, see "Quantitative and Qualitative Disclosure About Market Risk." We are subject to legal proceedings and claims that have not been finally adjudicated. The ultimate disposition of these matters and various other pending legal actions and claims is not presently determinable. However, an adverse determination in certain of these matters may have a material adverse effect on the financial position of us and our subsidiaries. (See "Business - Legal Proceedings") CONCLUSION We believe our cash requirements over the remainder of 2002 will be funded through a combination of current cash, future cash flows from operations, amounts available under existing loan agreements, proceeds from potential asset sales, and/or future debt or equity security issuances. Our ability to raise capital is highly dependent upon the commercial viability of our projects and the associated prices of the metals we produce. Because of the significant impact that changes in the prices of silver, gold, lead and zinc have on our financial condition, declines in these metals prices may negatively impact short-term liquidity and our ability to raise additional funding for long-term projects. In the event that cash balances decline to a level that cannot support our operations, our management will defer certain planned capital expenditures and exploration expenditures as needed to conserve cash for operations. There can be no assurance that we will be successful in generating adequate funding for planned capital expenditures, environmental remediation and reclamation expenditures and for exploration expenditures. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 was amended in June 2000 with the issuance of SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." SFAS 133, which we adopted effective January 1, 2001, requires that derivatives be recognized as assets or liabilities and be measured at fair value. Gains or losses resulting from changes in the fair value of derivatives in each period are to be accounted for either in current earnings or other comprehensive income (loss) depending on the use of the derivatives and whether they qualify for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in the fair value or cash flows of the hedging instruments and the hedged items. At June 30, 2002, our hedging contracts, used to reduce exposure to precious metal prices, consisted of forward sales contracts and a gold lease rate swap. We intend to physically deliver metal in accordance with the terms of 33 certain of the forward sales contracts. As such, we have accounted for these contracts as normal sales in accordance with SFAS 138 and as a result, these contracts are not required to be accounted for as derivatives under SFAS 133. Certain other forward contracts where delivery is not certain have been designated as cash flow hedges, and the changes in fair value of these cash flow hedges are recorded in other comprehensive income until the contract is closed out. We recorded a cumulative effect of a change in accounting principle in other comprehensive income of approximately $0.1 million loss related to the gold lease rate swap upon adoption of SFAS 133 on January 1, 2001. This amount is being amortized over the physical settlement of ounces subject to the gold lease rate swap. During the next twelve months, approximately $40,000 is expected to be amortized to the income statement. (See "Risk Factors - Our hedging activities could expose us to losses") In April 1998, Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-up Activities" was issued. SOP 98-5 provides guidance on the financial reporting of start-up costs and organizational costs. It requires costs of start-up activities and organizational costs to be expensed as incurred, as well as the recognition of a cumulative effect of a change in accounting principle for retroactive application of the standard. We adopted SOP 98-5 as required on January 1, 1999. The impact of this change in accounting principle related to unamortized start-up costs associated with our 29.73% ownership interest in the Greens Creek mine. The $1.4 million cumulative effect of this change in accounting principle is included in the consolidated statement of operations for the year ended December 31, 1999. Due to the availability of net operating losses, there was no tax effect associated with the change. In June 2001, the FASB issued SFAS No. 141 "Business Combinations" which supersedes APB Opinion No. 16 "Business Combinations" and FASB Statement No. 38 "Accounting for Preacquisition Contingencies of Purchased Enterprises." The provisions of this statement require that all business combinations be accounted for using "purchase accounting" and it disallows the use of "pooling of interests" as previously allowed under APB Opinion No. 16 and FASB Statement No. 38. This statement is effective for all business combinations subsequent to June 30, 2001. The adoption of this statement is not expected to have a material effect on our financial statements. Also in June 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible Assets," which supersedes APB Opinion No. 17 "Intangible Assets." The provisions of this statement changes the unit of account for goodwill and takes a very different approach to how goodwill and other intangible assets are accounted for subsequent to their initial recognition. Because goodwill and some intangible assets will no longer be amortized, the reported amounts of goodwill and intangible assets, as well as total assets, will not decrease at the same time and in the same manner as under previous standards. This statement is effective for all fiscal years beginning subsequent to December 15, 2001. The adoption of this statement did not have a material effect on our financial statements. In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations," which amends SFAS No. 19. This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement required that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The requirements of this statement must be implemented for fiscal years beginning after June 15, 2002; however, early adoption is encouraged. We are currently evaluating what effect the adoption of this standard will have on our financial statements. The FASB also issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. It supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business. It also amends APB No. 51, "Consolidated Financial Statements," to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. The provisions of this Statement are effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The provisions of this Statement generally are to be applied prospectively. The adoption of this statement did not have a material effect on our financial statements. 34 In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS No. 145"). SFAS No. 145 updates, clarifies and simplifies existing accounting pronouncements, by rescinding SFAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in Accounting Principles Board Opinion No. 30 will now be used to classify those gains and losses. Additionally, SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. Finally, SFAS No. 145 also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. The provisions of SFAS No. 145 that amend SFAS No. 13 are effective for transactions occurring after May 15, 2002 with all other provisions of SFAS No. 145 being required to be adopted by us in our consolidated financial statements for the first quarter of fiscal 2003. Our management currently believes that the adoption of SFAS No. 145 will not have a material impact on our consolidated financial statements. On July 30, 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing or other exit or disposal activity. SFAS No. 146 replaces the prior guidance that was provided by EITF Issue No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Our management currently believes that the adoption of SFAS No. 146 will not have a material impact on our consolidated financial statements. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make a wide variety of estimates and assumptions that affect (i) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and (ii) the reported amounts of revenues and expenses during the reporting periods covered by the financial statements. Our management routinely makes judgments and estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions affecting the future resolution of the uncertainties increase, these judgments become even more subjective and complex. We have identified certain accounting policies that are most important to the portrayal of our current financial condition and results of operations. Our significant accounting policies are disclosed in Note 1 to the Consolidated Financial Statements beginning on page F-1 of this prospectus. REVENUE RECOGNITION Sales of metals products sold directly to smelters are recorded when title and risk of loss transfer to the smelter at current spot metals prices. We must estimate the price at which our metals will be sold in reporting our profitability and cash flow. Recorded values are adjusted monthly until final settlement at month-end metals prices. Sales of metal in products tolled, rather than sold to smelters, are recorded at contractual amounts when title and risk of loss transfer to the buyer. Changes in the market price of metals significantly affect our revenues, profitability and cash flow. Metals prices can and often do fluctuate widely and are affected by numerous factors beyond our control, such as political and economic conditions, demand, forward selling by producers, expectations for inflation, central bank sales, the relative exchange rate of the U.S. dollar, purchases and lending, investor sentiment, and global mine production levels. The aggregate effect of these factors is impossible to predict. Because a significant portion of our revenues is derived from the sale of silver, gold, lead and zinc, our earnings are directly related to the prices of these metals. If the market price for these metals falls below our total production costs, we will experience losses on such sales. 35 PROVEN AND PROBABLE ORE RESERVES On a periodic basis, management reviews the reserves that reflect estimates of the quantities and grades of mineralized material at our mines which management believes can be recovered and sold at prices in excess of the total cost associated with extracting and processing the ore. Management's calculations of proven and probable ore reserves are based on in-house engineering and geological estimates using current operating costs, projected metals prices and demand for our products. Reserve estimates will change as existing reserves are depleted through production, as well as changes in estimates caused by changing production cost and/or metals prices. Changes in reserves may also reflect that grades of ore fed to process may be different from stated reserve grades because of variation in grades in areas mined, mining dilution, recoveries and other factors. Reserves estimated for properties that have not yet commenced production may require revision based on actual production experience. Declines in the market price of metals, as well as increased production or capital costs or reduced recovery rates, may render ore reserves uneconomic to exploit unless the utilization of forward sales contracts or other hedging techniques is sufficient to offset such effects. If our realized price for the metals we produce, including hedging benefits, were to decline substantially below the levels set for calculation of reserves for an extended period, there could be material delays in the development of new projects, increased net losses, reduced cash flow, restatements or reductions in reserves and asset write-downs in the applicable accounting periods. Reserves should not be interpreted as assurances of mine life or of the profitability of current or future operations. No assurance can be given that the estimate of the amount of metal or the indicated level of recovery of these metals will be realized. DEPRECIATION AND DEPLETION Depreciation is based on the estimated useful lives of the assets and is computed using straight-line and unit-of-production methods. Depletion is computed using the unit-of-production method. The units-of-production method is based on proven and probable ore reserves. As discussed above, our estimates of proven and probable ore reserves may change, possibly in the near term, resulting in changes to depreciation, depletion, amortization and reclamation accrual rates in future reporting periods. IMPAIRMENT OF LONG-LIVED ASSETS Management reviews the net carrying value of all facilities, including idle facilities, on a periodic basis. We estimate the net realizable value of each property based on the estimated undiscounted future cash flows that will be generated from operations at each property, the estimated salvage value of the surface plant and equipment and the value associated with property interests. These estimates of undiscounted future cash flows are dependent upon the estimates of metal to be recovered from proven and probable ore reserves (see discussion above), future production cost estimates and future metals price estimates over the estimated remaining mine life. If undiscounted cash flows are less than the carrying value of a property, an impairment loss is recognized based upon the estimated expected future cash flows from the property discounted at an interest rate commensurate with the risk involved. Management's estimates of metals prices, recoverable proven and probable ore reserves, and operating, capital and reclamation costs are subject to risks and uncertainties of change affecting the recoverability of our investment in various projects. Although management believes it has made a reasonable estimate of these factors based on current conditions and information, it is reasonably possible that changes could occur in the near term which could adversely affect management's estimate of net cash flows expected to be generated from our operating properties and the need for asset impairment write-downs. ENVIRONMENTAL MATTERS When it is probable that such costs will be incurred and they are reasonably estimable, we accrue costs associated with environmental remediation obligations at the most likely estimate. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study for such facility and are charged to provision for closed operations and environmental matters. We periodically 36 review our accrued liabilities for such remediation costs as evidence becomes available indicating that our remediation liability has potentially changed. Costs of future expenditures for environmental remediation are not discounted to their present value unless subject to a contractually obligated fixed payment schedule. Such costs are based on management's current estimate of amounts that are expected to be incurred when the remediation work is performed within current laws and regulations. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. Future closure, reclamation and environment-related expenditures are difficult to estimate in many circumstances due to the early stages of investigation, uncertainties associated with defining the nature and extent of environmental contamination, the uncertainties relating to specific reclamation and remediation methods and costs, application and changing of environmental laws, regulations and interpretations by regulatory authorities and the possible participation of other potentially responsible parties. Reserves for closure costs, reclamation and environmental matters totaled $51.7 million at June 30, 2002. We anticipate that expenditures relating to these reserves will be made over the next five to ten years. It is reasonably possible that the ultimate cost of remediation could change in the future and that changes to these estimates could have a material effect on future operating results as new information becomes known. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The following discussion about our risk-management activities includes "forward-looking statements" that involve risk and uncertainties, as well as summarizes the financial instruments and derivative instruments we held at June 30, 2002, which are sensitive to changes in interest rates and commodity prices. Actual results could differ materially from those projected in the forward-looking statements. We believe there has not been a material change in our market risk since the end of our last fiscal year. In the normal course of business, we also face risks that are either nonfinancial or nonquantifiable (See "Risk Factors - Our hedging activities could expose us to losses"). INTEREST-RATE RISK MANAGEMENT At June 30, 2002, our debt was subject to changes in market interest rates and was sensitive to those changes. We currently have no derivative instruments to offset the risk of interest rate changes. We may choose to use derivative instruments, such as interest rate swaps, to manage the risk associated with interest rate changes. The following table presents principal cash flows for debt outstanding at June 30, 2002, by maturity date and the related average interest rate. The variable rates are estimated based on implied forward rates in the yield curve at the reporting date.
(in thousands) 2002 2003 2004 2005 Thereafter Total Fair Value ---- ---- ---- ---- ---------- ----- ---------- Subordinated debt $ -- $ 2,000 $ 1,000 $ -- $ -- $ 3,000 $ 3,000 Average interest rate 5.9% 7.0% 8.5% Project financing debt $ 1,500 $ 3,000 $ 500 $ -- $ -- $ 5,000 $ 5,000 Average interest rate 4.4% 5.5% 7.0% Project financing debt $ 642 $ 2,283 $ 837 $ 1,368 $ 960 $ 6,090 $ 6,090 Average interest rate 13% 13% 13% 13% 13%
COMMODITY-PRICE RISK MANAGEMENT We use commodity forward sales commitments, commodity swap contracts and commodity put and call option contracts to manage our exposure to fluctuation in the prices of certain metals which we produce. Contract positions are designed to ensure that we will receive a defined minimum price for certain quantities of our production. We use these instruments to reduce risk by offsetting market exposures. We are exposed to certain losses, generally the amount by which the contract price exceeds the spot price of a commodity, in the event of nonperformance by the counter parties to these agreements. The instruments we hold are not leveraged and are held for purposes other than trading. We intend to physically deliver metals in accordance with the terms of the forward sales contracts. As such, we have elected to designate the contracts as normal sales in accordance with SFAS 138 and as a result, these contracts are not required to be accounted for as derivatives under SFAS 133. 37 The following table provides information about our forward sales contracts at June 30, 2002. The table presents the notional amount in ounces, the average forward sales price and the total-dollar contract amount expected by the maturity dates, which occur between July 8, 2002, and December 31, 2004. As of June 30, 2002, the mark to market value of the contracts was $4.7 million. We are subject to a margin free limit of $10.0 million. At June 28, 2002, the London Final gold price was $319.05.
Expected Expected Expected Estimated Maturity Maturity Maturity Fair 2002 2003 2004 Value ---- ---- ---- ----- Forward contracts: Gold sales (ounces) 30,612 59,802 48,928 Future price (per ounce) $ 288 $ 288 $ 288 Contract amount (in $000's) $ 8,824 $ 17,238 $ 14,103 $ (4,700)
In addition to the above contracts, we have a quarterly Gold Lease Rate Swap at a fixed rate of 1.5% on 123,786 ounces of the above gold forward contracts. The ounces covered under the swap are adjusted each quarter, in accordance with the expiration of the gold forward contracts. To close out the Gold Lease Rate Swap at June 30, 2002, the estimated income to us was approximately $313,000. BUSINESS GENERAL We are principally engaged in the exploration, development and mining of precious and nonferrous metals, including silver, gold, lead and zinc, with an emphasis on silver and gold. We own or have interests in a number of precious and nonferrous metals properties. A glossary of certain terms appears near the end of this prospectus under "Glossary of Certain Terms." The following table presents certain information regarding our metal mining properties, including the relative percentage each contributed to our 2001 sales:
Name of Date Ownership Percentage of Property Acquired Interest 2001 Sales - -------- -------- -------- ---------- Greens Creek 1988 29.73% 23.9% San Sebastian 1999 100.0% 9.1% Lucky Friday(1) 1958 100.0% 18.4% La Camorra 1999 100.0% 48.6%
- ------------------------ (1) In July 2001, we announced that operations at the Lucky Friday mine would be reduced due to low silver and lead prices. Commencing in October 2001, production at the mine was reduced to approximately 30% of full production. We estimate that with minimal additional development the mine can sustain the lower production levels through 2004. Sales of metal concentrates and metal products are made principally to custom smelters and metals traders. The percentage of sales contributed by each class of product is reflected in the following table:
Years Product 2001 2000 1999 ------- ---- ---- ---- Silver, lead and zinc 42.5% 55.3% 64.8% Gold 57.5% 44.7% 35.2%
38 Our sales to significant metals customers, including both the Metals-Gold and Metals-Silver segments, as a percentage of total sales from the Metals-Gold and Metals-Silver segments, were as follows for the year ended December 31, 2001: Customer Percentage of Our Sales -------- ----------------------- Standard Bank 25.2% Cominco 16.3% Penoles 14.1% HSBC 13.8% Mitsubishi 11.2% For information with respect to export sales, refer to Notes 2 and 11 of Notes to Consolidated Financial Statements forming part of our audited Consolidated Financial Statements for the year ended December 31, 2001. Certain production and other information is presented below for or at the years ended December 31, 1999, 2000 and 2001, respectively. For similar information for or at the three and six month periods ended June 30, 2001 and 2002, respectively, see "Management's Discussion And Analysis Of Financial Condition And Results of Operations." The table below summarizes our production and average cash operating cost, average total cash cost and average total production cost per ounce for silver and gold, as well as average metals prices for each period indicated:
Years ----- 2001 2000 1999 ---- ---- ---- Gold (ounces) (1) 194,742 146,038 110,110 Silver (ounces) (2) 7,434,290 7,998,677 7,617,362 Lead (tons) (2) 28,378 39,430 35,195 Zinc (tons) (2) 23,664 25,054 23,299 Average cost per ounce of gold produced: Cash operating cost $ 133 $ 208 $ 195 Total cash cost $ 133 $ 211 $ 205 Total production cost $ 200 $ 275 $ 298 Average cost per ounce of silver produced: Cash operating cost (3) $ 3.55 $ 4.02 $ 3.72 Total cash cost (3) $ 3.57 $ 4.02 $ 3.72 Total production cost (3) $ 5.09 $ 5.49 $ 5.25 Industrial minerals (tons shipped) (4) 260,716 1,268,579 1,192,281 Average metals prices: Gold - Realized ($/oz.) $ 280 $ 284 $ 286 Gold - London Final ($/oz.) $ 272 $ 279 $ 279 Silver - Handy & Harman ($/oz.) $ 4.36 $ 5.00 $ 5.25 Lead - LME Cash ($/pound) $ 0.216 $ 0.206 $ 0.228 Zinc - LME Cash ($/pound) $ 0.402 $ 0.512 $ 0.488
- -------------------------- (1) The increase in gold production from 2000 to 2001 was principally due to increased production at the La Camorra mine of 59,455 ounces, due to an average higher gold grade and an 18% increase in tons processed during 2001, and production at the San Sebastian mine, due to the commencement of operations in May 2001. These increases were partly offset by decreased production of 23,926 ounces at the Rosebud mine, due to completion of operations during the third quarter 2000. The increase in gold production from 1999 to 2000 was principally due to increased production at the La Camorra mine of 75,508 ounces due to operating a full year in 2000 as compared to three months in 1999. This 39 increase was partly offset by decreased production of 32,403 ounces at the Rosebud mine, where mining operations were completed in August 2000, and at the La Choya mine, where mining activities were completed in December 1998 and gold production was essentially completed in 1999. (2) The decrease in silver, lead and zinc production from 2000 to 2001 was principally due to decreased tons mined at Lucky Friday, resulting from the curtailment of operations during 2001, partly offset by an increase in tons mined at the Greens Creek mine and at the San Sebastian mine, where operations commenced in May 2001. The increase in silver, lead and zinc production from 1999 to 2000 was principally due to increased tons mined and increased silver grade from the Lucky Friday expansion area in 2000. (3) During the fourth quarter of 2001, approximately $0.4 million of costs at the Lucky Friday mine were classified as care-and-maintenance costs and included in the determination of the cost per ounce at Lucky Friday. Excluding the $0.4 million in costs, the cash operating, total cash and total production costs per ounce total $3.49, $3.52 and $5.04, respectively, for 2001. (4) The decrease in the industrial minerals tons from 2000 to 2001 is principally due to the sale of the K-T Group on March 27, 2001. SILVER PROPERTIES GREENS CREEK MINE - ADMIRALTY ISLAND, ALASKA At June 30, 2002, we held a 29.73% interest in the Greens Creek mine, located on Admiralty Island, near Juneau, Alaska, through a joint-venture arrangement with Kennecott Greens Creek Mining Company (KGCMC), the manager of the mine, and Kennecott Juneau Mining Company (KJMC), both wholly owned subsidiaries of Kennecott Corporation. The Greens Creek mine is a polymetallic deposit containing silver, zinc, gold and lead. Greens Creek lies within the Admiralty Island National Monument, an environmentally sensitive area. The Greens Creek property includes 17 patented lode claims and one patented millsite claim, in addition to property leased from the U.S. Forest Service. Greens Creek also has title to mineral rights on 7,500 acres of federal land adjacent to the mine properties. The entire project is accessed and served by 13 miles of road and consists of the mine, an ore concentrating mill, a tailings impoundment area, a ship-loading facility, camp facilities and a ferry dock. Currently, Greens Creek is mining approximately 2,000 tons per day underground from the 200 South, the Southwest and West ore zones. Ore from the underground trackless mine is milled at the mine site. The mill produces gold/silver dore and lead, zinc and bulk concentrates. The dore is marketed to a precious metal refiner and the three concentrate products are predominantly sold to a number of major smelters worldwide. Concentrates are shipped from a marine terminal located on Admiralty Island about nine miles from the mine site. The Greens Creek mine uses electrical power provided by diesel-powered generators located on-site. Pursuant to a 1996 land exchange agreement, the joint venture transferred private property equal to a value of $1.0 million to the U.S. Forest Service and received access to approximately 7,500 acres of land with potential mining resources surrounding the existing mine. Production from new ore discoveries on the exchange lands will be subject to the federal royalties included in the land exchange agreement. The federal royalties are based on a defined calculation that is similar to the calculation of net smelter return and are equal to 0.75% or 3% of the calculated amount depending on the value of the ore extracted. The employees at the Greens Creek mine are employees of Kennecott Greens Creek Mining Company and are not represented by a bargaining agent. At June 30, 2002, our interest in the net book value of the Greens Creek mine property and its associated plant and equipment was $ 58.7 million. The Greens Creek deposit consists of zinc, lead, and iron sulfides and copper-silver sulfides and sulfosalts with substantial contained gold and silver values. The deposit has a vein-like to blanket-like form of variable thickness. The ore is thought to have been laid down by an "exhalative" process (i.e., volcanic-related rifts or vents deposited base and precious metals onto an ocean floor). Subsequently, the mineralization was folded and faulted by multiple generations of tectonic events. Kennecott Greens Creek Mining Company's geology and engineering staff computes the estimated ore reserves for the Greens Creek mine with technical support from Rio Tinto Zinc. We review geologic interpretation and reserve methodology, but the reserve compilation is not independently confirmed by us in its entirety. 40 Information with respect to our 29.73% share of production, average cost per ounce of silver produced and Proven and Probable ore reserves is set forth in the following table.
Years (reflects 29.73% interest) -------------------------------- Production 2001 2000 1999 - ---------- ----------- ----------- ----------- Ore milled (tons) 195,646 184,178 171,946 Silver (ounces) 3,259,915 2,754,067 3,050,849 Gold (ounces) 26,041 24,882 23,802 Zinc (tons) 20,875 21,947 20,373 Lead (tons) 7,394 7,484 7,582 Average Cost per Ounce of Silver Produced - ----------------------------------------- Cash operating costs $ 2.41 $ 2.20 $ 1.99 Total cash costs $ 2.41 $ 2.20 $ 1.99 Total production costs $ 4.79 $ 4.87 $ 4.37 Proven and Probable - ------------------- Ore Reserves (1,2,3,4) 12/31/01 12/31/00 12/31/99 - ------------ ----------- ----------- ----------- Total tons 2,256,663 2,977,198 2,977,960 Silver (ounces per ton) 16.7 15.7 16.2 Gold (ounces per ton) 0.13 0.13 0.14 Zinc (percent) 11.6 11.9 11.9 Lead (percent) 4.6 4.4 4.5 Contained silver (ounces) 37,627,765 46,663,068 48,324,528 Contained gold (ounces) 299,456 396,891 403,552 Contained zinc (tons) 262,455 353,698 354,657 Contained lead (tons) 103,220 131,515 133,194
- ---------------------- (1) For Proven and Probable ore reserve assumptions and definitions, see Glossary of Certain Terms. (2) Ore reserves represent in-place material, diluted and adjusted for expected mining recovery. Payable metal recoveries of ore reserve grades by smelters and refiners are expected to be 66% for silver, 57% for gold, 67% for zinc and 62% for lead. (3) The changes in reserves in 2001 versus 2000 were due to production, downward revisions of reserves due to lower assumed metals prices and reassessment of reserves based on new drilling and a new mine plan for the Central West orebody. (4) The changes in reserves in 2000 versus 1999 were due to production and a property-wide reassessment of the ore zones. KGCMC made new estimates of reserves based on drill programs for the West and Southwest ore zones. All ore reserves were retabulated based on a new net smelter return model. The decrease in silver ounces in 2000 versus 1999 is primarily attributable to a downward revision in estimated silver grade in the Southwest zone. SAN SEBASTIAN MINE - DURANGO, MEXICO The San Sebastian mine is located in the State of Durango, Mexico, and 100% owned by us through Minera Hecla. The mine is 56 miles northeast of the city of Durango on concessions acquired through our acquisition of Monarch Resources Investments Limited in 1999. The processing plant is located near Velardena, Durango, Mexico, and was acquired in April 2001. Concession holdings cover over 100 square miles including the mine site and multiple outlying active exploration areas. Ore production during 2001 consisted of surface mining and bulk sampling from four vein systems and underground mine development of the Francine vein. Underground development started in May 2001, and surface mining ceased during the fourth quarter of 2001. Limited underground ore production from development started in September and increased gradually as stopes were 41 developed during the remainder of 2001. Underground mining production reached full production (approximately 450 short tons per day) during the second quarter of 2002. The current mine plan for the Francine vein produces ore through 2004 and into the first quarter of 2005. Exploration is active on the Francine vein and other nearby vein systems to expand ore reserves. San Sebastian is a high-grade silver mine with significant gold credits. Several epithermal veins exist within the San Sebastian Valley and in the mine area. Known veins include the Francine vein, Profesor vein, Middle vein and North vein systems. These veins are hosted within a series of shales with interbedded fine-grained sandstones interpreted to belong to the Cretaceous Caracol Formation. Our Cerro Pedernalillo exploration project, located about six kilometers from the Francine vein, has discovered three veins covering more than 1.5 kilometers in length. Our Cerro Pedernalillo drilling project has intersected significant ore values, with approximately 20% of the drill intercepts in the Don Serigo Vein above mine cut off grade over a two meter horizontal width. The Francine vein strikes NW and dips SW and is located on the southwestern limb of a doubly plunging anticline. The Francine vein ranges in true thickness from more than 4.0 meters to less than 0.5 meters and consists of several episodes of banded quartz, silica-healed breccias and minor amounts of calcite. The vein is oxidized to a depth of approximately 100 vertical meters and the wall rocks contain an alteration halo of less than 2 meters next to the vein. Mineralization within the oxidized portion of the vein contains limonite, hematite, silver halides and various copper carbonates. Higher-grade gold and silver mineralization is associated with disseminated hematite and limonite after pyrite and chalcopyrite, copper carbonates including malachite and azurite and hydrous copper silicates including chrysocolla. Native gold occurs associated with hematite and limonite. Mineralization in the sulfide portion of the Francine vein contains pyrite, chalcopyrite, sphalerite, galena, native silver, argentite and trace amounts of aguilarite. Mining is currently performed by a mining contractor. Access to the underground workings is through a ramp from the surface connecting one or more levels, excavated at a -15% grade. Ore is mined by cut-and-fill stoping. Ore is extracted from the stopes using rubber-tired equipment and hauled to the surface in trucks. Subeconomic material is used to backfill and stabilize mined-out stopes. Electric power is purchased from Comision Federal de Electridad (federal electric company). Water is supplied from mine dewatering or hauled from a local reservoir. Ore is hauled in trucks by a contractor to the processing plant. The process plant is a conventional leach / counter-current decantation / Merrill Crowe precipitation circuit. The ore is crushed in a two-staged crushing plant consisting of a primary jaw, a secondary cone crusher and a double-deck vibrating screen. The grinding circuit includes a primary ball mill and cyclone classifiers. The ground ore is thickened followed by agitated leaching and four stages of counter-current decantation to wash solubilized silver and gold from the pulp. The solution bearing silver and gold is then clarified, deaerated and zinc dust added to precipitate silver and gold which is recovered in plate and frame filters. Precipitate is dried and then shipped to a third-party refiner. Commencing in the fourth quarter of 2002, it is anticipated that over one-half of the precipitate will be refined into dore before being shipped to a third party refiner. The plant was constructed in 1994 and is capable of processing approximately 550 short tons per day. Site infrastructure includes a water supply system, maintenance shop, warehouse, laboratory and various offices. Electric power is purchased from Comision Federal de Electridad (federal electric company). At June 30, 2002, the net book value of the San Sebastian mine property and its associated plant and equipment was $9.0 million. Minera Hecla operates the San Sebastian mine under valid permits. The application for extension of the processing plant operating permit that expired in October 2001 was made in a timely manner and is in process. No problems are anticipated with this permit renewal. As of June 30, 2002, reclamation and closure accruals of $0.6 million have been established. For a description of a legal claim relating to our Velardena mine, see "-Legal Proceedings." 42 At June 30, 2002, there were 103 hourly and 40 salaried employees at the San Sebastian mine and Velardena Mill. The National Mine and Mill Workers Union represents process plant hourly workers at San Sebastian. Under labor law, wage adjustments are negotiated annually and other contract terms every two years. The contract is due for negotiation of wages in July 2003 and for wages and other terms in July 2004. Information with respect to the San Sebastian mine's production, average cost per ounce of silver produced and Proven and Probable ore reserves are set forth in the table below: Year ---- Production 2001 - ---------- ---- Ore milled (tons) 69,779 Silver (ounces) 950,002 Gold (ounces) 15,983 Average Cost per Ounce of Silver Produced Cash operating costs $ 1.64 Total cash costs $ 1.81 Total production costs $ 2.89 Proven and Probable - ------------------- Ore Reserves (1,2) 12/31/01 - ------------ ---------- Total tons 304,222 Silver (ounces per ton) 28.20 Gold (ounces per ton) 0.30 Contained silver (ounces) 8,579,060 Contained gold (ounces) 91,267 - -------------------- (1) For Proven and Probable ore reserve assumptions and definitions, see Glossary of Certain Terms. (2) Ore reserves represent in-place material, diluted and adjusted for expected mining recovery. Payable metal recoveries of ore reserve grades by smelters and refiners are expected to be 88% for silver and 92% for gold. LUCKY FRIDAY MINE - IDAHO We own 100% of the Lucky Friday mine, a deep underground silver and lead mine located in northern Idaho, which we have been operating since 1958. The principal ore-bearing structure at the Lucky Friday mine through 1997 was the Lucky Friday Vein, a fissure vein typical of many in the Coeur d'Alene Mining District. The orebody is located in the Revett Formation which is known to provide excellent host rocks for a number of orebodies in the Coeur d'Alene District. The Lucky Friday Vein strikes northeasterly and dips steeply to the south with an average width of six to seven feet. Its principal ore minerals are galena and tetrahedrite with minor amounts of sphalerite and chalcopyrite. The ore occurs as a single continuous orebody in and along the Lucky Friday Vein. The major part of the orebody has extended from the 1,200-foot level to and below the 6,020-foot level. During 1991, we discovered several mineralized structures containing some high-grade silver ores in an area known as the Gold Hunter property about 5,000 feet northwest of the then existing Lucky Friday workings. We control the Gold Hunter property under a long-term operating agreement which entitles us, as operator, to a 81.48% interest in the net profits from operations from the Gold Hunter properties. We will be obligated to pay a royalty after we have recouped our costs to explore and develop the properties. As of June 30, 2002, unrecouped costs totaled approximately $31.6 million. 43 The principal mining method at the Lucky Friday mine is ramp access, cut and fill. This method utilizes rubber-tired equipment to access the veins through ramps developed outside of the orebody. Once a cut is taken along the strike of the vein, it is backfilled with cemented tailings and the next cut is accessed, either above or below, from the ramp system. The ore produced from the mine is processed in a 1,100-ton-per-day conventional flotation mill. In 2001, ore was processed at a rate of approximately 855 tons per day at the Lucky Friday mine site. The flotation process produces both a silver-lead concentrate and a zinc concentrate. During 2001, approximately 94% of the silver, 92% of the lead and 45% of the zinc were economically recovered. In the fourth quarter of 2000, due to continuing low silver and lead prices, our management and board of directors deferred the decision to approve additional capital expenditures, which are needed to develop the next area of the mine, and recorded an adjustment of $31.2 million to reduce the carrying value of the Lucky Friday mine plant, property and equipment. In 2001, due to low metals prices, we made the decision to reduce the level of mining activity at the Lucky Friday mine to approximately 30% of full production. We estimate that with minimal additional development the mine can sustain the lower production levels through 2004. We currently anticipate that reduced operations will continue until prices recover as long as the cost of operating is less than putting the property on care and maintenance. Ultimate reclamation activities contemplated include stabilization of tailings ponds and waste rock areas. There were no final reclamation activities performed in 2001. Historically, the Lucky Friday silver-lead concentrate has been shipped primarily to the ASARCO, Inc., smelter in East Helena, Montana. With the increased production starting in 1998 from the Gold Hunter orebody, the silver-lead concentrates have been shipped to several different smelters in Canada, the United States, Mexico and Europe. On February 2, 2001, ASARCO's East Helena smelter informed Lucky Friday it was closing down and that ASARCO would no longer accept shipments. Lucky Friday concentrate that was scheduled for East Helena was diverted to the remaining three smelters with no adverse impact to the Lucky Friday operation. Currently, the Lucky Friday silver-lead concentrate production is being shipped to Cominco's smelter in Trail, British Columbia, Canada. The Lucky Friday zinc concentrates are shipped to Cominco's smelter in Trail, British Columbia, Canada. 44 Information with respect to the Lucky Friday mine's production, average cost per ounce of silver produced and Proven and Probable ore reserves for the past three years is set forth in the table below:
Years ----- Production 2001 2000 1999 - ---------- ---- ---- ---- Ore milled (tons) 239,330 321,719 309,953 Silver (ounces) 3,224,373 5,011,507 4,441,250 Gold (ounces) 415 537 655 Lead (tons) 20,984 31,946 27,613 Zinc (tons) 2,789 3,107 2,926 Average cost per ounce of silver produced: - ------------------------------------------ Cash operating cost (1) $ 5.27 $ 5.02 $ 4.90 Total cash costs (1) $ 5.27 $ 5.02 $ 4.90 Total production costs (1) $ 6.05 $ 5.83 $ 5.85 Proven and Probable - ------------------- Ore Reserves (2,3,4) 12/31/01 12/31/00 12/31/99 - ------------ -------- --------- -------- Total tons 1,205,180 1,322,270 1,669,450 Silver (ounces per ton) 14.2 16.7 15.1 Lead (percent) 9.4 10.7 9.6 Zinc (percent) 1.6 1.4 1.6 Contained silver (ounces) 17,092,128 22,089,451 25,179,141 Contained lead (tons) 112,881 141,380 160,693 Contained zinc (tons) 19,410 18,546 26,895
- ----------------------- (1) During the fourth quarter of 2001, approximately $0.4 million of costs were classified as care-and-maintenance costs and included in the determination of the cost per ounce at Lucky Friday. Excluding the $0.4 million in costs, the cash operating, total cash and total production costs per ounce total $5.14, $5.14 and $5.92, respectively, for 2001. (2) For Proven and Probable ore reserve assumptions and definitions, see Glossary of Certain Terms. (3) Reserves are in-place material that incorporate estimates of the amount of waste which must be mined along with the ore and expected mining recovery. Mill recoveries are expected to be 93% for silver, 90% for lead and 45% for zinc for the in-place reserves stated above. (4) Our Lucky Friday mine ore reserves of silver and lead decreased in 2001 compared to 2000 due to several factors: a) removal of ore by mining during 2001; b) reassessment of metal grades and content in the veins; and c) decrease in forecasted metals prices. Zinc grade and metal content increased in 2001 compared to 2000 due to modifications in the mine plan. Ore reserve grades increased and tonnage decreased in 2000 compared to 1999 due to a 4.38% increase in cash cutoff grade in 2000, and due to an assessment of results from diamond drilling performed in 2000. The net book value of the Lucky Friday mine property and its associated plant and equipment was approximately $1.4 million as of June 30, 2002. At June 30, 2002, there were 81 employees at the Lucky Friday mine. The United Steelworkers of America is the bargaining agent for the Lucky Friday hourly employees. The current labor agreement expires on June 16, 2003. Avista Corporation supplies electrical power to the Lucky Friday mine. For a description of a legal claim involving Lucky Friday mine, see "-Legal Proceedings." GOLD PROPERTIES LA CAMORRA MINE - BOLIVAR, VENEZUELA The La Camorra mine is located in the eastern Venezuelan State of Bolivar, approximately 120 miles southeast of Puerto Ordaz. It is 100% owned by us through a Venezuelan subsidiary, Minera Hecla Venezolana, C.A., and has been a producing mine for us since October 1999. We acquired the La Camorra mine in June 1999 with the acquisition of Monarch Resources Investments Limited (Monarch). 45 At the time of acquisition, the tailings impoundment was at capacity. Processing operations were suspended during the third quarter of 1999 to allow additional tailings capacity to be constructed. During this period, mine development was accelerated and remedial maintenance was carried out on the mine and process plant equipment. Production under our control commenced on October 1, 1999. La Camorra is a high-grade underground gold mine that exploits two shear-zone hosted quartz veins. It lies in the Botanamo greenstone belt of the Precambrian Guayana Shield and is hosted by the Caballape Group of volcaniclastics. The formations most likely date from Archean to Proterozoic age and consist primarily of intermediate volcanics with subordinate metasediments. Within the La Camorra concession, the gold mineralization is associated with the near vertical Main and Betzy quartz veins occurring in a west-northwest, east-southeast shear zone within medium- to coarse-grained pyroclastics. Gold occurs both as free particles in quartz and attached to or included in pyrite. Locally, gold is also seen on chloritic partings. In 1998, a core drilling program was initiated by Monarch to test the depth extension of the ore zones below the 400-meter level. We believe the results of that program, and subsequent drill programs we have carried out, confirm that ore-grade mineralization extends to depths below the levels to which the current mine reserves have been delineated. In addition, we control nine other exploration concessions near the La Camorra mine encompassing 8,000 hectares. Access to the underground workings is through a ramp from the surface connecting one or more levels, excavated at a -15% grade. Ore is mined primarily by longhole stoping. Ore is extracted from the stopes using rubber-tired equipment and hauled to the surface in mine haulage trucks. Subeconomic material is used to backfill and stabilize mined-out stopes. The mine is currently producing over 500 tons of ore per day. The process plant uses a conventional carbon-in-leach process. The ore is crushed with a three-stage system consisting of a primary jaw crusher with secondary and tertiary cone crusher with a multi deck vibrating screen. The grinding circuit includes a primary and a secondary ball mill. The ground ore is mixed with a cyanide solution and clarified, followed by countercurrent carbon-in-leach gold adsorption. The carbon is then stripped and the gold recovered and poured into gold bars for shipment to a refiner. Plant recovery averages over 95%. The plant was constructed in 1994 and is capable of processing approximately 600 tons per day. Site infrastructure includes a water supply system, maintenance shop, warehouse, living quarters, a dining facility, administration building and a National Guard post. We also share a housing facility located near the town of El Callao with units for approximately 50 families. Mine electric power is purchased from Eleoriente (a state-owned electric company). Diesel-powered electric generators are available on-site for operation of critical equipment during power outages. At June 30, 2002, the net book value of the La Camorra mine property and its associated plant and equipment was $22.5 million. Our reclamation plan has been approved by the Ministry of Environment and Natural Resources. Planned activities include regrading and revegetation of disturbed areas. A reclamation and closure accrual of $1.1 million had been established as of June 30, 2002. At June 30, 2002, there were 351 hourly and 42 salaried employees at our La Camorra Gold Mine, most of whom are represented by the Mine Workers Union. The contract with respect to La Camorra will expire in March 2004. 46 Information with respect to the La Camorra mine's production, average costs per ounce of gold produced and Proven and Probable ore reserves is set forth in the table below:
Year ---- Production 2001 2000 1999 ---------- ---- ---- ---- Ore processed (tons) (1) 163,139 138,216 39,048 Gold (ounces) (1) 152,303 92,848 17,340 Average Cost per Ounce - ---------------------- of Gold Produced - ---------------- Cash operating costs $ 133 $ 188 $ 208 Total cash costs $ 133 $ 188 $ 208 Total production costs $ 200 $ 246 $ 260 Proven and Probable - ------------------- Ore Reserves (2,3,4) 12/31/01 12/31/00 12/31/99 - -------------------- -------- -------- -------- Total tons 482,238 591,464 577,003 Gold (ounces per ton) 0.867 0.634 0.544 Contained gold (ounces) 418,050 375,200 313,616
- ------------------- (1) Production data for 1999 only include three months of operations since the recommencement of the mine in October 1999. (2) For Proven and Probable ore reserve assumptions, including assumed metals prices, see Glossary of Certain Terms. (3) The decrease in tons of Proven and Probable ore reserves in 2001 compared to 2000 is due to mining, offset by: 1) conversion of inferred resources to reserves based on new development and drilling; and 2) addition of new resources from development and drilling to reserve. Ore grade and contained metal improvements in reserve are attributable to a change in reserve methodology in 2001 compared to 2000 based on very favorable mill/model reconciliation and operations experience with the orebodies. (4) The increase in tons of Proven and Probable ore reserves in 2000 compared to 1999 is attributable to: a) increasing the mining width of the Betzy vein in 2000 to 2.0 meters from 1.4 meters; b) new in-house resource estimates for both the Betzy and Main veins using information from 103 new drill holes and mine production samples; and c) reclassification of some resources to reserves, offset by mining. Our experience of 18 months mining the La Camorra veins indicated an increase in grade in the reserve estimate for 2000 compared to 1999, attributable both to higher production sample grades and higher realized mill grades than previously encountered. Ore reserves represent in-situ material, diluted and adjusted for expected mining recovery. Mill recoveries are expected to be 95%. Ore reserves are estimated in-house using geostatistical methods based on drill holes, underground mine sampling and operations experience. NONOPERATING PROPERTIES ROSEBUD MINE - NEVADA The Rosebud gold mine, in which we have a 50% interest, is located in the Rosebud Mining District, in Pershing County, Nevada. The Rosebud property consists of a 100% interest in three patented lode-mining claims and 125 unpatented lode-mining claims. The Rosebud mine may be reached from Winnemucca, Nevada, by travelling west a distance of approximately 58 miles on an all-weather gravel road. In June 2000, we announced, together with Newmont Gold Company, who holds the remaining 50% interest in the mine, the planned closure of the Rosebud mine when it was recognized that production would cease during the third quarter. Mining activity was completed in July 2000, and milling activity was completed in August 2000. In connection with the planned closure, we recorded an adjustment to the carrying value of our interest in the Rosebud property, plant, and equipment of $4.4 million in the second quarter of 2000. 47 The Rosebud property has been reclaimed per the closure agreement with the Nevada Department of Environmental Protection. The property will be monitored for the next three to five years, after which it will completely revert to the Bureau of Land Management. REPUBLIC MINE - WASHINGTON We own the Republic gold mine located in the Republic Mining District near Republic, Washington. In February 1995, we completed operations at the Republic mine and have been conducting reclamation work in connection with the mine and mill closure. In August 1995, we entered into an agreement with Newmont to explore and develop the Golden Eagle deposit on the Republic mine property. Echo Bay acquired Newmont's interest in 2000 and has been conducting a limited exploration program on the project. At June 30, 2002, the accrued reclamation and closure costs balance totaled $2.9 million, although it is possible that the estimate may change in the future due to the assumptions and estimates inherent in the accrual. Reclamation and closure efforts continue in 2002. The remaining net book value of the Republic mine property and its associated plant and equipment was approximately $0.6 million as of June 30, 2002. GROUSE CREEK MINE - IDAHO The Grouse Creek gold mine is located in central Idaho, 27 miles southwest of the town of Challis in the Yankee Fork Mining District. Mining at Grouse Creek began in late 1994 and ended in April 1997 due to higher-than-expected operating costs and less-than-expected operating margins primarily because the ore occurred in thinner, less continuous structures than had been originally interpreted. We recorded a write-down of the mine's carrying value totaling $97.0 million in 1995. We recorded further adjustments in 1996 for future severance, holding, reclamation and closure costs totaling $22.5 million, and adjustments to the carrying value of property, plant and equipment, and inventories totaling $5.3 million. Following completion of mining in the Sunbeam pit in April 1997, we placed the Grouse Creek mine on a care-and-maintenance status. During the care-and-maintenance period, reclamation had been undertaken to prevent degradation of the property. During 1997, the milling facilities were mothballed and earthwork completed to contain and control surface waters. In 1998, an engineered cap was constructed on the waste rock storage facility and modifications were made to the water treatment facility. In 1999 and 2000, activities included further work on the waste rock storage facility cover and continued work controlling surface waters. We increased the reclamation accrual by $23.0 million in 1999 due to anticipated changes to the closure plan, including increased dewatering requirements and other expenditures. The changes to the reclamation plan at Grouse Creek were necessitated principally by the need to dewater the tailings impoundment rather than reclaim it as a wetland as originally planned. In May 2000, we notified state and federal agencies that the Grouse Creek property would proceed to a permanent suspension of operations. We signed an agreement with the state of Idaho and a voluntary administrative order on consent with the U.S. Forest Service and U.S. Environmental Protection Agency in which we agreed to dewater the tailings impoundment, complete a water balance report and monitoring plan for the site and complete certain studies necessary for closure of the tailings impoundment. A work plan for final reclamation and closure of the tailings impoundment is to be submitted by us no later than one year prior to estimated completion of the tailings impoundment dewatering. We increased the reclamation accrual by $10.2 million in 2000 based upon updated cost estimates in accordance with Statement of Position 96-1 "Environmental Remediation Liabilities," due to the requirements of the 48 administrative order on consent. During 2001, our activities focused on further containment of surface and subsurface water along with development of a dewatering plan for the tailings impoundment. The reclamation and closure cost accrual for the Grouse Creek mine totaled $29.0 million as of June 30, 2002, although it is possible that the estimate may change in the future due to the assumptions and estimates inherent in the accrual. EXPLORATION We conduct exploration activities from our headquarters in Coeur d'Alene, Idaho. We own or control patented and unpatented mining claims, fee land, mineral concessions and state and private leases in the United States, Mexico, Venezuela and other South American countries. Our strategy regarding reserve replacement is to concentrate our efforts on: (1) existing operations where an infrastructure already exists; (2) other properties presently being developed; and (3) advanced-stage exploration properties that have been identified as having potential for additional discoveries principally in the United States, Mexico and Venezuela. We are currently concentrating our exploration activities at the Greens Creek silver mine, in which we maintain a 29.73% interest, the La Camorra gold mine and the San Sebastian silver mine. In March 2002, we were informed by CVG-Minerven (a Venezuelan government-owned gold mining company) that we had been awarded the Block B exploration and mining lease near El Callao in the Venezuelan State of Bolivar. Block B is an 1,795 hectare land position in the historic El Callao gold district that includes the historic Chile, Laguna and Panama mines which produced over 1.5 million ounces of gold between 1921 and 1946. Pursuant to our agreement with CVG-Minerven, we paid CVG-Minerven $500,000 on September 6, 2002. Six months thereafter, an additional payment of $1.25 million will be required, with a final payment of $1.0 million due twelve months after signing the agreement. We will also pay CVG-Minervan a royalty of 2% to 3% (depending on the gold price) on all of our production from Block B. On August 2, 2002, we and our affiliate entered into an earn-in agreement with Great Basin Gold Ltd. and its affiliate to acquire a 50% interest in an area of Gold Basin's Ivanhoe high grade gold property referred to as the Hollister Development Block, located on the Carlin Trend in Nevada. In order to receive the interest, we are required to make certain payments or fund and complete a multi-stage exploration and development program leading to commercial production. Pursuant to the Earn-In Agreement, we and Great Basin have agreed to issue a series of warrants exercisable within two years to purchase shares of the other company's common stock, at prevailing market prices at the time of their issuance. At execution of the agreement, we issued a warrant to purchase 2.0 million shares of our common stock to Great Basin and Great Basin issued warrants to purchase 1.0 million shares of its common stock to us. The warrant to purchase our common stock is exercisable on or before August 1, 2004 at $3.73 per share. The agreement obligates us to issue a warrant to purchase an additional 1.0 million shares of our common stock to Great Basin when we decide to commence certain development activities, and an additional warrant to purchase 1.0 million shares of our common stock following completion of such activities. Great Basin will issue warrants to purchase 500,000 shares of its common stock to us immediately upon receipt of the second and third warrants to purchase our stock. We have entered into a registration rights agreement with Great Basin that requires us to use reasonable efforts to cause the shares underlying the respective warrants to be registered within four months of the date the warrants are issued. In addition to the foregoing, we will pay to Great Basin from our share of commercial production a sliding scale royalty that is dependent on the cash operating profit per ounce of gold equivalent production. Mineral exploration, particularly for gold and silver, is highly speculative in nature, involves many risks and frequently is nonproductive. There can be no assurance that our mineral exploration efforts will be successful. Once mineralization is discovered, it may take a number of years from the initial phases of drilling until production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to establish ore reserves through drilling, to determine metallurgical processes to extract the metals from the ore and, in the case of new properties, to construct mining and processing facilities. As a result of these uncertainties, no assurance can be given that our exploration programs will result in the expansion or replacement of existing ore reserves that are being depleted by current production. 49 Properties are continually being added to or dropped from our inventory as a result of exploration and acquisition activities. Exploration expenditures for the six months ended June 30, 2002, and the three years ended December 31, 2001, 2000 and 1999, were approximately $1.7 million, $2.2 million, $6.3 million and $5.5 million, respectively. Exploration expenditures for 2002 are estimated to be in the range of $5.0 to $7.0 million. REGULATION OF MINING ACTIVITY Our U.S. mining operations are subject to inspection and regulation by the Mine Safety and Health Administration of the Department of Labor (MSHA) under provisions of the Federal Mine Safety and Health Act of 1977. MSHA directives have had no material adverse impact on our results of operations or financial condition and we believe that we are substantially in compliance with the regulations promulgated by MSHA. All of our exploration, development and production activities in the United States, Mexico and South America are subject to regulation by governmental agencies under one or more of the various environmental laws. These laws address emissions to the air, discharges to water, management of wastes, management of hazardous substances, protection of natural resources, protection of antiquities and reclamation of lands which are disturbed. We believe that we are in substantial compliance with applicable environmental regulations. Many of the regulations also require permits to be obtained for our activities. These permits normally are subject to public review processes resulting in public approval of the activity. While these laws and regulations govern how we conduct many aspects of our business, our management does not believe that they have a material adverse effect on our results of operations or financial condition at this time. Our projects are evaluated considering the cost and impact of environmental regulation on the proposed activity. New laws and regulations are evaluated as they develop to determine the impact on, and changes necessary to, our operations. It is possible that future changes in these laws or regulations could have a significant impact on some portion of our business, causing those activities to be economically reevaluated at that time. We believe that adequate provision has been made for disposal of mine waste and mill tailings at all of our operating and nonoperating properties in a manner that complies with current federal and state environmental requirements. Environmental laws and regulations may also have an indirect impact on us, such as increased cost for electricity. Charges by smelters to which we sells our metallic concentrates and products have substantially increased over the past several years because of requirements that smelters meet revised environmental quality standards. We have no control over the smelters' operations or their compliance with environmental laws and regulations. If the smelting capacity available to us was significantly reduced because of environmental requirements or otherwise, it is possible that our silver operations could be adversely affected. Our U.S. operations are also subject to regulations under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (CERCLA or Superfund), which regulates and establishes liability for the release of hazardous substances, and the Endangered Species Act (ESA), which identifies endangered species of plants and animals and regulates activities to protect these species and their habitats. See "Risk Factors - We face substantial government regulation and environmental risks." LEGISLATION From time to time, the U.S. Congress considers proposed amendments to the General Mining Law of 1872, as amended, which governs mining claims and related activities on federal lands. Legislation previously introduced in Congress would have changed the current patent procedures, imposed certain royalties on production and enacted new reclamation, environmental controls and restoration requirements with respect to mining activities on federal lands. There was no significant activity with respect to mining law reform in Congress in 2001, but the extent of any such changes is not known and the potential impact on us as a result of congressional action is difficult to predict. Although a majority of our existing mining operations occur on private or patented property, changes to the General Mining Law, if adopted, could adversely affect our ability to economically develop mineral resources on federal lands. 50 EMPLOYEES As of June 30, 2002, we employed 701 people, including people employed with our subsidiaries, 519 of which were covered by labor agreements. PROPERTIES Our principal mineral properties are described above. We also have interests in a number of other mineral properties in the United States, Mexico and South America. Although some of such properties are known or believed to contain significant quantities of mineralization, they are not considered material to our operations at the present time. Encouraging results from further exploration or increases in the market prices of certain metals could, in the future, make such properties considerably more valuable to our business taken as a whole. Our general corporate office is located in Coeur d'Alene, Idaho. We closed a transaction selling the corporate office building on April 8, 2002, but we have leased a portion of the building following the sale for continued use as our general corporate offices. We believe that our existing facilities are sufficient for our intended purposes. LEGAL PROCEEDINGS BUNKER HILL SUPERFUND SITE In 1994, we, as a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), entered into a consent decree with the Environmental Protection Agency (EPA) and the state of Idaho, concerning environmental remediation obligations at the Bunker Hill Superfund site located at Kellogg, Idaho. The consent decree settled our response-cost liability under CERCLA at the Bunker Hill 21-square mile site. In August 2000, Sunshine Mining and Refining Company which was also a party to the 1994 Consent Decree, filed for Chapter 11 bankruptcy and in January 2001, the Federal District Court approved a new Consent Decree between Sunshine, the U.S. Government and the Coeur d'Alene Indian Tribe which settled Sunshine's environmental liabilities in the Coeur d'Alene Basin lawsuits described below and released Sunshine from further obligations under the 1994 Consent Decree. In response to a request by us and ASARCO Incorporated, the United States Federal District Court in Idaho, having jurisdiction over the 1994 Consent Decree ("1994 Decree") issued an Order in September 2001 that the 1994 Consent Decree should be modified in light of a significant change in factual circumstances not reasonably anticipated by the mining companies at the time they signed the 1994 Decree. In its Order, the Court reserved the final ruling on the appropriate modification to the 1994 Decree until after the issuance of the Record of Decision on the Basin-Wide Remedial Investigation/Feasibility Study. The EPA issued the Record of Decision on the Basin in mid September 2002, proposing a $359 million Basin clean up plan to be implemented over 30 years. Based on the 2001 Order issued by the Court, we intend to seek relief from the work program under the 1994 Decree within the Bunker Hill site. In addition, we and ASARCO have negotiated a reduced 2002 work program with the EPA and the state of Idaho pending the outcome of the dispute resolution over the 1994 Decree. As of June 30, 2002, we have estimated and accrued an allowance for liability for remedial activity costs at the Bunker Hill site of $9.3 million. These estimated expenditures are anticipated to be made over the next three to five years. Although we believe the accrual is adequate based upon our current estimates of aggregate costs, it is reasonably possible that our estimate of our obligations may change in the near or longer term. 51 COEUR D'ALENE RIVER BASIN ENVIRONMENTAL CLAIMS COEUR D'ALENE INDIAN TRIBE CLAIMS In July 1991, the Coeur d'Alene Indian Tribe brought a lawsuit, under CERCLA, in Idaho Federal District Court against us and a number of other mining companies asserting claims for damages to natural resources downstream from the Bunker Hill site over which the Tribe alleges some ownership or control. The Tribe's natural resource damage litigation has been consolidated with the United States' litigation described below. U.S. GOVERNMENT CLAIMS In March 1996, the United States filed a lawsuit in Idaho Federal District Court against certain mining companies that conducted historic mining operations in the Silver Valley of northern Idaho, including us. The lawsuit asserts claims under CERCLA and the Clean Water Act and seeks recovery for alleged damages to or loss of natural resources located in the Coeur d'Alene River Basin in northern Idaho for which the United States asserts to be the trustee under CERCLA. The lawsuit asserts that the defendants' historic mining activity resulted in releases of hazardous substances and damaged natural resources within the Basin. The suit also seeks declaratory relief that we and other defendants are jointly and severally liable for response costs under CERCLA for historic mining impacts in the Basin outside the Bunker Hill site. We have asserted a number of defenses to the United States' claims. In May 1998, the EPA announced that it had commenced a Remedial Investigation/Feasibility Study under CERCLA for the entire Basin, including Lake Coeur d'Alene, in support of its response cost claims asserted in its March 1996 lawsuit. In October 2001, the EPA issued its proposed cleanup plan for the Basin. The EPA issued the Record of Decision on the Basin in mid September 2002, proposing a $359 million Basin clean up plan to be implemented over 30 years. The first phase of the trial commenced on the consolidated Coeur d'Alene Indian Tribe's and the Federal District Court cases on January 22, 2001, and was concluded on July 30, 2001. In the first phase of the trial, the Court has been asked to determine the extent of liability, if any, of the defendants for the plaintiffs' CERCLA claims. The Court has also been asked to determine the liability of the United States for its historic involvement in the Basin. No decision on the issues before the Court in the first phase of the litigation has been issued. If liability is determined in the first phase, a second trial will be scheduled for 2002 or 2003 to address damages and remedy selection. Two of the defendant mining companies, Coeur d'Alene Mines Corporation and Sunshine Mining and Refining Company, settled their liabilities under the litigation during the first quarter of 2001. We and ASARCO are the only defendants remaining in the litigation. During 2000 and into 2001, we were involved in settlement negotiations with representatives of the U.S. government and the Coeur d'Alene Indian Tribe. We also participated with certain of the other defendants in the litigation in a state of Idaho led settlement effort. On August 16, 2001, we entered into an Agreement in Principle with the United States and the State of Idaho to settle the governments' claims for natural resource damages and cleanup costs related to the historic mining practices in the Coeur d'Alene Basin in northern Idaho. Since August 2001, we and EPA have continued to negotiate a final consent decree based upon the terms set forth in the Agreement in Principle. Due to a number of changes that have occurred since the signing of the Agreement in Principle, including improvements in the environmental conditions at Grouse Creek and lower estimated cleanup costs in the Coeur d'Alene Basin as well as our improved financial condition, the terms of the multiple properties settlement approach set forth in the Agreement in Principle no longer appears favorable to us. Therefore, the United States, the State of Idaho and we have agreed to discontinue utilizing the Agreement in Principle as a settlement vehicle. However, we continue to negotiate the terms of a settlement with the United States and the State of Idaho that would be limited to resolving our environmental cleanup liabilities for historic mining practices in the Coeur d'Alene Basin. As of June 30, 2002, we have accrued $41.8 million related to the properties covered by the abandoned Agreement in Principle. We have accrued what management believes is the best estimate of the liability as of June 30, 2002. However, it is reasonably possible that our obligation may change in the near or long term depending on a number of factors, including finalization of settlement terms or a ruling from the courts. In addition, an adverse ruling against us for liability and damages in this matter could have a material adverse effect on us. 52 PRIVATE CLASS ACTION LITIGATION On or about January 7, 2002, a class action complaint was filed in this matter in the Idaho District Court, County of Kootenai, against several corporate defendants, including us. We were served with the Complaint on January 29, 2002. The Complaint seeks certification of three plaintiff classes of Coeur d'Alene Basin residents and current and former property owners to pursue three types of relief: various medical monitoring programs, real property remediation and restoration programs, and damages for diminution in property value, plus other damages and costs. We believe the Complaint is subject to challenge on a number of bases and intend to vigorously defend this litigation. On April 23, 2002, we filed a motion with the Court to dismiss the claims for relief relating to the medical monitoring programs and the remediation and restoration programs. The Court has scheduled a hearing on our motion for October 16, 2002. INSURANCE COVERAGE LITIGATION In 1991, we initiated litigation in the Idaho District Court, County of Kootenai, against a number of insurance companies that provided comprehensive general liability insurance coverage to us and our predecessors. We believe the insurance companies have a duty to defend and indemnify us under their policies of insurance for all liabilities and claims asserted against us by the EPA and the tribe under CERCLA related to the Bunker Hill site and the Basin in northern Idaho. In 1992, the Idaho State District Court ruled that the primary insurance companies had a duty to defend us in the Tribe's lawsuit. During 1995 and 1996, we entered into settlement agreements with a number of the insurance carriers named in the litigation. We have received a total of approximately $7.2 million under the terms of the settlement agreements. Thirty percent of these settlements were paid to the EPA to reimburse the U.S. government for past costs under the Bunker Hill site Consent Decree. Litigation is still pending against one insurer with trial suspended until the underlying environmental claims against us are resolved or settled. The remaining insurer in the litigation, along with a second insurer not named in the litigation, is providing us with a partial defense in all Basin environmental litigation. As of June 30, 2002, we have not reduced our accrual for reclamation and closure costs to reflect the receipt of any potential insurance proceeds. OTHER CLAIMS In 1997, our then subsidiary, Kentucky-Tennessee Clay Company (K-T Clay), terminated shipments (comprising approximately 1% of annual ball clay production) sold to animal feed producers, when the Food and Drug Administration determined trace elements of dioxin were present in poultry. Dioxin is inherently present in ball clays generally. On September 22, 1999, Riceland Foods (the primary purchaser of ball clay from K-T Clay used in animal feed) commenced litigation against K-T Clay in State Court in Arkansas to recover its losses and its insurance company's payments to downstream users of its animal feed. The complaint alleged negligence, strict liability and breach of implied warranties and seeks damages in excess of $7.0 million. Legal counsel retained by the insurance company for K-T Clay had the case removed to Federal District Court in Arkansas. In July 2000, a second complaint was filed against K-T Clay and us in Arkansas State Court by Townsends, Inc., another purchaser of animal feed containing ball clay sold by K-T Clay. A third complaint was filed in the Federal District Court in Arkansas on August 31, 2000, by Archer Daniels Midland Company, a successor in interest to Quincy Soybean Company, a third purchaser of ball clay sold by K-T Clay and used in the animal feed industry. The Townsends and Archer Daniels lawsuits allege damages totaling approximately $300,000 and $1.4 million, respectively. These complaints contain similar allegations to the Riceland Foods' case and legal counsel retained by the insurance carrier is defending K-T Clay and us in these lawsuits. We believe that these claims comprise substantially all the potential claims related to this matter. In January 2001, we were dismissed from the only lawsuit in which we had been named as a defendant. In March 2001, prior to trial, K-T Clay settled the Riceland Foods litigation against K-T Clay through settlement payment substantially funded by K-T Clay's insurance carrier. K-T Clay contributed $230,000 toward the Riceland Foods settlement. In August 2001, the Federal District Court dismissed the Archer Daniels litigation; however, a similar lawsuit based upon implied warranty was refiled by Archer Daniels against K-T Clay on October 24, 2001, in Arkansas Federal Court. The defense of the Townsends lawsuit is being covered by insurance. We believe that K-T Clay's insurance coverage is available to cover the remaining claims. On March 27, 2001, we sold our interest in K-T Clay. However, we agreed to indemnify the purchaser of K-T Clay from all liability 53 resulting from these dioxin claims and litigation to the extent not covered by insurance. In July 2002, K-T Clay, through its insurance carrier, negotiated settlements of both remaining lawsuits without further contribution from us. The settlement agreements, when finalized, will be submitted to the respective courts and we anticipate both cases to be dismissed later in 2002. On November 17, 2000, we entered into an agreement with Zemex U.S. Corporation guaranteed by its parent, Zemex Corporation of Toronto, Canada, to sell the stock of K-T Clay and K-T Mexico, which included the ball clay and kaolin operations, for a price of $68.0 million. On January 18, 2001, Zemex U.S. Corporation failed to close on the transaction, and on January 22, 2001, we brought suit against the parent, Zemex Corporation, for its subsidiary's failure to close on the purchase. We are seeking damages from Zemex Corporation for the failure of its subsidiary to meet its obligations under the November 2000 agreement. Discovery has been completed and we currently expect a trial date in late 2002 or early 2003. At June 30, 2002, we have not recorded any potential gain from the settlement of this litigation. In March 2002, Independence Lead Mines Company ("Independence"), the holder of a net 18.52% interest in the Gold Hunter/DIA area of the Lucky Friday mine, notified us of certain alleged defaults by us under the 1968 Lease Agreement between the unit owners (Independence and us under the terms of the 1968 DIA Unitization Agreement) as lessors and defaults by us as lessee and operator of the properties. We are a net 81.48% interest holder under these Agreements. Independence alleges that we violated the "prudent operator obligations" implied under the lease by undertaking the Gold Hunter project and violated certain other provisions of the Agreement with respect to milling equipment and calculating net profits and losses. The remedy requested by Independence is the termination of our lease of the DIA/Gold Hunter properties. Under the Lease Agreement, we have the exclusive right to manage, control and operate the DIA properties, and our decisions with respect to the character of work are final. On June 17, 2002, Independence filed a lawsuit in Idaho State District Court seeking termination of the Lease Agreement and requesting unspecified damages. We believe that we have fully complied with all obligations of the 1968 Lease Agreement and will be able to successfully defend our right to operate the property under the Lease Agreement. See "Risk Factors-The titles to some of our properties may be defective." In Mexico, a claim has been made, in one court, as to the validity of the ownership of the Velardena mill and, in another court, the validity of a lien that predates acquisition of the mill by our subsidiary. Although we believe we hold good title to the mill, there is no assurance that we will prevail in this litigation. In addition, IIG Capital, LLC, the lender to the project loan used to acquire the mill, agreed to indemnify us for all obligations or losses relating to these liens or claims. However, losing the litigation could result in an interruption of production or even the loss of the mill. We are subject to other legal proceedings and claims not disclosed above which have arisen in the ordinary course of our business and have not been finally adjudicated. Although there can be no assurance as to the ultimate disposition of these other matters, it is the opinion of our management that the outcome of these other matters will not have a material adverse effect on our financial condition. 54 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS Information with respect to our directors and executive officers as of October 1, 2002 is set forth as follows: Age Position Phillips S. Baker, Jr. (1) 43 President, Chief Operating Officer and Chief Financial Officer Arthur Brown (1,6,9) 61 Chairman of the Board and Chief Executive Officer Michael H. Callahan(9) 38 Vice President - Corporate Development Ronald W. Clayton 43 Vice President - U.S. Operations Thomas F. Fudge, Jr. 47 Vice President - Operations Vicki J. Veltkamp 45 Vice President - Investor and Public Relations Lewis E. Walde 35 Vice President - Controller and Treasurer John E. Clute (1,4,5) 67 Director Joe Coors, Jr. (2,3,5) 60 Director David J. Christensen (3) (8) 40 Director Ted Crumley (1,2,4,5) 57 Director Charles L. McAlpine (3,4,5,7) 68 Director Jorge E. Ordonez C. (2,3,4,7) 62 Director Dr. Anthony P. Taylor (7) (8) 60 Director - --------------------------- (1) Member of Executive Committee (2) Member of Finance Committee (3) Member of Audit Committee (4) Member of Directors Nominating Committee (5) Member of Compensation Committee (6) Member of Retirement Board (7) Member of Technical Committee (8) Elected by holders of Series B Preferred Stock (9) Arthur Brown is Michael H. Callahan's father-in-law Phillips S. Baker, Jr. has been our President and Chief Operating Officer since November 2001 and a director since November 2001. Prior to that, Mr. Baker was our Vice President - Chief Financial Officer from May 2001 to November 2001. Prior to joining us, Mr. Baker served as Vice President and Chief Financial Officer of Battle Mountain Gold Company (a gold mining corporation) from March 1998 to January 2001 and Vice President and Chief Financial Officer of Pegasus Gold Corporation (a gold mining corporation) from January 1994 to January 1998. Arthur Brown has been Chairman of our board of directors since June 1987 and has served as our Chief Executive Officer since May 1987. Prior to that, Mr. Brown was our President from May 1986 to November 2001 and our Chief Operating Officer from May 1986 to May 1987. Mr. Brown also serves as a director for AMCOL International Corporation (an American industrial minerals company), Idaho Independent Bank and Southern Africa Minerals Corporation (a Canadian mining company). 55 Michael H. Callahan has been our Vice President - Corporate Development since February 2002 and President of Minera Hecla Venezolana since 2000. Prior to that Mr. Callahan was Director of Accounting and Information Services from 1999 to 2000. From 1997 to 1999 Mr. Callahan was the Financial Manager of Silver Valley Resources. Mr. Callahan was also the Senior Financial Analyst for Hecla from 1994 to 1996. Ronald W. Clayton was appointed Vice President - U.S. Operations on September 27, 2002. Prior to joining us, Mr. Clayton was Vice President - Operations for Stillwater Mining Company from July 2000 to May 2002. Mr. Clayton was also Hecla's Vice President - Metals Operations from May 2000 to July 2000. Mr. Clayton also served as Manager of Operations and General Manager of Hecla's Rosebud, Republic and Lucky Friday mines from 1987 to 2000. Thomas F. Fudge has been our Vice President - Operations since June 2001. Prior to that, Mr. Fudge was our Manager of Operations from July 2000 to May 2001 and our Lucky Friday Unit Manager from 1995 to 2000. Vicki J. Veltkamp has been our Vice President - Investor and Public Relations since May 2000. Prior to that, Ms. Veltkamp has served in various administrative functions with us from 1995 to 2000. Lewis E. Walde has been our Vice President - Controller since June 2001. Prior to that, Mr. Walde was our Controller from May 2000 to May 2001, our Assistant Controller from January 1999 to April 2000 and held various accounting functions with us from June 1992 to April 2000. John E. Clute has served as a director since 1981. Mr. Clute has been a Professor of Law at Gonzaga University School of Law from 2001 to the present. Prior to that, Mr. Clute was the Dean of Gonzaga University School of Law from 1991 to 2001. Mr. Clute serves as a director of The Jundt Growth Fund, Inc.; the Jundt Funds, Inc. (Jundt U.S. Emerging Growth Fund, Jundt Opportunity Fund, Jundt Mid-Cap Growth Fund, Jundt Science & Technology Fund and Jundt Twenty-Five Fund); American Eagle Funds, Inc. (American Eagle Capital Appreciation Fund, American Eagle Large-Cap Growth Fund and American Eagle Twenty Fund); and RealResume, Inc. Joe Coors, Jr. has served as a director since 1990. Mr. Coors was the Chairman of the Board and Chief Executive Officer of CoorsTek, Inc. (formerly Coors Ceramics Company) (a ceramic corporation) from 1985 until his retirement in 2001. Mr. Coors serves as a director of Children's Technology Group and the Fellowship of Christian Athletes for the state of Colorado. Mr. Coors is the Retired Chairman of the Air Force Memorial Foundation. David J. Christensen has served as a director since May 2002. Mr. Christensen has been a Senior Research Analyst with Credit Suisse First Boston since May 2002. Prior to that, Mr. Christensen was the Global Coordinator and First Vice President of Merrill Lynch & Co. from 1998 until his retirement in 2001. Mr. Christensen was a Vice President and Precious Metals Equity Analyst with Merrill Lynch & Co. from 1994 to 1998 and a Portfolio Manager of Franklin Gold Fund and Valuemark Precious Metals Funds for Franklin Templeton Group from 1990 to 1994. Ted Crumley has served as a director since 1995. Mr. Crumley has served as the Senior Vice President and Chief Financial Officer of Boise (manufacturer of paper and forest products) from 1994 to the present. Prior to that, Mr. Crumley was Vice President and Controller of Boise from 1990 to 1994. Charles L. McAlpine has served as a director since 1989. Concurrently, Mr. McAlpine served as the President of Arimathaea Resources Inc. (a Canadian gold exploration company) from 1982 to 1992. Mr. McAlpine serves as a director of First Tiffany Resource Corporation, Goldstake Explorations Inc. (a Canadian mining exploration corporation) and Postec Systems Inc. Jorge E. Ordonez C. has served as a director since 1994. Mr. Ordonez has served as the President and Chief Executive Officer of Ordonez Profesional S.C. (a business and management consulting corporation specializing in mining) 56 from 1988 to present. Mr. Ordonez is a director of Altos Hornos de Mexico, S.A. de C.V.; Minera Carbonifera Rio Escondido, S.A. de C.V.; Grupo Acerero del Norte, S.A. de C.V.; Fischer-Watt Gold Co., Inc. Mr. Ordonez received the Mexican National Geology Recognition in 1989 and was elected to the Mexican Academy of Engineering in 1990. Dr. Anthony P. Taylor has served as a director since May 2002. Mr. Taylor has been the President, CEO and Director of Millennium Mining Corporation (a minerals exploration corporation) since January 2000 and the President of Oakhill Consultants since October 1996 (a minerals exploration corporation and geological consulting company). Prior to that, Mr. Taylor was the Vice President - - Exploration of First Point US Minerals (a minerals exploration corporation) from May 1997 to December 1999 and the President of Great Basin Exploration & Mining Co., Inc. (a minerals exploration corporation) from June 1990 to January 1996. DIRECTOR COMPENSATION We compensate our directors who are not employees for their services as follows: (i) a retainer fee of $3,000 per calendar quarter; (ii) $2,000 for each director's meeting attended; and (iii) $1,000 for attending any meeting of any committee of the board of directors. In August 1994, we adopted a new Deferred Compensation Plan for directors which commenced January 1, 1995 (1994 Plan). At the February 2001 quarterly Directors' meeting, the directors elected to terminate the 1994 Plan effective April 1, 2001, with payment of the dollar amounts and stock held under the plan to be paid or distributed out to the participants on a monthly basis over a 24-month period commencing April 15, 2001. If a director retires from or terminates his employment with us, the director is still entitled to a distribution of his account and stock held under the plan within a period of 60 days following the date of his termination of employment or retirement. In March 1995, we adopted the Hecla Mining Company Stock Plan for Nonemployee Directors (Directors Stock Plan), which became effective following stockholder approval on May 5, 1995. The maximum number of shares of common stock that may be issued under the plan is 1,000,000. Annually, each nonemployee director is credited that number of shares determined by dividing $10,000 by the average closing price for our common stock on the New York Stock Exchange for the prior calendar year. The Directors Stock Plan is administered by a committee consisting of our Chief Executive Officer, Treasurer and Controller, which has full authority to construe and interpret the Directors Stock Plan, to establish, amend and rescind rules and regulations relating to the Directors Stock Plan, and to take all such actions and make all such determinations in connection with the Directors Stock Plan as it may deem necessary or desirable. The common stock credited under the Plan will be delivered to a director on or beginning on the earlier to occur of (i) the death of the director; (ii) the disability of the director preventing continued service on the board; (iii) the retirement of the director from service; (iv) a cessation of a director's service to us for any reason other than (i) through (iii) above; or (v) our change of control (as defined in the Directors Stock Plan). Subject to certain restrictions, directors may elect to receive the common stock on such date or in annual installments thereafter over 5, 10 or 15 years. Upon delivery, a director will receive the common stock plus dividends or other distributions with respect to the common stock, plus interest at a rate equal to our cost of funds on all such distributions other than our common stock. Our directors who are also employees may participate in the 1995 Stock Incentive Plan, described under "Executive Compensation." 57 EXECUTIVE COMPENSATION The following table sets forth information regarding the aggregate compensation for the fiscal years ended December 31, 1999, 2000 and 2001, paid or accrued for (i) our Chief Executive Officer, and (ii) our four other most highly paid executive officers. SUMMARY COMPENSATION TABLE
Long-Term Annual Compensation (1) Compensation ------------------------------------ Awards Other Securities Annual Underlying All Other Name and Principal Salary Bonus Compensation Options/SARs Compensation Position Year ($) ($) ($) (#) (2) ($) (3) - ------------------------- ---- ------ ----- ------------ ------------ ------------ Arthur Brown................... 2001 402,500 144,900(6) -- 200,000 43,776 Chairman & Chief 2000 402,500 49,616 -- 100,000 40,460 Executive Officer 1999 402,500 116,487 -- 160,000 139,205 Michael B. White (5)........... 2001 230,000 82,500(6) -- 75,000 12,528 Vice President, 2000 200,417 22,287 -- 45,000 13,034 General Counsel 1999 187,000 39,486 -- 75,000 13,232 & Secretary Phillip S. Baker, Jr........... 2001 162,500(4) 99,000(6) -- 60,000 49,609 President & Chief 2000 0 0 -- 0 0 Operating Officer 1999 0 0 -- 0 0 William B. Booth (5) Vice President - ............ 2001 155,000 58,125(6) -- 60,000 4,889 Environmental & 2000 148,750 19,330 -- 30,000 5,429 Government Affairs 1999 140,000 29,468 -- 50,000 4,625 Thomas F. Fudge, Jr............ 2001 150,000 58,125(6) -- 60,000 3,335 Vice President - 2000 127,300 19,683 -- 7,000 2,522 Operations 1999 108,000 25,360 -- 7,000 3,190
- ---------------- (1) The annual compensation set forth in the table is based upon salaries of the Chief Executive Officer and other named executives established in May of each year for June 1 to May 31. This table reflects compensation paid to, or earned by, the executive officers during the fiscal year ending December 31 of each year. (2) All options granted to the named executives in 2001 were granted under a vesting schedule described in footnote 1 of "Option Grants in Last Fiscal Year". (3) "All Other Compensation" for the last fiscal year includes the following for Messrs. Brown, White, Baker, Booth and Fudge: (i) matching contributions under our Executive Deferral Plan of $938, $164, $0, $194 and $0 for each named executive, respectively; (ii) the above market portion of interest accrued under our Executive Deferral Plan of $36,150, $8,326, $0, $1,855 and $610 on behalf of each named executive, respectively; (iii) matching contributions under our Capital Accumulation Plan of $2,550, $2,550, $141, $2,550 and $2,545 for each named executive, respectively; (iv) the dollar value benefit of premium payments for term life insurance coverage of $2,838, $488, $0, $290 and $180 for each named executive, respectively; (v) personal tax service provided by consultants at our expense for Mr. Brown, $1,300 and Mr. White, $1,000; and (vi) consulting fees paid to Mr. Baker during 2001 prior to Mr. Baker joining us as an executive on May 1, 2001, in the amount of $49,468. (4) Commencing on December 1, 2001, 25% of Mr. Baker's base salary was comprised of our restricted common stock issued under the 1995 Stock Incentive Plan, which is distributed to Mr. Baker in substantially equal amounts in arrears on a quarterly basis through December 1, 2002. On February 1, 2002, Mr. Baker received the first such issuance of common stock, of which 6,345 shares were earned in December 2001. The fair market value of such stock on the date paid was $7,169.85, based on the $1.13 per share closing price of our common stock on such date. 58 (5) Messrs. White and Booth each elected to take early retirement under our Early Retirement Program approved by the board of directors in November 2001. Mr. White retired effective March 1, 2002 and Mr. Booth retired effective March 16, 2002. Each provides consulting services to us pursuant to a Consulting Agreement. Mr. White's consulting agreement has a term of one year, concluding in February 2003 and Mr. Booth's consulting agreement has a term of two years, concluding in March 2004. (6) The compensation under "Bonus" includes both a stock and cash component, as follows: Mr. Brown, 94,753 shares of common stock and $48,252 in cash; Mr. White, 53,949 shares of common stock and $27,473 in cash; Mr. Baker, 64,738 shares of common stock and $32,967 in cash; Mr. Booth, 38,009 shares of common stock and $19,356 in cash; and Mr. Fudge, 29,426 shares of common stock and $14,985 in cash. The shares of common stock were granted under the 1995 Stock Incentive Plan. The fair market value of the shares on the date of the award was calculated by multiplying the number of shares by $1.02, the average closing price of our common stock from July 2001 through December 2001. The following table sets forth information regarding options we granted to the executive officers named in the Summary Compensation Table during 2001. OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at Assumed Percent of Annual Rates of Stock Total Options Price Appreciation Granted to Exercise for Option Term(2) Options Employees in or Base Expiration ------------------ Name Granted (1) Fiscal Year Price(2) Date 5% 10% ---- -------- ----------- -------- ---- -- --- Arthur Brown 200,000 28.65% $1.13 06/07/06 $62,440 $ 137,960 Michael B. White 75,000 10.74% $1.13 06/07/06 $23,415 $ 51,735 William S. Booth 60,000 8.60% $1.13 06/07/06 $18,732 $ 41,388 Phillips S. Baker, Jr. 60,000 8.60% $1.13 06/07/06 $18,732 $ 41,388 Thomas F. Fudge, Jr. 60,000 8.60% $1.13 06/07/06 $18,732 $ 41,388
- ---------------- (1) There are no tax-offset bonuses accompanying these options. One-third of the options were first exercisable on June 7, 2001, one-third shall vest on June 7, 2002, and one-third shall vest on December 7, 2002 (except for the options held by Mr. White and Mr. Booth, which vested fully on their respective retirement dates). All options were granted with an exercise price equal to the fair market value of the common stock on the date of grant. (2) The potential realizable value shown in the table represents the maximum gain if held for the full five-year term at each of the assumed annual appreciation rates. Gains, if any, are dependent upon the actual performance of the common stock and the timing of any sale of the common stock received upon exercising the options. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES The following table shows information concerning the exercise of stock options during fiscal year 2001 by each of the named executive officers and the fiscal year-end value of unexercised options.
Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options/ Options/SARs at 12/31/01 SARs at 12/31/01* ------------------------ ----------------- Shares Exercisable Unexercisable Exercisable Unexercisable Acquired on Value ----------- ------------- ----------- ------------- Name Exercise (#) Realized ($) (#) (#) ($) ($) ---- ------------ ------------ --- --- --- --- Arthur Brown 0 0 568,666 203,334 0 0 Michael B. White 0 0 220,750 95,750 0 0 William B. Booth 0 0 173,500 74,500 0 0 Thomas F. Fudge, Jr. 0 0 50,500 40,000 0 0 Phillips S. Baker, Jr. 0 0 20,000 40,000 0 0
- ---------------- * This column indicates the aggregate amount, if any, by which the market value of our common stock on December 31, 2001 exceeded the options' exercise price, based on the closing per share sale price of our common stock on December 31, 2001 of $0.94 on the New York Stock Exchange. 59 RETIREMENT PLAN Our officers participate in the Hecla Mining Company Qualified Retirement Plan (Retirement Plan), which covers substantially all of our employees, except for certain hourly employees who are covered by separate plans. Contributions to the Retirement Plan, and the related expense or income, are based on general actuarial calculations and, accordingly, no portion of our contributions, and related expenses or income, is specifically attributable to our officers. We were not required to make a contribution for 2001. We also have an unfunded Supplemental Retirement Benefit Plan adopted in November 1985 (Supplemental Plan) under which the amount of any benefits not payable under the Retirement Plan by reason of the limitations imposed by the Internal Revenue Code and/or the Employee Retirement Income Security Act, as amended (Acts), and the loss, if any, due to a deferral of salary made under our Executive Deferral Plan and/or our Capital Accumulation Plan will be paid out of our general funds to any employee who may be adversely affected. Under the Acts, the current maximum annual pension benefit payable by the plan to any employee is $140,000 subject to specified adjustments. Upon reaching the normal retirement age of 65, each participant is eligible to receive annual retirement benefits in monthly installments for life equal to, for each year of credited service, 1% of final average annual earnings (defined as the highest average earnings of such employee for any 36 consecutive calendar months during the final 120 calendar months of service) up to the applicable covered compensation level (which level is based on the Social Security maximum taxable wage base) and 1.75% of the difference, if any, between final average annual earnings and the applicable covered compensation level. The Retirement Plan and Supplemental Plan define earnings for purposes of the plans to be "a wage or salary for services of employees inclusive of any bonus or special pay including gainsharing programs, contract miners' bonus pay and the equivalent." The following table shows estimated aggregate annual benefits under the Retirement Plan and the Supplemental Plan payable upon retirement to a participant who retires in 2001 at age 65 having the years of service and final average annual earnings as specified. The table assumes Social Security covered compensation levels as in effect on January 1, 2001.
FINAL AVERAGE ANNUAL YEARS OF CREDITED SERVICE EARNINGS 5 10 15 20 25 30 35 - --------------------------------------------------------------------------------------------------------- $100,000 $ 7,434 $14,868 $ 22,301 $ 29,735 $ 37,169 $ 44,603 $ 52,036 125,000 9,621 19,243 28,864 38,485 48,106 57,728 67,349 150,000 11,809 23,618 35,426 47,235 59,044 70,853 82,661 175,000 13,996 27,993 41,989 55,985 69,981 83,978 97,974 200,000 16,184 32,368 48,551 64,735 80,919 97,103 113,286 225,000 18,371 36,743 55,114 73,485 91,856 110,228 128,599 250,000 20,559 41,118 61,676 82,235 102,794 123,353 143,911 275,000 22,746 45,493 68,239 90,985 113,731 136,478 159,224 300,000 24,934 49,868 74,801 99,735 124,669 149,603 174,536 325,000 27,121 54,243 81,364 108,485 135,606 162,728 189,849 350,000 29,309 58,618 87,926 117,235 146,544 175,853 205,161 375,000 31,496 62,993 94,489 125,985 157,481 188,978 220,474 400,000 33,684 67,368 101,051 134,735 168,419 202,103 235,786 425,000 35,871 71,743 107,614 143,485 179,356 215,228 251,099 450,000 38,059 76,118 114,176 152,235 190,294 228,353 266,411 475,000 40,246 80,493 120,739 160,985 201,231 241,478 281,724 500,000 42,434 84,868 127,301 169,735 212,169 254,603 297,036 525,000 44,621 89,243 133,864 178,485 223,106 267,728 312,349
Benefits listed in the pension table are not subject to any deduction for Social Security or other offset amounts. As of December 31, 2001, the following executive officers had completed the indicated number of full years of credited service: A. Brown, 34 years; M. B. White, 21 years; P. S. Baker, less than 1 year; W. B. Booth, 16 years; and T. F. Fudge, 8 years. 60 1995 STOCK INCENTIVE PLAN Our officers and employees, designated by the committee of the board designated to administer the plan, who are responsible for or contribute to our management, growth and profitability are eligible to be granted awards under the Hecla Mining Company 1995 Stock Incentive Plan (1995 Stock Incentive Plan). Stock options, including incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock and performance units are available for grant under the 1995 Stock Incentive Plan by the committee in its discretion. The 1995 Stock Incentive Plan authorizes the issuance of up to 6,000,000 shares of our common stock pursuant to the grant or exercise of awards under the plan. The board committee that administers the 1995 Stock Incentive Plan has broad authority to fix the terms and conditions of individual agreements with participants, including the duration of the award and any vesting requirements. At the time an award is made under the 1995 Stock Incentive Plan or at any time thereafter, the committee may grant to the participant receiving such award the right to receive a cash payment in an amount specified by the committee, to be paid at such time or times (if ever) as the award results in compensation income to the participant, for the purpose of assisting the participant to pay the resulting taxes, all as determined by the committee and on such other terms and conditions as the committee shall determine. The 1995 Stock Incentive Plan will terminate 15 years after the effective date of the plan. HECLA MINING COMPANY KEY EMPLOYEE DEFERRED COMPENSATION PLAN On March 13, 2002, our board of directors adopted the Hecla Mining Company Key Employee Deferred Compensation Plan (Deferral Plan). On July 18, 2002, our stockholders approved the Deferral Plan. The Deferral Plan permits our executive officers or key management level employees who are highly compensated to participate in the Deferral Plan, subject to approval of the committee. The compensation committee of our board of directors administers the plan. Each participant may defer eligible compensation and/or cash incentive compensation into the plan. Distributions under the plan will be in the form of shares of our common stock, cash or discounted stock options. 6,000,000 shares of common stock are available for issuance under the plan or upon exercise of options issued under the Plan. A participant may receive matching contributions under the Deferral Plan and may receive additional, discretionary contributions if made by the committee. Subject to certain limitations, distributions of benefits from participants' accounts under the Deferral Plan will be made in the form of a lump sum distribution upon the first to occur of: the participant's disability, the participant's death, the first day the participant is no longer our employee, the termination of the Deferral Plan, or a date designated by the participant on an election form. EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT ARRANGEMENT AND OTHER MANAGEMENT ARRANGEMENTS We have employment agreements (Agreements) with Messrs. Brown, Baker and Fudge (Executives). The Agreements were recommended to the board of directors by the Compensation Committee and were approved by the board of directors on the basis of such recommendation. The Agreements, which are substantially identical except for compensation provisions, provide that each of the Executives shall serve in such executive position as the board of directors may direct. The Agreements become effective only if we experience a "Change of Control" (Effective Date). The term of employment under the Agreements is two years from the Effective Date. The Agreements have a Change in Control period of three years, and this period is automatically renewed for an additional year in June of each year unless we give notice of nonrenewal 60 days prior to the renewal date. Under the Agreements, a Change of Control is deemed to occur if a person (including a "group" under Section 13d-3 of the Exchange Act) becomes the beneficial owner of 20% or more of our voting power or if, as the result of a tender offer, merger, proxy fight or similar transaction, the persons who were previously our directors cease to constitute a majority of the board. The Agreements are intended to ensure that, in the event of a Change of Control, each Executive will continue to receive payments and other benefits equivalent to those he was receiving at the time of a Change of Control for the duration of the term of the 61 Agreement. The Agreements also provide, among other things, that should an Executive's employment be terminated by us or by the Executive for good reason (other than death, incapacity or misconduct) after the Effective Date of the Agreement, he would receive from us a lump-sum defined amount generally equivalent to two times the aggregate of his then annual base salary rate and his average annual bonus for the three years prior to the Effective Date. The Executives would also be entitled to lump-sum payments representing the difference in pension and supplemental retirement benefits to which they would be entitled on (i) the date of actual termination, and (ii) the end of the two-year employment period under the Agreements. We would also maintain such Executive's participation in all benefit plans and programs (or provide equivalent benefits if such continued participation was not possible under the terms of such plans and programs). An Executive whose employment has terminated would not be required to seek other employment in order to receive the defined benefits. The Agreements also provide that under certain circumstances we will make an additional gross-up payment if necessary to place the Executive in the same after-tax position as if no excise tax were imposed by the Internal Revenue Code. Pursuant to the Agreements between us and each of our named executive officers, if a Change of Control occurred and the named executive officers were each terminated as of December 31, 2001, the Executives would be entitled to the following estimated cash payments pursuant to the Agreements: Mr. Brown, $1,095,000; Mr. Baker, $798,000; and Mr. Fudge, $390,000. These dollar amounts do not include amounts which would have otherwise been payable to each Executive if the Executive had terminated employment on the day prior to a Change of Control. Similar employment agreements with Mr. White and Mr. Booth terminated upon their retirement in March 2002. RETENTION AGREEMENTS In 2001, we entered into Retention Agreements with Messrs. Brown, Baker, and Fudge. The Retention Agreements were recommended to the board of directors by the Compensation Committee and were approved by the board of directors on the basis of such recommendation. The Retention Agreements, which are substantially identical except for compensation provisions, provide that so long as the Executive remains as our employee or working for us in some other capacity satisfactory to us, through June 30, 2002, the Executive would be entitled to a payment of 22% of the Executive's annual base salary. If the Executive remains with us through December 31, 2002, the Executive would be entitled to an additional payment of 44% of the Executive's annual base salary. The Retention Agreements also provide for a payment of amounts due under the terminated Executive Deferral Plan, which have not been previously paid pursuant to the termination of the plan. If not previously distributed under the terminated Executive Deferral Plan, these payments would be made in July 2002 and January 2003. 62 PRINCIPAL STOCKHOLDERS The following table presents certain information regarding the number and percentage of the shares of common and preferred stock beneficially owned by significant stockholders, each of our directors and executive officers and by all directors and executive officers as a group, as of October 1, 2002. Except as otherwise indicated, the directors and officers are located at our address and have sole voting and investment power with respect to the shares beneficially owned by them.
Name (1) Title of Class Number of Shares (2) Percent of Class -------- -------------- -------------------- ---------------- Phillips S. Baker, Jr. (1) Common 280,880 * Arthur Brown (1,4) Common 1,015,362 1.2% David J. Christensen Common 10,383 * John E. Clute (3) Common 17,683 * Joe Coors, Jr. (3) Common 17,383 * Ted Crumley (3) Common 20,922 * Thomas F. Fudge, Jr. (1,4) Common 119,400 * Charles L. McAlpine (3) Common 19,883 * Jorge E. Ordonez C. (3) Common 17,383 * Dr. Anthony P. Taylor (3) Common 10,383 * All directors and officers as a group (10 persons) (2) Common 1,529,662 1.8% Hecla Mining Company Retirement Plan (5) Common 4,559,574 5.30% Langley Partners, L.P.(6)(7)(9) Series B Preferred 141,300 18.75% Lehman Brothers Inc. (6)(8)(9) Series B Preferred 124,500 16.53%
- --------------- * Represents less than 1% of our outstanding common stock. (1) Includes the following number of shares of common stock issuable upon the exercise by the following individuals of options exercisable at October 1, 2002, or within 60 days thereafter: Mr. Baker, 140,000; Mr. Brown, 734,333; and Mr. Fudge, 117,166. (2) Includes 991,499 shares issuable upon the exercise of options exercisable at August 1, 2002, or within 60 days thereafter. (3) Includes the following number of shares credited to each nonemployee director, all of which are held in trust pursuant to our stock plan for nonemployee directors: Mr. Clute, 17,383; Mr. Coors, 17,383; Mr. Crumley, 16,922; Mr. McAlpine, 17,383; Mr. Ordonez, 17,383; Mr. Christensen, 10,383; and Mr. Taylor, 10,383. Each director disclaims beneficial ownership of all shares held in trust under the stock plan (see "Executive Compensation - Compensation of Directors"). (4) Includes 40,284 shares credited to Mr. Brown and 576 shares credited to Mr. Fudge under our terminated executive deferral plan as of August 1, 2002, all of which are held in trust pursuant to the plan and will be distributed to Mr. Brown and Mr. Fudge over a 6-month period after October 1, 2002. Messrs. Brown and Fudge disclaim beneficial ownership of all shares held in trust under the terminated executive deferral plan. (5) The address for Hecla Mining Company Retirement Plan is c/o Copper Mountain Trust, Trustee, 601 SW Second Ave., Suite 1800, Portland OR 97204. Hecla Mining Company Retirement Plan is one of the selling stockholders under this prospectus with respect to 3,207,284 of such shares. (6) Based on an SEC filing by the reporting persons. (7) The address for Langley Partners, L.P. is 535 Madison Avenue, 7th Floor, New York, NY 10022. Each of Langley Partners, L.P., Langley Management, LLC, Langley Capital, LLC and Jeffrey Thorp may be deemed to be beneficial owners of 16, 800 shares of Series B preferred stock held of record by Langley Partners, L.P. (8) The address for Lehman Brothers Inc. is 745 Seventh Avenue, New York, NY 10019. Each of Lehman Brothers Holdings Inc. and Lehman Brothers Inc. may be deemed to be the beneficial owner of 124,500 shares of Series B preferred stock owned of record by Lehman Brothers Inc. (9) The 124,500 shares of Series B preferred stock form a part of a basket of securities that Langley Partners, L.P. has the right to acquire from Lehman Brothers Inc. on or before August 7, 2003. Thus, the 124,500 shares that appear in the chart above represent the aggregate shares attributed to both Langley Partners, L.P. and Lehman Brothers Inc. 63 DESCRIPTION OF CAPITAL STOCK The following statements are brief summaries of provisions of our capital stock. The summaries are qualified in their entirety by reference to the full text of our certificate of incorporation, as amended (Charter), bylaws, and the Rights Agreement (as defined below). COMMON STOCK We are authorized to issue 200,000,000 shares of common stock, $0.25 par value per share, of which 86,086,803 shares of common stock were issued as of September 30, 2002. Subject to the rights of the holders of any outstanding shares of preferred stock, each share of common stock is entitled to: * one vote on all matters presented to the stockholders, with no cumulative voting rights; * receive such dividends as may be declared by the board of directors out of funds legally available therefor (we have no present intention of paying dividends on our common stock in the foreseeable future); * in the event of our liquidation or dissolution, share ratably in any distribution of our assets. Holders of shares of common stock do not have preemptive rights or other rights to subscribe for unissued or treasury shares or securities convertible into such shares, and no redemption or sinking fund provisions are applicable. All outstanding shares of common stock are fully paid and nonassessable. All of our currently outstanding shares of common stock are listed on the New York Stock Exchange under the symbol "HL". Certain of the shares to be sold hereunder are listed on the New York Stock Exchange, and the remaining shares are approved for listing on the New York Stock Exchange, subject to official notice of issuance. PREFERRED STOCK Our Charter authorizes us to issue 5,000,000 shares of preferred stock, par value $0.25 per share. The preferred stock is issuable in series with such voting rights, if any, designations, powers, preferences and other rights and such qualifications, limitations and restrictions as may be determined by our board of directors or a duly authorized committee thereof, without stockholder approval. The board may fix the number of shares constituting each series and increase or decrease the number of shares of any series. Currently, there are 753,402 shares of Series B Cumulative Convertible Preferred Stock outstanding. In addition, shares of preferred stock have been designated by us as Series A Junior Participating Preferred Shares and are reserved for issuance upon the exercise of certain preferred stock purchase rights associated with each share of outstanding common stock, as described below. See "Description of Capital Stock -- Rights." RANKING The Series B preferred stock ranks senior to our common stock and any shares of Series A Preferred Shares issued pursuant to the Rights with respect to payment of dividends and amounts upon liquidation, dissolution or winding up. While any shares of Series B preferred stock are outstanding, we may not authorize the creation or issue of any class or series of stock that ranks senior to the Series B preferred stock as to dividends or upon liquidation, dissolution or winding up without the consent of the holders of 66% of the outstanding shares of Series B preferred stock and any other series of preferred stock ranking on a parity with the Series B preferred stock as to dividends and upon liquidation, dissolution or winding up (a "Parity Stock"), voting as a single class without regard to series. However, we may create additional classes 64 of Parity or Junior Stock, increase the authorized number of shares of Parity or Junior Stock or issue series of Parity or Junior Stock without the consent of any holder of Series B preferred stock. See "-- Voting Rights." DIVIDENDS Series B preferred stockholders are entitled to receive, when, as and if declared by the board of directors out of our assets legally available therefor, cumulative cash dividends at the rate per annum of $3.50 per share of Series B preferred stock. Dividends on the Series B preferred stock are payable quarterly in arrears on October 1, January 1, April 1 and July 1 of each year (and, in the case of any undeclared and unpaid dividends, at such additional times and for such interim periods, if any, as determined by the board of directors), at such annual rate. Each such dividend is payable to holders of record as they appear on our stock records at the close of business on such record dates, which shall not be more than 60 days or less than 10 days preceding the payment dates corresponding thereto, as shall be fixed by the board of directors or a duly authorized committee thereof. Dividends are cumulative from the date of the original issuance of the Series B preferred stock, whether or not in any dividend period or periods we have assets legally available for the payment of such dividends. Accumulations of dividends on shares of Series B preferred stock do not bear interest. Dividends payable on the Series B preferred stock for any period greater or less than a full dividend period are computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends payable on the Series B preferred stock for each full dividend period are computed by dividing the annual dividend rate by four. Except as provided in the next sentence, no dividend will be declared or paid on any Parity Stock unless full cumulative dividends have been paid on the Series B preferred stock for all prior dividend periods. If cumulative dividends on the Series B preferred stock for all prior dividend periods have not been declared or paid in full, then any dividend declared on the Series B preferred stock for any dividend period and on any Parity Stock will be declared ratably in proportion to undeclared and unpaid dividends on the Series B preferred stock and such Parity Stock. We will not (i) declare, pay or set apart funds for the payment of any dividend or other distribution with respect to any Junior Stock (as defined below) or (ii) redeem, purchase or otherwise acquire for consideration any Junior Stock or Parity Stock through a sinking fund or otherwise (except by conversion into, or exchange for shares of, Junior Stock, and other than a redemption or purchase or other acquisition of shares of our common stock made for purposes of our employee incentive or benefit plans), unless all undeclared and unpaid dividends with respect to the Series B preferred stock and any Parity Stock at the time such dividends are payable have been paid or funds have been set apart for payment of such dividends. As used herein, (i) the term "dividend" does not include dividends payable solely in shares of Junior Stock on Junior Stock, or in options, warrants or rights to holders of Junior Stock to subscribe for or purchase any Junior Stock, and (ii) the term "Junior Stock" means our common stock, any Series A preferred shares issued pursuant to the Rights, and any other class of our capital stock now or hereafter issued and outstanding that ranks junior as to the payment of dividends or amounts payable upon liquidation, dissolution and winding up to the Series B preferred stock. LIQUIDATION PREFERENCE The Series B preferred stockholders are entitled to receive, in the event that we are liquidated, dissolved or wound up, whether voluntarily or involuntarily, $50.00 per share of Series B preferred stock plus an amount per share of Series B preferred stock equal to all dividends (whether or not earned or declared) undeclared and unpaid thereon to the date of final distribution to such holders (the "Liquidation Preference"), and no more. Until the Series B preferred stockholders have been paid the Liquidation Preference in full, no payment will be made to any holder of Junior Stock upon our liquidation, dissolution or winding up. If, upon any liquidation, dissolution or winding up, our assets, or proceeds thereof, distributable among the holders of the shares of Series B preferred stock are insufficient to pay in full the Liquidation Preference and the Liquidation Preference with respect to any other shares of Parity Stock, then such assets, or the proceeds thereof, will be distributed among the holders of shares of Series B preferred stock and any such Parity Stock ratably in accordance with the respective amounts which would be payable on such shares of Series B preferred stock and any such Parity 65 Stock if all amounts payable thereof were paid in full. Neither a consolidation, merger or business combination of us with or into another corporation nor a sale or transfer of all or substantially all of our assets will be considered a liquidation, dissolution or winding up, voluntary or involuntary. REDEMPTION The Series B preferred stock is redeemable at our option, in whole or in part, at $50.35 per share if redeemed between July 1, 2002 and June 30, 2003, and at $50 per share thereafter, plus, in each case, all dividends undeclared and unpaid on the Series B preferred stock up to the date fixed for redemption, upon giving notice as provided below. If fewer than all of the outstanding shares of Series B preferred stock are to be redeemed, the shares to be redeemed will be determined pro rata or by lot or in such other manner as prescribed by the board of directors. At least 30 days, but not more than 60 days, prior to the date fixed for the redemption of the Series B preferred stock, a written notice will be mailed to each holder of record of Series B preferred stock to be redeemed, notifying such holder of our election to redeem such shares, stating the date fixed for redemption thereof and calling upon such holder to surrender to us on the redemption date at the place designated in such notice the certificate or certificates representing the number of shares specified therein. On or after the redemption date, each holder of Series B preferred stock to be redeemed must present and surrender his certificate or certificates for such shares to us at the place designated in such notice and thereupon the redemption price of such shares will be paid to or on the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate will be canceled. Should fewer than all the shares represented by any such certificate be redeemed, a new certificate will be issued representing the unredeemed shares. From and after the redemption date (unless we default in payment of the redemption price), all dividends on the shares of Series B preferred stock designated for redemption in such notice will cease to cumulate and all rights of the holders thereof as our stockholders, except the right to receive the redemption price thereof (including all undeclared and unpaid dividends up to the redemption date), will cease and terminate and such shares will not thereafter be transferred (except with our consent) on our books, and such shares shall not be deemed to be outstanding for any purpose whatsoever. On the redemption date, we must pay any undeclared and unpaid dividends in arrears for any dividend period ending on or prior to the redemption date. In the case of a redemption date falling after a dividend payment record date and prior to the related payment date, the Series B preferred stockholders at the close of business on such record date will be entitled to receive the dividend payable on such shares on the corresponding dividend payment date, notwithstanding the redemption of such shares following such dividend payment record date. Except as provided in the preceding sentences, no payment or allowance will be made for undeclared and unpaid dividends on any shares of Series B preferred stock called for redemption or on the shares of common stock issuable upon such redemption. At our election, we may, prior to the redemption date, deposit the redemption price of the shares of Series B preferred stock so called for redemption in trust for the holders thereof with a bank or trust company, in which case such notice to holders of the shares of Series B preferred stock to be redeemed will (i) state the date of such deposit, (ii) specify the office of such bank or trust company as the place of payment of the redemption price and (iii) call upon such holders to surrender the certificates representing such shares at such place on or after the date fixed in such redemption notice (which may not be later than the redemption date), against payment of the redemption price (including all undeclared and unpaid dividends up to the redemption date). Any moneys so deposited which remain unclaimed by the Series B preferred stockholders at the end of two years after the redemption date will be returned by such bank or trust company to us. VOTING RIGHTS Except as indicated below, or except as otherwise from time to time required by applicable law, the Series B preferred stockholders have no voting rights and their consent is not required for taking any corporate action. When and if the Series B preferred stockholders are entitled to vote, each holder will be entitled to one vote per share. 66 Because we had not declared and paid six quarterly dividends on the Series B preferred stock, the Series B preferred stockholders, voting as a single class, elected two additional directors to the board at our recent annual meeting on May 10, 2002. The Series B preferred stockholders will have the right to elect two directors (never to total more than two) at each subsequent annual meeting, until such time as all cumulative dividends have been paid in full. The affirmative vote or consent of the holders of 66 2/3% of the outstanding shares of the Series B preferred stock, voting separately as a class, is required for any amendment of our Charter which alters or changes the powers, preferences, privileges or rights of the Series B preferred stock so as to materially adversely affect the holders thereof. The affirmative vote or consent of the holders of shares representing 66 2/3% of the outstanding shares of the Series B preferred stock and any other series of Parity Stock, voting as a single class without regard to series, is required to authorize the creation or issue of, or reclassify any of our authorized stock into, or issue or authorize any obligation or security convertible into or evidencing a right to purchase, any additional class or series of stock ranking senior to all such series of Parity Stock. However, we may create additional classes of Parity and Junior Stock, increase the number of shares of Parity and Junior Stock and issue additional series of Parity and Junior Stock without the consent of any holder of Series B preferred stock. CONVERSION Each share of Series B preferred stock is convertible, in whole or in part at the option of the holders thereof, into shares of common stock at a conversion price of $15.55 per share of common stock (equivalent to a conversion rate of approximately 3.2154 shares of common stock for each share of Series B preferred stock), subject to adjustment as described below (the "Conversion Price"). The right to convert shares of Series B preferred stock called for redemption will terminate at the close of business on the day preceding a redemption date (unless we default in payment of the redemption price). For information as to notices of redemption, see "-- Redemption." Conversion of shares of Series B preferred stock, or a specified portion thereof, may be effected by delivering certificates evidencing such shares, together with written notice of conversion and a proper assignment of such certificates to us, or in blank to the principal corporate trust office of American Stock Transfer & Trust Company, our transfer agent. Each conversion will be deemed to have been effected immediately prior to the close of business on the date on which the certificates for shares of Series B preferred stock shall have been surrendered and notice (and, if applicable, payment of an amount equal to the dividend payable on such shares) received by us as aforesaid and the conversion shall be at the Conversion Price in effect at such time and on such date. Holders of shares of Series B preferred stock at the close of business on a dividend payment record date are entitled to receive any declared dividend payable on such shares on the corresponding dividend payment date notwithstanding the conversion of such shares following such dividend payment record date and prior to such dividend payment date. However, shares of Series B preferred stock surrendered for conversion during the period between the close of business on any dividend payment record date and the opening of business on the corresponding dividend payment date (except shares converted after the issuance of a notice of redemption with respect to a redemption with respect to a redemption date during such period, which will be entitled to such dividend) must be accompanied by payment of an amount equal to the dividend payable on such shares on such dividend payment date. A holder of shares of Series B preferred stock on a dividend record date who (or whose transferee) tenders any such shares for conversion into shares of common stock on such dividend payment date will receive the dividend payable by us on such shares of Series B preferred stock on such date, and the converting holder need not include payment of the amount of such dividend upon surrender of shares of Series B preferred stock for conversion. Except as provided above, we will make no payment or allowance for unpaid dividends, whether or not in arrears, on converted shares or for dividends on the shares of common stock issued upon such conversion. Fractional shares of common stock will not be issued upon conversion but, in lieu thereof, we will pay a cash adjustment based on the current market price of our common stock on the day prior to the conversion date. 67 CONVERSION PRICE ADJUSTMENTS The Conversion Price is subject to adjustment upon certain events, including (i) dividends (and other distributions) payable in common stock on any class of our capital stock, (ii) the issuance to all holders of common stock of certain rights or warrants (other than the Rights or any similar rights issued under any successor stockholders rights plan) entitling them to subscribe for or purchase common stock or securities which are convertible into common stock, (iii) subdivisions, combinations and reclassifications of common stock, and (iv) distributions to all holders of common stock of evidences of indebtedness of Hecla or assets (including securities, but excluding those dividends, rights, warrants and distributions referred to above and dividends and distributions paid in cash out of the profits or surplus of Hecla). In addition to the foregoing adjustments, we are permitted to make such reductions in the Conversion Price as we consider to be advisable in order that any event treated for federal income tax purposes as a dividend of stock or stock rights will not be taxable to the holders of our common stock. In case we are a party to any transaction, including, without limitation, a merger, consolidation or sale of all or substantially all of our assets, as a result of which shares of common stock will be converted into the right to receive stock, securities or other property (including cash or any combination thereof), each share of Series B preferred stock will thereafter be convertible into the kind and amount of shares of stock and other securities and property receivable (including cash or any combination thereof) upon the consummation of such transaction by a holder of that number of shares or fraction thereof of common stock into which one share of Series B preferred stock is convertible immediately prior to such transaction (assuming such holder of common stock failed to exercise any rights of election and received per share the kind and amount received per share by a plurality of non- electing shares). We may not become a party to any such transaction unless the terms thereof are consistent with the foregoing. No adjustment of the Conversion Price will be required to be made in any case until cumulative adjustments amount to 1% or more of the Conversion Price. Any adjustments not so required to be made will be carried forward and taken into account in subsequent adjustments. RIGHTS Each share of our common stock is accompanied by a series A junior participating preferred stock purchase right (Right) that trades with the share of common stock. Upon the terms and subject to the conditions of our Rights Agreement dated as of May 10, 1996 (Rights Agreement), a holder of a Right is entitled to purchase one one-hundredth of a share of Series A preferred stock at an exercise price of $50, subject to adjustment in several circumstances, including upon merger. The Rights are currently represented by the certificates for our common stock and are not transferable apart therefrom. Transferable rights certificates will be issued at the earlier of (1) the 10th day after the public announcement that any person or group has acquired beneficial ownership of 15% or more of our common stock (an Acquiring Person) or (ii) the 10th day after a person commences, or announces an intention to commence, a tender or exchange offer the consummation of which would result in any person or group becoming an Acquiring Person. The 15% threshold for becoming an Acquiring Person may be reduced by the board of directors to not less than 10% prior to any such acquisition. All the outstanding Rights may be redeemed by us for $0.01 per Right prior to such time that any person or group becomes an Acquiring Person. Under certain circumstances, the board of directors may decide to exchange each Right (except Rights held by an Acquiring Person) for one share of common stock. The Rights will expire on May 19, 2006 unless earlier redeemed. A Right is presently attached to each issued and outstanding share of common stock. As long as the Rights are attached to and evidenced by the certificates representing our common stock, we will continue to issue one Right with each share of common stock that shall become outstanding. The Rights have certain antitakeover effects. The Rights may cause substantial dilution to a person or group that attempts to acquire us on terms not approved by the board of directors. The Rights should not interfere with any merger or other business combination approved by the board of directors since the Rights may be redeemed by us prior to the consummation of such transactions. See "Risk Factors - Our stockholders rights plan and provisions in our 68 certificate of incorporation, our bylaws, and Delaware law could delay or deter tender offers or takeover attempts that may offer you a premium for your common stock." The foregoing description of the Rights is qualified in its entirety by reference to the Rights Agreement, specifying the terms of the Rights, which is filed as exhibit 4.4 to the registration statement of which this prospectus is a part. LEGAL MATTERS Michael B. White, Esq., our Secretary and retired general counsel, who has rendered an opinion on the legality of the securities being registered, owns 51,567 shares of our common stock and options to purchase 271,500 shares of our common stock as of October 1, 2002. Mr. White provides services to us pursuant to a consulting agreement. EXPERTS Our financial statements as of and for the year ended December 31, 2001 (excluding Greens Creek Joint Venture) included in this prospectus have been so included in reliance on the report of BDO Seidman, LLP, independent auditors. Our financial statements as of December 31, 2000 and for each of the two years in the period ended December 31, 2000 and the financial statements of Greens Creek Joint Venture as of December 31, 2001 and 2000 and for each of the two years in the period ended December 31, 2001 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants. Such financials have been included herein in reliance upon the reports of such firms given upon their authority as experts in accounting and auditing. GLOSSARY OF CERTAIN TERMS You may find the following definitions helpful in your reading of this prospectus. * Cash Operating Costs -- Includes all direct and indirect operating cash costs incurred at each operating mine, excluding royalties and mine production taxes. * Dore -- Unrefined gold and silver bullion bars consisting of approximately 90% precious metals which will be further refined to almost pure metal. * Ore -- A mixture of valuable minerals and gangue (valueless minerals) from which at least one of the minerals or metals can be extracted at a profit. * Orebody -- A continuous, well-defined mass of material of sufficient ore content to make extraction economically feasible. * Proven and Probable Ore Reserves -- Reserves that reflect estimates of the quantities and grades of mineralized material at our mines which we believe can be recovered and sold at prices in excess of the total cash cost associated with extracting and processing the ore. The estimates are based largely on current costs and on projected prices and demand for our products. Mineral reserves are stated separately for each of our mines based upon factors relevant to each mine. Reserves represent diluted in-place grades and do not reflect losses in the recovery process. Our estimates of Proven and Probable reserves for the Lucky Friday mine, the San Sebastian mine and the La Camorra mine at December 31, 2001 and 2000, are based on gold prices of $300 and $300 per ounce, silver prices of $5.10 and $5.50 per ounce, lead prices of $0.24 and $0.25 per pound, and zinc prices of $0.48 and $0.55 per pound, respectively. Proven and Probable ore reserves for the Lucky Friday, San Sebastian and La 69 Camorra mines are calculated and reviewed in-house and are subject to periodic audit by others, although audits are not performed on an annual basis. Proven and Probable ore reserves for the Greens Creek mine are based on calculations of reserves provided to us by the operator of Greens Creek that have been reviewed but not independently confirmed by us. Kennecott Greens Creek Mining Company's estimates of Proven and Probable ore reserves for the Greens Creek mine as of December 2001 and 2000 are derived from successive generations of reserve and feasibility analyses for different areas of the mine each using a separate assessment of metals prices. The weighted average prices used were: December 31, December 31, 2001 2000 ---- ---- Gold $ 309 $ 295 Silver $ 4.92 $ 5.51 Lead $ 0.25 $ 0.25 Zinc $ 0.49 $ 0.55 * Changes in reserves represent general indicators of the results of efforts to develop additional reserves as existing reserves are depleted through production. Grades of ore fed to process may be different from stated reserve grades because of variation in grades in areas mined from time to time, mining dilution and other factors. Reserves should not be interpreted as assurances of mine life or of the profitability of current or future operations. * Probable Reserves -- Reserves for which quantity and grade and/or quality are computed from information similar to that used for Proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for Proven reserves, is high enough to assume continuity between points of observation. * Proven Reserves -- Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling, and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well-defined that size, shape, depth and mineral content of reserves are well- established. * Stope -- An underground excavation from which ore has been extracted either above or below mine level. * Total Cash Costs -- Includes all direct and indirect operating cash costs incurred at each operating mine. * Total Production Costs -- Includes total cash costs, as defined, plus depreciation, depletion, amortization and reclamation accruals relating to each operating mine. * Total Production Costs Per Ounce -- Calculated based upon total production costs, as defined, net of by-product revenues earned from all metals other than the primary metal produced at each mine, divided by the total ounces of the primary metal produced. * Unpatented Mining Claim -- A parcel of property located on federal lands pursuant to the General Mining Law and the requirements of the state in which the unpatented claim is located, the paramount title of which remains with the federal government. The holder of a valid, unpatented lode- mining claim is granted certain rights including the right to explore and mine such claim under the General Mining Law. 70 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Audited Financial Statements Page - ---------------------------- ---- Reports of Independent Certified Public Accountants F-2 to F-4 Consolidated Balance Sheets at December 31, 2001 and 2000 F-5 Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2001, 2000 and 1999 F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 F-7 Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2001, 2000 and 1999 F-8 Notes to Consolidated Financial Statements F-9 to F-36 Unaudited Quarterly Condensed Financial Statements -------------------------------------------------- Consolidated Balance Sheets at June 30, 2002 and December 31, 2001 F-37 Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months and Six Months Ended June 30, 2002 and 2001 F-38 Consolidated Statements of Cash Flows for the Three Months and Six Months ended June 30, 2002 and 2001 F-39 Notes to Unaudited Consolidated Financial Statements F-40 to F-47 Financial Statement Schedules* - ------------------------------ *Financial statement schedules have been omitted as not applicable F-1 Report of Independent Certified Public Accountants The Board of Directors and Shareholders of Hecla Mining Company We have audited the accompanying consolidated balance sheet of Hecla Mining Company as of December 31, 2001, and the related statement of operations and comprehensive loss, cash flows, and changes in shareholders' equity for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of Greens Creek Joint Venture, a 29.73 percent owned subsidiary, which statements reflect total assets and revenues constituting 33.7 percent and 26.3 percent, respectively, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Greens Creek Joint Venture, is based solely on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hecla Mining Company at December 31, 2001 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the Consolidated Financial Statements, the Company changed its method of accounting for derivative instruments and hedging activities in 2001. /s/ BDO Seidman, LLP February 1, 2002 Spokane, Washington F-2 Report of Independent Certified Public Accountants The Board of Directors and Shareholders of Hecla Mining Company In our opinion, the consolidated balance sheet as of December 31, 2000 and the related consolidated statements of operations and comprehensive loss, changes in shareholders' equity and of cash flows of each of the two years in the period ended December 31, 2000 (appearing on pages F-5 through F-36 of this registration statement) present fairly, in all material respects, the financial position, results of operations and cash flows of Hecla Mining Company and its subsidiaries at December 31, 2000 and for each of the two years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis of our opinion. /s/ PricewaterhouseCoopers LLP March 28, 2001 San Francisco, California F-3 Report of Independent Certified Public Accountants To the Management Committee of the Greens Creek Joint Venture: In our opinion, the balance sheets and the related statements of operations, of changes in venturers' equity and of cash flows present fairly, in all material respects, the financial position of the Greens Creek Joint Venture (the "Venture") at December 31, 2001 and 2000, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Venture's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP January 12, 2002 Salt Lake City, Utah F-4 Hecla Mining Company and Subsidiaries Consolidated Balance Sheets (In thousands, except share data) ----------
December 31, ----------------------------- 2001 2000 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 7,560 $ 1,373 Accounts and notes receivable 6,648 11,164 Inventories 10,868 11,269 Other current assets 1,426 2,105 Net assets of discontinued operations 2,714 44,057 ------------ ------------ Total current assets 29,216 69,968 Investments 69 502 Restricted investments 6,375 6,268 Properties, plants and equipment, net 104,593 108,343 Other noncurrent assets 12,863 9,755 ------------ ------------ Total assets $ 153,116 $ 194,836 ============ ============ LIABILITIES Current liabilities: Accounts payable and accrued expenses $ 7,938 $ 7,520 Accrued payroll and related benefits 7,832 4,732 Current portion of long-term debt 7,043 59,274 Accrued taxes 787 2,188 Current portion of accrued reclamation and closure costs 6,026 12,060 ------------ ------------ Total current liabilities 29,626 85,774 Deferred income taxes 300 300 Long-term debt 11,948 10,041 Accrued reclamation and closure costs 46,455 46,650 Other noncurrent liabilities 6,823 7,326 ------------ ------------ Total liabilities 95,152 150,091 ------------ ------------ COMMITMENTS AND CONTINGENCIES (NOTES 3, 4, 5, 7 AND 8) SHAREHOLDERS' EQUITY Preferred stock, $0.25 par value, authorized 5,000,000 shares; issued and outstanding - 2,300,000 shares, liquidation preference, 2001 - $127,075 and 2000 - $119,025 575 575 Common stock, $0.25 par value, authorized 100,000,000 shares; issued 2001 - 73,068,796 shares, issued 2000 - 66,859,752 shares 18,267 16,715 Capital surplus 404,354 400,236 Accumulated deficit (364,183) (366,523) Accumulated other comprehensive income (loss) 173 (4,858) Less stock held by grantor trust; 2001 - 102,114 common shares, 2000 - 139,467 common shares (330) (514) Less stock held as unearned compensation; issued 2001 - 19,035 common shares (6) -- Less treasury stock, at cost; 2001 - 62,116 common shares, 2000 - 62,114 common shares (886) (886) ------------ ------------ Total shareholders' equity 57,964 44,745 ------------ ------------ Total liabilities and shareholders' equity $ 153,116 $ 194,836 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. F-5 Hecla Mining Company and Subsidiaries Consolidated Statements of Operations and Comprehensive Loss (Dollars and shares in thousands, except per share amounts) ----------
Year Ended December 31, -------------------------------------------- 2001 2000 1999 ------------ ------------ ------------ Continuing operations: Sales of products $ 85,247 $ 75,850 $ 73,703 ------------ ------------ ------------ Cost of sales and other direct production costs 60,053 63,088 54,435 Depreciation, depletion and amortization 20,475 18,091 18,662 ------------ ------------ ------------ 80,528 81,179 73,097 ------------ ------------ ------------ Gross profit (loss) 4,719 (5,329) 606 ------------ ------------ ------------ Other operating expenses: General and administrative 7,219 7,303 7,121 Exploration 2,157 6,332 5,540 Depreciation and amortization 265 282 321 Provision for closed operations and environmental matters 1,310 20,029 30,100 Reduction in carrying value of mining properties -- 40,240 175 ------------ ------------ ------------ 10,951 74,186 43,257 ------------ ------------ ------------ Loss from operations (6,232) (79,515) (42,651) ------------ ------------ ------------ Other income (expense): Interest and other income 3,491 4,609 5,028 Miscellaneous expense (2,954) (1,809) (1,487) Gain (loss) on investments -- -- (96) Interest expense: Interest costs (3,887) (8,119) (4,607) Less amount capitalized -- -- 19 ------------ ------------ ------------ (3,350) (5,319) (1,143) ------------ ------------ ------------ Loss from continuing operations before income taxes, extraordinary charge and cumulative effect of change in accounting principle (9,582) (84,834) (43,794) Income tax benefit (provision) -- (13) 403 ------------ ------------ ------------ Loss from continuing operations before extraordinary charge and cumulative effect of change in accounting principle (9,582) (84,847) (43,391) Discontinued operations: Income (loss), net of income tax (743) 2,572 4,786 Gain (loss) on disposal, net of income tax 12,665 (1,043) -- Extraordinary charge, net of income tax -- (647) -- Cumulative effect of change in accounting principle, net of income tax -- -- (1,385) ------------ ------------ ------------ Net income (loss) 2,340 (83,965) (39,990) Preferred stock dividends (8,050) (8,050) (8,050) ------------ ------------ ------------ Loss applicable to common shareholders (5,710) (92,015) (48,040) ------------ ------------ ------------ Other comprehensive income (loss), net of income tax: Cumulative effect of a change in accounting principle (136) -- -- Change in derivative contracts 256 -- -- Unrealized holding gains (losses) on securities (26) 13 13 Reclassification adjustment for losses included in net income (loss) 39 -- 96 Minimum pension liability adjustment -- -- 289 Change in foreign currency items 4,898 -- -- ------------ ------------ ------------ Other comprehensive income 5,031 13 398 ------------ ------------ ------------ Comprehensive loss applicable to common shareholders $ (679) $ (92,002) $ (47,642) ============ ============ ============ Basic and diluted income (loss) per common share: Loss from continuing operations $ (0.25) $ (1.39) $ (0.83) Income from discontinued operations 0.17 0.02 0.08 Extraordinary charge -- (0.01) -- Cumulative effect of change in accounting principle -- -- (0.02) ------------ ------------ ------------ Basic and diluted loss per common share $ (0.08) $ (1.38) $ (0.77) ============ ============ ============ Weighted average number of common shares outstanding 69,396 66,791 62,347 ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. F-6 Hecla Mining Company and Subsidiaries Consolidated Statements of Cash Flows (In thousands) ----------
Year Ended December 31, -------------------------------------------- 2001 2000 1999 ------------ ------------ ------------ Operating activities: Net income (loss) $ 2,340 $ (83,965) $ (39,990) Noncash elements included in net income (loss): Depreciation, depletion and amortization 20,740 22,363 23,738 Cumulative effect of change in accounting principle -- -- 1,385 Extraordinary charge -- 647 -- (Gain) loss on sale of discontinued operations (12,665) 1,043 -- Gain on disposition of properties, plants and equipment (338) (1,460) (2,133) Loss on investments -- -- 96 Reduction in carrying value of mining properties -- 40,240 4,577 Provision for reclamation and closure costs 1,061 17,601 28,614 Change in net assets of discontinued operations 1,234 1,347 -- Change in assets and liabilities: Accounts and notes receivable 4,516 6,486 (1,691) Income tax refund receivable -- -- 1,079 Inventories (1,738) (108) (317) Other current and noncurrent assets (1,435) 100 (1,324) Accounts payable and accrued expenses 417 (1,266) (4,788) Accrued payroll and related benefits 3,100 669 1,542 Accrued taxes (1,401) 97 1,597 Accrued reclamation and closure costs and other noncurrent liabilities (7,793) (9,528) (9,429) ------------ ------------ ------------ Net cash provided (used) by operating activities 8,038 (5,734) 2,956 ------------ ------------ ------------ Investing activities: Proceeds from sale of discontinued operations 59,761 9,562 -- Purchase of Monarch Resources Investments Limited, net of cash acquired -- -- (9,183) Additions to properties, plants and equipment (17,890) (15,210) (13,467) Proceeds from disposition of properties, plants and equipment 545 2,671 2,476 Proceeds from the sale of investments -- 283 311 Decrease (increase) in restricted investments (107) (270) 333 Purchase of investments and change in cash surrender value of life insurance, net 406 1,354 54 Other, net (173) 381 133 ------------ ------------ ------------ Net cash provided (used) by investing activities 42,542 (1,229) (19,343) ------------ ------------ ------------ Financing activities: Common stock issued for warrants and stock option plans 428 35 277 Issuance of common stock, net of offering costs 5,462 -- 11,865 Dividends paid on preferred stock -- (6,037) (8,050) Payments for debt issuance costs -- (1,811) (1,255) Borrowings against cash surrender value of life insurance -- -- 925 Borrowings on debt 15,909 80,524 54,063 Repayments on debt (66,192) (67,094) (41,199) ------------ ------------ ------------ Net cash provided (used) by financing activities (44,393) 5,617 16,626 ------------ ------------ ------------ Change in cash and cash equivalents: Net increase (decrease) in cash and cash equivalents 6,187 (1,346) 239 Cash and cash equivalents at beginning of year 1,373 2,719 2,480 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 7,560 $ 1,373 $ 2,719 ============ ============ ============ Supplemental disclosure of cash flow information: Cash paid during year for: Interest, net of amount capitalized $ 2,888 $ 8,376 $ 4,377 ============ ============ ============ Income tax payments (refunds), net $ (68) $ 54 $ (847) ============ ============ ============
SEE NOTES 10 AND 16 FOR NONCASH INVESTING AND FINANCING ACTIVITIES. The accompanying notes are an integral part of the consolidated financial statements. F-7 Hecla Mining Company and Subsidiaries Consolidated Statements of Changes in Shareholders' Equity For the Years Ended December 31, 2001, 2000 and 1999 (Dollars and shares in thousands, except per share amounts) ---------------
Accumulated Stock Preferred Stock Common Stock Other Held by ----------------- ------------------ Capital Accumulated Comprehensive Grantor Unearned Treasury Shares Amount Shares Amount Surplus Deficit Income (Loss) Stock Compensation Stock -------- -------- -------- -------- --------- ----------- ------------- -------- ------------ -------- Balances, December 31, 1998 2,300 $ 575 55,167 $ 13,792 $ 374,017 $(230,493) $ (5,269) $ -- $ -- $ (886) Net loss (39,990) Preferred stock dividends ($3.50 per share) (8,050) Stock issued for cash, net of issuance costs 4,739 1,184 10,681 Stock issued under stock option and warrant plans 99 25 232 Stock issued to directors 8 2 18 Stock issued in connection with acquisition of Monarch Resources Investments Limited 6,700 1,675 14,290 Stock issued and held by grantor trust 132 33 967 (500) Other comprehensive income 398 -------- -------- -------- -------- --------- --------- --------- -------- -------- ------- Balances, December 31, 1999 2,300 575 66,845 16,711 400,205 (278,533) (4,871) (500) -- (886) Net loss (83,965) Preferred stock dividends ($1.75 per share) (4,025) Stock issued to directors 8 2 19 Stock issued and held by grantor trust 7 2 12 (14) Other comprehensive income 13 -------- -------- -------- -------- --------- --------- --------- -------- -------- ------- Balances, December 31, 2000 2,300 575 66,860 16,715 400,236 (366,523) (4,858) (514) -- (886) Net income 2,340 Stock issued to directors 7 2 5 Stock issued and held by grantor trust 25 6 38 (20) Stock disbursed by grantor trust (204) 204 Stock issued under stock option and warrant plans 408 102 325 Stock issued for cash, net of issuance costs 5,750 1,437 3,940 Issuance of restricted stock 19 5 14 (19) Amortization of unearned compensation 13 Other comprehensive income 5,031 -------- -------- -------- -------- --------- --------- --------- -------- -------- ------- Balances, December 31, 2001 2,300 $ 575 73,069 $ 18,267 $ 404,354 $(364,183) $ 173 $ (330) $ (6) $ (886) ======== ======== ======== ======== ========= ========= ========= ======== ======== =======
The accompanying notes are an integral part of the consolidated financial statements. F-8 Hecla Mining Company and Subsidiaries Notes to Consolidated Financial Statements -------- Note 1: Summary of Significant Accounting Policies A. Basis of Presentation -- The accompanying consolidated financial statements include the accounts of Hecla Mining Company (Hecla or the Company), its majority-owned subsidiaries and its proportionate share of the accounts of the joint ventures in which it participates. All significant intercompany transactions and accounts are eliminated in consolidation. Hecla's revenues and profitability are largely dependent on world prices for gold, silver, lead and zinc, which fluctuate widely and are affected by numerous factors beyond Hecla's control, including inflation and worldwide forces of supply and demand. The aggregate effect of these factors is not possible to accurately predict. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates. Certain consolidated financial statement amounts have been reclassified to conform to the 2001 presentation. These reclassifications had no effect on earnings or shareholders' equity as previously reported. B. Company's Business and Concentrations of Credit Risk -- Hecla is engaged in mining and mineral processing activities, including exploration, extraction, processing and reclamation. Hecla's principal products are metals (primarily gold, silver, lead and zinc). Substantially all of Hecla's operations are conducted in the United States, Mexico and Venezuela. Sales of metals products are made principally to domestic and foreign custom smelters and metal traders. Hecla sells substantially all of its metallic concentrates to smelters which are subject to extensive regulations including environmental protection laws. Hecla has no control over the smelters' operations or their compliance with environmental laws and regulations. If the smelting capacity available to Hecla was significantly reduced because of environmental requirements or otherwise, it is possible that Hecla's silver operations could be adversely affected. Industrial minerals are sold principally to domestic retailers and wholesalers. Hecla's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. Hecla places its cash and temporary cash investments with institutions of high credit-worthiness. At times, such investments may be in excess of the federal insurance limit. Hecla routinely assesses the financial strength of its customers and, as a consequence, believes that its trade accounts receivable credit risk exposure is limited. At December 31, 2001, the Company had factored accounts receivable without recourse of $0.5 million. Factored accounts receivable are eliminated from the balance of accounts receivable when sold. C. Inventories -- Inventories are stated at the lower of average cost or estimated net realizable value. D. Investments -- Marketable equity securities are categorized as available for sale and carried at quoted market value. Realized gains and losses on the sale of securities are recognized on a specific identification basis. Unrealized gains and losses are included as a component of accumulated other comprehensive loss, net of related deferred income taxes, unless a permanent impairment in value has occurred, which is then charged to operations. F-9 Restricted investments primarily represent investments in money market funds. These investments are restricted primarily for reclamation funding or surety bonds. E. Properties, Plants and Equipment -- Properties, plants and equipment are stated at the lower of cost or estimated net realizable value. Maintenance, repairs and renewals are charged to operations. Betterments of a major nature are capitalized. When assets are retired or sold, the costs and related allowances for depreciation and amortization are eliminated from the accounts and any resulting gain or loss is reflected in operations. Idle facilities, placed on a standby basis, are carried at the lower of net carrying value or estimated net realizable value. Management of Hecla reviews the net carrying value of all facilities, including idle facilities, on a periodic basis. Hecla estimates the net realizable value of each property based on the estimated undiscounted future cash flows that will be generated from operations at each property, the estimated salvage value of the surface plant and equipment and the value associated with property interests. These estimates of undiscounted future cash flows are dependent upon estimates of metal to be recovered from proven and probable ore reserves, future production costs and future metals prices over the estimated remaining mine life. If undiscounted cash flows are less than the carrying value of a property, an impairment loss is recognized based upon the estimated expected future net cash flows from the property discounted at an interest rate commensurate with the risk involved. Management's estimates of metals prices, recoverable proven and probable ore reserves, and operating, capital and reclamation costs are subject to risks and uncertainties of change affecting the recoverability of Hecla's investment in various projects. Although management has made a reasonable estimate of these factors based on current conditions and information, it is reasonably possible that changes could occur in the near term which could adversely affect management's estimate of net cash flows expected to be generated from its operating properties and the need for asset impairment write-downs. Management's calculations of proven and probable ore reserves are based on engineering and geological estimates including minerals prices and operating costs. Changes in the geological and engineering interpretation of various orebodies, minerals prices and operating costs may change Hecla's estimates of proven and probable ore reserves. It is reasonably possible that certain of Hecla's estimates of proven and probable ore reserves will change in the near term resulting in a change to amortization and reclamation accrual rates in future reporting periods. Depreciation is based on the estimated useful lives of the assets and is computed using straight-line and unit-of-production methods. Depletion is computed using the unit-of-production method. F. Mine Exploration and Development -- Exploration costs and ongoing development costs at operating mines are charged to operations as incurred. Major mine development expenditures are capitalized at operating properties and at new mining properties not yet producing where proven and probable ore reserves have been identified. G. Reclamation of Mining Areas -- All of Hecla's operations are subject to reclamation and closure requirements. Minimum standards for mine reclamation have been established by various governmental agencies which affect certain operations of Hecla. A reserve for mine reclamation costs has been established for restoring certain abandoned and currently disturbed mining areas based upon estimates of cost to comply with existing reclamation standards. Mine reclamation costs for operating properties are accrued using the unit-of-production method and charged to cost of sales and other direct production costs. The estimated amount of metals or minerals to be recovered from a mine site is based on internal and external geological data and is reviewed by management on a periodic basis. Changes in such estimated amounts which affect reclamation cost accrual rates are accounted for prospectively from the date of the change unless they indicate there is a current impairment of an asset's carrying value and a decision is made to permanently close the property, in which case they are recognized currently and charged to provision for closed operations and environmental matters. It is reasonably possible that Hecla's estimate of its ultimate accrual for reclamation costs will change in the near term due to possible changes in laws and regulations, and interpretations thereof, and changes in cost estimates. H. Remediation of Mining Areas -- Hecla accrues costs associated with environmental remediation obligations at the most likely estimate when it is probable that such costs will be incurred and they are reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study and are charged to provision for closed operations and environmental F-10 matters. Costs of future expenditures for environmental remediation are not discounted to their present value unless subject to a contractually obligated fixed payment schedule. Such costs are based on management's current estimate of amounts that are expected to be incurred when the remediation work is performed within current laws and regulations. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. It is reasonably possible that, due to uncertainties associated with defining the nature and extent of environmental contamination, application of laws and regulations by regulatory authorities and changes in remediation technology, the ultimate cost of remediation could change in the future. Hecla periodically reviews its accrued liabilities for such remediation costs as evidence becomes available indicating that its remediation liability has potentially changed. I. Income Taxes -- Hecla records deferred tax liabilities and assets for the expected future income tax consequences of events that have been recognized in its financial statements. Deferred tax liabilities and assets are determined based on the temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. J. Basic and Diluted Loss Per Common Share -- Basic earnings per share (EPS) is calculated by dividing loss applicable to common shareholders by the weighted average number of common shares outstanding for the year. Diluted EPS reflects the potential dilution that could occur if potentially dilutive securities were exercised or converted to common stock. Due to the losses in 2001, 2000 and 1999, potentially dilutive securities were excluded from the calculation of diluted EPS as they were antidilutive. Therefore, there was no difference in the calculation of basic and diluted EPS in 2001, 2000 and 1999. K. Revenue Recognition -- Sales of metal products sold directly to smelters are recorded when title and risk of loss transfer to the smelter at current spot metals prices. Recorded values are adjusted monthly until final settlement at month-end metals prices. Sales of metal in products tolled (rather than sold to smelters) are recorded at contractual amounts when title and risk of loss transfer to the buyer. Sales of industrial minerals are recognized as the minerals are shipped and title transferred. L. Interest Expense -- Interest costs incurred during the construction of qualifying assets are capitalized as part of the asset cost. M. Cash Equivalents -- Hecla considers cash equivalents to consist of highly liquid investments with a remaining maturity of three months or less when purchased. N. Foreign Currency Translation -- Hecla operates in Mexico with its wholly owned subsidiary, Minera Hecla, S.A. de C.V. (Minera Hecla). Hecla also operates in Venezuela with its wholly owned subsidiary, Minera Hecla Venezolana, C.A. The functional currency for Minera Hecla and Minera Hecla Venezolana is the U.S. dollar. Accordingly, Hecla translates the monetary assets and liabilities of these subsidiaries at the period-end exchange rate while nonmonetary assets and liabilities are translated at historical rates. Income and expense accounts are translated at the average exchange rate for each period. Translation adjustments and transaction gains and losses are reflected in the net loss for the period. O. Risk Management Contracts -- Hecla uses derivative financial instruments as part of an overall risk-management strategy. These instruments are used as a means of hedging exposure to precious metals prices. Hecla does not hold or issue derivative financial instruments for speculative trading purposes. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 was amended in June 2000 with the issuance of SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." SFAS 133, which Hecla adopted effective January 1, 2001, requires that derivatives be recognized as assets or liabilities and be measured at fair value. Gains or losses resulting from changes in the fair value of derivatives in each period are to be accounted for either in current earnings or other comprehensive income depending on the use of the derivatives and whether F-11 they qualify for hedge accounting. The key criterion for hedge accounting is that the hedging relationship must be highly effective in achieving offsetting changes in the fair value or cash flows of the hedging instruments and the hedged items. Hecla uses forward sales contracts to hedge its exposure to precious metals prices. The underlying hedged production is designated at the inception of the hedge. At January 1, 2001, Hecla's hedging contracts, used to reduce exposure to precious metals prices, consisted of forward sales contracts and a gold lease rate swap. As Hecla intends to physically deliver metals in accordance with the terms of certain of the forward sales contracts, Hecla has accounted for these contracts as normal sales in accordance with SFAS 138. As a result, these contracts are not required to be accounted for as derivatives under SFAS 133. In regard to the gold lease rate swap, Hecla recorded a cumulative effect of a change in accounting principle in other comprehensive income of a loss of approximately $0.1 million upon adoption of SFAS 133 on January 1, 2001. P. Accounting for Stock Options -- Hecla measures compensation cost for stock option plans using the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Hecla also provides the required disclosures of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). Q. New Accounting Pronouncements -- In April 1998, Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-up Activities" was issued. SOP 98-5 provides guidance on the financial reporting of start-up costs and organizational costs. It requires costs of start-up activities and organizational costs to be expensed as incurred, as well as the recognition of a cumulative effect of a change in accounting principle for retroactive application of the standard. Hecla adopted SOP 98-5 as required on January 1, 1999. The impact of this change in accounting principle related to unamortized start-up costs associated with Hecla's 29.73% ownership interest in the Greens Creek mine. The $1.4 million cumulative effect of this change in accounting principle is included in the consolidated statement of operations for the year ended December 31, 1999. Due to the availability of net operating losses, there was no tax effect associated with the change. In June 2001, the FASB issued SFAS No. 141 "Business Combinations" which supersedes APB Opinion No. 16 "Business Combinations" and FASB Statement No. 38 "Accounting for Preacquisition Contingencies of Purchased Enterprises." The provisions of this statement require that all business combinations be accounted for using "purchase accounting" and it disallows the use of "pooling of interests" as previously allowed under APB Opinion No. 16 and FASB Statement No. 38. This statement is effective for all business combinations subsequent to June 30, 2001. The adoption of this statement is not expected to have a material effect on the Company's financial statements. Also in June 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible Assets," which supersedes APB Opinion No. 17 "Intangible Assets." The provisions of this statement changes the unit of account for goodwill and takes a very different approach to how goodwill and other intangible assets are accounted for subsequent to their initial recognition. Because goodwill and some intangible assets will no longer be amortized, the reported amounts of goodwill and intangible assets, as well as total assets, will not decrease at the same time and in the same manner as under previous standards. This statement is effective for all fiscal years beginning subsequent to December 15, 2001. The adoption of this statement is not expected to have a material effect on the Company's financial statements. In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations," which amends SFAS No. 19. This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement required that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The requirements of this Statement must be implemented for fiscal years beginning after June 15, 2002; however, early adoption is encouraged. The Company is currently evaluating what effect the adoption of this standard will have on the Company's financial statements. The FASB also issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. It supersedes F-12 SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business. It also amends APB No. 51, "Consolidated Financial Statements," to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. The provisions of this Statement are effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The provisions of this Statement generally are to be applied prospectively. The adoption of this statement is not expected to have a material effect on the Company's financial statements. R. Liquidity -- As of December 31, 2001, Hecla had cash and cash equivalents of $7.6 million and negative working capital of $0.4 million. Hecla believes cash requirements over the next twelve months will be funded through a combination of current cash, future cash flows from operations, proceeds from potential asset sales, and/or future debt or equity security issuances. Hecla's ability to raise capital is highly dependent upon the commercial viability of its projects and the associated prices of metals Hecla produces. Because of the significant impact that changes in the prices of gold, silver, zinc and lead have on Hecla's financial condition, declines in these metals prices may negatively impact short-term liquidity and Hecla's ability to raise additional funding for long-term projects. In the event that cash balances decline to a level that cannot support the operations of Hecla, management will defer certain planned capital expenditures and exploration expenditures as needed to conserve cash for operations. If management's plans are not successful, operations and liquidity may be adversely affected. Note 2: Discontinued Operations On March 27, 2001, Hecla completed a sale of the Kentucky-Tennessee Clay Company, K-T Feldspar Corporation, K-T Clay de Mexico and certain other minor inactive industrial minerals companies (collectively the K-T Group) for $62.5 million. Hecla recorded a gain on the sale of the K-T Group of $12.7 million in 2001. The proceeds from the sale were used to repay a term loan facility of $55.0 million, and to repay amounts outstanding under a $2.0 million revolving bank agreement. The remaining net proceeds were available for general corporate purposes. On March 4, 2002, Hecla completed a sale of the pet operations of the Colorado Aggregate division (CAC) of MWCA for approximately $1.5 million in cash. Hecla continues to pursue the sale of the remaining assets of the industrial minerals segment and has a signed letter of intent to sell the briquette operations of CAC, although there can be no assurance a sales transaction will take place. At December 31, 2001, the net assets of CAC were approximately $2.7 million. On March 15, 2000, Hecla sold substantially all of the assets of its Mountain West Products (MWP) division of MWCA for $8.5 million in cash. The sale of MWP resulted in a loss on disposal of $1.0 million. On June 5, 2000, Hecla completed a sale of the landscape operations of CAC for $1.1 million in cash. The sale of the landscape operations did not result in a gain or loss. During 1999, based upon anticipated sales proceeds for the sale of the MWCA subsidiary, Hecla determined that certain adjustments were necessary to properly reflect the estimated net realizable value of MWCA. These adjustments, totaling $4.4 million, consisted of write-downs of property, plant and equipment of $3.2 million and a write-down of other noncurrent assets of $1.2 million during the year ended December 31, 1999. F-13 The net assets of discontinued operations at December 31, 2001 and 2000, consist of (in thousands):
2001 2000 ---- ---- ASSETS Cash and cash equivalents $ -- $ 1,750 Accounts and notes receivable -- 9,528 Inventories 2,139 5,035 Other current assets -- 433 Properties, plants and equipment, net 645 32,174 Other noncurrent assets -- 1,126 ------------ ------------ Total assets $ 2,784 $ 50,046 ============ ============ LIABILITIES Accounts payable and accrued expenses $ -- $ 4,808 Accrued payroll and related benefits -- 510 Accrued taxes -- 41 Accrued reclamation and closure costs 70 414 Other noncurrent liabilities -- 216 ------------ ------------ Total liabilities 70 5,989 ------------ ------------ Net assets of discontinued operations $ 2,714 $ 44,057 ============ ============
F-14 A summary of operating results of discontinued operations for the three years ended December 31 are as follows (in thousands):
2001 2000 1999 ------------ ------------ ------------ Sales of products $ 21,625 $ 75,054 $ 89,911 ------------ ------------ ------------ Cost of sales 20,082 67,114 75,041 Depreciation, depletion and amortization 1,099 3,990 4,755 ------------ ------------ ------------ 21,181 71,104 79,796 ------------ ------------ ------------ Gross Profit 444 3,950 10,115 ------------ ------------ ------------ Other operating expenses: General and administrative 86 355 328 Exploration 174 242 394 Reduction in carrying value of mining properties -- -- 4,402 ------------ ------------ ------------ 260 597 5,124 ------------ ------------ ------------ Income from operations 184 3,353 4,991 ------------ ------------ ------------ Other income (expense): Interest and other income 1 9 35 Miscellaneous expense (923) (516) (94) Interest expense (5) (59) (28) ------------ ------------ ------------ (927) (566) (87) Income (loss) from discontinued operations before income taxes and gain (loss) on disposal (743) 2,787 4,904 Income tax provision -- (215) (118) ------------ ------------ ------------ Income (loss) from discontinued operations before gain (loss) on disposal (743) 2,572 4,786 Gain (loss) on disposal, net of income tax 12,665 (1,043) -- ------------ ------------ ------------ Net income from discontinued operations $ 11,922 $ 1,529 $ 4,786 ============ ============ ============
The following is sales information for discontinued operations by geographic area for the years ended December 31 (in thousands):
2001 2000 1999 ---- ---- ---- United States $ 15,497 $ 52,293 $ 69,573 Canada 1,336 4,225 4,533 Mexico 2,950 12,771 11,062 Japan 135 421 488 Taiwan 376 1,275 885 Venezuela 564 1,000 810 Chile 307 463 223 Italy 197 849 876 Other foreign 263 1,757 1,461 ------------ ------------ ------------ $ 21,625 $ 75,054 $ 89,911 ============ ============ ============
F-15 The following is sales information for discontinued operations by country of origin for the years ended December 31 (in thousands):
2001 2000 1999 ---- ---- ---- United States $ 19,037 $ 64,309 $ 80,940 Mexico 2,588 10,745 8,971 ------------ ------------ ------------ $ 21,625 $ 75,054 $ 89,911 ============ ============ ============
Hecla's industrial minerals operations lease various facilities and equipment under noncancelable operating lease arrangements. Rent expense incurred for these operating leases during the years ended December 31, 2001, 2000 and 1999, was approximately $0.7 million, $3.6 million and $3.5 million, respectively. Note 3: Inventories Inventories consist of the following (in thousands):
December 31, ------------------- 2001 2000 ---- ---- Concentrates, bullion, metals in transit and other products $ 4,211 $ 5,932 Materials and supplies 6,657 5,337 ------------ ------------ $ 10,868 $ 11,269 ============ ============
At December 31, 2001, Hecla had forward sales commitments through December 31, 2004, for 199,158 ounces of gold at an average price of $288.92 per ounce. The aforementioned contracts were designated as hedges at December 31, 2001. Hecla is exposed to certain losses, generally the amount by which the contract price exceeds the spot price of a commodity, in the event of nonperformance by the counterparties to these agreements. The London AM gold price at December 31, 2001, was $276.50 per ounce. Note 4: Properties, Plants and Equipment The major components of properties, plants and equipment are (in thousands):
December 31, ------------------- 2001 2000 ---- ---- Mining properties $ 8,271 $ 8,563 Development costs 111,827 114,054 Plants and equipment 168,210 173,012 Land 925 1,100 ------------ ------------ 289,233 296,729 Less accumulated depreciation, depletion and amortization 184,640 188,386 ------------ ------------ Net carrying value $ 104,593 $ 108,343 ============ ============
During the fourth quarter of 2001, Hecla entered into an agreement to sell its headquarters building in Coeur d'Alene, Idaho, for $5.6 million in cash. The sale of the building is expected to close during the second quarter of 2002. In connection with the sale, the Company entered into a lease agreement with the purchaser to lease a portion of the building, which will be effective upon closing on the sale of the building. The lease calls for monthly payments of approximately $38,000 over the next two years, at which time the Company has an option to reduce the amount of leased space for an additional three years. The purchaser of the building will also have an option to terminate the lease agreement with Hecla during the first two years of the lease agreement, subject to certain payments to Hecla. F-16 In the fourth quarter of 2000, Hecla recorded an adjustment of $31.2 million to reduce the carrying value of the Lucky Friday silver mine property, plant and equipment in accordance with Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The adjustment at Lucky Friday was necessitated due to continued low silver and lead prices combined with further declines in silver and lead prices during the fourth quarter of 2000. On July 17, 2001, Hecla announced that operations at its Lucky Friday silver mine would be reduced, effective October 2001, due to continued low silver and lead prices. Additionally, during the second quarter of 2000, Hecla recorded adjustments of $4.4 million for properties, plants and equipment and supply inventory at the Rosebud mine, and $4.7 million for previously capitalized deferred development costs at the Noche Buena gold property. The $4.4 million adjustment at the Rosebud mine was necessitated due to the planned closure of the Rosebud mine by Hecla and its joint-venture partner. The Rosebud mine completed mining activity in July 2000 and milling activities in August 2000. At the Noche Buena property, Hecla suspended activities in 1999 due to a low price for gold. Based upon the continuation of the lower gold price, an adjustment to the carrying value of the Noche Buena property was recorded. Note 5: Environmental and Reclamation Adjustments During 2000, Hecla recorded charges of $16.4 million for future environmental and reclamation expenditures at the Grouse Creek property, the Bunker Hill Superfund site and other idle properties. During the fourth quarter of 2000, an Administrative Order on Consent was entered into with the U.S. Environmental Protection Agency, requiring Hecla to commence dewatering of the tailings impoundment at Grouse Creek in 2001. Due to the Administrative Order on Consent, updated cost estimates were determined in accordance with Statement of Position 96-1, "Environmental Remediation Liabilities." At the Bunker Hill Superfund site, estimated future costs were increased based upon results of sampling activities completed through 2000 and current cost estimates to remediate residential yards and commercial properties. In 1999, Hecla recorded charges totaling $27.3 million for future environmental and reclamation expenditures at the Grouse Creek property and the Bunker Hill Superfund site. The accrual adjustment at Grouse Creek was based upon anticipated changes to the closure plan developed in 1999, including increased dewatering requirements and other expenditures. The changes to the reclamation plan at Grouse Creek were necessitated principally by the need to dewater the tailings impoundment rather than reclaim it as a wetland as originally planned. At the Bunker Hill Superfund site, estimated future costs were increased based upon results of sampling activities completed through 1999 and current cost estimates to remediate residential yards and commercial properties. For additional information regarding environmental matters, see Note 8 of Notes to Consolidated Financial Statements. Note 6: Income Taxes Major components of Hecla's income tax provision (benefit) for the years ended December 31, 2001, 2000 and 1999, relating to continuing operations are as follows (in thousands):
2001 2000 1999 ---- ---- ---- Current: Federal $ -- $ -- $ -- Foreign -- 13 (403) ------------ ------------ ------------ Income tax provision (benefit) $ -- $ 13 $ (403) ============ ============ ============
For the year ended December 31, 2001, the income tax provision related to discontinued operations was zero. For the years ended December 31, 2000 and 1999, the income tax provision related to discontinued operations was $215,000 and $118,000, respectively. F-17 Domestic and foreign components of income (loss) from continuing operations before income taxes for the years ended December 31, 2001, 2000 and 1999, are as follows (in thousands):
2001 2000 1999 ---- ---- ---- Domestic $ (19,822) $ (79,645) $ (38,781) Foreign 10,240 (5,189) (5,013) ------------ ------------ ------------ Total $ (9,582) $ (84,834) $ (43,794) ============ ============ ============
The components of the net deferred tax liability were as follows (in thousands):
December 31, ------------------------------ 2001 2000 ---- ---- Deferred tax assets: Accrued reclamation costs $ 18,231 $ 19,945 Investment valuation differences 1,357 2,172 Capital loss carryover -- 603 Postretirement benefits other than pensions 1,437 1,303 Deferred compensation 902 1,493 Accounts receivable -- 456 Foreign net operating losses 7,579 10,420 Federal net operating losses 109,627 105,104 State net operating losses 12,264 13,327 Properties, plants and equipment 2,747 12,049 Tax credit carryforwards 1,989 1,989 Miscellaneous 1,479 1,355 ------------ ------------ Total deferred tax assets 157,612 170,216 Valuation allowance (153,214) (167,109) ------------ ------------ Net deferred tax assets 4,398 3,107 ------------ ------------ Deferred tax liabilities: Pension costs (4,398) (3,107) Other (300) (300) ------------ ------------ Total deferred tax liability (4,698) (3,407) ------------ ------------ Net deferred tax liability $ (300) $ (300) ============ ============
F-18 Hecla recorded a valuation allowance to reflect the estimated amount of deferred tax assets which may not be realized principally due to the expiration of net operating losses and tax credit carryforwards. The changes in the valuation allowance for the years ended December 31, 2001, 2000 and 1999, are as follows (in thousands):
2001 2000 1999 ------------ ------------ ------------ Balance at beginning of year $ (167,109) $ (139,852) $ (115,654) Increase due to exclusion of net deferred tax liability associated with discontinued operations -- (3,266) -- Increase related to nonutilization of net operating loss carry- forwards and nonrecognition of deferred tax assets due to uncertainty of recovery -- (23,991) (24,198) Decrease related to expiration of foreign net operating loss carryforwards and an adjustment to foreign property, plant and equipment 13,895 -- -- ------------ ------------ ------------ Balance at end of year $ (153,214) $ (167,109) $ (139,852) ============ ============ ============
The annual tax provision (benefit) is different from the amount which would be provided by applying the statutory federal income tax rate to Hecla's pretax income (loss). The reasons for the difference are (in thousands):
2001 2000 1999 --------------------- --------------------- ---------------------- Computed "statutory" (benefit)/provision $ (3,258) (34)% $ (28,844) (34)% $ (14,890) (34)% Nonutilization of net operating losses and effect of foreign taxes 3,258 34 28,857 34 14,487 33 ---------- ------- ---------- ------- ---------- ------- $ -- --% $ 13 --% $ (403) (1)% ========== ======= ========== ======= ========== =======
As of December 31, 2001, for income tax purposes, Hecla has net operating loss carryovers of $322.4 million and $241.2 million for regular and alternative minimum tax purposes, respectively. These operating loss carryovers substantially expire over the next 15 to 20 years, the majority of which expire between 2006 and 2021. In addition, Hecla has foreign tax operating losses of approximately $22.3 million which expire between 2004 and 2011. Approximately $17.4 million of regular tax loss carryovers are subject to limitations in any given year due to mergers. Hecla has approximately $0.9 million in alternative minimum tax credit carryovers eligible to reduce future regular tax liabilities. F-19 Note 7: Long-Term Debt and Credit Agreement Long-term debt consists of the following (in thousands):
December 31, ------------------------------ 2001 2000 ------------ ------------ Revolving bank debt $ 2,800 $ 1,024 Project financing debt 13,191 10,250 Subordinated bank debt 3,000 3,000 Term loan facility -- 55,000 Other long-term debt -- 41 ------------ ------------ 18,991 69,315 Less current portion (7,043) (59,274) ------------ ------------ $ 11,948 $ 10,041 ============ ============
Future minimum debt repayments associated with long-term debt as of December 31, 2001, are as follows (in thousands):
Year ending December 31 ------------------------------------- 2002 $ 7,043 2003 7,283 2004 2,337 2005 1,368 2006 960 ------------ Total long-term debt repayments $ 18,991 ============
