10-K 1 hl20141231_10k.htm FORM 10-K hl20141231_10k.htm Table Of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________

 

Form 10-K

____________________

 

 

Annual report pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the fiscal year ended December 31, 2014

 

Commission file No. 1-8491

 

HECLA MINING COMPANY

(Exact name of registrant as specified in its charter)

 

 

Delaware

77–0664171

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

   

6500 N. Mineral Drive, Suite 200

Coeur d’Alene, Idaho

83815-9408

(Address of principal executive offices)

(Zip Code)

208-769-4100

(Registrant’s telephone number, including area code)

 

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

 

Title of each class

 

 Name of each exchange

on which registered

Common Stock, par value $0.25 per share

 

New York Stock Exchange

Series B Cumulative Convertible Preferred

Stock, par value $0.25 per share

 

New York Stock Exchange

 Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes      No      

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes        No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes   No      

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   No      

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

 

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

Large Accelerated Filer  ☒                                                                  Accelerated Filer  ☐

Non-Accelerated Filer  ☐                                                                    Smaller reporting company  ☐

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

 

 

The aggregate market value of the registrant’s voting Common Stock held by non-affiliates was $1,194,535,883 as of June 30, 2014. There were 348,689,981 shares of the registrant’s Common Stock outstanding as of June 30, 2014, and 369,403,662 shares outstanding as of February 16, 2015.

 

Documents incorporated by reference herein:

 

To the extent herein specifically referenced in Part III, the information contained in the Proxy Statement for the 2015 Annual Meeting of Shareholders of the registrant, which will be filed with the Commission pursuant to Regulation 14A within 120 days of the end of the registrant’s 2014 fiscal year, is incorporated herein by reference. See Part III.

 

 

TABLE OF CONTENTS

 

Special Note on Forward-Looking Statements

  1

PART I

  1

Item 1. Business

  1

Introduction

  1

Products and Segments

  4

Employees

  6

Available Information

  6

Item 1A. Risk Factors

  6

Item 1B. Unresolved Staff Comments

  27

Item 2. Properties

  27

The Greens Creek Unit

  27

The Lucky Friday Unit

  32

The Casa Berardi Unit

  36

Item 3. Legal Proceedings

  41

Item 4. Mine Safety Disclosures

  41

PART II

  41

Item 5. Market for Registrant’s Common Equity,  Related Stockholder Matters and Issuer Purchases of Equity Securities

  41

Item 6. Selected Financial Data

  45

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

  46

Overview

  46

Results of Operations

  49

The Greens Creek Segment

  52

The Lucky Friday Segment

  56

The Casa Berardi Segment

  59

Corporate Matters

  61

Reconciliation of Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) to Cost of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP)

  62

Reconciliation of Earnings Before Interest, Taxes, Depreciation, and Amortization (non-GAAP) to Net Income (Loss) (GAAP)

  66

Financial Liquidity and Capital Resources

  67

Contractual Obligations and Contingent Liabilities and Commitments

  70

Off-Balance Sheet Arrangements

  71

Critical Accounting Estimates

  71

New Accounting Pronouncements

  73

Forward-Looking Statements

  73

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

  73

Provisional Sales

  74

Commodity-Price Risk Management

  74

Foreign Currency

  75

Item 8. Financial Statements and Supplementary Data

  75

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

  76

Item 9A. Controls and Procedures

  76

Disclosure Controls and Procedures

  76

Management’s Annual Report on Internal Control over Financial Reporting

  77

Attestation Report of Independent Registered Public Accounting Firm

  78

Item 9B. Other Information

  79

 

 

PART III

  79

Item 10. Directors, Executive Officers and Corporate Governance

  79

Item 11. Executive Compensation

  82

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

  82

Item 13. Certain Relationships and Related Transactions, and Director Independence

  82

Item 14. Principal Accountant Fees and Services

  82

PART IV

  83

Item 15. Exhibits and Financial Statement Schedules

  83

Signatures

  84

Index to Consolidated Financial Statements

  F-1

Index to Exhibits

  F-54

 

 

Special Note on Forward-Looking Statements

 

Certain statements contained in this report (including information incorporated by reference) are “forward-looking statements” and are intended to be covered by the safe harbor provided for under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Our forward-looking statements include our current expectations and projections about future production, results, performance, prospects and opportunities, including reserves and other mineralization. We have tried to identify these forward-looking statements by using words such as “may,” “might,” “will,” “expect,” “anticipate,” “believe,” “could,” “intend,” “plan,” “estimate” and similar expressions. These forward-looking statements are based on information currently available to us and are expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual production, results, performance, prospects or opportunities, including reserves and mineralization, to differ materially from those expressed in, or implied by, these forward-looking statements.

 

These risks, uncertainties and other factors include, but are not limited to, those set forth under Item 1A. Risk Factors and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. Given these risks and uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements. Projections and other forward-looking statements included in this report have been prepared based on assumptions, which we believe to be reasonable, but not in accordance with United States generally accepted accounting principles (“GAAP”) or any guidelines of the Securities and Exchange Commission (“SEC”). Actual results may vary, perhaps materially. You are strongly cautioned not to place undue reliance on such projections and other forward-looking statements. All subsequent written and oral forward-looking statements attributable to Hecla Mining Company or to persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Except as required by federal securities laws, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

PART I

 

Item 1. Business

 

For information regarding the organization of our business segments and our significant customers, see Note 11 of Notes to Consolidated Financial Statements.

 

Information set forth in Items 1A, 1B and 2 are incorporated by reference into this Item 1.

 

Introduction

 

Hecla Mining Company and our subsidiaries have provided precious and base metals to the U.S. and worldwide since 1891 (in this report, “we” or “our” or “us” refers to Hecla Mining Company and our affiliates and subsidiaries). We discover, acquire, develop, and produce silver, gold, lead and zinc.  In doing so, we intend to manage our business activities in a safe, environmentally responsible and cost-effective manner.

 

We produce lead, zinc and bulk concentrates, which we sell to custom smelters and brokers, and unrefined bullion bars (doré) containing gold and silver, which are further refined before sale to precious metals traders.  We are organized and managed in three segments that encompass our operating units: the Greens Creek, Lucky Friday, and Casa Berardi units.

 

 

The map below shows the locations of our operating units and our exploration and pre-development projects, as well as our corporate offices located in Coeur d’Alene, Idaho and Vancouver, British Columbia.

 

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

 

 

Operating our properties safely, in an environmentally responsible manner, and cost-effectively.

 

 

Continue optimizing and improving operations at our Greens Creek, Lucky Friday, and Casa Berardi units.


 

Expanding our proven and probable reserves and production capacity at our operating properties.

 

 

Conducting our business with fiscal stewardship to preserve our financial position in varying metals price environments.

 

 

Continuing to advance our San Sebastian project in Mexico through additional drilling and a preliminary economic study with the goal of reaching a development decision in 2015.

 

 

Maintaining and investing in exploration and pre-development projects in the vicinities of five mining districts we believe to be under-explored and under-invested: North Idaho's Silver Valley in the historic Coeur d'Alene Mining District; our Greens Creek unit on Alaska's Admiralty Island located near Juneau; the silver-producing district near Durango, Mexico; the Abitibi region of north-western Quebec, Canada; and the Creede district of Southwestern Colorado.

 

 

Continuing to seek opportunities to acquire and invest in mining properties and companies. Examples include our acquisition of Aurizon Mines Ltd. ("Aurizon") and minority investments in certain exploration stage companies in 2012 and 2013.

 

 

Below is a summary of net income (loss) for each of the last five years (in thousands):

 

    Year Ended December 31,    
   

2014

   

2013

   

2012

   

2011

   

2010

   

Net income (loss)

  $ 17,824     $ (25,130

)

  $ 14,954     $ 151,164     $ 48,983    

 

Our financial results over the last five years have been impacted by:

 

 

Fluctuations in prices of the metals we produce. The average, high and low daily closing market prices for silver, gold, lead and zinc for each of the last five years are as follows:

 

   

2014

   

2013

   

2012

   

2011

   

2010

 

Silver (per oz.):

                                       

Average

  $ 19.08     $ 23.83     $ 31.15     $ 35.11     $ 20.16  

High

  $ 22.05     $ 32.23     $ 37.23     $ 48.70     $ 30.70  

Low

  $ 15.28     $ 18.61     $ 26.67     $ 26.16     $ 15.14  

Gold (per oz.):

                                       

Average

  $ 1,266     $ 1,411     $ 1,669     $ 1,569     $ 1,225  

High

  $ 1,385     $ 1,694     $ 1,792     $ 1,895     $ 1,421  

Low

  $ 1,142     $ 1,192     $ 1,540     $ 1,319     $ 1,058  

Lead (per lb.):

                                       

Average

  $ 0.95     $ 0.97     $ 0.94     $ 1.09     $ 0.97  

High

  $ 1.03     $ 1.11     $ 1.06     $ 1.33     $ 1.18  

Low

  $ 0.82     $ 0.88     $ 0.79     $ 0.81     $ 0.71  

Zinc (per lb.):

                                       

Average

  $ 0.98     $ 0.87     $ 0.88     $ 0.99     $ 0.98  

High

  $ 1.10     $ 0.99     $ 0.99     $ 1.15     $ 1.20  

Low

  $ 0.88     $ 0.81     $ 0.80     $ 0.79     $ 0.72  

 

See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsResults of Operations for a summary of average market and realized prices for each of the three years ended December 31, 2014, 2013 and 2012.   Our results of operations are significantly impacted by fluctuations in the prices of silver, gold, lead and zinc, which are affected by numerous factors beyond our control.  See Item 1A. Risk Factors – Financial Risks – A substantial or extended decline in metals prices would have a material adverse effect on us for information on a number of the various factors that can impact prices of the metals we produce. Our average realized prices for silver, gold, and lead were lower in 2014 compared to 2013, while the average realized prices for zinc increased. Average realized prices for silver, gold, and zinc decreased in 2013 compared to 2012, while lead prices increased.  We believe that market metal price trends are a significant factor in our operating and financial performance.  We are unable to predict fluctuations in prices for metals and have limited control over the timing of our concentrate shipments which impacts our realized prices. However, we utilize financially-settled forward contracts for lead and zinc with the objective of managing the exposure to changes in prices of lead and zinc contained in our concentrate shipments between the time of sale and final settlement. In addition, in July 2013, we initiated a similar program for silver and gold with the objective of managing exposure to changes in prices for those metals contained in our concentrate shipments.  See Note 10 of Notes to Consolidated Financial Statements for more information on our base and precious metal forward contract programs.

 

 

Cost of sales and other direct production costs of $304.4 million in 2014, $235.3 million in 2013, $134.1 million in 2012, $165.6 million in 2011 and $164.0 million in 2010.  During 2012 and 2013, costs of sales and other direct production costs were impacted by the temporary suspension of production at the Lucky Friday mine during most of 2012 and by the acquisition of the Casa Berardi mine during 2013. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsResults of Operations for more information.

 

 

 

$25.3 million in suspension-related costs at our Lucky Friday unit in 2012, including $6.3 million in depreciation, depletion, and amortization. We recognized suspension-related income of $1.4 million in 2013 due to the receipt of business interruption insurance proceeds related to the suspension period. Limited production recommenced at the Lucky Friday unit in the first quarter of 2013, and the mine resumed full production in September 2013. See The Lucky Friday Segment section for more information on the temporary suspension of production.

 

 

Exploration and pre-development expenditures totaling $19.7 million, $37.7 million, $49.7 million, $31.4 million and $21.6 million for the years ended December 31, 2014, 2013, 2012, 2011 and 2010, respectively.   

 

 

Provision for closed operations and environmental matters of $10.1 million, $5.4 million, $4.7 million, $9.7 million and $201.1 million for the years ended December 31, 2014, 2013, 2012, 2011, and 2010, respectively.  The $201.1 provision in 2010 included $193.2 million accrued for environmental obligations in Idaho’s Coeur d’Alene Basin as a result of an agreement with the United States, the Coeur d’Alene Indian Tribe, and the State of Idaho on financial terms of settlement of the Coeur d’Alene Basin environmental litigation and related claims that was completed during 2014.

 

 

Net gain on base metal forward contracts of $9.1 million in 2014, a net gain of $18.0 million in 2013, a net loss of $10.5 million in 2012, a net gain of $38.0 million in 2011, and a net loss of $20.8 million in 2010. These gains and losses are related to financially-settled forward contracts on forecasted zinc and lead production as part of a risk management program initiated in 2010.  See Note 10 of Notes to Consolidated Financial Statements for more information on our derivatives contracts.

 

 

Our acquisition of Aurizon for $714.5 million in June 2013, which was partially funded by the issuance of 6.875% Senior Notes due 2021 ("Senior Notes") in April 2013 for net proceeds of $490.0 million. We recognized expenses relating to the Aurizon acquisition of $26.4 million in 2013. In addition, in 2014 and 2013, respectively, we recorded interest expense related to the Senior Notes, including amortization of issuance costs, of $24.6 million and $19.1 million, net of $11.8 million and $6.5 million in capitalized interest. See Note 15 of Notes to Consolidated Financial Statements for more information on the acquisition.

 

 

An increase in the number of shares of our common stock outstanding, which impacts our income (loss) per common share.

 

A comprehensive discussion of our financial results for the years ended December 31, 2014, 2013 and 2012, individual operating unit performance, general corporate expenses and other significant items can be found in Item 7. — Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations, as well as the Consolidated Financial Statements and Notes thereto.

 

Products and Segments

 

Our segments are differentiated by geographic region. We produce zinc, lead and bulk concentrates at our Greens Creek unit and lead and zinc concentrates at our Lucky Friday unit, each of which we sell to custom smelters and brokers on contract. We also produce unrefined gold and silver bullion bars (doré) at Greens Creek and Casa Berardi, which are shipped directly to customers or further refined before sale of the metals to precious metals traders. The concentrates produced at our Greens Creek and Lucky Friday units contain payable silver, zinc and lead, and the concentrates produced at Greens Creek also contain payable gold. Payable metals are those included in our products that can be recovered and sold by smelters, brokers and refiners. Our segments as of December 31, 2014 included:

 

 

The Greens Creek unit located on Admiralty Island, near Juneau, Alaska. Greens Creek is 100% owned and has been in production since 1989, with a temporary care and maintenance period from April 1993 through July 1996.

 

 

 

The Lucky Friday unit located in northern Idaho. Lucky Friday is 100% owned and has been a producing mine for us since 1958. Production at the Lucky Friday unit reached historical levels in September 2013 following a period of temporary care and maintenance and no production in 2012 (see Item 2. Property Description, Operating Properties, The Lucky Friday Unit). Production was at full historical rates during 2014.

 

 

The Casa Berardi unit located in the Abitibi region of north-western Quebec, Canada. Casa Berardi is 100% owned and was acquired on June 1, 2013 with the purchase of all issued and outstanding common shares of Aurizon Mines Ltd. ("Aurizon", see Note 15 of Notes to Consolidated Financial Statements). Aurizon had operated and produced from the Casa Berardi mine since late 2006 and began various mine enhancements in an effort to improve operational efficiency, including a shaft deepening project completed in 2014 and a new paste fill facility completed in 2013.

 

The contributions to our consolidated sales by our operating units in 2014 were 49.0% from Greens Creek, 33.1% from Casa Berardi, and 17.9% from Lucky Friday.

 

The table below summarizes our production for the years ended December 31, 2014, 2013 and 2012.  Zinc and lead production quantities are presented in short tons (“tons”).

