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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

 

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

For the quarterly period ended March 31, 2021

 

or

 

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

For the transition period from to .

 

Commission file number 

 

1-8491

 

 

HECLA MINING COMPANY

(Exact name of registrant as specified in its Charter)

 

 

Delaware

 

77-0664171

 
 

State or Other Jurisdiction of

 

I.R.S. Employer

 
 

Incorporation or Organization

 

Identification No.

 
     
 

6500 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

Trading Symbol(s)

Name of each exchange

on which registered

Common Stock, par value $0.25 per share

HL

New York Stock Exchange

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

HL-PB

New York Stock Exchange

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ .    No ☐ .

 

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

Yes ☒ .    No ☐.

 

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

Large accelerated filer   ☒.Accelerated filer  ☐.
Non-accelerated filer  ☐.Smaller reporting company .
Emerging growth company . 

 

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

 

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

Yes .    No ☒.

 

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

 

Class

 

Shares Outstanding May 4, 2021

Common stock, par value

$0.25 per share

 

535,551,426

 

 

 

 

 

Hecla Mining Company and Subsidiaries

 

Form 10-Q

 

For the Quarter Ended March 31, 2021

 

INDEX*

 

 

Page

PART I - Financial Information 

 
   

Item 1 – Condensed Consolidated Financial Statements (Unaudited)

3
   

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) - Three Months Ended March 31, 2021 and 2020

3

   

Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2021 and 2020

4

   

Condensed Consolidated Balance Sheets - March 31, 2021 and December 31, 2020

5

   

Condensed Consolidated Statements of Changes in Stockholders' Equity - Three Months Ended March 31, 2021 and 2020

6

   

Notes to Condensed Consolidated Financial Statements (Unaudited)

7

   

Forward-Looking Statements

21

   

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

22

   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

55

   

Item 4. Controls and Procedures

56

   

PART II - Other Information

 
   

Item 1 – Legal Proceedings

56

   

Item 1A – Risk Factors

56

   

Item 2 – Unregistered Sales of Securities and Use of Proceeds

56

   

Item 4 – Mine Safety Disclosures

56

   

Item 6 – Exhibits

57

   

Signatures

58

 

 

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

 

2

 

 

Part I - Financial Information

 

Item 1. Financial Statements

 

Hecla Mining Company and Subsidiaries

 

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

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

 

   

Three Months Ended

 
   

March 31, 2021

   

March 31, 2020

 

Sales of products

  $ 210,852     $ 136,925  

Cost of sales and other direct production costs

    96,709       85,887  

Depreciation, depletion and amortization

    49,331       39,666  

Total cost of sales

    146,040       125,553  

Gross profit

    64,812       11,372  

Other operating expenses:

               

General and administrative

    8,007       8,939  

Exploration

    5,951       2,530  

Pre-development

    739       535  

Other operating expense

    3,639       920  

Ramp-up and suspension costs

    4,318       12,996  

Provision for closed operations and environmental matters

    3,709       516  

Total other operating expense

    26,363       26,436  

Income (loss) from operations

    38,449       (15,064 )

Other income (expense):

               

Gain on exchange of investments

    1,158        

Unrealized loss on investments

    (3,506 )     (978 )

Gain on derivative contracts

    473       7,893  

Net foreign exchange (loss) gain

    (2,064 )     6,636  

Other non-operating expense

    (161 )     (423 )

Interest expense

    (10,744 )     (16,311 )

Total other expense

    (14,844 )     (3,183 )

Income (loss) before income and mining taxes

    23,605       (18,247 )

Income and mining tax (provision) benefit

    (4,634 )     1,062  

Net income (loss)

    18,971       (17,185 )

Preferred stock dividends

    (138 )     (138 )

Income (loss) applicable to common stockholders

  $ 18,833     $ (17,323 )

Comprehensive income (loss):

               

Net income (loss)

  $ 18,971     $ (17,185 )

Change in fair value of derivative contracts designated as hedge transactions

    1,832       (19,335 )

Comprehensive income (loss)

  $ 20,803     $ (36,520 )

Basic income (loss) per common share after preferred dividends

  $ 0.04     $ (0.03 )

Diluted income (loss) per common share after preferred dividends

  $ 0.03     $ (0.03 )

Weighted average number of common shares outstanding - basic

    534,101       523,215  

Weighted average number of common shares outstanding - diluted

    540,527       523,215  

Cash dividends per common share

  $ 0.00875     $ 0.0025  

 

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

 

3

 

 

Hecla Mining Company and Subsidiaries

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

   

Three Months Ended

 
   

March 31, 2021

   

March 31, 2020

 

Operating activities:

               

Net income (loss)

  $ 18,971     $ (17,185 )

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

               

Depreciation, depletion and amortization

    49,546       41,630  

Unrealized loss on investments

    3,506       978  

Gain on exchange of investments

    (1,158 )      

Provision for reclamation and closure costs

    4,529       1,548  

Stock compensation

    500       1,219  

Deferred taxes

    32       (3,252 )