Revolving Bank Debt The Company has a revolving bank agreement which allows borrowings up to $3.0 million for general corporate purposes. This loan is payable on April 30, 2002, and is collateralized by Hecla's headquarters building in Coeur d'Alene, Idaho. Hecla has entered into an agreement to sell its headquarters building during the second quarter of 2002. As of December 31, 2001 and 2000, $2.8 million and $1.0 million was outstanding and classified as current portion of long-term debt. At December 31, 2001, the interest rate on this loan was 7%. Project Financing and Subordinated Bank Debt At December 31, 2001 and 2000, Hecla's wholly owned subsidiary, Hecla Resources Investments Limited (HRIL) had $6.5 million and $10.25 million outstanding under a credit agreement used to provide project financing at the La Camorra mine. The project financing agreement is payable in semiannual payments through December 31, 2004, and had an interest rate of 4.8% at December 31, 2001. HRIL must maintain compliance with certain financial and other restrictive covenants related to the available ore reserves and financial performance of the La Camorra mine. The Company is required to maintain hedged gold positions sufficient to cover all dollar loans, operating expenditures, taxes, royalties and similar fees projected for the project. At December 31, 2001, there were 169,158 ounces of gold sold forward. The forward sales agreement assumes the ounces of gold committed to forward sales at the end of each quarter thereafter can be leased at a rate of 1.5% for each following quarter. The Company maintains a Gold Lease Rate Swap at a fixed rate of 1.5% on the outstanding notional volume of the flat forward sale, with settlement being made quarterly with the Company receiving the fixed rate and paying the current floating gold lease rate. F-20 In connection with the project financing agreement, Hecla has outstanding a $3.0 million subordinated loan agreement, repayable in three semiannual payments beginning June 30, 2003. The entire $3.0 million subordinated loan was outstanding at December 31, 2001 and 2000. The loan agreement gives the Company the option to capitalize interest payments by adding them to the principal amount of the loan. At December 31, 2001, the interest amount added to principal was approximately $0.5 million. The interest rate on the subordinated debt was 5.9% as of December 31, 2001. At December 31, 2001, Hecla's wholly owned subsidiary, Minera Hecla, S.A. de C.V. (Minera Hecla) had $6.7 million outstanding under a project loan used to acquire a processing mill at Velardena, Mexico, to process ore mined from the San Sebastian project on the Saladillo mining concessions located near Durango, Mexico. The credit facility is nonrecourse to Hecla. Under the terms of the credit facility, Minera Hecla will make monthly payments for principal and interest over 63 months. The loan is collateralized by the mill at Velardena and the Saladillo, Saladillo 1 and Saladillo 5 mining concessions and bears interest at the rate of 13%. Term Loan Facility On March 27, 2001, Hecla completed a sales transaction for the K-T Clay group for $62.5 million which was partially utilized to repay the $55.0 million term loan facility due on April 10, 2001. At December 31, 2000, $55.0 million was outstanding and classified as current portion of long-term debt. Note 8: Commitments and Contingencies Bunker Hill Superfund Site In 1994, Hecla, as a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), entered into a consent decree with the Environmental Protection Agency (EPA) and the state of Idaho, concerning environmental remediation obligations at the Bunker Hill Superfund site located at Kellogg, Idaho. The consent decree settled Hecla's response-cost liability under CERCLA at the Bunker Hill site. In August 2000, Sunshine Mining and Refining Company which was also a party to the 1994 Consent Decree, filed for Chapter 11 bankruptcy and in January 2001, the Federal District Court approved a new Consent Decree between Sunshine, the U.S. Government and the Coeur d'Alene Indian Tribe which settled Sunshine's environmental liabilities in the Coeur d'Alene Basin lawsuits described below and released Sunshine from further obligations under the 1994 Consent Decree. In September 2001, the Idaho Federal District Court held a hearing on the Company's motion to relieve the Company from some or all of the obligations under the 1994 Consent Decree based on a number of arguments including the impact of changed circumstances because EPA determined to utilize a broad remedial investigation feasibility study (RI/FS) CERCLA process to address environmental issues in the Coeur d'Alene Basin outside the Bunker Hill Site. In a September 30, 2001, Order, amended October 15, 2001, the Court held that sufficient changed circumstances had occurred to support modification of the 1994 Consent Decree. In the Order, as amended, the Court permitted the mining companies to terminate further work under the 1994 Consent Decree for 2001 except for a few high-risk yards and stated the Court would make a final decision on the request to modify the Consent Decree after EPA's Record of Decision (ROD) on the Basin cleanup is issued. EPA recently issued its proposed plan for the cleanup of the Coeur d'Alene Basin and a ROD on the cleanup plan is expected to be issued by EPA in 2002. As of December 31, 2001, Hecla has estimated and accrued an allowance for liability for remedial activity costs at the Bunker Hill site of $9.7 million. These estimated expenditures are anticipated to be made over the next three to five years. Although Hecla believes the accrual is adequate based upon current estimates of aggregate costs, it is reasonably possible that Hecla's estimate of its obligations may change in the near or longer term. Coeur d'Alene River Basin Environmental Claims - Coeur d'Alene Indian Tribe Claims In July 1991, the Coeur d'Alene Indian Tribe brought a lawsuit, under CERCLA, in Idaho Federal District Court against Hecla and a number of other mining companies asserting claims for damages to natural resources downstream F-21 from the Bunker Hill site over which the tribe alleges some ownership or control. The Tribe's natural resource damage litigation has been consolidated with the United States' litigation described below. - U.S. Government Claims In March 1996, the United States filed a lawsuit in Idaho Federal District Court against certain mining companies that conducted historic mining operations in the Silver Valley of northern Idaho, including Hecla. The lawsuit asserts claims under CERCLA and the Clean Water Act and seeks recovery for alleged damages to or loss of natural resources located in the Coeur d'Alene River Basin in northern Idaho for which the United States asserts to be the trustee under CERCLA. The lawsuit asserts that the defendants' historic mining activity resulted in releases of hazardous substances and damaged natural resources within the Basin. The suit also seeks declaratory relief that Hecla and other defendants are jointly and severally liable for response costs under CERCLA for historic mining impacts in the Basin outside the Bunker Hill site. Hecla has asserted a number of defenses to the United States' claims. In May 1998, the EPA announced that it had commenced a RI/FS under CERCLA for the entire Basin, including Lake Coeur d'Alene, in support of its response cost claims asserted in its March 1996 lawsuit. In October 2001, the EPA issued its proposed cleanup plan for the Basin, and EPA's Record of Decision on the cleanup plan is expected to be issued by EPA in 2002. The first phase of the trial commenced on the consolidated Coeur d'Alene Indian Tribe's and the United States' Federal District Court cases on January 22, 2001, and was concluded on July 30, 2001. In the first phase of the trial, the Court has been asked to determine the extent of liability, if any, of the defendants for the plaintiffs' CERCLA claims. The Court has also been asked to determine the liability of the United States for its historic involvement in the Basin. No decision on the issues before the Court in the first phase of the litigation has been issued. If liability is determined in the first phase, a second trial will be scheduled for 2002 or 2003 to address damages and remedy selection. Two of the defendant mining companies, Coeur d'Alene Mines Corporation and Sunshine Mining and Refining Company, settled their liabilities under the litigation during the first quarter of 2001. Hecla and ASARCO are the only defendants remaining in the litigation. During 2000 and into 2001, Hecla was involved in settlement negotiations with representatives of the U.S. government and the Coeur d'Alene Indian Tribe. The Company also participated with certain of the other defendants in the litigation in a state of Idaho led settlement effort. On August 16, 2001, the Company entered into an Agreement in Principle with the United States and the State of Idaho to settle the governments' claims for natural resource damages and cleanup costs related to the historic mining practices in the Coeur d'Alene Basin in northern Idaho. The settlement, if and when finalized in the form of a Consent Decree, would release the Company from further liability to the governments for its historic mining practices in the Coeur d'Alene Basin. The Agreement in Principle caps for a period of ten years the majority of the cleanup related expenditures the Company is responsible for annually at the Bunker Hill Superfund Site, the Grouse Creek mine and the Stibnite site in central Idaho. The Agreement limits these payments to the Government and/or cleanup obligations at these sites to a fixed annual cap of $5.0 million for each of the first two years of the Agreement and $6.0 million for each of the next eight years. Hecla is committed to work and/or make payments of $4.0 million annually for the following 20 years thereafter. In addition, Hecla would either have to pay or perform clean up obligations amounting to 10% of its operating cash flow as adjusted for certain exploration expenditures. Hecla would provide a security interest in assets with a value of $20 million which will decline over ten years. The Agreement in Principle does not include the Coeur d'Alene Indian Tribe; however, the Company hopes to be able to include the Tribe as a party to the settlement under the terms of a final consent decree. Representatives of the United States, the State of Idaho and the Company continue to work on terms of a definitive consent decree incorporating the terms of the Agreement in Principle. However, there are a number of significant issues which will need to be resolved prior to finalizing the definitive Consent Decree. As of December 31, 2001, the Company has accrued $43.6 million related to the properties covered by the Agreement in Principle. The range of liability for these sites could be up to $138.0 million on an undiscounted basis over 30 years plus the percentage of operating cash flow. If, and when, the Agreement in Principle is finalized in the form of a Consent Decree, if the terms of the obligation are fixed and determinable, they may be discounted. Hecla has accrued what management believes is the best estimate of the liability as of December 31, 2001. However, it is reasonably possible that Hecla's obligation may change F-22 in the near or long term depending on a number of factors, including finalization and entry of a Consent Decree. In addition, an adverse ruling against Hecla for liability and damages in this matter could have a material adverse effect on the Company. Private Class Action Litigation On or about January 7, 2002, a class action complaint was filed in this matter in the Idaho District Court, County of Kootenai, against several corporate defendants, including the Company. The Company was served with the Complaint on January 29, 2002. The Complaint seeks certification of three plaintiff classes of Coeur d'Alene Basin residents and current and former property owners to pursue three types of relief: various medical monitoring programs, a real property remediation and restoration program, and damages for diminution in property value, plus other damages and costs. The Company believes the Complaint is subject to challenge on a number of bases and intends to vigorously defend itself in this litigation. Insurance Coverage Litigation In 1991, Hecla initiated litigation in the Idaho District Court, County of Kootenai, against a number of insurance companies that provided comprehensive general liability insurance coverage to Hecla and its predecessors. Hecla believes the insurance companies have a duty to defend and indemnify Hecla under their policies of insurance for all liabilities and claims asserted against Hecla by the EPA and the tribe under CERCLA related to the Bunker Hill site and the Basin in northern Idaho. In 1992, the Idaho State District Court ruled that the primary insurance companies had a duty to defend Hecla in the Tribe's lawsuit. During 1995 and 1996, Hecla entered into settlement agreements with a number of the insurance carriers named in the litigation. Hecla has received a total of approximately $7.2 million under the terms of the settlement agreements. Thirty percent of these settlements were paid to the EPA to reimburse the U.S. government for past costs under the Bunker Hill site consent decree. Litigation is still pending against one insurer with trial suspended until the underlying environmental claims against Hecla are resolved or settled. The remaining insurer in the litigation, along with a second insurer not named in the litigation, is providing Hecla with a partial defense in all Basin environmental litigation. As of December 31, 2001, Hecla had not reduced its accrual for reclamation and closure costs to reflect the receipt of any potential insurance proceeds. Other Claims In 1997, Hecla's subsidiary, Kentucky-Tennessee Clay Company (K-T Clay), terminated shipments (comprising approximately 1% of annual ball clay production) sold to animal feed producers, when the Food and Drug Administration determined trace elements of dioxin were present in poultry. Dioxin is inherently present in ball clays generally. On September 22, 1999, Riceland Foods (the primary purchaser of ball clay from K-T Clay used in animal feed) commenced litigation against K-T Clay in State Court in Arkansas to recover its losses and its insurance company's payments to downstream users of its animal feed. The complaint alleged negligence, strict liability and breach of implied warranties and seeks damages in excess of $7.0 million. Legal counsel retained by the insurance company for K-T Clay had the case removed to Federal Court in Arkansas. In July 2000, a second complaint was filed against K-T Clay and Hecla in Arkansas State Court by Townsends, Inc., another purchaser of animal feed containing ball clay sold by K-T Clay. A third complaint was filed in the United States District Court in Arkansas on August 31, 2000, by Archer Daniels Midland Company, a successor in interest to Quincy Soybean Company, a third purchaser of ball clay sold by K-T Clay and used in the animal feed industry. The Townsends and Archer Daniels lawsuits allege damages totaling approximately $300,000 and $1.4 million, respectively. These complaints contain similar allegations to the Riceland Foods' case and legal counsel retained by the insurance carrier is defending K-T Clay and Hecla in these lawsuits. The Company believes that these claims comprise substantially all the potential claims related to this matter. In January 2001, Hecla was dismissed from the only lawsuit in which it had been named as a defendant. In March 2001, prior to trial, K-T Clay settled the Riceland Foods litigation against K-T Clay through settlement payment substantially funded by K-T Clay's insurance carrier. K-T Clay contributed $230,000 toward the Riceland Foods settlement. In August 2001, the Federal District Court dismissed the Archer Daniels litigation; however, a similar lawsuit based upon implied warranty was refiled by Archer Daniels against K-T Clay on October 24, 2001, in Arkansas Federal Court. The defense of the Townsends lawsuit is being covered by insurance. The Company believes that K-T Clay's insurance coverage is available to cover the remaining claims. On March 27, 2001, Hecla sold its interest in K-T Clay. However, Hecla agreed to F-23 indemnify the purchaser of K-T Clay from all liability resulting from these dioxin claims and litigation to the extent not covered by insurance. Although the outcome of the remaining litigation or insurance coverage cannot be assured, Hecla currently believes that there will be no material adverse effect on Hecla's results of operations, financial condition or cash flows from this matter. Hecla is subject to other legal proceedings and claims not disclosed above which have arisen in the ordinary course of its business and have not been finally adjudicated. Although there can be no assurance as to the ultimate disposition of these other matters, it is the opinion of Hecla's management that the outcome of these other matters will not have a material adverse effect on the financial condition of Hecla. Note 9: Employee Benefit Plans Hecla and certain subsidiaries sponsor defined benefit pension plans covering substantially all employees. Hecla also provides certain postretirement benefits, principally health care and life insurance benefits for qualifying retired employees. The following tables provide a reconciliation of the changes in the plans' benefit obligations and fair value of assets over the two-year period ended December 31, 2001, and a statement of the funded status as of December 31, 2001 and 2000 (in thousands):
Pension Benefits Other Benefits ------------------------- ------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Change in benefit obligation: Benefit obligation at beginning of year $ 45,994 $ 43,811 $ 2,377 $ 2,418 Service cost 822 1,406 24 24 Interest cost 2,707 2,989 166 169 Plan amendments 2,027 7 -- -- Actuarial (gain) loss (1,678) 405 177 (98) Divestitures (4,044) -- -- -- Benefits paid (2,298) (2,624) (126) (136) Settlements (1,934) -- -- -- Curtailments (501) -- -- -- ---------- ---------- ---------- ---------- Benefit obligation at end of year 41,095 45,994 2,618 2,377 ---------- ---------- ---------- ---------- Change in plan assets: Fair value of plan assets at beginning of year 67,285 58,721 -- -- Actual return on plan assets (6,497) 11,023 -- -- Divestitures (4,027) -- -- -- Employer contributions 64 165 126 136 Settlements (2,419) -- -- -- Benefits paid (2,298) (2,624) (126) (136) ---------- ---------- ---------- ---------- Fair value of plan assets at end of year 52,108 67,285 -- -- ---------- ---------- ---------- ---------- Funded status at end of year 11,014 21,292 (2,618) (2,377) Unrecognized net actuarial gain (3,333) (15,674) (153) (352) Unrecognized transition (asset) obligation 35 (455) -- -- Unrecognized prior service cost 2,687 2,756 209 285 ---------- ---------- ---------- ---------- Net amount recognized in consolidated balance sheets $ 10,403 $ 7,919 $ (2,562) $ (2,444) ========== ========== ========== ==========
F-24 The following table provides the amounts recognized in the consolidated balance sheets as of December 31, 2001 and 2000 (in thousands):
Pension Benefits Other Benefits ------------------------- ------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Prepaid benefit costs $ 12,067 $ 9,524 $ -- $ -- Accrued benefit liability (1,664) (1,940) (2,562) (2,444) Intangible asset -- 335 -- -- ---------- ---------- ---------- ---------- Net amount recognized $ 10,403 $ 7,919 $ (2,562) $ (2,444) ========== ========== ========== ==========
The benefit obligation was calculated by applying the following weighted average assumptions:
Pension Benefits Other Benefits ------------------------- ------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Discount rate 7.00% 7.00% 7.00% 7.00% Expected rate on plan assets 9.00% 9.00% -- -- Rate of compensation increase 3.00% 3.50% -- --
Net periodic pension cost (income) for the plans consisted of the following in 2001, 2000 and 1999 (in thousands):
Pension Benefits Other Benefits ---------------------------------- ---------------------------------- 2001 2000 1999 2001 2000 1999 -------- -------- -------- -------- -------- -------- Service cost $ 822 $ 1,406 $ 1,289 $ 24 $ 24 $ 23 Interest cost 2,707 2,989 2,611 166 169 155 Expected return on plan assets (5,593) (5,192) (4,516) -- -- -- Amortization of transition asset (711) (426) (152) 75 75 -- Amortization of unrecognized prior service cost 246 315 211 -- -- -- Amortization of unrecognized net gain from earlier periods (450) (420) (316) (22) (14) (116) -------- -------- -------- -------- -------- -------- Net periodic pension cost (income) (2,979) (1,328) (873) 243 254 62 Curtailment loss 395 -- -- -- -- -- -------- -------- -------- -------- -------- -------- Net periodic benefit cost (income) after curtailment $ (2,584) $ (1,328) $ (873) $ 243 $ 254 $ 62 ======== ======== ======== ======== ======== ========
During 2001, as part of the sale of the K-T Clay Group, the Company recognized a $0.5 million pension curtailment gain on the Hecla Mining Company Pension Plan. This gain was a result of the elimination of salaried employees at K-T Clay from inclusion in the Hecla Mining Company Pension Plan. Also, as part of the K-T Clay Group sale, $2.4 million in assets of the Hecla Mining Company Pension Plan were transferred to the purchaser's pension plan to fund the liability of plan participants that were employed by the K-T Clay Group at the time of the sale. In addition, two hourly pension plans for hourly employees of the K-T Clay Group were transferred in their entirety as part of the sale of the K-T Clay Group. As a result of a reduction in the workforce at the Lucky Friday mine during 2001, the Company recorded a pension curtailment loss of approximately $0.9 million associated with the Lucky Friday Hourly Pension Plan. F-25 Information related to the defined benefit plans of the industrial minerals segment, which is reported as a discontinued operation as of December 31, 2000, is included in the preceding tables. These plans were transferred as part of the sale of the K-T Group during 2001. Summarized information with respect to these plans is as follows (in thousands): Benefit obligation at December 31, 2000 $ 4,044 =========== Fair value of plan assets at December 31, 2000 $ 4,027 =========== Net prepaid benefit cost at December 31, 2000 $ 163 =========== Net periodic pension cost for the year ended December 31, 2000 $ 129 =========== The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $1,303,000, $1,303,000 and $0, respectively, as of December 31, 2001, and $2,989,000, $2,417,000 and $665,000, respectively, as of December 31, 2000. Hecla has a nonqualified Deferred Compensation Plan which permits eligible officers, directors and key employees to defer a portion of their compensation. In November 1998, Hecla amended the plan to permit participants to transfer all or a portion of their deferred compensation amounts into a Company common stock account to be held in trust until distribution. As of December 31, 2001 and 2000, a total of 102,114 and 139,467 shares, respectively, of Hecla's common stock are held in the grantor trust. Shares held in the grantor trust are valued at fair value at the time of issuance, are recorded in the contra equity account "Stock held by grantor trust," and are legally outstanding for registration purposes and dividend payments. The shares held in the grantor trust are considered outstanding for purposes of calculating loss per share. The deferred compensation, together with Company matching amounts and accumulated interest, is distributable in cash after retirement or termination of employment, and at December 31, 2001 and 2000, amounted to approximately $2.3 and $3.6 million, respectively. During 2001, the plan was terminated and all amounts will be distributed during 2002 and 2003. Hecla has an employees' Capital Accumulation Plan which is available to all salaried and certain hourly employees after completion of six months of service. Employees may contribute from 2% to 15% of their compensation to the plan. Hecla makes a matching contribution of 25% of an employee's contribution up to, but not exceeding, 6% of the employee's earnings. Hecla's contribution was approximately $102,000 in 2001, $232,700 in 2000 and $274,000 in 1999. Hecla has an employee's 401(k) plan which is available to all hourly employees at Hecla's Lucky Friday mine after completion of six months of service. Employees may contribute from 2% to 15% of their compensation to the plan. Hecla makes a matching contribution of 25% of an employee's contribution up to, but not exceeding, 5% of the employee's earnings. Hecla's contribution was approximately $40,000 in 2001, $60,000 in 2000 and $50,000 in 1999. Note 10: Shareholders' Equity Preferred Stock Hecla has 2.3 million shares of Series B Cumulative Convertible Preferred Stock (the Preferred Shares) outstanding. Holders of the Preferred Shares are entitled to receive cumulative cash dividends at the annual rate of $3.50 per share payable quarterly, when and if declared by the Board of Directors. As of January 31, 2002, Hecla has failed to pay the equivalent of six quarterly dividends of $12.1 million. The Preferred Shares are convertible, in whole or in part, at the option of the holders thereof, into shares of common stock at an initial conversion price of $15.55 per share. The Preferred Shares are redeemable at the option of Hecla, in whole or in part, at $52.45 per share in July 1996 and thereafter at prices declining ratably on each July 1 to $50.00 per share on or after July 1, 2003. F-26 Holders of the Preferred Shares have no voting rights except if Hecla fails to pay the equivalent of six quarterly dividends. As of January 31, 2002, Hecla has failed to pay the equivalent of six quarterly dividends totaling $12.1 million. Due to the failure to pay dividends, at the Company's next annual shareholders' meeting, holders of the Preferred Shares, voting as a class, shall be entitled to elect two additional directors. The holders of Preferred Shares also have voting rights related to certain amendments to Hecla's Certificate of Incorporation. The Preferred Shares rank senior as to dividends and upon liquidation to the common stock and any outstanding shares of Series A Preferred Shares. The Preferred Shares have a liquidation preference of $50.00 per share plus all undeclared and unpaid dividends. Such preference aggregates total $127,075,000 at December 31, 2001. Shareholder Rights Plan In 1996, Hecla adopted a replacement Shareholder Rights Plan. Pursuant to this plan, holders of common stock received one preferred share purchase right for each common share held. The rights will be triggered once an Acquiring Person, as defined in the plan, acquires 15% or more of Hecla's outstanding common shares. The 15% triggering threshold may be reduced by the Board of Directors to not less than 10%. When exercisable, the right would, subject to certain adjustments and alterations, entitle rightholders, other than the Acquiring Person or group, to purchase common stock of Hecla or the acquiring company having a market value of twice the $50 exercise price of the right. The rights are nonvoting, may be redeemed by the Company at any time at a price of one cent per right, and expire in May 2006. Additional details regarding the rights are set forth in the Rights Agreement filed with the Securities and Exchange Commission on May 10, 1996. Stock Based Plans At December 31, 2001, executives, key employees and directors had been granted options to purchase common shares or were credited with common shares under the stock based plans described below. Hecla has adopted the disclosure-only provisions of SFAS 123. No compensation expense has been recognized in 2001, 2000 or 1999 for unexercised options related to the stock option plans. Had compensation cost for Hecla's stock option plans been determined based on the fair market value at the grant date for awards in 2001, 2000 and 1999 consistent with the provisions of SFAS 123, Hecla's loss and per share loss applicable to common shareholders would have been increased to the pro forma amounts indicated below (in thousands, except per share amounts):
2001 2000 1999 -------- -------- -------- Loss applicable to common shareholders: As reported $ 5,710 $ 92,015 $ 48,040 Pro forma $ 6,490 $ 92,937 $ 49,060 Loss applicable to common shareholders per share: As reported $ 0.08 $ 1.38 $ 0.77 Pro forma $ 0.09 $ 1.39 $ 0.79
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
2001 2000 1999 ------------------------------------------ Expected dividend yield 0.00% 0.00% 0.00% Expected stock price volatility 61.24% 49.03% 50.87% Risk-free interest rate 4.68% 6.74% 4.79% Expected life of options 4.3 years 4.1 years 4.1 years
F-27 The weighted average fair value of options granted in 2001, 2000 and 1999 was $0.47, $0.51 and $1.19, respectively. Hecla adopted a nonstatutory stock option plan in 1987. The plan provides that options may be granted to certain officers and key employees to purchase common stock at a price of not less than 50% of the fair market value at the date of grant. The plan also provides that options may be granted with a corresponding number of stock appreciation rights and/or tax offset bonuses to assist the optionee in paying the income tax liability that may exist upon exercise of the options. All of the outstanding stock options under the 1987 plan were granted at an exercise price equal to the fair market value at the date of grant and with an associated tax offset bonus. Outstanding options under the 1987 plan are immediately exercisable for periods up to ten years. During 2001, 2000 and 1999, respectively, 8,000, 23,500 and 58,500 options to acquire shares expired under the 1987 plan. The ability to grant further options under the plan expired on February 13, 1997. In 1995, the shareholders of Hecla approved the 1995 Stock Incentive Plan which provides for a variety of stock-based grants to Hecla's officers and key employees. The plan provides for the grant of stock options, stock appreciation rights, restricted stock and performance units to eligible officers and key employees of Hecla. The 1995 stock option plan has 3,000,000 shares authorized. Stock options under the plan are required to be granted at 100% of the market value of the stock on the date of the grant. The terms of such options shall be no longer than ten years from the date of grant. During 2001, 2000 and 1999, respectively, 698,000, 481,000 and 739,500 options to acquire shares were granted to Hecla's officers and key employees of which 641,000, 385,000 and 630,000, respectively, of these options to acquire shares were granted with vesting requirements. Under the vesting requirements for 2001, 33% of the options were available on the date of the grant, with an additional 33% available on the next anniversary period and 33% available six months after the first anniversary date. For the options granted during 2001, there is no tax offset bonus provision. During 2001, 2000 and 1999, respectively, 188,500, 947,500 and 27,000 options to acquire shares expired under the 1995 plan. In November 2001, 76,142 shares of restricted common stock of the Company were issued to one officer of the Company as a component of the officer's base salary for the twelve-month period commencing December 1, 2001. These shares were issued under the 1995 Stock Incentive Plan. At December 31, 2001, there were 722,358 shares available for future grant under the 1995 plan. In 1995, Hecla adopted the Hecla Mining Company Stock Plan for Nonemployee Directors (the Directors' Stock Plan), which may be terminated by the Board of Directors at any time. Each nonemployee director is credited with 1,000 shares of Hecla's common stock on May 30 of each year. Nonemployee directors joining the Board of Directors after May 30 of any year are credited with a pro-rata number of shares based upon the date they join the Board. All credited shares are held in trust for the benefit of each director until delivered to the director. Delivery of the shares from the trust occurs upon the earliest of (1) death or disability; (2) retirement; (3) a cessation of the director's service for any other reason; or (4) a change in control of Hecla. Subject to certain restrictions, directors may elect to receive delivery of shares on such date or in annual installments thereafter over 5, 10 or 15 years. The shares of common stock credited to nonemployee directors pursuant to the Directors' Stock Plan may not be sold until at least six months following the date they are delivered. The maximum number of shares of common stock which may be granted pursuant to the Directors' Stock Plan is 120,000. During 2001, 2000 and 1999, respectively, 7,000, 8,000 and 8,000 shares were credited to the nonemployee directors. During 2001, 2000 and 1999, $7,000, $9,000 and $20,000, respectively, were charged to operations associated with the Directors' Stock Plan. At December 31, 2001, there were 68,057 shares available for grant in the future under the plan. F-28 Transactions concerning stock options pursuant to all of the above-described stock option plans are summarized as follows:
Weighted Average Shares Exercise Price -------------- ---------------- Outstanding, December 31, 1998 1,655,415 $ 6.76 Year ended December 31, 1999 Granted 739,500 $ 2.88 Exercised (1,500) $ 2.88 Expired (85,500) $ 10.14 -------------- Outstanding, December 31, 1999 2,307,915 $ 5.39 Year ended December 31, 2000 Granted 481,000 $ 1.31 Exercised -- $ -- Expired (973,415) $ 4.40 -------------- Outstanding, December 31, 2000 1,815,500 $ 4.85 Year ended December 31, 2001 Granted 698,000 $ 1.13 Exercised -- $ -- Expired (196,500) $ 2.86 -------------- Outstanding, December 31, 2001 2,317,000 $ 3.89 ==============
The following table displays exercisable stock options and the weighted average exercise price of the exercisable options as of December 31, 2001, 2000 and 1999:
2001 2000 1999 ------------ ------------ ------------ Exercisable options 1,701,400 1,322,533 1,302,215 Weighted average exercise price $ 4.62 $ 5.36 $ 6.06
The following table presents information about the stock options outstanding as of December 31, 2001:
Weighted Average --------------------------------- Range of Remaining Shares Exercise Price Exercise Price Life (years) ---------- ----------------- --------------------------------- Exercisable options 421,150 $ 1.13 - $ 1.31 $ 1.20 5 Exercisable options 340,750 $ 2.88 - $ 2.88 $ 2.88 7 Exercisable options 680,000 $ 5.63 - $ 8.00 $ 5.86 6 Exercisable options 259,500 $ 8.63 - $10.50 $ 9.20 3 ---------- Total exercisable options 1,701,400 $ 1.13 - $10.50 $ 4.62 6 Unexercisable options 615,600 $ 1.13 - $ 8.63 $ 1.90 5 ---------- Total all options 2,317,000 $ 1.13 - $10.50 $ 3.89 6 ==========
No amounts were charged to operations in connection with the stock option plans in 2001, 2000 or 1999. F-29 Common Stock Offerings On August 28, 2001, Hecla issued 5,749,883 shares of its common stock in a private placement transaction for the benefit of the Hecla Mining Company Retirement Plan and the Lucky Friday Pension Plan for approximately $5.5 million. Proceeds from the private placement are available for general corporate purposes. In connection with a May 1999 stock offering, Hecla issued 1,603,998 warrants to purchase Hecla common stock. Each warrant entitles the holder to purchase one share of common stock at an exercise price equal to the lesser of (i) $3.19, and (ii) 102% of the volume weighted average price on the NYSE for each trading day during the ten consecutive trading days immediately preceding the date that notice of exercise is given to Hecla. In 1999, 97,000 warrants were exercised and Hecla issued 97,000 shares of its common stock. Proceeds of $0.3 million were realized from the exercise of the warrants. During 2001, 408,000 warrants were exercised and Hecla issued 408,000 shares of its common stock. Proceeds of $0.4 million were realized from the exercise of the warrants. At December 31, 2001, 1,098,801 warrants remain outstanding and are exercisable until May 11, 2002. In February 2002, 668,345 warrants were exercised and Hecla issued 668,345 shares of its common stock. Proceeds of $0.8 million were realized from the exercise of the warrants. Hecla has an existing Registration Statement on Form S-3 which provides for the issuance of up to $100.0 million of equity and debt securities. As of December 31, 2001, Hecla has issued $62.2 million of Hecla's common shares and warrants under the Registration Statement. Due to the current market capitalization of the Company and the unpaid dividends on the Preferred Stock, there can be no assurance as to the availability of any financing arrangement under this Registration Statement. Note 11: Business Segments Hecla is organized and managed primarily on the basis of the principal products being produced from its operating units. One of the operating units has been aggregated into the Metals-Gold segment, three of the operating units have been aggregated into the Metals-Silver segment, and one operating unit has been aggregated as part of the Industrial Minerals segment. During November 2000, the industrial minerals segment was designated as a discontinued operation. For further discussion, see "Discontinued Operations" Note 2 to financial statements. General corporate activities not associated with operating units, as well as idle properties, are presented as Other. The tables below present information about reportable segments as of and for the years ended December 31 (in thousands). Information related to the statement of operations data relates to continuing operations only. See Note 2 for information related to the industrial minerals segment operations. Balance sheet data include the industrial minerals segment classified as discontinued operations as of December 31, 2001 and 2000. F-30
2001 2000 1999 ----------- ----------- ---------- Net sales to unaffiliated customers: Metals-Gold $ 41,452 $ 31,573 $ 23,588 Metals-Silver 43,795 44,277 50,115 ----------- ----------- ---------- $ 85,247 $ 75,850 $ 73,703 =========== =========== ========== Gain (loss) from operations: Metals-Gold $ 11,525 $ (13,982) $ (6,848) Metals-Silver (8,640) (37,699) 1,913 Other (9,117) (27,834) (37,716) ------------ ------------ ----------- $ (6,232) $ (79,515) $ (42,651) ============ ============ =========== Capital expenditures: Metals-Gold $ 4,692 $ 4,592 $ 7,788 Metals-Silver 13,183 6,670 3,418 Industrial Minerals -- -- 2,221 Discontinued operations 145 3,921 -- Other 15 27 40 ----------- ----------- ---------- $ 18,035 $ 15,210 $ 13,467 =========== =========== ========== Depreciation, depletion and amortization: Metals-Gold $ 9,868 $ 7,282 $ 7,706 Metals-Silver 10,607 10,809 10,956 Other 265 282 321 ----------- ----------- ---------- $ 20,740 $ 18,373 $ 18,983 =========== =========== ========== Other significant noncash items: Metals-Gold $ 354 $ 9,241 $ 240 Metals-Silver 707 31,759 1,911 Industrial Minerals -- -- 4,638 Discontinued operations -- 159 -- Other 44 17,329 27,787 ----------- ----------- ---------- $ 1,105 $ 58,488 $ 34,576 =========== =========== ========== Identifiable assets: Metals-Gold $ 40,489 $ 42,667 $ 56,018 Metals-Silver 84,845 81,572 121,814 Industrial Minerals -- -- 65,580 Discontinued operations 2,714 44,057 -- Other 25,068 26,540 24,945 ----------- ----------- ---------- $ 153,116 $ 194,836 $ 268,357 =========== =========== ==========
F-31 The following is sales information for continuing operations by geographic area for the years ended December 31 (in thousands):
2001 2000 1999 ----------- ----------- ---------- United States $ 15,895 $ 25,147 $ 37,725 Canada 15,951 15,274 14,791 Mexico 12,018 6,193 5,100 United Kingdom 20,771 22,417 8,903 Japan 13,018 3,556 2,268 Other foreign 7,594 3,263 4,916 ----------- ----------- ---------- $ 85,247 $ 75,850 $ 73,703 =========== =========== ==========
The following is sales information for continuing operations by country of origin for the years ended December 31 (in thousands):
2001 2000 1999 ----------- ----------- ---------- United States $ 36,058 $ 51,019 $ 66,246 Venezuela 41,406 24,780 4,248 Mexico 7,783 51 3,209 ----------- ----------- ---------- $ 85,247 $ 75,850 $ 73,703
The following is properties, plants and equipment information for continuing operations by geographic area as of December 31 (in thousands):
2001 2000 1999 ----------- ----------- ---------- United States $ 69,791 $ 75,073 $ 148,645 Venezuela 25,677 30,852 31,490 Mexico 9,125 2,418 10,858 Other South America -- -- 33 ----------- ----------- ---------- $ 104,593 $ 108,343 $ 191,026
At December 31, 2001 and 2000, properties, plants and equipment by geographic location of the discontinued operations segment are as follows (in thousands):
2001 2000 ----------- ----------- United States $ 645 $ 26,347 Mexico -- 5,801 South America -- 26 ----------- ----------- $ 645 $ 32,174
Sales to significant metals customers, including both the Metals-Gold and Metals-Silver segments, as a percentage of total sales from the Metals-Gold and Metals-Silver segments, were as follows for the years ended December 31:
2001 2000 1999 ----------- ----------- ---------- Customer A 25.2% 24.9% 5.8% Customer B 16.3% 16.3% 12.1% Customer C 14.1% 8.2% 6.9% Customer D 13.8% 15.5% 14.5% Customer E 11.2% --% --%
F-32 Note 12: Fair Value of Financial Instruments The following estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data and to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts Hecla could realize in a current market exchange. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Potential income tax ramifications related to the realization of unrealized gains and losses that would be incurred in an actual sale or settlement have not been taken into consideration. The carrying amounts for cash and cash equivalents, accounts and notes receivable, restricted investments and current liabilities are a reasonable estimate of their fair values. Fair value for equity securities investments is determined by quoted market prices as recognized in the financial statements. Fair value of forward contracts and commodity swap contracts are supplied by Hecla's counterparties and reflect the difference between the contract prices and forward prices available on the date of valuation. The fair value of long-term debt is based on the discounted value of contractual cash flows and at December 31, 2001 and 2000 approximates fair value. The discount rate is estimated using the rates currently offered for debt with similar remaining maturities. The estimated fair values of other financial instruments are as follows (in thousands):
December 31, -------------------------------------------------------------- 2001 2000 --------------------------- -------------------------- Carrying Fair Carrying Fair Amounts Value Amounts Value ------- ----- ------- ----- Financial assets (liabilities): Gold forward sales contracts $ 256 $ 576 $ -- $ (1,935) Gold lease rate swap (56) (56) -- (136)
F-33 Note 13: Loss per Common Share The following table presents a reconciliation of the numerators (net income (loss)) and denominators (shares) used in the basic and diluted loss per common share computations. Also shown is the effect that has been given to declared and undeclared cumulative preferred dividends in arriving at loss applicable to common shareholders for the years ended December 31, 2001, 2000 and 1999, in computing basic and diluted loss per common share (dollars and shares in thousands, except per share amounts). For the years ended December 31, 2001 and 2000, $8.1 million and $4.0 million of dividends, respectively, have not been declared or paid.
2001 2000 1999 -------------------------------------- ------------------------------ ------------------------------ Weighted Weighted Weighted Average Per Share Average Per Share Average Per Share Net Income (loss) Shares Amount Net Loss Shares Amount Net Loss Shares Amount ---------------- -------- --------- -------- -------- --------- -------- -------- --------- Income (loss) before extraordinary charge and cumulative effect of change in accounting principle $ 2,340 $(83,318) $(38,605) Extraordinary charge, net of tax -- (647) -- Cumulative effect of change in accounting principle, net of tax -- -- (1,385) -------- -------- -------- Income (loss) before preferred stock dividends $ 2,340 $(83,965) $(39,990) Less: Preferred stock dividends (8,050) (8,050) (8,050) -------- -------- -------- Basic loss per common share Loss applicable to common shareholders $ (5,710) 69,396 $ (0.08) $(92,015) 66,791 $ (1.38) $(48,040) 62,347 $ (0.77) Effect of dilutive securities(1) -- -- -- -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- -------- Diluted loss per common share $ (5,710) 69,396 $ (0.08) $(92,015) 66,791 $ (1.38) $(48,040) 62,347 $ (0.77) ======== ======== ======== ======== ======== ======== ======== ======== ========
(1) Dilutive Securities As of December 31, 2001, 2000 and 1999, there were 2,317,000, 1,816,000 and 2,308,000 shares available for issue under granted stock options, respectively. These options were not included in the computation of diluted loss per common share as a loss was incurred in each of these years, and their inclusion would be antidilutive. Hecla also has 2.3 million shares of convertible preferred stock outstanding that, if converted, would be antidilutive, and were therefore excluded from the determination of diluted loss per share. The calculations also exclude 1,098,801, 1,506,998 and 1,506,998 warrants, respectively, to purchase common stock, as their exercise would be antidilutive. Note 14: Other Comprehensive Income (Loss) Due to the availability of net operating losses and related deferred tax valuation allowances, there is no tax effect associated with any component of other comprehensive income (loss). The following table lists the beginning balance, yearly activity and ending balance of each component of accumulated other comprehensive income (loss) (in thousands):
Unrealized Minimum Accumulated Foreign Gains Change in Pension Other Currency (Losses) Derivative Liability Comprehensive Items On Securities Contracts (1) Adjustment Income (Loss) ------------ ------------- ------------- ------------ -------------- Balance December 31, 1998 $ (4,898) $ (82) $ -- $ (289) $ (5,269) 1999 change -- 109 -- 289 398 ------------ ------------ ------------ ------------ ------------ Balance December 31, 1999 (4,898) 27 -- -- (4,871) 2000 change -- 13 -- -- 13 ------------ ------------ ------------ ------------ ------------ Balance December 31, 2000 (4,898) 40 -- -- (4,858) 2001 change 4,898 (26) 159 -- 5,031 ------------ ------------ ------------ ------------ ------------ Balance December 31, 2001 $ -- $ 14 $ 159 $ -- $ 173 ============ ============ ============ ============ ============
F-34 (1) Included in the change in derivative contracts for the year ended December 31, 2001, is a $136,000 loss on the cumulative effect of adopting SFAS 133, $39,000 of realization on gold lease swaps in 2001 and a fair value gain adjustment on swaps outstanding at December 31, 2001, of $256,000. Note 15: Investment in Greens Creek Joint Venture The Company holds a 29.73% interest in the Greens Creek mine through a joint-venture arrangement. Hecla records its portion of the assets and liabilities of the Greens Creek mine on the proportionate consolidation method whereby 29.73% of the assets and liabilities of the Greens Creek mine are included in the consolidated financial statements of Hecla. The following summarized balance sheet as of December 31, 2001, and the related summarized statement of operations for the year ended December 31, 2001, are derived from the audited financial statements of the Greens Creek Joint Venture. The financial information below is presented on a 100% basis (in thousands). Balance Sheet: Assets: Current assets $ 18,666 Property, plant and equipment, net 155,028 ------------ Total assets $ 173,694 ============ Liabilities and equity: Liabilities $ 14,813 Equity 158,881 ------------ Total liabilities and equity $ 173,694 ============ Summary of Operations: Revenues $ 75,496 Gross profit $ 17,477 Operating loss $ (3,630) Net loss $ (3,658) The Greens Creek mine is operated through a joint-venture arrangement, and Hecla owns an undivided interest in the assets of the venture. Under the joint-venture agreement, the joint participants, including Hecla, are entitled to indemnification from the other participants and are severally liable only for the liabilities of the participants in proportion to their interest therein. If a participant defaults on its obligations under the terms of the joint venture, Hecla could incur losses in excess of its pro-rata share of the joint venture. In the event any participant so defaults, the agreement provides certain rights and remedies to the remaining participants. These include the right to force a dilution of the percentage interest of the defaulting participant and the right to utilize the proceeds from the sale of the defaulting party's share of products, or its joint-venture interest in the properties, to satisfy the obligations of the defaulting participant. Based on the information available to Hecla, Hecla has no reason to believe that its joint-venture participants with respect to Greens Creek mine will be unable to meet their financial obligations under the terms of the agreement. Note 16: Acquisition of Monarch Resources Investments Limited On June 25, 1999, Hecla acquired from Monarch Resources Limited all of the outstanding stock of Monarch Resources Investments Limited, or MRIL, a Bermuda company, as well as two subsidiaries owned by MRIL. MRIL's principal assets include the La Camorra gold mine, located in Bolivar State in Venezuela, and the Saladillo silver exploration property located in the Durango region of Mexico. The acquisition price of $25.0 million consisted of $9.0 million in cash and 6,700,250 Hecla common shares which are subject to certain trading F-35 restrictions. In addition, MRIL's seller, Monarch Resources Limited, will receive a royalty payment on future production from purchased assets that exceed the resource at the time of acquisition. Following Hecla's purchase of MRIL, the newly acquired subsidiary was renamed Hecla Resources Investments Limited (HRIL). The acquisition of MRIL has been accounted for as a purchase and, accordingly, Hecla's consolidated financial statements include the financial position, results of operations and cash flows of MRIL prospectively from June 25, 1999. Approximately $18.7 million of the total purchase price has been allocated to the mineral properties at La Camorra and is amortized on a units-of-production basis over the La Camorra mine life. F-36 Hecla Mining Company and Subsidiaries Consolidated Balance Sheets (Unaudited) (In thousands, except share data)
June 30, December 31, 2002 2001 ------------ ------------ ASSETS ------ Current assets: Cash and cash equivalents $ 13,073 $ 7,560 Accounts and notes receivable 12,750 6,648 Inventories 14,288 10,868 Other current assets 2,122 1,426 Net assets of discontinued operations 401 2,714 ------------ ------------ Total current assets 42,634 29,216 Investments 123 69 Restricted investments 6,375 6,375 Properties, plants and equipment, net 94,049 104,593 Other noncurrent assets 13,047 12,863 ------------ ------------ Total assets $ 156,228 $ 153,116 ============ ============ LIABILITIES ----------- Current liabilities: Accounts payable and accrued expenses $ 8,039 $ 7,938 Accrued payroll and related benefits 7,967 7,832 Current portion of long-term debt 6,545 7,043 Accrued taxes 924 787 Current portion of accrued reclamation and closure costs 6,810 6,026 ------------ ------------ Total current liabilities 30,285 29,626 Deferred income taxes 300 300 Long-term debt 7,545 11,948 Accrued reclamation and closure costs 44,925 46,455 Other noncurrent liabilities 6,977 6,823 ------------ ------------ Total liabilities 90,032 95,152 ------------ ------------ COMMITMENTS AND CONTINGENCIES (NOTES 4 AND 5) SHAREHOLDERS' EQUITY -------------------- Preferred stock, $0.25 par value, authorized 5,000,000 shares; issued and outstanding - 2,300,000 shares, liquidation preference 2002 - $131,100 and 2001 - $127,075 575 575 Common stock, $0.25 par value, authorized 200,000,000 shares; issued 2002 - 75,153,312 shares, issued 2001 - 73,068,796 shares 18,788 18,267 Capital surplus 406,122 404,354 Accumulated deficit (358,940) (364,183) Accumulated other comprehensive income (loss) (8) 173 Less stock held by grantor trust; 2002 - 61,278 common shares, 2001 - 102,114 common shares (198) (330) Less stock held as unearned compensation; 2002 - 57,106 common shares, 2001 - 19,035 common shares (25) (6) Less treasury stock, at cost; 2002 - 8,274 common shares, 2001 - 62,116 common shares (118) (886) ------------ ------------ Total shareholders' equity 66,196 57,964 ------------ ------------ Total liabilities and shareholders' equity $ 156,228 $ 153,116 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. F-37 Hecla Mining Company and Subsidiaries 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, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ------------- ------------- ------------- ------------- Continuing Operations: Sales of products $ 28,663 $ 24,561 $ 52,045 $ 40,978 ------------ ------------ ------------ ------------ Cost of sales and other direct production costs 14,675 16,832 28,766 28,004 Depreciation, depletion and amortization 6,131 5,371 11,689 9,765 ------------ ------------ ------------ ------------ 20,806 22,203 40,455 37,769 ------------ ------------ ------------ ------------ Gross profit 7,857 2,358 11,590 3,209 ------------ ------------ ------------ ------------ Other operating expenses: General and administrative 1,767 1,808 3,645 3,322 Exploration 1,206 778 1,730 1,294 Depreciation and amortization 15 68 67 136 Provision for closed operations and environmental matters 148 418 257 991 ------------ ------------ ------------ ------------ 3,136 3,072 5,699 5,743 ------------ ------------ ------------ ------------ Income (loss) from operations 4,721 (714) 5,891 (2,534) ------------ ------------ ------------ ------------ Other income (expense): Interest and other income 685 472 1,094 1,100 Miscellaneous, net 237 (435) 91 (848) Interest expense (473) (611) (937) (2,616) ------------ ------------ ------------ ------------ 449 (574) 248 (2,364) ------------ ------------ ------------ ------------ Income (loss) from continuing operations before income taxes 5,170 (1,288) 6,139 (4,898) Income tax provision (112) -- (112) -- ------------ ------------ ------------ ------------ Income (loss) from continuing operations 5,058 (1,288) 6,027 (4,898) Discontinued operations: Income (loss), net of income tax (303) (2) (786) 160 Gain (loss) on disposal, net of income tax -- (265) -- 12,718 ------------ ------------ ------------ ------------ Net income (loss) 4,755 (1,555) 5,241 7,980 Preferred stock dividends (2,013) (2,013) (4,025) (4,025) ------------ ------------ ------------ ------------ Income (loss) applicable to common shareholders 2,742 (3,568) 1,216 3,955 ------------ ------------ ------------ ------------ Other comprehensive income (loss), net of income tax: Change in derivative contracts -- -- (256) -- Cumulative effect of a change in accounting principle -- -- -- (136) Reclassification adjustment of loss included in net income (loss) 10 10 20 20 Unrealized holding gains (losses) on securities 36 (33) 55 11 Change in foreign currency items -- -- -- 4,898 ------------ ------------ ------------ ------------ Other comprehensive income (loss) 46 (23) (181) 4,793 ------------ ------------ ------------ ------------ Comprehensive income (loss) applicable to common shareholders $ 2,788 $ (3,591) $ 1,035 $ 8,748 ============ ============ ============ ============ Basic and diluted income (loss) per common share: Income (loss) from continuing operations $ 0.04 $ (0.05) $ 0.03 $ (0.13) Income (loss) from discontinued operations -- -- (0.01) 0.19 ------------ ------------ ------------ ------------ Basic and diluted income (loss) per common share $ 0.04 $ (0.05) $ 0.02 $ 0.06 ============ ============ ============ ============ Weighted average number of common shares outstanding 75,010 66,839 74,426 66,818 ============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. F-38 Hecla Mining Company and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Six Months Ended ------------------------------ June 30, 2002 June 30, 2001 ------------- ------------- Operating activities: Net income $ 5,241 $ 7,980 Noncash elements included in net income: Depreciation, depletion and amortization 11,756 9,901 Gain on sale of discontinued operations -- (12,718) (Gain) loss on disposition of properties, plants and equipment (185) 17 Provision for reclamation and closure costs 751 476 Change in net assets of discontinued operations 858 1,316 Change in assets and liabilities: Accounts and notes receivable (6,102) 1,258 Inventories (3,420) (1,256) Other current and noncurrent assets (886) (338) Accounts payable and accrued expenses 102 614 Accrued payroll and related benefits 574 451 Accrued taxes 137 131 Accrued reclamation and closure costs and other noncurrent liabilities (2,247) (3,824) ---------- ---------- Net cash provided by operating activities 6,579 4,008 ---------- ---------- Investing activities: Proceeds from sale of discontinued operations 1,585 59,761 Additions to properties, plants and equipment (6,070) (12,740) Proceeds from disposition of properties, plants and equipment 5,622 239 Increase in restricted investments -- (296) Purchase of investments and change in cash surrender value of life insurance, net -- 313 Other, net 137 (97) ---------- ---------- Net cash provided by investing activities 1,274 47,180 ---------- ---------- Financing activities: Common stock issued under warrants and stock option plans 2,561 -- Common stock issuance, other -- 38 Borrowings on debt 3,300 10,609 Repayments on debt (8,201) (59,803) ---------- ---------- Net cash used by financing activities (2,340) (49,156) ---------- ---------- Net increase in cash and cash equivalents 5,513 2,032 Cash and cash equivalents at beginning of period 7,560 1,373 ---------- ---------- Cash and cash equivalents at end of period $ 13,073 $ 3,405 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. F-39 Notes to Unaudited Consolidated Financial Statements Note 1. Basis of Preparation of Financial Statements In the opinion of management, the accompanying unaudited consolidated balance sheet, consolidated statements of operations and consolidated statements of cash flows contain all adjustments, consisting only of normal recurring accruals, necessary to present fairly, in all material respects, the financial position of Hecla Mining Company (the "Company"). These unaudited interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and related footnotes as set forth in the Company's annual report filed on Form 10-K for the year ended December 31, 2001. Results for the second quarter may not be indicative of results for the entire year. Note 2. Discontinued Operations On March 5, 2002, Hecla completed the sale of its pet operations of the Colorado Aggregate Division (CAC) of MWCA for $1.6 million in cash. The sale of the CAC pet division did not result in a gain or loss. Hecla continues to pursue a sale of the remaining assets of the industrial minerals segment, although there can be no assurance that a sales transaction will be completed. At June 30, 2002, the remaining net assets of CAC are approximately $0.4 million. Hecla recorded a loss from discontinued operations of approximately $0.3 million in the second quarter of 2002 compared to a loss of $0.3 million in the same period in 2001. Hecla recorded a loss from discontinued operations of approximately $0.8 million in the first six months of 2001, or $0.01 per common share, compared to income of approximately $12.9 million, or $0.19 per common share, in the same period in 2001 due to a $13.0 million gain on the sale of the Kentucky-Tennessee Clay Company, K-T Feldspar Corporation, K-T Clay de Mexico and certain other minor inactive industrial minerals companies (collectively the K-T Group) in March 2001. Note 3. Income Taxes Hecla's income tax provision for the first six months of 2002 and 2001 varies from the amount that would have been provided by applying the statutory rate to the income before income taxes primarily due to the availability of net operating losses that can be utilized in Mexico and in Venezuela. For the three months and six months ended June 30, 2002, Hecla recognized a $112,000 provision for foreign income taxes. Note 4. Inventories Inventories consist of the following (in thousands): June 30, Dec. 31, 2002 2001 ------------ ----------- Concentrates, bullion, metals in transit and other products $ 6,162 $ 4,211 Materials and supplies 8,126 6,657 ------------ ----------- $ 14,288 $ 10,868 ============ =========== At June 30, 2002, Hecla had forward sales commitments through December 31, 2004, for 139,342 ounces of gold at an average price of $288.25 per ounce. Hecla intends to physically deliver metals in accordance with the terms of the forward sales contracts. As such, Hecla has elected to designate the contracts as normal sales in accordance with SFAS 138 and as a result, these contracts are not required to be accounted for as derivatives under SFAS 133. Hecla is exposed to certain losses, generally the amount by which the contract price exceeds the spot price of a commodity, in the event of nonperformance by the counter parties to these agreements. The London Final gold price at June 28, 2002 was $319.05 per ounce. F-40 Note 5. Contingencies The contingencies described in Note 5 have been updated. See "Business--Legal Proceedings." Bunker Hill Superfund Site In 1994, the Company, as a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), entered into a consent decree with the Environmental Protection Agency (EPA) and the State of Idaho, concerning environmental remediation obligations at the Bunker Hill Superfund site located at Kellogg, Idaho. The consent decree settled Hecla's response-cost liability under CERCLA at the Bunker Hill site. In August 2000, Sunshine Mining and Refining Company, which was also a party to the 1994 Consent Decree, filed for Chapter 11 bankruptcy and in January 2001, the Federal District Court approved a new Consent Decree between Sunshine, the U.S. Government and the Coeur d'Alene Indian Tribe which settled Sunshine's environmental liabilities in the Coeur d'Alene Basin lawsuits described below and released Sunshine from further obligations under the 1994 Consent Decree. In response to a request by the Company and ASARCO Incorporated, the United States Federal District Court in Idaho, having jurisdiction over the 1994 Consent Decree ("1994 Decree") issued an Order in September 2001 that the 1994 Consent Decree should be modified in light of a significant change in factual circumstances not reasonably anticipated by the mining companies at the time they signed the 1994 Decree. In its Order, the Court reserved the final ruling on the appropriate modification to the 1994 Decree until after the issuance of the Record of Decision on the Basin-Wide Remedial Investigation/Feasibility Study. The EPA has indicated that the Record of Decision will be issued later in 2002. Based on the 2001 Order issued by the Court, the Company believes it is entitled to relief from the 2002 work program under the 1994 Decree within the Bunker Hill site. Hecla and ASARCO have negotiated a reduced 2002 work program with the EPA and the state of Idaho pending the outcome of a final ruling of the Court. As of June 30, 2002, Hecla has estimated and accrued an allowance for liability for remedial activity costs at the Bunker Hill site of $9.3 million, which does not reflect the potential modification of the 1994 Decree. These estimated expenditures are anticipated to be made over the next three to five years. Although Hecla believes the accrual is adequate based upon current estimates of aggregate costs, it is reasonably possible that Hecla's estimate of its obligations may change in the near or long term. Coeur d'Alene River Basin Environmental Claims - Coeur d'Alene Indian Tribe Claims In July 1991, the Coeur d'Alene Indian Tribe brought a lawsuit, under CERCLA, in Idaho Federal District Court against Hecla and a number of other mining companies asserting claims for damages to natural resources downstream from the Bunker Hill site over which the Tribe alleges some ownership or control. The Tribe's natural resource damage litigation has been consolidated with the United States' litigation described below. - U.S. Government Claims In March 1996, the United States filed a lawsuit in Idaho Federal District Court against certain mining companies that conducted historic mining operations in the Silver Valley of northern Idaho, including Hecla. The lawsuit asserts claims under CERCLA and the Clean Water Act and seeks recovery for alleged damages to or loss of natural resources located in the Coeur d'Alene River Basin in northern Idaho for which the United States asserts to be the trustee under CERCLA. The lawsuit asserts that the defendants' historic mining activity resulted in releases of hazardous substances and damaged natural resources within the Basin. The suit also seeks declaratory relief that Hecla and other defendants are jointly and severally liable for response costs under CERCLA for historic mining impacts in the Basin outside the Bunker Hill site. Hecla has asserted a number of defenses to the United States' claims. In May 1998, the EPA announced that it had commenced a Remedial Investigation/Feasibility Study under CERCLA for the entire Basin, including Lake Coeur d'Alene, in support of its response cost claims asserted in its March 1996 lawsuit. In October 2001, the EPA issued its proposed cleanup plan for the Basin, and EPA's Record of Decision on the cleanup plan is expected to be issued by EPA later in 2002. F-41 The first phase of the trial commenced on the consolidated Coeur d'Alene Indian Tribe's and the Federal District Court cases on January 22, 2001, and was concluded on July 30, 2001. In the first phase of the trial, the Court has been asked to determine the extent of liability, if any, of the defendants for the plaintiffs' CERCLA claims. The Court has also been asked to determine the liability of the United States for its historic involvement in the Basin. No decision on the issues before the Court in the first phase of the litigation has been issued. If liability is determined in the first phase, a second trial will be scheduled for 2002 or 2003 to address damages and remedy selection. Two of the defendant mining companies, Coeur d'Alene Mines Corporation and Sunshine Mining and Refining Company, settled their liabilities under the litigation during the first quarter of 2001. Hecla and ASARCO are the only defendants remaining in the litigation. During 2000 and into 2001, Hecla was involved in settlement negotiations with representatives of the U.S. Government and the Coeur d'Alene Indian Tribe. The Company also participated with certain of the other defendants in the litigation in a State of Idaho led settlement effort. On August 16, 2001, the Company entered into an Agreement in Principle with the United States and the State of Idaho to settle the governments' claims for natural resource damages and cleanup costs related to the historic mining practices in the Coeur d'Alene Basin in northern Idaho. Since August 2001, the Company and EPA have continued to negotiate a final consent decree based upon the terms set forth in the Agreement in Principle. Due to a number of changes that have occurred since the signing of the Agreement in Principle, including improvements in the environmental conditions at Grouse Creek and lower estimated cleanup costs in the Coeur d'Alene Basin as well as the Company's improved financial condition, the terms of the multiple properties settlement approach set forth in the Agreement in Principle appear no longer favorable to the Company. It is expected that utilizing the Agreement in Principle as a settlement vehicle will likely be discontinued. However, Hecla continues to negotiate the terms of a settlement with the United States and the State of Idaho that would be limited to resolving its environmental cleanup liabilities for historic mining practices in the Coeur d'Alene Basin. As of June 30, 2002, the Company has accrued $41.8 million related to Grouse Creek, Yellow Pine, the Bunker Hill Superfund site and other properties located within the Coeur d'Alene Basin. These properties are included in the Agreement in Principle, which has not and will likely not be finalized into a final settlement agreement and Consent Decree. The Company has accrued what management believes is the best estimate of the liability as of June 30, 2002. However, it is reasonably possible that Hecla's obligation may change in the near or long term depending on a number of factors, including finalization of ongoing negotiations toward a Basin settlement. In addition, an adverse ruling against Hecla for liability and damages in this matter could have a material adverse effect on the Company. Private Class Action Litigation On or about January 7, 2002, a class action complaint was filed in this matter in the Idaho District Court, County of Kootenai, against several corporate defendants, including the Company. The Company was served with the Complaint on January 29, 2002. The Complaint seeks certification of three plaintiff classes of Coeur d'Alene Basin residents and current and former property owners to pursue three types of relief: various medical monitoring programs, a real property remediation and restoration programs, and damages for diminution in property value, plus other damages and costs. The Company believes the Complaint is subject to challenge on a number of bases and intends to vigorously defend itself in this litigation. On April 23, 2002, the Company filed a motion with the Court to dismiss the claims for relief relating to the medical monitoring programs and the remediation and restoration programs. A hearing on this motion and other pretrial matters is expected to be scheduled in late August or September 2002. Insurance Coverage Litigation In 1991, Hecla initiated litigation in the Idaho District Court, County of Kootenai, against a number of insurance companies that provided comprehensive general liability insurance coverage to the Company and its predecessors. Hecla believes the insurance companies have a duty to defend and indemnify Hecla under their policies of insurance for all liabilities and claims asserted against Hecla by the EPA and the Tribe under CERCLA related to the Bunker Hill site and the Basin in northern Idaho. In 1992, the Idaho State District Court ruled that the primary insurance companies had a duty to defend Hecla in the Tribe's lawsuit. During 1995 and 1996, Hecla entered into settlement agreements with a number of the insurance carriers named in the litigation. Hecla has received a F-42 total of approximately $7.2 million under the terms of the settlement agreements. Thirty percent of these settlements were paid to the EPA to reimburse the U.S. Government for past costs under the Bunker Hill site Consent Decree. Litigation is still pending against one insurer with trial suspended until the underlying environmental claims against Hecla are resolved or settled. The remaining insurer in the litigation, along with a second insurer not named in the litigation, is providing Hecla with a partial defense in all Basin environmental litigation. As of June 30, 2002, Hecla had not reduced its accrual for reclamation and closure costs to reflect the receipt of any potential insurance proceeds. Other Claims In 1997, Hecla's then subsidiary, Kentucky-Tennessee Clay Company (K-T Clay), terminated shipments (comprising approximately 1% of annual ball clay production) sold to animal feed producers, when the Food and Drug Administration determined trace elements of dioxin were present in poultry. Dioxin is inherently present in ball clays generally. On September 22, 1999, Riceland Foods (the primary purchaser of ball clay from K-T Clay used in animal feed) commenced litigation against K-T Clay in State Court in Arkansas to recover its losses and its insurance company's payments to downstream users of its animal feed. The complaint alleged negligence, strict liability and breach of implied warranties and seeks damages in excess of $7.0 million. Legal counsel retained by the insurance company for K-T Clay had the case removed to Federal District Court in Arkansas. In July 2000, a second complaint was filed against K-T Clay and Hecla in State Court in Arkansas by Townsends, Inc., another purchaser of animal feed containing ball clay sold by K-T Clay. A third complaint was filed in the Federal District Court in Arkansas on August 31, 2000, by Archer Daniels Midland Company, a successor in interest to Quincy Soybean Company, a third purchaser of ball clay sold by K-T Clay and used in the animal feed industry. The Townsends' and Archer Daniels' lawsuits allege damages totaling approximately $300,000 and $1.4 million, respectively. These complaints contain similar allegations to the Riceland Foods' case and legal counsel retained by the insurance carrier is defending K-T Clay and Hecla in these lawsuits. The Company believes that these claims comprise substantially all the potential claims related to this matter. In January 2001, Hecla was dismissed from the only lawsuit in which it had been named as a defendant. In March 2001, prior to trial, K-T Clay settled the Riceland Foods' litigation against K-T Clay through settlement payment substantially funded by K-T Clay's insurance carrier. K-T Clay contributed $230,000 toward the Riceland Foods' settlement. In August 2001, the Federal District Court dismissed the Archer Daniels' litigation; however, a similar lawsuit based upon implied warranty was refiled by Archer Daniels against K-T Clay on October 24, 2001, in Arkansas Federal Court. The defense of the Townsends' lawsuit is being covered by insurance. The Company believes that K-T Clay's insurance coverage is available to cover the remaining claims. On March 27, 2001, Hecla sold its interest in K-T Clay. However, Hecla agreed to indemnify the purchaser of K-T Clay from all liability resulting from these dioxin claims and litigation to the extent not covered by insurance. In July 2002, K-T Clay, through its insurance carrier, negotiated settlements of both remaining lawsuits. The settlement payments will be funded 100% by K-T Clay's insurance carrier. The settlement agreements, when finalized will be submitted to the respective courts and Hecla anticipates both cases to be dismissed later in 2002. In March 2002, Independence Lead Mines Company ("Independence"), the holder of a net 18.52% interest in the Gold Hunter or DIA unitized area of the Lucky Friday mine, notified Hecla of certain alleged defaults by Hecla under the 1968 Lease Agreement between the unit owners (Independence and Hecla under the terms of the 1968 DIA Unitization Agreement) as lessors and defaults by Hecla as lessee and operator of the properties. Hecla is a net 81.48% interest holder under these Agreements. Independence alleges that Hecla violated the "prudent operator obligations" implied under the lease by undertaking the Gold Hunter project and violated certain other provisions of the Agreement with respect to milling equipment and calculating net profits and losses. The remedy requested by Independence is the termination of Hecla's lease of the DIA/Gold Hunter properties. Under the Lease Agreement, Hecla has the exclusive right to manage, control and operate the DIA properties, and its decisions with respect to the character of work are final. On June 17, 2002, Independence filed a lawsuit in Idaho State District Court seeking termination of the Lease Agreement and requesting unspecified damages. Hecla believes that it has fully complied with all obligations of the 1968 Lease Agreement and will be able to successfully defend its right to continue to operate the property under the Lease Agreement. In Mexico, a claim has been made, in one court, as to the validity of the ownership of the Velardena mill and, in another court, the validity of a lien that predates acquisition of the mill by Hecla's subsidiary. Although the Company believes it holds good title to the mill, there is no assurance that Hecla will prevail in this litigation. In addition, IIG Capital, LLC, the lender F-43 to the project loan used to acquire the mill, agreed to indemnify Hecla for all obligations or losses relating to these liens or claims. However, losing the litigation could result in an interruption of production or even the loss of the mill. Note 6. Long-Term Debt and Credit Agreements As of June 30, 2002, Hecla's wholly owned subsidiary Hecla Resource Investments Limited (HRIL), had $5.0 million outstanding under a credit agreement used to provide project financing at the La Camorra mine. The project financing agreement is repayable in semiannual payments ending December 31, 2004, and had an interest rate of 4.9% at June 30, 2002. HRIL must maintain compliance with certain financial and other restrictive covenants related to the available ore reserves and performance of the La Camorra mine. The Company is required to maintain hedged gold positions sufficient to cover all dollar loans, operating expenditures, taxes, royalties and similar fees projected for the project. At June 30, 2002, there were 139,342 ounces of gold sold forward. The forward sales agreement assumes the ounces of gold committed to forward sales at the end of each quarter can be leased at a rate of 1.5% for each following quarter. The Company maintains a Gold Lease Rate Swap at a fixed rate of 1.5% on the outstanding notional volume of the flat forward sale, with settlement being made quarterly with the Company receiving the fixed rate and paying the current floating gold lease rate. As of June 30, 2002, the Company has a $3.0 million outstanding subordinated loan due in three equal semiannual payments commencing in June of 2003. The loan agreement gives the Company the option to capitalize interest payments by adding them to the principal amount of the loan. At June 30, 2002, the interest amount added to principal was approximately $0.6 million. The interest rate on the subordinated debt was 6.05% as of June 30, 2002. At June 30, 2002, Hecla's wholly owned subsidiary, Minera Hecla, S.A. de C.V. (Minera Hecla), had $6.1 million outstanding under a project loan used to acquire a processing mill at Velardena, Mexico, to process ore mined from the San Sebastian mine near Durango, Mexico. Under the terms of the credit facility, Minera Hecla will make monthly payments for principal and interest over 63 months. The loan bears interest at the rate of 13%. On March 27, 2002, Hecla entered into a $7.5 million revolving bank agreement due in March of 2004. Amounts under the bank agreement are available for general corporate purposes and are collateralized by Hecla's interest in the Greens Creek Joint Venture. At June 30, 2002, there was no amount outstanding under the revolving bank agreement. On April 8, 2002, Hecla completed a sales transaction for its headquarters building, terminating a $3.0 million revolving bank agreement collateralized by the building. For additional information relating to the sale of the headquarters building, see Note 9 of Notes to Consolidated Financial Statements. Note 7. Income (Loss) per Common Share The following table presents a reconciliation of the numerators (net income (loss)) and denominators (shares) used in the basic and diluted income (loss) per common share computations. Also shown is the effect that has been given to undeclared cumulative preferred dividends in arriving at income (loss) applicable to common shareholders for the three months and six months ended June 30, 2002 and 2001, in computing basic and diluted income (loss) per common share (dollars and shares in thousands, except per-share amounts). For the three months and six months ended June 30, 2002 and 2001, the $2.0 million and $4.0 million dividends, respectively, have not been declared or paid. F-44
Three Months Ended June 30, ----------------------------------------------------------------------------- 2002 2001 ------------------------------------- ------------------------------------- Weighted Weighted Net Average Per-Share Net Average Per-Share Income (Loss) Shares Amount Income (Loss) Shares Amount ------------- ---------- ---------- ------------- ---------- ---------- Income (loss) before preferred stock dividends $ 4,755 $ (1,555) Less: Preferred stock dividends (2,013) (2,013) ---------- ---------- Basic income (loss) per common share: Basic income (loss) applicable to common shareholders $ 2,742 75,010 $ 0.04 $ (3,568) 66,839 $ (0.05) Effect of dilutive securities -- 16 -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Diluted income (loss) per common share $ 2,742 75,226 $ 0.04 $ (3,568) 66,839 $ (0.05) ========== ========== ========== ========== ========== ========== Six Months Ended June 30, ------------------------------------------------------------------------------ 2002 2001 ------------------------------------- -------------------------------------- Weighted Weighted Net Average Per-Share Net Average Per-Share Income Shares Amount Income (Loss) Shares Amount ---------- ---------- ---------- ------------- ---------- ---------- Income before preferred stock dividends $ 5,241 $ 7,980 Less: Preferred stock dividends (4,025) (4,025) ---------- ---------- Basic income per common share: Basic income applicable to common shareholders $ 1,216 74,426 $ 0.02 $ 3,955 66,818 $ 0.06 Effect of dilutive securities -- 428 -- -- 568 -- ---------- ---------- ---------- ---------- ---------- ---------- Diluted income per common share $ 1,216 74,854 $ 0.02 $ 3,955 66,386 $ 0.06 ========== ========== ========== ========== ========== ==========
These calculations of diluted earnings per share for the three months and six months ended June 30, 2002 and 2001 exclude the effects of $115.0 million of convertible preferred stock as such conversion would be antidilutive. Subsequent to June 30, 2002, $77.3 million of the convertible preferred stock was converted to common stock (for additional information regarding the preferred stock conversion, see Note 10 of Notes to Consolidated Financial Statements). Also excluded from these calculations are the effects of common stock issuable upon exercise of various stock options as of June 30, 2002 and 2001, as their exercise would be antidilutive, as follows:
Three Months Ended Six Months Ended -------------------------------- ----------------------------------- June 30, June 30, 2002 2001 2002 2001 -------------- -------------- -------------- -------------- 1,034,500 2,356,500 1,034,500 2,356,500
Note 8. Business Segments Hecla is organized and managed primarily on the basis of the principal products being produced from its gold and silver operating units. One of the operating units has been aggregated into the Gold segment and three of the operating units have been aggregated into the Silver segment. General corporate activities not associated with operating units as well as idle properties are presented as Other. The following tables present information about reportable segments for the three months and six months ended June 30 (in thousands): F-45
Three Months Ended Six Months Ended ----------------------------- ----------------------------- June 30, June 30, 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Net sales to unaffiliated customers: Gold $ 12,037 $ 11,410 $ 23,310 $ 18,107 Silver 16,626 13,151 28,735 22,871 ----------- ----------- ----------- ----------- $ 28,663 $ 24,561 $ 52,045 $ 40,978 =========== =========== =========== =========== Three Months Ended Six Months Ended ----------------------------- ----------------------------- June 30, June 30, 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Income (loss) from operations: Gold $ 4,464 $ 2,798 $ 7,209 $ 4,068 Silver 2,187 (1,221) 2,651 (2,221) Other (1,930) (2,291) (3,969) (4,381) ------------ ------------ ------------ ------------ $ 4,721 $ (714) $ 5,891 $ (2,534) =========== ============ =========== ============
The following table presents identifiable assets by reportable segment as of June 30, 2002, and December 31, 2001 (in thousands):
June 30, December 31, 2002 2001 ------------ ------------ Identifiable assets: Gold $ 39,674 $ 40,489 Silver 86,298 84,845 Discontinued operations 401 2,714 Other 29,855 25,068 ------------ ------------ $ 156,228 $ 153,116 ============ ============