 

    Year  
   

2014

   

2013

   

2012

 

Silver (ounces)

    11,090,506       8,919,728       6,394,235  

Gold (ounces)

    186,997       119,989       55,496  

Lead (tons)

    40,255       30,374       21,074  

Zinc (tons)

    67,969       61,406       64,249  

 

 

Licenses, Permits and Concessions

 

We are required to obtain various licenses and permits to operate our mines and conduct exploration and reclamation activities.  The suspension in production at the Lucky Friday unit during 2012 was pursuant to an order from the Federal Mine Safety and Health Administration. See Item 1A. Risk Factors - Legal, Market and Regulatory Risks - We are required to obtain governmental permits and other approvals in order to conduct mining operations.  The operations and exploration activities at our Casa Berardi unit are subject to claims renewal and minimum work commitment requirements under the Quebec Mining Act. In addition, we conduct our exploration activities in Mexico pursuant to concessions granted by the Mexican government, which are subject to certain political risks associated with foreign operations.  See Item 1A. Risk Factors - Operation, Development, Exploration and Acquisition Risks - Our foreign activities are subject to additional inherent risks.

 

Physical Assets

 

Our business is capital intensive and requires ongoing capital investment for the replacement, modernization or expansion of equipment and facilities and to develop new ore reserves.  At December 31, 2014, the book value of our property, plant, equipment and mineral interests, net of accumulated depreciation, was approximately $1.8 billion.  For more information see Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. We maintain insurance policies against property loss and business interruption.  However, such insurance contains exclusions and limitations on coverage, and there can be no assurance that claims would be paid under such insurance policies in connection with a particular event.  See Item 1A. Risk Factors - Operation, Development, Exploration and Acquisition Risks - Our operations may be adversely affected by risks and hazards associated with the mining industry that may not be fully covered by insurance.

 

 

Employees

 

As of December 31, 2014, we employed 1,354 people, and we believe relations with our employees are generally good.

 

Many of the employees at our Lucky Friday unit are represented by a union. The current collective bargaining agreement with workers at our Lucky Friday unit expires on April 30, 2016. As a result of the requirement to remove built-up cementitious material from the Silver Shaft, underground access was limited and production temporarily suspended at the Lucky Friday, forcing Hecla Limited to lay off 121 employees in January 2012 (approximately 25 of those employees accepted temporary positions at other Hecla operations). With the resumption of production in early 2013, employment at the Lucky Friday returned to roughly its level prior to the suspension of production. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - The Lucky Friday Segment .

 

Available Information

 

Hecla Mining Company is a Delaware corporation. Our current holding company structure dates from the incorporation of Hecla Mining Company in 2006 and the renaming of our subsidiary (previously Hecla Mining Company) as Hecla Limited. Our principal executive offices are located at 6500 N. Mineral Drive, Suite 200, Coeur d’Alene, Idaho 83815-9408. Our telephone number is (208) 769-4100. Our web site address is www.hecla-mining.com. We file our annual, quarterly and current reports and any amendments to these reports with the SEC, copies of which are available on our website or from the SEC free of charge (www.sec.gov or 800-SEC-0330 or the SEC’s Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549). Charters of our audit, compensation, and corporate governance and directors’ nominating committees, as well as our Code of Ethics for the Chief Executive Officer and Senior Financial Officers and our Code of Business Conduct and Ethics for Directors, Officers and Employees, are also available on our website. We will provide copies of these materials to stockholders upon request using the above-listed contact information, directed to the attention of Investor Relations, or via e-mail request sent to hmc-info@hecla-mining.com.

 

We have included the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) certifications regarding our public disclosure required by Section 302 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2 to this report. Additionally, we filed with the New York Stock Exchange (“NYSE”) the CEO’s certification regarding our compliance with the NYSE’s Corporate Governance Listing Standards (“Listing Standards”) pursuant to Section 303A.12(a) of the Listing Standards, which certification was dated June 11, 2014, and indicated that the CEO was not aware of any violations of the Listing Standards.

 

Item 1A. Risk Factors

 

The following risks and uncertainties, together with the other information set forth in this report, should be carefully considered by those who invest in our securities. Any of the following risks could materially adversely affect our business, financial condition or operating results and could decrease the value of our common or preferred stock or other outstanding securities.

 

Financial Risks

 

A substantial or extended decline in metals prices would have a material adverse effect on us.

 

Our revenue is derived from the sale of concentrates and doré containing 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:

 

 

speculative activities;

 

 

relative exchange rates of the U.S. dollar;

 

 

 

global and regional demand and production;

 

 

political instability;

 

 

inflation, recession or increased or reduced economic activity; and

 

 

other political, regulatory and economic conditions.

 

These factors are largely beyond our control and are difficult to predict. If the market prices for these metals fall below our production or development costs for a sustained period of time, we will experience losses and may have to discontinue exploration, development or operations, or incur asset write-downs at one or more of our properties. See Item 1. Business Introduction for information on the average, high, and low daily closing prices for silver, gold, lead and zinc for the last five years. On February 16, 2015, the closing prices for silver, gold, lead and zinc were $17.27 per ounce, $1,229 per ounce, $0.83 per pound and $0.98 per pound, respectively.

 

The acquisition of Aurizon increased our exposure to gold price volatility.

 

The financial results of our Casa Berardi unit, obtained through the acquisition of Aurizon in June 2013, are highly sensitive to changes in the price of gold, and the acquisition of Aurizon increased the sensitivity of our results to such changes. Gold prices fluctuate and are affected by numerous factors, including expectations with respect to the rate of inflation, exchange rates, interest rates, global and regional political and economic crises and governmental policies with respect to gold holdings by central banks. The demand for and supply of gold affects gold prices but not necessarily in the same manner as demand and supply affect the prices of other commodities. The supply of gold consists of a combination of mine production and existing stocks of bullion and fabricated gold held by governments, public and private financial institutions, industrial organizations and private individuals. The demand for gold consists primarily of jewelry and investment demand. We do not use forward sale contracts, or other derivative products, to protect the price level of future gold sales at the Casa Berardi unit, and as a result, those sales are exposed to commodity price risk.

 

An extended decline in metals prices, an increase in operating or capital costs, mine accidents or closures, increasing environmental obligations, or our inability to convert exploration potential to reserves may cause us to record write-downs, which could negatively impact our results of operations.

 

When events or changes in circumstances indicate that the carrying value of our long-lived assets may not be recoverable, we review the recoverability of the carrying value by estimating the future undiscounted cash flows expected to result from the use and eventual disposition of the asset.  Impairment must be recognized when the carrying value of the asset exceeds these cash flows, and recognizing impairment write-downs could negatively impact our results of operations.  Metal price estimates are a key component used in the analysis of the carrying values of our assets, as the evaluation approach involves comparing carrying values to the average estimated undiscounted cash flows resulting from operating plans using various metals price scenarios.  Our estimates of undiscounted cash flows for our long-lived assets also include an estimate of the market value of the exploration potential beyond the current operating plans.  Because the average estimated undiscounted cash flows exceeded the carrying values of our long-lived assets, we did not record impairments as of December 31, 2014. However, if the prices of silver, gold, zinc and lead decline for an extended period of time, if we fail to control production or capital costs, if regulatory issues increase costs or decrease production, or if we do not realize the mineable ore reserves or exploration potential at our mining properties, we may be required to recognize asset write-downs in the future. In addition, the perceived market value of the exploration potential of our properties is dependent upon prevailing metals prices as well as our ability to discover economic ore. A decline in metals prices for an extended period of time or our inability to convert exploration potential to reserves could significantly reduce our estimates of the value of the exploration potential at our properties and result in asset write-downs.

 

 

We have had losses that could reoccur in the future.

 

We have had volatility in our net income (loss) reported in the last five years, as shown in Item 6. Selected Financial Data, including a net loss for the year ended December 31, 2014. A comparison of operating results over the past three years can be found in Results of Operations in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Many of the factors affecting our operating results are beyond our control, including, but not limited to, the volatility of metals prices; smelter terms; rock and soil conditions; seismic events; availability of hydroelectric power; diesel fuel prices; interest rates; foreign exchange rates; global or regional political or economic policies; inflation; availability and cost of labor; economic developments and crises; governmental regulations; continuity of orebodies; ore grades; recoveries; price speculation by certain investors; and purchases and sales by central banks and other holders and producers of gold and silver in response to these factors. We cannot foresee whether our operations will continue to generate sufficient revenue in order for us to generate net cash from operating activities. There can be no assurance that we will not experience net losses in the future.

 

Commodity risk management activities could prevent us from realizing possible revenues or expose us to losses.

 

We periodically enter into risk management activities, such as financially-settled forward sales contracts, to manage the prices received on the metals we produce. Such activities are utilized in an attempt to partially insulate our operating results from changes in prices for those metals. However, such activities may prevent us from realizing possible revenues in the event that the market price of a metal exceeds the price stated in a forward sale contract. 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.

 

We utilize financially settled forward contract programs to manage the exposure to changes in silver, gold, lead and zinc prices contained in our concentrate shipments between the time of sale and final settlement, and to manage the exposure to changes in the prices of lead and zinc contained in our forecasted future concentrate shipments.  See Note 10 of Notes to Consolidated Financial Statements for more information on these base metals forward contract programs.

 

Our profitability could be affected by the prices of other commodities.

 

Our profitability is sensitive to the costs of commodities such as fuel (in particular as used at Greens Creek to generate electricity when hydropower is unavailable), steel, and cement. While the recent prices for such commodities have been stable or in decline, prices have been historically volatile and material increases in commodity costs could have a significant effect on our results of operations.

 

Our accounting and other estimates may be imprecise.

 

Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts and related disclosure of assets, liabilities, revenue and expenses at the date of the consolidated financial statements and reporting periods. The more significant areas requiring the use of management assumptions and estimates relate to:

 

 

mineral reserves, mineralized material, and other resources that are the basis for future income and cash flow estimates and units-of-production depreciation, depletion and amortization calculations;

 

 

future metals prices;

 

 

environmental, reclamation and closure obligations;

 

 

asset impairments;

 

 

valuation of business combinations;

 

 

 

reserves for contingencies and litigation; and

 

 

deferred tax asset valuation allowance.

 

Future estimates and actual results may differ materially from these estimates as a result of using different assumptions or conditions. For additional information, see Critical Accounting Estimates in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, Note 1 of Notes to Consolidated Financial Statements and the risk factors set forth below: “Our development of new orebodies and other capital costs may be higher and provide less return than we estimated,” “Our ore reserve estimates may be imprecise,” “Our environmental obligations may exceed the provisions we have made,” and We are currently involved in ongoing legal disputes that may materially adversely affect us.”

 

Our ability to recognize the benefits of deferred tax assets is dependent on future cash flows and taxable income.

 

We recognize the expected future tax benefit from deferred tax assets when the tax benefit is considered to be more likely than not of being realized.  Otherwise, a valuation allowance is applied against deferred tax assets, reducing the value of such assets.  Assessing the recoverability of deferred tax assets requires management to make significant estimates related to expectations of future taxable income.  Estimates of future taxable income are based on forecasted income from operations and the application of existing tax laws in each jurisdiction.  Metal price and production estimates are key components used in the determination of our ability to realize the expected future benefit of our deferred tax assets. To the extent that future taxable income differs significantly from estimates as a result of a decline in metals prices or other factors, our ability to realize the deferred tax assets could be impacted.  Additionally, significant future issuances of common stock or common stock equivalents, or changes in the direct or indirect ownership of our common stock or common stock equivalents could limit our ability to utilize our net operating loss carryforwards pursuant to Section 382 of the Internal Revenue Code. Future changes in tax law or changes in ownership structure could limit our ability to utilize our recorded tax assets.  We currently have no deferred tax valuation allowances, with the exception of certain amounts related to foreign net operating loss carryforwards, and our current and non-current deferred tax asset balances as of December 31, 2014 were $12.0 million and $98.9 million, respectively.   See Note 5 of Notes to Consolidated Financial Statements for further discussion of our deferred tax assets.

 

 Global financial events may have an impact on our business and financial condition in ways that we currently cannot predict.

 

The 2008 credit crisis and related turmoil in the global financial system and ensuing recession had an impact on our business and financial position, and similar events in the future could also impact us.  The continuation or re-emergence of the financial crisis or recession, or disruption of key sectors of the economy such as oil and gas, may limit our ability to raise capital through credit and equity markets.  The prices of the metals that we produce are affected by a number of factors, and it is unknown how these factors may be impacted by a global financial event.

 

Returns for investments in pension plans and pension plan funding requirements are uncertain.

 

We maintain defined benefit pension plans for U.S. employees, which provide for defined benefit payments after retirement for most U.S. employees. Canadian employees participate in Canada's public retirement system, and are not eligible to participate in the defined benefit pension plans that we maintain for U.S. employees. The ability of the pension plans maintained for U.S. employees to provide the specified benefits depends on our funding of the plans and returns on investments made by the plans. Returns, if any, on investments are subject to fluctuations based on investment choices and market conditions. A sustained period of low returns or losses on investments could require us to fund the pension plans to a greater extent than anticipated.  See Note 8 of Notes to Consolidated Financial Statements for more information on our pension plans.

 

 

Risks Relating to Our Debt

 

Our level of debt could impair our financial health and prevent us from fulfilling our obligations under our current debt obligations.

 

As of December 31, 2014, we had total indebtedness of approximately $521.6 million. Our level of debt and our debt service obligations could:

 

 

make it more difficult for us to satisfy our current debt obligations;

 

 

reduce the amount of funds available to finance our operations, capital expenditures and other activities;

 

 

increase our vulnerability to economic downturns and industry conditions;

 

 

limit our flexibility in responding to changing business and economic conditions, including increased competition and demand for new products and services;

 

 

place us at a disadvantage when compared to our competitors that have lower leverage;

 

 

increase our cost of borrowing; and

 

 

limit our ability to borrow additional funds.

 

Our subsidiaries may be able to incur substantial additional indebtedness in the future. Although the indenture governing our outstanding debt securities contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions and, under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial. We have $100 million in available capacity to be drawn from our revolving credit facility.

 

If new debt is added to our and our subsidiaries' existing debt levels, the risks associated with such debt that we currently face would increase.

 

The terms of our debt impose restrictions on our operations.

 

The indenture governing our outstanding debt securities includes a number of significant restrictive covenants. These covenants could adversely affect us by limiting our ability to plan for or react to market conditions or to meet our capital needs. These covenants will, among other things:

 

 

make it more difficult for us to satisfy our obligations with respect to our outstanding debt securities and our other debt;

 

 

limit our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements, or require us to make divestitures;

 

 

require a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;

 

 

increase our vulnerability to general adverse economic and industry conditions;

 

 

limit our flexibility in planning for and reacting to changes in the industry in which we compete;

 

 

 

place us at a disadvantage compared to other, less leveraged competitors; and

 

 

increase our cost of borrowing additional funds.

 

In addition, utilization of our revolving credit facility would require us to comply with various covenants. A breach of any of these covenants could result in an event of default under the agreement governing our revolving credit facility that, if not cured or waived, could give the holders of the defaulted debt the right to terminate commitments to lend and cause all amounts outstanding with respect to the debt to be due and payable immediately. Acceleration of any of our debt could result in cross-defaults under our other debt instruments, including the indenture governing our outstanding debt securities. Our assets and cash flow may be insufficient to repay borrowings fully under all of our outstanding debt instruments if any of our debt instruments are accelerated upon an event of default, which could force us into bankruptcy or liquidation. In such an event, we may be unable to repay our debt obligations. In addition, in some instances, this would create an event of default under the indenture governing our outstanding debt securities.

