Note

13.

Acquisition of Klondex

July 20, 2018,

we acquired all of the issued and outstanding common shares of Klondex Mines Ltd. ("Klondex") for consideration valued at

$2.27

per Klondex share (the "Arrangement"). The acquisition resulted in our

100%

ownership of

three

land packages in northern Nevada totaling approximately

110

square miles and containing operating or previously-operating mines with a history of high-grade gold production, along with various other gold properties. We believe the acquisition has the potential to increase our annual gold production. Under the terms of the Arrangement, each holder of Klondex common shares had the option to receive either (i)

$2.47

in cash per Klondex share (the “Cash Alternative”), (ii)

0.6272

of a Hecla share per Klondex share (the “Share Alternative”), or (iii)

US$0.8411

in cash and

0.4136

of a Hecla share per Klondex share (the “Combined Alternative”), subject in the case of the Cash Alternative and the Share Alternative to pro-ration based on a maximum cash consideration of

$153.2

million and a maximum number of Hecla shares issued of

75,276,176.

Klondex shareholders also received shares of a newly formed company which holds the Canadian assets previously owned by Klondex (Havilah Mining Corporation ("Havilah")). Klondex had

180,499,319

issued and outstanding common shares prior to consummation of the Arrangement. An additional

1,549,626

Klondex common shares were issued immediately prior to consummation of the Arrangement related to conversion of in-the-money Klondex options and certain outstanding restricted share units, resulting in a total of

182,048,945

issued and outstanding Klondex common shares at the time of consummation of the Arrangement. In connection with the Arrangement, we also issued an aggregate of

4,136,000

warrants to purchase

one

share of our common stock (“Hecla Warrants”) to holders of warrants to purchase Klondex common shares. Of the Hecla Warrants,

2,068,000

have an exercise price of

$8.02

and expire in

April 2032,

and

2,068,000

have an exercise price of

$1.57

and expire in

February 2029.

In addition, we settled share-based payment awards held by Klondex directors and employees for cash of

$2.0

million. Consideration for the Arrangement was cash of

$161.7

million,

75,276,176

shares of our common stock valued at

$242.4

million, and issuance of the Hecla Warrants valued at

$9.8

million, for total consideration of

$413.9

million. The Hecla Warrants were valued using the Black-Scholes model and based on the exercise price and term of the warrants, the price of our common stock at the time of issuance of the warrants, and assumptions for the discount rate and volatility and dividend rate of our common stock. The cash consideration includes

$7.0

million for our subscription for common shares of Havilah and

$1.5

million for settlement of certain equity compensation instruments.

The following summarizes the preliminary allocation of purchase price to the fair value of assets acquired and liabilities assumed as of the date of acquisition (in thousands):

Consideration:
Cash payments	$	161,704
Hecla stock issued (75,276,176 shares at $3.22 per share)		242,389
Hecla warrants issued		9,830
Total consideration	$	413,923

Fair value of net assets acquired:
Assets:
Cash	$	12,874
Accounts receivable		3,453
Inventory - supplies		6,564
Inventory - finished goods, in-process material and stockpiled ore		10,088
Other current assets		2,583
Properties, plants, equipment and mineral interests		512,807
Non-current investments		1,596
Non-current restricted cash and investments		9,504
Total assets		559,469
Liabilities:
Accounts payable and accrued liabilities		17,799
Accrued payroll and related benefits		10,352
Accrued taxes		421
Lease liability		2,080
Debt		35,086
Asset retirement obligation		19,571
Deferred tax liability		60,237
Total liabilities		145,546
Net assets	$	413,923

The allocation of purchase price above is preliminary, as the valuation of certain components of properties, plants, equipment and mineral interests, along with the related deferred tax balances, are under review and subject to change. In the

first

quarter of

2019,

we adjusted the previously-reported preliminary allocation of purchase price by decreasing (i) Inventory - finished goods, in-process material and stockpiled ore, (ii) Properties, plants, equipment and mineral interests, and (iii) Non-current deferred tax liability by

$0.2

million,

$8.7

million, and

$9.1

million, respectively, and increasing Accounts payable and accrued liabilities by

$0.5

million. We are currently undertaking a review of spending at the Nevada operations which

may

result in the following changes at the Fire Creek mine: a reduction in capital spending; ceasing current production and only developing to spirals

9,10

and

11;

or a temporary cessation of all mine operations at Fire Creek. As a result, the values of certain components of properties, plants, equipment and mineral interests could be adjusted in the

second

quarter of

2019

when we expect to finalize the allocation of the Klondex purchase price. The outcome of the review

may

constitute a triggering event requiring assessment of the carrying value of our long-lived assets at Fire Creek with the potential to impact near-term estimated cash flows. The mineral interests at Fire Creek have a preliminary carrying value of approximately

$220

million, of which approximately

$46

million is depletable. We

may

recognize an impairment, which could be material, if the carrying value of the assets exceeds the estimated future undiscounted cash flows expected to result from their use and eventual disposition.