Note 9. Sale of Fixed Assets On April 8, 2002, Hecla completed a sale of its headquarters building in Coeur d'Alene, Idaho, for $5.6 million in cash. Proceeds from the sale are available for general corporate purposes. Hecla has leased a portion of the building over a period of five years and will amortize the gain on the sale of $0.6 million over the lease term. Hecla has agreed to a five-year lease, including leasing approximately 50% of the building for two years, at which time the Company can elect to reduce the amount of lease space to 25% for the remaining three years. The landlord may terminate the lease during the first two years of the lease subject to certain restrictions. Note 10. Subsequent Events On June 13, 2002, Hecla announced its intent to offer to holders of its Series B Cumulative Convertible Preferred stock to exchange each of their Preferred shares for seven shares of Hecla Common stock. Holders of the Series B Cumulative Convertible Preferred stock had until July 25, 2002, to tender their preferred shares. A total of 1.55 million shares were validly tendered and exchanged, representing approximately 67.0% of the total number of preferred shares outstanding, into 10.8 million shares of the Company's common stock. In the third quarter of 2002, the Company expects to incur a non-cash dividend charge of approximately $17.6 million related to the completed exchange offering. The $17.6 million dividend represents the difference between the value F-46 of the common stock issued in the exchange offer and the value of the shares that were issuable under the stated conversion terms of the preferred stock. The non-cash dividend charge will have no impact on the Company's total shareholders' equity as the offset will be an increase in common stock and paid-in-capital. As a result of the completed exchange offering, the total charge to cumulative preferred dividends is anticipated to be $23.4 million for the year ending December 31, 2002. Beginning in 2003, the $8.0 million annual cumulative preferred dividends that have historically been included in income (loss) applicable to common shareholders will be reduced to approximately $2.6 million. The completed exchange offering also eliminated $10.9 million of previously undeclared and unpaid preferred stock dividends. Note 11. New Accounting Pronouncements In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations," which amends SFAS No. 19, and establishes a uniform methodology for accounting for estimated reclamation and abandonment costs. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The statement is required to be adopted by January 1, 2003, and the Company will record the estimated present value of reclamation liabilities and increase the carrying value of related assets. Subsequently, reclamation costs will be allocated to expense over the life of the related assets and will be adjusted for changes resulting from the passage of time and changes to either the timing or amount of the original present value estimate underlying the obligation. The Company is currently in the process of quantifying the effect the adoption of this statement will have on the Company's consolidated financial statements. In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 updates, clarifies and simplifies existing accounting pronouncements, by rescinding SFAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effects. As a result, the criteria in Accounting Principles Board Opinion No. 30 will now be used to classify those gains and losses. Additionally, SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. Finally, SFAS No. 145 also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. The provision of SFAS No. 145 that amends SFAS No. 13 is effective for transactions occurring after May 15, 2002, with all other provisions of SFAS No. 145 being required to be adopted by the Company in its consolidated financial statements for the first quarter of fiscal 2003. Management currently believes that the adoption of SFAS No. 145 will not have a material impact on the Company's consolidated financial statements. On July 30, 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing or other exit or disposal activity. SFAS No. 146 replaces the prior guidance that was provided by EITF Issue No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. F-47 5,995,248 Shares Hecla Mining Company Common Stock ------------------- PROSPECTUS __________, 2002 ------------------- PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the estimated expenses, all of which are to be borne by us, in connection with the registration, issuance, and distribution of the securities being registered hereby. All amounts are estimates except the SEC registration fee. SEC Registration Fee......................... $1,969.08 Legal Fees and Expenses...................... Accountants' Fees and Expenses............... Printing Expenses............................ Miscellaneous................................ -------- Total..................................... $ ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. We are organized under the Delaware General Corporation Law (DGCL) which empowers Delaware corporations to indemnify any director or officer, or former director or officer, who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred in connection with such action, suit or proceeding, provided that such director or officer acted in good faith in a manner reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, provided further that such director or officer has no reasonable cause to believe his conduct was unlawful. The DGCL also empowers Delaware corporations to provide similar indemnity to any director or officer, or former director or officer, for expenses, including attorneys' fees, actually and reasonably incurred by the person in connection with the defense or settlement of actions or suits by or in the right of the corporation if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the interests of the corporation, except in respect of any claim, issue or matter as to which such director or officer shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all of the circumstances of the case, such director or officer is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. The DGCL further provides that (i) to the extent a present or former director or officer of a corporation has been successful in the defense of any action, suit or proceeding described above or in the defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person, in connection therewith; and (ii) indemnification and advancement of expenses provided for, by, or granted pursuant to, the DGCL shall not be deemed exclusive of any other rights to which the indemnified party may be entitled. The DGCL permits a Delaware corporation to purchase and maintain on behalf of any director or officer, insurance against liabilities incurred in such capacities. The DGCL also permits a corporation to pay expenses incurred by a director or officer in advance of the final disposition of an action, suit or proceeding, upon receipt of an undertaking by the director or officer to repay such amount if it is determined that such person is not entitled to indemnification. The DGCL further permits a corporation, in its original certificate of incorporation or an amendment thereto, to eliminate or limit the personal liability of a director to the corporation or its stockholders for monetary damages for violations of the director's fiduciary duty except: (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL (providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions) or (iv) for any transaction from which a director derived an improper personal benefit. Our certificate of incorporation eliminates the personal liability of directors to us or our stockholders for monetary damages for breach of fiduciary duty to the extent permitted by Delaware law. Our certificate of incorporation and by-laws provide that we will indemnify our officers and directors to the extent permitted by Delaware law. In addition, we have entered into an Indemnification Agreement with each of our officers and directors, which states that if the officer or director that is a party to the agreement was, is, or becomes a party to or witness or other participant in, or is threatened to be made a party to, or witness or other participant in, any threatened, pending, or completed action, suit, or proceeding or any inquiry or investigation, whether conducted by us or any other party, by reason of (or arising in part out of) any event or occurrence related to the fact that the officer or director is or was our director, officer, employee, agent, or fiduciary or is or was serving at our request as a director, officer, employee, trustee, agent, or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust, or other enterprise or by reason of anything done or not done by the officer or director that is a party to the agreement in any such capacity, we shall indemnify such officer or director to the fullest extent permitted by law against any and all attorneys' fees and all other costs, expenses, and obligations paid or incurred in connection with investigating, defending, being a witness in, or participating in any claim described above, and judgments, fines, penalties, and amounts paid in settlement of any claim described above, provided that a member or members of our board of directors has not concluded upon review of the claim that the director or officer party to the agreement would not be permitted to be indemnified under applicable law. Prior to our change in control, as defined in the agreement, the director or officer who is a party to the agreement will not be entitled to indemnification in connection with any claim described above by such officer or director against us or any of our other directors or officers except under certain circumstances. In the event of a change in control, as defined in the agreement, other than a change in control which has been approved by a majority of our Board of Directors who were directors immediately prior to such change in control, then with respect to all matters thereafter rising concerning the rights of the director or officer party to the agreement to indemnity payments, we are required to seek legal advice only from special, independent counsel selected by such officer or director and approved by us. The foregoing statements are subject to the detailed provisions of the DGCL and our certificate of incorporation. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES We sold 5,749,883 shares of common stock to Copper Mountain Trust on August 27, 2001 for an aggregate purchase price of $5,462,388.85. Copper Mountain Trust purchased such stock on behalf of Hecla Mining Company Retirement Plan (4,610,174 shares) and Lucky Friday Pension Plan (1,139,709 shares). The sale of stock was exempt from registration under Section 5 of the Securities Act pursuant to Section 4(2) of the Securities Act and pursuant to Rule 506 of Regulation D under the Securities Act. In the purchase agreement for the shares of common stock, Copper Mountain Trust represented that it is an accredited investor as defined under Rule 501(a) of Regulation D under the Securities Act. On August 2, 2002, we and our affiliate entered into an earn-in agreement with Great Basin Gold Ltd. and its affiliate. Pursuant to the Earn-In Agreement, we and Great Basin have agreed to issue a series of warrants exercisable within two years to purchase shares of the other company's common stock, at prevailing market prices at the time of their issuance. At execution of the agreement, we issued a warrant to purchase 2.0 million shares of our common stock to Great Basin and Great Basin issued warrants to purchase 1.0 million shares of its common stock to us. The warrant to purchase our common stock is exercisable on or before August 1, 2004 at $3.73 per share. The agreement obligates us to issue a warrant to purchase an additional 1.0 million shares of our common stock to Great Basin when we decide to commence certain development activities, and an additional warrant to purchase 1.0 million shares II-2 of our common stock following completion of such activities. Great Basin will issue warrants to purchase 500,000 shares of its common stock to us immediately upon receipt of each of the second and third warrants to purchase our stock. We have entered into a registration rights agreement with Great Basin that requires us to use reasonable efforts to cause the shares underlying the respective warrants to be registered within four months of the date the warrants are issued. THE SALE OF WARRANTS WAS EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE SECURITIES ACT pursuant to Section 4(2) of the Securities Act and PURSUANT TO RULE 506 OF REGULATION D UNDER THE SECURITIES ACT. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. See the Exhibit Index at the end of this registration statement. The Financial Statement Schedules are not included because they are not applicable. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereto) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification II-3 against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Coeur d'Alene, State of Idaho on October 7, 2002. HECLA MINING COMPANY By: /s/ Arthur Brown --------------------------------- Arthur Brown Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons on behalf of the registrant and in the capacities indicated on October 7, 2002. Signature Title --------- ----- Chairman of the Board and Chief Executive /s/ Arthur Brown Officer (principal executive officer) - --------------------------------- Arthur Brown President, Chief Operating Officer, Chief /s/ Phillips S. Baker, Jr. Financial Officer (principal financial - --------------------------------- officer), and Director Phillips S. Baker /s/ Lewis E. Walde Vice President - Controller (principal - --------------------------------- accounting officer) Lewis E. Walde /s/ Joseph E. Clute Director - --------------------------------- Joseph E. Clute /s/ Joe Coors, Jr. Director - --------------------------------- Joe Coors, Jr. /s/ Ted Crumley Director - --------------------------------- Ted Crumley /s/ Charles L. McAlpine Director - --------------------------------- Charles L. McAlpine /s/ Jorge E. Ordonez C. Director - --------------------------------- Jorge E. Ordonez C. /s/ David J. Christensen Director - --------------------------------- David J. Christensen /s/ Anthony P. Taylor Director - --------------------------------- Anthony P. Taylor II-5 Exhibit Index 3.1(a) Certificate of Incorporation of the Registrant as amended to date. Filed as exhibit 3.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987 (File No. 1-8491) and incorporated herein by reference. 3.1(b) Certificate of Amendment of Certificate of Incorporation of the Registrant. Filed as exhibit 3.1(b) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987 (File No. 1-8491) and incorporated herein by reference. 3.2 By-Laws of the Registrant as amended to date. Filed as exhibit 3(ii) to Registrant's Current Report on Form 8-K dated November 13, 1998 (File No. 1-8491) and incorporated herein by reference. 4.1(a) Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred Stock of the Registrant. Filed as exhibit 4.1(d)(e) to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 (File No. 1-8491) and incorporated herein by reference. 4.1(b) Certificate of Designations, Preferences and Rights of Series B Cumulative Convertible Preferred Stock of the Registrant. Filed as exhibit 4.5 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993 (File No. 1-8491) and incorporated herein by reference. 4.2 Rights Agreement dated as of May 10, 1996, between Hecla Mining Company and American Stock Transfer & Trust Company, which includes the form of Rights Certificate of Designation setting forth the terms of the Series A Junior Participating Preferred Stock of Hecla Mining Company as Exhibit A and the summary of Rights to Purchase Preferred Shares as Exhibit B. Filed as exhibit 4 to Registrant's Current Report on Form 8-K dated May 10, 1996 (File No. 1-8491) and incorporated herein by reference. 4.3 Stock Purchase Agreement dated as of August 27, 2001 between Hecla Mining Company and Copper Mountain Trust. 4.4 Warrant Agreement dated August 2, 2002 between Hecla Mining Company and Great Basin Gold Ltd. 4.5 Registration Rights Agreement dated August 2, 2002 between Hecla Mining Company and Great Basin Gold Ltd. 5.1 Opinion (including consent) of Michael B. White as to the legality of the securities being registered. 10.1 Employment agreement dated June 1, 2000, between Hecla Mining Company and Arthur Brown. (Registrant has substantially identical agreements with each of Messrs. Phillips S. Baker, Jr., Vicki J. Veltkamp, Thomas F. Fudge and Lewis E. Walde. Such substantially identical agreements are not included as separate Exhibits.) Filed as exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 (File No. 1-8491) and incorporated herein by reference. 10.2(a) 1987 Nonstatutory Stock Option Plan of the Registrant. Filed as exhibit B to Registrant's Proxy Statement dated March 20, 1987 (File No. 1-8491) and incorporated herein by reference. 10.2(b) Hecla Mining Company 1995 Stock Incentive Plan. Filed as exhibit 10.4(c) to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 (File No. 1-8491) and incorporated herein by reference. 10.2(c) Hecla Mining Company Stock Plan for Nonemployee Directors. Filed as exhibit B to Registrant's Proxy Statement dated March 27, 1995 (File No. 1-8491) and incorporated herein by reference. 10.2(d) Hecla Mining Company Key Employee Deferred Compensation Plan. Filed as exhibit 4.3 to Registrant's Registration Statement on Form S-8 filed on July 24, 2002 (File No. 1-8491) and incorporated herein by reference. 10.3(a) Hecla Mining Company Retirement Plan for Employees and Supplemental Retirement and Death Benefit Plan. Filed as exhibit 10.11(a) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1985 (File No. 1-8491) and incorporated herein by reference. 10.3(b) Supplemental Excess Retirement Master Plan Documents. Filed as exhibit 10.5(b) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 1-8491) and incorporated herein by reference. 10.3(c) Hecla Mining Company Nonqualified Plans Master Trust Agreement. Filed as exhibit 10.5(c) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 1-8491) and incorporated herein by reference. 10.4 Form of Indemnification Agreement dated May 27, 1987,between Hecla Mining Company and each of its Directors and Officers. Filed as exhibit 10.15 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987 (File No. 1-8491) and incorporated herein by reference. 10.5 Summary of Short-term Performance Payment Plan. Filed as exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 1-8491) and incorporated herein by reference. 10.6(a) Amended and Restated Golden Eagle Earn-In Agreement between Santa Fe Pacific Gold Corporation and Hecla Mining Company dated as of September 6, 1996. Filed as exhibit 10.11(a) to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (File No. 1-8491) and incorporated herein by reference. 10.6(b) Golden Eagle Operating Agreement between Santa Fe Pacific Gold Corporation and Hecla Mining Company dated as of September 6, 1996. Filed as exhibit 10.11(b) to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (File No. 1-8491) and incorporated herein by reference. 10.6(c) First Amendment to the Amended and Restated Golden Eagle Earn-in Agreement effective September 5, 2002 by and between Echo Bay Mines Ltd. and Hecla Mining Company. 10.7 Limited Liability Company Agreement of the Rosebud Mining Company, LLC among Santa Fe Pacific Gold Corporation and Hecla Mining Company dated as of September 6, 1996. Filed as exhibit 10.12 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (File No. 1-8491) and incorporated herein by reference. 10.8 Restated Mining Venture Agreement among Kennecott Greens Creek Mining Company, Hecla Mining Company and CSX Alaska Mining Inc. dated May 6, 1994. Filed as exhibit 99.A to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 (File No. 1-8491) and incorporated herein by reference. 10.9 Credit Agreement dated as of June 25, 1999, among Monarch Resources Investments Limited as Borrower, Monarch Minera Suramericana, C.A. as an additional obligor and Standard Bank London Limited as Collateral and Administrative Agent. Filed as exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-8491) and incorporated herein by reference. 10.10 Subordinated Loan Agreement dated as of June 25, 1999, among Hecla Mining Company as Borrower and Standard Bank London Limited as Initial Lender, Collateral and Administrative Agent. Filed as exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-8491) and incorporated herein by reference. 10.11 Subordination Agreement dated as of June 25, 1999, among NationsBank, N.A. as Senior Creditor, Standard Bank London Limited as Subordinated Creditor and Hecla Mining Company. Filed as exhibit 10.5 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-8491) and incorporated herein by reference. 10.12 Subordinated Loan Agreement dated June 29, 2000, among Hecla Mining Company as Borrower and Standard Bank London Limited as Lender. Filed as exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 (File No. 1-8491) and incorporated herein by reference. 10.13 Subordination Agreement dated June 29, 2000, among Hecla Mining Company and Standard Bank London Limited as Senior Creditor and Subordinated Creditor. Filed as exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 (File No. 1-8491) and incorporated herein by reference. 10.14 Stock Purchase Agreement dated November 17, 2000, between Hecla Mining Company and Zemex U.S. Corporation. Filed as exhibit 10.1 to Registrant's Current Report on Form 8-K dated November 17, 2000 (File No. 1-8491) and incorporated herein by reference. 10.15 Stock Purchase Agreement dated February 27, 2001, between Hecla Mining Company and IMERYS USA, Inc. Filed as exhibit 99 to Registrant's Current Report on Form 8-K dated March 27, 2001 (File No. 1-8491) and incorporated herein by reference. 10.16 Form of Retention Agreement dated July 20, 2001, between Hecla Mining Company and Arthur Brown. (Registrant has substantially identical agreements, with each of Messrs. Phillips S. Baker, Jr, Thomas F. Fudge, Vicki J. Veltkamp, and Lewis E. Walde. Filed as exhibit 10.19 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 (File No. 1-8491) and incorporated herein by reference. 10.17 Real Estate Purchase and Sale Agreement between Hecla Mining Company and JDL Enterprises, LLC dated October 19, 2001. Filed as exhibit 10.21 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 1-8491) and incorporated herein by reference. 10.18 Revolving Credit Agreement dated March 27, 2002 with IIG Capital LLC. 10.19 Earn-In Agreement dated August 2, 2002 between Hecla Ventures Corp. and Rodeo Creek. 10.20 Lease Agreement dated September 5, 2002 between Hecla Mining Company and CVG-Minerven. 11. Computation of weighted average number of common shares outstanding. 12. Statement of Computation of Ratio of Earnings to Fixed Charges. 21. List of subsidiaries of the Registrant. Filed as exhibit 21 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 1-8491) and incorporated herein by reference. 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of PricewaterhouseCoopers LLP. 23.3 Consent of BDO Seidman, LLP. EX-4.3 4 hecla024510_ex4-3.txt STOCK PURCHASE AGREEMENT Exhibit 4.3 STOCK PURCHASE AGREEMENT Stock Purchase Agreement ("Agreement") entered into as of the 27th day of August, 2001, between Hecla Mining Company, a Delaware corporation ("Company"), Copper Mountain Trust ("Trustee") for the Hecla Mining Company Retirement Plan and Lucky Friday Pension Plan ("Purchaser" or "Trustee"). The Company agrees to sell and the Purchaser agree to purchase 5,749,883 shares of common stock, $0.25 par value, of the Company ("Shares") at a purchase price of $0.95 per Share. The Purchaser shall purchase 4,610,174 shares on behalf of the Hecla Mining Company Retirement Plan and shall purchase 1,139,709 shares on behalf of the Lucky Friday Pension Plan. The closing of the sale of the Shares to the Purchaser shall take place at 10:00 a.m. on August 28, 2001, at the executive office of the Company, at which time the Company shall deliver to the Purchaser certificates representing their respective Shares registered in the names of the Purchaser, and the Purchaser shall cause the purchase price of the Shares to be purchased by each to be wire transferred to an account specified by the Company. The Purchaser has been instructed by Consulting Fiduciaries, Inc., the independent fiduciary to the Trustee to enter into this Agreement on behalf of the Plans. The Company represents and warrants to the Purchaser that (i) the Company has the power, and has been authorized, to enter into this Agreement and to effect the transactions contemplated by it, and this Agreement has been duly executed on behalf of the Company and is binding and enforceable on it, and (ii) the Shares when delivered and paid for will be validly issued, fully paid and non-assessable and listed (subject to notice of issuance) on the New York Stock Exchange. The Purchaser represents and warrants to the Company that it has the power, and has been duly authorized, to enter into this Agreement and effect the transactions contemplated by it, and this Agreement has been duly executed on behalf of such Purchaser and is binding and enforceable on it. The Purchaser represents and warrants to the Company that it is an accredited investor as defined in Regulation D promulgated under the Securities Act of 1933 ("Securities Act") and that it understands that the Shares have not been registered under the Securities Act and may not be resold by the Purchaser without registration under the Securities Act or an exemption therefrom. Certificates for the Shares will bear the following legend: The shares of common stock of Hecla Mining Company represented by this certificate have been issued pursuant to an exemption from registration under the Securities Act of 1933 and may not be resold without registration thereunder or an exemption therefrom. The issuer may require an opinion of counsel reasonably satisfactory to it to the effect that such an exemption is available before permitting transfer of such shares. The following Sections 1 through 5 shall apply if the Purchaser desires to sell Shares at a time and in a fashion that registration or an exemption from registration under the Securities Act is not available for the sale. The independent fiduciary or investment manager appointed by the Company will be responsible for directing the Trustee to exercise the Purchaser's rights under Sections 1 through 5, including the number of Shares to be registered for the Purchaser. 1. Registration of Shares on Request. (a) Upon the written request of the Purchaser covering at least 1,000,000 Shares which are not registered or otherwise eligible for sale under Rule 144 or some other exemption under the Securities Act within the succeeding 90 days, the Company shall prepare and file with the Securities and Exchange Commission (the "Commission") a registration statement under the Securities Act, on such form and in such manner as the Company may deem appropriate for the sale 2 or other disposition of such number of the Shares as shall be specified in such written request and use its reasonable best efforts to cause such registration statement to become effective as soon as practicable after such registration statement is filed; provided, however, that the Company shall not be obligated to effect any such registration pursuant to this Section 1(a) at any time prior to January 1, 2002. In connection therewith, the Company will prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus or prospectuses used in connection therewith as it deems necessary to keep such registration statement effective for a reasonable period from the effective date thereof (but not more than 45 days from the effective date thereof) so as to permit the offering and sale by the Purchaser in accordance with the intended method or methods of distribution described in the registration statement, subject to earlier termination in the event all the shares are sold thereunder or as otherwise terminated or delayed pursuant to this Agreement. (b) The Company shall be entitled to postpone the filing of any registration statement pursuant to this Section 1 otherwise required to be prepared and filed by it (i) if the Company is currently engaged in a self-tender or exchange offer and the filing of a registration statement would cause a violation of the Securities Exchange Act of 1934, (ii) if the Chief Executive Officer of the Company certifies to the Purchaser that the Company is engaged in, or plans to engage within 60 days in, a registered public offering (including a registration statement on Form S-4 or the then substantial equivalent thereof); or (iii) such other circumstances exist as shall, in the reasonable judgment of the Company's Board of Directors, make a public offering of the Company's securities impracticable (provided that the Company may postpone the filing of a registration statement pursuant to this subparagraph (iii) not more than once in any 12-month period and for a period not to exceed 90 days). In the event of such postponement, the Company shall be required, upon 3 the request of the Purchaser, to file the registration statement pursuant to this Section 1 as soon as practicable after the termination or consummation of any of the events set forth in (i), (ii) and (iii) above. The Company shall select the underwriter or underwriters to be used in connection with any public offering of securities registered pursuant to this Section 1. (c) The Company shall not be obligated to file more than two registration statements in response to a request from the Purchaser delivered pursuant to this Section 1. The filing of a registration statement relating to the Shares in response to such a request of the Purchaser shall not count against such limitation in the event the Purchaser is precluded from completing the sale of the Shares contemplated by such registration statement due to a failure by the Company to perform any obligation in the related underwriting agreement or due to a material change in the Company's business. 2. Piggy-Back Registration. If at any time subsequent to December 31, 2001 and prior to December 31, 2003, the Company proposes to register any of its equity securities (other than pursuant to Section 1 or for securities issued with respect to any acquisition or any employee stock option, stock purchase, or similar plan or any other securities to be registered pursuant to a special purpose registration) under the Securities Act on Form S-1, Form S-2, Form S-3 or any other form of general application for sale of securities to the public in an underwritten offering upon which may be registered securities similar to the Shares, it will each such time at least 30 days prior to the anticipated filing date of such proposed registration statement give written notice to the Purchaser of its intention so to do and, upon the written request of the Purchaser made within 10 days after the receipt of any such notice, the Company will use its reasonable best efforts to effect the registration under the Securities Act of the Shares which the Company has been so requested to register; provided, however, that in connection with a registration described in 4 this Section 2 in which the securities being registered are intended to be sold in an underwritten public offering, if in the opinion of the managing underwriter or underwriters marketing considerations require the reduction of the number of shares of Common Stock covered by any such registration, the number of Shares to be registered on behalf of the Purchaser and the number of shares of Company common stock to be registered on behalf of any other selling stockholders shall be reduced (to zero if necessary) pro rata, according to the aggregate number of shares of Company common stock requested to be registered by the Purchaser and any other selling stockholders participating in such registration. 3. Registration Procedures. If and when the Company is required to effect the registration of any of the Shares under the Securities Act as provided in this Agreement: (a) The Company shall furnish to the Purchaser and to the managing underwriters with respect to the underwriting related thereto such number of copies of each preliminary prospectus and final prospectus and supplement thereto as may be reasonably necessary in order to effect the sale of the Shares to be offered and sold. (b) The Company shall promptly notify the Purchaser in the event any prospectus then in use contains any untrue statement of a material fact or any omission of a material fact necessary to make the statements therein, in light of the circumstances in which they were made not misleading, and, upon receipt of such notice, the Purchaser shall not offer or sell any securities covered by such prospectus and shall return all copies of such prospectus to the Company if requested to do so by the Company, and, at the request of the Purchaser, the Company shall promptly prepare and furnish to the Purchaser a reasonable number of copies of a supplement to such prospectus so that, as supplemented, the prospectus no longer contains any untrue statement of a material fact or any omission of a material fact necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. 5 (c) The Company shall use its reasonable best efforts to qualify any offering of the Shares under any applicable Blue Sky or other securities laws of such states as may be reasonably specified by the Purchaser or the managing underwriter with respect to such offering; provided, however, that the Company shall not be obligated to qualify as a foreign corporation to do business under the laws of any jurisdiction in which it is not then qualified or to subject itself to taxation in any such jurisdiction or to file any general consent to service of process. (d) The Company shall afford the Purchaser and their legal representatives the opportunity to make such reasonable examination and inquiry into the financial condition and business of the Company as the Purchaser may reasonably deem necessary or prudent in connection with the preparation of the registration statement or any other materials to be used in connection with an offering, sale, or distribution by the Purchaser. (e) Upon exercising registration rights in accordance with Section 1 or Section 2, as the case may be, the Purchaser shall provide the Company with all information regarding the Purchaser as the Company may from time to time reasonably request in connection with the preparation of the registration statement. (f) The Purchaser shall bear all underwriting fees, discounts and commissions attributable to the Shares which are sold by them pursuant to such registration. The Company will otherwise pay all costs and expenses in connection with any registration and filing fees, all printing expenses, and all Blue Sky fees and expenses (including fees and expenses of its counsel in connection with Blue Sky surveys). 6 4. Indemnification. In the event of any registration of any of the Shares of the Purchaser under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless the Purchaser and its directors and officers and each underwriter of such securities and each other person, if any, who controls the Purchaser or each such underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which the Purchaser or its directors or officers or each such underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which the Shares were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in light of the circumstances under which they were made) not misleading; and the Company will reimburse the Purchaser, each such director and officer, each such underwriter and each such controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by the Purchaser or controlling person specifically for use in the preparation thereof. Such indemnity shall remain in full force and effect irrespective of any investigation by any person indemnified above. 7 The Company may require, as a condition to including any of the Shares in any registration statement filed pursuant to Section 1 or 2 hereof, that the Company shall have received an undertaking satisfactory to it from the Purchaser to indemnify and hold harmless the Company, each director of the Company, each officer of the Company who shall sign such registration statement and any person who controls the Company within the meaning of the Securities Act, with respect to losses, claims, damages or liabilities arising from any statement in or omission from such registration statement, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, if such statement or omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by the Purchaser specifically for use in the preparation of such registration statement, preliminary prospectus, final prospectus, amendment or supplement. Promptly after receipt by an indemnified party of notice of the commencement of any action involving a claim referred to in the preceding paragraphs of this Section 4, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding paragraphs of this Section 4, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from 8 the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expense subsequently incurred by the latter in connection with the defense thereof. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. 5. Holdback Agreement. So long as the Purchaser is the holder of Shares representing no less than 1% of the outstanding common stock of the Company, if the Company initiates a registration of the Company's securities in which the securities being registered are intended to be sold in an underwritten public offering, the Purchaser agrees, upon request of the underwriters managing such underwritten public offering, not to sell, make any short sale of, loan, grant any option for the purchase of or otherwise dispose of any of the Shares (other than those included in the registration) without the prior written consent of such managing underwriters for such period of time from the effective date of such registration as may be requested by such managing underwriters. 6. Successors and Assigns. All covenants and agreements contained in this Agreement by or on behalf of either of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties, whether so expressed or not. 7. Changes in Shares. If the Shares are changed by stock split, reverse stock split, merger, consolidation or recapitalization, references to Shares herein shall be deemed to refer to the securities received for each Share so affected. 9 8. Notices. Any notices required or permitted to be sent hereunder shall be delivered personally or mailed, certified mail, return receipt requested, or delivered by electronic facsimile or overnight courier service to the following addresses, or such other address as any party hereto designates by written notice to the other, and shall be deemed to have been give upon delivery, if delivered personally or by electronic facsimile, three days after mailing, if mailed, or one business day after delivery to the courier, if delivered by overnight courier service: If to the Company, to: Hecla Mining Company 6500 Mineral Drive Coeur d'Alene, Idaho 83815-8780 Phone: (208) 769-4100 Fax: (208) 769-4159 Attn: Michael B. White General Counsel If to the Purchaser, to: Copper Mountain Trust, Trustee 601 SW Second Avenue, Suite 1800 Portland, Oregon 97204 Phone: (503) 295-3600 Fax: (503) 229-0561 Attn: T.R. West Vice President Copy to: Consulting Fiduciaries, Inc. 400 Skokie Boulevard Northbrook, Illinois 60062 Phone: (847) 559-9838 Fax: (847) 559-9840 Attn: David L. Heald Principal 9. Governing Law. This Agreement shall be governed by the internal laws of the State of Delaware without regard to principles of conflicts of law. 10. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute one instrument. 10 11. Consent to Jurisdiction; Waiver of Trial by Jury. The parties hereto hereby irrevocably agree that any suit, action, proceeding or claim relating to this Agreement may be brought only in the state or federal courts in the State of Delaware. Each party irrevocably waives any objection to the venue or jurisdiction of any proceeding brought in such courts, and any claim that such proceeding has been brought in an inconvenient forum. Each party waives its right to trial by jury, and agrees that service of process may be made in any manner specified in Section 8 above. The parties hereto have executed this Agreement as of the date first set forth above. HECLA MINING COMPANY By: --------------------------------------------- Name: ---------------------------------------- Title: --------------------------------------- By: COPPER MOUNTAIN TRUST, TRUSTEE For the Hecla Mining Company Retirement Plan By: ----------------------------------------- Name: ------------------------------------ Title: ----------------------------------- By: COPPER MOUNTAIN TRUST, TRUSTEE For the Lucky Friday Pension Plan By: ----------------------------------------- Name: ------------------------------------ Title: ----------------------------------- 11 EX-4.4 5 hecla024510_ex4-4.txt WARRANT AGREEMENT Exhibit 4.4 WARRANT AGREEMENT THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED OR QUALIFIED FOR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION OR AN EXEMPTION THEREFROM UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY SUCH APPLICABLE STATE LAWS. HECLA MINING COMPANY WARRANT CERTIFICATE TO PURCHASE SHARES OF COMMON STOCK Date of Issuance: August 2, 2002 Certificate W-1 FOR VALUE RECEIVED, Hecla Mining Company, a Delaware corporation (the "Company"), hereby grants to Great Basin Gold Ltd. and/or its registered assigns pursuant to Section 5 hereof (each, a "Registered Holder") the right to purchase from the Company an aggregate of two million (2,000,000) of the Company's shares of common stock, $0.25 par value per share ("Common Stock"), at a price per share of $3.73, (the "Exercise Price") which price shall be the weighted average daily closing price per share for the common stock of the Company for the twenty (20) trading days immediately prior to the date of this Warrant Agreement, as adjusted pursuant to Section 2 hereof. This Warrant is subject to the following provisions: Section 1. Exercise of Warrant. 1A. Two Year Exercise Period. The Registered Holder may exercise, in whole or in part, the purchase rights represented by this Warrant at any time and from time to time during the two year period commencing on August 2, 2002 and ending on August 1, 2004 (the "Exercise Period"). 1B. Exercise Procedure. (i) This Warrant shall be deemed to have been exercised when the Company has received all of the following items (the "Exercise Time"): (a) a completed Exercise Agreement, as described in paragraph 1C below, executed by the Registered Holder; (b) this Warrant; Hecla Warrant Agreement Page 1 of 7 (c) an Assignment or Assignments in the form set forth in Exhibit I if the Warrant is exercised by any Registered Holder other than Great Basin Gold Ltd.; and (d) a cashier's check or wire transfer to the Company in an amount equal to the product of the Exercise Price multiplied by the number of shares of Common Stock being purchased upon such exercise (the "Aggregate Exercise Price"). (ii) Certificates for Common Stock, if any, purchased upon exercise of this Warrant shall be delivered by the Company to the Registered Holder within three business days after the date of the Exercise Time. Unless this Warrant has expired or all of the purchase rights represented hereby have been exercised, the Company shall prepare a new Warrant, substantially identical hereto, representing the rights formerly represented by this Warrant which have not expired or been exercised and shall, within such three-day period, deliver such new Warrant to the person designated for delivery in the Exercise Agreement. (iii) The shares of Common Stock issuable upon the exercise of this Warrant shall be deemed to have been issued to the Registered Holder at the Exercise Time, and the Registered Holder shall be deemed for all purposes to have become the record holder of such Common Stock at the Exercise Time. (iv) The issuance of certificates for the Common Stock, if any, upon exercise of this Warrant shall be made without charge to the Registered Holder for any issuance tax in respect thereof or other cost incurred by the Company in connection with such exercise and the related issuance of Common Stock. Each share of Common Stock issuable upon exercise of this Warrant shall, when issued, be duly and validly issued and free from all taxes, liens and charges. The company shall prepare and file at its expense a registration statement with the United States Securities and Exchange Commission ("SEC") forthwith after issuance hereof and use its reasonable best efforts to obtain SEC approval thereof so that any Common Stock acquired by exercise hereof is freely tradeable in the United States within four (4) months from the date of issuance of this warrant. Until registration of such Common Stock, each certificate shall bear the following legend: The shares of common stock of Hecla Mining Company represented by this certificate have been issued pursuant to an exemption from registration under the Securities Act of 1933 and may not be resold without registration thereunder or an exemption therefrom. The issuer may require an opinion of counsel reasonably satisfactory to it to the effect that such an exemption is available before permitting transfer of such shares. (v) The Company shall assist and cooperate with any Registered Holder required to make any governmental filings or obtain any governmental approvals prior to or in connection with any exercise of this Warrant, without limitation, making any filings required to be made by the Company. Hecla Warrant Agreement Page 2 of 7 (vi) The Company shall take all such actions as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which securities of the Company or their equivalents may be listed (except for official notice of issuance which shall be immediately delivered by the Company upon such issuance). (vii) Notwithstanding any other provision hereof, if an exercise of any portion of this Warrant is to be made in connection with a registered public offering of the Company, the sale of the Company or pursuant to Section 3 hereof, the exercise of any portion of this Warrant may, at the election of the Registered Holder hereof, be conditioned upon the consummation of the public offering, the sale or the event referred to in the notice described in Section 3, in which case such exercise shall not be deemed to be effective until the consummation of such transaction. 1C. Exercise Agreement. Upon any exercise of this Warrant, the Exercise Agreement shall be substantially in the form set forth in Exhibit II hereto. If the number of shares of Common Stock to be issued does not include all the Common Stock purchasable hereunder, it shall also state the Registered Holder to whom a new Warrant for the unexercised portion of the rights hereunder is to be delivered. Such Exercise Agreement shall be dated the actual date of execution thereof. Section 2. Adjustment of Exercise Price and Number of Shares of Common Stock. In order to prevent dilution of the rights granted under this Warrant, the Exercise Price shall be subject to adjustment from time to time as provided in this Section 2, and the number of shares of Common Stock obtainable upon exercise of this Warrant shall be subject to adjustment from time to time as provided in this Section 2. 2A. Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any split, dividend, recapitalization or otherwise) its outstanding Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant shall be proportionately increased. If the Company at any time combines (by reverse split or otherwise) its Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of shares of Common Stock obtainable upon exercise of this Warrant shall be proportionately decreased. 2B. Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets or other transaction, in each case which is effected in such a way that the holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for the Common Stock is referred to herein as an "Organic Change." Prior to the consummation of any Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the Registered Holders of the Warrants representing a majority of the Common Stock obtainable upon exercise of all Warrants then outstanding) to insure the Registered Holder of the Warrant shall thereafter be entitled to receive, upon exercise of this Warrant, the numbers or amount of Hecla Warrant Agreement Page 3 of 7 shares of stock, securities or assets resulting from such Organic Change that a holder of the Common Stock deliverable upon exercise of this Warrant would have been entitled to receive as a result of such Organic Change If the Warrant had been exercised immediately before the effective date of such Organic Change. In any such case, the Company shall make appropriate provision (in form and substance satisfactory to the Registered Holders of the Warrants representing a majority of the shares of Common Stock obtainable upon exercise of all Warrants then outstanding) with respect to such holders' rights and interests to insure that the provisions of this Section 2 and Sections 3 and 4 hereof shall thereafter be applicable to the Warrant (including, in the case of any such consolidation, merger or sale in which the successor entity or purchasing entity is other than the Company, an immediate adjustment of the Exercise Price to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and a corresponding immediate adjustment in the number of shares of Common Stock acquirable and receivable upon exercise of the Warrant, if the value so reflected is less than the Exercise Price in effect immediately prior to such consolidation, merger or sale). The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Company) resulting from consolidation or merger or the entity purchasing such assets assumes by written instrument (in form and substance satisfactory to the Registered Holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of all of the Warrants then outstanding), the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. 2C. Certain Events. If any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions, then the Company shall make an appropriate adjustment in the Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the Registered Holders. 2D. Notices. (i) Immediately upon any adjustment of the Exercise Price, the Company shall give written notice thereof to the Registered Holder, setting forth in reasonable detail and certifying the calculation of such adjustment. (ii) The Company shall give written notice to the Registered Holder at least 10 days prior to the date on which the Company intends to (A) make any pro rata subscription offer to holders of Common Stock or (B) consummate any Organic Change, dissolution or liquidation. Section 3. Intention to Exercise. If the Company gives a notice described in paragraph (ii) of Section 2D and the Registered Holder informs the Company in writing within 10 days of receipt of such notice that it intends to exercise the Warrant in whole or in part, the Company shall not make or consummate the event described in such notice before the earlier of (i) the completion of the exercise of the Warrant in whole or in part or (ii) 30 days after the date the Registered Holder informs the Company of its intention to exercise. If the event described in such notice is the liquidation of the Company, whether or not the Registered Holder responds to such notice, the Company shall pay to the Registered Holder the payment or payments (net of the Exercise Price), if any, that would have been made to such Registered Holder on the Common Stock had this Warrant been exercised in full immediately prior to the liquidation. Hecla Warrant Agreement Page 4 of 7 Section 4. No Voting Rights; Limitations of Liability. This Warrant shall not entitle the Registered Holder to any voting rights or other rights as a holder of Common Stock in the Company. No provision hereof, in the absence of affirmative action by the Registered Holder to purchase Common Stock, and no enumeration herein of the rights or privileges of the Registered Holder shall give rise to any liability of such holder for the Exercise Price of Common Stock acquirable by exercise hereof or as a holder of a Common Stock in the Company. Section 5. Warrant Transferable. This Warrant and all rights hereunder are not transferable, in whole or in part, without the consent of the Company. Upon receipt of such consent, the Warrant will be transferred without charge to the Registered Holder, upon surrender of this Warrant with a properly executed Assignment (in the form of Exhibit I hereto) at the principal office of the Company. As soon as practicable after the transfer, the Company will prepare new Warrants for the assigning and new Registered Holders, substantially identical hereto, but reflecting the number of shares of Common Stock the assigning and new Registered Holders are entitled to receive upon exercise of the applicable Warrant. Section 6. Warrant Exchangeable for Different Denominations. This Warrant is exchangeable, upon the surrender hereof by the Registered Holder at the principal office of the Company, for new Warrants of like tenor representing in the aggregate the purchase rights hereunder, and each of such new Warrants shall represent such portion of such rights as is designated by the Registered Holder at the time of such surrender. The date the Company initially issues this Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the number of times new certificates representing the unexpired and unexercised rights formerly represented by this Warrant shall be issued. All Warrants representing portions of the rights hereunder are referred to herein as the "Warrant." Section 7. Replacement. Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of the Registered Holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing this Warrant, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Company (provided that if the holder is a financial institution or other institutional investor its own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Company shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the same rights represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. Section 8. Notices. Except as otherwise expressly provided herein, all notices referred to in this Warrant shall be in writing and shall be delivered personally, sent by reputable overnight courier service (charges prepaid) or sent by registered or certified mail, return receipt requested, postage prepaid and shall be deemed to have been given when so delivered or deposited in the U.S. Mail (i) to the Company, at its principal executive offices and (ii) to the Registered Holder of this Warrant, at such holder's address as it appears in the records of the Company (unless otherwise indicated by any such holder). Section 9. Amendment and Waiver. Except as otherwise provided herein, the provisions of the Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by Hecla Warrant Agreement Page 5 of 7 it, only if the Company has obtained the written consent of the Registered Holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants; provided that no such action may change the Exercise Price of the Warrants or the number of shares or class of shares obtainable upon exercise of each Warrant without the written consent of all of the Registered Holders of Warrants. Section 10. Descriptive Headings; Governing Law. The descriptive headings of the several Sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The laws of the State of Delaware shall govern all issues concerning the relative rights of the Company and its members and interpretation of this Agreement. Section 11. Voting of Shares. So long as any Registered Holders and/or its affiliates ("Registered Holder Group") hold, along or in the aggregate at least ten percent (10%) of the shares of Common Stock issued to the Registered Holder Group upon exercise of this Warrant, the Registered Holder Group agrees to vote all of the shares of Common Stock held by the Registered Holder Group at any annual or special meeting of the shareholders of the Company in accordance with the recommendations of the Company's chief executive officer. Section 12. Trading Limitation. Except as otherwise permitted herein, the Registered Holder Group shall not, individually or in the aggregate, dispose of more than fifty thousand (50,000) share of Common Stock during any one trading day. In addition, so long as the Registered Holder Group continues to hold at least twenty percent (20%) of the shares of Common Stock issued upon exercise of this Warrant, the Registered Holder Group shall provide the Company with reasonable advance notice of any such sale of the shares of Common Stock. The Registered Holder Group shall not be obligated to complete any sale of shares of Common Stock even if it has provided the Company with advance written notice of such sale, but the Registered Holder Group shall notify Company of its withdrawal of any shares of Common Stock from the market with respect to which the Registered Holder Group has provided prior notice of sale. Company shall notify the Registered Holder Group of the pendency of a sale under any underwritten public offering by Company of Common Stock or any other Company equity security, in which event the Registered Holder Group shall not effect any sales of any shares of Common Stock within five (5) days prior to the commencement of or during such underwritten public offering. The Registered Holder Group shall have the right to sell any amount of shares of Common Stock in a private transaction, provided that (i) any such sale shall not be reported or reportable on any exchange or other public market where shares of Common Stock are or may in future be traded, and (ii) the purchaser in such private transaction agrees in writing that, for a period of six (6) months from and after the date of such purchase and sale of shares of Common Stock, such purchaser shall not sell any such shares of Common Stock. In addition, the Registered Holder Group shall be permitted to pledge any number of shares of Common Stock to an arm's-length lender to secure payment of a bona fide loan or other indebtedness, subject to the terms hereof. Hecla Warrant Agreement Page 6 of 7 IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and attested by its duly authorized officers and to be dated the Date of Issuance hereof. HECLA MINING COMPANY By: ------------------------------------ Name: Thomas F. Fudge, Jr. Title: Vice President-Operations Hecla Warrant Agreement Page 7 of 7 EXHIBIT I TO WARRANT AGREEMENT ASSIGNMENT FOR VALUE RECEIVED, _________________________________ hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant (Certificate No. W-_____________) with respect to the number of shares of Common Stock covered thereby set forth below, unto: Names of Assignee Address Number of Shares ----------------- ------- ---------------- Dated: Signature ------------------------------ Witness -------------------------------- Exhibit I to Hecla Warrant Agreement Page 1 of 1 EXHIBIT II TO WARRANT AGREEMENT EXERCISE AGREEMENT To: Dated: The undersigned, pursuant to the provisions set forth in the attached Warrant (Certificate No. W-___________), hereby agrees to subscribe for the purchase of __________ shares of Common Stock covered by such Warrant and makes payment herewith in full therefore at the price per share provided by such Warrant. If any new Warrant will be prepared under Section 1B(ii) of the Warrant, please deliver it to _________, a Registered Holder. Signature ------------------------------ Address -------------------------------- Exhibit II to Hecla Warrant Agreement Page 1 of 1 EX-4.5 6 hecla024510_ex4-5.txt REGISTRATION RIGHTS AGREEMENT Exhibit 4.5 REGISTRATION RIGHTS AGREEMENT This agreement (the "Agreement") is made as of August 2, 2002, by and between Great Basin Gold Ltd. ("Great Basin"), its assignees pursuant to the Warrant (as hereinafter defined) (each an "Assignee") and Hecla Mining Company ("Hecla"). RECITALS WHEREAS, Hecla has issued a warrant (the "Warrant") to Great Basin dated as of the date hereof providing Great Basin the right to purchase two million (2,000,000) shares of Hecla common stock, $.25 par value per share (the "Common Stock"); WHEREAS, pursuant to Section 5 of the Warrant, Great Basin may assign some or all of its interest in the Warrant to one or more Assignees; WHEREAS, the rules and regulations promulgated under the Securities Act of 1933, as amended (the "Securities Act"), impose certain limitations on Great Basin and its Assignees with respect to the resale of any Common Stock purchased by Great Basin or any Assignee upon exercise of their respective Warrant (the "Hecla Shares"); and WHEREAS, Hecla will, in order to permit the resale of the Hecla Shares by Great Basin and any Assignee, undertake to register the Hecla Shares under the Securities Act on Form S-3 or such other form as may be appropriate (the "Resale Registration Statement"). NOW, THEREFORE, in consideration of the mutual undertakings contained herein and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: AGREEMENT 1. Obligations of Great Basin. Great Basin and any Assignee, in connection with any offer, sale, or distribution of Hecla Shares pursuant to the Resale Registration Statement, covenant to (i) furnish all such information concerning Great Basin and/or any Assignee and the offer, sale, or distribution proposed to be made by Great Basin and any Assignee and take all such action as may be reasonably required of Great Basin and any Assignee in order to permit Hecla to comply with all applicable requirements of the Securities Act and the rules and regulations thereunder in connection with the Resale Registration Statement and to obtain the declaration of effectiveness of the Resale Registration Statement, (ii) update, to the extent required by applicable law, any information about Great Basin and any Assignee and the proposed plan of distribution contained in the Resale Registration Statement during the period the Resale Registration Statement is effective, and (iii) comply with all applicable requirements under the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder, in connection with such sale, including delivery of a current prospectus and compliance with the anti-manipulation rules under the Exchange Act. Registration Rights Agreement Page 1 of 5 Subject to the restrictions contained in Sections 1 and 4 hereof, Great Basin and/or any Assignee may sell Hecla Shares from time to time pursuant to the Resale Registration Statement, whether to or through a broker, dealer, or market maker or directly to one or more purchasers, including pledgees; provided, however, that sales of Hecla Shares pursuant to the Resale Registration Statement shall not be made in an underwritten public offering without Hecla's prior written consent. 2. Obligations of Hecla. Hecla will use its reasonable efforts to: 2.1 within four (4) months after the date hereof prepare and file with the Securities and Exchange Commission ("SEC") the Resale Registration Statement and the prospectus included therein (including any necessary amendments, including post-effective amendments, and supplements thereto) and take such other actions as may be reasonably necessary to cause the Resale Registration Statement to be declared effective. 2.2 cause the prospectus included in the Resale Registration Statement to be amended or supplemented as required and to be filed as required by Rule 424 (the "Resale Prospectus") or any similar rule that may be adopted under the Securities Act; (ii) respond as promptly as practicable to any comments received from the SEC with respect to the Resale Registration Statement or any amendment thereto; (iii) comply in all material respects with the periodic reporting obligations under the Exchange Act and the rules and regulations promulgated thereunder; (iv) keep such Resale Registration Statement effective until such date as is the earlier of (x) the date when all Hecla Shares have been sold or (y) the date when all Hecla Shares may be sold without restriction pursuant to Rule 144(k) of the Securities Act; and (v) comply with the provisions of the Securities Act with respect to the disposition of all of the Hecla Shares covered by such Resale Registration Statement during such period in accordance with the intended methods of disposition by Great Basin and/or any Assignee set forth in such Resale Registration Statement. 2.3 furnish to Great Basin and/or any Assignee such number of copies of the Resale Registration Statement, each amendment and supplement thereto, the Resale Prospectus, any supplement to such prospectus, and such other documents as Great Basin or any Assignee may reasonably request in order to facilitate the disposition of the Hecla Shares owned by Great Basin and/or any Assignee; 2.4 register or qualify the Hecla Shares under such other securities or blue sky laws of such jurisdictions as Great Basin and/or any Assignee reasonably request and do any and all other acts and things which may be reasonably necessary or advisable to enable Great Basin and/or any Assignee to consummate the disposition in such jurisdictions of the Hecla Shares owned by Great Basin and/or any Assignee (provided that Hecla will not be required to qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 2.4, subject itself to taxation in any such jurisdiction, or consent to general service of process in any such jurisdiction); 2.5 notify Great Basin and any Assignee of the happening of any event as a result of which the Resale Prospectus contains an untrue statement of a material fact or omits any fact necessary to make the statement therein, in Registration Rights Agreement Page 2 of 5 light of the circumstances in which they were made, not misleading, and, at the request of Great Basin or any Assignee but subject to the provisions of Section 4 hereof, Hecla will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of the Hecla Shares, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; 2.6 notify Great Basin and any Assignee promptly and, if requested, confirm in writing, (i) when the Resale Registration Statement and any post-effective amendments thereto have become effective; (ii) when any amendment or supplement to the prospectus contained in the Resale Registration Statement has been filed with the SEC; (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of the Resale Registration Statement or any part thereof or the initiation of any proceedings for that purpose; or (iv) if Hecla receives any notification with respect to the suspension of the qualification of the Hecla Shares for offer or sale in any jurisdiction or the initiation of any proceeding for such purpose; 2.7 make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the Resale Registration Statement or any part thereof as promptly as possible; 2.8 enable certificates for such Hecla Shares to be issued for such numbers of shares and registered in such names as Great Basin or any Assignee may reasonably request; 2.9 use its reasonable best efforts to cause all Hecla Shares relating to such Registration Statement to be listed on the NYSE and any other securities exchange, quotation system, market or over-the-counter bulletin board, if any, on which the same securities issued by Hecla are then listed. 3. Registration Expenses. 3.1 All expenses incident to Hecla's performance of or compliance with this Agreement, including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, and fees and disbursements of counsel for Hecla, and all independent certified public accountants and other persons retained by Hecla (all such expenses being herein called "Registration Expenses"), will be borne by Hecla. Any and all commissions, selling concessions, brokerage fees, discounts, and stock transfer taxes ("Selling Expenses") shall be borne by Great Basin and any Assignee. 3.2 In connection with each sale of Hecla Shares, fees and disbursements of counsel for Great Basin and/or any Assignee shall be borne by Great Basin or any Assignee, as the case may be. 4. Black-Out Period. Hecla may provide written notice to Great Basin and any Assignee requiring Great Basin and any Assignee not to make any sales of the Hecla Shares pursuant to the Resale Registration Statement if: (i) in the reasonable opinion of Hecla (x) securities laws applicable to such sale would Registration Rights Agreement Page 3 of 5 require Hecla to disclose material non-public information ("Non-Public Information") and (y) the disclosure of such Non-Public Information would adversely affect Hecla; (ii) in the reasonable opinion of Hecla such sale would interfere with a financing transaction by Hecla (a "Financing Period"); or (iii) such sale would occur during the period between the end of a fiscal quarter and the announcement by Hecla of its earnings for that quarter (an "Earnings Period"). The Financing Period and Earnings Period are collectively referred to herein as the "Restricted Period". In the event sales of the Hecla Shares by Great Basin and any Assignee is deferred because of the existence of Non-Public Information, Hecla will notify Great Basin and any Assignee promptly upon such Non-Public Information being included by Hecla in a filing with the SEC, being otherwise disclosed to the public (other than through the actions of Great Basin and/or any Assignee), or ceasing to be material to Hecla, and upon such notice being given by Hecla, Great Basin and any Assignee shall again be entitled to sell Hecla Shares as provided herein. In the event the sale by Great Basin and any Assignee of Hecla Shares is deferred because Hecla has notified Great Basin and any Assignee of a Restricted Period, Hecla shall specify, in notifying Great Basin and any Assignee of the deferral, when the Restricted Period will end, at which time Great Basin and any Assignee shall again be entitled to sell Hecla Shares as provided herein. If the Restricted Period is thereafter changed, Hecla will promptly notify Great Basin and any Assignee of such change and upon the end of the Restricted Period as so changed, Great Basin and any Assignee will again be entitled to sell Hecla Shares as provided herein. If an agreement to which such Restricted Period relates is terminated prior to the end of the Restricted Period, the deferral period hereunder shall end immediately and Hecla shall promptly notify Great Basin and any Assignee of the end of the deferral period. 5. Term. Hecla agrees that the rights of Great Basin and any Assignee under this Agreement shall remain in effect until the Hecla Shares are sold in compliance with Rule 144 or may be sold pursuant to Rule 144(k) under the Securities Act without restriction. 6. Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns, heirs, and legal representatives, but may not be assigned by Great Basin or any Assignee without the prior written consent of Hecla. 7. Governing Laws. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed therein. 8. Headings. The headings in this Agreement are for the purpose of reference only and shall not limit or otherwise affect the meaning thereof. 9. Entire Agreement. This instrument contains the entire agreement of the parties hereto with respect to the sale of Hecla Shares pursuant to the Resale Registration Statement and matters relating thereto, and supersedes all prior understandings and agreements of the parties with respect to the subject matter hereof. * * * * Registration Rights Agreement Page 4 of 5 IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date first above written. HECLA MINING COMPANY ---------------------------------------- By: Thomas F. Fudge, Jr. Its: Vice President-Operations GREAT BASIN GOLD LTD. ---------------------------------------- By: Its: Registration Rights Agreement Page 5 of 5 EX-5.1 7 hecla024510_ex5-1.txt OPINION RE: LEGALITY EXHIBIT 5.1 October 7, 2002 Hecla Mining Company 6500 Mineral Drive Coeur d'Alene, Idaho 83815-8788 REGISTRATION STATEMENT ON FORM S-1 Ladies and Gentlemen: I have represented Hecla Mining Company, a Delaware corporation (the "Company"), in connection with the preparation of a registration statement on Form S-1 (the "Registration Statement") filed under the Securities Act of 1933, as amended (the "Act"), for the purpose of registering under the Act (i) up to 3,995,248 shares of common stock, par value $0.25 per share (the "Common Stock"), of the Company owned by certain stockholders of the Company (the "Shares") currently issued and outstanding and (ii) up to 2,000,000 shares of Common Stock issuable to a certain stockholder upon exercise of a warrant to purchase Common Stock (the "Warrant Shares"). In connection with this opinion, I have examined originals, or copies certified or otherwise identified to my satisfaction, of such documents, corporate and other records, certificates, and other papers, including the Registration Statement and pertinent resolutions of the board of directors of the Company, as I deemed necessary to examine for the purpose of this opinion. Based upon such examination, it is my opinion that (i) the Shares have been duly authorized, validly issued, fully paid, and are non-assessable and (ii) the Warrant Shares have been duly authorized for issuance and, upon issuance, payment and delivery thereof to the stockholder in accordance with the terms of the warrant between the Company and Great Basin Gold Ltd. will be validly issued, fully paid and non-assessable. My opinion expressed above is limited to the General Corporation Law of the State of Delaware, the applicable provisions of the Delaware constitution, and the reported judicial decisions interpreting such laws, and I do not express any opinion concerning any other laws. This opinion is given as of the date hereof, and I assume no obligation to advise you of changes that may hereafter be brought to my attention. I consent to the filing of this opinion as an exhibit to the Registration Statement. In giving this consent, I do not admit that I am within the category of persons whose consent is required by Section 7 of the Act or the rules and regulations of the Securities and Exchange Commission. Very truly yours, /s/ Michael B. White EX-10.6(C) 8 hecla024510_ex10-6c.txt AMENDED AND RESTATED GOLDEN EAGLE EARN-IN AGRMT Exhibit 10.6(c) FIRST AMENDMENT TO THE AMENDED AND RESTATED GOLDEN EAGLE EARN-IN AGREEMENT This First Amendment ("First Amendment") to the Amended and Restated Golden Eagle Earn-in Agreement ("Earn-in Agreement") is entered into and effective this 5th day of September, 2002, by and between Echo Bay Mines Ltd. ("Echo Bay"), a Delaware corporation, and Hecla Mining Company ("Hecla"), a Delaware corporation. RECITALS WHEREAS, Santa Fe Pacific Gold Corporation ("SFPG") and Hecla entered into the Earn-in Agreement and the Golden Eagle Operating Agreement ("Operating Agreement") both dated and effective September 6, 1996, whereby SFPG acquired an undivided 75% interest in the Joint Properties (as described therein) and the right to receive conveyance of an undivided 75% interest in Hecla's Properties (as described therein); and WHEREAS, on May 5, 1997, SFPG became a wholly owned subsidiary of Newmont Gold Company ("Newmont"). SFPG subsequently merged into Newmont on December 29, 1999; and WHEREAS, on July 7, 2000, Newmont, as successor to SFPG, assigned all of its rights, titles and interests under the Earn-in Agreement and the Operating Agreement to Echo Bay; and WHEREAS, Echo Bay and Hecla desire to amend certain portions of the Earn-in Agreement; NOW THEREFORE, in consideration of the mutual benefits to be derived by the parties hereto from this First Amendment, Echo Bay and Hecla agree to amend the Earn-in Agreement as follows: AGREEMENT 1. Section 5.1 - Initial Payment and Contributions; Earn-in Expenditures; Feasibility Study. The second sentence of paragraph (c) shall be deleted and replaced with the following: Echo Bay (as successor to SFPG) must provide the Feasibility Study to Hecla, if at all, on or before December 31, 2004, subject to Echo Bay's right to withdraw under Section 10.2. First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 1 of 2 2. Exhibit A, Part 1 - Properties to be Contributed by Hecla ("Hecla's Properties"), shall be amended to exclude the properties as listed in Exhibit A to this First Amendment, entitled "Properties to be Excluded from Earn-in Agreement," attached hereto and by this reference made a part hereof. The remaining properties subject to the Earn-in Agreement as amended herein are set forth in Exhibit B, Parts I and II to this First Amendment, entitled "Hecla Properties Subject to Earn-in Agreement," "Leases, Permits & Easements" and "Joint Properties," attached hereto and by this reference made a part hereof. 3. Other Provisions. All other provisions of the Earn-in Agreement shall remain in full force and be binding upon the parties hereto. IN WITNESS WHEREOF, the parties hereto have signed and accepted the terms and conditions of this First Amendment to the Earn-in Agreement as of the date first hereinabove written. HECLA MINING COMPANY ECHO BAY MINES LTD. By: By: -------------------------------- -------------------------------- Name: Name: ------------------------------ ------------------------------ Title: Title: ----------------------------- ----------------------------- First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 2 of 2 ------------------------------------------------ EXHIBIT A - ATTACHED TO THE FIRST AMENDMENT OF THE AMENDED AND RESTATED GOLDEN EAGLE EARN- IN AGREEMENT DATED SEPTEMBER ___, 2002 ------------------------------------------------ EXHIBIT A PROPERTIES TO BE EXCLUDED FROM EARN-IN AGREEMENT REPUBLIC PATENTED CLAIMS
Alphabetical Order by Claim Name - ----------------------------------------------------------------------------------------------------------------------------------- CLAIM NAME MS OR OMC # LOCATION ACRES TAX PARCEL # - ----------------------------------- --------------- ---------------------------- -------------------------- ----------------------- T-N R-E SEC MIN SURF - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Alpine Fraction 635 36 32 12 2.93 2.93 2-36-12-90-00200-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Baby Fraction 461 37 32 27,34 8.25 8.25 2-37-27-14-00010-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Ben Hur 421 37 32 27,34 15.20 15.20 2-37-27-14-00010-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Ben Tillman 400 36 32 1,12 18.25 18.25 2-36-12-90-00040-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Ben Tillman Fraction 451 36 32 1,12 2.63 2.63 2-36-12-90-00040-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Bodie 438 37 32 34 20.65 20.65 2-37-34-90-00030-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Butte & Boston (Tax #1) 416 36 32 12 18.84 18.84 2-36-12-90-00200-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Cecelia Fraction 477 36 32 12 3.39 3.39 2-36-12-90-00040-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Charity 417 36 32 13 15.20 15.20 2-36-13-90-00020-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Chico 418 36 32 12 11.93 11.93 2-36-12-90-00040-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Copper Belle 466 37,36 32 34,1 20.64 20.64 2-37-34-90-00050-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- East San Poil Fraction 1133 37 32 34 4.90 4.90 2-37-34-90-00030-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Elliott 536 36 33 7 5.40 0 3-36-07-90-00030-01 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Eureka Fraction 612 37 32 35 3.95 3.95 2-37-35-90-00020-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Extra Lateral 1124 37 32 34,35 0.06 0.06 2-37-34-90-00030-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Faith 417 36 32 13 19.92 19.92 2-36-13-90-00020-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Faith Fraction 417 36 32 13 0.72 0.72 2-36-13-90-00020-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- First Thought 426 36 32 1 9.12 0 2-36-01-90-00120-01 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Gertrude 417 36 32 13 16.88 16.88 2-36-13-90-00020-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Gertrude Fraction 417 36 32 13 10.12 10.12 2-36-13-90-00020-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- SUBTOTAL 208.98 194.46
Exhibit A to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 1 of 7 EXHIBIT A - REPUBLIC PATENTED CLAIMS (CONTINUED)
Alphabetical Order by Claim Name - ----------------------------------------------------------------------------------------------------------------------------------- CLAIM NAME MS OR OMC # LOCATION ACRES TAX PARCEL # - ----------------------------------- --------------- ---------------------------- -------------------------- ----------------------- T-N R-E SEC MIN SURF - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Great Hope 535 36 32 1,12 18.43 18.43 2-36-01-90-00070-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Hammond 1133 37 32 34 2.49 2.49 2-37-34-90-00030-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Hercules 1222 37 32 34,35 13.08 13.08 2-37-34-90-00030-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Hilo In 546 36 32,33 12,7 18.45 18.45 2-36-12-90-00270-00 Hilo Out 2-36-12-90-00040-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Hope 417 36 32 13 17.81 17.81 2-36-13-90-00020-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Iron Monitor 469 36 32 12 20.66 20.66 2-36-12-90-00200-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Iron Monitor Fraction 1273 36 32 12 0.30 0.30 2-36-12-90-00200-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Jim Blaine 364 36 32 12 20.65 20.65 2-36-12-90-00040-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Jim Blaine Fraction 418 36 32 12 11.72 11.72 2-36-12-90-00040-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Lillie Fraction 635 36 32,33 12,7 14.85 14.85 2-36-12-90-00200-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Lost Lode (now N Republic Addn) 379 36,37 32 1,35 18.19 Lots 8-17 2-36-01-90-00260-01 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Luna 395 36 32,33 12,7 19.50 19.50 3-36-07-90-00030-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Luna Fraction 540 36 33 7 5.98 0 3-36-07-90-00030-01 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Maggie Tax #90-01 490 36 33 7 4.75 0.95 3-36-07-90-00060-01 Maggie Tax #90-02 3-36-07-90-00070-01 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- May 417 36 32 13 12.27 12.27 2-36-13-90-00020-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Minerva Fraction 537 36 33 7 3.77 3.77 3-36-07-90-00030-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Newton In 403 36 32 1 10.93 3.85 2-36-01-90-00080-00 Newton Out - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- No. Six 458 36 32 12 8.51 8.51 2-36-12-90-00040-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Northport 1222 37 32 34 3.20 3.20 2-37-34-90-00030-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- November Fraction 719 36 32 1 1.83 1.83 2-36-01-90-00050-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Old Hickory 391 36 32 12 20.61 20.61 2-36-12-90-00040-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Ouida 417 36 32,33 13,18 14.48 0 3-36-18-90-00020-01 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- SUBTOTAL 262.46 212.93
Exhibit A to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 2 of 7 EXHIBIT A - REPUBLIC PATENTED CLAIMS (CONTINUED)
Alphabetical Order by Claim Name - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Palo Alto 719 36 32 1 16.70 16.70 2-36-01-90-00050-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Peacemaker Fraction 612 37 32 35 5.35 5.35 2-37-35-90-00020-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Plant In 1223 36,37 32 1,35 4.96 0.35 2-37-35-90-00010-01 Plant Out 2-36-01-90-00010-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Portland In 538 36 32 12 19.10 19.10 2-36-12-90-00050-00 Portland Out 2-36-12-90-00040-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Princess Maude Fraction 467 36 32 12 5.55 5.55 2-36-12-90-00040-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Quilp Fraction No. 2 629 37 32 35 0.89 0.89 2-37-35-90-00020-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Rambler In 451 36 32 1,12 13.06 13.06 2-36-12-90-00090-00 Rambler Out 2-36-12-90-00040-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Remainder Fraction 417 36 32,33 13 6.57 6.57 2-36-13-90-00020-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Republic 362 36 32 12 20.65 20.65 2-36-12-90-00040-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Rossland Fraction 457 36 32 12 5.21 5.21 2-36-12-90-00040-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Ruby In 585 36,37 32 1,35 20.61 0 2-36-01-90-00100-01 Ruby Out 2-36-01-90-00110-01 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- San Poil 394 37 32 34 14.93 14.93 2-37-34-90-00030-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- San Poil Fraction 448 37 32 3.90 3.90 2-37-34-90-00030-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Snowstorm Fraction 419 37 32 34 2.01 2.01 2-37-34-90-00030-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Standard Fraction 418 36 32 12 12.08 12.08 2-36-12-90-00200-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Tamarack 1223 36 32 1 10.53 10.53 2-36-01-90-00010-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Tamarack No. 2 1223 36 32 1 3.14 3.14 2-36-01-90-00010-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Treasury Fraction 635 36 32,33 12,7 1.88 1.88 2-36-12-90-00200-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Tuesday 546 36 32,33 12,7 18.75 18.75 2-36-12-90-00040-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Tuesday Fraction No. 2 546 36 32,33 12,7 1.73 1.73 2-36-12-90-00040-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Yellow Jacket (part) 1006 37 32 34,35 15.81 15.81 2-37-34-90-00030-00 2-37-34-90-00160-01 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- SUBTOTAL 203.41 178.19 TOTAL ACREAGE 674.85 585.58 ====== ======
Exhibit A to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 3 of 7 EXHIBIT A - REPUBLIC FEE LAND
Listed by Township - Range - Section - -------------------------------------------------------- ----------------------------- -------------------- ----------------------- DESCRIPTION LOCATION ACRES TAX PARCEL # - -------------------------------------------------------- ----------------------------- -------------------- ----------------------- T-N R-E SEC MIN SURF - -------------------------------------------------------- --------- --------- --------- ---------- --------- ----------------------- Lot 4 37 32 34 15.65 15.65 2-37-34-21-00010-00 - -------------------------------------------------------- --------- --------- --------- ---------- --------- ----------------------- Lot 12 36 32 1 21.30 0 N/A - -------------------------------------------------------- --------- --------- --------- ---------- --------- ----------------------- Lot 18 (W of SR 21, Tax #31) 36 33 7 28.40 0 3-36-07-31-00010-01 - -------------------------------------------------------- --------- --------- --------- ---------- --------- ----------------------- Lot 18 (less 7.31 ac. to State for Shop)(E of SR 21) 36 33 7 30.75 30.75 3-36-07-31-00020-00 - -------------------------------------------------------- --------- --------- --------- ---------- --------- ----------------------- Lot 10 (portion - less 1.01 ac. to State) 36 33 18 15.67 15.67 3-36-18-21-00020-00 - -------------------------------------------------------- --------- --------- --------- ---------- --------- ----------------------- TOTAL ACREAGE 111.77 62.07 ====== =====
EXHIBIT A - GOLD MOUNTAIN RANCHES
Listed Numerically by Lot No. - ----------- --------------- --------- ------- ------- ------------ ---------------------------------------- ----------------------- LOT # DATE T-N R-E SEC RIGHTS MIN ACRES SURF ACRES TAX PARCEL # - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 94 12-20-66 37 32 35 M & S 10.00 10.00 2-37-35-50-00890-00 12-30-93 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 98 12-20-66 37 32 35 M & S 10.00 10.00 2-37-35-50-00980-00 12-30-93 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 123 12-20-66 37 32 35 M & S 10.00 10.00 2-37-35-50-01230-00 2-1-94 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 127 12-30-93 37 32 24 M & S 10.00 10.00 2-37-24-50-01270-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 128 12-30-93 37 32 24 M & S 10.00 10.00 2-37-24-50-01270-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 129 12-30-93 37 32 24 M & S 10.00 10.00 2-37-24-50-01270-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 138 6-23-92 37 32 24 M & S 10.00 10.00 2-37-24-50-01270-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 139 10-11-91 37 32 24 M & S 10.00 10.00 2-37-24-50-01270-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 140 6-12-90 37 32 24 M & S 10.00 10.00 2-37-24-50-01270-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 141 6-12-90 37 32 24 M & S 10.00 10.00 2-37-24-50-01270-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- SUBTOTAL 100.00 100.00
Exhibit A to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 4 of 7 EXHIBIT A - GOLD MOUNTAIN RANCHES (CONTINUED)
Listed Numerically by Lot No. - ----------- --------------- --------- ------- ------- ------------ ---------------------------------------- ----------------------- LOT # DATE T-N R-E SEC RIGHTS MIN ACRES SURF ACRES TAX PARCEL # - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 142 6-20-91 37 32 24 M & S 10.00 10.00 2-37-24-50-01270-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 143 3-28-91 37 32 24 M & S 10.00 10.00 2-37-24-50-01270-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 144 3-28-91 37 32 24 M & S 10.00 10.00 2-37-24-50-01270-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 145 6-20-91 37 32 24 M & S 10.00 10.00 2-37-24-50-01270-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 152 9-27-89 37 32 24 M & S 10.00 10.00 2-37-24-50-01520-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 153 6-20-91 37 32 24 M & S 10.00 10.00 2-37-24-50-01520-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 154 6-20-91 37 32 24 M & S 10.00 10.00 2-37-24-50-01520-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 155 9-27-89 37 32 24 M & S 10.00 10.00 2-37-24-50-01520-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 156 6-20-91 37 32 24 M & S 10.00 10.00 2-37-24-50-01520-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 163 4-11-89 37 32 25 M & S 10.00 10.00 2-37-25-50-01630-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 168 6-20-91 37 32 25 M & S 10.00 10.00 2-37-25-50-01680-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 169 6-20-91 37 32 25 M & S 10.00 10.00 2-37-25-50-01680-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 170 12-30-93 37 32 25 M & S 10.00 10.00 2-37-25-50-01680-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 176 6-14-94 37 32 25 M & S 10.00 10.00 2-37-25-50-01760-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 178 6-20-91 37 32 25 M & S 10.00 10.00 2-37-25-50-01680-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 179 6-20-91 37 32 25 M & S 10.00 10.00 2-37-25-50-01680-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 181 6-14-94 37 32 25 M & S 10.00 10.00 2-37-25-50-01680-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 189 9-27-89 37 32 25 M & S 10.00 10.00 2-37-23-50-01890-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 190 9-27-89 37 32 25 M & S 10.00 10.00 2-37-23-50-01890-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 192 6-23-92 37 32 25 M & S 10.00 10.00 2-37-23-50-01890-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 194 6-23-92 37 32 25 M & S 10.00 10.00 2-37-23-50-01890-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 195 6-14-94 37 32 25 M & S 10.00 10.00 2-37-23-50-01890-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 204 12-30-93 37 32 25 M & S 10.00 10.00 2-37-25-50-02040-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 205 6-22-93 37 32 25 M & S 10.00 10.00 2-37-25-50-02040-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 210 12-30-93 37 32 25 M & S 10.00 10.00 2-37-25-50-01890-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 212 6-14-94 37 32 25 M & S 10.00 10.00 2-37-25-50-01890-00 - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- SUBTOTAL 260.00 260.00
Exhibit A to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 5 of 7 EXHIBIT A - GOLD MOUNTAIN RANCHES (CONTINUED)
Listed Numerically by Lot No. - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- LOT # DATE T-N R-E SEC RIGHTS MIN ACRES SURF ACRES TAX PARCEL # - ----------- --------------- --------- ------- ------- ------------ ------------------- -------------------- ----------------------- 213 12-30-93 37 32 25 M & S 10.00 10.00 2-37-25-50-01890-00 - ----------- ---------------- -------- ------- ------- ------------ ------------------- -------------------- ----------------------- 216 12-30-93 37 32 25 M & S 10.00 10.00 2-37-23-50-01890-00 - ----------- ---------------- -------- ------- ------- ------------ ------------------- -------------------- ----------------------- 217 6-23-92 37 32 25 M & S 10.00 10.00 2-37-23-50-01890-00 - ----------- ---------------- -------- ------- ------- ------------ ------------------- -------------------- ----------------------- 218 6-23-92 37 32 25 M & S 10.00 10.00 2-37-23-50-01890-00 - ----------- ---------------- -------- ------- ------- ------------ ------------------- -------------------- ----------------------- 220 9-27-89 37 32 25 M & S 10.00 10.00 2-37-25-50-02200-00 - ----------- ---------------- -------- ------- ------- ------------ ------------------- -------------------- ----------------------- 228 9-27-89 37 32 36 M & S 10.00 10.00 2-37-25-50-02280-00 - ----------- ---------------- -------- ------- ------- ------------ ------------------- -------------------- ----------------------- 265 9-27-89 37 32 30 M & S 15.00 15.00 3-37-30-50-02650-00 - ----------- ---------------- -------- ------- ------- ------------ ------------------- -------------------- ----------------------- 269 3-28-91 37 32 31 M 10.00 0 3-37-31-50-02690-01 - ----------- ---------------- -------- ------- ------- ------------ ------------------- -------------------- ----------------------- 272 3-28-91 37 32 31 M 10.00 0 3-37-31-50-02690-01 - ----------- ---------------- -------- ------- ------- ------------ ------------------- -------------------- ----------------------- 313 3-28-91 37 32 30 M 10.00 0 3-37-31-50-02690-01 - ----------- ---------------- -------- ------- ------- ------------ ------------------- -------------------- ----------------------- 314 3-28-91 37 32 30 M 10.00 0 3-37-31-50-02690-01 - ----------- ---------------- -------- ------- ------- ------------ ------------------- -------------------- ----------------------- 315 3-28-91 37 32 30 M 10.00 0 3-37-31-50-02690-01 - ----------- ---------------- -------- ------- ------- ------------ ------------------- -------------------- ----------------------- 317 8-28-91 37 32 19 M 10.00 0 3-37-31-50-02690-01 - ----------- ---------------- -------- ------- ------- ------------ ------------------- -------------------- ----------------------- 319 8-28-91 37 32 19 M 10.00 0 3-37-31-50-02690-01 - ----------- ---------------- -------- ------- ------- ------------ ------------------- -------------------- ----------------------- 324 7-6-89 37 32 30 M 10.00 0 3-37-30-50-03240-01 - ----------- ---------------- -------- ------- ------- ------------ ------------------- -------------------- ----------------------- SUBTOTAL 155.00 75.00 TOTAL ACREAGE 515.00 435.00 ====== ======
Exhibit A to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 6 of 7 EXHIBIT A - UNPATENTED MINING CLAIMS
Alphabetical Order by Claim Name - -------------------------------------------------- ---------------------------------- --------------------------------------------- CLAIM NAME OMC # LOCATION - -------------------------------------------------- ---------------------------------- --------------------------------------------- T-N R-E SEC - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ Bones 128334 36 32 7 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ Clem's Hope 82942 36 32,33 12,7 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ D & R 1-5 121766-121770 36 33 7,13,18 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ D & R 6R 145891 36 33 7 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ Dandy Don Fraction 82943 36 32 12 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ 83C-83F 68804-68807 36 32,33 12,7 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ Euphoria Fraction 82946 36 32 12 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ Faster Horses Fraction 82948 36 32 1 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ Fitch's Fraction 82950 36 32 12 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ Home Rule Fraction 82951 36 32,33 12,7 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ King James Fraction 82955 36 32 12 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ KM 11 107052 37 32 24 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ KM 12 107053 37 32 24 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ KM 13 107054 37 32 25 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ KM 14 107055 37 32 25 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ KM 15 107056 37 32 25 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ KM 16 107057 37 32 24 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ KM 17 107058 37 32 24 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ KM 18 107059 37 32 24 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ KM 19 107060 37 32 24 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ Little Gem 82956 36 32 12 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ No Bones 128335 36 32 7 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ Tag Along Fraction 82964 36 32 12 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ Younger Women Fraction 82967 36 32 1 - -------------------------------------------------- ---------------------------------- ----------- -------------- ------------------ TOTAL # OF CLAIMS 31
Exhibit A to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 7 of 7 --------------------------------------------- EXHIBIT B - ATTACHED TO THE FIRST AMENDMENT OF THE AMENDED AND RESTATED GOLDEN EAGLE EARN-IN AGREEMENT DATED SEPTEMBER ___, 2002 --------------------------------------------- EXHIBIT B - PART I HECLA PROPERTIES SUBJECT TO EARN-IN AGREEMENT REPUBLIC PATENTED CLAIMS
Alphabetical Order by Claim Name - ----------------------------------------------------------------------------------------------------------------------------------- CLAIM NAME MS OR OMC # LOCATION ACRES TAX PARCEL # - ----------------------------------- --------------- ---------------------------- -------------------------- ----------------------- T-N R-E SEC MIN SURF - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Admiral In 472 37 32 35 20.39 20.39 2-37-35-90-00020-00 Admiral Out 2-37-35-22-00010-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Alice 487 37 32 22 17.63 17.63 2-37-22-12-00010-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Alpine 420 37 32 27 14.15 14.15 2-37-27-14-00010-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Apex Fraction 446 37 32 35 0.76 0.76 2-37-35-90-00010-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Aspen 865 37 32 27 15.26 15.26 2-37-27-14-00010-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Battle Ax In 472 37 32 35 12.21 12.21 2-37-35-90-00020-00 Battle Ax Out 2-37-35-22-00010-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Belligerent Fraction 450 37 32 35 0.96 0.96 2-37-35-90-00100-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Black Tail 365 37 32 34,35 9.85 9.85 2-37-34-90-00030-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Finn 727 37 32 22 19.13 19.13 2-37-22-12-00010-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- GSB (aka Govt Lots 10 & 13) 1231 37 32 27 0.52 0.52 2-37-27-14-00010-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Gold Dollar 420 37 32 27 12.86 12.86 2-37-27-14-00010-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Hannah Simpson 436 37 32 14,15 15.16 15.16 2-37-14-90-00020-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Insurgent Fraction 769 37 32 35 6.75 6.75 2-37-35-90-00100-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Ireland 768 37 32 27,34,35 15.78 15.78 2-37-35-90-00100-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Kangaroo 444 37 32 34 11.90 11.90 2-37-34-90-00030-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Knob Hill 420 37 32 27 18.40 18.40 2-37-27-14-00010-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- Last Chance 363 37 32 35 10.06 10.06 2-37-35-22-00010-00 - ----------------------------------- --------------- --------- -------- --------- ------------ ------------- ----------------------- SUBTOTAL 201.77 201.77
Exhibit B to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 1 of 15 EXHIBIT B - REPUBLIC PATENTED CLAIMS (CONTINUED)
Alphabetical Order by Claim Name - ----------------------------------------------------------------------------------------------------------------------------------- CLAIM NAME MS OR OMC # LOCATION ACRES TAX PARCEL # - ----------------------------------- --------------- ------------------------------ ------------------------ ----------------------- T-N R-E SEC MIN SURF - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Last Shot 1225 37 32 27,34 1.91 1.91 2-37-27-14-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Little Cove 420 37 32 27,34 17.87 17.87 2-37-27-14-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Little Joe Fraction 1134 37 32 34 0.14 0.14 2-37-34-90-00030-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Lone Hand 872 37 32 27 17.86 17.86 2-37-27-14-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Lone Pine 363 37 32 34,35 19.12 19.12 2-37-34-90-00030-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Looking Backward 471 37 32 22 15.32 15.32 2-37-22-12-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Macawber 374 37 32 35 16.80 16.80 2-37-35-90-00100-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Mammoth 420 37 32 27,34 19.31 19.31 2-37-27-14-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Midget 436 37 32 15 15.82 15.82 2-37-15-43-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Minnie 1226 37 32 14,15,22,23 19.26 19.26 2-37-15-43-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Mud Lake 420 37 32 27 19.90 19.90 2-37-27-14-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Pearl 363 37 32 34 14.43 14.43 2-37-34-90-00030-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Pilgrim 727 37 32 22 16.33 16.33 2-37-22-12-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Plug Hat 437 37 32 15,22 15.82 15.82 2-37-15-43-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Queen Annie Fraction 520 37 32 22 2.59 2.59 2-37-22-12-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ---------------------- Quilp In 375 37 32 34,35 13.30 13.30 2-37-35-90-00020-00 Quilp Out 2-37-35-22-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Rebate 478 37 32 15,22 12.10 12.10 2-37-22-12-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Rebate Fraction 436 37 32 15 0.77 0.77 2-37-22-12-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Red Fir 436 37 32 14,15 13.45 13.45 2-37-14-90-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Relief 478 37 32 15,22 10.97 10.97 2-37-22-12-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Riney Fraction 445 37 32 34,35 0.68 0.68 2-37-34-90-00030-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Silver Dollar 678 37 32 27 13.17 13.17 2-37-27-14-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- 619 520 37 32 22 20.62 20.62 2-37-22-12-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- 619 Fraction 520 37 32 22 7.96 7.96 2-37-22-12-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- Standard 542 37 32 22 19.38 19.38 2-37-22-12-00010-00 - ----------------------------------- --------------- --------- -------- ----------- ---------- ------------- ----------------------- SUBTOTAL 324.88 324.88
Exhibit B to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 2 of 15 EXHIBIT B - REPUBLIC PATENTED CLAIMS (CONTINUED)
Alphabetical Order by Claim Name - ----------------------------------- ------------------ ------------------------------- -------------------- ----------------------- CLAIM NAME MS OR OMC # LOCATION ACRES TAX PARCEL # - ----------------------------------- ------------------ ------------------------------- -------------------- ----------------------- T-N R-E SEC MIN SURF - ----------------------------------- ------------------ --------- ---------- ---------- --------- ---------- ----------------------- Stray Horse 484 37 32 22 18.19 18.19 2-37-22-12-00010-00 - ----------------------------------- ------------------ --------- ---------- ---------- --------- ---------- ----------------------- Stray Horse Fraction 485 37 32 22 1.59 1.59 2-37-22-12-00010-00 - ----------------------------------- ------------------ --------- ---------- ---------- --------- ---------- ----------------------- Surprise 363 37 32 34,35 12.47 12.47 2-37-34-90-00030-00 - ----------------------------------- ------------------ --------- ---------- ---------- --------- ---------- ----------------------- T & R Fraction 486 37 32 22 1.56 1.56 2-37-22-12-00010-00 - ----------------------------------- ------------------ --------- ---------- ---------- --------- ---------- ----------------------- Tom Thumb 436 37 32 15 17.67 17.67 2-37-15-43-00010-00 - ----------------------------------- ------------------ --------- ---------- ---------- --------- ---------- ----------------------- Trade Dollar 425 37 32 27 18.79 18.79 2-37-27-14-00010-00 - ----------------------------------- ------------------ --------- ---------- ---------- --------- ---------- ----------------------- "V" Fraction 770 37 32 34,35 2.32 2.32 2-37-34-90-00030-00 - ----------------------------------- ------------------ --------- ---------- ---------- --------- ---------- ----------------------- Williamette 476 37 32 27 20.51 20.51 2-37-27-14-00010-00 - ----------------------------------- ------------------ --------- ---------- ---------- --------- ---------- ----------------------- Wisconsin 727 37 32 22 4.90 4.90 2-37-22-12-00010-00 - ----------------------------------- ------------------ --------- ---------- ---------- --------- ---------- ----------------------- SUBTOTAL 98.00 98.00 TOTAL ACREAGE 624.65 624.65 ====== ======