 

We may be unable to generate sufficient cash to service all of our indebtedness and meet our other ongoing liquidity needs and may be forced to take other actions to satisfy our obligations under our indebtedness, which may be unsuccessful.

 

Our ability to make scheduled payments or to refinance our debt obligations and to fund our planned capital expenditures and other ongoing liquidity needs depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or that borrowings will be available to us to pay the principal, premium, if any, and interest on our indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our debt on or before maturity. We may be unable to refinance any of our debt on commercially reasonable terms or at all.

 

In addition, we conduct substantially all of our operations through our subsidiaries, certain of which will not be guarantors of our indebtedness. Accordingly, repayment of our indebtedness is dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Unless they are guarantors of our indebtedness, our subsidiaries do not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. While the credit agreement governing our revolving credit facility and the indenture governing our outstanding debt securities limit the ability of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to qualifications and exceptions. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.

 

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures or to sell assets, seek additional capital or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments and the indenture governing our outstanding debt securities may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

 

 

Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly.

 

Borrowings under our revolving credit facility would be at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease. Assuming all revolving loans were fully drawn, each one percentage point change in interest rates would result in a $1.0 million change in annual cash interest expense on our credit facility.

 

Our Senior Notes and the guarantees thereof will be effectively subordinated to any of our and our guarantors' secured indebtedness to the extent of the value of the collateral securing that indebtedness.

 

The Senior Notes and the guarantees thereof are not secured by any of our assets or the assets of our subsidiaries. The indenture governing the Senior Notes permits us to incur secured debt up to specified limits. As a result, the Senior Notes and the guarantees are effectively subordinated to our and our guarantors' future secured indebtedness with respect to the collateral that secures such indebtedness, including any borrowings under our revolving credit facility. Upon a default in payment on, or the acceleration of, any of our secured indebtedness, or in the event of bankruptcy, insolvency, liquidation, dissolution, reorganization or other insolvency proceeding involving us or such guarantor, the proceeds from the sale of collateral securing any secured indebtedness will be available to pay obligations on the Senior Notes only after such secured indebtedness has been paid in full. As a result, the holders of the Senior Notes may receive less, ratably, than the holders of secured debt in the event of a bankruptcy, insolvency, liquidation, dissolution, reorganization or other insolvency proceeding involving us or such guarantor.

 

Our current credit facility allows us to draw up to $100 million on a revolving basis, all of which would be secured debt.

 

Our Senior Notes are structurally subordinated to all liabilities of our non-guarantor subsidiaries.

 

The Senior Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries that do not guarantee the Senior Notes, which include all of our non-domestic subsidiaries and certain other subsidiaries. These non-guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the notes, or to make any funds available therefor, whether by dividends, loans, distributions or other payments. Any right that we or the guarantors have to receive any assets of any of the non-guarantor subsidiaries upon the liquidation or reorganization of those subsidiaries, and the consequent rights of holders of Senior Notes to realize proceeds from the sale of any of those subsidiaries' assets, will be effectively subordinated to the claims of those subsidiaries' creditors, including trade creditors and holders of preferred equity interests of those subsidiaries. Accordingly, in the event of a bankruptcy, liquidation or reorganization of any of our non-guarantor subsidiaries, these non-guarantor subsidiaries will pay the holders of their debts, holders of preferred equity interests and their trade creditors before they will be able to distribute any of their assets to us or any guarantor. Unless they are guarantors of the Senior Notes or our other indebtedness, our subsidiaries do not have any obligation to pay amounts due on the Senior Notes or our other indebtedness or to make funds available for that purpose.

 

For the year ended December 31, 2014, our non-guarantor subsidiaries represented 33% of our sales of metals and 32% of our other operating expenses. As of December 31, 2014, our non-guarantor subsidiaries represented 36% of our total assets and 22% of our total liabilities, including trade payables, deferred tax liabilities and royalty obligations but excluding intercompany liabilities.

 

Key terms of the Senior Notes will be suspended if the Senior Notes achieve investment grade ratings and no default or event of default has occurred and is continuing.

 

Many of the covenants in the indenture governing the Senior Notes will be suspended if the Senior Notes are rated investment grade by Standard & Poor's and Moody's provided at such time no default or event of default has occurred and is continuing, including those covenants that restrict, among other things, our ability to pay dividends, incur debt and to enter into certain other transactions. There can be no assurance that the Senior Notes will ever be rated investment grade. However, suspension of these covenants would allow us to engage in certain transactions that would not be permitted while these covenants were in force, and the effects of any such transactions will be permitted to remain in place even if the Senior Notes are subsequently downgraded below investment grade.

 

 

We may be unable to repurchase Senior Notes and any outstanding loans under our revolving credit facility could be accelerated in the event of a change of control as required by the indenture.

 

Upon the occurrence of certain kinds of change of control events specified in the indenture governing the Senior Notes, holders of the Senior Notes will have the right to require us to repurchase all of the Senior Notes at a repurchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of repurchase. Any change of control also would constitute a default under our revolving credit facility. Therefore, upon the occurrence of a change of control, the lenders under our revolving credit facility would have the right to accelerate any outstanding loans and, if so accelerated, we would be required to repay all of our outstanding obligations under such facility. We may not be able to pay the Senior Note holders the required price for their notes at that time because we may not have available funds to pay the repurchase price. In addition, the terms of other existing or future debt may prevent us from paying the Senior Note holders. There can be no assurance that we would be able to repay such other debt or obtain consents from the holders of such other debt to repurchase the Senior Notes. Any requirement to offer to purchase any Senior Notes may result in us having to refinance our outstanding indebtedness, which we may not be able to do. In addition, even if we were able to refinance our outstanding indebtedness, such financing may be on terms unfavorable to us.

 

Holders of the Senior Notes may not be able to determine when a change of control giving rise to their right to have the Senior Notes repurchased has occurred following a sale of "substantially all" of our assets.

 

The definition of change of control in the indenture governing the Senior Notes includes a phrase relating to the sale of "all or substantially all" of our assets. There is no precise established definition of the phrase "substantially all" under applicable law. Accordingly, the ability of a holder of Senior Notes to require us to repurchase its notes as a result of a sale of less than all our assets to another person may be uncertain.

 

Federal and state fraudulent transfer laws may permit a court to void the Senior Notes or any of the guarantees thereof, and if that occurs, holders of the Senior Notes may not receive any payments.

 

Federal and state fraudulent transfer and conveyance statutes may apply to the issuance of the Senior Notes and the incurrence of any guarantees of the Senior Notes. Under federal bankruptcy law and comparable provisions of state fraudulent transfer or conveyance laws, which may vary from state to state, the Senior Notes or any guarantees thereof could be voided as a fraudulent transfer or conveyance if we or any existing or future subsidiary guarantors, as applicable, (a) issued the Senior Notes or incurred such guarantee with the intent of hindering, delaying or defrauding creditors or (b) received less than reasonably equivalent value or fair consideration in return for either issuing the Senior Notes or incurring the guarantee and, in the case of (b) only, one of the following is also true at the time thereof:

 

 

we or the subsidiary guarantor, as applicable, were insolvent or rendered insolvent by reason of the issuance of the Senior Notes or the incurrence of the guarantee;

 

 

the issuance of the Senior Notes or the incurrence of the guarantee left us or the subsidiary guarantor, as applicable, with an unreasonably small amount of capital or assets to carry on the business; or

 

 

we or the subsidiary guarantor intended to, or believed that we or such subsidiary guarantor would, incur debts beyond our or such subsidiary guarantor's ability to pay as they mature.

 

 

As a general matter, value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or a valid antecedent debt is satisfied. A court would likely find that any subsidiary guarantor did not receive reasonably equivalent value or fair consideration for its guarantee to the extent such subsidiary guarantor did not obtain a reasonably equivalent benefit from the issuance of the Senior Notes.

 

We cannot be certain as to the standards a court would use to determine whether or not we or any subsidiary guarantor was insolvent at the relevant time or, regardless of the standard that a court uses, whether the Senior Notes or any guarantees would be subordinated to our or any subsidiary guarantor's other debt. In general, however, a court would deem an entity insolvent if:

 

 

the sum of its debts, including contingent and unliquidated liabilities, was greater than the fair saleable value of all of its assets;

 

 

the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

 

 

it could not pay its debts as they became due.

 

The subsidiary guarantees contain a "savings clause" intended to limit the subsidiary guarantor's liability to the maximum amount that it could incur without causing the incurrence of obligations under its subsidiary guarantee to be a fraudulent transfer. This provision may not be effective to protect any subsidiary guarantees from being avoided under fraudulent transfer law. Furthermore, in Official Committee of Unsecured Creditors of TOUSA, Inc. v Citicorp North America, Inc., the U.S. Bankruptcy Court in the Southern District of Florida held that a savings clause similar to the savings clause used in the indenture was unenforceable. As a result, the subsidiary guarantees were found to be fraudulent conveyances. The United States Court of Appeals for the Eleventh Circuit recently affirmed the liability findings of the Bankruptcy Court without ruling directly on the enforceability of savings clauses generally. If the TOUSA decision were followed by other courts, the risk that the guarantees would be deemed fraudulent conveyances would be significantly increased.

 

To the extent that any subsidiary guarantee is avoided, then, as to that subsidiary, the guaranty would not be enforceable.

 

If a court were to find that the issuance of the Senior Notes or the incurrence of any guarantee was a fraudulent transfer or conveyance, the court could void the payment obligations under the Senior Notes or such guarantee, could subordinate the Senior Notes or such guarantee to presently existing and future indebtedness of ours or of the related subsidiary guarantor or could require the holders of the Senior Notes to repay any amounts received with respect to such guarantee. In the event of a finding that a fraudulent transfer or conveyance occurred, holders of the Senior Notes may not receive any repayment. Further, the avoidance of the Senior Notes could result in an event of default with respect to our and our subsidiaries' other debt that could result in acceleration of that debt.

 

Finally, as a court of equity, the bankruptcy court may subordinate the claims in respect of the Senior Notes to other claims against us under the principle of equitable subordination if the court determines that (1) the holders of the Senior Notes engaged in some type of inequitable conduct, (2) the inequitable conduct resulted in injury to our other creditors or conferred an unfair advantage upon the holders of Senior Notes and (3) equitable subordination is not inconsistent with the provisions of the Bankruptcy Code.

 

Our credit ratings may not reflect all risks associated with an investment in our Senior Notes.

 

Credit rating agencies rate our debt securities on factors that include our results of operations, actions that we take, their view of the general outlook for our industry and their view of the general outlook for the economy. Actions taken by the rating agencies can include maintaining, upgrading, or downgrading the current rating or placing us on a watch list for possible future downgrading. Downgrading the credit rating of our debt securities or placing us on a watch list for possible future downgrading would likely increase our cost of financing, limit our access to the capital markets and have an adverse effect on the market price of our securities, including our Senior Notes.

 

 

Operation, Development, Exploration and Acquisition Risks

 

Mining accidents or other adverse events at an operation could decrease our anticipated production.

 

Production may be reduced below our historical or estimated levels as a result of mining accidents; unfavorable ground or shaft conditions; work stoppages or slow-downs; lower than expected ore grades; unexpected regulatory actions; if the metallurgical characteristics of ore are less economic than anticipated; or because our equipment or facilities fail to operate properly or as expected. Both of the Lucky Friday and Casa Berardi mines have a history of ground instability and related incidents. All of our mines are subject to risks relating to ground instability, including, but not limited to, crown pillar collapse or stope failure. The occurrence of an event such as those described above could result in loss of life or temporary or permanent cessation of operations, any of which could have a material adverse effect on our financial condition and results of operations. Other closures or impacts on operations or production may occur at any of our mines at any time, whether related to accidents, changes in conditions, changes to regulatory policy, or as precautionary measures.

 

Our operations may be adversely affected by risks and hazards associated with the mining industry that may not be fully covered by insurance.

 

Our business is capital intensive, requiring ongoing investment for the replacement, modernization or expansion of equipment and facilities. Our mining and milling operations are subject to risks of process upsets and equipment malfunctions. Equipment and supplies may from time to time be unavailable on a timely basis. Our business is subject to a number of other risks and hazards including:

 

 

environmental hazards;

 

 

unusual or unexpected geologic formations;

 

 

rock bursts and ground falls;

 

 

seismic activity;

 

 

underground fires or floods;

 

 

unanticipated hydrologic conditions, including flooding and periodic interruptions due to inclement or hazardous weather conditions;

 

 

political and country risks;

 

 

civil unrest or terrorism;

 

 

industrial accidents;

 

 

labor disputes or strikes; and

 

 

our operating mines have tailing ponds which could fail or leak as a result of seismic activity, unusual weather or for other reasons.

 

 

Such risks could result in:

 

 

personal injury or fatalities;

 

 

damage to or destruction of mineral properties or producing facilities;

 

 

environmental damage and financial penalties;

 

 

delays in exploration, development or mining;

 

 

monetary losses;

 

 

legal liability; and

 

 

temporary or permanent closure of facilities.

 

We maintain insurance to protect against losses that may result from some of these risks, such as property loss and business interruption, in amounts we believe to be reasonably consistent with our historical experience, industry practice and circumstances surrounding each identified risk. Such insurance, however, contains exclusions and limitations on coverage, particularly with respect to environmental liability and political risk. We have received some payment for business interruption insurance claims related to the temporary suspension of operations at the Lucky Friday mine and continue to seek further reimbursement (see the risk factor above titled "Mining accidents or other adverse events at an operation could decrease our anticipated production"). There can be no assurance that claims would be paid under such insurance policies in connection with a particular event. Insurance specific to environmental risks is generally either unavailable or, we believe, too expensive for us, and we therefore do not maintain environmental insurance. Occurrence of events for which we are not insured may have an adverse effect on our business.

 

Our development of new orebodies and other capital costs may be higher and provide less return than we estimated.

 

Capitalized development projects may cost more and provide less return than we estimate. If we are unable to realize a return on these investments, we may incur a related asset write-down that could adversely affect our financial results or condition.

 

Our ability to sustain or increase our current level of metals production partly depends on our ability to develop new orebodies 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:

 

 

ore reserves;

 

 

expected recovery rates of metals from the ore;

 

 

future metals prices;

 

 

facility and equipment costs;

 

 

availability of adequate staffing;

 

 

availability of affordable sources of power and adequacy of water supply;

 

 

exploration and drilling success;

 

 

 

capital and operating costs of a development project;

 

 

environmental considerations and permitting;

 

 

adequate access to the site, including competing land uses (such as agriculture);

 

 

applicable tax rates;

 

 

foreign currency fluctuation and inflation rates; and

 

 

availability of financing.

 

Many of these estimates are based on geological and other interpretive data, which may be imprecise. As a result, actual operating and capital costs and returns from a development project may differ substantially from our estimates, and, as such, it may not be economically feasible to continue with a development project.

 

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. You are strongly cautioned not to place undue reliance on estimates of reserves (or mineralized material or other resource estimates). Reserves are estimates made by our professional technical personnel, and no assurance can be given that the estimated 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 and various assumptions. Our reserve estimates may change based on actual production experience. Further, reserves are valued based on estimates of costs and metals prices, which may not be consistent among our properties or across the industry. 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;

 

 

reduction in the grade or tonnage of the deposit;

 

 

increase in the dilution of the ore;

 

 

reduced metal recovery; and

 

 

changes in regulatory requirements.

 

Short-term operating factors relating to our ore reserves, such as the need to sequentially develop orebodies and the processing of new or different ore grades, may adversely affect our cash flow. If the prices of metals that we produce decline substantially below the levels used to calculate reserves for an extended period, we could experience:

 

 

delays in new project development;

 

 

net losses;

 

 

reduced cash flow;

 

 

 

reductions in reserves;

 

 

write-downs of asset values; and

 

 

mine closure.

