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Note 5 - Commitments, Contingencies and Obligations
 9 Months Ended
Sep. 30, 2018
Notes to Financial Statements  
Commitments and Contingencies Disclosure [Text Block]
Note
5.
    Commitments, Contingencies and Obligations
 
General
 
We follow GAAP guidance in determining our accruals and disclosures with respect to loss contingencies, and evaluate such accruals and contingencies for each reporting period. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable that a liability could be incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is
not
probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred.
 
Rio Grande Silver Guaranty
 
Our wholly-owned subsidiary, Rio Grande Silver Inc. (“Rio”), is party to a joint venture with Emerald Mining & Leasing, LLC (“EML”) and certain other parties with respect to a land package in the Creede Mining District of Colorado that is adjacent to other land held by Rio. Rio holds a
70%
interest in the joint venture. In connection with the joint venture, we are required to guarantee certain environmental remediation-related obligations of EML to a
third
party up to a maximum liability to us of
$2.5
million. As of
September 
30,
2018,
we have
not
been required to make any payments pursuant to the guaranty. We
may
be required to make payments in the future, limited to the
$2.5
million maximum liability, should EML fail to meet its obligations to the
third
party. However, to the extent that any payments are made by us under the guaranty, EML, in addition to other parties, has jointly and severally agreed to reimburse and indemnify us for any such payments. We have
not
recorded a liability relating to the guaranty as of
September 
30,
2018.
 
Lucky Friday Water Permit Matters
 
In
December 2013,
the EPA issued to Hecla Limited a request for information under Section
308
of the Clean Water Act directing Hecla Limited to undertake a comprehensive groundwater investigation of Lucky Friday’s tailings pond
no.
3
to evaluate whether the pond is causing the discharge of pollutants via seepage to groundwater that is discharging to surface water. We completed the investigation mandated by the EPA and submitted a draft report to the agency in
December 2015.
We are waiting for the EPA’s response and we cannot predict what further action, if any, the agency
may
take.
 
Hecla Limited strives to maintain its water discharges at the Lucky Friday unit in full compliance with its permits and applicable laws; however, we cannot provide assurance that in the future it will be able to fully comply with the permit limits and other regulatory requirements regarding water management.
 
Johnny M Mine Area near San Mateo, McKinley County and San Mateo Creek Basin, New Mexico
 
In
May 2011,
the EPA made a formal request to Hecla Mining Company for information regarding the Johnny M Mine Area near San Mateo, McKinley County, New Mexico, and asserted that Hecla Mining Company
may
be responsible under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") for environmental remediation and past costs the EPA has incurred at the site. Mining at the Johnny M was conducted for a limited period of time by a predecessor of our subsidiary, Hecla Limited. In
August 2012,
Hecla Limited and the EPA entered into a Settlement Agreement and Administrative Order on Consent for Removal Action (“Consent Order”), pursuant to which Hecla Limited agreed to pay (i)
$1.1
million to the EPA for its past response costs at the site and (ii) any future response costs at the site under the Consent Order, in exchange for a covenant
not
to sue by the EPA. Hecla Limited paid the
$1.1
million to the EPA for its past response costs and in
December 2014,
submitted to EPA the Engineering Evaluation and Cost Analysis (“EE/CA”) for the site. The EE/CA evaluates
three
alternative response actions:
1
)
no
action,
2
) off-site disposal, and
3
) on-site disposal. The range in estimated costs of these alternatives is
$0
to
$221
million. In the EE/CA, Hecla Limited recommended that EPA approve on-site disposal, which is currently estimated to cost
$5.6
million, on the basis that it is the most appropriate response action under CERCLA. In
June 2015,
the EPA approved the EE/CA, with a few minor conditions. The EPA still needs to publish the EE/CA for public notice and comment, and the agency will
not
make a final decision on the appropriate response action until the public comment process is complete. It is anticipated that Hecla Limited will implement the response action selected by the EPA pursuant to an amendment to the Consent Order or a new order. Based on the foregoing, we believe it is probable that Hecla Limited will incur a liability for remediation at the site. In the
fourth
quarter of
2014,
we accrued
$5.6
million, which continues to be our best estimate of that liability as of the date of this report. There can be
no
assurance that Hecla Limited’s liability will
not
be more than
$5.6
million, or that its ultimate liability will
not
have a material adverse effect on Hecla Limited’s or our results of operations or financial position.
 