EXHIBIT B - REPUBLIC FEE LAND
Listed by Township - Range - Section - ----------------------------------------------- ------------------------------- --------------------------- ----------------------- DESCRIPTION LOCATION ACRES TAX PARCEL # - ----------------------------------------------- ------------------------------- --------------------------- ----------------------- T-N R-E SEC MIN SURF - ----------------------------------------------- ---------- --------- ---------- ------------- ------------- ----------------------- Lot 7 37 32 15 0.06 0.06 2-37-15-43-00010-00 - ----------------------------------------------- ---------- --------- ---------- ------------- ------------- ----------------------- Lot 2 37 32 22 9.30 9.30 2-37-22-12-00010-00 - ----------------------------------------------- ---------- --------- ---------- ------------- ------------- ----------------------- Lot 9 37 32 22 4.80 4.80 2-37-22-12-00010-00 - ----------------------------------------------- ---------- --------- ---------- ------------- ------------- ----------------------- Lot 10 37 32 22 1.20 1.20 2-37-22-12-00010-00 - ----------------------------------------------- ---------- --------- ---------- ------------- ------------- ----------------------- Lot 11 37 32 22 36.60 36.60 2-37-22-12-00010-00 - ----------------------------------------------- ---------- --------- ---------- ------------- ------------- ----------------------- Lot 12 37 32 22 8.45 8.45 2-37-22-12-00010-00 - ----------------------------------------------- ---------- --------- ---------- ------------- ------------- ----------------------- Lot 6 37 32 22 39.00 39.00 2-37-22-12-00010-00 - ------------------------------------------------------------------------------- ------------- ------------- ----------------------- SUBTOTAL 99.41 99.41
Exhibit B to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 3 of 15 EXHIBIT B - REPUBLIC FEE LAND (CONTINUED)
Listed by Township - Range - Section - ------------------------------------------------ ------------------------------- -------------------------- ----------------------- DESCRIPTION LOCATION ACRES TAX PARCEL # - ------------------------------------------------ ------------------------------- -------------------------- ----------------------- T-N R-E SEC MIN SURF - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Lot 15 37 32 22 35.25 35.25 2-37-22-12-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Lot 5 (portion - West) 37 32 22 15.19 15.19 2-37-22-12-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Lot 5 (portion - East) 37 32 22 4.54 4.54 2-37-22-12-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Lot 14 37 32 22 14.00 14.00 2-37-22-12-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- NW4 SE4 37 32 22 40.00 40.00 2-37-22-12-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- SE4: NE4 SE4 S2 SE4 37 32 22 120.00 120.00 2-37-22-12-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- W2 SW4 37 32 23 80.00 80.00 2-37-23-32-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Lot 4 (portion - Tax #4 area) 37 32 27 18.36 18.36 2-37-27-11-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Lot 7 (Tax #4) 37 32 27 4.30 4.30 2-37-27-11-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Lot 8 (Tax #4) 37 32 27 8.10 8.10 2-37-27-11-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Lot 9 (Tax #4) 37 32 27 24.50 24.50 2-37-27-11-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Lot 14 (Tax #4) 37 32 27 13.25 13.25 2-37-27-11-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Lot 15 (NE2) (Tax #6) 37 32 27 18.55 18.55 2-37-27-11-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Lot 16 37 32 27 0 37.95 2-37-27-14-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Lot 17 (Tax #4) 37 32 27 36.15 36.15 2-37-27-11-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Lot 18 (Tax #4) 37 32 27 8.30 8.30 2-37-27-11-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Lot 19 (Tax #4) 37 32 27 2.90 2.90 2-37-27-11-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Lot 20 (Tax #4) 37 32 27 20.81 20.81 2-37-27-11-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Lot 21 (Tax #4) 37 32 27 2.36 2.36 2-37-27-11-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Lot 22 (Tax #4) 37 32 27 22.75 22.75 2-37-27-11-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- N2 NE4 37 32 27 2.86 2.86 2-37-27-11-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Lot 1 (Tax #2) 37 32 35 21.65 21.65 2-37-35-22-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Lot 3 (portion - West) (Tax #2) 37 32 35 10.87 10.87 2-37-35-22-00010-00 - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- SUBTOTAL 524.69 562.64
Exhibit B to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 4 of 15 EXHIBIT B - REPUBLIC FEE LAND (CONTINUED)
Listed by Township - Range - Section - ------------------------------------------------ ------------------------------- -------------------------- ----------------------- DESCRIPTION LOCATION ACRES TAX PARCEL # - ------------------------------------------------ ------------------------------- -------------------------- ----------------------- T-N R-E SEC MIN SURF - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- CITY OF REPUBLIC (RESIDENTIAL) - ------------------------------------------------ ---------- --------- ---------- ------------ ------------- ----------------------- Delaware Addn: Lots 8 & 9, Blk 2 36 32 1 0.10 0 2-36-01-51-02080-01 - ------------------------------------------------ ---------- --------- ---------- ------------- ------------- ---------------------- Lot 7 City of Republic (portion) (Tax #3) 37 32 35 38.17 0 2-37-35-34-00020-01 - ------------------------------------------------ ---------- --------- ---------- ------------- ------------- ---------------------- North Republic Addn: Lots 8-17, Blk 4 37 32 35 0.53 0.53 2-36-01-55-04080-00 (Lost Lode MS 379) - ------------------------------------------------ ---------- --------- ---------- ------------- ------------- ---------------------- SUBTOTAL 38.80 0.53 TOTAL ACREAGE 662.90 662.58 ====== ======
GOLD MOUNTAIN RANCHES
Listed Numerically by Lot No. - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- LOT # DATE T-N R-E SEC RIGHTS MIN ACRES SURF ACRES TAX PARCEL # - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 1 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 2 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 3 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 4 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 5 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 6 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 7 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 8 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 9 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 10 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 11 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 12 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- SUBTOTAL 120.00 0.00
Exhibit B to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 5 of 15 EXHIBIT B - GOLD MOUNTAIN RANCHES (CONTINUED)
Listed Numerically by Lot No. - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- LOT # DATE T-N R-E SEC RIGHTS MIN ACRES SURF ACRES TAX PARCEL # - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 13 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 14 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 15 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 16 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 17 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 18 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 19 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 20 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 21 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 22 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 23 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 24 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 25 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 26 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 27 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 28 12-20-66 37 32 23 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 29 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 30 8-28-91 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 31 3-28-91 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 32 3.28-91 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 33 10-11-91 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 34 8-28-91 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 35 6-23-92 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 36 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 37 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 38 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- SUBTOTAL 260.00 60.00
Exhibit B to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 6 of 15 EXHIBIT B - GOLD MOUNTAIN RANCHES (CONTINUED)
Listed Numerically by Lot No. - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- LOT # DATE T-N R-E SEC RIGHTS MIN ACRES SURF ACRES TAX PARCEL # - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 39 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 40 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 46 6-12-90 37 32 26 S 0 10.00 2-37-26-50-00460-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 49 8-28-91 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 50 1-31-92 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 51 1-31-92 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 52 3-28-91 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 53 9-8-92 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 54 5-17-89 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 55 5-17-89 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 56 5-17-89 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 57 5-17-89 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 58 5-17-89 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 59 5-17-89 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 60 5-17-89 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 61 1-31-92 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 62 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 63 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 64 3-28-91 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 65 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 66 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 67 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 68 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 71 7-28-94 37 32 26 S 0 10.00 2-37-26-50-00460-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 72 7-28-94 37 32 26 S 0 10.00 2-37-26-50-00460-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 73 6-14-94 37 32 26 S 0 10.00 2-37-26-50-00460-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 76 6-14-94 37 32 26 S 0 10.00 2-37-26-50-00460-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- SUBTOTAL 220.00 190.00
Exhibit B to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 7 of 15 EXHIBIT B - GOLD MOUNTAIN RANCHES (CONTINUED)
Listed Numerically by Lot No. - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- LOT # DATE T-N R-E SEC RIGHTS MIN ACRES SURF ACRES TAX PARCEL # - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 77 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 78 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 79 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 80 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 81 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 82 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 83 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 84 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 85 12-20-66 37 32 26 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 86 3-5-90 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 87 3-5-90 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 88 3-5-90 37 32 26 M & S 10.00 10.00 2-37-26-50-00300-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 89 8-28-91 37 32 35 M & S 10.00 10.00 2-37-35-50-00890-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 90 10-11-91 37 32 35 M & S 10.00 10.00 2-37-35-50-00890-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 91 3-28-91 37 32 35 M & S 10.00 10.00 2-37-35-50-00890-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 92 3-28-91 37 32 35 M & S 10.00 10.00 2-37-35-50-00890-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 93 5-17-89 37 32 35 M & S 10.00 10.00 2-37-35-50-00890-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 95 12-20-66 37 32 35 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 96 12-20-66 37 32 35 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 97 12-20-66 37 32 35 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 99 12-20-66 37 32 35 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 100 12-20-66 37 32 35 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 101 12-20-66 37 32 35 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 102 12-20-66 37 32 35 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 103 12-20-66 37 32 35 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 104 12-20-66 37 32 35 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 105 12-20-66 37 32 35 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- SUBTOTAL 270.00 80.00
Exhibit B to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 8 of 15 EXHIBIT B - GOLD MOUNTAIN RANCHES (CONTINUED)
Listed Numerically by Lot No. - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- LOT # DATE T-N R-E SEC RIGHTS MIN ACRES SURF ACRES TAX PARCEL # - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 106 12-20-66 37 32 35 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 107 12-20-66 37 32 35 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 109 12-20-66 37 32 35 M & S 10.00 10.00 2-37-35-50-00890-00 7-28-94 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 110 5-17-89 37 32 35 M & S 10.00 10.00 2-37-35-50-00890-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 111 5-17-89 37 32 35 M & S 10.00 10.00 2-37-35-50-00890-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 112 5-17-89 37 32 35 M & S 10.00 10.00 2-37-35-50-00890-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 113 12-29-92 37 32 35 M & S 13.15 13.15 2-37-35-50-00890-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 114 12-20-66 37 32 35 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 115 12-20-66 37 32 35 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 116 12-20-66 37 32 35 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 117 12-20-66 37 32 35 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 118 12-20-66 37 32 35 M 10.00 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 124 12-20-66 37 32 35 M 9.54 0 N/A0 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 125 12-20-66 37 32 35 M 12.10 0 N/A - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- 206 7-28-94 37 32 25 S 0 10.00 2-37-25-50-02040-00 - ------------ ---------------- --------- ---------- ---------- --------------- --------------- -------------- ---------------------- SUBTOTAL 144.79 63.15 TOTAL ACREAGE 1,014.79 393.15 ======== ======
Exhibit B to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 9 of 15 UNPATENTED MINING CLAIMS
Alphabetical Order by Claim Name - --------------------------------------------------------- --------------------------- --------------------------------------------- CLAIM NAME OMC # LOCATION - --------------------------------------------------------- --------------------------- --------------------------------------------- T-N R-E SEC - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- Ballyhoo No. 1 Amended 82930 37 32 26 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- Ballyhoo No. 2 Amended 82931 37 32 26 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- Ballyhoo No. 3 Amended 82932 37 32 26 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- Ballyhoo No. 4 R (relocated 9/20/94) 147982 37 32 26 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- Ballyhoo No. 5 Amended 82934 37 32 26 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- Ballyhoo No. 6 Amended 82935 37 32 26 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- Ballyhoo No. 7 Amended 82936 37 32 26 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- Ballyhoo No. 8 Amended 82937 37 32 26 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- Ballyhoo No. 9 R (relocated 9/20/94) 147983 37 32 26 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- Ballyhoo No. 10 Amended 82939 37 32 26 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- Ballyhoo No. 11 Amended 82940 37 32 26 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- Ballyhoo No. 12 Amended 82941 37 32 26 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- Duffy Fraction 82944 37 32 22 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- Erica 82945 37 32 22 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- Excelsior Fraction 82947 37 32 22 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- Federal Fraction RR (2nd relocation of original claim) 146172 (8/12/93) 37 32 35 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- Hotstuff Fraction 82954 37 32 14,23 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- Hotstuff No. 1 82952 37 32 14 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- Hotstuff No. 2 82953 37 32 14 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- KM 20 107061 37 32 25 - --------------------------------------------------------- --------------------------- ----------- --------------- ----------------- SUBTOTAL 20
Exhibit B to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 10 of 15 EXHIBIT B - UNPATENTED MINING CLAIMS (CONTINUED)
Alphabetical Order by Claim Name - --------------------------------------------------------- --------------------------- ----------- -------------- ------------------ KM 21 107062 37 32 25 - --------------------------------------------------------- --------------------------- ----------- -------------- ------------------ KM 22 107063 37 32 25 - --------------------------------------------------------- --------------------------- ----------- -------------- ------------------ Little Vee Fraction 142535 37 32 35 - --------------------------------------------------------- --------------------------- ----------- -------------- ------------------ Marisa 82959 37 32 22 - --------------------------------------------------------- --------------------------- ----------- -------------- ------------------ Minnie Fraction (relocated) 142536 37 32 26,27,34,35 - --------------------------------------------------------- --------------------------- ----------- -------------- ------------------ Minnie Two Fraction 134485 37 32 34 - --------------------------------------------------------- --------------------------- ----------- -------------- ------------------ Moonshine 82960 37 32 34,35 - --------------------------------------------------------- --------------------------- ----------- -------------- ------------------ Par Excellent Fraction 82961 37 32 35 - --------------------------------------------------------- --------------------------- ----------- -------------- ------------------ Par Excellent #2 142537 37 32 35 - --------------------------------------------------------- --------------------------- ----------- -------------- ------------------ Revenue Fraction 83398 37 32 35 - --------------------------------------------------------- --------------------------- ----------- -------------- ------------------ SUBTOTAL 10 TOTAL # OF CLAIMS 30
Exhibit B to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 11 of 15 EXHIBIT B - PART II LEASES, PERMITS & EASEMENTS Exhibit B to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 12 of 15 EXHIBIT B - PART II (CONTINUED) LEASES, PERMITS & EASEMENTS Exhibit B to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 13 of 15 EXHIBIT B - PART II JOINT PROPERTIES Exhibit B to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 14 of 15 EXHIBIT B - PART II (CONTINUED) JOINT PROPERTIES Exhibit B to First Amendment to Amended & Restated Earn-in Agreement Echo Bay and Hecla Page 15 of 15 EX-10.18 9 hecla024510_ex10-18.txt CREDIT AGREEMENT Exhibit 10.18 CREDIT AGREEMENT CREDIT AGREEMENT made this 27th day of March, 2002, between IIG CAPITAL LLC, a limited liability company organized and existing under the laws of New York, with offices at 17 State Street, 18th Floor, New York, NY 10004 as agent for The IIG Trade Opportunities Fund N.V. and the Venezuela Recovery Fund N.V. (the "Lender"), and HECLA MINING COMPANY, a corporation organized and existing under the laws of Idaho, with offices at 6500 Mineral Drive, Coeur d'Alene, Idaho 83815-8788 (the "Borrower"). WITNESSETH: WHEREAS, the Borrower is a party to a Restated Mining Venture Agreement dated as of May 6, 1994 (as the same may be amended, supplemented or otherwise modified from time to time, the "Joint Venture Agreement") pursuant to which the Borrower currently holds a 29.7331 % ownership interest (the "JV Interest") in and to a joint venture known as the "Green's Creek Joint Venture " (the "Joint Venture"), including all income generated by or allocable to the JV Interest; WHEREAS, the Borrower has requested that the Lender make available to it a credit facility in an amount up to the lesser of (i) 70% of an amount equal to (A) all cash distributions forecast by Borrower from the JV Interest over a twenty-four (24) month period commencing the date hereof, less (B) the Facility Fees and any other fees payable by Borrower to Lender under any agreement between them; or (ii) a maximum of seven million five hundred thousand dollars U.S. ($7,500,000), secured by a pledge of its JV Interest; and WHEREAS, the Lender is prepared to provide such credit facility upon all of the terms and conditions hereinafter set forth. NOW THEREFORE, in consideration of the premises and other good and valuable consideration, receipt whereof is hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS. As used herein, the following terms shall have the following meanings (all terms defined in this Section 1 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): "Bankruptcy Code" shall mean the Federal Bankruptcy Code of 1978, as amended from time to time. "Borrower's Account" shall mean Borrower's wire transfer account at: Bank Name: Idaho Independent Bank ABA#: 123103732 Account #: 0200030021 Account Name: Hecla Mining Company or such other account as may be designated in writing to Lender. "Business Day" shall mean a day other than a Saturday, Sunday or other day on which commercial banks in New York City, New York; Curacao, Netherlands Antilles; and Coeur d'Alene, Idaho, United States of America are authorized or required by law to close. "Commencement Date" shall mean the date of first disbursement of the Loan under Section 2.3. hereof. "Credit Facility" shall have the meaning given to that term in Section 2.1 hereof. "Default" shall mean any Event of Default and any event which with notice or lapse of time or both would become such an Event of Default. "Default Interest Rate" shall mean an interest rate per annum equal to the Interest Rate plus three per cent (3%). "Deposit Account" shall have the meaning giving to that term in Section 5.2 hereof. "Dollars" and "$" shall mean lawful money of the United States of America. "Event of Default" shall have the meaning given to that term in Section 10 hereof. -2- "Facility Fee" shall have the meaning assigned to that term in Section 2.5 hereof. "Final Maturity Date" shall mean the last date upon which any amount of Principal or Interest is payable hereunder pursuant to the Payment Schedule, unless the Loan is earlier repaid in accordance herewith. "Interest Period" shall mean, from and after the Commencement Date, each and every successive period of one (1) month each with the first Interest Period commencing on and including the Commencement Date and the last Interest Period terminating on the Final Maturity Date. "Interest Payment Date" shall mean the last Business Day of each Interest Period ending after the Commencement Date. "Interest Rate" shall mean an interest rate per annum equal to nine PER CENT (9%); "Joint Venture Agreement" shall mean that certain Restated Mining Venture Agreement dated as of May 6, 1994 entered into by and among the Borrower and KENNECOTT GREENS CREEK MINING COMPANY and CSX ALASKA MINING COMPANY (collectively the "JV Parties") for the exploration and exploitation of mineral rights in the Juneau Recording District, Alaska, and more particularly identified in the Joint Venture Agreement. A copy of the Joint Venture Agreement is attached to this Agreement as Exhibit A. "JV Interest" shall mean all of Borrower's right, title and interest in and to the Joint Venture Agreement as defined in Section 1.38 thereof. "Lien" shall mean any mortgage, lien, pledge, charge, security interest or encumbrance of any kind. "Loan" shall mean the loan provided for in Section 2.1 hereof. "Material Adverse Effect" shall mean a material adverse effect on (a) the property, assets, business, operations, or financial condition of the Borrower taken as a whole, or (b) the ability of the Borrower to perform its obligations under any of the Transaction Documents to which it is a party. -3- "Note" shall mean that Promissory Note or Notes identified in Section 2.4 in the form attached hereto as Exhibit B hereto and to be executed simultaneously with, and as a condition to, any draw down of Principal hereunder. "Payment Schedule" shall mean the schedule set forth in Exhibit C hereto for payment of Principal and Interest on the Loan. "Person" shall mean an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or a government or any department or agency thereof. "Pledge" shall mean, with respect to any Pledged Assets, the Borrower executing and delivering to the Lender a Security Agreement with respect to such Pledged Assets. The terms "Pledging" and "Pledged" shall have a correlative meaning. "Pledged Assets" shall mean the JV Interest and Borrower's right to cash distributions therefrom . "Principal Amount" shall mean the principal amount of the Loan outstanding from time to time. "Principal Payment Date" shall mean the last Business Day of each Interest Period ending after the Commencement Date. "Security Agreement" shall mean that certain Security Agreement among the Lender and the Borrower, substantially in the form of Exhibit D hereto, as the same may be modified and supplemented and in effect from time to time. "Security Documents" shall mean, collectively, the Security Agreement and any UCC financing statements required to be filed thereunder. "Transaction Documents" shall mean this Agreement, the Note, the Joint Venture Agreement, the Security Agreement and the Security Documents. -4- "UCC" shall mean the Uniform Commercial Code as in effect in the State of New York, the State of Alaska or the State of Idaho from time to time (and, unless otherwise defined herein or the context otherwise requires, terms defined in the UCC shall have their respective defined meanings when used herein). SECTION 2. CREDIT FACILITY; BORROWING; PROMISSORY NOTE; FACILITY FEE. 2.1 Credit Facility. The Lender agrees, on the terms of this Agreement, to make the Loan in one or more installments to the Borrower during the period commencing on the Commencement Date and continuing to, but not including, the Final Maturity Date in an aggregate principal amount at any one time outstanding (the "Credit Facility") of up to, but not exceeding, the lesser of: (i) 70% of an amount equal to (A) all cash distributions to Borrower forecast by Borrower from the JV Interest over a twenty-four (24) month period commencing the date hereof, less (B) the Facility Fees and any other fees payable by Borrower to Lender under any agreement; or (ii) a maximum of seven million five hundred thousand dollars U.S. ($7,500,000). Borrower may draw down the Loan in one or more installments during the term hereof, subject to the following: 1. Any draw down which is made on or before the first anniversary of this Agreement shall be repaid on or before the second anniversary of this Agreement. 2. Any draw down made after the first anniversary of this Agreement must be repaid within twelve (12) months of draw down. 2.2 Use of Proceeds. The Borrower shall be permitted to use the proceeds of the Loan for any business purposes. -5- 2.3 Borrowing. (a) The Borrower shall give the Lender notice of the borrowing. Notice of borrowing by the Borrower shall be irrevocable and shall be effective only if received by the Lender not later than 10:00 a.m. New York time at least ten (10) Business Days prior to the date of the borrowing; provided, that Borrower agrees to use its best efforts to deliver to Lender each notice of borrowing earlier than ten (10) Business Days, if commercially reasonable, and Lender agrees to use its best efforts to make funds available to Borrower in less than ten (10) Business Days, if commercially reasonable. Such notice shall include the date of borrowing (which must be a Business Day), the amount of the borrowing, and the bank account information for disbursement of the Loan. Not later than 11:00 a.m. New York time on the date specified for the borrowing hereunder, the Lender shall make available the amount of the Loan by depositing the same, in immediately available funds, in the bank account designated in the notice. (b) The obligation of the Lender to make the Loan under the Credit Facility is subject to the prior condition that there shall have been delivered to the Lender in form and substance satisfactory to the Lender and the Lender's counsel: (i) a duly executed Note in an amount equal to the principal amount of the draw down in question; (ii) a duly executed original of the Security Agreement; (iii) a certificate of either the President, Chief Executive Officer, Vice President or Chief Financial Officer of the Borrower which: (A) provides a copy of the organizational documents of the Borrower and of the resolutions or other corporate documents of the Borrower authorizing the execution of the Transaction Documents and certifying the authority of the persons executing the same, certified by such officer to be true and correct and in full force and effect; and (B) certifies that the representations and warranties of the Borrower in this Agreement are true and correct, there has not been any Material Adverse Effect, no Default exists, the Joint Venture Agreement is in full force and effect and Borrower is not in default under the Joint Venture Agreement or any event which with notice or lapse of time or both would become a default under such contract; and (iv) a copy of notice to the Joint Venture and the Joint Venture's acceptance of the assignment to Lender of Borrower's cash distributions to which it is entitled pursuant to the Joint Venture Interest. -6- 2.4 Promissory Note. Each draw down on the Loan shall be evidenced by a promissory note of the Borrower, substantially in the form of Exhibit B hereto (the "Note"), to be dated as of the date of the draw down, payable to the Lender in a principal amount equal to the amount borrowed in accordance with section 2.1 and section 3 hereof. Lender shall return the original Note to Borrower within ten (10) Business Days of payment in full. 2.5 Facility Fee. The Borrower agrees to pay to the Lender, (i) on the date hereof and on the first anniversary hereof, a Facility Fee equal to a flat one and one-half percent (1.5%) of $7.5 Million (or $112,500.00). The Borrower hereby authorizes the Lender to withhold and retain such fees, as well as any other fees Borrower may owe Lender under any other agreements between them, from the amount of the Loan disbursed hereunder. SECTION 3. PAYMENTS OF PRINCIPAL AND INTEREST. 3.1 Principal. The Borrower hereby promises to pay to the Lender on the Final Maturity Date the full principal amount of the Loan, less any amounts applied by the Lender to principal in accordance with Section 4.1 hereof, and/or amounts otherwise prepaid by the Borrower in accordance with Section 4.2 hereof. 3.2 Interest. (a) The Borrower hereby promises to pay to the Lender interest on the unpaid Principal Amount for the period from and including the date of the Loan to but excluding the date the Loan shall be paid in full, at the Interest Rate. (b) Notwithstanding the foregoing, the Borrower shall pay to the Lender interest at the Default Interest Rate on any principal of the Loan, and on any other amount payable by the Borrower hereunder or under the Note, which has not been paid in full when due (whether at stated maturity, by acceleration or -7- otherwise), for the period from and including the due date thereof to but excluding the date the same is paid in full (both before and after judgment), whether or not any notice of default in the payment thereof has been delivered. (c) Accrued Interest on the unpaid Principal Amount (as hereinafter defined) shall be payable on each Interest Payment Date, except that interest which is payable at the Default Rate shall be payable from time to time on demand. (d) Interest shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day, but excluding the last day) occurring in each Interest Period. (e) Any determination made by the Lender as to the Interest Rate, Default Interest Rate and the amounts of interest, principal and other amounts due hereunder shall be conclusive in the absence of manifest error. SECTION 4. INSTALLMENT PAYMENTS; PRE-PAYMENTS. 4.1 Installment Payments. (a) The Principal Amount, together with interest thereon (as specified above), shall be paid by the Borrower in accordance with the Payment Schedule (each such payment, an "Installment"). All payments under this Agreement or under the Note shall be payable on the date when due without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived. Such payments shall be made to the Deposit Account (as hereinafter defined), in Dollars and in immediately available funds, without setoff, recoupment, counterclaim or any other deduction of any nature, including, but not limited to, any claim against the Joint Venture or any JV Party. 4.2 Pre-payments. The Borrower may prepay without premium or penalty any unpaid balance of the Loan, together with any accrued interest thereon to the date of such prepayment if (i) the date of prepayment is a Principal Payment Date or the last Business Day of an Interest Period, and (ii) the Borrower provided written notice to the Lender of such prepayment not less than ten (10) -8- prior to the date of prepayment. Upon receipt of such notice by the Lender, such prepayment shall be irrevocable and binding on the Borrower. SECTION 5. SECURITY INTEREST, PLEDGE OF PLEDGED ASSETS AND DEPOSIT ACCOUNT. 5.1 Security Interest and Pledge of Pledged Assets. As an inducement to the Lender to enter into this Agreement and in order to secure the due and punctual payment by the Borrower of all amounts owing by the Borrower under this Agreement, the Note(s) and the due and punctual performance by the Borrower of the Borrower's other obligations hereunder or under any other agreement between Borrower and Lender, the Borrower shall grant to the Lender a first lien and security interest over the Pledged Assets in form and substance acceptable to the Lender. The Borrower shall take, or cause to be taken, such acts as the Lender may reasonably require to perfect the security interest granted herein including, but not limited to providing notice to any JV Party under the Joint Venture Agreement and instructing the Joint Venture itself to make any and all cash distributions due Borrower with respect to the JV Interest into the Deposit Account. 5.2 Deposit Account. Pursuant to the Security Agreement, an account shall be established at Citibank N.A., ABA Number 021000089, entitled "IIG Capital/Greenscreek" (Account # Number 05005097) (the "Deposit Account") for the cash distributions from the JV Interest to be paid to Lender. SECTION 6. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Lender as follows: (a) The Borrower is a corporation, duly organized, validly existing and in good standing, under the laws of Idaho and has the power to own its property and to carry on its business in each jurisdiction in which it operates; (b) The Borrower has full power and authority to enter into this Agreement, the Note and the Security Documents, all of which have been duly -9- authorized by all proper and necessary action. No authorizations, consents or approvals by any stockholder or public or governmental regulatory authority or agency is required as a condition to the validity of this Agreement, the Note and the Security Documents (or if required, has been obtained), and the Borrower is in compliance with all laws and regulatory requirements to which it is subject; (c) This Agreement, the Note and the Security Documents constitute valid and legally binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms; (d) Other than a case styled United States vs. ASARCO et al., No. CV 94-0206-N-HLR, there are no proceedings pending or, to the knowledge of the Borrower, threatened before any court, or tribunal or other administrative agency, nor to the knowledge of the Borrower any circumstances or conditions that might give rise to any such proceedings, which will or may have a Material Adverse Effect on the financial condition or operations of the Borrower, any of its properties or any subsidiary thereof or on the Borrower's performance of the Transaction Documents; (e) There are no charter, by-law or stock provisions of, no provisions of any existing agreement, mortgage or contract binding on, the Borrower or affecting its property, nor any order, writ, injunction or decree of any court or governmental authority or agency, which would conflict with or in any way prevent the execution, delivery or performance of the terms of this Agreement, the Note and the Security Documents; provided, that Lender understands and accepts that any exercise of its rights under the Security Documents is subject to the terms of the Joint Venture Agreement; (f) The Security Documents, when executed and delivered, shall create, a legal, valid and enforceable security interest in all of the Pledged Assets, and when the recordings and filings described therein, if any, have been effected and properly indexed in the public offices listed therein, each of the Security Documents will create a perfected, first priority lien on all right, title, estate and interest of the Lender in the Pledged Assets. The recordings and filings described in such Security Documents are all the actions necessary or advisable in order to establish, protect and perfect such interest of the Lender in the Pledged Assets; (g) The Joint Venture Agreement constitutes, and each receivable with respect to the JV Interest, upon becoming due and owing under the terms of the Joint Venture Agreement, will constitute, the legal, valid and binding obligation of the Joint Venture or the JV Parties, respectively, each enforceable against the Joint Venture or such JV Party, respectively, in accordance with its terms; -10- (h) The Borrower has delivered to the Lender a true and complete copy of the Joint Venture Agreement as in effect. The Joint Venture Agreement in the form so delivered has not been terminated, rescinded or modified and is in full force and effect. The Borrower has not received nor issued any notice of termination, default, rescission or material modification with respect to the Joint Venture Agreement, and the Borrower has no knowledge of any existing circumstance or events which would, with the passage of time or the giving of notice or both, result in a termination, default, rescission or material modification of the Joint Venture Agreement. (i) No action other than the execution and delivery of this Agreement, the Security Agreement and the Consents is necessary to Pledge the Pledged Assets, including, but not limited to, any other recording, filing, registration, giving of notice or other similar action. Upon execution and delivery to Lender of the Consents and the giving of notice to the JV Parties of the Pledge of the Pledged Assets, the Pledge of the Pledged Assets shall be duly perfected for purposes of the UCC and the rights of the Lender in such Pledged Assets will be subject to the Joint Venture Agreement but prior to the rights of all other Persons; (j) None of the Pledged Assets has been subordinated, compromised, reduced or rescinded in whole or in part; (k) Except as stated in the Joint Venture Agreement, there is no present ability to exercise any right of rescission, setoff, counterclaim or defense has been asserted and no facts exist which give rise to a contractual or other basis therefor with respect to the Pledged Assets, and the Borrower has no obligation to pay any amount to the JV Parties, and the Borrower does not know of any claim (or any basis for any claim) which any JV Party has against the Borrower arising under the terms of the Joint Venture Agreement; (l) There are no past due Pledged Assets outstanding under the Joint Venture Agreement on the date hereof; (m) Except as provided in the Joint Venture Agreement, neither the Pledged Assets nor any part thereof has been sold, transferred, assigned or pledged by the Borrower to any Person other than to the Lender. Immediately prior to the execution and delivery of this Agreement and upon any draw down of Principal hereunder, the Borrower will be the sole owner of the Pledged Assets, free of any Lien, and upon execution and delivery of this Agreement by the -11- Borrower, and the taking of all other action contemplated hereby, the Lender will receive a Pledge of all of the right, title and interest of the Borrower in and to the Pledged Assets, free and clear of any Lien. SECTION 7. AFFIRMATIVE COVENANTS. Commencing from the date hereof and until payment in full of the Principal Amount and interest thereon and performance of all other obligations of the Borrower hereunder, the Borrower shall: (a) upon request of the Lender, deliver to the Lender as soon as available and in any event within sixty (60) days after the end of each of the first three fiscal quarterly periods of each fiscal year of the Borrower, statements of income, retained earnings and changes in financial position (or of cash flow, as the case may be) of the Borrower for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related balance sheets as at the end of such period, setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding fiscal year in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments); (b) deliver to the Lender within thirty (30) days after the annual meeting of the shareholders of the Borrower and in any event within one hundred fifty (150) days of the close of each fiscal year of the Borrower, statements of income, retained earnings and changes in financial position (or of cash flow, as the case may be) of the Borrower for such year and the related balance sheets as at the end of such year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, and accompanied by an opinion thereon of independent certified public accountants of recognized international standing, which opinion shall state that said financial statements fairly present the financial condition and results of operations of the Borrower as at the end of, and for, such fiscal year; (c) provide promptly after the Borrower knows or has reason to believe that any Event of Default has occurred, a notice of such Event of Default describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that the Borrower has taken and proposes to take with respect thereto; (d) promptly give to the Lender notice of all legal or arbitral proceedings, and of all proceedings by or before any governmental or regulatory authority or agency relating to the Joint Venture, and any material development in respect of such legal or other proceedings which could, in Borrower's reasonable judgment, have a Material Adverse Effect; -12- (e) keep insured by financially sound and reputable insurers the Pledged Assets and maintain its property and business insured in substantially the same manner as currently insured; (f) as appropriate, maintain its existence in good standing and comply with all laws, regulations and governmental requirements applicable to it or to any of its property, business operations and transactions; provided, that no Default or Event of Default shall be deemed to exist unless and until a breach of Borrower's obligations under this Section 7(f) has a Material Adverse Effect; (g) promptly advise the Lender in writing of any condition, event or act which comes to its attention that would or may, in Borrower's reasonable judgment, have a Material Adverse Effect; (h) upon the reasonable request of the Lender from time to time, forthwith (but in no event more than twenty (20) Business Days after such request) perform and continue from time to time to perform all actions necessary or deemed necessary or advisable by the Lender to create, preserve, perfect and maintain the priority of or enforce the Pledge created by the Security Documents, including without limitation, obtaining such consents of third parties as the Lender may request; and (i) provide Lender with a copy of monthly financial reports distributed by the JV and keep Lender informed promptly regarding any events other than variation in commodity prices that in its reasonable judgment will or may cause a downturn in projected cash flow from the JV, over the term of the facility, of 10% or more. SECTION 8. NEGATIVE COVENANTS. Until payment in full of the Principal Amount and interest thereon and performance of all other obligations of the Borrower hereunder, the Borrower shall not, without the prior written consent of the Lender: (a) enter into any merger or consolidation, or sell, lease, assign or otherwise dispose of or transfer substantially all of its assets unless (i) no Event of Default (as defined below) shall exist immediately before or -13- immediately after such transaction, (ii) in the case of the merger or consolidation, the Borrower is the survivor or, if the Borrower is not the survivor, the survivor is a company which expressly assumes in writing the Borrower's obligations hereunder and under the Note and (iii) in the case of the transfer of assets, the transferee assumes in writing the Borrower's obligations hereunder and under the Note and Lender consents to the transferee, which consent shall not unreasonably be withheld; (b) create, incur, assume or suffer to exist, any Lien upon any of the Pledged Assets other than the Pledge provided for under the Security Agreement or sell, lease, assign or otherwise dispose of or transfer the Pledged Assets. SECTION 9. EVENTS OF DEFAULT. If one or more of the following events of default shall occur, the Principal Amount, plus unpaid interest and any other indebtedness of the Borrower to the Lender, if any, at the option of the Lender, shall be due and payable immediately and the Lender shall have the right to terminate this Agreement forthwith and to sell or have sold the Pledged Assets and exercise any other rights under the Security Documents or available by law; provided, that Lender's rights in the event of any such event of default shall be limited to exercise of all or any part of its rights arising out of the Pledge and Security Agreement and Borrower shall not be liable to Lender under any of the Transaction Documents in excess of the value of the Pledged Assets and shall not otherwise have claim, access or recourse under any of the Transaction Documents to Borrower or its affiliates or any other assets thereof; and provided further that Lender agrees to be bound by the Joint Venture Agreement with respect to any recourse that involves the Joint Venture Agreement, the JV Interest or Pledged Assets that are also assets of the Joint Venture: (a) The Borrower shall default in the payment of any portion of the Principal Amount or interest thereon when due and payable, whether at maturity or otherwise; or (b) Any representation or warranty herein contained or in any financial statement, certificate, report or opinion submitted to the Lender pursuant this Agreement shall prove to have been incorrect or misleading in any material respect when made; or (c) A final judgment or judgments for the payment of money or any judgment against or any attachment or other levy against the property of the Borrower that is subject to the Security Agreement with respect to a claim in an aggregate amount equal to at least 20% of the value of the JV Interest that is -14- not covered by insurance, shall be rendered by one or more courts, administrative tribunals or other bodies having jurisdiction against the Borrower or its property, and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within sixty (60) days from the date of entry thereof unless an appeal or other appropriate proceeding for review thereof is taken and a stay of execution pending such appeal is obtained; or (d) There is substantial change in ownership or control of the Borrower that has a Material Adverse Effect; or (e) The Borrower makes an assignment for the benefit of creditors, admits in writing its inability to pay its debts generally as they become due, files a petition in bankruptcy, is adjudicated insolvent or bankrupt, petitions or applies to any tribunal for any receiver or any trustee of the Borrower or any substantial part of its property, commences any action relating to the Borrower under any reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, or if there is commenced against the Borrower any such action, or by any act indicates its consent to or approval of any trustee of any substantial part of its property, or suffers any such receivership or trustee to continue undischarged; or (f) The Borrower shall default in the performance or observance of any material covenant or provision in this Agreement or any other agreement with the Lender and such default shall continue for a period of twenty (20) days; or (g) The Lender shall for any reason other than as a result of acts or omissions by Lender cease to have a valid, perfected and first priority lien on any portion of the Pledged Assets (except as otherwise permitted hereunder or under the Security Documents); or (h) The Borrower fails to perform any of its material obligations under, or, in any way, materially breaches the Joint Venture Agreement. SECTION 10. EXPENSES AND INDEMNIFICATION. (a) Within thirty (30) days after receipt of an itemized invoice, the Borrower shall reimburse the Lender in Dollars one hundred percent (100%) of all fees and expenses incurred by the Lender in connection with the negotiation, preparation, execution and registration of this Agreement, the Note, the Security Documents and any other documents required thereunder, including, but -15- not limited to, fees and expenses of counsel to the Lender; provided, however, that the total of all such legal fees and expenses shall not exceed ten thousand dollars U.S. ($10,000). (b) The Borrower shall reimburse the Lender in Dollars on demand for all reasonable expenses incurred as a consequence of, or in connection with, the enforcement in case of any Event of Default; provided, however, that in the event the Borrower prevails in an action brought by Lender, Lender shall be responsible for its own expenses (c) If the Borrower fails to pay any amount payable hereunder or under the Note as and when due, or the Borrower breaches this Agreement or otherwise fails to perform any of its obligations hereunder for any reason, the Borrower shall reimburse the Lender in Dollars on demand for all reasonable expenses, losses, costs, claims, proceedings, damages or liability incurred by the Lender as the consequence thereof, including, without limitation, the costs of enforcement of this Agreement and the Note, the Security Documents and the fees and expenses of counsel to the Lender in connection therewith; provided however that Lender's recourse against Borrower under the Transaction Documents shall be limited as stated in Section 10 of this Credit Agreement. SECTION 12. GOVERNING LAW, JURISDICTION, ETC. (a) This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without reference to the conflict of laws principles thereof. (b) THE LENDER AND THE BORROWER, BY THEIR EXECUTION AND DELIVERY HEREOF, EACH HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (c) The Borrower hereby irrevocably submits to the jurisdiction of any New York State court or federal court sitting in New York City, United States of America over any action or proceeding arising out of or relating to this Agreement and the Borrower hereby irrevocably agrees that all claims in respect to such action or proceeding may be heard and determined in such New York state or federal court, as the case may be. The Borrower hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. The Borrower hereby irrevocably consents to the service of copies of the summons and complaint and any other process which may be served in any such action or proceeding by United States certified mail, return receipt requested, to the Borrower's address; service of process in any such action or proceeding, effective as aforesaid, -16- shall be effective upon receipt by the Borrower and shall be deemed personal service upon the Borrower and shall be legal and binding upon the Borrower for all purposes. The Borrower agrees that a judgment, followed by the expiration of time to appeal without an appeal being taken, in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this section shall affect the right of the Lender to serve legal process in any other manner permitted by law or affect the right of the Lender to bring any action or processing against the Borrower or its property in the courts of any other jurisdiction. SECTION 13. MISCELLANEOUS. The provisions of this Agreement shall be deemed to be severable, and the invalidity of any provision hereof shall not affect the validity of the remaining provisions hereof. The failure of either party to enforce at any time any of the provisions hereof shall not be construed to be a waiver of such provisions or of the right of such party thereafter to enforce any such provisions. This Agreement constitutes the entire agreement and understanding of the parties with respect to the subject matter hereof, and supersedes all prior agreements, discussions and understandings between the parties with respect to the subject matter hereof. No representation or statement not contained in this Agreement shall be binding on the Lender as a warranty or otherwise. No amendment, modification or assignment of this Agreement shall be binding on the parties unless made in writing expressly referring to this Agreement and signed by an authorized representative of each party. Notices and communications hereunder shall be in writing and shall be sent by certified or registered mail, postage prepaid, return receipt requested, or by facsimile to the parties at the respective addresses indicated above or the respective facsimile numbers set forth below, to the attention of the persons set forth below. -17- IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be duly executed as of the date first above written. IIG CAPITAL LLC, as agent for The IIG Trade Opportunities Fund N.V., and the Venezuela Recovery Fund N.V. By: ------------------------------ Name: ---------------------------- Title: --------------------------- 17 State Street, 18th Floor New York, NY 10005 Telephone No.:(212) 806 5100 Facsimile No.:(212) 785 0026 with copies to: Fox Horan & Camerini LLP Attention: Christopher Seymour, Esq. 825 Third Avenue, 11th Floor New York, NY 10022 Telephone: 212-480-4800 Facsimile: 212-709-0248 HECLA MINING COMPANY copies to: By: Vice President & General Counsel ------------------------------ 6500 Mineral Drive Name: Phillips S. Baker, Jr. Title: President & COO Coeur d'Alene, Idaho 83815-8788 6500 Mineral Drive Telephone: 208-769-4110 Coeur d'Alene, Idaho 83815-8788 Facsimile: 208-769-7612 Telephone: 208-769-4116 Facsimile: 208-769-7612 EXHIBIT A JOINT VENTURE AGREEMENT EXHIBIT C PAYMENT SCHEDULE In accordance with Section 4.1 of the Credit Agreement, the Payment Schedule shall be as follows: Simultaneously with giving notice of borrowing in accordance with section 2.3(a), Borrower will execute a Notice of Assignment to the Joint Venture that assigns Borrower's right to cash distributions from the Joint Venture Agreement to Lender and instruct that such distributions be deposited directly into the Deposit Account. Borrower agrees not to change assignment of the cash distributions without the prior written consent of Lender; provided that such consent shall not be required if no amounts are owed to Lender pursuant to the Credit Agreement. The cash distributions will be used by Lender as Borrower's payment of principal and interest owed to Lender pursuant to this Credit Agreement. Except as hereinafter provided to the contrary, Lender shall be entitled to retain seventy percent (70%) of such cash distributions until all amounts owed to Lender under this Credit Agreement are paid in full. Any amount of the cash distributions in excess of that owed to Lender shall be wire transferred to Borrower's Account within two (2) Business Days from the date on which such excess is created. Borrower may request additional borrowing from Lender even if there are amounts owed to Lender so long as the limits on the Credit Facility set forth in Section 2.1 have not been exceeded. Lender shall be entitled to retain up to 100% of the cash distributions referred to above in the event Lender becomes aware of any event that, by itself or in combination with other events or the passage of time or both, may or will cause a reduction of 10% or more in the amount projected to be distributed to Borrower by the Joint Venture during the term of this facility, until all amounts owed to Lender under this Credit Agreement are paid in full. Lender shall provide Borrower a monthly accounting, within five (5) days after the end of a calendar month, of the amount of cash distributions received into the Deposit Account, the amount of principal and interest paid, and the amount of principal owed to Lender. EXHIBIT B PROMISSORY NOTE EXHIBIT D SECURITY AGREEMENT EX-10.19 10 hecla024510_ex10-19.txt EARN-IN AGREEMENT Exhibit 10.19 EARN-IN AGREEMENT BETWEEN RODEO CREEK GOLD INC. GREAT BASIN GOLD LTD. (AS GUARANTOR) AND HECLA VENTURES CORP. HECLA MINING COMPANY (AS GUARANTOR) HOLLISTER DEVELOPMENT BLOCK VENTURE TABLE OF CONTENTS EARN-IN AGREEMENT ARTICLE I DEFINITIONS.....................................................2 ARTICLE II REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS ..............5 ARTICLE III TERM OF EARN-IN AGREEMENT ......................................8 ARTICLE IV RELATIONSHIP OF THE PARTIES.....................................8 ARTICLE V INITIAL CONTRIBUTION...........................................10 ARTICLE VI MAINTENANCE AND ABANDONMENT OF PROPERTIES......................13 ARTICLE VII AREA OF INTEREST ..............................................14 ARTICLE VIII WITHDRAWAL AND TERMINATION.....................................15 ARTICLE IX OPERATIONS AND GOVERNANCE......................................17 ARTICLE X RECLAMATION OBLIGATIONS........................................28 ARTICLE XI REPORTING, INSPECTION AND AUDIT................................29 ARTICLE XII MEMORANDUM.....................................................30 ARTICLE XIII DEFAULTS.......................................................30 ARTICLE XIV CONFIDENTIALITY................................................30 ARTICLE XV TAXES..........................................................32 ARTICLE XVI COOPERATION....................................................32 ARTICLE XVII GENERAL PROVISIONS.............................................32 EXHIBITS EXHIBIT A: PROPERTIES AND TERMINATION & RELEASE AGREEMENT EXHIBIT B: ACCOUNTING PROCEDURES EXHIBIT B1 INSURANCE EXHIBIT C: FORM OF QUITCLAIM DEED AND ASSIGNMENT EXHIBIT D: FORM OF MEMORANDUM OF AGREEMENT EXHIBIT E: EXPENDITURE SCHEDULE AND INITIAL PROGRAM & BUDGET EXHIBIT F: OPERATING AGREEMENT EXHIBIT G: HECLA MINING WARRANT AGREEMENT EXHIBIT H: GREAT BASIN WARRANT AGREEMENT EARN-IN AGREEMENT This Earn-in Agreement is made as of August 2, 2002, ("Effective Date") between HECLA VENTURES CORP., a Nevada corporation duly qualified to do business and in good standing in the state of Nevada, whose principal address is 6500 Mineral Drive, Coeur d'Alene, Idaho 83815-8788 (hereinafter referred to as "Hecla Ventures") and its Guarantor, Hecla Mining Company and RODEO CREEK GOLD INC., a Nevada corporation whose address is C/O Richard Harris, Ste. 260-6121 Lakeside Drive, Reno, NV 89511 (hereinafter referred to as "Rodeo Creek") who is qualified to do business and is in good standing in the State of Nevada and its Guarantor, Great Basin Gold Ltd. RECITALS A. WHEREAS, Rodeo Creek owns certain mining claims and other real property interests more specifically described in Exhibit A, attached hereto and incorporated herein by this reference (hereinafter referred to as the "Properties"); B. WHEREAS, Hecla Ventures desires to acquire an undivided interest in the Properties by spending the Earn-in Expenditures on or for the benefit of the Properties unless terminated pursuant to the terms hereof; and C. WHEREAS, upon completion of a Earn-in Activities (as that term is defined below) by Hecla Ventures, Hecla Ventures and Rodeo Creek; enter into the Operating Agreement attached hereto as Exhibit F; D. WHEREAS, Hecla Mining Company ("Hecla Mining"), as Guarantor has agreed to guarantee the due performance of all of the obligations of Hecla Ventures hereunder. E. WHEREAS, Great Basin Gold Ltd. ("Great Basin"), as Guarantor has agreed to guarantee the due performance of all the obligations of Rodeo Creek hereunder. NOW, THEREFORE, in consideration of the payments provided for herein and the mutual promises set forth below, all the Parties hereto agree to the provisions of this Earn-in Agreement. -1- ARTICLE I DEFINITIONS 1.1 "Accounting Procedures" means the procedures set forth in Exhibit B. 1.2 "Affiliate" means any person, partner, partnership, joint venture, limited liability company, corporation or other form of enterprise which directly or indirectly controls, is controlled by, or is under common control with a party to this Agreement. For purposes of the preceding sentence, "control" means possession, directly or indirectly, of the power to direct or cause direction of management and policies through ownership of voting securities, contract, voting trust or otherwise. 1.3 "Area of Interest" means an area commonly known as the Hollister Development Block with the three dimensional coordinates 34,000 E to 40,000 E;35,000 N to 42,000 N; and from surface to 4,000 feet above sea level. (A map of the Hollister Development Block is attached to this Earn-in Agreement as Exhibit A). 1.4 "Assets" means all materials, supplies, equipment, and personal property required to conduct Earn-in Activities. 1.5 "Currency", "$", means US dollars unless otherwise stated. 1.6 "Commercial Production" means greater than or equal to 400 tonnes mined on average per day over a 21 day calendar period or such longer time as is consistent with the Feasibility Study. 1.7 "Default" means a Party's failure to perform its obligations required under this Earn-in Agreement. 1.8 "Earn-in Activities" means all activities on or for the benefit of the Properties giving rise to Earn-in Expenditures which are duly incurred and paid as herein provided. 1.9 "Earn-in Agreement" means this Earn-in Agreement together with all Exhibits and other information appended hereto. 1.10 "Earn-in Expenditures" means the issuance of the Hecla Mining Warrants (subject to the issuance of the Great Basin Warrants) and other expenditures including Assets acquired by Hecla Ventures for Earn-in Activities for the benefit of the Properties. 1.11 "Effective Date" means the date set forth on Page 1 of this Earn-in Agreement. -2- 1.12 "Expenditure Commitment" means the minimum sum Hecla Ventures must spend on Earn-in Expenditures (pursuant to the Expenditure Schedule that is found in Exhibit E) during each Annual Expenditure Commitment Period. 1.13 "Expenditure Commitment Period" means each year (set out in the Expenditure Schedule that is found in Exhibit E and/or an approved Program and Budget under Section 9.3) during which the corresponding Annual Expenditure Commitment is to be spent. 1.14 "Expenditure Schedule" means Exhibit E. 1.15 "Feasibility Study" means a study of the feasibility of developing and operating one or more mine(s) on the Properties, including an analysis of economic, geological, engineering, environmental, regulatory and other considerations, and containing the level of detail customary in the industry for a feasibility study presented to financial institutions for the purpose of seeking and obtaining financing for the development of a mine (with all estimates developed to an accuracy within +/-10%). 1.16 "Guarantors" means Great Basin Gold Ltd. ("Great Basin") and Hecla Mining Company ("Hecla Mining"). 1.17 "Initial Feasibility Study" or "Prefeasibility Study" means a study of the feasibility of developing and operating a mine on the Properties, including an analysis of economic, engineering, geological, environmental, regulatory and other considerations, and containing the level of detail customary in the industry to determine whether the veins, ore bodies or other targets identified in Stage I of Earn-in Activities are of sufficient interest to the Parties to proceed with Stage II of Earn-in Activities (with all estimates developed to an accuracy within +/-15%). 1.18 "Operating Agreement" means that agreement, attached to this Earn-in Agreement as Exhibit F, which is to be effective between Rodeo Creek and Hecla Ventures upon Hecla Ventures' fulfillment of the requirements set out in Article V, Section 5.1 of this Earn-in Agreement. 1.19 "Participating Interest" means the percentage interest of a Participant in the Properties, Products and all other rights and obligations arising under this Earn-in Agreement. From the Effective Date hereof through completion of Earn-in Activities, and only for purposes of implementing Earn-in Activities, Hecla Ventures and Rodeo Creek shall each be deemed to have a fifty percent (50%) Participating Interest. -3- 1.20 "Parties" means Rodeo Creek and Hecla Ventures and any other persons or entities that become subject to this Earn-In Agreement in accordance with the provisions hereof. Great Basin and Hecla Mining are Parties to this Earn-In Agreement only with regard to their respective obligations: (1) as Guarantors under Recitals D and E, and Sections 2.3 and 2.6; (2) under Sections 2.4 and 2.7 concerning certain representations and warranties; and (3) to issue their respective Warrants pursuant to Article V and Exhibits E, G and H. 1.21 "Participants" means Rodeo Creek and Hecla Ventures. 1.22 "Payments" means those payments identified in Exhibit E. 1.23 "Prime Rate" means a prime rate listed in the Wall Street Journal (source: Federal Reserve). 1.24 "Products" means all ores, minerals and mineral resources produced from the Properties under this Earn-In Agreement. 1.25 Programs and Budgets are as defined under Section 9.3. 1.26 "Property or Properties" means those interests in real property and all mineral estates (and portions thereof) therein described in Exhibit A and all other interests in real property within the Area of Interest which are made subject to this Agreement subject to the obligations pertaining thereto under applicable law or pursuant to Underlying Agreements noted on Exhibit A. 1.27 "Term" means the term of this Earn-in Agreement as defined in Article III. 1.28 "Underlying Agreements" means those agreements pursuant to which Rodeo Creek or any Affiliate holds and interest in the Properties with Newmont Mining Corp. and certain other parties all of which are more particularly described in Exhibit A. All words not defined herein shall first be construed as commonly used in the mining industry. If there is no such usage in the mining industry then such words shall be given its common understanding. -4- ARTICLE II REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS 2.1 Capacity. Each of the Parties represents as follows: (a) that it is a corporation duly incorporated and in good standing in its state or jurisdiction of incorporation and that it is qualified to do business and is in good standing in those states or jurisdictions where necessary in order to carry out the purposes of this Earn-in Agreement; (b) that it has the capacity to enter into and perform this Earn-in Agreement and all transactions contemplated herein and that all corporate and other actions required to authorize it to enter into and perform this Earn-in Agreement have been properly taken; (c) that it will not breach any other agreement or arrangement by entering into or performing this Earn-in Agreement; and (d) that this Earn-in Agreement has been duly executed and delivered by it and is valid and binding upon it in accordance with its terms. 2.2 Rodeo Creek's Representations and Warranties. Rodeo Creek represents and warrants that, with respect to the Properties: (a) Rodeo Creek is in possession of and has the interests in the Properties as described in Exhibit A and subject to the Underlying Agreements; (b) To the best of its information and belief and subject to the paramount title of the United States, (i) the unpatented mining claims were properly laid out and monumented; (ii) all required location work was properly performed; (iii) location notices and certificates were properly recorded and filed with appropriate governmental agencies; (iv) all assessment work has been performed, or fee payments in lieu thereof made, as required to hold the unpatented mining claims through the assessment year ending August 31, 2002; (v) all affidavits of assessment work and other filings required to maintain the claims in good standing have been properly and timely recorded or filed with appropriate governmental agencies; (vi) the claims are free and clear of defects, liens or encumbrances arising by, through or under Rodeo Creek; (vii) there are no conflicting claims; and (viii) there are no pending or threatened actions, suits or proceedings involving the mining claims; (c) To the best of its information and belief, the Properties are free and clear of all defects, liens and encumbrances except for those specifically identified on Exhibit A hereto and except for those which would not have a material adverse effect on the usage contemplated herein; -5- (d) There is no judgment outstanding or litigation, proceeding or governmental investigation pending or threatened against Rodeo Creek, or the Properties, which would have an adverse effect on the title or interest of Rodeo Creek in or to the Properties or Rodeo Creek's power or right to sell, convey, transfer or assign the mineral estate on the Properties, nor has Rodeo Creek received any communication asserting or threatening any adverse claim to any part of the Properties; (e) Rodeo Creek has made or shall make, pursuant to Article XVI of this Earn-in Agreement, available to Hecla Ventures all information and data regarding the existence of minerals within the Properties, and all information concerning record, possessory, legal or equitable title to the Properties which is within Rodeo Creek's knowledge, possession or control; (f) To the best of Rodeo Creek's knowledge information and belief and except as disclosed to the appropriate environmental regulatory authorities, there has never been any: 1) release, spill, discharge, leak, emission, escape, dumping or any material release of any kind of any toxic or hazardous substances as defined under any local, state or federal regulation, laws or statutes, from, on, in or under Rodeo Creek's Properties or into any environment surrounding the Properties, except for those releases permissible under such regulations, laws or statutes or otherwise allowable under applicable permits; 2) disposal of toxic or hazardous substances or toxic or hazardous wastes on the Properties or related to the Properties; and, 3) material storage or treatment of toxic or hazardous substances or toxic or hazardous wastes on, at, or related to the Properties; (g) To the best of its information and belief, Rodeo Creek is in compliance in all material respects with all federal, state and local laws, rules and regulations relating to or affecting the Properties, and has obtained, maintained in full force and effect, and operated in substantial compliance with all authorizations, licenses, permits, easements, consents, certificates and orders of any governmental or regulatory body relating to or affecting the Properties; and operations of Rodeo Creek and its agents or contractors on, at, or related to the Properties have not resulted in any violations of federal, state or local laws, rules, regulations, ordinances or orders which would have an adverse effect on the usage contemplated herein; (h) There are no existing mineral production or other royalties of any kind which are payable with respect to the Properties or mineral substances mined therefrom other than those specifically identified in Exhibit A; -6- (i) Rodeo Creek is not a party to nor has any knowledge of any existing oral or written agreement of any kind which does or could have any adverse impact whatsoever on record or possessory title to the mineral estate of the Properties and/or the access, exploration, development or mining of same; (j) To the best of Rodeo Creek's knowledge, information and belief there are no existing restrictions which would have any adverse effect on the right to explore, develop and mine mineral substances from the Properties, excluding restrictions contained in applicable laws, statutes, regulations, permits and other agency directives including Bureau of Land Management ("BLM"), Nevada Division of Environmental Protection ("NDEP") and Traditional Cultural Property on the Properties, and other Nevada State and Federal agencies; (k) To the best of Rodeo Creek's knowledge, information, and belief, Rodeo Creek is unaware of any material facts or circumstances, which have not been disclosed or made available to Hecla Ventures or been deliberately withheld from Hecla Ventures, which Hecla Ventures should be aware of in order to prevent the representations in this Section 2.2 from being misleading. (l) Rodeo Creek and its Affiliates shall conduct its other business activities near, under and adjacent to the Area of Interest in a manner that does not unreasonably interfere with, hinder or delay Earn-in Activities. 2.3 Great Basin, on behalf of Rodeo Creek, hereby warrants and covenants with Hecla Ventures that it does hereby unconditionally and irrevocably guarantee to Hecla Ventures all of Rodeo Creek's representation, warranties and obligations hereunder. 2.4 For Great Basin only, Great Basin represents and warrants, that its publicly filed corporate disclosure records with regulatory authorities are up to date and correct in all material respects. 2.5 Hecla Ventures' represents and warrants that it has or will obtain the necessary labor and equipment to conduct Earn-in Activities. 2.6 Hecla Mining, on behalf of Hecla Ventures hereby warrants and covenants with Rodeo Creek that it does hereby unconditionally and irrevocably guarantee to Rodeo Creek all of Hecla Ventures' representations, warranties and obligations hereunder. -7- 2.7 For Hecla Mining only, Hecla Mining represents and warrants that its publicly filed corporate disclosure record with regulatory authorities is up to date and correct in all material respects. 2.8 Materiality of Representations. Al representations warranties and covenants made in this Article II are material to this Earn-in Agreement and the Parties' intent in entering into it. ARTICLE III TERM OF EARN-IN AGREEMENT The Term of this Earn-in Agreement shall commence as of the Effective Date and shall automatically terminate after four (4) years thereof or upon execution of the Operating Agreement in accordance with Sections 5.5 and 8.3, unless this Earn-in Agreement is terminated earlier pursuant to Article VIII or extended by amendment upon the Parties' mutual written agreement. ARTICLE IV RELATIONSHIP OF THE PARTIES 4.1 No Partnership. Nothing contained in this Earn-in Agreement shall be deemed to constitute any Party the partner of another, nor, except as otherwise herein expressly provided, to constitute any Party the agent or legal representative of another, nor to create any fiduciary relationship between or among them. It is not the intention of the Parties to create, nor shall this Earn-in Agreement be construed to create, any mining, commercial or other partnership. No Party shall have any authority to act for or to assume any obligation or responsibility on behalf of the other Party, except as otherwise expressly provided herein. The rights, duties, obligations and liabilities of the Parties shall be several and not joint or collective. Each Party shall be responsible only for its obligations as herein set out and shall be liable only for its share of the costs and expenses as provided herein, it being the express purpose and intention of the Parties that their ownership of assets and the rights acquired hereunder shall be as tenants in common. Each Party shall indemnify, defend and hold harmless the other Party, its directors, officers, employees, agents and attorneys from and against any and all losses, claims, damages and liabilities (including litigation costs and attorneys' fees) arising out of any act or any assumption of liability by the indemnifying Party, or any -8- of its directors, officers, employees, agents and attorneys done or undertaken, or apparently done or undertaken, on behalf of any other Party, except pursuant to the authority expressly granted herein or as otherwise agreed in writing between the Parties. 4.2 Federal Tax Elections and Allocations. The Parties agree that their relationship pursuant to this Earn-in Agreement shall not constitute a tax partnership within the meaning of Section 761(a) of the United States Internal Revenue Code of 1986, as amended. 4.3 State & Provincial Income Tax. The Parties also agree that their relationship shall be treated for Canadian Federal, U.S. State and Canadian Provincial income tax purposes in the same manner as it is for U.S. Federal income tax purposes. 4.4 Other Business Opportunities. Except as expressly provided in this Earn-in Agreement, each Party shall have the right independently to engage in and receive full benefits from business activities, whether or not competitive with the operations under this Earn-in Agreement, without consulting any other Party. The doctrines of "corporate opportunity" or "business opportunity" shall not be applied to any other activity, venture, or operation of any Party, and, except as otherwise provided in this Earn-in Agreement, no Party shall have any obligation to any other with respect to any opportunity to acquire any property at any time. 4.5 Waiver of Right to Partition. The Parties hereby waive and release all rights of partition, or of sale in lieu thereof, or other division of Assets, including any such rights provided by applicable law. 4.6 Transfer or Termination of Rights to Properties. Except as otherwise provided in this Earn-in Agreement, no Party shall transfer all or any part of its interest in the Properties or this Earn-in Agreement or otherwise permit or cause such interests to terminate. 4.7 Implied Covenants. There are no implied covenants contained in this Earn-in Agreement other than those of good faith and fair dealing. 4.8 Employees. Employees of the respective Parties are not and shall not be employees of the other Parties or of any venture, which may be comprised of the Parties. -9- ARTICLE V INITIAL CONTRIBUTION 5.1 Properties and Required Earn-in Expenditures. (a) Rodeo Creek, hereby makes available to Hecla Ventures the Properties for the purposes of this Earn-in Agreement and all existing technical data and other information concerning the Properties. Upon receipt of each Tranche of Hecla Mining Warrants (as defined below) Rodeo Creek will forthwith issue to Hecla Ventures two year warrants to purchase common shares in Great Basin ("Great Basin Warrants") as follows: 1) 1 million Great Basin Warrants upon receipt of Tranche 1 Hecla Mining Warrants; 2) 500,000 Great Basin Warrants upon receipt of Tranche 2 Hecla Mining Warrants; and 3) 500,000 Great Basin Warrants upon receipt of Tranche 3 Hecla Mining Warrants. Great Basin Warrants will be exercisable at the weighted average daily closing prices for the twenty (20) trading days on the TSX Venture Exchange immediately prior to issuance and done substantially in accordance with the form Warrant Agreement attached hereto in Exhibit H. (b) Hecla Ventures hereby agrees to fund one-hundred percent (100%) of Stage I Earn-in Activities and shall exchange with Great Basin 2 million (2,000,000) two year warrants ("Tranche 1") to purchase Hecla Mining common stock $0.25 par value exercisable at the weighted average daily closing prices on the New York Stock Exchange for the twenty (20) trading days immediately prior to the date of the Warrant Agreement ("Exercise Price") which for Tranche 1 is also the Effective Date. Hecla Ventures agrees to issue the Warrants within thirty (30) days after the warrant date to Great Basin as attached hereto as Exhibit G. (c) Hecla Ventures hereby commits to initiate and fund Stage I Earn-in Activities on the Effective Date, subject to receipt of Stage I permits, in an expeditious manner and to complete same on a best efforts diligent basis, within 24 months of the Effective Date, provided that the Earn-in Activities are not subjected to a public Environmental Impact Statement (under NEPA) or other public review and comment process, and to completely fund (100%) of Stage I (estimated to take approximately twelve (12) months) such Earn-in Activities. Within sixty (60) days after completion of Stage I Earn-in Activities, Hecla Ventures must elect to either: (1) proceed with and fund 100% of the estimated $11.5 million Stage II Program of Earn-In Activities as approved by the -10- Management Committee; (2) vest by making the payment to the Joint Venture upon its actual formation under the Operating Agreement and taking other action as set forth in section 5.5(b); or (3) elect not to proceed with Stage II and terminate this Earn-In Agreement. If Hecla Ventures elects to proceed with Stage II Earn-in Activities or funding in lieu, it will issue one million (1,000,000) Hecla Mining Warrants ("Tranche 2") dated and priced on the election date, within ten (10) days thereafter in the form of the Warrant Agreement in Exhibit G, exercisable at the Exercise Price and in accordance with the terms and conditions of the Warrant Agreement. If however, Hecla Ventures elects not to proceed with Stage II of Earn-in Activities or funding in lieu, it shall provide written notice to Rodeo Creek. Notwithstanding any provision in this Earn-in Agreement to the contrary, if Hecla Ventures does not notify Rodeo Creek in writing within the required time of its choice to proceed, or to terminate or elects not to participate in Stage II Earn-in Activities, it shall have no further rights or obligations hereunder (except the obligation to reclaim the Properties for all Earn-in Activities it has conducted) and the Parties shall execute and record the Termination and Release Agreement in substantially the same form as Exhibit A, Part IV. To complete the Earn-In Activities, Hecla Ventures will issue Rodeo Creek an additional one million (1,000,000) two year warrants (dated and priced on the date that Hecla Ventures gives notice to Rodeo Creek that Stage II Earn-In Activities are complete or Hecla Ventures elects to fund Stage II in lieu) to purchase Hecla Mining common stock ("Tranche 3") exercisable at the Exercise Price and in accordance with the terms and conditions of the Warrant Agreement. The Tranche 3 Warrants will be issued within 30 days from the date of the Warrants. After vesting of Hecla Ventures' Participating Interest, each of the Participants shall be obligated to fund such activities in accordance with its Participating Interest as defined in Exhibit F attached hereto and determined thereunder from time to time. 5.2 Reasonable Earn-in Activities. Hecla Ventures' Earn-in Activities shall be conducted in accordance with Exhibit E at the direction of the Management Committee and in accordance with all applicable laws, regulations and good mining industry standards in the United States. 5.3 Credit for Excess Earn-in Expenditures. Earn-in Expenditures made by Hecla Ventures in excess of that required in a given Annual Expenditure Commitment Period shall be credited to subsequent Annual Expenditure Commitments for the following Annual Expenditure Commitment Periods. -11- 5.4 Completion of Required Earn-in Expenditures. Within thirty (30) days after completing Earn-in Activities (as provided in Section 5.1 and in accordance with Exhibit E), Hecla Ventures shall provide notice to Rodeo Creek that it has completed Earn-in Expenditures. Together with the notice, Hecla Ventures shall provide sufficient detail and supporting documentation to permit Rodeo Creek to review, audit and reasonably verify the Earn-in Expenditures. 5.5 Transfer. Hecla Ventures shall have earned a vested and undivided Participating Interest in the Properties subject to the Operating Agreement by completing either of the requirements in subparagraphs (a) OR (b) OR (c) of this section 5.5: (a) Upon completion of Stage II Earn-in Activities and issuing Rodeo Creek Tranche 3 Hecla Mining Warrants set forth in Exhibit E and G, Hecla Ventures shall have a vested right to an undivided fifty percent (50%) Participating Interest in the Properties effective as of the date Hecla Ventures provides notice pursuant to Section 5.4 above. Within thirty (30) days after providing notice verifying that Hecla Ventures has made Earn-in Expenditures consistent with the requirements of this Article V: (1) Rodeo Creek shall convey to Hecla Ventures an undivided fifty percent (50%) of Rodeo Creek's interest in the Properties, by executing, acknowledging and delivering to Hecla Ventures a good and sufficient conveyance in the form of Exhibit C to this Earn-in Agreement; and, (2) Rodeo Creek and Hecla Ventures shall cause to become effective an Operating Agreement on the Properties in the form of the attached Exhibit F, which 1) shall include the Properties and 2) shall have an effective date as of the date of the above-described notice from Hecla Ventures to Rodeo Creek; and, (3) Rodeo Creek shall issue to Hecla Ventures the Great Basin Warrants set forth in Exhibit E and H. (b) By completing Stage I Earn-In Activities and providing written notice to Rodeo Creek that Hecla Ventures elects to vest by making a payment to the Joint Venture in an amount of $21.8 million dollars (U.S.) less actual costs to complete Stage I of Earn-In Activities (excluding overruns greater than 10%) of a Management Committee approved Program and Budget; and issue Rodeo Creek the Tranche 2 and Tranche 3 Hecla Mining Warrants set forth in Exhibit E and G. Within thirty (30) days after receiving the preceding vesting payment: -12- (1) Rodeo Creek shall convey to Hecla Ventures an undivided fifty percent (50%) of Rodeo Creek's interest in the Properties, by executing, acknowledging and delivering to Hecla Ventures a good and sufficient conveyance in the form of Exhibit C to this Earn-in Agreement; and, (2) Rodeo Creek and Hecla Ventures shall cause to become effective an Operating Agreement on the Properties in the form of the attached Exhibit F, which 1) shall include the Properties and 2) shall have an effective date as of the date of the above-described notice from Hecla Ventures to Rodeo Creek; and (3) Rodeo Creek shall issue to Hecla Ventures the Great Basin Warrants set forth in Exhibit E and H. (c) By Hecla Ventures completing Stage I and thereupon completing either Stage II of Earn-in Activities and achieving Commercial Production; and in either such event issuing Rodeo Creek the Tranche 2 and Tranche 3 Warrants; (1) Rodeo Creek shall convey to Hecla Ventures an undivided fifty percent (50%) of Rodeo Creek's interest in the Properties by executing, acknowledging and delivering to Hecla Ventures a good and sufficient conveyance in the form of Exhibit C to this Earn-in Agreement; and, (2) Rodeo Creek and Hecla Ventures shall cause to become effective an Operating Agreement on the Properties in the form of the attached Exhibit F, which 1) shall include the Properties and 2) shall have and effective date as of the date of the above described notice from Hecla Ventures to Rodeo Creek; and (3) Rodeo Creek shall issue to Hecla Ventures the Great Basin Warrants set forth in Exhibit E and H. ARTICLE VI MAINTENANCE AND ABANDONMENT OF PROPERTIES 6.1 Maintenance of Properties. Hecla Ventures as Manager shall take all steps necessary to maintain at its expense, as part of the Earn-in Activities, of the Properties (pursuant to the Underlying Agreements and all general legal requirements relating thereto) all necessary payments on the Properties to maintain them in good standing during the Term of this Earn-in Agreement. -13- 6.2 Assessment Work or Fees. During the term of this Earn-in Agreement, Hecla Ventures as Manager shall also perform any annual assessment work required to maintain such claims for any assessment year in which this Earn-in Agreement has not expired or been terminated prior to thirty (30) days before the end of such assessment year, and will make annual fee payments required to maintain unpatented (or patented) mining claims included in the Properties for any assessment year in which this Earn-in Agreement has not expired or been terminated forty-five (45) days prior to the fee payment due date. Hecla Ventures shall timely record, file and furnish to Rodeo Creek affidavits of such performance and evidence of fee payment. Excepting for the August 2002 Properties filings and amounts due shall be paid by and filed by Rodeo Creek. These 2002 amounts shall be reimbursed by Hecla Ventures to Rodeo Creek as part of Earn-in Activities, within thirty (30) days of receipt of invoice from Rodeo Creek. No Party shall be liable on account of holdings by any court or governmental agency that the effects of any work elected and performed in good faith by such Party are insufficient to constitute annual assessment work for purposes of preserving title to such claims, provided that the work so done is of the kind generally accepted as assessment work in the mining industry in the United States and provided that such Party expended a total amount sufficient to meet any minimum requirements during the required period of time with respect to all such unpatented claims. 6.3 Abandonment of Properties. If either Participant desires to abandon, release or surrender its rights to a part of the Properties at any time, it shall notify the other Participant and offer to convey to the other Participant at no cost the part of those parts of the Properties it intends to abandon, release or surrender. If the other Participant does not accept the offer within thirty (30) days of the notice, the notifying Participant may abandon, release, or surrender that part of those Properties without liability or obligation to the other Participant for such abandonment, release or surrender but any liability for reclamation or to any third party arising before such event shall be unaffected. Properties that are abandoned, released, surrendered, or conveyed to the other Participant pursuant to this Section 6.3 shall cease to be part of the Properties and the Area of Interest. -14- ARTICLE VII AREA OF INTEREST 7.1 Proposed Acquisition of Properties. If during the Term of this Earn-in Agreement, a Party or an Affiliate of any Party should acquire any interest in real property (including any mineral interest or estate therein) within the boundary of the Area of Interest, it shall notify the other Party (referred to in this Article VII as "Other Party") within ten (10) days after the acquisition and shall include in the notice a description of the interest in real property and a statement of the total acquisition cost and any committed work expenditures. 7.2 Election to Acquire Properties. The Other Party shall have a period of thirty (30) days from receipt of such notice under Section 7.1 within which to elect to subject the interest in real property to this Earn-in Agreement. If a Participant elects to include the interest to this Earn-in Agreement, it shall notify the other Participant and the interest in real property shall become a part of the Properties subject to this Earn-in Agreement. 7.3 Excluded Acquisition. If the Other Party elects not to subject the real property or interest in real property to this Earn-in Agreement during the thirty (30) day period referenced in Section 7.1, the acquiring party shall hold it free and clear of this Earn-in Agreement, and it will not be a part of the Properties or the Area of Interest. ARTICLE VIII WITHDRAWAL AND TERMINATION 8.1 Termination. This Earn-in Agreement shall terminate as expressly provided herein, unless earlier terminated by written agreement. Withdrawal by Hecla Ventures in accordance with Section 8.2 shall be deemed to terminate this Earn-in Agreement. 8.2 Hecla Ventures' Election to Withdraw and Terminate. Hecla Ventures may withdraw from and terminate this Earn-in Agreement at any time subject to its reclamation obligations herein provided and subject to Hecla Ventures commitment to fund the estimated budget and program of the Stage I Earn-in Activities. To withdraw, Hecla Ventures must provide Rodeo Creek with written notice of withdrawal. The withdrawal shall be effective thirty (30) days after the date the notice of withdrawal is sent to Rodeo Creek. Upon such withdrawal and termination: (a) This Earn-in Agreement shall terminate; and -15- (b) Hecla Ventures shall quitclaim in favour of Rodeo Creek any rights hereunder and shall ensure there are no liens or encumbrances on Properties arising out of its Earn-in Activities hereunder. Hecla Ventures shall thereupon have no further right, title, or interest in or to, the Properties, in accordance with Article X of this Earn-in Agreement and any Real Property, subject always to Hecla Ventures' obligations hereunder. (c) Hecla Ventures shall make available all factual exploration data, chips, core and rejects not previously provided to Rodeo Creek. Hecla Ventures shall leave all Assets in reasonable working condition, normal wear and tear excepted and will promptly remove all materials, supplies and refuse as required by applicable laws and regulations from the Properties. Rodeo Creek shall have the election respecting any Assets, the costs of which or title to which have been included in the Earn-in Activities (such election to made on 60-days' notice) to either require the conveyance of such Assets to Rodeo Creek at no cost or to require their removal by Hecla Ventures. Hecla Ventures shall be under no obligation to supply any interpretive reports or conclusions of any type pertaining to the Properties. 