 

Efforts to expand the finite lives of our mines may not be successful or could result in significant demands on our liquidity, which could hinder our growth and decrease the value of our stock.

 

One of the risks we face is that mines are depleting assets. Thus, we must continually replace depleted ore reserves by locating and developing additional ore. Our ability to expand or replace ore reserves primarily depends on the success of our exploration programs. Mineral exploration, particularly for silver and gold, is highly speculative and expensive. It involves many risks and is often non-productive. Even if we believe we have found a valuable mineral deposit, it may be several years before production from that deposit is possible. During that time, it may become no longer feasible to produce those minerals for economic, regulatory, political or other reasons. As a result of high costs and other uncertainties, we may not be able to expand or replace our existing ore reserves as they are depleted, which would adversely affect our business and financial position in the future.

 

The #4 Shaft project, an internal shaft at the Lucky Friday mine, is expected, upon its completion, to provide deeper access in order to increase the mine's production and operational life. The #4 Shaft project, as currently designed, is expected to involve development down to the 8800 foot level and capital expenditures of approximately $215 million, which includes approximately $165 million that has been spent on the project as of December 31, 2014.  We believe that our current capital resources will allow us to complete the project by its estimated completion target of 2016.  However, there are a number of factors that could affect completion of the project as currently designed, including: (i) a significant decline in metals prices, (ii) a reduction in available cash or credit, whether arising from decreased cash flow or other uses of available cash, (iii) increased regulatory compliance, or (iv) a significant increase in operating or capital costs.  One or more of these factors could potentially require us to suspend the project, defer or eliminate some of the planned development, or access additional capital through debt financing, the sale of securities, or other external sources.  This additional financing could be costly or unavailable.

 

Our joint development and operating arrangements may not be successful.

 

We have entered into joint venture arrangements in order to share the risks and costs of developing and operating properties. In a typical joint venture arrangement, the partners own proportionate shares of the assets, are entitled to indemnification from each other and are only responsible for any future liabilities in proportion to their interest in the joint venture. If a party fails to perform its obligations under a joint venture agreement, we could incur liabilities and losses in excess of our pro-rata share of the joint venture.  We make investments in exploration and development projects that may have to be written off in the event we do not proceed to a commercially viable mining operation. See Note 15 of Notes to Consolidated Financial Statements.

 

Our ability to market our metals production may be affected by disruptions or closures of custom smelters and/or refining facilities.

 

We sell our metallic concentrates to custom smelters and brokers. Our doré bars are sent to refiners for further processing before being sold to metal traders. If we are unable to sell concentrates to our customers, our operations could be adversely affected.  See Note 11 of Notes to Consolidated Financial Statements for more information on the distribution of our sales and our significant customers.

 

 

We face inherent risks in acquisitions of other mining companies or properties that may adversely impact our growth strategy.

 

We are actively seeking to expand our mineral reserves by acquiring other mining companies or properties. For example, on June 1, 2013, we acquired all of the outstanding common stock of Aurizon Mines Ltd., giving us 100% ownership of the Casa Berardi mine and other mineral interests. Although we are pursuing opportunities that we feel are in the best interest of our stockholders, these pursuits are costly and often unproductive. Inherent risks in acquisitions we may undertake in the future could adversely affect our current business and financial condition and our growth.

 

There is a limited supply of desirable mineral properties available in the United States and foreign countries where we would consider conducting exploration and/or production activities, and any acquisition we may undertake is subject to inherent risks. In addition to the risk associated with limited mine lives, we may not realize the value of the companies or properties that are acquired due to a possible decline in metals prices, failure to obtain permits, labor problems, changes in regulatory environment, failure to achieve anticipated synergies, an inability to obtain financing, and other factors previously described. Acquisitions of other mining companies or properties may also expose us to new geographic, political, operating, and geological risks. In addition, we face strong competition for companies and properties from other mining companies, some of which have greater financial resources than we do, and we may be unable to acquire attractive companies and mining properties on terms that we consider acceptable.

 

Our business depends on finding skilled miners and maintaining good relations with our employees.

 

We are dependent upon the ability and experience of our executive officers, managers, employees and other personnel, and there can be no assurance that we will be able to retain such employees. We compete with other companies both in and outside the mining industry in recruiting and retaining qualified employees knowledgeable about the mining business. From time to time, we have encountered, and may in the future encounter, difficulty recruiting skilled mining personnel at acceptable wage and benefit levels in a competitive labor market, and may be required to utilize contractors, which can be more costly. Temporary or extended lay-offs due to mine closures may exacerbate such issues and result in vacancies or the need to hire less skilled or efficient employees. The loss of these persons or our inability to attract and retain additional highly skilled employees could have an adverse effect on our business and future operations.  The Lucky Friday mine is our only operation subject to a collective bargaining agreement, which expires on April 30, 2016.

 

In March 2012, Hecla Limited received notice of a complaint filed against it by the United Steel Workers, Local 5114, with the U.S. Mine Safety Health Review Commission for compensation for bargaining unit workers at the Lucky Friday mine who were idled as a result of the temporary suspension of production at the mine (see the Other Contingencies section of Note 7 of Notes to Consolidated Financial Statements for more information).

 

Competition from other mining companies may harm our business.

 

We compete with other mining companies to attract and retain key executives, skilled labor, and other employees. We also compete with other mining companies for the services of other skilled personnel and contractors and their specialized equipment, components and supplies, such as drill rigs, necessary for exploration and development. We also compete with other mining companies for rights to mine properties. We may be unable to continue to obtain the services of skilled personnel and contractors or specialized equipment or supplies, or to acquire additional rights to mine properties.

 

We may be subject to a number of unanticipated risks related to inadequate infrastructure.

 

Mining, processing, development and exploration activities depend on adequate infrastructure. Reliable roads, bridges, power sources and water supply are important to our operations, and their availability and condition affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, other interference in the maintenance or provision of such infrastructure, or government intervention, could adversely affect our mining operations.

 

 

 Our foreign activities are subject to additional inherent risks.

 

On June 1, 2013, we completed the acquisition of Aurizon, giving us 100% ownership of the producing Casa Berardi mine, along with interests in various other properties, in Quebec, Canada.  See Note 15 of Notes to Consolidated Financial Statements for more information.  In addition, we currently conduct exploration and pre-development activities in Mexico and continue to own assets, including real estate and mineral interests there. We anticipate that we will continue to conduct operations in Canada, Mexico, and possibly other international locations in the future. Because we conduct operations internationally, we are subject to political and economic risks such as:

 

 

the effects of local political, labor and economic developments and unrest;

 

 

significant or abrupt changes in the applicable regulatory or legal climate;

 

 

exchange controls and export restrictions;

 

 

expropriation or nationalization of assets with inadequate compensation;

 

 

currency fluctuations, particularly in the exchange rate between the Canadian dollar and U.S. dollar;

 

 

repatriation restrictions;

 

 

invalidation and unavailability of governmental orders, permits or agreements;

 

 

property ownership disputes;

 

 

renegotiation or nullification of existing concessions, licenses, permits and contracts;

 

 

criminal activity, corruption, demands for improper payments, expropriation, and uncertain legal enforcement and physical security;

 

 

disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations;

 

 

fuel or other commodity shortages;

 

 

illegal mining;

 

 

laws or policies of foreign countries and the United States affecting trade, investment and taxation;

 

 

civil disturbances, war and terrorist actions; and

 

 

seizures of assets.

 

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 condition or results of operations. Fluctuations in exchange rates may impact our earnings, the value of assets held abroad and our operating and capital costs in foreign jurisdictions.

 

 

We may be unable to successfully integrate the operations of the properties we acquire, including the Aurizon properties.

 

Integration of the operations of the properties we acquire with our existing business will be a complex, time-consuming and costly process. Failure to successfully integrate the acquired properties and operations in a timely manner may have a material adverse effect on our business, financial condition, results of operations and cash flows. The difficulties of combining the acquired operations include, among other things:

 

 

operating a larger organization;

 

 

operating in multiple legal jurisdictions;

 

 

coordinating geographically and linguistically disparate organizations, systems and facilities;

 

 

adapting to additional political, regulatory, legal and social requirements;

 

 

integrating corporate, technological and administrative functions; and

 

 

diverting management's attention from other business concerns.

 

The process of integrating our operations could cause an interruption of, or a slowdown in, the activities of our business. Members of our senior management may be required to devote considerable amounts of time to this integration process, which will decrease the time they will have to manage our business. If our senior management is not able to effectively manage the integration process, or if any business activities are interrupted as a result of the integration process, our business could suffer.

 

We may not realize all of the anticipated benefits from our acquisitions.

 

We may not realize all of the anticipated benefits from any future acquisitions, such as increased earnings, cost savings and revenue enhancements, for various reasons, including difficulties integrating operations and personnel, higher than expected acquisition and operating costs or other difficulties, unknown liabilities, inaccurate reserve estimates and fluctuations in market prices.

 

The properties we may acquire may not produce as expected, and we may be unable to determine reserve potential, identify liabilities associated with the acquired properties or obtain protection from sellers against such liabilities.

 

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

 

The acquisition of Aurizon exposes us to additional political risks.

 

Our properties obtained through the acquisition of Aurizon are located in areas of Quebec, Canada which may be of particular interest or sensitivity to one or more interest groups, including aboriginal groups (which are generally referred to as "First Nations"). We now have mineral projects in Quebec that may be in areas with a First Nations presence. It is our practice to work closely with and consult with First Nations in areas in which our projects are located or which could be impacted by our activities. However, there is no assurance that relationships with such groups will be positive. Accordingly, it is possible that our production, exploration or development activities on these properties could be interrupted or otherwise adversely affected in the future by political uncertainty, native land claims entitlements, expropriations of property, changes in applicable law, governmental policies and policies of relevant interest groups, including those of First Nations. Any changes in law or relations or shifts in political conditions may be beyond our control and may adversely affect our business and operations and if significant, may result in the impairment or loss of mineral concessions or other mineral rights, or may make it impossible to continue our mineral production, exploration or development activities in the applicable area, any of which could have an adverse effect on our financial conditions and results of operations.

 

 

Legal, Regulatory and Market Risks

 

 

We are currently involved in ongoing legal disputes that may materially adversely affect us.

 

There are several ongoing legal disputes in which we are involved, and additional actions may be filed against us. We may be subject to future claims, including those relating to environmental damage, safety conditions at our mines, and other matters. The outcomes of these pending and potential claims are uncertain. We may not resolve these claims favorably. Depending on the outcome, these actions could have adverse financial effects or cause reputational harm to us. If any of these disputes result in a substantial monetary judgment against us, are settled on terms in excess of our current accruals, or otherwise impact our operations, our financial results or condition could be materially adversely affected. For a description of some of the lawsuits and other claims in which we are involved, see Note 7 of Notes to Consolidated Financial Statements.

 

We are required to obtain governmental permits and other approvals in order to conduct mining operations.

 

In the ordinary course of business, mining companies are required to seek governmental permits and other approvals for continuation or expansion of existing operations or for the commencement of new operations. For example, we estimate that our Greens Creek tailings impoundment area has sufficient capacity to meet our needs through the end of 2016. In order to increase the tailings capacity at the mine, certain permits are required. Obtaining the necessary governmental permits is a complex, time-consuming and costly process. The duration and success of our efforts to obtain permits are contingent upon many variables not within our control. Obtaining environmental permits, including the approval of reclamation plans, may increase costs and cause delays or halt the continuation of mining operations depending on the nature of the activity to be permitted and the interpretation of applicable requirements implemented by the permitting authority. Interested parties may seek to prevent issuance of permits and intervene in the process or pursue extensive appeal rights. Past or ongoing violations of laws or regulations could provide a basis to revoke existing permits or to deny the issuance of additional permits. In addition, evolving reclamation or environmental concerns may threaten our ability to renew existing permits or obtain new permits in connection with future development, expansions and operations. There can be no assurance that all necessary approvals and permits will be obtained and, if obtained, that the costs involved will not exceed those that we previously estimated. It is possible that the costs and delays associated with the compliance with such standards and regulations could become such that we would not proceed with the development or operation.  We are often required to post surety bonds or cash collateral to secure our reclamation obligations and we may be unable to obtain the required surety bonds or may not have the resources to provide cash collateral.

 

We face substantial governmental regulation and environmental risk.

 

Our business is subject to extensive U.S. and foreign, federal, state and local laws and regulations governing development, production, labor standards, health and safety, the environment and other matters. For example, our operating mines in the United States frequently receive citations under the Mine Safety and Health Act, as administered by MSHA. Further, we have been and are currently involved in lawsuits or disputes in which we have been accused of causing environmental damage, violating environmental laws, or violating environmental permits, and we may be subject to similar lawsuits or disputes in the future. See the risk factor below titled "Our environmental obligations may exceed the provisions we have made."

 

 

Exposure to these liabilities arises not only from our existing operations, but also from operations that have been closed, sold to third parties, or properties in which we had a leasehold, joint venture, or other interest. With a history dating back to 1891, our exposure to environmental claims may be greater because of the bankruptcy or dissolution of other mining companies which may have engaged in more significant activities at a mining site than we but which are no longer available for governmental agencies or other claimants to make claims against or obtain judgments from. Similarly, the federal government or private parties could seek to hold Hecla Limited or Hecla Mining Company liable for the actions of certain subsidiaries under "alter ego" or similar theories which seek to disregard the separateness of corporate entities within our consolidated corporate group.

 

We are required to reclaim properties and specific requirements vary among jurisdictions. In some cases, we may be required to provide financial assurances as security for reclamation costs, which may exceed our estimates for such costs. Our historical operations and the historical operations of entities and properties we have acquired have occasionally been alleged to have generated environmental contamination. We could also be held liable for worker exposure to hazardous substances. There can be no assurance that we will at all times be in compliance with all environmental, health and safety regulations or that steps to achieve compliance would not materially adversely affect our business.

 

In addition to existing regulatory requirements, legislation and regulations may be adopted or permit limits reduced at any time that result in additional exposure to liability, operating expense, capital expenditures or restrictions and delays in the mining, production or development of our properties. Mining accidents and fatalities, whether or not at our mines or related to metals mining, may increase the likelihood of additional regulation or changes in law. In addition, enforcement or regulatory tools and methods available to governmental regulators such as the U.S. Environmental Protection Agency, which have not been or have seldomly been used against us, could be used against us. Federal or state environmental or mine safety regulatory agencies may order certain of our mines to be temporarily or permanently closed, which may have a material adverse effect on our cash flows, results of operations, or financial condition.

 

Legislative and regulatory measures to address climate change and green house gas emissions are in various phases of consideration. If adopted, such measures could increase our cost of environmental compliance and also delay or otherwise negatively affect efforts to obtain permits and other regulatory approvals with regard to existing and new facilities. Proposed measures could also result in increased cost of fuel and other consumables used at our operations, including the diesel generation of electricity at our Greens Creek operation, if we are unable to regularly access hydroelectric power. Climate change legislation may also affect our smelter customers who burn fossil fuels, resulting in increased costs to us, and may affect the market for the metals we produce with effects on prices that are not possible for us to predict.

 

From time to time, the U.S. Congress considers proposed amendments to the General Mining Law of 1872, as amended (the “General Mining Law”), which governs mining claims and related activities on federal lands. The extent of any future changes is not known and the potential impact on us as a result of U.S. Congressional action is difficult to predict. Changes to the General Mining Law, if adopted, could adversely affect our ability to economically develop mineral reserves on federal lands. Although we are not currently mining on federal land, we do explore, and future mining could occur, on federal land.