The Johnny M Mine is in an area known as the San Mateo Creek Basin (“SMCB”), which is an approximately
321
square mile area in New Mexico that contains numerous legacy uranium mines and mills. The EPA is considering listing the entire SMCB on CERCLA’s National Priorities List in order to address perceived groundwater issues within the SMCB. The EE/CA discussed above relates primarily to contaminated rock and soil,
not
groundwater. In the event that the SMCB is listed as a Superfund site, or for other reasons, it is possible that Hecla Limited’s liability at the Johnny M Site, as well as any other sites within the SMCB at which predecessor companies of Hecla Limited
may
have been involved, will be greater than our current accrual of
$5.6
million due to the increased scope of required remediation.
 
In
July 2018,
the EPA informed Hecla Limited that it and several other potentially responsible parties ("PRPs")
may
be liable for cleanup of the site or for costs incurred by the EPA in cleaning up the site. The EPA stated it has incurred approximately
$9.6
million in response costs to date. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning the site, including the relative contributions, if any, of contamination by the various PRPs.
 
Carpenter Snow Creek and Barker-Hughesville Sites in Montana
 
In
July 2010,
the EPA made a formal request to Hecla Mining Company for information regarding the Carpenter Snow Creek Superfund site located in Cascade County, Montana. The Carpenter Snow Creek site is located in a historic mining district, and in the early
1980s
Hecla Limited leased
6
mining claims and performed limited exploration activities at the site. Hecla Limited terminated the mining lease in
1988.
 
In
June 2011,
the EPA informed Hecla Limited that it believes Hecla Limited, among several other viable companies,
may
be liable for cleanup of the site or for costs incurred by the EPA in cleaning up the site. The EPA stated in the letter that it has incurred approximately
$4.5
million in response costs and estimated that total remediation costs
may
exceed
$100
million. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning the site.
 
In
February 2017,
the EPA made a formal request to Hecla Mining Company for information regarding the Barker-Hughesville Mining District Superfund site located in Judith Basin and Cascade Counties, Montana. Hecla Limited submitted a response in
April 2017.
The Barker-Hughesville site is located in a historic mining district, and between approximately
June
and
December 1983,
Hecla Limited was party to an agreement with another mining company under which limited exploration activities occurred at or near the site.
 
In
August 2018,
the EPA informed Hecla Limited that it and several other PRPs
may
be liable for cleanup of the site or for costs incurred by the EPA in cleaning up the site. The EPA did
not
include an amount of its alleged response costs to date. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning past or anticipated future costs at the site and the relative contributions, if any, of contamination by the various PRPs.
 
Litigation Related to Klondex Acquisition
 
Following the announcement of our proposed acquisition of Klondex, Klondex and members of the Klondex board of directors were named as defendants in
five
putative stockholder class actions, brought by purported stockholders of Klondex, challenging the proposed merger. The lawsuits were all filed in the United States District Court for the District of Nevada, but only
three
cases remain, and they are captioned: Gunderson v. Klondex Mines Ltd., et al.,
No.
3:18
-cv-
00256
(D. Nev.
May 31, 2018);
Nelson Baker v. Klondex Mines Ltd., et al.,
No.
3:18
-cv-
00288
(D. Nev.
June 15, 2018);
and Lawson v. Klondex Mines Ltd., et al.,
No.
3:18
-cv-
00284
(D. Nev.
June 15, 2018).
The Gunderson complaint also named Hecla Mining Company and our subsidiary now known as Klondex Mines Unlimited Liability Company (“Merger Sub”) as defendants. The other
two
lawsuits were subsequently dismissed.
 
The plaintiffs generally claim that Klondex issued a proxy statement that included misstatements or omissions, in violation of sections
14
(a) and
20
(a) of the Securities Exchange Act of
1934,
as amended. The Gunderson complaint also asserts a claim that the individual members of the Klondex board of directors breached their fiduciary duties of care, loyalty and good faith by authorizing the merger with Hecla for what the plaintiff asserts is inadequate consideration, an inadequate process, and with inadequate disclosures. The plaintiffs seek, among other things, to enjoin the merger, rescind the transaction or obtain rescissory damages if the merger is consummated, and recover attorneys’ fees and costs.
 
On
September 21, 2018,
Plaintiffs Baker and Lawson each filed motions to consolidate the remaining cases and be appointed lead plaintiff.
 