8.3 Termination Upon Execution and Delivery of Operating Agreement. If not terminated earlier, this Earn-in Agreement shall terminate upon the Operating Agreement pursuant to Section 5.5, becoming effective. 8.4 Termination for Hecla Ventures' Failure to Make Annual Expenditure Commitment. This Earn-in Agreement may be terminated by Rodeo Creek if Hecla Ventures shall not have completed its Annual Expenditure Commitment on or before the close of business on the last day of the Annual Expenditure Commitment Period. Rodeo Creek shall provide notice thereof to Hecla Ventures in accordance with Section 17.1, and Hecla Ventures shall have a period of ninety (90) days in which to resolve or dispute any good faith unintended shortfall in the amount of its Annual Expenditure Commitment. Any such termination shall not relieve Hecla Ventures of its obligations hereunder and shall have the same effect as a termination under Section 8.2. 8.5 Removal of Property. Hecla Ventures shall have a period of ninety (90) days following the effective date of termination or expiration of this Earn-in Agreement (unless the Operating Agreement has been entered into or Rodeo Creek exercises its option to acquire at no cost any Assets, the costs of which or title to which have been included in the Earn-in Activities) to remove at its sole cost and expense all equipment, machinery, inventory or supplies and it will so remove them. -16- 8.6 Termination and Release Agreement. Upon the completion of the procedures under this Article VIII and the reclamation obligations in Article X Hecla Ventures and Rodeo Creek shall execute the Termination and Release Agreement under Exhibit A. ARTICLE IX OPERATIONS AND GOVERNANCE 9.1 Management Committee. (a) Organization and Composition. Rodeo Creek and Hecla Ventures (the "Participants") hereby establish a Management Committee consisting of four (4) members to determine overall policies, objectives, procedures, methods and actions under this Agreement. The Management Committee shall consist of two member(s) appointed by Rodeo Creek and two member(s) appointed by Hecla Ventures. Each Participant may appoint one or more alternates to act in the absence of a regular member. Any alternate so acting shall be deemed a member. Appointments shall be made or changed by notice to the other Participant prior to the meeting at which the member is to act. (b) Decisions. Each Participant, acting through its appointed members, shall have one vote on the Management Committee. All decisions by the Management Committee shall be made by majority vote. In the event of a deadlock on a proposed Program and Budget or on any other management matters relating to this Earn-in Agreement then the issue along with written reasons by each Participant shall be given to the respective Presidents of the Participants for a period of up to twenty-one (21) calendar days for them to discuss, document and resolve; thereafter, a Management Committee meeting shall be reconvened within fourteen (14) calendar days and after taking into consideration the Presidents' resolve or unresolve, as documented, a new vote taken. If the vote is still deadlocked, Manager shall have the deciding vote (after documenting reasons). (c) Meetings. The Management Committee shall hold regular meetings at least quarterly at a place to be designated by the Manager, or at other mutually agreed places. The Manager shall give 30 days' notice to the Participants of such regular meetings. Additionally, either Participant may call a special meeting upon 15 days' notice to the Manager and the other Participant. In case of an emergency, reasonable notice of a special meeting to consider the emergency matter only shall suffice. There shall be a quorum if at least one member representing each Participant is present in person or by conference telephone; provided, however, that if a quorum is not present, those members in -17- attendance may adjourn the meeting to the same time and place seven days later, and provided further that a quorum shall be deemed present at the adjourned meeting if at least one Participant is represented. Each notice of a regular meeting shall include an itemized agenda prepared by the Manager in the case of a regular meeting, or by the Participant calling the meeting in the case of a special meeting, but any matters may be considered in any type of meeting with the consent of all Participants. The Manager shall prepare minutes of all meetings and shall distribute copies of such minutes to the Participants within 10 days after the meeting. The minutes, when signed by all Participants, shall be the official record of the decisions made by the Management Committee and shall be binding on the Manager and the Participants. If the Manager's personnel are required to physically (rather than by phone) attend a Management Committee meeting, reasonable costs incurred in connection with such attendance shall be reimbursed to the Manager in accordance with the Accounting Procedure (Exhibit B). All other costs of attendance shall be paid by the Participants individually. (d) Action Without Meeting. In addition to or in lieu of meetings, the Management Committee may hold telephone conferences as long as no Participant's representative objects and so long as all decisions are immediately confirmed in writing by the Participants. (e) Matters Requiring Approval. Except as otherwise delegated to the Manager in Section 9.2, the Management Committee shall have exclusive authority to determine all management matters related to this Agreement. 9.2 Manager. (a) Appointment. The Participants hereby appoint Hecla Ventures as the Manager with management responsibility for Earn-in Activities. Hecla Ventures hereby agrees to serve until it resigns as provided in Section 9.2(d). (b) Powers and Duties of Manager. Subject to the terms and provisions of this Agreement, the Manager shall have the following powers and duties and obligations which shall be discharged in accordance with adopted Programs and Budgets: (1) The Manager shall manage, direct and control Earn-in Activities and shall prepare and present to the Management Committee proposed Programs and Budgets as provided in Section 9.3 of this Earn-in Agreement. (2) The Manager shall implement the decisions of the Management Committee, shall make all expenditures necessary to carry out adopted Programs, and shall promptly advise the Management Committee if Manager lacks sufficient funds to carry out its responsibilities under this Agreement. If Hecla Ventures is the Manager, lack of sufficient funds shall be deemed a default hereunder. -18- (3) The Manager shall: (i) purchase or otherwise acquire all material, supplies, equipment, water, utility and transportation services required for Earn-in Activities, such purchases and acquisitions to be made on the best terms available, taking into account all circumstances; and (ii) obtain such customary warranties and guarantees as are available in connection with such purchases and acquisitions. (4) The Manager shall: (i) make or arrange for all payments required by leases, subleases, surface use agreements, licenses, permits, contracts and other agreements related to the Assets and Properties; (ii) pay all taxes, assessments and like charges on Earn-in Activities except taxes determined or measured by a Participant's sales revenue or net income; and (iii) do all other acts reasonably necessary to maintain unencumbered title to and good condition of the Assets and the Properties. The Manager shall have the right to contest in the courts or otherwise, the validity or amount of any taxes, assessments or charges if the Manager deems them to be unlawful, unjust, unequal or excessive, or to undertake such other steps or proceedings as the Manager may deem reasonably necessary to secure a cancellation, reduction, readjustment or equalization thereof before the Manager shall be required to pay them, but in no event shall the Manager permit or allow title to the Assets and Properties to be lost as the result of the nonpayment of any taxes, assessments or like charges. (5) The Manager shall in the name of Rodeo Creek: (i) apply for all necessary permits, licenses and approvals; (ii) comply with applicable federal, state and local laws and regulations; (iii) notify promptly the Management Committee of any allegations of substantial violation thereof; and (iv) prepare and file all reports or notices required for Earn-in Activities. The Manager shall not be in breach of this provision if a violation has occurred in spite of the Manager's good faith efforts to comply, and the Manager has timely cured or disposed of such violation through performance, or payment of fines and penalties. (6) The Manager shall prosecute and defend, but shall not initiate without consent of the Management Committee, all litigation or administrative proceedings arising out of Earn-in Activities. The non-managing Participant shall have the right to participate, at its own expense, in such litigation or administrative proceedings. The non-managing Participant shall approve in advance any settlement involving payments, commitments or obligations in excess of $100,000 in cash or value, unless part of an approved Program and Budget. -19- (7) The Manager shall provide insurance for the Earn-in Activities as provided in Exhibit B1. (8) The Manager may dispose of Assets or Properties only with authorization from the Management Committee but may dispose of Properties only with the authorization of all of the Participants. (9) The Manager shall have the right to carry out its responsibilities hereunder through agents, Affiliates or independent contractors but shall nevertheless remain responsible for the proper carrying out of such responsibilities. (10) The Manager shall perform or cause to be performed during the term of this Agreement all assessment and other work or pay fees or rental payments required by law in order to maintain any unpatented mining claims that are included in the Properties. The Manager shall have the right to perform any assessment work pursuant to a common plan of Exploration, Development, Construction, Operating or Reclamation and continued actual occupancy of such claims and sites shall not be required. The Manager shall not be liable on account of any determination by any court or governmental agency that work performed by the Manager does not constitute required annual assessment work or occupancy for the purposes of preserving or maintaining ownership of the claims, provided that any work done is in accordance with the adopted Program and Budget. The Manager shall timely record with the appropriate county and file with the appropriate United States agency, affidavits in proper form attesting to the performance of assessment work or notices of intent to hold in proper form, and allocating therein, to or for the benefit of each claim, at least any minimum amount, if any, required by law to maintain such claim or site. (11) If authorized by the Management Committee, the Manager may: (i) locate mine facilities, mill site or tunnel site, (ii) apply for patents or mining leases or other forms of mineral tenure for any such unpatented claims or sites, (iii) convert any unpatented claims or mill sites into one or more leases or other forms of mineral tenure pursuant to any federal law hereafter enacted. -20- (12) The Manager shall keep and maintain all required accounting and financial records pursuant to the Accounting Procedure and in accordance with customary cost accounting practices in the mining industry. (13) At all reasonable times the Manager shall provide the Management Committee or the representative of any Participant, upon the request of any member of the Management Committee, access to, and the right to inspect, audit and copy all maps, drill logs, core tests, reports, surveys, assays, analyses, production reports, operations, technical, accounting and financial records, and other information acquired in Earn-in Activities; such information will be provided to the Management Committee at the cost set forth in the Accounting Procedure and if additional copies are required by a Participant, they will be paid for by that Participant. In addition, the Manager shall allow the non-managing Participant, at the latter's sole risk and expense, and subject to reasonable safety regulations, to inspect the Assets and Earn-in Activities at all reasonable times, so long as the inspecting Participant does not unreasonably interfere with Earn-in Activities. (14) The Manager shall prepare or have prepared and submit to the Management Committee a report containing a description and analysis of the methods and costs and all other relevant aspects of reclaiming the Properties pursuant to the requirements of applicable laws, rules and regulations governing the reclamation of Earn-in Activities on the Properties, the purpose of which shall be to establish a fund to finance costs and expense anticipated to be incurred in connection with the reclamation or reclamation bonding of the Properties. The Management Committee shall determine, based upon the reclamation report, the total cost, including capital budget, which the Management Committee reasonably estimates will be required to reclaim the Properties, including a schedule of the timing of the capital requirements for such purpose, and shall promptly establish a reclamation fund to meet such capital requirements and any bonding or financial assurance requirements. The reclamation fund for Earn-in Activities shall be funded entirely by contribution of Hecla Ventures. The amounts determined by the Management Committee for Purposes of funding the reclamation fund shall be included in the applicable Programs and Budgets for the related periods. Manager may withhold a portion of proceeds from sale of Products in an amount sufficient to meet expected reclamation and expenditures as approved by the Management Committee. -21- (15) The Manager may conduct environmental audits or reviews on an annual or as needed basis, and the cost and expense of such audits or reviews shall be charged to Hecla Ventures. (16) Manager shall make withholdings from payments to Participants that are required by applicable law. (17) The Manager shall undertake all other activities reasonably necessary to fulfill the foregoing. (c) Standard of Care. The Manager shall conduct all Earn-in Activities in a good, workmanlike, safe and efficient manner, in accordance with sound mining and other applicable industry standards and practices, and in accordance with the terms and provisions of leases, subleases, licenses, permits, plans of operation, contracts, Underlying Agreements, and other agreements pertaining to Assets and Properties. The Manager shall not be liable to the non-managing Participant for any act or omission resulting in damage or loss to the other Participants except to the extent caused by or attributable to the Manager's bad faith conduct, willful misconduct, or gross negligence. (d) Resignation; Deemed Offer to Resign. If Hecla Ventures resigns or is deemed to resign as Manager, (voluntary resignation may only be made upon three months' prior written notice to the other Participant) prior to completion of its Earn-In Activities without the consent of Rodeo Creek, this Earn-In Agreement will be deemed to have terminated subject to the provisions of withdrawal and termination in Article 8. If any of the following shall occur, the Manager shall be deemed to have offered to resign, which offer shall be accepted by the other Participant, if at all, at any time within ninety (90) days following such deemed offer: (1) Manager terminates this Agreement pursuant to Article VIII; or (2) The Manager fails to perform or in good faith, commence a material obligation imposed upon it under this Agreement and action to cure said failure is not initiated within thirty (30) days after notice from the other Participant demanding performance; or (3) The Manager fails to pay or contest in good faith its debts within sixty (60) days after they are due; or (4) A receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for a substantial part of its assets is appointed and such appointment is neither made ineffective nor discharged within sixty (60) days after the making thereof, or such appointment is consented to, requested by, or acquiesced in by the Manager; or -22- (5) The Manager fails generally to pay its debts as such debts become due; or takes corporate or other action in furtherance thereto; or (6) Entry is made against the Manager of a judgment, decree or order for relief affecting a substantial part of its assets by a court of competent jurisdiction in an involuntary case commenced under any applicable bankruptcy, insolvency or other similar law of any jurisdiction now or hereafter in effect. (e) Payments to Manager. The Manager shall be compensated a fee for its services and reimbursed for its costs hereunder in accordance with the Accounting Procedure. (f) Transactions With Affiliates. If the Manager engages Affiliates to provide services hereunder, it shall do so on terms in accordance with the Accounting Procedure. 9.3 Programs and Budgets. (a) Operations Pursuant to Programs and Budgets. Except as set forth in Sections 9.2(b)(6), 9.3(g) and 9.3(h), Earn-in Activities shall be conducted, expenses shall be incurred, and Assets shall be acquired only pursuant to adopted Programs and Budgets. (b) Types of Programs. Five general types of Programs may be proposed: Exploration, Development, Construction, Operating and Reclamation Programs. (1) An "Exploration Program" shall be a Program conducted within the Area of Interest, and it shall include but not be limited to geological mapping, geochemical sampling, geophysical surveys, drilling, bulk sampling and other such work expended to ascertain the existence, location, quantity and quality of deposits of Products within the Area of Interest. (2) A "Development Program" shall be a Program conducted within the Area of Interest that shall include but not be limited to drilling, test mining, preparing any Feasibility Study, other than the Prefeasibility Study, and other such work in preparation for the removal and recovery of Products within the Area of Interest, but does not encompass, by itself, construction, operation, maintenance and attendant activities designed to bring a Mine into production in reasonable commercial quantities. (3) A "Construction Program" shall be a Program conducted within the Area of Interest that is designed to bring a Mine into production in reasonable commercial quantities, and that provides for its subsequent operation. It shall include but not be limited to engineering and design work, and work expended toward development of deposits of Products, as well as construction, operation, maintenance, mine expansions, ore definition, mill/processing scenarios, including a proposed alternative, time schedule for Construction Program and attendant activities. -23- (4) An "Operating Program" shall be a Program conducted with the Area of Interest that is designed to operate a Mine in reasonable commercial quantities as defined by Commercial Production and at the onset in conformance with the Feasibility Study, mine operating permit(s) or other objective document(s). It shall include mining, transportation, engineering, geology, milling (on-site or off-site) of deposits and related Products. (5) A "Reclamation Program" shall be a Program conducted with the Area of Interest that shall include but not be limited to reclaiming disturbed lands, water quality monitoring and treatment, if required, disposal of Assets and other attendant activities in accordance with applicable laws, regulations and permit requirements to reclaim and close a mine. (c) Preparation, Presentation and Content of Programs and Budgets. (1) Content of Programs. Proposed Programs and Budgets shall be prepared by the Manager. Each Program shall be accompanied by and include a corresponding Budget and shall designate precisely the area on which Earn-in Activities are to be performed, describe work to be performed, and state the estimated period of time required to perform the work. Each Program shall state whether it is an Exploration, Development, Construction, Operating, or Reclamation Program. (2) Content of Budgets. Each Budget shall be prepared in reasonable detail and shall set forth each expenditure of $50,000 or more for a budgeted item which, under generally accepted accounting treatment, would be capitalized. Each Budget Program, as near as is practicable, shall show the estimated expenditures for each month covered by the Budget period. (3) Initial Program and Budget. The Management Committee approved Initial Program and Budget is attached hereto in Exhibit E. (4) Duration. An Exploration, Operating and Reclamation Programs and Budget is anticipated to be for a period of one calendar year from date of commencement. A Development or Construction Program and Budget is anticipated to extend for a period of at least one year, but may extend for such longer period as is reasonably necessary to complete the Program, but in no event (save force majeure) longer than two years. -24- (5) Review. Each adopted Program and Budget, regardless of length, shall be reviewed at least quarterly (supported by detailed reports of costs and technical progress) at a regular meeting of the Management Committee. During the period encompassed by any Program and Budget, and at least two months prior to its expiration, a proposed Program and Budget for the succeeding period shall be prepared by the Manager and submitted to the Participants. (d) Submittal and Approval of Proposed Programs and Budgets. (1) Submittal of Manager's Program and Budget. Within 30 days after the Manager submits a proposed Program and Budget to the Management Committee, the non-managing Participant shall submit to the Management Committee: (i) Notice that the non-managing Participant approves of the Program and Budget; or (ii) Proposed modifications of the proposed Program and Budget, which shall include detailed specific objections regarding the proposed Program and Budget. If a non-managing Participant fails to give either of the foregoing responses within the allotted time, the failure shall be deemed an approval by the non-managing Participant of the Manager's proposed Program and Budget. If a non-managing Participant makes a timely submission to the Management Committee pursuant to Section 9.3(d)(ii), then the Management Committee shall within the following 30 days meet to consider the proposed Program and Budget and proposed modifications. At that meeting, the Management Committee shall seek to develop a Program and Budget acceptable to both the Participants. Failing approval by a majority vote, the Participants shall follow the decision making process set forth in Section 9.1(b). (2) Feasibility Study. Any Participant may propose to the Management Committee at any time that a Feasibility Study, evaluating the feasibility of opening or expanding a mine on a particular area of the Properties be conducted on behalf of Hecla Ventures. If the Management Committee does not approve of the preparation of such Feasibility Study, then the Participant proposing it may cause such Feasibility Study to be prepared at its sole expense. Promptly upon completion of the Feasibility Study, the Participant preparing it shall present it to the Management Committee for evaluation. -25- (e) Subsequent Programs. A subsequent Program relating to an area for which a prior Program has been adopted under the provisions of this Article IX may be proposed and conducted pursuant to this Agreement. (f) Budget Overruns; Program Changes. The Manager shall immediately notify the Management Committee of any material departure including documented reasons, from an adopted Program and Budget. If the Manager exceeds an adopted Budget by more than ten per cent (10%), then the excess over ten per cent (10%), unless directly caused by an emergency expenditure made pursuant to Section 9.3(h), due to unforeseen events beyond the reasonable control or anticipation of the Manager, or unless otherwise authorized by the Management Committee, shall be for the sole account of the Manager and such excess shall not be included in the calculations of the Participating Interests. Budget overruns of ten per cent (10%) or less shall be acceptable to form part of the Earn-In Expenditures. (g) Emergency Expenditures. In case of emergency, the Manager may take any reasonable action it deems necessary to protect life, limb or property, to protect the Assets or to comply with law or government regulation. The Manager shall promptly notify the Participants of the emergency expenditure, and the Manager shall be reimbursed by Hecla Ventures for all resulting costs (if the Manager is other than Hecla Ventures). (h) Interim Program and Budget. If the Management Committee for any reason has failed to adopt a Program and Budget to succeed an expiring or completed prior Program and Budget, the Manager shall continue operations at levels necessary to maintain the Assets and to comply with any and all legal obligations. 9.4 Accounts and Settlements. (a) Monthly Statements. The Manager shall promptly submit to the Management Committee monthly statements of accounts (costs and activities) reflecting in reasonable detail the Earn-in Activities during the preceding month, including a written report of activities, progress and results. (b) Cash Calls. On the basis of the adopted Program and Budget, the Manager, if other than Hecla Ventures, shall submit to Hecla Ventures prior to the 15th day of each calendar month, a billing for the Manager's Fee due to Manager pursuant to section 9.2(e) for the preceding month. Within ten (10) days after receipt of each billing, Hecla Ventures shall advance to the Manager payment for the Manager's Fee. -26- (c) Failure to Meet Cash Calls. If Hecla Ventures fails to meet cash calls in the amount and at the times specified in Section 9.4(b) shall be in default, and the amounts of the defaulted cash call shall bear interest from the date due at an annual rate equal to the Prime Rate plus 5%, but in no event shall said rate of interest exceed the maximum permitted by law, nor be included as part of Earn-in Activities. (d) Audits. Upon request made by any Participant within 12 months following the end of any calendar year (or, if the Management Committee has adopted an accounting period other than the calendar year, within 12 months after the end of such period), the Manager shall order an audit of the accounting and financial records for such calendar year (or other accounting period). All written exceptions to and claims upon the Manager for discrepancies disclosed by such audit shall be made not more than three months after receipt of the audit report. Failure to make any such exception or claim within the three-month period shall mean the audit is correct and binding upon the Participants. The audits shall be conducted by a firm of certified public or chartered accountants selected by the Manager, unless otherwise agreed by the Management Committee. 9.5 Parameters for Hecla Ventures' Earn-in Activities. During the Term of this Earn-in Agreement, Hecla Ventures shall act in accordance with direction from the Management Committee but Hecla Ventures shall be solely responsible for conducting at its expense the specific manner and method of the Earn-in Activities described in Exhibit E, including, without limitation, mineral exploration, development, test mining and processing activities, drilling, blasting, assaying, modeling, engineering, geophysics, geochemistry, hydrology, metallurgy, metallurgical and environmental test work or other test work, process testing, permitting, regulatory compliance, evaluation, performance and preparation of a Feasibility Study, and all other activities incidental to or arising therefrom, on or for the benefit of the Properties, regardless of where such activities may be conducted. Hecla Ventures may recover and process a reasonable amount of ore and other material from the Properties for testing purposes during Earn-In-Activities and may conduct such testing on or off the Properties. Proceeds from all Products produced from the Area of Interest during the term of this Earn-In Agreement (estimated to approximate 40,000 tons at a grade of 1.29 oz Au and 7 oz Ag diluted by 50% for a total tonnage of 60,000 tons; equivalent gold ounces produced expected to approximate 53,000 ozs) shall be distributed one hundred percent (100%) to Hecla Ventures up to Hecla Ventures' actual costs of Stage I and Stage II Earn-in Activities plus fifteen percent (15%). Any excess amounts shall be distributed based on the deemed Participating Interests of the Parties. -27- 9.6 Surface and Surface Facilities. Subject to approval of the Management Committee and compliance with Underlying Agreements and applicable law, including Newmont Mining Company reclamation agreement on the Reclaim Area as described in Exhibit A, Hecla Ventures shall have the right without further consideration, to use as much of the surface and any surface facilities owned or controlled by Rodeo Creek, or on lands within the Area of Interest that are both owned or controlled by Rodeo Creek and made subject to this Earn-in Agreement. Hecla Ventures shall have the right to make other surface use arrangements only upon authorization from the Management Committee and subject to compliance with Newmont Mining Company reclamation activities on the Properties. 9.7 Compliance With Laws and Agreements. Hecla Ventures' Earn-in Activities on the Properties shall be conducted in compliance with all applicable laws, statutes, regulations, Underlying Agreements (specified on Schedule A as they may be augmented from time to time pursuant to the terms hereof) and this Earn-in Agreement. ARTICLE X RECLAMATION OBLIGATIONS Hecla Ventures shall comply with all laws and regulations of the State of Nevada and the United States of America as they pertain to reclamation obligations and Hecla Ventures shall fund and at Hecla Ventures' election, either contract out or carry out these reclamation obligations relating to or arising out of Earn-in Activities on the surface and subsurface of the Area of Interest. If Rodeo Creek elects to continue activities on the Area of Interest for greater than one year from the date of Termination by Hecla Ventures and elects not to have reclamation activities undertaken at that time, then an independent third party's determination of the reclamation liability for Earn-In-Activities will be obtained. Based on the determination of the reclamation liability ("DRL") for Earn-In-Activities then the following shall occur: (1) if the reclamation fund ("RF") equals the DRL than no monies shall be removed from the RF and Hecla Ventures shall be released of all further reclamation obligations under this Earn-In-Agreement and the Parties shall execute the Termination and Release Agreement in Part III of Exhibit A; or -28- (2) if the RF is less than the DRL than Hecla Ventures shall contribute 100% of the deficiency; or (3) if the RF is greater than the DRL than any unused portion of a reclamation fund (funded during or on termination of the Earn-in Activities) remaining after reclamation of the area(s) or upon payment to Rodeo Creek of the DRL to which the reclamation fund relates shall be distributed to Hecla Ventures to the extent Hecla Ventures has not recouped 115% of the actual costs of Stage I and Stage II Earn-in Activities, otherwise distributed to the Participants based on their respective Participating Interest at time of disbursement. In the event of (1), (2) or (3) above, then Rodeo Creek shall be fully responsible for the DRL and Hecla Ventures shall be released of all further reclamation obligations. Hecla Ventures acknowledges that certain areas of the Properties are undergoing reclamation. Hecla Ventures agrees to coordinate its Earn-in Activities with Rodeo Creek's reclamation and permitting activities and Rodeo Creek's reclamation activities with Newmont Mining Company, and dealings with BLM, NDEP and Traditional Cultural Properties and Resources and other government agencies. Nothing in this Earn-in Agreement shall require or be interpreted as requiring Hecla Ventures to perform any reclamation or pay any part of reclamation costs associated with conditions resulting from any activities on the Properties conducted by any other person or entity other than Hecla Ventures. ARTICLE XI REPORTING, INSPECTION AND AUDIT Hecla Ventures shall keep Rodeo Creek advised of all Earn-in Activities during the term of this Earn-in Agreement by making available to Rodeo Creek all Area of Interest data and information within a reasonable time but no more than thirty (30) days after such data and information is available to Hecla Ventures; if such information is material to Rodeo Creek then Hecla Ventures will provide it promptly to Rodeo Creek. In addition, Rodeo Creek's employees, agents and representatives (at Rodeo Creek's sole risk and expense and subject to reasonable safety regulations) shall have the right to inspect and to audit -29- Hecla Ventures' activities on and with respect to the Properties and all documents, records, accounts and other data at all reasonable times, so long as, Rodeo Creek's employees, agents and representatives do not unreasonably interfere with Earn-in Activities. Hecla Ventures shall provide Rodeo Creek detailed reports within fifteen (15) days following the end of each calendar month that summarize Hecla Ventures' Earn-in Activities for each month and a schedule of plans for the forthcoming month. ARTICLE XII MEMORANDUM Hecla Ventures and Rodeo Creek shall execute and record a memorandum of this Earn-in Agreement in substantially the form of Exhibit D, which shall not disclose financial or other proprietary information contained herein, in a form sufficient to constitute record public notice of the rights granted by this Earn-in Agreement in the county or counties in which the Properties are situated. This Earn-in Agreement shall not be recorded. ARTICLE XIII DEFAULTS In the event of any Default by either Hecla Ventures or Rodeo Creek in the performance of its obligations under this Earn-in Agreement ("Defaulting Party"), the Non-Defaulting Party shall give to the Defaulting Party written notice specifying the default. If the Default is not completely cured within thirty (30) days, or such other, longer time as may be specified in this Agreement, after the Defaulting Party has received the notice, the Non-Defaulting Party may declare this Earn-in Agreement terminated and/or pursue legal action against the Defaulting Party. Nothing herein shall be construed as a limitation of remedies to the Non-Defaulting Party. ARTICLE XIV CONFIDENTIALITY 14.1 General. The financial terms of this Earn-in Agreement and all geologic, metallurgical and other information obtained in connection with the performance of it shall be the exclusive property of the Parties, except that on termination of this Earn-in Agreement, other than on execution and delivery of Operating Agreement, ownership of all information shall revert solely to Rodeo Creek. Information, except as provided in Section 14.2, shall not be disclosed by a Party to any third party or the public without the prior written consent of the other Party. -30- 14.2 Exceptions. The consent required by Section 14.1 shall not apply to a disclosure: (a) To an Affiliate or a consultant, contractor or subcontractor that has a bona fide need to be informed; (b) To any third party to whom the disclosing Party contemplates a transfer of all of its interest in or to this Earn-in Agreement; or (c) To a governmental agency or to the public which the disclosing Party believes in good faith is required by pertinent law or regulation or the rules of any stock exchange on which the disclosing Party is listed. In any case to which this Section 14.2 is applicable, the disclosing Party shall give notice to the other Party concurrently with the making of such disclosure. As to any disclosure pursuant to Section 14.2(a) or (b), only such confidential information as such third party shall have a legitimate business need to know shall be disclosed and such third party shall first agree in writing to protect the confidential information from further disclosure for a period of one (1) year after its receipt to the same extent as the Parties are obligated under this Article XIV. 14.3 Press Releases. Hecla Ventures and Rodeo Creek shall consult with and provide a written copy to each other at least twenty-four (24) hours before issuing any press release or public statement on the results of Earn-in Activities on or for the benefit of the Properties. Neither Hecla Ventures nor Rodeo Creek or their Guarantors shall issue any press release or public statement mentioning the name of the other or of any entity related to the other without the other Party's prior written approval, which approval shall not be unreasonably withheld. 14.4 Duration of Confidentiality. The provisions of this Article XIV shall apply during the Term of this Earn-in Agreement and shall continue to apply to any Party who withdraws, who is deemed to have withdrawn, or who transfers its interest in this Earn-in Agreement, for one year following the date of such occurrence. If the Parties enter into the Operating Agreement, its provisions concerning confidentiality shall then apply to the financial terms of this Earn-in Agreement and to all information obtained in connection with the performance of Earn-in Activities. -31- ARTICLE XV TAXES 15.1 Payment of Properties and Improvement Taxes. All taxes levied on real estate associated with the Properties or any improvements on the Properties during the term of this Earn-in Agreement shall be paid by Hecla Ventures as part of Earn-In Expenditures. 15.2 Provisions Concerning Taxation. While this Earn-in Agreement is in effect, all matters relating to taxation other than Section 15.1 shall be governed by Article IV of this Earn-in Agreement. ARTICLE XVI COOPERATION Within ten (10) days after a request from a Party, each Party shall provide the other Party with access to all data and information in its possession or to which it has access relating to or affecting the Properties including, but not limited to, title documents, legal opinions, pertinent agreements, assays, samples of minerals, drill hole logs, test results, historical materials relating to exploration, development, mining, environmental matters and title, filings with governmental bodies, maps and surveys. Both Parties shall have the right to make copies thereof, each at its own expense. ARTICLE XVII GENERAL PROVISIONS 17.1 Notices. All notices and other required communications made pursuant to this Earn-in Agreement (referred to in this Section 17.1 as "Notices") to the Parties shall be in writing, and shall be addressed respectively as follows: To: Hecla Ventures Corp. w/a copy to: Hecla Mining Company 6500 Mineral Drive 6500 Mineral Drive Coeur d'Alene, Idaho 83815-8788 Coeur d'Alene, Idaho 83815-8788 USA USA Attn: President Attn: President and COO -32- To: Rodeo Creek Gold Inc. w/a copy to: Lang Michener C/O Richard Harris 1500-1055 West Georgia Street 260-6121 Lakeside Drive Vancouver, British Columbia Reno, NV 89511 V6E 4N7, CANADA Attn: B. Zinkhofer w/a copy to: Great Basin Gold Ltd. 1020-800 West Pender Street Vancouver, British Columbia V6C 2V6, CANADA Attn: President & CEO All Notices shall be given: (i) by personal delivery to the Party or (ii) by electronic communication, with a confirmation sent by registered or certified mail return receipt requested, or (iii) by registered or certified mail return receipt requested. All Notices shall be effective and shall be deemed delivered (i) if by personal delivery, on the date of delivery if delivered during normal business hours, and if not delivered during normal business hours, on the next business day following delivery, (ii) if by electronic communication, on the next business day following receipt of the electronic communication, and (iii) if solely by mail, on the next business day after actual receipt. A Party may change its address by Notice to the other Party. 17.2 Waiver. The failure of a Party to insist on the strict performance of any provision of this Earn-in Agreement or to exercise any right, power or remedy upon a breach hereof shall not constitute a waiver of any provision of this Earn-in Agreement or limit the Party's right thereafter to enforce any provision or exercise any right. 17.3 Modification. No modification of this Earn-in Agreement shall be valid unless made in writing and duly executed by the Parties. 17.4 Force Majeure. Except for any obligation to make payments when due hereunder and except for matters arising out of a Party's lack of funds, the obligations of a Party shall be suspended to the extent and for the period that performance is prevented by any cause, beyond its reasonable control, including, without limitation, labor disputes (however arising and whether or not employee demands are reasonable or within the power of the Party to grant); acts of God; laws, regulations, orders, proclamations, instructions or requests of any government or governmental entity; judgments or orders of any court; inability to obtain on reasonably acceptable terms any public or private license, permit or other authorization, including access and occupancy rights from surface -33- owners; acts of war or conditions arising out of or attributable to war, whether declared or undeclared; riot, civil strife, insurrection or rebellion; fire, explosion, earthquake, storm, flood, sink holes, drought or other adverse weather conditions; delay or failure by suppliers or transporters of materials, parts, supplies, services or equipment or by contractors' or subcontractors' shortage of, or inability to obtain, labor, transportation, materials, machinery, equipment, supplies, utilities or services; accidents; breakdown of equipment, machinery or facilities; or any other cause similar to the foregoing The affected Party shall promptly give notice to the other Party of the suspension of performance, stating therein the nature of the suspension, the reasons therefore, and the expected duration thereof. The affected Party shall resume performance as soon as reasonably possible. Commercial frustration, commercial impracticability or the occurrence of unforeseen events rendering performance hereunder uneconomical shall not constitute an excuse of performance of any obligation imposed hereunder. 17.5 Governing Law. This Earn-in Agreement shall be governed by and interpreted in accordance with the laws of the State of Nevada, except for its rules pertaining to conflicts of laws. 17.6 Rule Against Perpetuities. Any right or option to acquire any interest in real or personal property under this Earn-in Agreement must be exercised, if at all, so as to vest such interest within twenty-one (21) years after the Effective Date. 17.7 Further Assurances. Each of the Parties agrees to take from time to time such actions and execute such additional instruments (without demand for further consideration) as may be reasonably necessary or convenient to implement and carry out the terms of this Earn-in Agreement. 17.8 Entire Agreement; Amendments; Successors and Assigns. This Earn-in Agreement contains the entire understanding of the Parties and supersedes all prior agreements and understandings between the Parties relating to the subject matter hereof, and may be amended only by a written agreement executed by the Parties hereto. This Earn-in Agreement shall be binding upon and inure to the benefit of the respective successors and permitted assigns of the Parties. No Party shall assign any interest or obligation in this Earn-in Agreement to any party without the written consent of the other Parties, which consent shall not be unreasonably withheld, provided, however, that no consent shall be required to transfer a Participant's interest to an Affiliate. 17.9 Severability. In the event that a court of competent jurisdiction determines that any term, part or provision of this Earn-in Agreement is unenforceable, illegal, or in conflict with any federal, state, or local laws, -34- the Parties intend that the court reform that term, part or provision within the limits permissible under law in a way as to approximate most closely the intent of the Parties to this Earn-in Agreement; provided that, if the court cannot make a reformation, then that term, part or provision shall be considered severed from this Earn-in Agreement. The remaining portions of this Earn-in Agreement shall not be affected and it shall be construed and enforced as if it did not contain that term, part or provision. 17.10 Paragraph Headings. The paragraph and other headings of this Earn-in Agreement are inserted only for convenience and in no way define, limit or describe the scope or intent of this Earn-in Agreement or effect its terms and provisions. 17.11 Attorneys' Fees. The prevailing party in any dispute arising under this Earn-in Agreement shall be entitled to an award of its reasonable attorneys' fees and costs. 17.12 Counterparts. This Earn-In Agreement may be signed by the Parties and Guarantors hereto in as many counterparts as may be necessary, and via facsimile if necessary, each of which so signed being deemed to be an original and such counterparts together constituting one and the same instrument and, notwithstanding the date of execution, being deemed to bear the execution date as set forth in this Agreement. IN WITNESS WHEREOF, the Parties hereto have executed this Earn-in Agreement as of the date first above written. HECLA VENTURES CORP. RODEO CREEK GOLD INC. By: By: ------------------------------- ------------------------------- Authorized Signatory Authorized Signatory - ---------------------------------- ---------------------------------- Print Name Print Name - ---------------------------------- ---------------------------------- Title Title -35- IN WITNESS WHEREOF, the Guarantors hereto have executed this Earn-in Agreement as of the date first above written. Agreed as to Recital D and Sections Agreed as to Recital E and Sections 2.6, 2.7, 5, Exhibit E and Article X 2.3, 2.4 and 5 and Exhibit E HECLA MINING COMPANY GREAT BASIN GOLD LTD. Per: Per: ------------------------------ -------------------------------- Authorized Signatory Authorized Signatory - ---------------------------------- ---------------------------------- Print Name Print Name - ---------------------------------- ---------------------------------- Title Title -36- ACKNOWLEDGEMENTS STATE OF IDAHO ) ) ss. County of Kootenai ) The foregoing instrument was acknowledged before me this ________ day of _____________ 2002, by Thomas F. Fudge, President of Hecla Ventures Corp., a Nevada corporation, on behalf of said corporation. ------------------------------------------- Notary Public in and for the State of Idaho Residing at: ______________________________ My Commission Expires: ____________________ STATE OF IDAHO ) ) ss. County of Kootenai ) The foregoing instrument was acknowledged before me this ________ day of _____________ 2002, by __________________, _________________ of Hecla Mining Company, a Delaware corporation, on behalf of said corporation. ------------------------------------------- Notary Public in and for the State of Idaho Residing at: ______________________________ My Commission Expires: ____________________ -37- CANADA ) ) Province of British Columbia ) The foregoing instrument was acknowledged before me this ______ day of _______________, 2002, by ___________________________________ the _______________________ of Rodeo Creek Gold Inc., a Nevada corporation, on behalf of said corporation ------------------------------------------- Notary Public in and for the Province of British Columbia Residing at: ______________________________ My Commission Expires: ____________________ CANADA ) ) Province of British Columbia ) The foregoing instrument was acknowledged before me this ______ day of _______________, 2002, by __________________________________ the _______________________ of Great Basin Gold Ltd., a British Columbia, Canada corporation, on behalf of said corporation. ------------------------------------------- Notary Public in and for the Province of British Columbia Residing at: ______________________________ My Commission Expires: ____________________ -38- EXHIBIT A PROPERTIES (INCLUDES EXHIBIT A, PART I, II AND III) I. The 73 unpatented lode claims located in Elko County, Nevada listed below lie completely or partially within the Area of Interest commonly known as the Hollister Development Block which is defined by the following three dimensional Mine Grid Coordinates: 34,000E to 40,000E 35,000N to 42,000N Surface to 4,000ft Above sea level These claims are subject to Underlying Agreements (Part II and III of Exhibit A) and obligations or royalties of general application to any local, state or federal governments.
- --------------------------------- ------------------------------- -------------------------------- CLAIM NAME NCM NUMBERS NUMBER OF CLAIMS - --------------------------------- ------------------------------- -------------------------------- - --------------------------------- ------------------------------- -------------------------------- BILLY NUMBER 6-7 103763-103764 2 - --------------------------------- ------------------------------- -------------------------------- CAR 1-5 103752-103756 5 - --------------------------------- ------------------------------- -------------------------------- PICKUP 2 103765 1 - --------------------------------- ------------------------------- -------------------------------- GAPFILLER 103767 1 - --------------------------------- ------------------------------- -------------------------------- GAPFILLER 1 103768 1 - --------------------------------- ------------------------------- -------------------------------- JERRY 1,2,4,5, 103769,103770,103772, 14 13-15, 103775,103780-103782, 23-25, 103790-103792, 28-31 103793-103796 - --------------------------------- ------------------------------- -------------------------------- WDF 1 395835 1 - --------------------------------- ------------------------------- -------------------------------- MWB 1 515540 1 - --------------------------------- ------------------------------- -------------------------------- PICKUP 1 617440 - --------------------------------- ------------------------------- -------------------------------- CLYN 151-175, 679609-679633, 41 204-212, 679662-679670, 219,220, 679677, 679678, 222,224,226, 679680, 679682, 679684, 228, 230 679686, 679688 - --------------------------------- ------------------------------- -------------------------------- HAROLDS CLUB 1A-5A 681147-681151 5 - --------------------------------- ------------------------------- -------------------------------- HAROLDS CLUB 8A 681152 1 - --------------------------------- ------------------------------- -------------------------------- - --------------------------------- ------------------------------- -------------------------------- TOTAL 73 CLAIMS - --------------------------------- ------------------------------- --------------------------------
Exhibit A to Earn-in Agreement Part I - Properties Page 1 of 2 HOLLISTER DEVELOPMENT BLOCK AREA OF INTEREST [GRAPHIC] Exhibit A to Earn-in Agreement Part I - Properties Page 2 of 2 II. LEASES AND ROYALTIES AND UNDERLYING AGREEMENTS A. Hillcrest Claims. The Billy 6-7; Car 1-5; Pickup 2; Gapfiller; Gapfiller 1; Jerry 1-2, 4-5, 13-15, 23-25, and 28-31; Pickup 1; and Harold's Club 1A-5A and 8A claims (the "Hillcrest Claims") are owned by Hillcrest Mining Company, a Nevada corporation. The Hillcrest Claims are subject to a Mineral Lease dated October 23, 1981 between Hillcrest Mining Company as Lessor and Auric Metals Corporation as Lessee (the "Hillcrest Mining Lease"). A Sublease dated December 10, 1981 was granted by Auric Metals Corporation to United States Steel Corporation. Through various conveyances, the Sublease is now held by Rodeo Creek Gold Inc., a Nevada corporation. There are three royalties associated with the Hillcrest Claims: a 2% royalty on net proceeds reserved to Hillcrest/Auric; a 3% net returns royalty in favor of USX (successor to United States Steel Corporation). A 5% net profits interest reserved by Touchstone Resources Company will be paid entirely by Rodeo Creek out of Rodeo Creek's Participating Interest or Rodeo Creek's interest in the Net Profits Interest and will in no event affect the Participating Interest or Net Profits Interest of Hecla Ventures. The USX royalty was subsequently conveyed to Franco-Nevada Mining Corporation and Euro-Nevada Mining Corporation, Inc., which have been acquired by Newmont Mining Corporation (or a related company); the 3% net returns royalty is now owned and controlled by Newmont. B. Ivanhoe Claims. The WDF 1, MDW 1, and CLYN 151-175, 204-212, 219-220, 222, 224, 226, 228, and 230 claims (the "Ivanhoe Claims") are owned by Rodeo Creek Gold Inc., a Nevada corporation. The Ivanhoe Claims are subject to two royalties: a 5% net returns royalty, originally reserved by USX and now held by Newmont Mining Corporation or an affiliate company. A 5% net profits interest reserved by Touchstone Resources Company will be paid entirely by Rodeo Creek out of Rodeo Creek's Participating Interest or Rodeo Creek's interest in the Net Profits Interest and will in no event affect the Participating Interest or Net Profits Interest of Hecla Ventures. Exhibit A to Earn-in Agreement Part II - Properties -Leases and Royalties and Underlying Agreements Page 1 of 2 C. Underlying Agreements and Other Information. See Hollister Development Block Land and Agreement 3 ring binder dated July 22, 2002 for legal opinion, Property map and Underlying Agreements. A copy of the table of contents follows in Part III. Exhibit A to Earn-in Agreement Part II - Properties -Leases and Royalties and Underlying Agreements Page 2 of 2 PART III - UNDERLYING AGREEMENTS AND OTHER INFORMATION 1.0 SUMMARY INFORMATION * Claim List - claims in Hollister Development Block with ownership and royalties identified. * Claim Map - Hollister Development Block with corresponding royalties identified. 2.0 LEGAL CORRESPONDENCE * Title Report on Hollister Development Block, Elko County, Nevada, dated July 19, 2002 by Harris & Thompson. * Hillcrest-Auric Production Royalty, dated June 26, 1998 by Harris, Trimmer & Thompson. 3.0 FEBRUARY 18, 2002 - NEWS RELEASE * Newmont announces that it has completed its acquisition of Franco-Nevada Mining. 4.0 MARCH 15, 2002 - ACKNOWLEDGEMENT * RODEO CREEK GOLD INC. AND TOUCHSTONE RESOURCES INC.: Touchstone's participating interest in the joint venture is reduced to below 10%, they relinquish their interest to Rodeo Creek and reserve a 5% Net Profits Royalty. 5.0 OCTOBER 27, 2000 - ASSIGNMENT OF INTEREST * AURIC METALS CORPORATION AND FINLEY RIVER COMPANY: Auric assigns and transfers all of its rights, titles and interests in the Hillcrest Mining Lease and Sublease to Finley River. 6.0 MARCH 02, 1999 - PURCHASE AGREEMENT * GREAT BASIN GOLD LTD. AND TOUCHSTONE RESOURCES COMPANY & CORNUCOPIA RESOURCES LTD.: Great Basin purchases all of the shares of Touchstone Resources from Cornucopia Resources. 7.0 JULY 31, 1998 - PURCHASE AGREEMENT ASSIGNMENT * GREAT BASIN GOLD INC. AND RODEO CREEK GOLD INC.: Great Basin assigns all of its right, title and interest in the August 13, 1997 purchase agreement to Rodeo Creek. * GREAT BASIN GOLD INC. AND RODEO CREEK GOLD INC.: Quitclaim deed and assignment of the "Ivanhoe Properties" from Great Basin to Rodeo Creek. 8.0 JULY 31, 1998 - VENTURE AGREEMENT ASSIGNMENT * GREAT BASIN GOLD INC. AND RODEO CREEK GOLD INC.: Great Basin assigns all of its right, title and interest in the August 13, 1997 venture agreement to Rodeo Creek. Exhibit A to Earn-in Agreement Part III - Properties -Underlying Agreements and Other Information Page 1 of 3 9.0 AUGUST 13, 1997 - SUBLEASE AMENDMENT * AURIC METALS CORPORATION, AND HILLCREST MINING COMPANY AND GREAT BASIN GOLD INC..: Auric and Hillcrest acknowledge the assignment of the Sublease to Great Basin effective August 13, 1997. 10.0 AUGUST 13, 1997 - QUITCLAIM DEED AND ASSIGNMENT * NEWMONT EXPLORATION LIMITED AND GREAT BASIN GOLD INC..: Newmont quitclaims all rights titles and interest in the Ivanhoe properties to Great Basin Gold and assigns all of its rights , title and interests in the mineral lease and sub-lease to Great Basin. 11.0 AUGUST 13, 1997 - PURCHASE AGREEMENT * NEWMONT EXPLORATION LIMITED, TOUCHSTONE RESOURCES COMPANY AND GREAT BASIN GOLD INC..: Newmont and Touchstone terminate the Venture Agreement and Great Basin acquires Newmont's interest in the Ivanhoe Properties. 12.0 AUGUST 13, 1997 - VENTURE AGREEMENT * TOUCHSTONE RESOURCES COMPANY AND GREAT BASIN GOLD INC..: Great Basin and Touchstone participate jointly in the exploration, evaluation and development of mineral resources within the Ivanhoe Properties and any other acquired properties under the terms of this agreement. 13.0 MARCH 19, 1992 - QUITCLAIM DEED AND ASSIGNMENT * USX CORPORATION AND EURO-NEVADA MINING CORPORATION: USX conveys all of its remaining interest right and title in the "Deed" dated December 20, 1988 to Euro-Nevada. 14.0 DECEMBER 20, 1988 - QUITCLAIM DEED AND ASSIGNMENT * USX CORPORATION AND TOUCHSTONE RESOURCES COMPANY: USX conveys all of its interest right and title in the USX Claims and the base leases and Hillcrest claims to Touchstone while reserving certain interests. * 15.0 MARCH 26, 1987 - LESSOR'S CERTIFICATION * AURIC METALS CORPORATION AND TOUCHSTONE RESOURCES COMPANY: Auric certifies the good standing of the leases. 16.0 MARCH 19, 1987 - CERTIFICATION AND AGREEMENT * HILLCREST MINING RESOURCES COMPANY AND TOUCHSTONE RESOURCES COMPANY AND USX CORPORATION: Renewal and amendment of the lease. Exhibit A to Earn-in Agreement Part III - Properties -Underlying Agreements and Other Information Page 2 of 3 17.0 MARCH 19, 1987 - AMENDMENT TO MINERAL LEASE * AURIC METALS CORPORATION AND HILLCREST MINING RESOURCES: Amendment to the lease and assignment of interest. 18.0 DECEMBER 10, 1981 - SUBLEASE * AURIC METALS CORPORATION AND USX: USX subleases the Hillcrest Claims from Auric. 19.0 OCTOBER 23, 1981 - MINERAL LEASE * AURIC METALS CORPORATION AND HILLCREST MINING RESOURCES: Auric Leases the "Hillcrest" claims from Hillcrest. Exhibit A to Earn-in Agreement Part III - Properties -Underlying Agreements and Other Information Page 3 of 3 IV: TERMINATION AND RELEASE AGREEMENT THIS AGREEMENT is entered into and made effective this ___ day of ________, 20___, by and between Hecla Ventures Corp., a Nevada corporation ("Hecla Ventures") and its Guarantor, Hecla Mining Company, with their principal place of business at 6500 Mineral Drive, Coeur d'Alene, Idaho 83815-8788 and Rodeo Creek Gold Inc., C/O Richard Harris, 260 - 6121 Lakeside Drive, Reno, Nevada 89511, a Nevada corporation ("Rodeo Creek"), and its Guarantor, Great Basin Gold Ltd. with their principal place of business at 1020 - 800 West Pender Street, Vancouver, British Columbia V6C 2VC. RECITALS WHEREAS, Hecla Ventures and Rodeo Creek entered into an Earn-in Agreement dated August 2, 2002 ("Earn-in Agreement"); and, WHEREAS, Hecla Ventures and Rodeo Creek desire to terminate the Earn-in Agreement. NOW THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties agree as follows: ARTICLE I DEFINITIONS 1.1 "Hecla Ventures" means Hecla Ventures Corp. and its subsidiaries, affiliates, successors and assigns; 1.2 "Great Basin" means Great Basin Gold Ltd. and its subsidiaries, affiliates, successors and assigns; 1.3 "Earn-in Agreement" means the Earn-in Agreement by and between Hecla Ventures and Rodeo Creek, dated August 2, 2002, including all amendments and modifications thereof, and all schedules and exhibits, thereto. 1.4 "Agreement" shall mean collectively all covenants, terms and conditions of this Termination and Release of Agreement, and any specifications and exhibits thereto. 1.5 All other defined terms used in this Agreement and in its exhibits shall have the definitions previously agreed to in the Earn-in Agreement, unless specifically defined herein. Exhibit A to Earn-in Agreement Part IV - Termination and Release Agreement Page 1 of 6 ARTICLE II TERMINATION OF EARN-IN AGREEMENT 2.1 As evidenced by their signatures below, Hecla Ventures and Rodeo Creek hereby agree to terminate the Earn-in Agreement, subject to the terms and conditions of this Agreement. ARTICLE III MUTUAL RELEASE 3.1 Except as set out in this Agreement, Hecla Ventures and Rodeo Creek hereby release each other from all duties, obligations and liabilities, past, present and future, including contingent liabilities arising in whole or in part from joint operations on and near the Properties for activities undertaken pursuant to the Earn-in Agreement, excluding Hecla Mining Warrants and Great Basin Warrants which have been exchanged. ARTICLE IV INDEMNITY 4.1 Rodeo Creek's Indemnity Notwithstanding any provision of this Agreement to the contrary, Rodeo Creek shall be solely responsible for, and shall indemnify, defend, and hold harmless Hecla Ventures and its directors, officers, employees, agents, attorneys and Affiliates from and against, any and all liabilities, losses, claims, demands, damages, costs, expenses (including without limitation any environmental, reclamation and remediation expenses, fines, penalties, judgments, litigation costs and attorneys' fees) enforcement actions and causes of action ("Claims") arising in whole or in part from the activities conducted at any time prior to the Effective Date of the Earn-In Agreement on the Properties or on lands owned or controlled as of the Effective Date by Rodeo Creek within the Area of Interest, or on nearby lands involved in Rodeo Creek's operations, regardless of whether such Claims arise or accrue before or after the Effective Date of this Agreement, or after termination or expiration of the Term of this Agreement for any reason. Exhibit A to Earn-in Agreement Part IV - Termination and Release Agreement Page 2 of 6 4.2 Hecla Ventures' Indemnity Notwithstanding any provision of this Agreement to the contrary, Hecla Ventures shall be solely responsible for, and shall indemnify, defend, and hold harmless Rodeo Creek and its directors, officers, employees, agents, attorneys and Affiliates from and against, any and all liabilities, losses, claims, demands, damages, costs, expenses (including without limitation any environmental, reclamation and remediation expenses, fines, penalties, judgments, litigation costs and attorneys' fees) enforcement actions and causes of action ("Claims") arising in whole or in part from the Earn-in Activities conducted at any time after the Earn-In Agreement Effective Date on the Properties or on lands owned or controlled as of the Effective Date by Hecla Ventures within the Area of Interest, or on nearby lands involved in Hecla Ventures' operations, regardless of whether such Claims arise or accrue after the Effective Date of this Agreement, or after termination or expiration of the Term of this Agreement for any reason. ARTICLE V ATTORNEYS' FEES 5.1 The prevailing party in any dispute arising under this Agreement shall be entitled to an award of its reasonable attorneys' fees and costs. ARTICLE VI PARENT GUARANTEE 6.1 Hecla Mining hereby guarantees to Rodeo Creek the due performance of all the obligations of Hecla Ventures owed to Rodeo Creek hereunder. 6.2 Great Basin hereby guarantees to Hecla Ventures the due performance of all the obligations of Rodeo Creek owed to Hecla Ventures hereunder. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. Exhibit A to Earn-in Agreement Part IV - Termination and Release Agreement Page 3 of 6 HECLA VENTURES CORP. RODEO CREEK GOLD INC. By NOT FOR SIGNATURE - FORM ONLY By NOT FOR SIGNATURE - FORM ONLY ------------------------------ ------------------------------ - ----------------------------------- -------------------------------- Print Name Print Name - ------------------------------------ ------------------------------------ Title Title IN WITNESS WHEREOF, the Guarantors hereto have executed this Agreement as of the date first above written. HECLA MINING COMPANY GREAT BASIN GOLD LTD. By NOT FOR SIGNATURE - FORM ONLY By NOT FOR SIGNATURE - FORM ONLY ------------------------------ ------------------------------ - ----------------------------------- -------------------------------- Print Name Print Name - ------------------------------------ ------------------------------------ Title Title Exhibit A to Earn-in Agreement Part IV - Termination and Release Agreement Page 4 of 6 ACKNOWLEDGEMENTS STATE OF IDAHO ) ) ss. County of Kootenai ) The foregoing instrument was acknowledged before me this ___ day of _________________, 2002, by ______________________ the ____________________ of Hecla Ventures Corp., a Nevada corporation, on behalf of said corporation. NOT FOR SIGNATURE - FORM ONLY Notary Public Residing at: __________________________ My commission expires:_________________ STATE OF IDAHO ) ) ss. County of Kootenai ) The foregoing instrument was acknowledged before me this ___ day of _________________, 2002, by ______________________ the ____________________ of Hecla Mining Company, a Delaware corporation, on behalf of said corporation. NOT FOR SIGNATURE - FORM ONLY Notary Public Residing at: __________________________ My commission expires:_________________ Exhibit A to Earn-in Agreement Part IV - Termination and Release Agreement Page 5 of 6 CANADA ) ) Province of British Columbia ) The foregoing instrument was acknowledged before me this ___ day of _________________, 2002, by ______________________ the ____________________ of Rodeo Creek Gold Inc., a Nevada corporation, on behalf of said corporation. NOT FOR SIGNATURE - FORM ONLY Notary Public Residing at: __________________________ My commission expires:_________________ CANADA ) ) Province of British Columbia ) The foregoing instrument was acknowledged before me this ___ day of _________________, 2002, by _______________________ the ___________________ of Great Basin Gold Ltd., a British Columbia corporation, on behalf of said corporation. NOT FOR SIGNATURE - FORM ONLY Notary Public Residing at: __________________________ My commission expires:_________________ Exhibit A to Earn-in Agreement Part IV - Termination and Release Agreement Page 6 of 6 EXHIBIT B ACCOUNTING PROCEDURES I. GENERAL PROVISIONS It is the intent of the Manager and the Participants that the Manager, except as permitted by this Agreement, shall not lose or profit by reason of its duties and responsibilities as Manager. The Accounting Procedures shall be reviewed by the Management Committee upon the request of the Manager or any Participant to assure that the Manager (directly or through its Affiliates) does not , except as permitted by this Agreement, make a profit or suffer a loss from serving as Manager. The Participants shall, in good faith, endeavor to agree on modifications to these Accounting Procedures that will remedy any alleged unfairness or inequity. 1. Definitions All words indicated with initial capital letters shall have the meaning set forth in Article I of this Joint Operating Agreement. 2. Conflict with Agreement In the event of a conflict between the provisions of this Accounting Procedure and the provisions of the agreement to which this Accounting Procedure is attached ("Operating Agreement"), the provisions of the Operating Agreement shall control. 3. Collective Action by Non-Manager Where there are more than one non-Manager, where an agreement or other action by non-Manager is expressly required under this Accounting Procedure, and if the Operating Agreement contains no contrary provisions in regard thereto, the agreement or action of a majority in interest of the non-Manager shall be controlling on all non-Managers. Exhibit B to Earn-in Agreement Accounting Procedures Page 1 of 15 4. Statements and Billings A. Prior to the first day of each month covered by an approved budget, or some other quantum of months as may be agreed by the Participants and such time being hereinafter referred to as the "Period," each Participant shall advance to the Joint Accounts its proportionate share (i.e., according to its Participating Interest in the Joint Operation) of the total amount of the funds required for such Period, as reflected by the budget. Manager shall pay and discharge all costs and expenses of the Joint Account as the same become due and payable. Notwithstanding the failure of the Participants to approve any budget, each Participant shall advance to the Joint Account its proportionate share of such funds as the Manager shall by written notice advise the Participants are required for protecting and maintaining the Joint Properties and meeting the obligations properly incurred for the Joint Account. No Participant shall be considered deficient as to any advance due from it unless it shall have been allowed at least ten (10) days (after receipt of copies of the approved budget on which determination of the amount to be advanced is based, or, in the case of an advance to be made pursuant to the next preceding sentence, after receipt of notice from the Manager in such regard) in which to make such advance. B. Manager shall provide non-Manager on or before the last day of the month following each Period a statement of costs and expenses for the Period. Such statement will reflect all charges and credits to the Joint Account, summarized by appropriate classifications indicative of the nature thereof. Proper adjustments shall be made between advances and direct and indirect costs, to the end that each Participant shall bear and pay its proportionate share of direct and indirect costs incurred and no more or less. 5. Payment and Advances by Non-Manager In the case where advances have been insufficient to cover actual costs, the Manager, by written notice, shall advise non-Manager of such deficiency and request that funds to cover such deficiency be paid in accordance with this paragraph 5 of Section I. If advances exceed actual costs, the Manager shall advise non-Manager of such excess and Exhibit B to Earn-in Agreement Accounting Procedures Page 2 of 15 advise non-Manager of either a reduced amount required to be advanced for the next Period or return to the Participants their proportionate share of such excess. Each non-Manager shall pay pro rata share of any advance due for a Period or for a deficiency request for funds within ten (10) days after receipt of notice from Manager. If payment is not made within such time, the unpaid balance shall bear interest at the annual rate of five (5) percent above the Prime Rate. 6. Adjustments Payments of any such advance or deficiency requests shall not prejudice the right of the non-Manager to protest or question the correctness thereof, provided, however, all accounts and statements rendered to non-Manager during any calendar year shall conclusively be presumed to be true and correct after twelve (12) months following the end of such calendar year, unless within the said twelve (12) month period a non-Manager takes written exception thereto and makes claim on Manager for adjustment. No adjustment favorable to Manager shall be made unless it is made within the same prescribed period. The provisions of this paragraph shall not prevent adjustments resulting from a physical inventory of the Joint Property. 7. Audits The Manager shall, upon the request of any Participant with a Participating Interest under this Agreement, have an annual audit performed on the Manager's accounts by a firm of auditors acceptable to the Participants which own the majority Participating Interest. The cost of such annual audit shall be charged to the Joint Account. In addition to the annual audit, any other work performed by these auditors (including the preparation of schedules for submission to any taxing authorities), if approved by the Management Committee, shall be charged to the Joint Account. Notwithstanding the above, any audit, accounting, taxation or similar work performed at the request of any Participant to this Agreement for the exclusive benefit of that Participant shall be a charge to that Participant and not be a charge to the Joint Account. Exhibit B to Earn-in Agreement Accounting Procedures Page 3 of 15 A non-Manager, upon notice in writing to Manager, shall have the right to audit Manager's accounts and records relating to the accounting hereunder for any calendar year within the twelve (12) month period following the end of each calendar year, provided, however, the making of an audit shall not extend the time for the taking of written exception to and the adjustment of accounts as provided above. Where there are two or more non-Managers, the non-Manager shall make every reasonable effort to conduct joint or simultaneous audits in a manner which will result in a minimum of inconvenience to the Manager. II. DIRECT CHARGES Subject to limitations hereinafter prescribed, and unless otherwise provided in the Operating Agreement, Manager shall charge the Joint Account with the following items: 1. Rentals, Royalties, Fees and Reclamation A. Rentals and royalties when such rentals, lease payments and royalties are paid by Manager for the Joint Account of the Participants. B. Any annual fee payment or assessment work expenditure on or for the Properties. C. A cash reclamation account that is funded on a per ounce basis to meet expected reclamation costs identified in the Feasibility Study as may be updated from time to time by an independent consultant and approved by the Management Committee. 2. Labor A. Salaries and wages of Manager's employees or Affiliates directly engaged in the conduct of the Joint Operations (except those entities' executives and officers), and salaries or wages of technical employees who are temporarily assigned to and directly employed in the conduct of Joint Operations and whose salaries are not compensated for under Section III. B. Manager's cost of holiday, vacation, sickness, and disability benefits and other customary allowances paid to the employees whose salaries and wages are chargeable to the Joint Account under Paragraph 2A of this Section II and Paragraph 1 of Section III; except that in the case of those employees only a pro rata portion of whose salaries and wages are chargeable to Exhibit B to Earn-in Agreement Accounting Procedures Page 4 of 15 the Joint Account under Paragraph 1 of Section III, not more than the same pro rata portion of the benefits and allowances herein provided for shall be charged to the Joint Account. Cost under this Paragraph 2B may be charged on a "when and as paid basis" or by "percentage assessment" on the amount of salaries and wages chargeable to the Joint Account under Paragraph 2A of this Section II and Paragraph 1 of Section III. If percentage assessment is used, the rate shall be based on the Manager's cost experience. C. Expenditures or contributions made pursuant to assessments imposed by governmental authority which are applicable to Manager's labor cost of salaries and wages chargeable to the Joint Account under Paragraphs 2A and 2B of this Section II and Paragraph 1 of Section III. D. Reasonable personal expenses of those employees whose salaries and wages are chargeable to the Joint Account under Paragraph 2A of this Section II and for which expenses the employees are reimbursed under Manager's usual practice. 3. Employee Benefits Manager's cost of established plans for employees' group life insurance, hospitalization, pension, retirement, stock purchase, thrift, severance payments and other benefit plans of a like nature, applicable to Manager's labor cost chargeable to the Joint Account under Paragraphs 2A and 2B of this Section II and Paragraph 1 of Section III. 4. Material Material and supplies ("Material") purchased or furnished by Manager for use on the Joint Property. So far as it is reasonably practical and consistent with efficient economical operation, only such Material shall be purchased for or transferred to the Joint Property as may be required for immediate use; and the accumulation of surplus stocks shall be avoided. The charges for any Material or services provided by Manager or an Affiliate of Manager shall not exceed the prevailing charges or rates for such Material or services in the vicinity of the Joint Property and those services performed by Manager or Affiliate of Manager shall be under the same terms and conditions as are customary and usual in the vicinity of the Joint Property in contracts of independent contractors who are doing work of a similar nature. Exhibit B to Earn-in Agreement Accounting Procedures Page 5 of 15 5. Transportation Transportation of employees and Material necessary for the Joint Operations but subject to the following limitations: A. If Material is moved to the Joint Property from the Manager's warehouse or other properties, no charge shall be made to the Joint Account for a distance greater than the distance from the nearest reliable supply store or railway receiving point where like material is available, except by agreement with non-Manager. B. If surplus Material is moved to Manager's warehouse or other storage point, no charge shall be made to the Joint Account for a distance greater than the distance to the nearest reliable supply store or railway receiving point, except by agreement with non-Manager. No charge shall be made to Joint Account for moving Material to other properties belonging to Manager, except by agreement with non-Manager. C. In the application of subparagraphs A and B above, there shall be no equalization of actual gross trucking costs of $100.00 or less. 6. Off-Site Transportation of Ore Transportation of Products from the Properties to any off-site processing facility. 7. Processing Cost It is understood at the time of the signing of this agreement that no final disposition of Products from the Properties has been arranged. However, the intent of the parties can be summarized as follows: A. If the arrangement shall be toll milling then the Participants shall take in kind and the costs required to beneficiate the Products to the point where delivery may be taken in kind are charged to the Joint Account as Processing Cost. Exhibit B to Earn-in Agreement Accounting Procedures Page 6 of 15 B. If the arrangement shall be custom milling the Processing Cost shall be the difference between the gross value of metal in the Products and the payment received for the Products. 8. Services A. The cost of contract services and utilities procured from outside sources other than services covered by Paragraph 10 of this Section II of this Accounting Procedure. B. Use and services of equipment and facilities furnished by Manager as provided in Paragraph 2 of Section IV of this Accounting Procedure. 9. Damages and Losses to Joint Property All costs or expenses necessary for the repair or replacement of Joint Property made necessary because of damages or losses incurred by fire, flood, storm, theft, accident, or any other cause. Manager shall furnish non-Manager written notice of damages or losses incurred as soon as practical after a report thereof has been received by Manager. 10. Legal Expenses All costs and expenses of handling, investigating and settling litigation or claims arising by reason of the Joint Operations or necessary to protect or recover the Joint Property, including, but not limited to, attorneys' fees, court costs, cost of investigation or procuring evidence and amounts paid in settlement or satisfaction of any such litigation or claims; provided (a) except as otherwise permitted herein, no charge shall be made for the services of Manager's legal staff or other regularly employed legal personnel for legal services rendered solely on behalf of and for the benefit of Manager (such services being considered to be Administrative Overhead under Section III), except by agreement with non-Manager, (b) no charge shall be made for the fees and expenses of outside attorneys unless the employment of such attorneys is approved by the Management Committee, and (c) no settlement of litigation or claims for more than $100,000 in cash or value shall be made by the Manager without prior approval of the non-Manager. Exhibit B to Earn-in Agreement Accounting Procedures Page 7 of 15 11. Taxes All taxes of every kind and nature assessed or levied upon or in connection with the Joint Property, the operation thereof, of the production therefrom, and which taxes have been paid by the Manager for the benefit of all the Participants. For greater certainty, any tax levied on income or profit of the Joint Venture is payable by each individual Participant to this Agreement and, to the extent paid by the Joint Account, is to be refunded to the Joint Account by each such Participant on whom such tax is assessed and/or levied. 12. Insurance Premiums Premiums paid for insurance required to be carried on the Joint Property for the protection of the Participants. 13. Other Expenditures Any other expenditures not covered or dealt with in the foregoing provisions of this Section II or in Section III, and which are incurred by the Manager for the necessary and proper conduct of the Joint Operations and pursuant to any applicable provisions of the Operating Agreement. III. INDIRECT CHARGES Subject to limitations hereinafter prescribed, and unless otherwise provided in the Operating Agreement, Manager shall charge the Joint Account with the following items: 1. Administrative Overhead In addition to the charges made pursuant to Paragraph 1 above, Manager shall charge the Joint Account with an overhead charge calculated as follows: A. One percent (1%) of any expenditure for an item which would, under generally accepted accounting treatment for financial purposes, be capitalized and is not included as a direct charge included in Section II of the Account Procedure; plus B. Seven percent (7%) of all Direct Charges as defined in this Exhibit B, except the Direct Charges identified in Section II, paragraphs 1A, 1B and 1C of this Exhibit B but for any individual contract in excess of $50,000 the fee shall be reduced to 3%. Exhibit B to Earn-in Agreement Accounting Procedures Page 8 of 15 Such overhead rates may be amended from time to time by mutual agreement of the Participants hereto if, in practice, the rates are found to be insufficient or excessive. 2. Depreciation and Amortization The value of additional capital equipment and facilities acquired after Stage II will be amortized on a per ounce produced basis over the remaining mine life, or the expected useful life of the newly acquired capital asset, whichever is shorter. IV. BASIS OF CHARGES TO JOINT ACCOUNT 1. Purchases Material and equipment purchased and service procured shall be charged at the price paid by Manager after deduction of all discounts actually received. 2. Material Furnished by Manager Material required for operations shall be purchased for direct charge to the Joint Account whenever practicable, except that Manager may furnish such material from Manager's stocks under the following conditions: A. New Material (Condition "A") (1) New material transferred from Manager's warehouse or other properties shall be priced F.O.B. the nearest reputable supply store or railway receiving point, where such material is available, at current replacement cost of the same kind of material. (2) Cash discount shall be allowed. Exhibit B to Earn-in Agreement Accounting Procedures Page 9 of 15 B. Used Material (Conditions "B" and "C") (1) Material which cannot be classified as Condition "A" but which are classified as Condition "B" or "C" as defined below shall be priced at 50% of new price. (a) "Condition B": after reconditioning will be further serviceable for original function as good secondhand material, or (b) "Condition C": is serviceable for original function but substantially not suitable for reconditioning. (2) Material which cannot be classified as Condition "B" or Condition "C" shall be priced at a value commensurate with its use. C. Material Furnished by Manager When Not Readily Available When material and/or supplies are not readily available from reputable supply sources due to scarcity, national emergency or governmental regulations, Manager may furnish such from its stock or properties at its nearest available supply and charge Manager's full cost or replacement cost, as circumstances may require, of same to the Joint Account, including, without limitation, purchase price, procurement, warehousing, handling, transportation and all other costs incurred in connection therewith up to the time of delivery to the Joint Property. 3. Premium Prices Whenever materials and equipment are not readily obtainable at the customary supply point and at prices specified in Paragraphs 1 and 2 of this Section IV because of national emergencies, strike or other unusual causes over which the Manager has no control, the Manager may charge the Joint Account for the required materials on the basis of the Manager's direct cost and expense incurred in procuring, such materials, in making it suitable for use, and in moving it to the location; provided, however, that notice in writing is furnished to non-Manager of the proposed charge prior to billing the non-Manager for Exhibit B to Earn-in Agreement Accounting Procedures Page 10 of 15 the material or equipment acquired pursuant to this provision, whereupon non-Manager shall have the right, by so electing and notifying Manager, within ten (10) days after receiving notice from the Manager, to furnish in kind, or in tonnage as the Participants may agree, at the location nearest railway receiving point, or Manager's storage point within a comparable distance, all or part of its share of material or equipment suitable for use and acceptable to the Manager. Transportation costs on any such material furnished by the non-Manager, at any point other than at location, shall be borne by the non-Manager. If, pursuant to the provisions of this paragraph, the non-Manager furnishes material or equipment in kind, the Manager shall make appropriate credits therefore to the Joint Account. 4. Warranty of Material Furnished by Manager Manager does not warrant the material furnished beyond the backing of the dealer's or manufacturer's guaranty; and in case of defective material, credit shall not be passed until adjustment has been received by Manager from the manufacturers or their agents. 5. Manager's Exclusively Owned Facilities The following rates shall apply to service rendered to the Joint Account by facilities and equipment owned by Manager: A. Water, fuel, power, compressor and other auxiliary services at rates commensurate with cost of providing and furnishing such service to the Joint Account but not exceeding rates currently prevailing in the vicinity of the Joint Property. B. Automotive equipment at rates commensurate with cost of ownership and operation. Automotive rates shall include cost of oil, gas, repairs, insurance and other operating expenses and depreciation; and charges shall be based on use in actual service on, or in connection with, the Joint Account operations. Truck and tractor rates may include wages and expenses of driver. C. A fair rate shall be charged for the use of Manager's fully owned machinery or equipment which shall be ample to cover maintenance, repairs, depreciation, and the service furnished the Joint Property; provided that such charges shall not exceed those currently prevailing in the vicinity of the Joint Property. Exhibit B to Earn-in Agreement Accounting Procedures Page 11 of 15 D. A fair rate shall be charged for laboratory services performed by Manager for the benefit of the Joint Account; provided such charges shall not exceed those currently prevailing if performed by outside service laboratories. E. Whenever requested, Manager shall inform non-Manager in advance of the rates it proposes to charge. F. Rates shall be revised and adjusted from time to time by the Management Committee when found to be either excessive or insufficient. V. DISPOSAL OF EQUIPMENT AND MATERIAL 1. Manager Not Obligated to Purchase The Manager shall be under no obligation to purchase interests of non Manager in surplus new or secondhand material. The disposition of major items of surplus material shall be subject to mutual determination by the Participants hereto; provided, Manager shall have the right to dispose of normal accumulations of junk and scrap material either by transfer or sale from the Joint Property. 2. Material Purchased by the Manager or Non-Manager Material purchased by either the Manager or non-Manager shall be credited by the Manager to the Joint Account for the month in which the material is removed by the purchaser. 3. Division in Kind Division of material in kind, if made between Manager and non-Manager, shall be in proportion to their respective interests in such material. Each Participant will thereupon be charged individually with the value of the material received or receivable by each Participant, and corresponding credits will be made by the Manager to the Joint Account. Such credits shall appear in the monthly statement of operations. 4. Sales to Third Parties Sales to third parties of material from the Joint Property shall be credited by Manager to the Joint Account at the net amount collected by Manager from any such third party. Any claims by any such third party for defective material or otherwise shall be charged back to the Joint Account if and when paid by Manager. Exhibit B to Earn-in Agreement Accounting Procedures Page 12 of 15 VI. BASIS OF PRICING MATERIAL TRANSFERRED FROM JOINT ACCOUNT TO ACCOUNT OF EITHER PARTY 1. New Price Defined New price as used in the following paragraphs shall have the same meaning and application as that used in Section IV above, "Basis of Charges to Joint Account." 2. New Material New Material (Condition "A"), being new material procured for the Joint Property but never used thereon, at one hundred percent (100%) of current new price (plus sales tax, if any). 3. Good Used Material Good used material (Condition "B"), being used material in sound and serviceable condition, suitable for reuse without reconditioning. A. At seventy-five percent (75%) of current new price (plus sales tax, if any) if material was charged to the Joint Account as new, or B. At sixty-five percent (65%) of current new price (plus sales tax, if any) if material was originally charged to the Joint Account as Condition "B" material. 4. Other Used Material Used material (Condition "C"), at fifty percent (50%) of current new price (plus sales tax, if any), being used material which: A. After reconditioning will be further serviceable for original function as good secondhand material (Condition "B"), or B. Is serviceable for original function but substantially not suitable for reconditioning. Exhibit B to Earn-in Agreement Accounting Procedures Page 13 of 15 5. Bad-Order Material Material and equipment (Condition "D") which is no longer useable for its original purpose without excessive repair cost but is further useable for some other purpose shall be priced on a basis comparable with that of items nominally used for that purpose. 6. Junk Junk (Condition "E"), being obsolete and scrap material at prevailing prices. 7. Temporarily Used Material When the use of material is temporary and its service to the Joint Property does not justify the reduction in price, such material shall be priced on a basis that will leave a net charge to the Joint Account consistent with the value to the Venture. VII. INVENTORIES 1. Periodic Inventories, Notice and Representations At reasonable intervals, but no less than annually, inventories shall be taken by Manager of the Joint Account material, which shall include all such material as is ordinarily considered controllable by operators of mining properties. Written notice of intention to take inventory shall be given by Manager at least thirty (30) days before any inventory is to begin so that non-Manager may be represented at an inventory. Failure of non-Manager to be represented at an inventory shall bind the non-Manager to accept the inventory taken by Manager, who shall in that event furnish non-Manager with a copy thereof. The provisions of this paragraph do not apply if inventory is maintained on a perpetual basis. 2. Reconciliation and Adjustment of Inventories Reconciliation of inventory with charges to the Joint Account shall be made by each Participant in interest, and a list of overages and shortages shall be jointly determined by Manager and non-Manager. Inventory adjustments shall be made by Manager to the Joint Account for overages and shortages, but Manager shall be held accountable to non-Manager only for shortages due to lack of reasonable care. Exhibit B to Earn-in Agreement Accounting Procedures Page 14 of 15 3. Special Inventories Special inventories may be taken at the expense of a purchaser of a Party's Periodic Inventory whenever there is any sale or change of interest in the Joint Property; and it shall be the duty of the Participant selling to notify all other Participants hereto as quickly as possible after the transfer of interest takes place. In such cases, both the seller and the purchaser shall be represented and shall be governed by the inventory so taken. Exhibit B to Earn-in Agreement Accounting Procedures Page 15 of 15 EXHIBIT B1 INSURANCE 1. Manager as determined by the Management Committee shall maintain in the names of the Participants the following types of insurance with limits of liability as stated below and shall maintain insurance as required, as a cost charged to the Earn-in Activities, at all times while performing the operations for the benefit of the Participants. Upon written request by any Participant, Manager shall provide certificates of insurance executed by the insurance companies evidencing the insurance placed by Manager and shall promptly deliver said certificates to said Participant. The certificates procured by Manager shall provide that any major negative change in or the cancellation of any coverages for which certificates are issued shall not be valid as respects the certificate holder's interests therein until the certificate holder has had at least thirty days' notice in writing prior to such change or cancellation. Insurance provided by Manager under subsection (a)(i), (a)(ii) and (a)(iii), below, shall contain a waiver of subrogation in favor of the Participants, if such waiver is available under such policies of insurance. Contractors and subcontractors shall include the Participants as additional insureds, which inclusion shall be shown on appropriate certificates.