 

The Clean Water Act requires permits for operations that discharge into waters of the United States. Such permitting has been a frequent subject of litigation by environmental advocacy groups, which has resulted, and may in the future result, in declines in such permits or extensive delays in receiving them. This may result in delays in, or in some instances preclude, the commencement or continuation of development or production operations. Adverse outcomes in lawsuits challenging permits or failure to comply with applicable regulations could result in the suspension, denial, or revocation of required permits, which could have a material adverse impact on our cash flows, results of operations, or financial condition. See Note 7 of Notes to Consolidated Financial Statements.

 

 Our environmental obligations may exceed the provisions we have made.

 

We are subject to significant environmental obligations.  At December 31, 2014, we had accrued $57.3 million as a provision for environmental obligations. For information on our potential environmental liabilities, see Note 4 and Note 7 of Notes to Consolidated Financial Statements.

 

 

We face transportation risks relating to our products, as well as employees and materials at Greens Creek.

 

Certain of the products we ship to our customers are subject to regulatory requirements regarding packaging, handling and shipping of products that may be considered dangerous to human health or the environment. Although we believe we are currently in compliance with all material regulations applicable to packaging, handling and shipping our products, the chemical properties of our products or existing regulations could change and cause us to fall out of compliance, or force us to incur substantial additional expenditures to maintain compliance with applicable regulations. Further, we do not ship our own products but instead rely on third party carriers to ship our products to our customers. To the extent that any of our carriers are unable or unwilling to ship our products in accordance with applicable regulations, including because of difficulty in obtaining, or increased cost of, insurance, we could be forced to find alternative shipping arrangements, assuming such alternatives would be available. Any such changes to our current shipping arrangements could have a material adverse impact on our operations and financial results.

 

In addition, Greens Creek operates on an island and is substantially dependent on various forms of marine transportation for the transportation of employees and materials to the mine and for the export of its products from the mine. Any disruption to these forms of marine transportation would adversely impact mine operations, and possible effects could include suspension of operations.

 

The titles to some of our properties may be defective or challenged.

 

Unpatented mining claims constitute a significant portion of our undeveloped property holdings, the validity of which could be uncertain and may be contested. Although we have conducted title reviews of our property holdings, title review does not necessarily preclude third parties from challenging our title. 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.

 

The price of our stock has a history of volatility and could decline in the future.

 

Shares of our common and outstanding preferred stock are listed on the New York Stock Exchange. The market price for our stock has been volatile, often based on:

 

 

changes in metals prices, particularly silver and gold;

 

 

our results of operations and financial condition as reflected in our public news releases or periodic filings with the SEC;

 

 

fluctuating proven and probable reserves;

 

 

factors unrelated to our financial performance or future prospects, such as global economic developments, market perceptions of the attractiveness of particular industries, or the reliability of metals markets;

 

 

political and regulatory risk;

 

 

the success of our exploration, pre-development, and capital programs;

 

 

ability to meet production estimates;

 

 

environmental, safety and legal risk;

 

 

the extent and nature of analytical coverage concerning our business; and

 

 

 

the trading volume and general market interest in our securities.

 

The market price of our stock at any given point in time may not accurately reflect our value, and may prevent stockholders from realizing a profit on their investment.

 

Our Series B Preferred Stock has a liquidation preference of $50 per share or $7.9 million.

 

If we were liquidated, holders of our preferred stock would be entitled to receive approximately $7.9 million (plus any accrued and unpaid dividends) from any liquidation proceeds before holders of our common stock would be entitled to receive any proceeds, but after holders of all notes issued under the indenture governing our outstanding debt securities received any proceeds.

 

We may not be able to pay common or preferred stock dividends in the future.

 

Since January 2010, we have paid all regular quarterly dividends on our Series B Preferred Stock.  The annual dividend payable on the Series B Preferred Stock is currently $0.6 million. Prior to 2010, there were numerous occasions when we did not declare dividends on the Series B Preferred Stock, but instead deferred them. There can be no assurance that we will continue to pay preferred stock dividends in the future.

 

Our Board of Directors adopted a common stock dividend policy that has two components: (1) a dividend that links the amount of dividends on our common stock to our average quarterly realized silver price in the preceding quarter, and (2) a minimum annual dividend of $0.01 per share of common stock, in each case payable quarterly, when declared. See Note 9 of Notes to Consolidated Financial Statements for more information on potential dividend amounts under the first component of the policy at various silver prices.

 

From the fourth quarter of 2011 through and including the fourth quarter of 2014, our Board of Directors has declared a common stock dividend under the policy described above (although in some cases only a minimum dividend was declared and none relating to the average realized price of silver due to the prices not meeting the policy threshold). The declaration and payment of common stock dividends, whether pursuant to the policy or in addition thereto, is at the sole discretion of our Board of Directors, and there can be no assurance that we will continue to declare and pay common stock dividends in the future. In addition, the indenture governing our outstanding senior notes limits our ability to pay dividends.

 

 Our existing stockholders are effectively subordinated to the holders of our senior notes.

 

In the event of our liquidation or dissolution, stockholders' entitlement to share ratably in any distribution of our assets would be subordinated to the holders of our senior notes. Any rights that a stockholder may have in the event of bankruptcy, liquidation or a reorganization of us or any of our subsidiaries, and any consequent rights of stockholders to realize on the proceeds from the sale of any of our or our subsidiaries' assets, will be effectively subordinated to the claims of the holders of our senior notes.

 

Additional issuances of equity securities by us would dilute the ownership of our existing stockholders and could reduce our earnings per share.

 

We may issue securities in the future in connection with acquisitions, strategic transactions or for other purposes. To the extent we issue any additional equity securities (or securities convertible into equity), the ownership of our existing stockholders would be diluted and our earnings per share could be reduced.

 

 

The issuance of additional shares of our preferred or common stock in the future could adversely affect holders of common stock.

 

The market price of our common stock may be influenced by any preferred or common stock we may issue.  Our board of directors is authorized to issue additional classes or series of preferred stock without any action on the part of our stockholders.  This includes the power to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights and preferences over common stock with respect to dividends or upon the liquidation, dissolution or winding up of the business and other terms.  If we issue preferred stock in the future that has preference over our common stock with respect to the payment of dividends or upon liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of holders of the common stock or the market price of the common stock could be adversely affected.

 

If a large number of shares of our common stock are sold in the public market, the sales could reduce the trading price of our common stock and impede our ability to raise future capital.

 

We cannot predict what effect, if any, future issuances by us of our common stock or other equity will have on the market price of our common stock. Any shares that we may issue may not have any resale restrictions, and therefore could be immediately sold by the holders. The market price of our common stock could decline if certain large holders of our common stock, or recipients of our common stock, sell all or a significant portion of their shares of common stock or are perceived by the market as intending to sell these shares other than in an orderly manner. In addition, these sales could also impair our ability to raise capital through the sale of additional common stock in the capital markets.

 

The provisions in our certificate of incorporation, our by-laws and Delaware law could delay or deter tender offers or takeover attempts.

 

Certain 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 could be beneficial to stockholders. These impediments include:

 

 

the classification of our board of directors into three classes serving staggered three-year terms, which makes it more difficult to quickly replace board members;

 

 

the ability of our board of directors to issue shares of preferred stock with rights as it deems appropriate without stockholder approval;

 

 

a provision 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 provision that special meetings of stockholders may only be called pursuant to a resolution approved by a majority of our board of directors;

 

 

a prohibition against action by written consent of our stockholders;

 

 

a provision 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 provision 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 prohibition against our entering into certain 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.

 

 If we cannot meet the New York Stock Exchange continued listing requirements, the NYSE may delist our common stock.

 

Our common stock is currently listed on the NYSE. In the future, if we are not be able to meet the continued listing requirements of the NYSE, which require, among other things, that the average closing price of our common stock be above $1.00 over 30 consecutive trading days, our common stock may be delisted. Our closing stock price on February 16, 2015, was $3.42.  

 

If we are unable to satisfy the NYSE criteria for continued listing, our common stock would be subject to delisting. A delisting of our common stock could negatively impact us by, among other things, reducing the liquidity and market price of our common stock; reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing; decreasing the amount of news and analyst coverage of us; and limiting our ability to issue additional securities or obtain additional financing in the future.  In addition, delisting from the NYSE might negatively impact our reputation and, as a consequence, our business.

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2. Properties

 

OPERATING PROPERTIES

 

The Greens Creek Unit

 

Various of our subsidiaries collectively own 100% of the Greens Creek mine, located on Admiralty Island near Juneau in Southeast Alaska. Admiralty Island is accessed by boat, float plane, or helicopter. On the island, the mine site and various surface facilities are accessed by 13 miles of all-weather gravel roads. The Greens Creek mine has been in production since 1989, with a temporary care and maintenance period from April 1993 through July 1996.  Since the start of production, Greens Creek has been owned and operated through various joint venture arrangements.  For approximately 15 years prior to April 16, 2008, our wholly-owned subsidiary, Hecla Alaska LLC, owned an undivided 29.7% joint venture interest in the assets of Greens Creek.  On April 16, 2008, we completed the acquisition of all of the equity of two Rio Tinto subsidiaries holding a 70.3% interest in the Greens Creek mine, and which previously operated the mine, for approximately $758.5 million.  The acquisition gave various of our subsidiaries control collectively of 100% of the Greens Creek mine.

 

The Greens Creek orebody contains silver, zinc, gold and lead, and lies within the Admiralty Island National Monument, an environmentally sensitive area. The Greens Creek property includes 639 unpatented lode mining claims, 58 patented lode claims and one patented mill site. In addition, the Greens Creek site includes properties under lease from the U.S. Forest Service ("USFS") for a road right-of-way, mine portal and mill site access, camp site, mine waste area and tailings impoundment. The USFS leases have varying expiration terms. Greens Creek also has title to mineral rights on 7,301 acres of federal land acquired through a land exchange with the USFS. We are currently exploring, but not mining, on such federal land.

 

 

The project consists of the mine, an ore concentrating mill, a tailings impoundment area, a ship-loading facility, camp facilities, a ferry dock, and other related infrastructure.  The map below illustrates the location and access to Greens Creek:

 

 

 

The Greens Creek deposit is a polymetallic, stratiform, massive sulfide deposit. The host rock consists of predominantly marine sedimentary, and mafic to ultramafic volcanic and plutonic rocks, which have been subjected to multiple periods of deformation. These deformational episodes have imposed intense tectonic fabrics on the rocks. Mineralization occurs most often along the contact between a structural hanging wall of quartz mica carbonate phyllites and a structural footwall of graphitic and calcareous argillite. Major sulfide minerals are pyrite, sphalerite, galena, and tetrahedrite/tennanite.

 

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 exploration and mining rights to approximately 7,500 acres of land with mining potential surrounding the existing mine. Any production from new ore discoveries on the exchanged lands will be subject to a federal royalty included in the land exchange agreement. The royalty is only due on any production from reserves that are not part of Greens Creek’s extralateral rights. Thus far, there has been no production triggering payment of the royalty. The royalty is 3% if the average value of the ore during a year is greater than the benchmark, and 0.75% if the value is equal to or less than the benchmark. The benchmark of $120 per ton is adjusted annually according to the Gross Domestic Product (GDP) Implicit Price Deflator until the year 2016, and at December 31, 2014, was at approximately $157 per ton when applying the latest GDP Implicit Price Deflator.

 

Greens Creek is an underground mine accessed by a ramp from surface which produces approximately 2,100 to 2,300 tons of ore per day. The primary mining methods are cut and fill and longhole stoping. The Greens Creek ore processing facility includes a SAG/ball mill grinding circuit to grind the run of mine ore to liberate the minerals and produce a slurry suitable for differential flotation of mineral concentrates.  A gravity circuit recovers free gold that exists as electrum, a gold/silver alloy in the ore.  Doré and gravity concentrates are produced from this circuit prior to flotation.  Three flotation concentrates are produced: a lead concentrate which contains most of the silver recovered; a zinc concentrate which is low in precious metals content; and a zinc-rich bulk concentrate that contains gold, silver, zinc, and lead and must be marketed to an imperial smelter.  In 2014, ore was processed at an average rate of approximately 2,236 tons per day and total mill recovery was approximately 72% silver, 87% zinc, 77% lead and 63% gold.  The doré is further refined by precious metal refiners and sold to banks, and the three concentrate products are sold to a number of major smelters and brokers worldwide.  See Note 11 of Notes to Consolidated Financial Statements for information on the significant customers for Greens Creek’s products. Concentrates are shipped from the Hawk Inlet marine terminal about nine miles from the mill.

 

 

Underground exploration activities at the Greens Creek unit during 2014 focused on continued expansion of the Deep 200 South mineralized zone along trend of the already-existing mineralization to the south, at the NWW, and Gallagher Fault Block zones.   Definition drilling of the Deep 200 South, NWW, and West Wall zones resulted in additions to reserves. The 2014 surface exploration program focused on the Killer Creek area and consisted of 23,214 feet of core drilling in 5 holes. Drilling has confirmed and expanded on a broad, locally high-grade copper, silver and zinc system associated with stockwork veining intersected in the 2013 exploration program. At depth, a number of holes intersected densely pyritic laminated argillite that thickened with depth and were anomalous in silver and zinc. This may imply the existence of another mine horizon which could host another ore deposit at Killer Creek and elsewhere on the property. Objectives for the 2015 season are to further evaluate the south Killer Creek and High Sore areas, both of which are less than one mile from the current Greens Creek mine. All exploration efforts in 2015 are expected to be concentrated on near mine targets with the goal of increasing known mineralization at the Greens Creek mine.

 

Electricity for the Greens Creek unit is provided through the purchase of surplus hydroelectric power from Alaska Electric Light and Power Company (“AEL&P”), to the extent it is available after the power needs of Juneau and the surrounding area are met. When weather conditions are not favorable to maintain lake water levels sufficient for all of the power needs at Greens Creek to be met by available hydroelectric power, the mine relies on power provided by on-site diesel generators.

 

The employees at Greens Creek are employees of Hecla Greens Creek Mining Company, our wholly-owned subsidiary, and are not represented by a bargaining agent. There were 415 employees at the Greens Creek unit at December 31, 2014.

 

As of December 31, 2014, we have recorded a $39.2 million asset retirement obligation for reclamation and closure costs. We maintained a $68.9 million reclamation and long-term water treatment bond for Greens Creek as of December 31, 2014.   The net book value of the Greens Creek unit property and its associated plant, equipment and mineral interests was approximately $651 million as of December 31, 2014.

 

 

Based on current ore reserve estimates, the currently known remaining mine life at Greens Creek is 9 years. Information with respect to production, average Cash Cost, After By-product Credits, Per Silver Ounce and proven and probable ore reserves is set forth in the following table.