Although it is
not
possible to predict the outcome of litigation matters with certainty, each of Klondex, its directors, Hecla and Merger Sub believe that each of the lawsuits are without merit, and the parties intend to vigorously defend against all claims asserted.
 
In addition, on
September 11, 2018,
a lawsuit was filed in the Ontario (Canada) Superior Court of Justice by Waterton Nevada Splitter LLC against Hecla Mining Company, our subsidiary Klondex Mines Unlimited Liability Company and Havilah Mining Corporation, an entity that was formed to own the Canadian assets of Klondex that we did
not
acquire as part of the Klondex acquisition in
July 2018,
and of which we own approximately
13%.
The lawsuit alleges that Hecla and Havilah are in breach of contract in connection with the issuance to Waterton of warrants to purchase Hecla common stock and Havilah common shares to replace warrants to purchase Klondex common shares that Waterton owned prior to the
July 2018
acquisition. The lawsuit claims Hecla and Havilah issued warrants to Waterton valued at
$3.7
million but that Waterton was entitled to warrants valued at
$8.9
million. We believe the lawsuit is without merit and will vigorously defend it.
 
Debt
 
On
April 12, 2013,
we completed an offering of
$500
million aggregate principal amount of
6.875%
Senior Notes due
2021
("Senior Notes"). The net proceeds from the offering of the Senior Notes were used to partially fund the acquisition of Aurizon Mines Ltd. ("Aurizon") and for general corporate purposes, including expenses related to the Aurizon acquisition. Through the acquisition of Aurizon, we acquired our Casa Berardi mine and other interests in Quebec, Canada. In
2014,
we completed additional issuances of our Senior Notes in the aggregate principal amount of
$6.5
million, which were contributed to
one
of our pension plans to satisfy the funding requirement for
2014.
Interest on the Senior Notes is payable on
May 1
and
November 1
of each year, commencing
November 1, 2013.
 
On
March 5, 2018,
we entered into a note purchase agreement pursuant to which we issued
CAD$40
million (approximately
USD$30.8
million at the time of the transaction) in aggregate principal amount of our Series
2018
-A Senior Notes due
May 1, 2021 (
the “Notes”) to Ressources Québec, a subsidiary of Investissment Québec, a financing arm of the Québec government. The Notes were issued at a discount of
0.58%,
and bear interest at a rate of
4.68%
per year, payable on
May 1
and
November 1
of each year, commencing
May 1, 2018.
The Notes are senior and unsecured and are pari passu in all material respects with the Senior Notes, including with respect to guarantees of the Notes by certain of our subsidiaries. The net proceeds from the Notes are required to be used for development and expansion of our Casa Berardi mine.
 
See
Note
10
for more information.
 
Other Commitments
 
Our contractual obligations as of
September 
30,
2018
included approximately
$1.6
million for various costs. In addition, our open purchase orders at
September 
30,
2018
included approximately
$0.4
million,
$2.0
million,
$14.2
million and
$5.3
million for various capital and non-capital items at the Lucky Friday, Casa Berardi, Greens Creek and Nevada Operations units, respectively. We also have total commitments of approximately
$15.7
million relating to scheduled payments on capital leases, including interest, primarily for equipment at our Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations units (see
Note
10
for more information). As part of our ongoing business and operations, we are required to provide surety bonds, bank letters of credit, and restricted deposits for various purposes, including financial support for environmental reclamation obligations and workers compensation programs. As of
September 
30,
2018,
we had surety bonds totaling
$181.6
million in place as financial support for future reclamation and closure costs, self-insurance, and employee benefit plans. The obligations associated with these instruments are generally related to performance requirements that we address through ongoing operations. As the requirements are met, the beneficiary of the associated instruments cancels or returns the instrument to the issuing entity. Certain of these instruments are associated with operating sites with long-lived assets and will remain outstanding until closure of the sites. We believe we are in compliance with all applicable bonding requirements and will be able to satisfy future bonding requirements as they arise.
 
Other Contingencies
 
We also have certain other contingencies resulting from litigation, claims, EPA investigations, and other commitments and are subject to a variety of environmental and safety laws and regulations incident to the ordinary course of business. We currently have
no
basis to conclude that any or all of such contingencies will materially affect our financial position, results of operations or cash flows. However, in the future, there
may
be changes to these contingencies, or additional contingencies
may
occur, any of which might result in an accrual or a change in current accruals recorded by us, and there can be
no
assurance that their ultimate disposition will
not
have a material adverse effect on our financial position, results of operations or cash flows.