-------------------------------------------------------------- --------------------------------------------- COVERAGE MINIMUM LIMITS -------------------------------------------------------------- --------------------------------------------- (i) Workers' Compensation ("WC") and WC - Statutory Employers' Liability ("EL") Insurance, including Occupational disease. EL - $500,000 -------------------------------------------------------------- --------------------------------------------- (ii) Business automobile liability insurance, $1,000,000 combined single limit per including all owned, and hired vehicles; provided, occurrence for bodily injury and if Rodeo Creek uses non-owned vehicles, it shall first property damage. obtain coverage for such non-owned vehicles as part of the automobile liability insurance policy or under a rider thereto. -------------------------------------------------------------- --------------------------------------------- (iii) Commercial general liability insurance $5,000,000 combined single limit per including blanket contractual liability, personal occurrence and in the annual aggregate injury, independent contractors. for bodily injury, personal injury and property damage. -------------------------------------------------------------- ---------------------------------------------
2. Manager shall cause all of Manager's Affiliates, contractors and subcontractors to maintain Worker's Compensation Insurance as prescribed by law, and to maintain Employer's Liability Insurance, Exhibit B1 to Earn-in Agreement Insurance Page 1 of 2 Business Automobile Liability Insurance in amounts equal to at least 10% of the amounts set forth above, and Commercial general liability insurance with a combined single limit of $1,000,000 and in the annual aggregate, at all times during the performance of Operations by such Affiliates, contractors or subcontractors. Exhibit B1 to Earn-in Agreement Insurance Page 2 of 2 EXHIBIT C FORM OF QUITCLAIM DEED AND ASSIGNMENT RECORDING REQUESTED BY & RETURN TO: Hecla Ventures Corp. Land Records Department 6500 Mineral Drive Coeur d'Alene, ID 83815-8788 FORM OF QUITCLAIM DEED AND ASSIGNMENT Rodeo Creek Gold Inc. (hereinafter referred to as "Transferor"), a Nevada corporation, whose address is C/O Richard Harris, 260 - 6121 Lakeside Drive, Reno, Nevada 89511, duly qualified to do business and in good standing in the state of Nevada, in consideration of the sum of ten dollars ($10.00) and other valuable consideration paid to Transferor by Hecla Ventures Corp., (hereinafter referred to as "Transferee"), a Nevada corporation duly qualified to do business and in good standing in the state of Nevada, whose address is 6500 Mineral Drive, Coeur d'Alene, Idaho 83815-8788, the receipt of which is hereby acknowledged by Transferor, hereby assigns and quitclaims to Transferee an undivided fifty percent (50%) interest in all of the Transferor's interest in the Properties described in Exhibit A to that Earn-in Agreement between Transferor and Transferee dated __________, 2002 ("Property"). TO HAVE AND TO HOLD, all and singular the Property, together with the tenements, hereditaments and appurtenances belonging thereto, or in anywise appertaining, and the rents, issues and profits of such property all to Transferee and Transferee's successors and permitted assigns forever. IN WITNESS WHEREOF, Transferor has caused this Quitclaim Deed and Assignment to be executed this _______ day of _________________, 2002. TRANSFEROR: RODEO CREEK GOLD INC. By: NOT FOR SIGNATURE - FORM ONLY ----------------------------- Name: ---------------------------- Title: --------------------------- Exhibit C to Earn-in Agreement Form of Form of Quitclaim Deed and Assignment Page 1 of 2 ACKNOWLEDGEMENT CANADA ) ) Province of British Columbia ) The foregoing instrument was acknowledged before me this ______ day of _______________, 2002, by ___________________________________ the _______________________ of Rodeo Creek Gold Inc., a Nevada corporation, on behalf of said corporation. NOT FOR SIGNATURE - FORM ONLY ----------------------------- Notary Public in and for the Province of British Columbia Residing at: ___________________________ My Commission Expires: _________________ Exhibit C to Earn-in Agreement Form of Form of Quitclaim Deed and Assignment Page 2 of 2 EXHIBIT D FORM OF MEMORANDUM OF AGREEMENT RECORDING REQUESTED BY & RETURN TO: Hecla Ventures Corp. Land Records Department 6500 Mineral Drive Coeur d'Alene, ID 83815-8788 FORM OF MEMORANDUM OF EARN-IN AGREEMENT This Memorandum of Earn-in Agreement, effective the ___ day of _____________, 2002, is filed of record in accordance with the provisions contained in that certain agreement of even date herewith known as the Ivanhoe Project - Hollister Development Block Earn-in Agreement ("Earn-in Agreement"), wherein Hecla Ventures Corp., a Nevada corporation, whose address is 6500 Mineral Drive, Coeur d'Alene, Idaho 83815-8788 ("Hecla Ventures") entered into a mineral exploration, development and mining arrangement with Rodeo Creek Gold Inc., a Nevada corporation, whose address is C/O Richard Harris, 260-6121 Lakeside Drive, Reno, NV 89511 ("Rodeo Creek"), for good and valuable consideration as set forth in the provisions of the Earn-in Agreement, a copy of which is available at the offices of the parties set forth above. Under the terms of the Earn-in Agreement, Hecla Ventures is granted the right to conduct activities including, without limitation, mineral exploration, development, test mining and processing, and all other activities incident to or arising therefrom, on or for the benefit of the properties held by Rodeo Creek more specifically described in Exhibit A, attached hereto and incorporated herein by this reference (referred to as the "Properties"). Upon completion of certain terms specified in the Earn-in Agreement and payment of valuable consideration to Rodeo Creek, Hecla Ventures shall acquire an immediate right to receive an undivided fifty percent (50%) interest in Rodeo Creek's Properties, and both parties shall immediately contribute their undivided interests in such properties to the purposes of a Joint Operating Agreement, the form of which is attached as Exhibit F to the Earn-in Agreement. This Memorandum has been executed and filed of record solely to give the public notice of the existence of the Earn-in Agreement. It does not in any way amend, modify, revise, or replace the Earn-in Agreement. Exhibit D to Earn-in Agreement Form of Memorandum of Agreement Page 1 of 4 IN WITNESS WHEREOF, the parties have executed this Memorandum effective as of the date and year first above written. HECLA VENTURES CORP. RODEO CREEK GOLD INC. By: NOT FOR SIGNATURE - FORM ONLY By: NOT FOR SIGNATURE - FORM ONLY ------------------------------ ------------------------------ - --------------------------------- --------------------------------- Print Name Print Name Its: Its: ----------------------------- ----------------------------- Title Title Exhibit D to Earn-in Agreement Form of Memorandum of Agreement Page 2 of 4 ACKNOWLEDGEMENTS STATE OF IDAHO ) ) ss. County of Kootenai ) The foregoing instrument was acknowledged before me this ________ day of _____________ 2002, by Thomas F. Fudge, President of Hecla Ventures Corp., a Nevada corporation, on behalf of said corporation. NOT FOR SIGNATURE - FORM ONLY ----------------------------- Notary Public in and for the State of Idaho Residing at: ______________________________ My Commission Expires: ____________________ Exhibit D to Earn-in Agreement Form of Memorandum of Agreement Page 3 of 4 CANADA ) ) Province of British Columbia ) The foregoing instrument was acknowledged before me this ______ day of _______________, 2002, by ___________________________________ the _______________________ of Rodeo Creek Gold Inc., a Nevada corporation, on behalf of said corporation. NOT FOR SIGNATURE - FORM ONLY ----------------------------- Notary Public in and for the Province of British Columbia Residing at: ______________________________ My Commission Expires: ____________________ Exhibit D to Earn-in Agreement Form of Memorandum of Agreement Page 4 of 4 EXHIBIT E EXPENDITURE SCHEDULE AND INITIAL PROGRAM AND BUDGET A. Warrant Commitments. Subject to the right to terminate and to withdraw under Article VIII of the Earn-in Agreement, Hecla Ventures issues Great Basin the following warrants to purchase Hecla Common Stock:
Date of Hecla Mining Warrants Amount of Warrant Issuance ----------------------------- -------------------------- 1. At signing ("Effective Date") of the Earn-in 2,000,000 two year warrants to purchase Hecla Agreement Mining common stock ("Tranche 1") 2. On date Hecla Ventures elects to An additional 1,000,000 two year warrants to proceed with Stage II Activities or fund in purchase Hecla Mining common stock lieu ("Tranche 2") 3. On date Hecla Ventures gives notice to An additional 1,000,000 two year warrants to Rodeo Creek that Stage II Earn-In Activities purchase Hecla Mining common stock are complete or Hecla Ventures elects to fund ("Tranche 3") Stage II in lieu.
Hecla Ventures shall issue to Great Basin the warrant certificate(s) dated as per above within thirty (30) days of the date of the Warrant Agreement, substantially in the form of Exhibit G hereto. Exhibit E to Earn-in Agreement Expenditure Schedule and Initial Program & Budget Page 1 of 14 Upon receipt of each Tranche of Hecla Mining Warrants (as defined above) Great Basin will issue to Hecla Ventures warrants to purchase shares in Great Basin ("Great Basin Warrants") as follows: 1) 1 million Great Basin two year Warrants upon receipt of Tranche 1 Hecla Mining Warrants; 2) 500,000 Great Basin two year Warrants upon receipt of Tranche 2 Hecla Mining Warrants; and 3) 500,000 Great Basin two year Warrants upon receipt of Tranche 3 Hecla Mining Warrants. Great Basin Warrants will be exercisable at the weighted average closing price for the twenty (20) trading days on the Toronto Stock Exchange immediately prior to issuance and done substantially in accordance with the form Warrant Agreement attached hereto in Exhibit H, subject to Article V. B. Earn-in Activities. For purposes of this Exhibit E and the Earn-in Agreement, "Earn-in Activities" shall mean the following activities conducted in accordance with generally accepted mining practices in the United States of America. Stage I * Plan, engineer and permit (in an expeditious manner) scope of work * Develop underground access to Gwenivere and Clementine veins including some equipment purchases * Delineate ore shoots within veins * Convert resource to "measured and indicated" based on diamond core drilling program * Complete Feasibility Study to determine the scope of work to be accomplished in Stage II and the overall feasibility of a mine project. See attached Scope of Work for Details of Stage I Work. The estimated costs to complete Stage I is $10,300,000 and the estimated time to complete is 12 months after date of issuance of permit(s) (pursued in an expeditious manner on a best efforts and diligent basis by Hecla Ventures), however, some permitting and Stage I work Program Activities will run concurrently. Earn-In Activities to commence on the Effective Date of this Agreement. If the actual costs of Stage I exceed the Initial Budget, but are done in accordance with a revised and approved Exhibit E to Earn-in Agreement Expenditure Schedule and Initial Program & Budget Page 2 of 14 Program and Budget, then such additional costs shall apply towards Earn-In Expenditures as provided under Section 9.3, Programs and Budgets. Stage II * Possible future development loop of underground to surface * Underground production development * Production equipment * Surface Facilities and Infrastructure * Engineering, procurement and management construction The estimated costs to complete Stage II are $11,500,000 and are estimated to take approximately 12 months to complete. The total costs of Stage I and II are estimated at $21,800,000. After completion of Stage II, the subject Properties are essentially developed to the point of Commercial Production or where a decision can be made whether they are capable of Commercial Production. Each Party must notify the other within thirty (30) days after completion of Stage II whether it elects to proceed. C. Initial Program and Budget for Stage I. Exhibit E to Earn-in Agreement Expenditure Schedule and Initial Program & Budget Page 3 of 14 HOLLISTER DEVELOPMENT BLOCK VENTURE - AUGUST 2, 2002 STAGE 1 EXPLORATION PROGRAM AND BUDGET US $ Permitting $ 200,000 Project Planning and Engineering incl. in Management Services Equipment and Facilities Procurement and Prep 653,165 Mobilization 34,630 Drifting and Development Ramping, Crosscutting and Diamond Drill Stations - 5,780 ft 1,992,752 Drift on Vein - 2,200 ft 591,600 Raising on Veins 750 ft 366,200 Indirect Costs 2,580,040 Metallurgy 73,171 ----------------- Subtotal - Setup and Construction 6,491,558 Diamond Drilling - 40,000 ft. 1,080,000 Management Services @ 7% 530,009 ----------------- Subtotal - Project 8,101,567 Contingencies Ground support 350,000 Water handling 200,000 Environmental 25% of Forecast Permitting Cost 50,000 Equipment and Facilities 498,433 ----------------- Subtotal Project with Contingencies 9,200,000 Other Bonding 1,000,000 Other Contingencies 100,000 ----------------- Total Estimated Stage I Costs $10,300,000 =================
Notes: 1. Assumes an E.I.S. is not needed, that an E.A. is sufficient 2. Does not include Reclamation 3. Phase 2 (USD) = $21.8 m less $10.3 m = $11.5 m Exhibit E to Earn-in Agreement Expenditure Schedule and Initial Program & Budget Page 4 of 14 PHASE I: DEFINITION AND CHARACTERIZATION - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------- 1. PROJECT PLANNING / PERMITTING QUANTITY U/M UNIT COST TOTAL - --------------------------------------------------------------------------------------------------------------------------------- 1.1. Manage project planning and engineering incl. - - --------------------------------------------------------------------------------------------------------------------------------- 1.2. Review existing Plan of Operations (POO) to identify changes to 1 LS 200,000 200,000 facilitate Phase I - --------------------------------------------------------------------------------------------------------------------------------- 1.3. Conduct a data review for the project with an initial focus on incl. - hydrogeology, impacts to surface waters, waste rock characterization, cultural impacts, and the existing EA. - --------------------------------------------------------------------------------------------------------------------------------- 1.3. Develop an ARD sampling plan based on the data review and review incl. - the plan with GBG - --------------------------------------------------------------------------------------------------------------------------------- 1.4. Prepare a conceptual Phase I plan and schedule for review by incl. - GBG, Newmont, and regulatory agencies - --------------------------------------------------------------------------------------------------------------------------------- 1.5. Review the conceptual Phase I exploration POO and environmental incl. - monitoring plans with BLM and NDEP prior to actual sample collection and analysis. - --------------------------------------------------------------------------------------------------------------------------------- 1.6. Determine what existing permits can be transferred to the incl. - project, identify and correct deficiencies. - --------------------------------------------------------------------------------------------------------------------------------- 1.7. Pursue in an expeditious manner all necessary environmental incl. - permits to conduct an underground exploration program to define and characterize mineral resources within the Hollister Development Block. - --------------------------------------------------------------------------------------------------------------------------------- 1.8. Pursue in an expeditious manner all necessary local, state and incl. - federal permits such as but not limited to MSHA, and State of Nevada mine ID numbers required to conduct the Phase One Scope of Work. - --------------------------------------------------------------------------------------------------------------------------------- 1.9. Pursue in an expeditious manner all necessary permits for incl. - erection of surface facilities, communication facilities and all other permits required by local, state or federal authorities to accomplish the Phase One Scope of Work. - --------------------------------------------------------------------------------------------------------------------------------- 1.10. Once a significant geologic resource is identified, begin incl. - permitting for Phase 2 Development. - --------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL 200,000 - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- 2. SITE ACCESS QUANTITY U/M UNIT COST TOTAL - --------------------------------------------------------------------------------------------------------------------------------- 2.1. Maintain access that portion of the Midas - Tuscarora Road 52 Weeks 1,200 61,920 eastward from the Ken Snyder turnoff to and including the project access road, consisting of grading, snow removal and dust suppression suitable for the season, traffic and vehicles using the road. - --------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL 61,920 - ---------------------------------------------------------------------------------------------------------------------------------
Exhibit E to Earn-in Agreement Expenditure Schedule and Initial Program & Budget Page 5 of 14 - ---------------------------------------------------------------------------------------------------------------------------------- 3. SITE UTILITIES QUANTITY U/M UNIT COST TOTAL - ---------------------------------------------------------------------------------------------------------------------------------- 3.1. Procure and establish telephone services to the project site 1 LS 25,000 25,000 adequate for voice communication, fax and data transmission. - ---------------------------------------------------------------------------------------------------------------------------------- 3.2.1 Design, supply, and install services for electric power 1 LS 15,000 15,000 sufficient to conduct Phase One Scope of Work. - ---------------------------------------------------------------------------------------------------------------------------------- 3.2.2 Operate and maintain functioning services for electric power 13 Month 58,462 975,000 sufficient to conduct Phase One Scope of Work. - ---------------------------------------------------------------------------------------------------------------------------------- 3.3. Design, supply, install and maintain functioning services for 12 Month 833 10,000 compressed air sufficient to conduct Phase One Scope of Work - ---------------------------------------------------------------------------------------------------------------------------------- 3.4. Design, supply, install and maintain functioning services for 1 LS 91,950 91,950 service water for the underground work and surface facilities sufficient to conduct Phase One Scope of Work. Water will be available from a well owned by Great Basin Gold and trucked to the project site for storage in a tank or tanks on site. - ---------------------------------------------------------------------------------------------------------------------------------- 3.5. Design, supply, install and maintain functioning services for 1 LS 53,000 53,000 water drainage from the underground workings sufficient to conduct Phase One Scope of Work including required water treatment and disposal systems. - ---------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL 1,169,950 - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 4. SITE INFRASTRUCTURE QUANTITY U/M UNIT COST TOTAL - ---------------------------------------------------------------------------------------------------------------------------------- 4.1. Provide staffing including Project Manager, Office Manager, Mine 13 Month 67,269 874,500 Supervisors, Engineer, Geologist, to carry out the Phase One Scope of Work in Safe and Environmentally Compliant Manner. - ---------------------------------------------------------------------------------------------------------------------------------- 4.2. Provide, erect and maintain office facilities for Project 13 Month 1,000 29,450 Management, Safety, Environmental, Geologic, and Engineering functions during the Phase One Scope of Work. - ---------------------------------------------------------------------------------------------------------------------------------- 4.3. Using the material generated from the underground access incl. - development, prepare a pad suitable for ore stockpiling. - ---------------------------------------------------------------------------------------------------------------------------------- 4.4. Provide and install maintenance area for equipment used in the 1 LS 50,000 50,000 underground development which minimizes contamination from oils, greases and waters from equipment. - ---------------------------------------------------------------------------------------------------------------------------------- 4.5. Establish secure and orderly lay down areas and warehousing 1 LS 25,000 25,000 facilities for parts and consumables necessary to accomplish the Phase One Scope of Work. - ---------------------------------------------------------------------------------------------------------------------------------- 4.6. Provide an explosives storage area which meets all state and incl. - federal requirements. - ---------------------------------------------------------------------------------------------------------------------------------- 4.7. Erect fuel, oil and grease storage areas including containment 1 LS 15,000 15,000 areas and fire protection. - ----------------------------------------------------------------------------------------------------------------------------------
Exhibit E to Earn-in Agreement Expenditure Schedule and Initial Program & Budget Page 6 of 14 - ----------------------------------------------------------------------------------------------------------------------------------- 4. SITE INFRASTRUCTURE - CONTINUED QUANTITY U/M UNIT COST TOTAL - ----------------------------------------------------------------------------------------------------------------------------------- 4.8. Supply fire protection equipment suitable for each area of the incl. - site. - ----------------------------------------------------------------------------------------------------------------------------------- 4.9. Site Grading and preparation within the East pit, portal area, 1 LS 38,000 38,000 and explosive storage area. - ----------------------------------------------------------------------------------------------------------------------------------- 4.10. Provide sanitary facilities for site employees and visitors. 1 LS 9,000 9,000 - ----------------------------------------------------------------------------------------------------------------------------------- 4.11. Provide and erect dry facilities for project crews including 1 LS 22,100 22,100 miners, drillers, supervisors, engineers, geologists and other staff as needed. - ----------------------------------------------------------------------------------------------------------------------------------- 4.12. Provide a system for waste oil and solid waste collection and 12 Month 1,500 18,000 offsite disposal. - ----------------------------------------------------------------------------------------------------------------------------------- 4.13. Provide transportation for employees to site. 13 Month 7,486 97,320 - ----------------------------------------------------------------------------------------------------------------------------------- 4.14. Establish and operate an accounting system capable of tracking incl. - costs for each of the major activities for the Phase One Exploration and Characterization work as well as Phase Two Preproduction Development. - ----------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL 1,178,370 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 5. UNDERGROUND ACCESS DEVELOPMENT QUANTITY U/M UNIT COST TOTAL - ----------------------------------------------------------------------------------------------------------------------------------- 5.1. Establish a secure portal with locking gate on the 5560 bench in 1 LS 50,000 50,000 the South East side of the Hollister USX East Pit at approximate Coordinates 36,990E, 35,780N - ----------------------------------------------------------------------------------------------------------------------------------- 5.2. Excavate a 13 feet wide by 14 feet high decline at approximately 2,700 Ft 336 907,200 minus 15% 2,700 feet to approximate coordinates of 37170E, 38170N Elev 5178 ft. Crossing 38000N at 37370E Elevation 5212. - ----------------------------------------------------------------------------------------------------------------------------------- 5.3. Excavate one rehandling and passing area at about 1,200 feet 52 Ft 336 17,472 from portal. 32 feet long, 13 feet wide by 14 feet high and widen decline to 18 feet wide for 50 feet. 20 equivalent feet = 52 feet. - ----------------------------------------------------------------------------------------------------------------------------------- 5.5. From approximate coordinates 37170E, 38170N Elev 5178 ft 2,050 Ft 336 688,800 excavate a 13 feet wide by 14 feet high decline approximately N 75 W 1,275 feet at about -9.1% parallel to the general strike of the Clementine and Gwenivere structures to approximate coordinates 35,250 EE, 38520 N, 5,000 feet Elevation. - ----------------------------------------------------------------------------------------------------------------------------------- 5.6. From approximate coordinates37170E, 38170N Elev 5178 ft 560 Ft 336 188,160 Elevation and 36500 E, 38350 N Elevation 5113 ft excavate 13 feet wide by 14 feet high cross cuts approximately220 ft each to cross the East, South and Central Clementines respectively. From about 36,650 E, 38,300 N Elevation 5,130 ft crosscut `120 feet south to cross the Gwenivere structure and establish a diamond drill station. at about 36,600, E, 38200 N 5,140 Elev. - ----------------------------------------------------------------------------------------------------------------------------------- 5.8. Carry all utilities necessary to perform the excavation incl. - including compressed air, fresh and discharge water, ventilation, power and communication. - ----------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL 5,362 1,851,632 - -----------------------------------------------------------------------------------------------------------------------------------
Exhibit E to Earn-in Agreement Expenditure Schedule and Initial Program & Budget Page 7 of 14 - ----------------------------------------------------------------------------------------------------------------------------------- 6. DIAMOND DRILL STATION EXCAVATION QUANTITY U/M UNIT COST TOTAL - ----------------------------------------------------------------------------------------------------------------------------------- 6.1. Excavate approximately 20 diamond drill stations along the 420 Ft 336 141,120 access decline beginning at 2,400 ft from the portal, then stations at 2,700 feet, 2,900 feet then one every 100 feet along the decline. And one Diamond drill station at or near the crosscut intersection with the Gwenivere Structure. Dimensions of the drill stations will be 20 feet deep as measured from the rib of the decline, 13 feet wide and 16 feet high to accommodate 10 foot core barrels and maximum drill angles of plus or minus 60 degrees while maintaining all drilling equipment inside the drill station. - ----------------------------------------------------------------------------------------------------------------------------------- 6.3. Supply compressed air, mine water, drainage line and electrical incl. - power connections at the entrance to each drill station. - ----------------------------------------------------------------------------------------------------------------------------------- 6.4. Provide alignment markings and survey control for the drilling incl. - contractor to use for alignment of drill holes. - ----------------------------------------------------------------------------------------------------------------------------------- SUBTOTAl 420 141,120 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 7. DRIFTING AND RAISING ON VEIN QUANTITY U/M UNIT COST TOTAL - ----------------------------------------------------------------------------------------------------------------------------------- 7.1. From approximately 37,200E, 38,400N Elev 5,200, Drift 400 feet 900 Ft 258 232,200 west and 500 feet east on the East Clementine at a minimum 7 feet wide or vein width if vein is wider than 7 feet and 10.5 feet high. - ----------------------------------------------------------------------------------------------------------------------------------- 7.2. From coordinates 36,500 E, 38450N Elevation 5,150 feet ,Drift 600 Ft 258 154,800 300 feet east and 300 feet west on the South Clementine Structure at a minimum 7 feet wide or vein width if the vein is wider than 7 feet wide. - ----------------------------------------------------------------------------------------------------------------------------------- 7.3. From Coordinates 36,500 E, 38,550 N Elevation 5,150 drift 300 600 Ft 258 154,800 feet east and 300 feet west on the Central Clementine Structure at a minimum 7 feet wide or vein width if the vein is wider than 7 feet. - ----------------------------------------------------------------------------------------------------------------------------------- 7.4. From Coordinates 36,100 E, 38,200 N Elevation 5,160 Drift 50 100 Ft 258 25,800 feet east and 50 feet west on the Gwenivere Structure at a minimum 7 feet wide or vein width if the vein is wider than 7 feet. - ----------------------------------------------------------------------------------------------------------------------------------- 7.5. Drive Alimak raises on East Clementine, South Clementine and 750 ft See detail 366,200 Central Clemetine from the drifts on vein to the unconformity. Each raise will be about 250 feet high. Unit cost includes mobilization and set up. - ----------------------------------------------------------------------------------------------------------------------------------- 7.5. Collect and assay face samples in drifts as required. 1,200 assays 20 24,000 - ----------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL 2,950 Ft 957,800 - -----------------------------------------------------------------------------------------------------------------------------------
Exhibit E to Earn-in Agreement Expenditure Schedule and Initial Program & Budget Page 8 of 14 - -------------------------------------------------------------------------- RAISING COST DETAIL: - -------------------------------------------------------------------------- 1 LS 50000 50000 - ---------------------------------- ---------- ----- --------- ------------ Set up and Hideaway 50 ft 258 12900 - ---------------------------------- ---------- ----- --------- ------------ Raising 250 ft 350 87500 - ---------------------------------- ---------- ----- --------- ------------ Set up and Hideaway 50 ft 258 12900 - ---------------------------------- ---------- ----- --------- ------------ Raising 250 ft 350 87500 - ---------------------------------- ---------- ----- --------- ------------ Set up and Hideaway 50 ft 258 12900 - ---------------------------------- ---------- ----- --------- ------------ Raising 250 ft 350 87500 - ---------------------------------- ---------- ----- --------- ------------ 1 LS 15000 15000 - ---------------------------------- ---------- ----- --------- ------------ Total Raising 366200 - ---------------------------------- -------------------------- ------------ - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 8. DIAMOND DRILLING QUANTITY U/M UNIT COST TOTAL - -------------------------------------------------------------------------------------------------------------------------------- 8.1. Drill approximately 32,000 ft of NQ size core into the 40,000 Ft 25 1,000,000 Clementine structures and 8,000 ft into the Gwenivere Structure as determined by geologic guidance. - -------------------------------------------------------------------------------------------------------------------------------- 8.1.1 Photograph core before splitting. incl. - -------------------------------------------------------------------------------------------------------------------------------- 8.1.2 Split core with hydraulic splitter. Send one half for assay incl. with other half saved. - -------------------------------------------------------------------------------------------------------------------------------- 8.1.3 Sample on geologic breaks with a minimum of 20 cm and a maximum incl. of 1 m in vein. - -------------------------------------------------------------------------------------------------------------------------------- 8.1.4 Send all samples to an accredited laboratory, mutually agreed incl. upon. - -------------------------------------------------------------------------------------------------------------------------------- 8.1.5 The lab will have a blind control sample list with instructions incl. to include 2 pulps in the list with each fired lot. Control samples will include standard pulps and pulp re-runs. - -------------------------------------------------------------------------------------------------------------------------------- 8.1.6 Submit blind rejects in the amount of 5% of the samples in vein incl. at regular intervals. - -------------------------------------------------------------------------------------------------------------------------------- 8.1.7 Compile a quality control report once per month. incl. - -------------------------------------------------------------------------------------------------------------------------------- 8.2. Survey drill holes to collect angles of inclination and bearing incl. - at appropriate intervals. - -------------------------------------------------------------------------------------------------------------------------------- 8.3. Log drill holes to include the following as a minimum: rock 4,000 Assays 20 80,000 type, structure, RQD, assays for gold and silver and other metals as requested by geologic staff. - -------------------------------------------------------------------------------------------------------------------------------- 8.4. Collect samples of each different rock type for analysis of ARD incl. - potential - -------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL 1,080,000 - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 9. GEOLOGIC CONTROL QUANTITY U/M UNIT COST TOTAL - -------------------------------------------------------------------------------------------------------------------------------- 9.1. Map declines and drifts on an appropriate scale for geologic incl. - interpretation and mine planning. Mapping will record as a minimum rock type, structures, joint orientation, bedding, assay results and other data as deemed necessary by the geologic staff. - --------------------------------------------------------------------------------------------------------------------------------
Exhibit E to Earn-in Agreement Expenditure Schedule and Initial Program & Budget Page 9 of 14 - -------------------------------------------------------------------------------------------------------------------------------- 9. GEOLOGIC CONTROL-CONTINUED QUANTITY U/M UNIT COST TOTAL - -------------------------------------------------------------------------------------------------------------------------------- 9.2. Collect samples of all rock types encountered in development incl. - for analysis of ARD potential. - -------------------------------------------------------------------------------------------------------------------------------- 9.3. Geologic mapping will be transferred to posting sheets and incl. digitized. - -------------------------------------------------------------------------------------------------------------------------------- 9.4. Longitudinal sections of each vein showing sampling results and incl. approximate geologic features and limits will be constructed. - -------------------------------------------------------------------------------------------------------------------------------- 9.5. Transverse cross-sections will be maintained and posted as in incl. 9.4, above. - -------------------------------------------------------------------------------------------------------------------------------- 9.6. Underground samples will be collected to obtain approximately 6 kg / m (5 lbs/ foot), cut horizontally with a hammer, moil, and other appropriate sampling equipment. A duplicate vein sample will be collected from each face. - -------------------------------------------------------------------------------------------------------------------------------- 9.7. Assays will be maintained in an ACCESS database and will be incl. posted to plan and section. - -------------------------------------------------------------------------------------------------------------------------------- 9.8 A compilation scale will be determined and updated periodically incl. to show relevant geologic and assay results. - -------------------------------------------------------------------------------------------------------------------------------- 9.9 Will provide daily guidance on drift placement and size for all incl. on-vein development. - -------------------------------------------------------------------------------------------------------------------------------- 9.10 Provide guidance and support for metallurgical testing. incl. - -------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL - - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 10. SURVEYING QUANTITY U/M UNIT COST TOTAL - -------------------------------------------------------------------------------------------------------------------------------- 10.1 Survey and detail all underground work and compile onto incl. - underground as built drawings in both digital and hard copy formats at a scale adequate for mine planning and geologic functions. - -------------------------------------------------------------------------------------------------------------------------------- 10.2. Survey and detail all surface work and compile onto underground 1 LS 1,800 1,800 as built drawings in both digital and hard copy formats at a scale adequate for mine planning and geologic functions. - -------------------------------------------------------------------------------------------------------------------------------- 10.3. Survey all diamond drill hole collar locations and bearing and incl. - inclination at the collar of each diamond drill hole. - -------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL 1,800 - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 11. UNDERGROUND INFRASTRUCTURE - -------------------------------------------------------------------------------------------------------------------------------- 11.1. Install and maintain the following as necessary and as required incl. - by State and Federal regulations: mine ventilation, mine fresh water, mine discharge water, compressed air, communication, refuge area. - -------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL - - --------------------------------------------------------------------------------------------------------------------------------
Exhibit E to Earn-in Agreement Expenditure Schedule and Initial Program & Budget Page 10 of 14 - -------------------------------------------------------------------------------------------------------------------------------- 12. MINE EQUIPMENT QUANTITY U/M UNIT COST TOTAL - -------------------------------------------------------------------------------------------------------------------------------- 12.1. Provide mobile mining equipment, service equipment, and fixed 1 LS 290,791 290,791 facilities necessary to accomplish the Scope of Work, to include but not limited to the following: Diesel-hydraulic drill jumbo, 3.5yd LHD, 6 yd LHD 16 ton underground haul truck, Underground service truck, Scissor-Lift truck, Personnel tractors, Crew-vans for surface transportation, Emergency First-Aid vehicle, Underground mine fans, power-centers, switchgear. - -------------------------------------------------------------------------------------------------------------------------------- 12.2. Necessary Reconditioning of Equipment 1 LS 212,374 212,374 - -------------------------------------------------------------------------------------------------------------------------------- 12.3. Mobilize Equipment to Project, place equipment in service 1 LS 34,630 34,630 - -------------------------------------------------------------------------------------------------------------------------------- 12.4. Additional Equipment not available from Rosebud to include 1 LS 150,000 150,000 handheld drills, smaller LHDs and one additional large LHD for Decline development. All Equipment reconditioned. - -------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL 687,795 - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 13. GEOTECHNICAL EVALUATION - -------------------------------------------------------------------------------------------------------------------------------- 13.1. Coordinate/perform the geotechnical evaluations necessary to 1 LS 15,000 15,000 carry out ground support design in all underground openings, and to carry out potential stope design/layouts. - -------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL 15,000 - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 14. BULK SAMPLE COLLECTION - -------------------------------------------------------------------------------------------------------------------------------- 14.1. From drifts on Clementine and Gwenivere Veins, collect material incl. - representative of future mine production for pilot testing and/or test milling. - -------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL - - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 15. ENVIRONMENTAL CHARACTERIZATION - -------------------------------------------------------------------------------------------------------------------------------- 15.1. Environmental monitoring and reporting as required by permit or 13 Month 5,400 70,200 regulation. - -------------------------------------------------------------------------------------------------------------------------------- 15.2. Acid base accounting on representative samples of development incl. - material. - -------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL 70,200 - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 16. METALLURGICAL TESTING QUANTITY U/M UNIT COST TOTAL - -------------------------------------------------------------------------------------------------------------------------------- 16.1. Preliminary Assessment Of Appropriate Processing Methods - -------------------------------------------------------------------------------------------------------------------------------- 16.1.1. Perform cyanide soluble assays on selected pulps. Identify 1 LS 20,000 20,000 general precious metal extraction, refractory gold or silver occurrence, potential preg robbing, soluble base metals. - -------------------------------------------------------------------------------------------------------------------------------- 16.1.2. Compile a database of sample locations, total and cyanide incl. soluble assays and pertinent geology log data to delineate different metallurgical ore types. - --------------------------------------------------------------------------------------------------------------------------------
Exhibit E to Earn-in Agreement Expenditure Schedule and Initial Program & Budget Page 11 of 14 - -------------------------------------------------------------------------------------------------------------------------------- 16. METALLURGICAL TESTING-CONTINUED QUANTITY U/M UNIT COST TOTAL - -------------------------------------------------------------------------------------------------------------------------------- 16.1.3. Identify potential material handling problems (i.e. high incl. moisture or high clay content). - -------------------------------------------------------------------------------------------------------------------------------- 16.1.4. Review mineralogy and ore types of nearby mines (i.e. Ramarco incl. and Midas). - -------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL 20,000 - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 16.2. SELECTION AND COMPOSITE OF METALLURGICAL SAMPLES FOR FURTHER STUDY - -------------------------------------------------------------------------------------------------------------------------------- 16.2.1. Categorize core into separate ore types. 1 LS 5,000 5,000 - -------------------------------------------------------------------------------------------------------------------------------- 16.2.2. Select core intervals within ore types that represent several incl. - grade ranges. - -------------------------------------------------------------------------------------------------------------------------------- 16.2.3. Composite intervals to obtain a representative metallurgical incl. - sample of a particular ore type for a particular grade range. - -------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL 5,000 - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 16.3. METALLURGICAL TESTING PROGRAM - -------------------------------------------------------------------------------------------------------------------------------- 16.3.1. Feed Preparation & Head Analysis. Determine head feed by fire 1 LS 2,662 2,662 assay, trace elements by ICP, and Bond ball mill work index. - -------------------------------------------------------------------------------------------------------------------------------- 16.3.2. Grind & Leach Kinetics Tests. Determine the mesh of grind 1 LS 4,345 4,345 versus recovery relationship, optimum leach time - -------------------------------------------------------------------------------------------------------------------------------- 16.3.3. Cyanide Optimization Tests. Determine optimum cyanide 1 LS 3,575 3,575 concentration in the leach slurry, cyanide consumption at the optimum concentration. - -------------------------------------------------------------------------------------------------------------------------------- 16.3.4. Comparison Carbon In Leach versus Counter Current Decantation 1 LS 3,960 3,960 Processes. Perform duplicate standard cyanidation and carbon in leach bottle roll tests. Determine metal extractions and reagent consumption, carbon loading for gold and silver. - -------------------------------------------------------------------------------------------------------------------------------- 16.3.5. Process Confirmation Tests. Perform agitated cyanidation tests 1 LS 9,405 9,405 using optimized parameters. Analyze all residues including carbon for gold and silver. Determine metal extractions and reagent consumption. Perform agitated cyanidation tests using optimized parameters. - -------------------------------------------------------------------------------------------------------------------------------- 16.3.6. Thickening & Filtration Tests. Perform flocculent screening, 1 LS 3,520 3,520 Kynch and filter leaf tests on the ground feed and leach residue to determine thickening and filtration area requirements. - -------------------------------------------------------------------------------------------------------------------------------- 16.3.7. Environmental Tests. TCLP test on leach residue. Acid 1 LS 493 493 generating / acid neutralization potential tests on ground feed and leach residue. - -------------------------------------------------------------------------------------------------------------------------------- 16.3.8 Lab project management and reporting 1 LS 2,712 2,712 - -------------------------------------------------------------------------------------------------------------------------------- 16.3.9 Hecla project management and review. 1 LS 9,500 9,500 - -------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL 40,171 - --------------------------------------------------------------------------------------------------------------------------------
Exhibit E to Earn-in Agreement Expenditure Schedule and Initial Program & Budget Page 12 of 14 - -------------------------------------------------------------------------------------------------------------------------------- 17. RESOURCE MODELING QUANTITY U/M UNIT COST TOTAL - -------------------------------------------------------------------------------------------------------------------------------- 17.1. Model the resource delineated by drifting and drilling using a 1 LS 30,000 30,000 software package or packages to be agreed upon by Great Basin and Hecla. - -------------------------------------------------------------------------------------------------------------------------------- 17.2. Construct a drill hole and chip sample database appropriate for incl. resource estimate. - -------------------------------------------------------------------------------------------------------------------------------- 17.3. Supply geologic model and data as required and appropriate to incl. conduct resource estimate. - -------------------------------------------------------------------------------------------------------------------------------- 17.4. Conduct in-house resource estimate using its software and incl. personnel and/or outside consultants as directed by Management Committee. - -------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL 30,000 - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 18. MARKETING QUANTITY U/M UNIT COST TOTAL - -------------------------------------------------------------------------------------------------------------------------------- 18.1. Tour surrounding area process facilities of the Hollister 1 LS 8,000 8,000 Development Block. - -------------------------------------------------------------------------------------------------------------------------------- 18.2. Determine process efficiencies with Hollister Development Block incl. ore for each facility - -------------------------------------------------------------------------------------------------------------------------------- 18.3. Determine distance from the mine (haulage costs). incl. - -------------------------------------------------------------------------------------------------------------------------------- 18.4. Determine tonnage capacity (mill throughput and tails storage incl. availability). - -------------------------------------------------------------------------------------------------------------------------------- 18.5. Determine if stand alone milling or co-mingling of owners incl. (others) ore. - -------------------------------------------------------------------------------------------------------------------------------- 18.6. Determine refining capabilities. incl. - -------------------------------------------------------------------------------------------------------------------------------- 18.7. Negotiate preliminary contract agreement. incl. - -------------------------------------------------------------------------------------------------------------------------------- 18.8. Propose custom and toll milling agreements. incl. - -------------------------------------------------------------------------------------------------------------------------------- 18.9. Select process facility and finalize contract agreement. incl. - -------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL 8,000 - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- 19. PRE FEASIBILITY STUDY QUANTITY U/M UNIT COST TOTAL - -------------------------------------------------------------------------------------------------------------------------------- 19.1. Prepare conceptual mine plans compatible with data gathered 6 Month 8,800 52,800 from drilling, drifting on vein, geotechnical evaluation and test mining. - -------------------------------------------------------------------------------------------------------------------------------- 19.2. Develop economic model of Conceptual Mine Plan and custom incl. - milling operation. - -------------------------------------------------------------------------------------------------------------------------------- 19.3. With a combination of Hecla in house costing data base and zero incl. - based costing, evaluate production rates in the Conceptual Mine Plan(s). - -------------------------------------------------------------------------------------------------------------------------------- 19.4. Develop capital cost estimates, scope of work and schedule for incl. - pre production program and budget (Phase 2). - -------------------------------------------------------------------------------------------------------------------------------- 19.5. Evaluate Return on Investment and Net Present Value, price, incl. - capital, grade and operating cost sensitivities - -------------------------------------------------------------------------------------------------------------------------------- SUBTOTAL 52,800 - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- GRAND TOTAL 7,571,558 - --------------------------------------------------------------------------------------------------------------------------------
Exhibit E to Earn-in Agreement Expenditure Schedule and Initial Program & Budget Page 13 of 14 CONTINGENCY CALCULATIONS
- ------------------------------------------------------------------------------------------------------------------------------------ COST ITEM AFFECTED COST ITEM BASE UNIT UNITS TOTAL UNITS % OF QUANTITY POSSIBLE CONTINGENCY PER CENT ------------------ --------- --------- ----- ----- ----- ---- -------- -------- ----------- -------- AMOUNT COST AFFECTED QUANTITY TOTAL AFFECTED PERCENTAGE AMOUNT REDUCTION IN ------ ------------- -------- ----- -------- ---------- ------ ------------ INCREASE ADVANCE RATE - ------------------------------------------------------------------------------------------------------------------------------------ GROUND SUPPORT - -------------- - ------------------------------------------------------------------------------------------------------------------------------------ 5. UNDERGROUND ACCESS $1,851,632 $15 $/ft Ground 5,362 ft 30% 1608.6 100% $ 24,129 50% DEVELOPMENT Support - ------------------------------------------------------------------------------------------------------------------------------------ 132 $/ft Labor 5,362 ft 30% 1608.6 100% $212,335 - ------------------------------------------------------------------------------------------------------------------------------------ 6. DIAMOND DRILL 141,120 $15 $/ft Ground 420 ft 30% 126 100% $ 1,890 50% STATION EXCAVATION Support - ------------------------------------------------------------------------------------------------------------------------------------ 132 $/ft Labor 420 ft 30% 126 100% $ 16,632 - ------------------------------------------------------------------------------------------------------------------------------------ 7. DRIFTING ON VEIN 957,800 $15 $/ft Ground 2,200 ft 30% 660 100% $ 9,900 50% Support - ------------------------------------------------------------------------------------------------------------------------------------ 132 $/ft Labor 2,200 ft 30% 660 100% $ 87,120 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL GROUND SUPPORT CONTINGENCY $352,006 -------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ WATER HANDLING - -------------- - ------------------------------------------------------------------------------------------------------------------------------------ 5. UNDERGROUND ACCESS $1,851,632 132 $/ft Labor 5,362 ft 50% 2,681 15% $ 53,084 15% DEVELOPMENT - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 6. DIAMOND DRILL 141,120 132 $/ft Labor 420 ft 50% 210 15% $ 4,158 15% STATION EXCAVATION - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 7. DRIFTING ON VEIN 957,800 132 $/ft Labor 2200 ft 50% 1,100 15% $ 21,780 15% - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ 4. SITE INFRASTRUCTURE 53,000 53,000 Construction 1 L.S. 100% 50% $ 26,500 0 of Settling pond and water disposal/recycling system - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL WATER HANDLING CONTINGENCY AMOUNT $105,522 --------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------
Exhibit E to Earn-In Agreement Expenditure Schedule and Initial Program & Budget Page 14 of 14 EXHIBIT F JOINT OPERATING AGREEMENT Exhibit F to Earn-In Agreement Joint Operating Agreement Page 1 of 48 EXHIBIT G WARRANT AGREEMENT THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED OR QUALIFIED FOR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION OR AN EXEMPTION THEREFROM UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY SUCH APPLICABLE STATE LAWS. HECLA MINING COMPANY WARRANT CERTIFICATE TO PURCHASE SHARES OF COMMON STOCK Date of Issuance: ___________________, 200_ Certificate W-1 FOR VALUE RECEIVED, Hecla Mining Company, a Delaware corporation (the "Company"), hereby grants to Great Basin Gold Ltd. and/or its registered assigns pursuant to Section 5 hereof (each, a "Registered Holder") the right to purchase from the Company an aggregate of ________ of the Company's shares of common stock, $0.25 par value per share ("Common Stock"), at a price per share of $____, (the "Exercise Price") which price shall be the weighted average daily closing price per share for the common stock of the Company for the twenty (20) trading days immediately prior to the date of this Warrant Agreement, as adjusted pursuant to Section 2 hereof. This Warrant is subject to the following provisions: Section 1. Exercise of Warrant. 1A. Two Year Exercise Period. The Registered Holder may exercise, in whole or in part, the purchase rights represented by this Warrant at any time and from time to time during the two year period commencing on ____________, 200_ and ending on ______________, 200_ (the "Exercise Period"). Exhibit G to Earn-In Agreement Hecla Warrant Agreement Page 1 of 11 1B. Exercise Procedure. (i) This Warrant shall be deemed to have been exercised when the Company has received all of the following items (the "Exercise Time"): (a) a completed Exercise Agreement, as described in paragraph 1C below, executed by the Registered Holder; (b) this Warrant; (c) an Assignment or Assignments in the form set forth in Exhibit I if the Warrant is exercised by any Registered Holder other than Great Basin Gold Ltd.; and (d) a cashier's check or wire transfer to the Company in an amount equal to the product of the Exercise Price multiplied by the number of shares of Common Stock being purchased upon such exercise (the "Aggregate Exercise Price"). (ii) Certificates for Common Stock, if any, purchased upon exercise of this Warrant shall be delivered by the Company to the Registered Holder within three business days after the date of the Exercise Time. Unless this Warrant has expired or all of the purchase rights represented hereby have been exercised, the Company shall prepare a new Warrant, substantially identical hereto, representing the rights formerly represented by this Warrant which have not expired or been exercised and shall, within such three-day period, deliver such new Warrant to the person designated for delivery in the Exercise Agreement. (iii) The shares of Common Stock issuable upon the exercise of this Warrant shall be deemed to have been issued to the Registered Holder at the Exercise Time, and the Registered Holder shall be deemed for all purposes to have become the record holder of such Common Stock at the Exercise Time. (iv) The issuance of certificates for the Common Stock, if any, upon exercise of this Warrant shall be made without charge to the Registered Holder for any issuance tax in respect thereof or other cost incurred by the Company in connection with such exercise and the related issuance of Common Stock. Each Exhibit G to Earn-In Agreement Hecla Warrant Agreement Page 2 of 11 share of Common Stock issuable upon exercise of this Warrant shall, when issued, be duly and validly issued and free from all taxes, liens and charges. The company shall prepare and file at its expense a registration statement with the United States Securities and Exchange Commission ("SEC") forthwith after issuance hereof and use its reasonable best efforts to obtain SEC approval thereof so that any Common Stock acquired by exercise hereof is freely tradeable in the United States within four (4) months from the date of issuance of this warrant. Until registration of such Common Stock, each certificate shall bear the following legend: The shares of common stock of Hecla Mining Company represented by this certificate have been issued pursuant to an exemption from registration under the Securities Act of 1933 and may not be resold without registration thereunder or an exemption therefrom. The issuer may require an opinion of counsel reasonably satisfactory to it to the effect that such an exemption is available before permitting transfer of such shares. (v) The Company shall assist and cooperate with any Registered Holder required to make any governmental filings or obtain any governmental approvals prior to or in connection with any exercise of this Warrant, without limitation, making any filings required to be made by the Company. (vi) The Company shall take all such actions as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which securities of the Company or their equivalents may be listed (except for official notice of issuance which shall be immediately delivered by the Company upon such issuance). (vii) Notwithstanding any other provision hereof, if an exercise of any portion of this Warrant is to be made in connection with a registered public offering of the Company, the sale of the Company or pursuant to Section 3 hereof, the exercise of any portion of this Warrant may, at the election of the Registered Holder hereof, be conditioned upon the consummation of the public offering, the sale or the event referred to in the notice described in Section 3, in which case such exercise shall not be deemed to be effective until the consummation of such transaction. Exhibit G to Earn-In Agreement Hecla Warrant Agreement Page 3 of 11 1C. Exercise Agreement. Upon any exercise of this Warrant, the Exercise Agreement shall be substantially in the form set forth in Exhibit II hereto. If the number of shares of Common Stock to be issued does not include all the Common Stock purchasable hereunder, it shall also state the Registered Holder to whom a new Warrant for the unexercised portion of the rights hereunder is to be delivered. Such Exercise Agreement shall be dated the actual date of execution thereof. Section 2. Adjustment of Exercise Price and Number of Shares of Common Stock. In order to prevent dilution of the rights granted under this Warrant, the Exercise Price shall be subject to adjustment from time to time as provided in this Section 2, and the number of shares of Common Stock obtainable upon exercise of this Warrant shall be subject to adjustment from time to time as provided in this Section 2. 2A. Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any split, dividend, recapitalization or otherwise) its outstanding Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant shall be proportionately increased. If the Company at any time combines (by reverse split or otherwise) its Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of shares of Common Stock obtainable upon exercise of this Warrant shall be proportionately decreased. 2B. Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets or other transaction, in each case which is effected in such a way that the holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for the Common Stock is referred to herein as an "Organic Change." Prior to the consummation of any Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the Registered Holders of the Warrants representing a majority of the Common Stock obtainable upon exercise of all Warrants then outstanding) to insure the Registered Holder of the Warrant shall thereafter be Exhibit G to Earn-In Agreement Hecla Warrant Agreement Page 4 of 11 entitled to receive, upon exercise of this Warrant, the numbers or amount of shares of stock, securities or assets resulting from such Organic Change that a holder of the Common Stock deliverable upon exercise of this Warrant would have been entitled to receive as a result of such Organic Change If the Warrant had been exercised immediately before the effective date of such Organic Change. In any such case, the Company shall make appropriate provision (in form and substance satisfactory to the Registered Holders of the Warrants representing a majority of the shares of Common Stock obtainable upon exercise of all Warrants then outstanding) with respect to such holders' rights and interests to insure that the provisions of this Section 2 and Sections 3 and 4 hereof shall thereafter be applicable to the Warrant (including, in the case of any such consolidation, merger or sale in which the successor entity or purchasing entity is other than the Company, an immediate adjustment of the Exercise Price to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and a corresponding immediate adjustment in the number of shares of Common Stock acquirable and receivable upon exercise of the Warrant, if the value so reflected is less than the Exercise Price in effect immediately prior to such consolidation, merger or sale). The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Company) resulting from consolidation or merger or the entity purchasing such assets assumes by written instrument (in form and substance satisfactory to the Registered Holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of all of the Warrants then outstanding), the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. 2C. Certain Events. If any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions, then the Company shall make an appropriate adjustment in the Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the Registered Holders. Exhibit G to Earn-In Agreement Hecla Warrant Agreement Page 5 of 11 2D. Notices. (i) Immediately upon any adjustment of the Exercise Price, the Company shall give written notice thereof to the Registered Holder, setting forth in reasonable detail and certifying the calculation of such adjustment. (ii) The Company shall give written notice to the Registered Holder at least 10 days prior to the date on which the Company intends to (A) make any pro rata subscription offer to holders of Common Stock or (B) consummate any Organic Change, dissolution or liquidation. Section 3. Intention to Exercise. If the Company gives a notice described in paragraph (ii) of Section 2D and the Registered Holder informs the Company in writing within 10 days of receipt of such notice that it intends to exercise the Warrant in whole or in part, the Company shall not make or consummate the event described in such notice before the earlier of (i) the completion of the exercise of the Warrant in whole or in part or (ii) 30 days after the date the Registered Holder informs the Company of its intention to exercise. If the event described in such notice is the liquidation of the Company, whether or not the Registered Holder responds to such notice, the Company shall pay to the Registered Holder the payment or payments (net of the Exercise Price), if any, that would have been made to such Registered Holder on the Common Stock had this Warrant been exercised in full immediately prior to the liquidation. Section 4. No Voting Rights; Limitations of Liability. This Warrant shall not entitle the Registered Holder to any voting rights or other rights as a holder of Common Stock in the Company. No provision hereof, in the absence of affirmative action by the Registered Holder to purchase Common Stock, and no enumeration herein of the rights or privileges of the Registered Holder shall give rise to any liability of such holder for the Exercise Price of Common Stock acquirable by exercise hereof or as a holder of a Common Stock in the Company. Section 5. Warrant Transferable. This Warrant and all rights hereunder are not transferable, in whole or in part, without the consent of the Company. Upon receipt of such consent, the Warrant will be transferred without charge to the Registered Holder, upon surrender of this Warrant with a properly executed Assignment (in the form of Exhibit I hereto) at the principal office of the Company. As soon as practicable after the transfer, the Company will prepare new Warrants for the assigning and new Registered Holders, substantially identical hereto, but reflecting the number of shares of Common Stock the assigning and new Registered Holders are entitled to receive upon exercise of the applicable Warrant. Exhibit G to Earn-In Agreement Hecla Warrant Agreement Page 6 of 11 Section 6. Warrant Exchangeable for Different Denominations. This Warrant is exchangeable, upon the surrender hereof by the Registered Holder at the principal office of the Company, for new Warrants of like tenor representing in the aggregate the purchase rights hereunder, and each of such new Warrants shall represent such portion of such rights as is designated by the Registered Holder at the time of such surrender. The date the Company initially issues this Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the number of times new certificates representing the unexpired and unexercised rights formerly represented by this Warrant shall be issued. All Warrants representing portions of the rights hereunder are referred to herein as the "Warrant." Section 7. Replacement. Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of the Registered Holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing this Warrant, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Company (provided that if the holder is a financial institution or other institutional investor its own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Company shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the same rights represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. Section 8. Notices. Except as otherwise expressly provided herein, all notices referred to in this Warrant shall be in writing and shall be delivered personally, sent by reputable overnight courier service (charges prepaid) or sent by registered or certified mail, return receipt requested, postage prepaid and shall be deemed to have been given when so delivered or deposited in the U.S. Mail (i) to the Company, at its principal executive offices and (ii) to the Registered Holder of this Warrant, at such holder's address as it appears in the records of the Company (unless otherwise indicated by any such holder). Exhibit G to Earn-In Agreement Hecla Warrant Agreement Page 7 of 11 Section 9. Amendment and Waiver. Except as otherwise provided herein, the provisions of the Warrant may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Registered Holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants; provided that no such action may change the Exercise Price of the Warrants or the number of shares or class of shares obtainable upon exercise of each Warrant without the written consent of all of the Registered Holders of Warrants. Section 10. Descriptive Headings; Governing Law. The descriptive headings of the several Sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The laws of the State of Delaware shall govern all issues concerning the relative rights of the Company and its members and interpretation of this Agreement. Section 11. Voting of Shares. So long as any Registered Holders and/or its affiliates ("Registered Holder Group") hold, along or in the aggregate at least ten percent (10%) of the shares of Common Stock issued to the Registered Holder Group upon exercise of this Warrant, the Registered Holder Group agrees to vote all of the shares of Common Stock held by the Registered Holder Group at any annual or special meeting of the shareholders of the Company in accordance with the recommendations of the Company's chief executive officer. Section 12. Trading Limitation. Except as otherwise permitted herein, the Registered Holder Group shall not, individually or in the aggregate, dispose of more than fifty thousand (50,000) share of Common Stock during any one trading day. In addition, so long as the Registered Holder Group continues to hold at least twenty percent (20%) of the shares of Common Stock issued upon exercise of this Warrant, the Registered Holder Group shall provide the Company with reasonable advance notice of any such sale of the shares of Common Stock. The Registered Holder Group shall not be obligated to complete any sale of shares of Common Stock even if it has provided the Company with advance written notice of such sale, but the Registered Holder Group shall notify Company of its withdrawal of any shares of Common Stock from the market with respect to which the Registered Holder Group has provided prior notice of sale. Company shall notify the Registered Holder Group of the pendency of a sale under any Exhibit G to Earn-In Agreement Hecla Warrant Agreement Page 8 of 11 underwritten public offering by Company of Common Stock or any other Company equity security, in which event the Registered Holder Group shall not effect any sales of any shares of Common Stock within five (5) days prior to the commencement of or during such underwritten public offering. The Registered Holder Group shall have the right to sell any amount of shares of Common Stock in a private transaction, provided that (i) any such sale shall not be reported or reportable on any exchange or other public market where shares of Common Stock are or may in future be traded, and (ii) the purchaser in such private transaction agrees in writing that, for a period of six (6) months from and after the date of such purchase and sale of shares of Common Stock, such purchaser shall not sell any such shares of Common Stock. In addition, the Registered Holder Group shall be permitted to pledge any number of shares of Common Stock to an arm's-length lender to secure payment of a bona fide loan or other indebtedness, subject to the terms hereof. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and attested by its duly authorized officers and to be dated the Date of Issuance hereof. HECLA MINING COMPANY By: NOT FOR SIGNATURE - FORM ONLY ------------------------------------ Name: ----------------------------------- Title: ---------------------------------- Exhibit G to Earn-In Agreement Hecla Warrant Agreement Page 9 of 11 EXHIBIT I TO WARRANT AGREEMENT ASSIGNMENT FOR VALUE RECEIVED, _________________________________ hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant (Certificate No. W-_____________) with respect to the number of shares of Common Stock covered thereby set forth below, unto: Names of Assignee Address Number of Shares ----------------- ------- ---------------- Dated: Signature NOT FOR SIGNATURE - FORM ONLY ----------------------------- Witness ------------------------------- Exhibit G to Earn-in Agreement Hecla Warrant Agreement Page 10 of 11 EXHIBIT II TO WARRANT AGREEMENT EXERCISE AGREEMENT To: Dated: The undersigned, pursuant to the provisions set forth in the attached Warrant (Certificate No. W-___________), hereby agrees to subscribe for the purchase of __________ shares of Common Stock covered by such Warrant and makes payment herewith in full therefore at the price per share provided by such Warrant. If any new Warrant will be prepared under Section 1B(ii) of the Warrant, please deliver it to _________, a Registered Holder. Signature NOT FOR SIGNATURE - FORM ONLY ----------------------------- Address ------------------------------- Exhibit G to Earn-In Agreement Hecla Warrant Agreement Page 11 of 11 EXHIBIT H WARRANT AGREEMENT WITHOUT THE PRIOR WRITTEN APPROVAL OF THE TSX VENTURE EXCHANGE AND COMPLIANCE WITH ALL APPLICABLE SECURITIES LEGISLATION, THE COMMON SHARES, WHICH MAY BE ACQUIRED ON EXERCISE OF THESE WARRANTS, MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED ON OR THROUGH THE FACILITIES OF THE TSX VENTURE EXCHANGE OR OTHERWISE IN CANADA OR TO OR FOR THE BENEFIT OF A CANADIAN RESIDENT UNTIL *, 2002. [FOUR MONTHS] THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE ISSUER THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE ISSUER, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT IF APPLICABLE, (C) INSIDE THE UNITED STATES (1) PURSUANT TO THE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, OR (2) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE LAWS AND REGULATIONS GOVERNING THE OFFER AND SALE OF SECURITIES, AND THE HOLDER HAS PRIOR TO SUCH SALE FURNISHED TO THE ISSUER AN OPINION OF COUNSEL. Date of Issuance: _____________________, 2002 Warrant Certificate Number: W-* GREAT BASIN GOLD LTD. SUITE 1020 - 800 WEST PENDER STREET VANCOUVER, B.C. V6C 2V6 TELEPHONE: (604) 684-6365 FAX: (604) 684-8092 WARRANT CERTIFICATE TO PURCHASE ___________ SHARES OF COMMON STOCK THE RIGHT TO PURCHASE COMMON SHARES UNDER THIS WARRANT EXPIRES AT 5:00 P.M. (VANCOUVER TIME) ON *, 2004 (THE "EXPIRY DATE"). Exhibit H to the Earn-in Agreement Great Basin Warrant Page 1 of 11 ANY SHARES ACQUIRED BY EXERCISE PRIOR TO *, 2002 WILL BE SUBJECT TO RESALE RESTRICTIONS IN CANADA UNTIL THAT DATE AND WILL BEAR A LEGEND TO THIS EFFECT. FOR VALUE RECEIVED, GREAT BASIN GOLD LTD., a British Columbia corporation (the "Company"), hereby grants to HECLA VENTURES CORP. (the "Registered Holder") the right to purchase from the Company * of the Company's shares of common stock ("Common Stock"), at a price per share of $____, which price is the weighted average daily closing price per share for the common stock of the Company for the twenty (20) trading days immediately prior to the Date of this Warrant. This Warrant is subject to the following provisions: Section 1. Exercise of Warrant. 1A. Two Year Exercise Period. The Registered Holder may exercise, in whole or in part, the purchase rights represented by this Warrant at any time and from time to time during the two year time period commencing on ____________, 200_ and ending on _________________, 200_ (the "Exercise Period"). 1B. Exercise Procedure. (i) This Warrant shall be deemed to have been exercised at the time when the Company has received all of the following items (the "Exercise Time"): (a) a completed Exercise Agreement, as described in paragraph 1C below, executed by the Registered Holder; (b) this Warrant; and (c) a cashier's or certified check or wire transfer to the Company in an amount equal to the product of the Exercise Price multiplied by the number of shares of Common Stock being purchased upon such exercise (the "Aggregate Exercise Price"). Exhibit H to the Earn-in Agreement Great Basin Warrant Page 2 of 11 (ii) Certificates for Common Stock, if any, purchased upon exercise of this Warrant shall be delivered by the Company to the Registered Holder within three business days after the date of the Exercise Time. Unless this Warrant has expired or all of the purchase rights represented hereby have been exercised, the Company shall prepare a new Warrant, substantially identical hereto, representing the rights formerly represented by this Warrant which have not expired or been exercised and shall, within such three-day period, deliver such new Warrant to the person designated for delivery in the Exercise Agreement. (iii) The shares of Common Stock issuable upon the exercise of this Warrant shall be deemed to have been issued to the Registered Holder at the Exercise Time, and the Registered Holder shall be deemed for all purposes to have become the record holder of such Common Stock at the Exercise Time. (iv) The issuance of certificates for the Common Stock, if any, upon exercise of this Warrant shall be made without charge to the Registered Holder or the Purchaser for any issuance tax in respect thereof or other cost incurred by the Company in connection with such exercise and the related issuance of Common Stock. Each share of Common Stock issuable upon exercise of this Warrant shall, when issued, be duly and validly issued and free from all taxes, liens and charges. (v) The Company shall assist and cooperate with any Registered Holder required to make any governmental filings or obtain any governmental approvals prior to or in connection with any exercise of this Warrant (including, without limitation, making any filings required to be made by the Company) including prompt notice and application to list any Common Shares issuable on exercise hereof on the TSX Venture Exchange. . Any Common Stock acquired by exercise hereof is freely tradeable in Canada after four (4) months from the date of issuance of this warrant. Until the expiry of such four (4) month period, all certificates of Common Stock issued to Registered Holder by Exercise of its rights hereunder shall bear the following legend: Exhibit H to the Earn-in Agreement Great Basin Warrant Page 3 of 11 UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THE SECURITIES SHALL NOT TRADE THE SECURITIES BEFORE *, 2002. WITHOUT THE PRIOR WRITTEN APPROVAL OF THE TSX VENTURE EXCHANGE AND COMPLIANCE WITH ALL APPLICABLE SECURITIES LEGISLATION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED ON OR THROUGH THE FACILITIES OF THE TSX VENTURE EXCHANGE OR OTHERWISE IN CANADA OR TO OR FOR THE BENEFIT OF A CANADIAN RESIDENT UNTIL *, 2002. THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE ISSUER THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO THE ISSUER, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT IF APPLICABLE, (C) INSIDE THE UNITED STATES (1) PURSUANT TO THE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, OR (2) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE LAWS AND REGULATIONS GOVERNING THE OFFER AND SALE OF SECURITIES, AND THE HOLDER HAS PRIOR TO SUCH SALE FURNISHED TO THE ISSUER AN OPINION OF COUNSEL. (vi) The Company shall take all such actions as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which securities of the Company or their equivalents may be listed (except for official notice of issuance which shall be immediately delivered by the Company upon such issuance). The Company shall file a qualifying issuer certificate with the TSX Venture Exchange within ten (10) days after the Date of Issuance for each Warrant Certificate issued hereunder and take other actions as required by applicable law to make such shares of Common Stock freely tradeable through the TSX Venture after the four (4) month holding period set forth in paragraph 1B(v) herein above. Exhibit H to the Earn-in Agreement Great Basin Warrant Page 4 of 11 1C. Exercise Agreement. Upon any exercise of this Warrant, the Exercise Agreement shall be substantially in the form set forth in Exhibit I hereto, except that if the Common Stock is not to be issued in the name of the person in whose name this Warrant is registered, the Exercise Agreement shall also state the name of the person to whom the Common Stock is to be issued. Such Exercise Agreement shall be dated the actual date of execution thereof. Section 2. Adjustment of Exercise Price and Number of Shares of Common Stock. In order to prevent dilution of the rights granted under this Warrant, the Exercise Price shall be subject to adjustment from time to time as provided in this Section 2, and the number of shares of Common Stock obtainable upon exercise of this Warrant shall be subject to adjustment from time to time as provided in this Section 2. 2A. Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any split, dividend, recapitalization or otherwise) its outstanding Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant shall be proportionately increased. If the Company at any time combines (by reverse split or otherwise) its Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of shares of Common Stock obtainable upon exercise of this Warrant shall be proportionately decreased. 2B. Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets or other transaction, in each case which is effected in such a way that the holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for the Common Stock is referred to herein as an "Organic Change." Prior to the consummation of any Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the Registered Holders of the Warrants representing a majority of the Common Stock obtainable upon exercise of all Warrants then outstanding) to insure that each of the Registered Holders of the Warrants shall thereafter have the right to acquire and receive, in lieu of or addition to (as the case may be) the number of shares Common Stock immediately theretofore Exhibit H to the Earn-in Agreement Great Basin Warrant Page 5 of 11 acquirable and receivable upon the exercise of such holder's Warrant, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore acquirable and receivable upon exercise of such holder's Warrant had such Organic Change not taken place. In any such case, the Company shall make appropriate provision (in form and substance satisfactory to the Registered Holders of the Warrants representing a majority of the shares of Common Stock obtainable upon exercise of all Warrants then outstanding) with respect to such holders' rights and interests to insure that the provisions of this Section 2 and Sections 3 and 4 hereof shall thereafter be applicable to the Warrants (including, in the case of any such consolidation, merger or sale in which the successor entity or purchasing entity is other than the Company, an immediate adjustment of the Exercise Price to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and a corresponding immediate adjustment in the number of shares of Common Stock acquirable and receivable upon exercise of the Warrants, if the value so reflected is less than the Exercise Price in effect immediately prior to such consolidation, merger or sale). The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Company) resulting from consolidation or merger or the entity purchasing such assets assumes by written instrument (in form and substance satisfactory to the Registered Holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of all of the Warrants then outstanding), the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. 2C. Certain Events. If any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions, then the Company's management shall make an appropriate adjustment in the Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the holders of the Warrants. Exhibit H to the Earn-in Agreement Great Basin Warrant Page 6 of 11 2D. Notices. (i) Immediately upon any adjustment of the Exercise Price, the Company shall give written notice thereof to the Registered Holder, setting forth in reasonable detail and certifying the calculation of such adjustment. (ii) The Company shall give written notice to the Registered Holder at least 10 days prior to the date on which the Company intends to (A) make any pro rata subscription offer to holders of Common Stock or (B) consummate any Organic Change, dissolution or liquidation. Section 3. Intention to Exercise. If the Company gives a notice described in paragraph (ii) of Section 2D and the Registered Holder informs the Company in writing within 10 days of receipt of such notice that it intends to exercise the Warrant in whole or in part, the Company shall not make or consummate the event described in such notice before the earlier of (i) the completion of the exercise of the Warrant in whole or in part or (ii) 30 days after the date the Registered Holder informs the Company of its intention to exercise. If the event described in such notice is the liquidation of the Company, whether or not the Registered Holder responds to such notice, the Company shall pay to the Registered Holder the payment or payments (net of the Exercise Price), if any, that would have been made to such Registered Holder on the Common Stock had this Warrant been exercised in full immediately prior to the liquidation. Section 4. No Voting Rights; Limitations of Liability. This Warrant shall not entitle the holder hereof to any voting rights or other rights as a holder of Common Stock in the Company. No provision hereof, in the absence of affirmative action by the Registered Holder to purchase Common Stock, and no enumeration herein of the rights or privileges of the Registered Holder shall give rise to any liability of such holder for the Exercise Price of Common Stock acquirable by exercise hereof or as a holder of a Common Stock in the Company. Exhibit H to the Earn-in Agreement Great Basin Warrant Page 7 of 11 Section 5. Warrant Exchangeable for Different Denominations. This Warrant is exchangeable by the Registered Holder, upon the surrender hereof by the Registered Holder at the principal office of the Company, for new Warrants of like tenor representing in the aggregate the purchase rights hereunder, and each of such new Warrants shall represent such portion of such rights as is designated by the Registered Holder at the time of such surrender. The date the Company initially issues this Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the number of times new certificates representing the unexpired and unexercised rights formerly represented by this Warrant shall be issued. These Warrants are non-transferable, except with the consent of the TSX Venture. All Warrants representing portions of the rights hereunder are referred to herein as the "Warrants." Section 6. Replacement. Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of the Registered Holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing this Warrant, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Company (provided that if the holder is a financial institution or other institutional investor its own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Company shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the same rights represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. Section 7. Notices. Except as otherwise expressly provided herein, all notices referred to in this Warrant shall be in writing and shall be delivered personally, sent by reputable overnight courier service (charges prepaid) or sent by registered or certified mail, return receipt requested, postage prepaid and shall be deemed to have been given when so delivered or deposited in the mail (i) to the Company, at its principal executive offices and (ii) to the Registered Holder of this Warrant, at such holder's address as it appears in the records of the Company (unless otherwise indicated by any such holder). Exhibit H to the Earn-in Agreement Great Basin Warrant Page 8 of 11 Section 8. Amendment and Waiver. Except as otherwise provided herein, the provisions of the Warrants may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Registered Holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants; provided that no such action may change the Exercise Price of the Warrants or the number of shares or class of shares obtainable upon exercise of each Warrant without the written consent of all of the Registered Holders of Warrants. Section 9. Descriptive Headings; Governing Law. The descriptive headings of the several Sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The laws of the Province of British Columbia shall govern all issues concerning the relative rights of the Company and its members and interpretation of this Agreement. This warrant and all rights pertaining hereto may not be transferred by the registered holder without the consent of the TSX Venture Exchange. Section 10. Voting of Shares. So long as Registered Holder holds at least ten percent (10%) of the Shares issued to Registered Holder under this Agreement, Registered Holder Agrees to vote all of the Shares held by Registered Holder at any annual or special meeting of shareholder in accordance with the recommendations of the Company's chief executive officer. Section 11. Trading Limitation. Except as otherwise permitted herein, the Registered Holder shall not, in the aggregate, dispose of more than twenty-five thousand (25,000) of the Great Basin Shares during any one trading day. In addition, so long as the Registered Holder continues to hold at least twenty percent (20%) of the Great Basin Shares held by it upon consummation of the transactions contemplated by this Agreement, the Registered Holder shall provide the Company with reasonable advance notice of any such sale of the Great Basin Shares. The Registered Holder shall not be obligated to complete any sale of Great Basin shares even if it has provided the Company with advance written notice of such sale, but Registered Holder shall notify Company of its withdrawal of any Great Basin Shares from the market with respect to which Registered Holder of the pendency of a sale under any underwritten public offering by Company of company's common stock or any other Company equity Exhibit H to the Earn-in Agreement Great Basin Warrant Page 9 of 11 security, in which event the Registered Holder shall not effect any sales of any Great Basin Shares within Five (5) days prior to the commencement of or during such underwritten public offering. The Registered Holder shall have the right to sell any amount of Great Basin Shares in a private transaction, provided that (i) any such sale shall not be reported or reportable on any exchange or other public market where shares of Company are or may in future be traded, and (ii) the Buyer in such private transaction agrees in writing that, for a period of six (6) months from and after the date of such purchase and sale of Great Basin Shares, such Buyer shall not sell any such Great Basin Shares. In addition, the Registered Holder shall be permitted to pledge any number of Great Basin Shares to an arm's length lender to secure payment of a bona fide loan or other indebtedness, subject to the terms hereof. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and attested by its duly authorized officers and to be dated the Date of Issuance hereof. GREAT BASIN GOLD LTD. By: ----------------------------------- Name: -------------------------------- Title: -------------------------------- Exhibit H to the Earn-in Agreement Great Basin Warrant Page 10 of 11 EXHIBIT I TO WARRANT AGREEMENT EXERCISE AGREEMENT To: GREAT BASIN GOLD LTD. Suite 1020 - 800 West Pender Street Vancouver, B.C. V6C 2V6 Telephone: (604) 684-6365 - Fax: (604) 684-8092 Dated: ----------------------------------- The undersigned, pursuant to the provisions set forth in the attached Warrant (Certificate No. W-___________), hereby agrees to subscribe for the purchase of __________ shares of Common Stock covered by such Warrant and makes payment herewith in full therefore at the price per share provided by such Warrant. The shares shall be issued in the name of and delivered as described beneath the signature of the authorized signatory of the warrant holder below. The shares shall bear the legends referred to in the Warrant. Signature ----------------------------------- Name ---------------------------------------- Address ------------------------------------- Exhibit H to the Earn-in Agreement Great Basin Warrant Page 11 of 11 EX-10.20 11 hecla024510_ex10-20.txt LEASE AGREEMENT Exhibit 10.20 LEASE AGREEMENT OF BLOCK B MINING AREAS By and between, COMPANIA GENERAL DE MINERIA DE VENEZUELA C.A. "CVG MINERVEN", a state owned corporation, domiciled in El Callao, Municipality El Callao, Bolivar State, originally registered before the Commercial Registry of the Judicial Circuit of the Federal District and Miranda State under No. 20, Book 31-A, dated February 4, 1970 and thereafter registered before the Commercial Registry of the Judicial Circuit of the Bolivar State, with principal offices in Puerto Ordaz, having registered the last amendment to its Articles of Incorporation under No. 10, Book A No. 48, dated August 5, 1999 (hereinafter CVG Minerven), herein represented by its President Engineer Franqui Jose Patines, a citizen of Venezuela, of legal age, married, of this domicile, bearer of Identity Card N. 4.035.048, duly authorized by resolution No. RJD-227-2002 of the Board of Directors of CVG MINERVEN, approved in the Board meeting No. JDE-001-2002 held on August 19, 2002and Hecla Mining Company, a corporation incorporated and existing under the laws of the State of Delaware, U.S.A. domiciled in the city of Coeur D' Alene, Idaho, represented herein by Michael Callahan, a citizen of the United States of America, bearer of Identity Card N(0) 82.264.221 (hereinafter the "Company"), duly authorized hereof by power of attorney granted before the Notary Public of the State of Idaho, United States of America, on August 7, 2002 and stamped with the corresponding apostille dated August 8, 2002 pursuant to the Hague Convention each of such parties being individually referred to as the "Party" or jointly, the "Parties", have agreed to enter into the following lease agreement of "Block B" (defined below), based on the following: RECITALS WHEREAS, CVG Minerven is the sole and exclusive holder of the concessions for the exploitation of vein gold known as Minerven No. 1, Minerven No. 2, Minerven No. 3, Minerven No. 4, Minerven No. 8 and Minerven No. 9, each comprising 500 hectares, located in the Jurisdiction of El Callao, State of Bolivar; which Mining Titles were published in the Official Gazette of the Republic of Venezuela No. 1562 Extraordinary dated January 9, 1973, and renewed by the Ministry of Energy and Mines in favor of CVG Minerven for a term of 25 years from the date of publication in the Official Gazette No. 5.217 Extraordinary of March 4, 1998, copy of which is attached and is part of this Agreement under Schedule "A". WHEREAS, on May 19, 2000, CVG Minerven organized a process known as "Promotion of Block B Mining Areas" for the lease of an area known as "Block B" (defined below), which was awarded to Hecla Mining Company, a corporation duly incorporated under the laws of the State of Delaware, United States of America, by resolution of the Board of Directors of CVG Minerven No. RJD-207-2002 of March 26, 2002, attached hereto as Schedule "B". WHEREAS, the Parties have agreed to all terms and conditions of this lease, and therefore have agreed to enter into this lease agreement of Block B, which shall be governed by the following provisions: ARTICLE I INTERPRETATION 1.1.- DEFINITIONS. In this Agreement, unless otherwise clearly stated, the following terms and phrases shall have the following meanings. "AGREEMENT": means this agreement for the lease of Block B including its schedules and amendments made from time to time in writing by the Parties. "BLOCK B",: means a mining area consisting of One Thousand Seven Hundred Eighty Seven hectares (1,787 Has.), which constitutes the purpose of this Agreement and is limited by the following boundaries expressed in U.T.M coordinates: Boom N 1 of Block B corresponds to vertex B 3 of the concession Minerven No. 1, UTM N 809,500 and E 624,000. Boom N 2 of Block B is located from N 1 southwards for a distance of 2,5000 m, coinciding also with vertex B2 of the concession Minerven No. 1, with coordinates UTM N 807,000 and E 624,000. Boom N 3 of Block B is located from N 2 eastwards for a distance of 6,850 m on the southern boundary of the Minerven No. 4 plot, known as boom M 4, with coordinates UTM N 807,000 and E 630,860. Boom N 4 of Block B is located from M 4 towards N 22(0) W, for a distance of 2,454 m, on the boundary of plots Minerven N 03 and Minerven N 04, known as boom M 4-1, with coordinates UTM N 809.256 and E 630,000. Boom 5 is located from M 4-1 northwards for a distance of 744 m on the boundary of plots Minerven N 08 and Minerven N 07, known as M8, with coordinates UTM N 810,000 and E 630,000. Boom N 6 of Block B is located from M 8 westwards for a distance of 2,000 m, on the boundary of plots Minerven N 09 and Minerven N 08, known as boom M8-1, with coordinates UTM N 810,000 and E 628,000. Boom N 7 of Block B is located from M 8-1 southwards for a distance of 250 m, on the boundary of plots Minerven N 09 and Minerven N 08, known as boom M 8-2, with coordinates UTM N 809,750 and E 628,000. Boom N 8 of Block B, is located from M 8-2 westwards for a distance of 400 m, on concession Minerven N 09, known as M 9, with coordinates UTM N 809,750 and E 627,600. Boom N 9 of Block B, is located from M 9 northwards 2 for a distance of 259 m, on concession Minerven N 09, known as M 9-1, with coordinates UTM N 810,000 and E 627,600. Boom N 10 of Block B is located from M 9-1 westwards for a distance of 1,600 m on the western boundary of plot Minerven N 09, known as boom M 9-2, with coordinates UTM N 810,000 and E 626,000. Boom N 11 of Block B is located from M 9-2 southwards for a distance of 500 m, on the northern boundary of concessions Minerven 01, Minerven 02 and Minerven 09, known as M 9-3, with coordinates UTM N 809,500 and E 626,000. Finally, form this point westwards for a distance of 2,000 m, Boom N 1 of Block B is reached again, coinciding with vertex B 3 of concession Minerven N 1, with coordinates UTM N 809,5000 and E 624,000, closing the perimeter which encloses Block B of CVG Minerven, for a total surface of approximately ONE THOUSAND SEVEN HUNDRED EIGHTY-SEVEN HECTARES (1,787 Has.) which corresponds to and includes the Concessions, within its boundaries as follows: - Minerven Concession No. 1: total occupation according to the boundaries described in the Concession Titles. - Minerven Concession No. 2: total occupation according to the boundaries described in the Concession Titles, except as set forth in section 2.1 - Minerven Concession No. 3: total occupation, according to the boundaries described in the Concession Titles. - Minerven Concession No. 4: partial occupation, described as follows: to locate the Booms that enclose the plot of land granted under concession Minerven N(0) 4, made up of one hundred (100) hectares, boom N(0) 3 is used as a reference point from the northeast vertex of concession Minerven N(0) 3, from such point southwards a distance of two hundred fifty-one meters (251 m) is measured to set boom N(0) 1 or the northeast vertex of the aforementioned plot; from such point southwards a distance of two thousand two hundred forty-nine meters (2,249m) is measured to set boom N(0) 2 or the southwest vertex; from such point eastwards a distance of eight hundred sixty meters (860 m) is measured to set boom N(0) 3 or the southeast vertex; form such point northeast 340(0), a distance of two thousand five hundred four meters (2,504) is measured to reach the point of reference, with which the triangular perimeter is closed. - Minerven Concession No. 8 and Minerven Concession N(0) 9: partial occupation, described as follows: to locate the booms that enclose the plot of land leased under the concessions Minerven N(0) 8 and Minerven N(0) 9, made up of one hundred ninety hectares (190 has.) boom N(0) 3 is used as a reference point from the northeast vertex of concession Minerven N(0) 1, which will also be considered as boom N(0) 1 or the southwest vertex of this plot; from such point northwards a distance of 3 five hundred meters (500 m) is measured to fix boom N(0) 2 or the northwest vertex; from such point eastwards, a distance of one thousand six hundred meters (1,600 m) is measured to fix boom N(0) 3 or the northwest vertex of the intermediate area neighboring the plot known as "SONI"; from such point southwards, two hundred fifty meters (250 m) are measured to fix boom N(0) 4 or the southwest vertex of the intermediate area neighboring plot "SONI"; from such point eastwards, a distance of four hundred meters (400 m) is measured to fix boom N(0) 5 or the southeast vertex of the intermediate area neighboring plot "SONI", from such point northwards, a distance of two hundred fifty meters (250 m) are measured to fix boom N(0) 6 or the northeast vertex of the intermediate area neighboring plot "SONI", from such point eastwards, two thousand meters (2,000 m) are measured to set up boom N(0) 7 or the northeast vertex; from such point southwards five hundred meters (500 m) are measured to fix boom N(0) 8 or the southeast vertex; from such point westwards four thousand meters (4,000 m) are measured to reach the reference point with which the triangular perimeter is closed. Reference maps of Block B are enclosed herein under Schedule "C" and are part of this Agreement. Reference maps of Block B are attached hereto as Schedule "C" and form part of this Agreement. "COMPANY": means Hecla Mining Company a corporation incorporated and existing under the laws of the State of Delaware, U.S.A. domiciled in the city of Coeur D' Alene, Idaho or its successor hereof assuming all rights and obligations under this Agreement pursuant to section 20.1; "CONCESSION TITLES": means the concession titles through which the MEM awarded CVG Minerven the mining rights over the Concessions, which were published in the Official Gazette No. 1.562 Extraordinary of January 9, 1973, and renewed by the Ministry of Energy and Mines in favor of CVG Minerven for a term of 25 years from its publication in the Official Gazette No. 5.217 Extraordinary of March 4, 1998 all registered before the Registry of the Roscio Municipality on the State of Bolivar, with offices in Guasipati, on May 4, 2001 and filed as follows: Minerven N(0) 1, under N(0) 13, First Protocol, Volume II, Second Quarter; Minerven N(0) 2, under N(0) 14, First Protocol Volume II, Second Quarter, Minerven N(0) 3, under N(0) 15, First Protocol, Volume II, Second Quarter; Minerven N(0) 4, under N(0) 16, First Protocol, volume II, Second Quarter; Minerven N(0) 8, under N(0) 20, First Protocol, Volume II, Second Quarter, Minerven N(0) 9, under N(0) 21, First Protocol, Volume II, Second Quarter. 4 "CONCESSIONS": means the concessions for the exploitation of vein gold known as Minerven No. 1, Minerven No. 2, Minerven No. 3, Minerven No. 4, Minerven No. 8 and Minerven No. 9, of 500 Has. each, located in the jurisdiction of the Municipality of El Callao of the State of Bolivar and held by CVG Minerven; "CVG MINERVEN": means "COMPANIA GENERAL DE MINERIA DE VENEZUELA C.A. "CVG MINERVEN", a State owned company, domiciled in the Municipality of El Callao, of the State of Bolivar , originally incorporated in the Mercantile Registry of the Judicial Circuit of the Federal District and State of Miranda, under No. 20, Volume 31-A, of February 4, 1970, and further incorporated in the Mercantile Registry of the Judicial Circuit of the State of Bolivar , with branch in Puerto Ordaz, the last modification to its by-laws being registered under Volume 19 A-pro N(0) 48, dated July 1, 2002. ; "EFFECTIVE DATE": means the date of execution of this Agreement by the Parties before a Notary Public; "ENVIRONMENTAL PERMITS" means the "Permiso de Afectacion de Recursos para Exploracion" (permit for the use of natural resources for exploration) of vein gold on Block B granted by the Ministry of the Environment and Natural Resources and any other environmental permit or authorization that from time to time such Ministry or any other competent authority may request or that is required by law to perform Exploration or Evaluation of the Deposit in Block B; "EXPLORATION": means all activities aimed at determining the existence, quantity, quality or commercial values of mineral deposits that may include gold reserves, in any area within Block B, including the phases, terms and funding to be invested in the evaluation of mineral resources discovered in such areas; "EVALUATION OF THE DEPOSIT": means all activities for purposes of geologically evaluating mineral resources presumably existing in some areas of Block B, including but not limited to, the completion of additional perforations required after the discovery of mineralizations of potential commercial value, general plans to design and develop budgets including the phases, terms and funding to be invested in the evaluation of such mineral resources; "FORCE MAJEURE": means an event beyond the reasonable control of a Party including, without limitation, acts of God; accidents; fires; floods; slides or earthquakes; explosions; weather conditions materially preventing or impairing work; interruption of, or inability to secure basic services, fuel or power; new laws, decrees, regulations, orders or administrative acts issued by any public 5 authority legally competent; governmental restriction or control on imports, exports or foreign exchange; delay in acting of any government or governmental authority or agency, and any confiscation; war (declared or undeclared), revolution, civil disturbance, sabotage, coup d' etats, terrorism or riot; and any other event beyond the reasonable control of the Party affected which may prevent or delay performance of the obligations of the Parties under this Agreement; "MATERIAL BREACH": means an act or omission by one Party which causes a material adverse effect on: (i) the business, results of operations or financial condition of the other Party; (ii) the ability of the other Party to perform its obligations under this Agreement in a timely manner pursuant to the terms herein; (iii) validity and enforceability of the Concession Titles, or; (iv) the validity or enforceability of this Agreement or the rights or remedies of the other Party; "MEM": means the Ministry of Energy and Mines. "MONTHLY GOLD PRICE": means the monthly average price of gold which will be calculated by dividing the sum of all the London Buillion Market Association P.M. bid Gold Fix prices (which fixes the closing price for such metal for that day per fine troy ounce of gold) reported for the monthly period in question by the number of days for which such prices were reported; "MINING LAW": means the Law of Mines, published in the Official Gazette No.5.382 of September 28, 1999, including its Regulations, Resolutions, Decrees and any other applicable laws; "PARTIES": in plural means both parties entering into this Agreement, that is, CVG Minerven and the Company, and in singular (Party) each one of them; "SCHEDULE", means any of the documents that pursuant to Section 1.2 are attached to this Agreement. "SMALL MINERS AGREEMENTS", means the 18 agreements entered into between CVG Minerven and certain third parties in some areas of Block B under the administration and responsibility of CVG Minerven, according to the list attached hereto as Schedule F; 1.2. SCHEDULES. The following Schedules form part of this Agreement: Schedule A- Copy of the Concession Titles Schedule B- Award of Block B to the Company Schedule C- Maps of Block B Schedule D- Authorization from the MEM to lease Block B 6 Schedule E- Power of attorney to the Company Schedule F- Small Miners Agreements and map of their location Schedule G- Judicial Inspection of the Minerven No. 2 Concession Schedule H- Draft of Corporate Guarantee by Hecla Mining Company 1.3 SUBTITLES. The subtitles shown at the beginning of each section of this Agreement are intended to identify the meaning of its contents and shall not be considered as interpretations of this Agreement. ARTICLE II LEASE 2.1 LEASE. CVG Minerven, pursuant to authorization granted by the MEM, No. VMM/336/02, dated August 28, 2002,, attached hereto as Schedule "D", pursuant to Article 29 of the Mining Law, hereby leases to the Company and the Company hereby accepts the lease of Block B in an exclusive manner for purposes of performing Exploration, Evaluation of the Deposit and exploitation of vein gold, with the same rights, obligations and duties that CVG Minerven has as holder of the Concessions and according solely to the conditions set forth in this Agreement and in the Mining Law and other applicable laws, except for the concurrence, in percentage terms, of the joint liability in the performance of the duties and obligations resulting from Minerven Concessions No. 4, 8 and 9, according to the occupation and exploitation rights that each of the Parties have on these Concessions, and according to the regime set forth below. The superficial areas (grounds) occupied by the treatment or mineral processing plant belonging to CVG Minerven, known as "El Peru Plant", including such plant, located on the lands of the Minerven N(0) 2 concession are excluded from this Agreement. 2.2 FIRST OPTION ADDITIONAL AREA. Because the original area of Block B initially offered to investors as part of the Block B bidding process has suffered certain modifications in its boundaries after the award, CVG Minerven agrees to grant the Company the first option to lease an additional thirty (30) hectares located within the following U.T.M. coordinates: 7 North: 807.002.295 and East: 627.657.574 from this point, three hundred forty two and four hundred twenty six meters (342.426 m) true East to arrive to Boom N(0) A-1, located at the following U.T.M. coordinates North: 807.000.000 and East: 628.000.000; from this point four hundred meters (400.00m) true West to arrive to boom B-2, located at the following U.T.M. coordinates North: 809.750.000 and East: 627.600.000; from this point seven hundred meters (700.00) true North, to arrive to boom B-3, locates at the following U.T.M. coordinates North: 810.500.000 and East: 627.600.000; from this point four hundred meters (400,00 m) true East, to arrive to boom B-4, located at the following U.T.M. coordinates North: 810.500.000 and East: 628.000.000; from this point seven hundred and fifty meters (750,00 m) true south, to arrive to the starting point boom B-1, with which the polygon is closed. In this regard, in the event that such additional area becomes available from any other lease holder, CVG Minerven and the Company shall enter into negotiations for the lease of such area, in the understanding that CVG Minerven cannot offer or negotiate such area with third parties (including small miners) unless CVG Minerven and the Company have not reached an agreement within a term not exceeding six (6) months after the area is offered to the Company. In such case, the area will be considered to be free and CVG Minerven may offer it to third parties. 2.3 EXTENSION OF OBLIGATIONS. The rights and obligations assumed by the Company under this Agreement are limited only to the obligations as leaseholder of Block B. Except for the obligations and responsibilities that the Company expressly undertakes under this Agreement, it is understood that CVG Minerven will assume any other liability and obligation before third parties resulting from its capacity as holder of the Concessions, provided that such liability has not resulted from any act or omission of the Company or had been a direct consequence of the liabilities and obligations that the Company undertakes under this Agreement. 2.4 POWER OF ATTORNEY. With the purpose of allowing the exercise of the rights of Block B and to assure performance of the obligations undertaken by the Company, in any event, with respect to any third party, individual or legal entity and especially before the MEM, CVG Minerven hereby shall grant the Company on the Effective Date a special power of attorney, ample and sufficient as required by law, so that the Company or any authorized successor or assignee may represent CVG Minerven before the MEM and/or any other public and/or private entity, individual or legal, national, state or municipal entity, including the Decentralized Administration and the Autonomous Institutions, State owned Companies, Mining Protection by the National Guard and other entities related to the mining activity or any successors of the same, for all purposes provided in the Mining Law, the Organic Law of the Environment, the Environmental Criminal Law as well as the Resolutions, rules, decrees, orders and other laws applicable to this Agreement and/or to the activities related to the same. Therefore and in exercise of such power of attorney, the Company may file writs, applications, 8 requests, authorizations, be summoned and receive notices; apply and pursue expropriations or any other occupation procedures against holders of surface areas, subject to prior approval by CVG Minerven, which cannot be unreasonably denied or delayed; review and access any file, registry or archive, study them, copy them completely or partially, or photocopy them, request certifications or information verbally or in writing, and to perform any action relating to the powers granted herein, and generally perform everything necessary to preserve the rights of CVG Minerven as holder of the mining rights granted by the Concessions which constitute Block B. The Company may also make the payments of all respective taxes, fees and contributions, execute receipts, transactions, and in general perform any action to comply with the special advantages established in the Concession Titles. In exercise of such power of attorney it shall specially preserve the enforceability of the Concessions and the Concession Titles that include Block B and must perform all obligations and duties related to it, explore and exploit Block B under the terms of the law and without any limitation, since the above enumeration is a mere description and is not limiting. Such power is granted in performance of the obligations assumed by CVG Minerven in favor of the Company pursuant to this lease Agreement and pursuant to Article 1705 of the Civil Code. The Company shall exercise this power of attorney through its President or through a corporate or legal representative, and such exercise shall be notified to CVG Minerven prior to its performance. Likewise, the Company may substitute this power, completely or partially only to such successor authorized pursuant to this Agreement. In the event that, notwithstanding the power of attorney granted herein, the Company requires the agreement and/or the individual consent of CVG Minerven for any action before the MEM or any other entity as indicated above, CVG Minerven agrees to execute all documents and perform all actions that the Company requests, in the understanding that the costs and expenses resulting from any such action shall be exclusively borne by the Company. All the documents that the Company has received or filed before any of the entities or persons mentioned above pursuant to this Agreement or to the power of attorney granted under this provision, shall be communicated to CVG Minerven within ten (10) working days from its receipt or delivery. CVG Minerven hereby agrees to grant a separate irrevocable power of attorney in favor of the Company in the same terms stated in this Article, and according to the draft attached hereto as Schedule "E". 2.5 INSPECTION. CVG Minerven shall have the same powers granted by the law to the MEM to visit and inspect Block B. Preferably, but without prejudice to its power to inspect, CVG Minerven shall give sufficient prior notice to the Company of its intent to practice any such visit or inspection so the Company may have in site the competent personnel for its attention, if necessary, and provide the necessary facilities for the correct performance of the inspection. 9 ARTICLE III TERM 3.1 TERM. This Agreement shall be valid from the Effective Date and shall remain to in effect throughout the same term or duration of the Concession Titles in favor of CVG Minerven described in the beginning of this Agreement, that is, until March 4, 2023. 3.2 EXTENSION OF TERM. In the event that due to any changes in the Venezuelan mining legal regime, in the Mining Law, or due to any other reason, the Concession Titles are renewed, extended or reissued in favor of CVG Minerven; or the MEM grants any other mining rights on the same Concessions in favor of CVG Minerven, this Agreement shall continue and remain in full force and effect during the duration of such mining rights. If the granting of the new mining rights to CVG Minerven at the expiration of the term of the Concessions requires an amendment in the nature or other aspects of this Agreement, both Parties will renegotiate this Agreement pursuant to the new legal regulations in order to assure its continuity. ARTICLE IV CONSIDERATION PAYABLE TO MINERVEN 4.1 CONSIDERATION. As consideration for the lease of Block B to the Company , the Company agrees to pay CVG Minerven the following amounts: 4.1.1 RIGHT OF CONTRACT. An aggregate of Two Million Seven Hundred and Fifty Thousand Dollars (US$2,750,000.oo), payable in Dollars of the United States or in Bolivares at the applicable purchase exchange rate fixed by the Venezuelan Central Bank two (2) days prior to the date of payment, divided into three (3) portions payable as follows: (i) Five Hundred Thousand Dollars (US$500,000.oo) payable on the Effective Date; 10 (ii) One Million Two Hundred Fifty Thousand Dollars (US$1,250,000.oo) payable 180 days from the Effective Date; (iii) One Million Dollars (US$1,000,000.oo) payable one (1) year from the Effective Date. 4.1.2 LEASE PAYMENTS. Five Thousand Dollars (US$5,000.oo) quarterly, payable during the first five (5) working days at the end of each quarter until the Company begins commercial production in any of the Block B mining areas. When commercial production begins, this payment will cease. This payment shall increase every following year in fifty percent (50%) in comparison to the previous year, to a maximum of five (5) years, from the date on which the Environmental Permits are granted and until commercial production begins. In the event that the Company does not commence commercial production in five (5) years, the Company shall continue paying a fixed lease amount for each quarter equal to the last quarterly lease payment, that is, the amount of One Hundred and One Thousand Two Hundred Fifty Dollars (US$101,250.00) annually. Such payments shall be made in Dollars of the United States or in Bolivares at the applicable purchase exchange rate fixed by the Venezuelan Central Bank two (2) days prior to the date of payment. 4.1.3 ROYALTIES. A royalty calculated on the commercial value in Caracas for refined gold extracted from the areas to be exploited by the Company in Block B payable monthly, within the first fifteen (15) days after the end of each month in Dollars of the United States or in Bolivares, at the applicable purchase exchange rate fixed by the Venezuelan Central Bank two (2) days prior to the date of payment according to the following scale: (i) Two percent (2%) if the Monthly Gold Price is below $290 per Troy ounce of refined gold during the month preceding payment; (ii) Two and a half percent (2.5%) if the Monthly Gold Price is equal or greater than $290 and equal or below $310 per Troy ounce of refined gold during the month preceding payment; (iii) Three percent (3%) if the Monthly Gold Price is greater than $310 per Troy ounce of refined gold during the month preceding payment. 11 4.2. ELIMINATION OR SUBSTITUTION OF SPECIAL ADVANTAGE FOURTH. CVG Minerven will use its best efforts in the most diligent manner through negotiations with the MEM, to eliminate, reduce or substitute the Special Advantage number four of the Concession Titles, which establishes an additional payment to the exploitation tax of three percent (3%) of the commercial price of refined gold in Caracas for the gold extracted from Block B. In case such special advantage is eliminated, reduced or substituted; or its payment is exonerated, the Company shall not be obliged to pay the additional three percent (3%). In the event that CVG Minerven despite using its best efforts cannot achieve the elimination, reduction or substitution of such special advantage, the aforesaid will not be considered a Material Breach of this Agreement by CVG Minerven. 4.3 FORM OF PAYMENT. All payments under this section will be made to the name of CVG Minerven by check or bank deposit to the account designated in writing by CVG Minerven. For such purpose, before the Company makes any payment, CVG Minerven shall provide information in writing to the Company regarding the currency and form of payment. 4.4. DELAY IN PAYMENTS. If the Company fails to make payments on time on any of the amounts established in this section, it shall pay a penalty interest at the "London Interbank Offering Rate" (LIBOR) plus two percent (2%). ARTICLE V WORK PROGRAM 5.1 TERM FOR INITIAL EVALUATION. The Company shall have a term of two (2) years starting from the granting of the Environmental Permits to carry out an Evaluation of the Deposit in certain zones of Block B where some prior studies have determined the presence of gold ore ("INITIAL EVALUATION TERM"). During the Initial Evaluation Term the Company may also perform Exploration in any area of Block B that the Company considers may have some potential for development and exploitation. 5.2 PRE-FEASIBILITY STUDY. On the date of expiration of the Initial Evaluation Term the Company must submit for review of CVG Minerven a prefeasibility study ("PRE-FEASIBILITY STUDY"). Such Pre-Feasibility Study shall be prepared by the technical personnel of the Company for the purpose of determining the economic 12 and technical conditions set forth below, upon which the Initial Evaluation Term may be extended, or to prepare the technical economic and environmental feasibility study, which will serve as a basis to begin commercial production in Block B. CVG Minerven shall have a term of thirty (30) calendar days following receipt of the Pre-Feasibility Study to make any observations regarding the conditions stated below, which cannot be unreasonably denied or delayed. In the event that the Pre-Feasibility study is not approved, CVG Minerven must explain in writing, the reasons and motives supporting such decision, in which case the Parties will resolve any dispute according to the procedure set forth in section 18 hereof. While the Parties negotiate such dispute, this Agreement shall be suspended until the dispute is finally resolved. However, if the 30-day term elapses without CVG Minerven responding, such study shall be deemed approved. If the Pre-Feasibility Study meets the follwing conditions: (a) The identification of a contiguous ore block containing a minimum of 350,000 oz of gold at an average plant feed grade of greater than 14,00 grams per ton of ore, and; (b) An internal rate of return on total investment of all sources greater than 20%, then; the Company must prepare within the following six (6) months a technical, financial and environmental feasibility study ("Feasibility Study"). CVG Minerven may extend such term for six (6) additional months, provided that the Company requests such extension with an anticipation of thirty (30) calendar days prior to the expiration of the 6-month term. Once the extension is filed, CVG Minerven must respond within fifteen (15) days. The extension cannot be unreasonably delayed or denied. The Company must submit to CVG Minerven a copy of the Feasibility Study once it is completed. In such case, the Company shall have a term of two (2) years starting from the granting of the construction permits, for the design, development and construction of the necessary works to initiate commercial production. The Company commits to making its best efforts and to take all the necessary steps before the competent authorities to obtain the required legal permits in order for such authorities to provide an answer in the shortest possible time. 5.3 EXTENSIONS OF THE INITIAL EVALUATION TERM. In the event that upon expiration of the Initial Evaluation Term the conditions set forth in section 5.2 are not met concurrently, CVG Minerven agrees to concede to the Company annual 13 extensions of the Initial Evaluation Term up to a maximum of ten (10) annual extensions, in order to allow the Company to continue performing the Evaluation of the Deposit or Exploration in other areas of Block B in order to identify mineral deposits which could comply with the conditions set forth in section 5.2 above. CVG Minerven must grant the annual extensions of the Initial Evaluation Term within thirty (30) days after the request by the Company at the end of each annual term, provided that: (a) The Company has submitted a Pre-Feasibility Study during the prior year in the terms provided by section 5.2; (b) Such Pre-Feasibility Study demonstrates that neither one of the conditions under section 5.2 have been met; (c) The Company has invested in the past year and commits to expend at least Two Hundred Thousand Dollars (US$200,000.00) in Exploration and/or Evaluation of the Deposit in Block B for the subsequent year; Once the conditions established in section 5.2 are met, the Company must prepare the Feasibility Study and shall begin commercial production in the terms provided in section 5.2. 5.4 FINANCING FOR EXPLOITATION. In the event that after concluding the Feasibility Study the Company has not obtained adequate financing for the construction, development and production of gold, the Company shall not be required to begin production in Block B within the term set forth in section 5.2, until adequate financing from a financial institution is arranged, provided that the reasons for the lack of financing are not attributable to the Company. In the event that the Company has obtained financing to begin commercial production in Block B, but as a result of the terms offered for such financing the internal rate of return established in the Feasibility Study is reduced to a percentage of less than 20%, then the Company shall not be bound to start commercial production in Block B until the Company has renegotiated the terms of such financing or obtained other financing to the extent of the internal rate of return set forth above. The suspension of the obligation to begin commercial production due to lack of financing (for reasons not attributable to the Company) or due to the high financial costs shall amount to more than three (3) years from the filing of the Feasibility Study. During the suspension term, the Company shall comply with the payment of the lease established in section 4.1.2 until commercial production begins. 14 5.5 REPORTING REQUIREMENTS. During the month of November of each year, the Company shall submit to CVG Minerven an investment schedule and an estimated budget corresponding to the following year. During the Initial Exploration Term the Company must submit to CVG Minerven quarterly progress reports in connection with the Exploration or Evaluation of the Deposit activities (as the case may be) performed by the Company. ARTICLE VI ENVIRONMENTAL 6.1 ENVIRONMENTAL CONDITION OF BLOCK B. Due to the fact that (i) CVG Minerven has entered into several Small Miners Agreements in Block B since the granting of the Concessions to CVG Minerven; (ii) the Parties recognize that other unauthorized small miners are currently working in Block B, and; (iii) to date CVG Minerven lacks a detailed assessment of the environmental damage caused by such small miners or other persons in Block B, CVG Minerven hereby authorizes the Company to conduct at its sole cost any technical and environmental studies in Block B in order to determine the past and present environmental conditions prior to conducting any Exploration or exploitation works in any of the targets selected for Exploration or exploitation by the Company. CVG Minerven shall participate with the Company in all such technical and environmental studies and such studies shall become part of this Agreement. Such studies will only serve for the purposes of determining the environmental condition of the areas to be explored by the Company, and it shall not be understood that the Company is undertaking any obligation or liability in connection with any environmental damage caused by third parties in Block B. To such effect, a Judicial Inspection of the Minerven No. 2 concession is attached hereto as Schedule "G", in which area the Company shall begin the Exploration and Evaluation of the Deposit. Before commencing the Exploration the Company and CVG Minerven shall carry out a base line environmental study as evidence of the condition of such concession, which will also form part of this Agreement. The Company will only be liable for any environmental damage caused by the Company from its activities during the Exploration, Evaluation of the Deposit or exploitation and in the areas selected by the Company once it begins activities. In no event shall the Company be liable for any activities of any kind made in the past by CVG Minerven, by persons working under Small Miners Agreements or by third parties, which have caused environmental damage to Block B prior to the Effective Date. CVG Minerven agrees to indemnify and save the Company harmless 15 from any debt, claim, obligation, payment, judicial or administrative actions of any kind (including attorneys fees) against the Company as the result of any past environmental damage caused by CVG Minerven, any person working under a Small Miners Agreement or third parties in Block B and for any environmental damage caused after the Effective Date by CVG Minerven or by persons working under Small Miners Agreements. 6.2 ENVIRONMENTAL PERMITS. The Company shall carry on, with the cooperation of CVG Minerven, if necessary, or acting with the authority granted by the power of attorney set forth in section 2.4, all matters directed towards obtaining the necessary Environmental Permits for the targets selected for Exploration, Evaluation of the Deposit and exploitation by the Company within Block B at its sole cost and expense, including those reasonably incurred by CVG Minerven in such cooperation, provided that such expenses have been agreed prior to the cooperation actions taken by CVG Minerven. 6.3 ENVIRONMENTAL BOND. Prior to beginning commercial production, the Company shall give credit before CVG Minerven and the MEM, by means of a certified copy, of the compliance of the environmental bond that guarantees the mitigation and correction of any environmental damages that may result from the performance of the mining activities that are the subject matter of this Agreement, pursuant to the directions of the Ministry of the Environment and Natural Resources and the MEM. ARTICLE VII SPECIAL ADVANTAGES 7.1 COMPLIANCE WITH SPECIAL ADVANTAGES. Except as provided in the special advantage seventh of the Concession Titles which obliges CVG Minerven to destine 1,000 Has. to small miners, the Company agrees to comply with the rest of the special advantages, which may be required from the Effective Date, set forth in the Concession Titles using the following mechanism: (a) The Company shall comply with all special advantages established in the Concession Titles that are leased in their entirety, that is, Minerven 1, 2 and 3; (b) CVG Minerven shall comply with all special advantages established in the Concession Titles that are partially leased, that is Minerven 4, 8 and 9. Once such advantages have 16 been complied with, CVG Minerven shall calculate the pro-rata quota corresponding to the Company according to the area leased, so that the Company shall reimburse CVG Minerven the corresponding amounts. It is understood that the Company shall comply with the payment of special advantage fourth of the Concession Titles while it is in force and only for the exploitation activities carried on by the Company. 7.2 LIABILITY. The Company shall not be liable for compliance with any of the special advantages which CVG Minerven has failed to comply with in a timely fashion as holder of the Concessions. In the event that after having reviewed the compliance with the special advantages before the MEM, the Company concludes that CVG Minerven has not complied with some of these obligations which became due in the past, CVG Minerven will immediately proceed to give compliance thereof. However, if CVG Minerven fails to give full or partial compliance (as the case may be) of the applicable special advantages in a timely manner, then the Company may directly comply with such special advantages on behalf of CVG Minerven using the power of attorney granted pursuant to section 2.4. CVG Minerven shall reimburse any costs and expenses reasonably and justifiable incurred by the Company in connection hereof. 7.3 ADMINISTRATIVE OFFICE. The Company agrees to implement from the Effective Date, the installation of an administrative office in the jurisdiction of El Callao in the most convenient place for its operations, in addition to the facilities that will have to be installed within Block B once commercial production begins. 7.4 SOCIAL PROGRAMS. With the purpose of contributing to the social development of the local community, the Company shall permanently and actively, in coordination with CVG Minerven, become part of any social program during the term of this Agreement, be it assistance to the elderly or to children, or economic support to any local school, or in the form of assistance, which shall begin in a term not exceeding five (5) years from the date commercial production begins. In any event, such program shall be chosen by the Parties, pursuant to the results of a specific social evaluation or diagnosis made to that effect. The implementation of the selected program shall be carried out under the direction of the Company in coordination with CVG Minerven, and cannot exceed Twelve Thousand Dollars (US$12,000.oo) per calendar year. 17 7.5 VENEZUELAN PERSONNEL. During the Exploration and Evaluation of the Deposit and exploitation phases, the Company shall give preference to the hiring of qualified workers and employees of the El Callao and neighboring areas, preferably Venezuelan and, it may consider the qualified personnel recommended by CVG Minerven in a number which matches the needs of the project and that meets the required profiles for each case. Additionally, for the implementation of Exploration and Evaluation of the Deposit and environmental studies, the Company shall give preference to the hiring of services from qualified Venezuelan companies, provided that such companies prove to be qualified for the work requested and that the offered terms are competitive with respect to quality, opportunity and cost. ARTICLE XIII DISCLOSURE OF INFORMATION 8.1 DISCLOSURE BY THE COMPANY. CVG Minerven authorizes the Company to disclose, in the manner and times the Company deems convenient, information related to the mining project to be developed in Block B. ARTICLE IX WARRANTIES AND REPRESENTATIONS 9.1 REPRESENTATIONS AND WARRANTIES OF CVG MINERVEN. CVG Minerven represents and warrants that, as of the date hereof: (a) ORGANIZATION. CVG Minerven is a State owned corporation duly organized, validly existing and in good standing under the laws of Venezuela and is registered with all relevant registration bodies in Venezuela and has full corporate power and authority to carry out its business as presently conducted. (b) CORPORATE AUTHORIZATIONS AND VALIDITY. The board of directors of CVG Minerven, at duly convened and validly held meetings, has duly taken all actions required by law, and by the articles of incorporation and by-laws (or equivalent thereof) of CVG Minerven, to approve and authorize the execution and delivery of this Agreement and the consummation of the transactions herein contemplated, and has taken no action to revoke, rescind or otherwise terminate such approval and 18 authorization. This Agreement and the documents and instruments executed by CVG Minerven pursuant hereto have been duly and validly executed by CVG Minerven constitute valid and legally binding obligations of CVG Minerven and are enforceable in accordance with the terms thereof. (c) CONSENTS AND APPROVALS. All authorizations, approvals and consents from governmental authorities with jurisdiction over CVG Minerven that are necessary for (i) the execution and delivery of this Agreement, (ii) the performance of CVG Minerven obligations hereunder and (iii) all mining activities and all activities incidental thereto contemplated by this Agreement, have been obtained and are in full force and effect. (d) NO CONFLICTS. The execution and delivery of this Agreement by CVG Minerven and the performance by CVG Minerven of the transactions contemplated herein are not in conflict with any resolution in force adopted by meetings of CVG Minerven shareholders or its board of directors and , will not constitute a default under, be a breach of, or conflict with any provision of CVG Minerven articles of incorporation or by-laws or any provision of, or result in the automatic acceleration of, any obligation under, or give any other party thereto the right to accelerate any obligation under, any mortgage, lien, lease, agreement, judgment, decree or instrument to which CVG Minerven is a party or by which it is bound, or violate any provision of law or governmental regulation or any court or regulating order, judgment or decree. (e) LITIGATION. There is no litigation of any kind or nature, nor any judicial or administrative proceeding or investigation pending or threatened against CVG Minerven that may affect or impede the purpose of this Agreement, nor are there any outstanding decrees, judgments, sentences, injunctions or orders by any court, governmental department or agency arising from any judicial or administrative action with respect to CVG Minerven that may affect or impede the purpose of this Agreement. (f) NO MATERIAL MISSTATEMENT. All documents, reports or other written information pertaining to this Agreement that have been furnished to the Company by or on behalf of CVG Minerven are true and correct in all material respects. (g) THE CONCESSIONS. 19 (g.1) The Concessions were duly and legally awarded to CVG Minerven and any right, title and interest thereto, is fully and unconditionally vested in CVG Minerven. No objection or petition to rescind, avoid or terminate or other complaint of any nature, public or private, has been made, filed or threatened with respect to the Concessions. (g.2) The Concessions or its rights are not currently optioned, and have not been previously sold, transferred, alienated, leased or encumbered in any other manner (except for the Small Miners Agreements), and the right to use and enjoy ownership and possession of CVG Minerven has not been transferred or surrendered since the initial award thereof to CVG Minerven, (g.3) The Concession Titles are free and clear of any liens, mortgages, and pledges and are free of any judicial measures of any kind, such as attachments. The Concession Titles have been duly registered at the Roscio Municipality, State of Bolivar, Real Estate Registry Office. (g.4) All fees, taxes and other applicable contributions under the Mining Law have been duly paid, and all other obligations and requirements of law or set forth in the Titles to the Concessions (including compliance with the special advantages) have been substantially complied with in every respect and CVG Minerven is not in breach thereof. (g.5) CVG Minerven has not been served with notice or any other form of communication from the MEM stating that it has failed to perform any duties, obligations, charges or requirements, whether legal, contractual or administrative, in connection with the Concessions. (g.6) CVG Minerven has delivered within the respective legal term all documents, information, reports and any and all data which is required by law or under the Concession Titles. 20 (g.7) CVG Minerven has possession of and absolute and unrestricted right to the Concessions and for such purpose is the holder of the Concession Titles and occupation environmental permits.,. (g.8) CVG Minerven has granted 18 Small Miners Agreements in the areas set forth in Schedule "F" which are in full force and effect and CVG Minerven has not granted, optioned, leased, offered or granted any other mining right of any nature to third parties in Block B. 9.2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants that, as of the date hereof: (a) ORGANIZATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, United States of America.,. (b) CORPORATE AUTHORIZATIONS AND VALIDITY. The board of directors of the Company, at duly convened and validly held meetings, has duly taken all actions required by law, and by the articles of incorporation and by-laws (or equivalent thereof) of the Company, to approve and authorize the execution and delivery of this Agreement and the consummation of the transactions herein contemplated, and has taken no action to revoke, rescind or otherwise terminate such approval and authorization. This Agreement and the documents and instruments executed by the Company pursuant hereto have been duly and validly executed by the Company, constitute valid and legally binding obligations of the Company and are enforceable in accordance with the terms thereof. (c) CONSENTS AND APPROVALS. All authorizations, approvals and consents from governmental authorities with jurisdiction over the Company that are necessary for (i) the execution and delivery of this Agreement, (ii) the performance of the Company obligations hereunder and (iii) all mining activities and all activities incidental thereto contemplated by this Agreement, have been obtained and are in full force and effect. (d) NO CONFLICTS. The execution and delivery of this Agreement by the Company and the performance by the Company of the transactions contemplated herein are not in conflict with any resolution in force adopted by meetings of the Company's shareholders or board of 21 directors, will not constitute a default under, be a breach of, or conflict with any provision of the Company articles of incorporation or by-laws or any provision of, or result in the automatic acceleration of, any obligation under, or give any other party thereto the right to accelerate any obligation under, any mortgage, lien, lease, agreement, judgment, decree or instrument to which the Company is a party or by which it is bound, or violate any provision of law or governmental regulation or any court or regulating order, judgment or decree. (e) LITIGATION. There is no litigation of any kind or nature, nor any judicial or administrative proceeding or investigation pending or threatened against the Company that may affect or impede the purpose of this Agreement, nor are there any outstanding decrees, judgments, sentences, injunctions or orders by any court, governmental department or agency arising from any judicial or administrative action with respect to the Company that may affect or impede the purpose of this Agreement. (f) NO MATERIAL MISSTATEMENT. All documents, reports or other written information pertaining to this Agreement that have been furnished to the Company by or on behalf of CVG Minerven are true and correct in all material respects. ARTICLE X ADDITIONAL OBLIGATIONS 10.1 MAINTENANCE OF CONCESSIONS IN FORCE. CVG Minerven agrees to perform all activities necessary to keep the Concessions in full force and effect during the term of this Agreement. CVG Minerven agrees not to address MEM in writing to terminate or waive in advance the Concessions and agrees not to perform any other act or omission that may threaten the validity of the Concessions. Each Party shall give immediate notice to the other of any written or verbal communication received by MEM or of any authority or person related to the Concessions. 10.2 TAX OBLIGATIONS. Each of the Parties shall comply with all tax obligations set forth in the Venezuelan laws resulting from the execution and performance of this Agreement from the Effective Date. The Company shall be liable for the payment of the exploitation tax for its own production in Block B according to the provisions set forth in article 90 of the Mining Law, but shall not be responsible for any exploitation taxes corresponding to the persons operating 22 under the Small Miners Agreements. The Company shall not be liable for the payment of past surface taxes in any of the Concessions or Block B, due to the fact that CVG Minerven has timely paid the Exploitation Taxes in Mina Colombia which are compensated with any surface tax due in the Concession. 10.3 GOOD FAITH. The Parties will use their best efforts to facilitate the correct development of this Agreement in the most convenient manner, avoiding any act or activity that could cause frictions between the Parties or in any other way be an obstacle for completion of their obligations under this Agreement. In the case unforeseen circumstances should arise that would affect the objectives of the Parties, the Parties agree to use their best efforts to find the most convenient solution. 10.4 FURTHER ASSURANCES. Each of the Parties shall execute or cause to be executed all such other documents and instruments and do or cause to be done all such other acts and things that are necessary or desirable to give effect to the provisions of this Agreement. 10.5 ACCESS TO BLOCK B. CVG Minerven guarantees the Company full access to Block B in order to carry out the activities established in this Agreement. In case the Company is prevented or impeded to access Block B as a result of third parties occupying such area (apart from the persons working under Small Miners Agreements), among other obligations CVG Minerven shall instruct its personnel and representatives to fully collaborate with the personnel of the Company to avoid any interference with the activities performed by the Company in Block B. Regardless of the obligations assumed above, in order to arrive at the best possible solution, the Company may participate along with CVG Minerven in any negotiation or agreement with any person interfering with access to Block B. CVG Minerven shall not be liable for any occupations or invasions by third parties in Block B not authorized by CVG Minerven after the Effective Date. Notwithstanding the above, CVG Minerven, as holder of the Concession Titles, shall use its best efforts and diligence to evict any person occupying or invading Block B unlawfully. 10.6 ELECTRICAL INFRASTRUCTURE. In the event that an electrical infrastructure project is carried out by a State owned company in Block B, the Company agrees not to collect any amounts as rights of way, indemnities or other payments. However, CVG Minerven authorizes the Company to negotiate with such electrical companies the areas where such project could be installed so that it does not interfere with the activities performed by the Company. CVG Minerven shall use its best efforts to assist the Company in such negotiations in order to preserve the intent of this Agreement. 23 10.7 SURFACE HOLDERS. Any legal surface holders or legitimate possessionaires as well as any legitimate and legal improvements built by third parties on Block B are excluded from this Agreement. However, if the Company requires the use of the surface or needs to demolish any improvements for the exploration or exploitation works, CVG Minerven and the Company shall make their best efforts to reach the most adequate solution, maintaining the stability of the mining rights granted to the Company by this Agreement. In any event, it is expressly agreed that CVG Minerven shall not be liable for the payment of any kind of indemnities or of any amounts whatsoever under any circumstances for these matters. In the event that the Company needs to commence legal proceedings for the expropriation or occupation of the surface, the power of attorney granted pursuant to section 2.4 authorizes the Company to represent CVG Minerven for such purposes. However, the Company shall request authorization of CVG Minerven if required to commence any of such legal proceedings, the authorization cannot be unreasonably denied or withheld. In any event, CVG Minerven agrees to grant any other document or provide the information needed for these purposes. ARTICLE XI SMALL MINERS 11.1 SMALL MINERS AGREEMENTS. The Company hereby recognizes and accepts the terms of the Small Miners Agreements until the expiration of each of their terms or until the Company begins Exploration, Evaluation of the Deposit, development or exploitation in any of the areas selected for such purposes. In case that such areas are located within the boundaries under the Small Miners Agreements, CVG Minerven will act according to the mechanism set forth in section 11.2 . In the event that any person working under the Small Miners Agreements fails to comply with any of the terms of its respective agreement, especially if they operate below 100 mts from surface; or if their activities exceed the boundaries of their respective agreements, CVG must seek strict compliance of the terms of the Small Miners Agreements or alternatively must initiate termination procedures and the corresponding legal actions seeking termination thereof, in a speedy manner and at CVG Minerven's sole cost and expense and liability in order to leave the area free from holders of rights and persons. 24 11.2 ACCESS/NO INTERFERENCE. CVG Minerven in its capacity as administrator and party to the Small Miners Agreements hereby guarantees the Company access of its personnel and equipment to all areas under the Small Miners Agreements for purposes of carrying out the activities under this Agreement, so that the persons working under such agreements do not interfere or prevent the activities of the Company. CVG Minerven guarantees and shall be liable to the Company in the event that any leaseholder working under a Small Miners Agreement interferes with or prevents any of the activities performed by the Company in any of the targets selected for Exploration, Evaluation of the Deposit or exploitation. For purposes of this section, if the Company intends to access any of the areas under the Small Miners Agreements for any Exploration and Evaluation of the Deposit, it will notify CVG Minerven in order to take any immediate actions to allow the Company to work in such area without interference .In addition, before the Company begins exploitation and as a condition thereof, CVG Minerven must have suspended any mining works in the areas which the Feasibility Study determines are necessary to operate the mine , and must have evicted any persons located there at its own expense. In the event that access to such areas is impossible and it prevents the Company from performing the Exploration or Evaluation of the Deposit; or the eviction of the persons working under the Small Miners Agreements is not possible on a friendly basis, so that the Company is prevented from beginning exploitation, then the Parties shall jointly undertake the corresponding negotiations or legal actions for the eviction of such persons in the most effective manner to guarantee access of the Company to such areas. Any cost, expense or any other amount necessary for such purposes shall be borne by both Parties. It is understood that before any definite solution is reached for the access of the Company to such areas, all terms and payments under this Agreement shall be suspended. 11.3 NEW AGREEMENTS. CVG Minerven agrees not to enter into any agreement of any kind with any person in Block B unless the Company has previously approved in writing the terms and location of such agreements and only for purposes of relocating the persons working under the Small Miners Agreements within Block B.. Any cost, expense, action or fee related with termination of; or relocation of persons or parties working under Small Miners Agreements will be exclusively borne by CVG Minerven. 11.4 TECHNICAL ASSISTANCE. From the Effective Date, the Company shall provide technical assistance to the persons working under valid and enforceable Small Miners Agreements to make such activities safer and more efficient . Such technical assistance shall be rendered according to a plan which will be mutually agreed between the Parties. 25 ARTICLE XII INTERNSHIPS 12.1 INTERNSHIP PROGRAM. With the purpose of contributing to the development and improvement of its technical and professional personnel, CVG Minerven and the Company agree to implement the following program of industrial internships. (a) During the term of this Agreement, CVG Minerven may send to Block B a maximum of two (2) Venezuelan professionals in the earth sciences area and/or engineering as interns to be trained in the exploration, development, exploitation and processing techniques for gold mineral under the exclusive supervision and control of the Company. (b) Each internship, which shall be PRO BONO, at no cost for the Company, except as set forth herein and shall last three (3) consecutive calendar weeks per year. CVG Minerven shall bear at its expense all labor benefits, accidents, disabilities, legal actions and other costs related to such industrial internships, notwithstanding the above, the Company shall provide or pay transportation for the interns to and from El Callao and within the Block B area. It is expressly understood that there will not be a labor relationship between the interns and the Company. The interns shall comply with the rules set forth by the Company, subject to termination of such internship. CVG Minerven and the Company may agree to modify the scope, number of interns and duration of the industrial internships. 12.2 TECHNICAL ASSISTANCE. As an alternative option, the Company may provide technical assistance to Minerven by sending some of its personnel to CVG Minerven, in case CVG Minerven requests such assistance. The technical assistance program of the Company to be implemented in CVG Minerven shall be governed by the procedures set forth in section 12.1; consequently, the Company shall fulfill its obligations, in the same conditions in which CVG Minerven fulfills such obligations when its interns are sent to Block B. 26 ARTICLE XIII GUARANTEES FOR THE FINANCING OF EXPLOITATION 13.1 ASSIGNMENT IN GUARANTEE. For the financing of the project to be developed in Block B, CVG Minerven authorizes the Company to assign in guarantee the Agreement, its results and any other accessory rights in favor of the participant financial entity or entities granting the necessary loans for the development of the exploitation project of Block B. If required, CVG Minerven shall provide its consent in writing of any security interest that the Company may be required to grant by the lenders in connection with the financing of the project, as long as such security interests are in agreement with the terms set forth herein and do not include the Concession Titles. ARTICLE XIV AMENDMENT OF BY-LAWS 14.1 NOTICE. In the event of amendments to the by-laws of the Company, for sale of its social assets, merger with another company, assignment of its shares or any other reform provided in the Venezuelan Commercial Code, which modifies its original share representation and results in other individuals or legal entities appearing as holders of its capital; the Company shall inform CVG Minerven prior to the performance of any such actions, so that CVG Minerven may be informed of the new legal representation or by-laws of the Company. 14.2 BREACH. The breach of the obligation set forth in section 14.1 by the Company may give rise to a sanction consisting in the payment of One Hundred Thousand US Dollars ($US100,000.00), or its Bolivar equivalent according to Article 117 of the Law of the Central Bank of Venezuela, which shall be paid to CVG Minerven as soon as CVG Minerven knows of such breach and gives notice in the manner set forth herein. ARTICLE XV TERMINATION 15.1 BY MUTUAL AGREEMENT. This Agreement may be terminated by the Company and CVG Minerven through mutual agreement in writing. 15.2 UNILATERAL TERMINATION. 27 (a) If during the term of this Agreement the Company determines in any moment that the conditions set forth in section 5.2 are not met, the Company may terminate this Agreement, in which case the advanced termination shall not give rise to any indemnification whatsoever for any of the Parties. In such event, this Agreement shall be terminated and CVG Minerven shall be free to negotiate Block B with any other interested party. The Company shall leave Block B free from any environmental liabilities caused by the Company. All geological studies, technical studies of exploration, plans, diagrams, data sheets, geological cores, samples and any other elements resulting from the programs shall become the property of CVG Minerven without any indemnization whatsoever. (b) If the Company interrupts the exploitation works that are the subject matter of this Agreement for a term exceeding nine (9) months without a justified reason, as determined by CVG Minerven or a Force Majeure Event (in which case section 16.1 will be applicable), upon expiration of such term, CVG Minerven will grant the Company an additional term of ten (10) days allowing the Company to file an activity reinitiation plan, which shall be implemented in a term not exceeding sixty (60) days from the expiration of the additional term of ten (10) days. If the reinitiation of the exploitation is not implemented upon expiration of the sixty-day (60) term, CVG Minerven may terminate this Agreement. 15.3 TERMINATION BY BREACH. In the event of a Material Breach of this Agreement by a Party (the "Defaulting Party"), and if the dispute resolution mechanism stated in section 18 has been followed without success, the other Party (the "Non-Defaulting Party") will have the right to give written notice (the "Default Notice") to the Defaulting Party specifying the breach in reasonable detail and requiring the Defaulting Party to remedy the breach within a reasonable period of time and in any event no later than ninety (90) days following receipt of the Default Notice. The Defaulting Party will make diligent and commercially reasonable efforts to rectify the breach to the reasonable satisfaction of the Non-Defaulting Party at the earliest practicable time and in any event no later than ninety (90) days following receipt of the Default Notice. If the Defaulting Party fails to remedy the breach specified in the Default Notice to the reasonable satisfaction of the Non-Defaulting Party within ninety (90) days after the date of receipt of the Default Notice, then the Non-Defaulting Party will have the right to terminate this Agreement and the matter shall be subject to the arbitration procedure set forth in section 19.1. If to the reasonable satisfaction of the Non-Defaulting Party the Defaulting Party has remedied the breach specified in the Default Notice within the ninety (90) day notice period, or is diligently pursuing the remedy of such breach, the notice of termination will be void. 28 15.4 CONTINUED PERFORMANCE. In the event that any of the Parties initiates the termination procedure due to an alleged Material Breach, both CVG Minerven and the Company will continue the performance of their respective obligations while any dispute or disagreement is being resolved, including during any period of arbitration unless and until this Agreement is terminated or expires in accordance with its terms. ARTICLE XVI FORCE MAJEURE 16.1 FORCE MAJEURE. Neither Party to this Agreement shall be liable for any delay, interruption or failure in the performance of its obligations hereunder if caused by an event of Force Majeure. If an event of Force Majeure occurs or is likely to occur, the Party directly affected shall promptly notify the other, giving particulars of the event. The Party so affected shall use best efforts to eliminate, mitigate or remedy the event. If a Force Majeure event occurs and its effects continue for longer than one hundred eighty (180) days notwithstanding the efforts of the Party affected to eliminate or remedy the Force Majeure event, and those effects frustrate the business intention of this Agreement, the Parties may, upon request, enter into good faith negotiations to amend this Agreement or to re-structure their relationship as may be appropriate. ARTICLE XVII NOTICES 17.1 NOTICES. Any notice, declaration, demand, request or other communications to be made according to this Agreement shall be made in writing and delivered by hand, facsimile or air courier return receipt requested at or to the following addresses: CVG Minerven: - ------------- Attention: President Address: Zona Industrial Caratal, Edificio Administrativo de CVG Minerven El Callao Municipio El Callao Estado Bolivar 29 Telephone:(0288) 762-0216/762-0220 Fax: (0288) 762-0215 WITH COPIES TO: Ing. Rafael Unzueta Zona Industrial Caratal, Edificio Administrativo de CVG Minerven El Callao Municipio El Callao Estado Bolivar Telephone:(0288) 762-0216/762-0220 Fax: (0288) 762-0215 The Company: - ------------ General Counsel Hecla Mining Company 6500 Mineral Drive, Suite 200 Coeur d' Alene, Idaho 83815, U.S.A. Telephone : 208-769-4100 Fax:208-769-7612 WITH COPIES TO: Neher von Siegmund Rengifo & Diquez Centro Gerencial Mohedano, Piso 8, Oficina 8-D, Avenida Mohedano, Urbanizacion La Castellana Municipio Chacao, Estado Miranda Caracas, Venezuela Telf: (0212) 267-0507 - --------------------- Fax (0212) 263-2807. Att: Luis Rengifo Rohl. Any of the Parties may appoint another officer as addressee of the notices by written notice, as well as a new address for the delivery of notices, declarations, demands, requests or other communications. 30 ARTICLE XVIII DISPUTE RESOLUTION PROCESS 18.1 DISPUTE RESOLUTION PROCESS. If a dispute touching upon the validity, construction, meaning, performance or effect of this Agreement, the rights and liabilities of the parties, any matter to be agreed upon after the date of this Agreement arises out of or in connection with this Agreement, including a dispute as to what constitutes a Material Breach of this Agreement or any related agreement or in respect of any defined legal relationship associated with or derived from this Agreement, the parties will follow the step-by-step correction and resolution procedure set out below (the "DISPUTE RESOLUTION PROCESS"): STEP 1 The party initiating the process (the "COMPLAINING PARTY") will advise the other party (the "OTHER PARTY") in writing of the alleged breach or other basis for dispute. STEP 2 If the dispute involves an alleged breach of this Agreement, the Other Party will investigate the allegation and provide a written report to the Complaining Party within five (5) working days of receiving the notice given under Step 1 to the effect that (a) the investigation reveals that an alleged breach was not committed, (b) the breach or matter in dispute has been resolved, or (c) the breach remains unresolved. STEP 3 If the Complaining Party wishes to pursue the alleged breach or dispute, then the Complaining Party will immediately notify the Other Party in writing in order to hold a meeting between the Presidents of each of the Parties within the next five (5) working days from the date of the reception of the notice, so that both Parties can resolve the alleged breach. Minutes will be drafted after each meeting and signed by all persons attending the meeting. 31 STEP 4 If the Parties referred to in Step 3 cannot resolve the dispute through negotiation within fifteen (15) working days, the dispute shall be referred to the termination procedure set forth in section 15.3. ARTICLE XIX APPLICABLE FORUM AND LAW 19.1 ARBITRATION. Any dispute, claim, controversy and/or differences that may arise from this Agreement shall be resolved in a final manner by means of an institutional arbitration, according to the proceedings, terms and other rules provided for arbitration in the General Regulation of the Arbitration Center of the Caracas Chamber of Commerce that may be applicable as of the date of the controversy. The arbitration shall be made by three (3) arbitrators of law who appear on the list of arbitrators of the Arbitration Center of the Caracas Chamber of Commerce ("CACCC"), two (2) of which shall be appointed by each of the Parties separately. The third arbitrator, who shall assume the presidency of the Arbitration panel, may be appointed by mutual agreement of the parties or in the absence thereof, by the Executive Committee of the CACCC within the term and manner provided in the General Rules of the CACCC. The arbitrators shall act as arbitrators in law and shall always consider the provisions hereof, the rules, uses and commercial customs of the Republic of Venezuela. The award shall be final and except for the nullity motion provided in Article 43 of the Commercial Arbitration Law, no additional recourse shall be admitted against it. The arbitration shall take place in the Arbitration Center of the CACCC and the language to be used in the arbitration acts shall be Spanish. Pursuant to this arbitration agreement, the Parties waive their right to appear before a court; therefore, the submission to arbitration herein provided shall be interpreted as exclusive and therefore, excludes ordinary jurisdiction. The parties also waive their right to argue their differences before any foreign court or before arbitrators different from those provided for in this section. 19.2 APPLICABLE LAW. The Parties hereto expressly declare that this Agreement and its Schedules shall be governed by the laws of the Bolivarian Republic of Venezuela. 32 19.3 SPECIAL DOMICILE. The Parties hereby choose the city of Caracas as the only, exclusive and special domicile for all effects of this Agreement. ARTICLE XX MISCELLANEOUS 20.1 INUREMENT/ASSIGMENT. The rights and obligations of the Parties hereto shall be binding and inure to the benefit of and be binding upon its respective successors and assigns universally. No Party to this Agreement may assign directly or indirectly its rights and/or assign its obligations resulting from this Agreement without the previous written authorization of the other Party, except that (i) such assignment is made under section 13.1, or ; (ii) such assignment is made to any subsidiary of the Company, in which case the assignment must be notified to CVG Minerven within fifteen (15) working days following execution of the assignment. In this case, the Company shall deliver to CVG Minerven the corporate guarantee attached to this Agreement under Schedule "H" to guarantee the obligations such subsidiary undertakes pursuant to this Agreement. In any case where CVG Minerven must authorize an assignment under this Agreement such authorization cannot be unreasonably denied. Any Party authorizing the assignment must respond within twenty (20) days following request. If at expiration of such term the Party has not responded, the authorization shall be deemed granted. Any assignment made in violation hereof shall be null and shall have no legal effects whatsoever. In any event, the authorization of any act of disposition of the Agreement shall be made in accordance with Article 29 of the Mining Law as may be applicable. 20.2 ECONOMIC EQUILIBRIUM. In case that during the term of this Agreement any external economic factor or event arises which could prevent or hinder the development of this Agreement by the Company, the Company shall promptly notify CVG Minerven attaching a detailed description of such alleged factors. If pursuant to the Parties criteria such factor or event causes a negative economic imbalance, the Parties agree to restructure their relations in order to reestablish the economic equilibrium of this Agreement. 20.3 NON WAIVER. If any of the Parties stops insisting on one or several instances in the strict performance of any of the provisions hereof or does not make use of any of its rights herein set forth, it shall not be deemed to be a waiver of any such provisions or a waiver to the future exercise of any such 33 rights, which shall remain in full force and effect. If any of the provisions herein set forth is declared null, unenforceable or in conflict with the Law, the remaining provisions of this agreement shall not be affected and will remain valid and enforceable in the extent permitted by the law, provided however, that in the event that such nullity or unenforceability substantially harms the rights and interests of any of the Parties, they shall renegotiate this Agreement in good faith to try to preserve its stability. 20.4 COMPLIANCE WITH LAWS. Unless otherwise stated in this Agreement, it is expressly understood and it is so accepted by the Company that the Exploration, Evaluation of the Deposit and exploitation works referred to in this section shall be performed in compliance to the applicable laws. 20.5 DELIVERY OF AGREEMENT. CVG Minerven agrees that upon execution of this Agreement before a Notary Public, it shall deliver a copy of the same to the MEM, for the corresponding legal and administrative purposes. 20.6 PROPER PERFORMANCE. CVG Minerven agrees to take all the necessary steps before the MEM, without incurring in any costs, to allow the proper performance of the Exploration and eventual exploitation of Block B in the same conditions set forth in the Concession Titles and under this Agreement. 20.7 LANGUAGE. All negotiations and writings related to this Agreement shall be made and expressed in Spanish, which is the official language in Venezuela, pursuant to the Constitution. Two (2) counterparts to the same effect are made in the city of Puerto Ordaz on September 5, 2002. 34 EX-11 12 hecla024510_ex-11.txt STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS COMMISSION FILE NO. 1-8491 EXHIBIT 11 HECLA MINING COMPANY AND SUBSIDIARIES CALCULATION OF WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING For the Years Ended December 31, 2001, 2000 and 1999 and Six Months ended June 30, 2002
June 30, Year Ended December 31, ------------ -------------------------------------------- 2002 2001 2000 1999 ------------ ------------ ------------ ------------ Shares of common stock issued at beginning of period 73,068,796 66,859,752 66,844,575 55,166,728 The incremental effect of the issuance of stock related to MRIL acquisition -- -- -- 3,908,479 The incremental effect of the issuance of new shares for cash, net of issuance costs -- 2,395,784 -- 3,185,198 The incremental effect of the issuance of stock held by grantor trust -- 16,695 3,589 110,241 The incremental effect of the issuance of new shares under Stock Option and Warrant Plans 976,008 182,290 5,333 38,041 The incremental effect of the issuance of stock related to unearned compensation 57,105 3,173 -- -- The incremental effect for the issuance of stock as compensation 359,398 -- -- -- ------------ ------------ ------------ ------------ 74,461,307 69,457,694 66,853,497 62,408,687 Less: Weighted average treasury shares held 35,195 62,116 62,112 62,110 ------------ ------------ ------------ ------------ Weighted average number of common shares outstanding during the period 74,426,112 69,395,578 66,791,385 62,346,577 ============ ============ ============ ============
EX-12 13 hecla024510_ex-12.txt STATEMENT RE: COMPUTATION OF RATIOS Exhibit 12 HECLA MINING COMPANY FIXED CHARGE COVERAGE RATIO CALCULATION For the years ended December 31, 1997, 1998, 1999, 2000 and 2001, the six months ended June 30, 2001 and 2002 (dollars in thousands, except ratios)
Six Months Ended June 30, 1997 1998 1999 2000 2001 2001 2002 -------- -------- -------- -------- -------- --------------------- Income (loss) from continuing operations before income taxes, extraordinary charge and cumulative effect of change in accounting princple $ (2,172) $ (5,817) $(43,794) $(84,834) $ (9,582) $ (4,898) $ 6,139 Add: Fixed Charges 10,857 11,392 12,791 16,283 11,980 6,641 4,998 Less: Capitalized Interest (806) (959) (19) -- -- -- -- Adjusted income (loss) before -------- -------- -------- -------- -------- -------- -------- income taxes, extraordinary item and cumulative effect of change in accounting principle $ 7,879 $ 4,616 $(31,022) $(68,551) $ 2,398 $ 1,743 $ 11,137 ======== ======== ======== ======== ======== ======== ======== Fixed charges: Preferred stock dividends $ 8,050 $ 8,050 $ 8,050 $ 8,050 $ 8,050 $ 4,025 $ 4,025 Interest portion of rentals 358 73 134 114 43 -- 36 Total interest costs 2,449 3,269 4,607 8,119 3,887 2,616 937 -------- -------- -------- -------- -------- -------- -------- Total fixed charges $ 10,857 $ 11,392 $ 12,791 $ 16,283 $ 11,980 $ 6,641 $ 4,998 ======== ======== ======== ======== ======== ======== ======== Fixed Charge Ratio (a) (a) (a) (a) (a) (a) 2.23 Inadequate coverage $ 2,978 $ 6,776 $ 43,813 $ 84,834 $ 9,582 $ 4,898 $ -- ======== ======== ======== ======== ======== ======== ========
(a) Earnings for period inadequate to cover fixed charges. EX-23.1 14 hecla024510_ex23-1.txt CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated January 12, 2002 relating to the financial statements of Greens Creek Joint Venture, which appears in such Registration Statement. We also consent to the references to us under the heading "Experts" in such Registration Statement. /s/ PricewaterhouseCoopers LLP Salt Lake City, Utah October 1, 2002 EX-23.2 15 hecla024510_ex23-2.txt CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated March 28, 2001 relating to the financial statements of Hecla Mining Company, which appears in such Registration Statement. We also consent to the references to us under the heading "Experts" in such Registration Statement. /s/ PricewaterhouseCoopers LLP Salt Lake City, Utah October 1, 2002 EX-23.3 16 hecla024510_ex23-3.txt CONSENT OF INDEPENDENT CERTIFIED ACCOUNTANTS Exhibit 23.3 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Hecla Mining Company Coeur d'Alene, Idaho We hereby consent to the use in the Prospectus constituting part of this Registration Statement of our report dated February 1, 2002, relating to the consolidated financial statements of Hecla Mining Company, which is contained in that Prospectus. We also consent to the reference to us under the caption "Experts" in the Prospectus. /s/ BDO Seidman, LLP Spokane, WA October 1, 2002 -----END PRIVACY-ENHANCED MESSAGE-----