 

    Years Ended December 31,  

Production

 

2014

   

2013

   

2012

 

Ore milled (tons)

    816,213       805,322       789,569  

Silver (ounces)

    7,826,341       7,448,347       6,394,235  

Gold (ounces)

    58,753       57,457       55,496  

Zinc (tons)

    59,810       57,614       64,249  

Lead (tons)

    20,151       20,114       21,074  
                         

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

                       

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

  $ 2.89     $ 4.42     $ 2.70  
                         

Proven Ore Reserves(2,3,4,5,6,7)

                       

Total tons

    4,700       14,100       12,000  

Silver (ounces per ton)

    15.7       12.9       12.0  

Gold (ounces per ton)

    0.10       0.13       0.09  

Zinc (percent)

    9.2       8.1       8.9  

Lead (percent)

    3.7       3.0       3.4  

Contained silver (ounces)

    74,200       181,700       112,500  

Contained gold (ounces)

    500       1,800       1,100  

Contained zinc (tons)

    440       1,150       930  

Contained lead (tons)

    180       430       330  
                         

Probable Ore Reserves(2,3,4,5,6,7)

                       

Total tons

    7,691,000       7,782,800       7,845,600  

Silver (ounces per ton)

    12.2       11.9       12.0  

Gold (ounces per ton)

    0.10       0.09       0.09  

Zinc (percent)

    8.3       8.7       9.0  

Lead (percent)

    3.1       3.3       3.4  

Contained silver (ounces)

    93,946,900       92,338,300       94,481,200  

Contained gold (ounces)

    738,200       710,900       718,400  

Contained zinc (tons)

    639,490       676,800       702,300  

Contained lead (tons)

    240,670       255,700       267,410  
                         

Total Proven and Probable Ore Reserves(2,3,4,5,6,7)

                       

Total tons

    7,695,700       7,796,900       7,857,600  

Silver (ounces per ton)

    12.2       11.9       12.0  

Gold (ounces per ton)

    0.10       0.09       0.09  

Zinc (percent)

    8.3       8.7       9.0  

Lead (percent)

    3.1       3.3       3.4  

Contained silver (ounces)

    94,021,100       92,520,000       94,593,700  

Contained gold (ounces)

    738,700       712,700       719,500  

Contained zinc (tons)

    639,930       677,950       703,230  

Contained lead (tons)

    240,850       256,130       267,740  

 

(1)

Includes by-product credits from gold, lead and zinc production. Cash Cost, After By-product Credits, Per Silver Ounce represents a measurement that is not in accordance with GAAP that management uses to monitor and evaluate the performance of our mining operations. We believe Cash Cost, After By-product Credits, Per Silver Ounce provides an indicator of economic performance and efficiency at each location and on a consolidated basis, as well as providing a meaningful basis to compare our results to those of other mining companies and other mining operating properties. A reconciliation of this non-GAAP measure to cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, can be found in Item 7. — Management's Discussion and Analysis of Financial Condition and Results of Operations, under Reconciliation of Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) to Costs of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP).

 

 

(2)

Estimates of proven and probable ore reserves for the Greens Creek unit as of December 2014, 2013 and 2012 are calculated and reviewed in-house and are derived from successive generations of reserve and feasibility analyses for different areas of the mine, using a separate assessment of metals prices for each year.  The average prices used for the Greens Creek unit were:

 

    December 31,  
   

2014

   

2013

   

2012

 

Silver (per ounce)

  $ 17.25     $ 20.00     $ 26.50  

Gold (per ounce)

  $ 1,225     $ 1,300     $ 1,400  

Lead (per pound)

  $ 0.95     $ 0.90     $ 0.85  

Zinc (per pound)

  $ 0.90     $ 0.80     $ 0.85  

 

(3)

Ore reserves represent in-place material, diluted and adjusted for expected mining recovery. Mill recoveries of ore reserve grades differ with ore grades, and the 2014 reserve model assumes average total mill recoveries of 72% for silver, 63% for gold, 76% for zinc and 69% for lead.

 

(4)

The changes in reserves in 2014 versus 2013 are due to the addition of data from new drill holes, partially offset by continued depletion of the deposit through production and lower metals price assumptions. The changes in reserves in 2013 versus 2012 were due to continued depletion of the deposit through production and lower metals price assumptions, partially offset by the addition of data from new drill holes and development work. 

 

(5)

Probable reserves at the Greens Creek unit are based on average drill spacing of 50 to 100 feet. Proven reserves typically require that mining samples are partly the basis of the ore grade estimates used, while probable reserve grade estimates can be based entirely on drilling results.  The proven reserves reported for Greens Creek for 2014 represents stockpiled ore. Cutoff grade assumptions vary by orebody and are developed based on reserve metals price assumptions, anticipated mill recoveries and smelter payables and cash operating costs. Due to multiple ore metals, and complex combinations of ore types, metal ratios and metallurgical performances at Greens Creek, the cutoff grade is expressed in terms of net smelter return (“NSR”), rather than metal grade. The cutoff grade was $190 per ton NSR.

 

(6)

Greens Creek ore reserve estimates were prepared by Robert Callaghan, Chief Geologist, and Kerry Lear, Senior Resource Geologist (contractor) at the Greens Creek unit and reviewed by Keith Blair, Senior Resource Geologist at Hecla Limited and Dean McDonald, Senior Vice President of Exploration.

 

(7)

An independent review by Amec Foster Wheeler E&C, Inc. occurred in 2012. The review included the 2012 model containing a portion of the 200 South zone that is included in reserves.

 

 

The Lucky Friday Unit

 

Since 1958, we have owned and operated the Lucky Friday mine, a deep underground silver, lead and zinc mine located in the Coeur d’Alene Mining District in northern Idaho. Lucky Friday is one-quarter mile east of Mullan, Idaho, and is adjacent to U.S. Interstate 90. The mine site and various surface facilities are accessed by paved roads from U.S. Interstate 90.  Below is a map illustrating the location and access to the Lucky Friday unit:

 

 

There have been two ore-bearing structures mined at the Lucky Friday unit.  The first, mined through 2001, was the Lucky Friday vein, a fissure vein typical of many in the Coeur d’Alene Mining District. The ore body is located in the Revett Formation, which is known to provide excellent host rocks for a number of ore bodies in the Coeur d’Alene Mining 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 ore body in and along the Lucky Friday vein. The major part of the ore body has extended from 1,200 feet to 6,020 feet below surface.

 

The second ore-bearing structure, known as the Lucky Friday Expansion Area, or Gold Hunter, has been mined since 1997 pursuant to an operating agreement with Silver Hunter Mining Company (“Silver Hunter”), our wholly owned subsidiary.  During 1991, we discovered several mineralized structures containing some high-grade silver ores in an area known as the Gold Hunter property, approximately 5,000 feet northwest of the then existing Lucky Friday workings. This discovery led to the development of the Gold Hunter property on the 4900 level. At approximately 4,900 feet below surface, the Gold Hunter veins are hosted in a 200-foot thick siliceous lens within the Wallace Formation that transitions to the St. Regis Formation below 5,900 feet. The veins are sub-parallel, and are numbered consecutively from the hanging wall of the favorable horizon to the footwall. The strike of the vein system is west-northwest with a dip of 85 degrees to the south. The 30-vein, which has demonstrated to contain higher silver grades, represents approximately 67% of our current proven and probable ore reserve tonnages, while the remaining 33% of our reserves are contained in various intermediate veins having lower silver grades than 30-vein. While the veins share many characteristics with the Lucky Friday vein, the Gold Hunter area possesses some mineralogical and rock mechanics differences that make it more favorable to mine at this time. On November 6, 2008, we, through Silver Hunter, completed the acquisition of substantially all of the assets of Independence Lead Mines Company, which held an interest in the Gold Hunter property. The acquisition included all future interests or royalty obligations to Independence and the mining claims pertaining to the operating agreement with Hecla Limited that was assigned to Silver Hunter.

 

 

The principal mining method at the Lucky Friday unit is ramp access, cut and fill. This method utilizes rubber-tired equipment to access the veins through ramps developed outside of the ore body. 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.

 

Ore at the Lucky Friday is processed using a conventional lead/zinc flotation flowsheet, with process control guided by a real-time, on-line analyzer.  Run of mine ore is crushed in a conventional three stage crushing plant consisting of a primary jaw crusher, and a secondary crushing circuit, and tertiary cone crushing stage.  Crushed ore is ground in a ball mill, and the ground slurry reports to the lead flotation circuit.  The lead circuit tailings report to the zinc flotation circuit.  Lead and zinc concentrates are thickened and filtered, and final concentrate products are shipped to smelters for final processing.  Current processing capacity of the Lucky Friday facility is approximately 1,000 tons per day. As discussed further below, production at Lucky Friday was temporarily suspended during 2012 and then ramped up during 2013 to historical levels. Lucky Friday reached full production in late September 2013, averaging 837 tons milled per day. In 2014, production increased to 847 tons per day, and total mill recovery was approximately 95% silver, 94% lead, and 78% zinc. All lead and zinc concentrate production during 2014 was shipped to Teck Cominco Limited's smelter in Trail, British Columbia, Canada.

 

Underground exploration activities have been suspended at the Lucky Friday unit since 2013, with a plan to resume exploration once deeper drill stations become available with the advance of the #4 Shaft (discussed below). Definition drilling from the 6500 level #4 shaft drill platform completed 22 holes, for a total footage of 27,157 feet, during 2014. This drilling was all within the central portion of the vein system and in-fill drilled for upgrades in the quality of the mineralized material and other resources between the 6600 and 7900 levels.

 

 

Based on current estimates of reserves, mineralized material, and other resources, the currently expected mine life at the Lucky Friday is approximately 28 years. Information with respect to the Lucky Friday unit’s production, average Cash Cost, After By-product Credits, Per Silver Ounce and proven and probable ore reserves for the past three years is set forth in the table below.

 

    Years Ended December 31,  

Production

 

2014

   

2013

   

2012

 

Ore milled (tons)

    309,070       174,331        

Silver (ounces)

    3,239,151       1,459,000        

Lead (tons)

    20,104       10,260        

Zinc (tons)

    8,159       3,793        
                         

Average Cost per Ounce of Silver Produced(1)

                       

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

  $ 9.44     $ 19.21     $  
                         

Proven Ore Reserves(2,3,4,5,6)

                       

Total tons

    3,839,600       3,707,800       2,206,600  

Silver (ounces per ton)

    13.7       12.1       12.1  

Lead (percent)

    8.3       7.3       7.4  

Zinc (percent)

    2.6       2.3       2.7  

Contained silver (ounces)

    52,556,000       44,891,500       26,778,900  

Contained lead (tons)

    318,610       270,150       163,350  

Contained zinc (tons)

    98,230       86,360       58,560  
                         

Probable Ore Reserves(2,3,4,5,6)

                       

Total tons

    2,043,200       2,698,000       1,931,700  

Silver (ounces per ton)

    12.9       12.0       14.8  

Lead (percent)

    7.4       7.2       8.7  

Zinc (percent)

    2.2       2.6       3.2  

Contained silver (ounces)

    26,346,100       32,351,800       28,676,000  

Contained lead (tons)

    151,590       193,110       167,390  

Contained zinc (tons)

    44,910       69,180       62,300  
                         

Total Proven and Probable Ore Reserves(2,3,4,5,6)

                       

Total tons

    5,882,800       6,405,800       4,138,300  

Silver (ounces per ton)

    13.4       12.1       13.4  

Lead (percent)

    8.0       7.2       8.0  

Zinc (percent)

    2.4       2.4       2.9  

Contained silver (ounces)

    78,902,100       77,243,300       55,454,900  

Contained lead (tons)

    470,200       463,260       330,740  

Contained zinc (tons)

    143,140       155,540       120,860  

 

(1)

Includes by-product credits from lead and zinc production. Cash Cost, After By-product Credits, Per Silver Ounce represents a measurement that is not in accordance with GAAP that management uses to monitor and evaluate the performance of our mining operations. We believe Cash Costs, After By-product Credits, Per Silver Ounce provides an indicator of economic performance and efficiency at each location and on a consolidated basis, as well as providing a meaningful basis to compare our results to those of other mining companies and other mining operating properties. A reconciliation of this non-GAAP measure to cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, can be found in Item 7. — Management’s Discussion and Analysis of Financial Condition and Results of Operations, under Reconciliation of Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) to Costs of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP).

 

 

(2)

Proven and probable ore reserves are calculated and reviewed in-house and are subject to periodic audit by others, although audits are not performed on an annual basis. Cutoff grade assumptions vary by ore body and are developed based on reserve metals price assumptions, anticipated mill recoveries and smelter payables and cash operating costs.  Due to multiple ore metals, and complex combinations of ore types, metal ratios and metallurgical performances at the Lucky Friday, the cutoff grade is expressed in terms of net smelter return (“NSR”), rather than metal grade.  The cutoff grade at the Lucky Friday ranges from $129 per ton NSR to $149 per ton NSR.  Our estimates of proven and probable reserves are based on the following metals prices:

 

   

December 31,

 
   

2014

   

2013

   

2012

 

Silver (per ounce)

  $ 17.25     $ 20.00     $ 26.50  

Lead (per pound)

  $ 0.95     $ 0.90     $ 0.85  

Zinc (per pound)

  $ 0.90     $ 0.80     $ 0.85  

 

(3)

Reserves are in-place materials that incorporate estimates of the amount of waste that must be mined along with the ore and expected mining recovery. Total mill recoveries are expected to be 95% for silver, 95% for lead and 90% for zinc.

 

(4)

The change in reserves in 2014 from 2013 was because of lower silver prices and depletion of the deposit through production, partially offset by inclusion of definition drilling information from 2014. The changes in reserves in 2013 versus 2012 were due to inclusion of definition drilling information from 2013 and the advance of mine design and planning at the lower and upper limits of the mine, partially offset by depletion of the deposit through production and lower metals price assumptions.

 

(5)

Lucky Friday ore reserve estimates were prepared by Terry DeVoe, Chief Geologist, and Joshua Pritts, Resource Geologist, at the Lucky Friday unit and reviewed by Keith Blair, Senior Resource Geologist at Hecla Limited and Dean McDonald, Senior Vice President of Exploration.

 

(6)

An independent audit by Roscoe Postle Associates Inc. was completed in 2013 for the 2012 reserve model at the Lucky Friday mine.

 

At the end of 2011, MSHA began a special impact inspection which resulted in an order to remove built-up cementitious material from the Silver Shaft, the primary access way from surface. In response, we submitted a plan to MSHA and received approval to remove the built-up cementitious material, and that work commenced in the first quarter of 2012. Once the shaft cleanup was complete down to the 4900 level, work on a haulage way bypassing the area at 5900 level impacted by a rock burst commenced. Work on the Silver Shaft and the haulage way was completed in the first quarter of 2013. Underground access was temporarily limited as this work was being performed, and production was suspended from late 2011 until early 2013 as a result. Limited production commenced in the first quarter of 2013 and the mine has been at full production since September 2013.

 

During 2008, we initiated engineering, procurement and development activities relating to construction of #4 Shaft, which, upon completion, would provide access from the 4900 level down to the 8800 level. The project was temporarily placed on hold in the fourth quarter of 2008 due to then prevailing metals prices.  However, detailed engineering, long lead time procurement, and other early-stage activities for the internal shaft project resumed in 2009.  #4 Shaft sinking activities were temporarily suspended until the rehabilitation work in the Silver Shaft, discussed above, was completed in early 2013. Activities relating to the #4 Shaft project as of December 31, 2014 have included engineering, detailed shaft design, excavation of the hoist room and off shaft development access to shaft facilities, installation of the hoist and head works, placement and receipt of orders for major equipment purchases, advancement of a geotechnical drill hole, 2,828 feet of vertical excavation, and other construction activities.  Upon completion, #4 Shaft should allow us to mine mineralized material below our current workings and provide deeper platforms for exploration.  Construction of #4 Shaft is expected to be completed in 2016, and capital expenditures for the project are anticipated to total approximately $215 million, including approximately $165 million spent on the project through December 31, 2014.  However, there are a number of factors that could affect completion of the project, including a significant decline in metals prices, a reduction in available cash or credit, increased regulatory burden, or a significant increase in operating or capital costs.  An increase in the capital cost could potentially require us to suspend or change the scope of the project or access additional capital though debt financing, the sale of securities, or other external sources.  This additional financing could be costly or unavailable.

 

 

During 2014, Lucky Friday began implementing an Environmental Management System and completed installation of remote stream gauging stations. These stations assist in performing daily monitoring activities in nearby receiving waters as required by our effluent discharge permit. Additionally, we have completed reclamation activities on the 26 acre Pond 4 borrow site and achieved final stabilization of the site prior to onset of winter conditions.  Lastly, Lucky Friday has developed a design for closure of tailings pond 3 which will be submitted to Idaho Department of Water Resources for review in early 2015 with subsequent construction planned. At December 31, 2014, an asset retirement obligation of approximately $1.1 million had been recorded for reclamation and closure costs.

 

The net book value of the Lucky Friday unit property and its associated plant, equipment and mineral interests was approximately $349.8 million as of December 31, 2014. The age of the facilities at Lucky Friday ranges from the 1950s to 2014.

 

At December 31, 2014, there were 307 employees at Lucky Friday. The United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial, and Service Workers International Union is the bargaining agent for the Lucky Friday’s 239 hourly employees. The current labor agreement expires on April 30, 2016. As a result of the requirement to remove built-up cementitious material from the Silver Shaft, which limited underground access and temporarily suspended production, Hecla Limited laid off 121 employees in January 2012, with approximately 25 of those employees accepting temporary positions at other Hecla operations. Lucky Friday completed the recall/rehire of the laid off employees in January 2013.

 

Avista Corporation supplies electrical power to the Lucky Friday unit.

 

The Casa Berardi Unit

 

In 2013, as a result of our acquisition of Aurizon Mines Ltd. ("Aurizon"), we acquired the Casa Berardi mine, located 95 kilometers north of La Sarre in the Abitibi Region of Western Quebec, Canada. The mining site is reached via a 38 kilometers all season gravel road which connects with the provincial and national paved roads grid. The property is limited to the west by the Quebec/Ontario border and covers parts of Casa Berardi, Dieppe, Raymond, D'Estrees, and Puiseaux townships. The project area extends east-west for more than 37 kilometers and reaches 3.5 kilometers in width. The Casa Berardi mine gold deposits are located along a 5 kilometer east-west mineralized corridor.

 

The Casa Berardi mine is located in the northern part of the Abitibi sub-province, a subdivision of the Superior province, within the Canadian Shield. The Casa Berardi area belongs to the Harricana-Turgeon Belt, which is a part of the North Volcanic Zone. The regional geology is characterized by a mixed assemblage of mafic volcanics, flysch-type sedimentary iron formations, and graphitic mudrocks that are limited by a large granodioritic to granitic batholith. Structurally, the area is enclosed in the Casa Berardi Tectonic Zone, a 15 kilometers wide corridor that can be traced over 200 kilometers. A network of east-west to east-southeast and west-northwest ductile high strain zones mainly follows the lithological contacts.

 

Casa Berardi can be classified as an Archean sedimentary-hosted orogenic gold deposit. Mineralization is found in large low-sulphide quartz veins developed against the Casa Berardi fault, and in disseminated sulfides and stockworks lenses associated with strongly carbonate-sericite altered ductile deformation zones obliquely oriented to the Casa Berardi fault, and extending a few hundred metres on both sides of the fault following northwest and northeast orientations. Gold mineralization emplacement was coeval with the fault`s evolution and shows a strong structural control and vertical extension, even if other factors such as the nature of some host rocks and lithological contacts seem to have favored gold deposition.

 

 

The Casa Berardi Fault is defined by a stratigraphic contact between a graphite-rich sediment sequence at the base of the Taïbi domain, a northern continuous intermediary fragmental volcanic unit, and a southern polymictic conglomerate unit. The mineralization system is composed of large, low-sulfide quartz veins and low-grade stockworks and carbonate-mica replacement zones forming in the West Mine and Principale area. On the north side of the Fault, a thick sequence of very homogeneous wacke belonging to the Taïbi Group is affected by an amphibolites metamorphic grade. One kilometer further north is the easterly elongated Recher batholith, which is part of the north-western boundary of the Abitibi greenstone belt.

 

Aurizon acquired the claims, leases and infrastructure comprising the Casa Berardi mine project in 1998 from TVX Gold Inc. Aurizon engaged in exploration programs beginning in 1998, and production began in late 2006.

 

The nearest commercial airport to the Casa Berardi mine is located at Rouyn-Noranda. La Sarre can be reached from Rouyn-Noranda via provincial roads 101 and 111. The 38 kilometer all-season gravel road to the mine site branches off from the paved Route des Conquérants road, which runs north from its intersection with road 393 north of La Sarre and passes through the village of Villebois. The branch is approximately 21 kilometers north of Villebois. A gravel road links the East Mine and the West Mine (which roughly represent the east-west boundaries of the mine), and a number of forestry roads provide access to the rest of the project area, from east and west.

 

Hecla acquired Aurizon on June 1, 2013 for approximately CAD$740.8 million (US$714.5 million), and has operated the Casa Berardi mine since the acquisition. The net book value of the Casa Berardi unit property and its associated plant, equipment and mineral interests was approximately $749.7 million as of December 31, 2014. As of December 31, 2014, we have recorded a $6.2 million asset retirement obligation for reclamation and closure costs. We maintained a letter of credit as financial guarantee for future reclamation and closure work.

 

Hecla’s wholly owned subsidiary, Hecla Quebec Inc., owns a 100% interest in the mineral titles and mining leases that comprise the Casa Berardi mine. The Casa Berardi mine is composed of 296 contiguous designated claims, covering a total area of approximately 36,660 acres, and two mining leases, BM 768 and BM 833, covering areas of 981 acres and 208 acres, respectively. The total property area is 37,849 acres. We believe the claims and mining leases that comprise the Casa Berardi mine are in good standing. Mining lease 768 expires in 2018 and mining lease 833 expires in 2015; however, each lease is subject to renewal for three 10-year terms, which we expect to occur following an administrative procedure with the Quebec government in accordance with the Quebec Mining Act. In 2007, Lake Shore Gold Corp. (“Lake Shore”) was granted an option to earn a 50% joint venture interest in most of the property, excluding the two mining leases (which represent all of the mine’s current production), by incurring exploration expenditures. To date, Lake Shore has not elected to earn in to the joint venture. The part of the property impacted by this agreement, which is all exploration property and not production, includes 227 claims adjacent to the east and west of the Casa Berardi mine, and covers an area of 11,630 hectares.

 

We also hold a non-exclusive lease BNE 25938 for a sand and gravel pit, tailings lease 70218, and an additional 12 acres of land contiguous to mining lease BM 768 for rock waste material storage.

 

Under the Quebec Mining Act, claims are required to be renewed every two years. Statutorily prescribed minimum work commitments apply to all claims and leases. As of December 31, 2014, the claims and leases comprising part of the Casa Berardi mine have excess work credits of CAD$11.9 million.

 

 

The project consists of two shafts; the West Mine shaft reaching a vertical depth of 1096 meters, and the unused East Mine shaft located 4.3 kilometers to the east, and going down to a vertical depth of 379 meters. A system of declines and galleries connecting both shafts provide access and underground services to ore zones. The surface infrastructures include a 3,100 tons per day (over 1,100,000 tons per year) cyanidation processing mill, tailings impoundment areas, and other facilities and infrastructures. Power supply to the site is provided by a 55 kilometer, 120kV power line from the Hydro-Québec transformation station located in the town of Normétal. The map below illustrates the location and access to Casa Berardi:

 

 

 

 

 

 

Prior to Aurizon’s ownership, the Casa Berardi underground mine operated from 1988 to 1997, producing approximately 3.5 million tonnes of ore at an average gold grade of 7.1 grams/tonne from two sites, the West Mine and the East Mine. Aurizon’s operations from 2006 to 2012 produced approximately 4.1 million tonnes of ore at an average gold grade of 7.8 grams/tonne. A total of 1,625,500 ounces of gold were recovered by the previous operators prior to 2013. The mineral deposits cover a distance of more than 5.0 kilometers.

 

Casa Berardi is an underground trackless mine accessed by declines and a shaft, which produces approximately 2,260 tons of ore per day. The mining methods are longhole transversal stoping in 10 metres or more mineralization width, and longitudinal retreat stoping in narrower ore bodies. The mineralized zones put in reserves are of varying thickness, ranging from a few tens of meters to 3 metres, which is the minimum mining width. Most of the hanging walls are sub-vertical (55° to 85°), with typically the graphitic Casa Berardi fault at the footwall.

 

In 2014, we completed a project initiated by Aurizon to deepen the West Mine Shaft and construct the associated shaft infrastructure, including loading pockets, shaft lining, services and steel. The deepened shaft is expected to lower operating costs in future years as the mining horizon deepens and should also eventually provide a platform for deeper exploration.

 

The gold recovery process is based on the CIL (carbon in leach) technology where gold is dissolved in a cyanide solution, and precipitated on activated carbon grains put in suspension. The product is doré bars poured in the mill’s refinery. In 2014, total mill recovery of gold was approximately 90%.

 

Current reserves at the Casa Berardi mine comprise eight zones at the West Mine, spread over a moderate horizontal distance from each other and located at different mine elevations, plus open pit and underground areas at the East Mine. Zone 113, Lower Inter Zone, 118-123 Zones, Principale Zones (open pit and underground) and the East Mine comprise the bulk of the deposit tonnage. The zones are of varying thickness, ranging from over 50 meters to less than three meters, which is the minimum mining width. Most of the hanging walls are sub-vertical (55º to 85º) and exhibit similar wall characteristics with the exception of the Lower Inter Zone, which in a number of places has relatively shallow hanging wall configurations (less than 45º).

 

 

A transverse blasthole open stoping mining method was selected for the Casa Berardi mine to provide the desired production rate. Timely supply of both cemented and unconsolidated backfill plays a crucial role in controlling dilution and maintaining a short stoping cycle. We believe this mining method satisfies all of the geotechnical requirements and constraints and, as a non-entry mining method, has proven to be safe and reliable in similar operations.

 

A very small part of the mineral reserves is planned for longitudinal sequencing, limited to the fringes of the small zones. Longitudinal methods have the advantage of lower waste development requirements; however, there is much less flexibility in sequencing and in access, should ground instabilities occur.

 

The transverse mining method is used in areas with wide mineralization (10 meters wide or more) and good access from nearby development. The blasthole longitudinal mining method will be used in areas with narrow mineralization, or long distances from development infrastructure.

 

The East Mine Crown Pillar ("East Mine") open pit, as currently designed, would be a smaller scale operation using conventional open pit mining methods. The East Mine open pit is expected to run for approximately 3 years of production. The average amount of material to be moved every six month period is anticipated to be approximately 150,000 to 200,000 tons of ore, with variable quantities of waste.

 

The Principale Zone open pit, as currently designed, would be mined using conventional open pit mining methods. The Principale Zone open pit is expected to run for slightly over 3 full years of production. The average amount of material being moved every six month period is expected to approximate 550,000 to 610,000 tons of ore, with variable quantities of waste.

 

The mine and mill complex were designed to process over 1,100,000 tons of ore per year at a rate of 3,100 tons per day. Difficult ground conditions and bottlenecks in stope preparation have limited underground production to levels below the designed capacity. In 2014, the mill processed approximately 827,580 tons, for an average of 2,267 tons per day. The current life of mine plan is based on an average milling rate of 2,500 tons per day until 2017. From 2017 on, the mill capacity is expected to increase to 3,400 tons per day for the remaining mine life. The increase in capacity is expected to allow for milling of mine ore from open pits.

 

Based on current ore reserve estimates, the known life of mine plan totals 12.5 million tons of ore grading 0.13 ounces of gold per ton, with production for approximately 10 years. The projected open pit production is anticipated to be used to support a planned expansion of processing operations to approximately 3,400 tons per day. Such throughput is planned to occur from 2017 to 2024.

 

At Casa Berardi in-stope drilling refines orebody shapes and gold grade distributions within the orebodies for mine planning. Underground definition drilling involves evaluating the down dip or down plunge projections of our existing ore zones, and exploration drilling evaluates similar trends but beyond currently defined mineralization. Exploration drilling also evaluates previously untested targets identified along major structural trends such as the Casa Berardi Fault and a number of structures or zones that may be mineralized. During 2014, a total of five drills operated underground to refine current resources and stope designs in the 113, 117, 118, 123, and 124 Zones.  Surface and underground exploration drilling targeted the up and down plunge mineralization extensions of the 124 and 140 Zones.

 

The proposed 2015 underground in-stope and definition drill programs are expected to appraise the Southwest and Lower Inter vein systems and high grade ore shoots of the 113, 123 and 124 Zones.  Underground exploration drilling is expected to evaluate extensions of the 113, 118, 123 (Golden Pond), 124 and 157 (East Mine) Zones. Surface exploration drilling is expected to concentrate on the deeper, down plunge extensions of the 123, 124 and 157 Zones located close to the East Mine underground infrastructure.

 

 

We expect the mine plan will continually be modified as new mineralization is discovered and upgraded to reserves.

 

 

The employees at Casa Berardi are employees of Hecla Quebec Inc., our wholly-owned subsidiary, and are not represented by a bargaining agent. There were 542 employees at the Casa Berardi unit at December 31, 2014.

 

Information with respect to the Casa Berardi unit’s production, average Cash Cost, After By-product Credits, Per Gold Ounce and proven and probable ore reserves for 2014 and 2013 is set forth in the table below.

 

   

Year Ended
December 31,

    Seven Months Ended December 31,  

Production

 

2014

   

2013

 

Ore milled (tons)

    827,580       387,608  

Gold (ounces)

    128,244       62,532  

Silver (ounces)

    25,014       12,381  
                 

Average Cost, After By-products, Per Gold Ounce Produced(1)

               

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

  $ 826.35     $ 950.79  
                 

Proven Ore Reserves(2,3,4,5)

               

Total tons

    1,605,700       1,106,300  

Gold (ounces per ton)

    0.15       0.17  

Contained gold (ounces)

    237,000       185,100  
                 

Probable Ore Reserves(2,3,4,5)

               

Total tons

    7,806,200       7,932,800  

Gold (ounces per ton)

    0.14       0.15  

Contained gold (ounces)

    1,100,100       1,208,500  
                 

Total Proven and Probable Ore Reserves(2,3,4,5)

               

Total tons

    9,411,900       9,039,100  

Gold (ounces per ton)

    0.14       0.15  

Contained gold (ounces)

    1,337,100       1,393,600  

 

(1)

Includes by-product credits from silver production. Cash Cost, After By-product Credits, Per Gold Ounce represents a measurement that is not in accordance with GAAP that management uses to monitor and evaluate the performance of our mining operations. We believe Cash Cost, After By-product Credits, Per Gold Ounce provides an indicator of economic performance and efficiency at each location and on a consolidated basis, as well as providing a meaningful basis to compare our results to those of other mining companies and other mining operating properties. A reconciliation of this non-GAAP measure to cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, can be found in Item 7. — Management’s Discussion and Analysis of Financial Condition and Results of Operations, under Reconciliation of Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) to Cost of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP).

 

(2)

Proven and probable ore reserves are calculated and reviewed in-house and are subject to periodic audit by others, although audits are not performed on an annual basis. Cutoff grade assumptions vary by ore body and are developed based on reserve metals price assumptions, anticipated mill recoveries and smelter payables and cash operating costs.  Due to multiple ore metals, and complex combinations of ore types, metal ratios and metallurgical performances at Casa Berardi, the cutoff grade is expressed in terms of net smelter return (“NSR”), rather than metal grade.  The cutoff grade at Casa Berardi is assumed to be 0.116 ounces per ton for underground reserves and between 0.009 and 0.023 ounces per ton for open pit reserves.  Our estimates of proven and probable reserves are based on prices of $1,225 and $1,300 per gold ounce for 2014 and 2013, respectively.

 

 

(3)

Reserves are in-place materials that incorporate estimates of the amount of waste that must be mined along with the ore and expected mining recovery. Total mill recoveries for gold are expected to be approximately 90%.

 

(4)

The change in reserves in 2014 compared to 2013 is a result of depletion of the deposit through production and a lower gold price assumption, offset by inclusion of definition drilling information from 2014.

 

(5)

Casa Berardi ore reserve estimates were prepared by Sylvain Picard, Chief Geologist, and Real Parent, Senior Resource Geologist, at the Casa Berardi unit. Casa Berardi resource estimates were reviewed by Keith Blair, Senior Resource Geologist at Hecla Limited and Dean McDonald, Senior Vice President of Exploration.

 

(6)

An independent review of the 2013 Casa Berardi reserve model was performed by Roscoe Postle Associates Inc.

 

Item 3. Legal Proceedings

 

For a discussion of our legal proceedings, see Note 7 of Notes to Consolidated Financial Statements.

 

Item 4. Mine Safety Disclosures

 

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

 

PART II

 

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Shares of our common stock are traded on the New York Stock Exchange, Inc. under the symbol "HL." As of February 16, 2015, there were 5,365 stockholders of record of our common stock. Our common stock quarterly high and low sale prices for the past two years were as follows:

 

     

Fourth

Quarter

   

Third

Quarter

   

Second

Quarter

   

First

Quarter

 

2014

– High

  $ 2.91     $ 3.52     $ 3.48     $ 3.76  
 

– Low

  $ 2.00     $ 2.47     $ 2.71     $ 2.98  

2013

– High

  $ 3.47     $ 3.98     $ 4.10     $ 6.15  
 

– Low

  $ 2.63     $ 2.72     $ 2.65     $ 3.91  

 

 

Quarterly dividends were paid on our Series B Preferred Stock for 2012, 2013 and 2014, and no dividends are in arrears.

 

 

In September 2011 and February 2012, our Board of Directors adopted a common stock dividend policy that has two components: (1) a dividend that links the amount of dividends on our common stock to our average quarterly realized silver price in the preceding quarter, and (2) a minimum annual dividend of $0.01 per share of common stock, in each case, payable quarterly, when declared. See Note 9 of Notes to Consolidated Financial Statements for more information on potential dividend amounts under the first component of the policy at various silver prices. The following table summarizes the common stock dividends declared by our Board of Directors:

 

   

(A)

   

(B)

   

(C)

   

(A+B+C)

           

Declaration date

 

Silver-price-

linked

component

per share

   

Minimum

annual

component

per share

   

Special

dividend

per share

   

Total

dividend

per share

   

Total dividend

amount

(in millions)

 

Month of

payment

November 8, 2011

  $ 0.02     $     $     $ 0.02     $ 5.6  

December 2011

February 17, 2012

  $ 0.01     $ 0.0025     $     $ 0.0125     $ 3.6  

March 2012

May 8, 2012

  $ 0.02     $ 0.0025     $     $ 0.0225     $ 6.4  

June 2012

August 7, 2012

  $     $ 0.0025     $     $ 0.0025     $ 0.7  

September 2012

November 2, 2012

  $ 0.02     $ 0.0025     $     $ 0.0225     $ 6.4  

December 2012

February 25, 2013

  $     $ 0.0025     $ 0.01     $ 0.0125     $ 3.6  

March 2013

May 10, 2013

  $     $ 0.0025     $     $ 0.0025     $ 0.7  

June 2013

August 8, 2013

  $     $ 0.0025     $     $ 0.0025     $ 0.9  

August 2013

November 5, 2013

  $     $ 0.0025     $     $ 0.0025     $ 0.9  

December 2013

February 21, 2014

  $     $ 0.0025     $     $ 0.0025     $ 0.9  

March 2014

May 5, 2014

  $     $ 0.0025     $     $ 0.0025     $ 0.9  

June 2014

July 31, 2014

  $     $ 0.0025     $     $ 0.0025     $ 0.9  

September 2014

November 5, 2014

  $     $ 0.0025     $     $ 0.0025     $ 0.9  

December 2014

February 17, 2015

  $     $ 0.0025     $     $ 0.0025     $ 0.9  

March 2015

 

Because the average realized silver price for each quarter of 2013 and 2014 and the second and fourth quarters of 2012 was below the minimum threshold of $30 according to the policy, no silver-price-linked component was declared or paid. However, on February 25, 2013, our Board of Directors declared a special common stock dividend of $0.01 per share, in addition to the minimum dividend of $0.0025 per share, for an aggregate dividend of $3.6 million. Prior to 2011, no dividends had been declared on our common stock since 1990. We cannot pay dividends on our common stock if we fail to pay dividends on our Series B Preferred Stock. The declaration and payment of common stock dividends, whether pursuant to the policy or in addition thereto, is at the sole discretion of our Board of Directors, and there can be no assurance that we will continue to declare and pay common stock dividends in the future.

 

The following table provides information as of December 31, 2014 regarding our compensation plans under which equity securities are authorized for issuance:

 

   

Number of

Securities To

Be Issued

Upon Exercise of

Outstanding

Options,

Warrants and

Rights

   

Weighted-Average

Exercise Price of

Outstanding Options

   

Number of

Securities

Remaining

Available For

Future Issuance

Under Equity

Compensation

Plans

 

Equity Compensation Plans Approved by Security Holders:

                       

2010 Stock Incentive Plan

       

N/A

      15,414,727  

1995 Stock Incentive Plan

    259,342       5.47        

Stock Plan for Non-employee Directors

       

N/A

      555,167  

Key Employee Deferred Compensation Plan

       

N/A

      676,992  

Total

    259,342       5.47       16,646,886  

 

See Note 8 and Note 9 of Notes to Consolidated Financial Statements for information regarding the above plans.

 

On June 1, 2013, we issued 56,997,790 unregistered shares of common stock to the former holders of common stock of Aurizon Mines Ltd. ("Aurizon") to partially fund the acquisition of Aurizon (see Note 15 of Notes to Consolidated Financial Statements). The shares were not registered under the Securities Act of 1933 pursuant to an exemption from registration under Section 3(a)(10) of such act. We did not issue any unregistered equity securities in 2014 or 2012.

 

 

The following performance graph compares the performance of our common stock during the period beginning December 31, 2009 and ending December 31, 2014 to the S&P 500, the S&P 500 Gold Index, a peer group for the year ending December 31, 2014 ("New Peer Group"), and a peer group for the year ending December 31, 2013. The New Peer Group consists of the following companies: Alamos Gold Inc., Allied Nevada Gold Corp., AuRico Gold Inc., Centerra Gold, Inc., Coeur Mining, Inc., Detour Gold Corporation, Endeavour Silver Corp., First Majestic Silver Corp., IAMGOLD Corporation, New Gold Inc., Pan American Silver Corp., Royal Gold, Inc., Silver Standard Resources Inc., Stillwater Mining Company, Tahoe Resources Inc., and Thompson Creek Metals Company Inc. The Old Peer Group consists of the following companies: Alamos Gold Inc., Allied Nevada Gold Corp., AuRico Gold Inc., Centerra Gold, Inc., Coeur Mining, Inc., Eldorado Gold Corp., Endeavour Silver Corp., First Majestic Silver Corp., Golden Star Resources Ltd., IAMGOLD Corporation, New Gold Inc., Osisko Mining Corp., Pan American Silver Corp., Silver Standard Resources Inc., and Stillwater Mining Company.  The change in our 2014 peer group compared to the 2013 peer group was to add Detour Gold Corporation, Royal Gold, Inc., Tahoe Resources Inc., and Thompson Creek Metals Company Inc., and to remove Eldorado Gold Corp., Golden Star Resources Ltd., and Osiska Mining Corp., so that that group includes companies that we have determined to be within an acceptable revenue range. The graph assumes a $100 investment in our common stock and in each of the indexes and peer groups since the beginning of the period, and a reinvestment of dividends paid on such investments on a quarterly basis throughout the period.

 

 

 

Date

 

Hecla Mining

   

S&P 500

   

S&P 500

Gold Index

   

2013 Old

Peer Group

   

2014 New Peer Group

 

December 2009

  $ 100.00     $ 100.00     $ 100.00     $ 100.00     $ 100.00  

December 2010

  $ 182.20     $ 115.06     $ 130.97     $ 143.25     $ 150.28  

December 2011

  $ 84.89     $ 117.49     $ 130.07     $ 113.87     $ 130.32  

December 2012

  $ 95.76     $ 136.30     $ 103.52     $ 108.18     $ 123.41  

December 2013

  $ 50.86     $ 180.44     $ 53.30     $ 58.41     $ 60.47  

December 2014

  $ 46.22     $ 205.14     $ 44.16     $ 51.28     $ 55.57  

 

The stock performance information above is “furnished” and shall not be deemed to be “soliciting material” or subject to Rule 14A of the Exchange Act, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, and shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date of this report and irrespective of any general incorporation by reference language in any such filing, except to the extent that it specifically incorporates the information by reference.

 

On May 8, 2012, we announced that our Board of Directors approved a stock repurchase program.  Under the program, we are authorized to repurchase up to 20 million shares of our outstanding common stock from time to time in open market or privately negotiated transactions. See Note 9 of Notes to Consolidated Financial Statements for more information. We made no purchases of our outstanding common stock during the quarter ended December 31, 2014.

 

 

Item 6. Selected Financial Data

 

The following table (in thousands, except per share amounts, common shares issued, stockholders of record, and employees) sets forth selected historical consolidated financial data as of and for each of the years ended December 31, 2010 through 2014, and is derived from our audited financial statements. The data set forth below should be read in conjunction with, and is qualified in its entirety by, our Consolidated Financial Statements and the Notes thereto.

 

   

2014

   

2013 (8)

   

2012 (8)

   

2011

   

2010

 

Sales of products

  $ 500,781     $ 382,589     $ 321,143     $ 477,634     $ 418,813  

Net income (loss)

  $ 17,824     $ (25,130

)

  $ 14,954     $ 151,164     $ 48,983  

Preferred stock dividends (1,2)

  $ (552

)

  $ (552

)

  $ (552

)

  $ (552

)

  $ (13,633

)

Income (loss) applicable to common stockholders

  $ 17,272     $ (25,682

)

  $ 14,402     $ 150,612     $ 35,350  

Basic income (loss) per common share

  $ 0.05     $ (0.08

)

  $ 0.05     $ 0.54     $ 0.14  

Diluted income (loss) per common share

  $ 0.05     $ (0.08

)

  $ 0.05     $ 0.51     $ 0.13  

EBITDA (3)

  $ 151,532     $ 69,130     $ 76,373     $ 283,365     $ (12,103

)

Total assets

  $ 2,262,064     $ 2,232,119     $ 1,378,290     $ 1,396,090     $ 1,382,493  

Accrued reclamation & closure costs (4)

  $ 57,250     $ 105,191     $ 113,215     $ 153,811     $ 318,797  

Non-current portion of debt and capital leases(5)

  $ 512,129     $ 505,058     $ 11,935     $ 6,265     $ 3,792  

Cash dividends paid per common share(6)

  $ 0.01     $ 0.02     $ 0.06     $ 0.02     $  

Common shares issued and outstanding

    367,376,863       342,663,381       285,209,848       285,289,924       258,485,666  

Stockholders of record

    5,571       6,435       6,630       6,943       7,388  

Employees(7)

    1,354       1,312       735       735       686  

______________

 

 

(1)

We declared and paid all quarterly dividends on our Series B preferred shares for 2010, 2011, 2012, 2013 and 2014 totaling $0.6 million for each of those years.

 

 

(2)

We declared and paid all quarterly dividends on our 6.5% Mandatory Convertible Preferred Stock totaling $13.1 million for 2010.  Dividends declared for the first and second quarters of 2010 were paid in shares of our common stock and dividends for the third and fourth quarters of 2010 were paid in cash.  The cash dividend declared for the fourth quarter of 2010, which was paid in January 2011, represented the last dividend paid on the 6.5% Mandatory Convertible Preferred Stock, which automatically converted to shares of our common stock on January 1, 2011.

 

 

(3)

Earnings before interest, taxes, depreciation, and amortization ("EBITDA") is a measurement that is not in accordance with GAAP. EBITDA is used by management, and we believe is useful to investors, for evaluating our operational performance. A reconciliation of this non-GAAP measure to net income (loss), the most comparable GAAP measure, can be found in Item 7. — Management's Discussion and Analysis of Financial Condition and Results of Operations, under Reconciliation of Earnings Before Interest, Taxes, Depreciation, and Amortization (non-GAAP) to Net Income (Loss) (GAAP).

 

 

(4)

In the fourth quarter of 2010, we recorded an accrual of $193.2 million to reflect our liability for environmental obligations in Idaho's Coeur d'Alene Basin pursuant to negotiations with the plaintiffs in the Coeur d'Alene Basin environmental litigation and the State of Idaho on the financial terms of settlement of the litigation and related claims. The settlement was finalized in September 2011 and the financial obligations were completed in 2014.

 

 

(5)

On April 12, 2013, we completed an offering of $500 million in aggregate principal amount of our Senior Notes due May 1, 2021 in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. In 2014, an additional $6.5 million aggregate principal amount of the Notes were issued to our pension plan. More information can be found in Note 6 of Notes to Consolidated Financial Statements.

 

 

(6)

See Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities for a summary of the common stock dividends declared by our Board of Directors for the years presented.

 

 

(7)

The increase in the number of employees in 2013 was due largely to the acquisition of Aurizon Mines Ltd. in June 2013. See Note 15 of Notes to Consolidated Financial Statements for more information.

 

 

(8)

As a result of an order from MSHA to remove built-up cementitious material from the Silver Shaft, production was temporarily suspended at the Lucky Friday unit during all of 2012. Limited production resumed in early 2013 and has been at historical levels since September 2013. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, The Lucky Friday Segment for more information.

 

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

Established in 1891 in northern Idaho’s Silver Valley, we believe we are the oldest still-operating precious metals mining company in the United States and the largest silver producer in the U.S.  Our corporate offices are in Coeur d’Alene, Idaho and Vancouver, British Columbia. Our production profile includes:

 

 

silver, gold, lead, and zinc contained in concentrates shipped to various smelters or sold to brokers; and

 

 

doré containing gold and silver, which is further refined before sale of the metals to precious metal traders.

 

Our operating properties comprise our three business segments for financial reporting purposes:   the Greens Creek operating unit on Admiralty Island in Alaska, the Lucky Friday operating unit in Idaho, and the Casa Berardi operating unit in Quebec, Canada. Since our operating mines are located in the U.S. and Canada, we believe they have low political risk, and less economic risk than mines located in other parts of the world. Our exploration interests are located in the United States, Canada, and Mexico, jurisdictions with low or relatively moderate political and economic risk, and are located in historically successful mining districts.

 

Our operating and strategic framework is based on expanding our production and locating and developing new resource potential. In 2014, we

 

 

Reported record sales of products of $500.8 million, which was a 31% increase from 2013.

 

 

Achieved higher silver and gold production by 24% and 56%, respectively, compared to 2013. The higher silver production is due to realizing a full year of production at historical rates at Lucky Friday, and improved throughput and ore grades at Greens Creek. The increase in gold production is primarily the result of 2014 being our first full year of ownership of the Casa Berardi mine, which was obtained through the acquisition of Aurizon Mines Ltd. ("Aurizon") in June 2013.