Amortization of loan origination fees and loss on extinguishment of debt

    539       2,140  

Gain on derivative contracts

    (10,962 )     (10,437 )

Foreign exchange loss (gain)

    1,755       (8,066 )

Other non-cash items, net

    8       (104 )

Change in assets and liabilities:

               

Accounts receivable

    (2,664 )     9,955  

Inventories

    2,120       (6,602 )

Other current and non-current assets

    1,528       (2,642 )

Accounts payable and accrued liabilities

    (24,545 )     (11,879 )

Accrued payroll and related benefits

    (7,995 )     9,495  

Accrued taxes

    2,031       1,332  

Accrued reclamation and closure costs and other non-current liabilities

    195       (3,203 )

Cash provided by operating activities

    37,936       4,927  

Investing activities:

               

Additions to properties, plants, equipment and mineral interests

    (21,413 )     (19,870 )

Proceeds from disposition of properties, plants and equipment

    19       154  

Net cash used in investing activities

    (21,394 )     (19,716 )

Financing activities:

               

Dividends paid to common stockholders

    (4,688 )     (1,304 )

Dividends paid to preferred stockholders

    (138 )     (138 )

Credit facility fees paid

    (82 )     (458 )

Borrowings on debt

          679,500  

Repayments of debt

          (506,500 )

Repayments of finance leases

    (1,881 )     (1,284 )

Net cash (used in) provided by financing activities

    (6,789 )     169,816  

Effect of exchange rates on cash

    167       (1,736 )

Net increase in cash, cash equivalents and restricted cash and cash equivalents

    9,920       153,291  

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

    130,883       63,477  

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

  $ 140,803     $ 216,768  

Supplemental disclosure of cash flow information:

               

Cash paid for interest

  $ 18,406     $ 13,984  

Significant non-cash investing and financing activities:

               

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

  $ 3,120     $  

Accounts receivable for proceeds on exchange of investments

  $ 1,832     $  

 

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

 

4

 

 

Hecla Mining Company and Subsidiaries

 

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except shares)

 

  

March 31,
2021

  

December 31, 2020

 

ASSETS

 

Current assets:

        

Cash and cash equivalents

 $139,750  $129,830 

Accounts receivable:

        

Trade

  35,274   27,864 

Other, net

  8,475   11,329 

Inventories:

        

Concentrates, doré, and stockpiled ore

  56,917   57,936 

Materials and supplies

  37,335   38,608 

Derivatives assets

  7,195   3,470 

Other current assets

  12,971   15,644 

Total current assets

  297,917   284,681 

Investments

  11,717   15,148 

Restricted cash and investments

  1,053   1,053 

Properties, plants, equipment and mineral interests, net

  2,320,547   2,345,219 

Operating lease right-of-use assets

  9,775   10,628 

Deferred taxes

  3,886   2,912 

Derivatives assets

  6,346   4,558 

Other non-current assets

  3,836   3,525 

Total assets

 $2,655,077  $2,667,724 

LIABILITIES

 

Current liabilities:

        

Accounts payable and accrued liabilities

 $53,130  $68,516 

Accrued payroll and related benefits

  22,800   31,807 

Accrued taxes

  7,854   8,349 

Finance leases

  6,706   6,491 

Operating leases

  2,832   3,008 

Accrued reclamation and closure costs

  6,592   5,582 

Accrued interest

  5,175   14,157 

Derivatives liabilities

  3,906   11,737 

Other current liabilities

  123   138 

Total current liabilities

  109,118   149,785 

Finance leases

  10,304   9,274 

Operating leases

  6,954   7,634 

Accrued reclamation and closure costs

  113,671   110,466 

Long-term debt

  507,992   507,242 

Deferred tax liability

  149,220   144,330 

Pension liability

  28,797   44,144 

Other non-current liabilities

  4,146   4,364 

Total liabilities

  930,202   977,239 

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

          

STOCKHOLDERS’ EQUITY

 

Preferred stock, 5,000,000 shares authorized:

        

Series B preferred stock, $0.25 par value, 157,816 shares issued and outstanding, liquidation preference — $7,891

  39   39 

Common stock, $0.25 par value, 750,000,000 authorized shares; issued March 31, 2021 — 542,154,997 shares and December 31, 2020 — 538,487,415 shares

  135,546   134,629 

Capital surplus

  2,021,072   2,003,576 

Accumulated deficit

  (377,229)  (391,374)

Accumulated other comprehensive loss

  (31,057)  (32,889)

Less treasury stock, at cost; March 31, 2021 and December 31, 2020 - 6,821,044 shares issued and held in treasury

  (23,496)  (23,496)

Total stockholders’ equity

  1,724,875   1,690,485 

Total liabilities and stockholders’ equity

 $2,655,077  $2,667,724 

 

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

 

5

 

 

Hecla Mining Company and Subsidiaries

 

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

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

 

  

Three Months Ended March 31, 2021

 
  

Series B

Preferred

Stock

  

Common

Stock

  

Additional

Paid-In

Capital

  

Accumulated

Deficit

  

Accumulated

Other

Comprehensive

Loss, net

  

Treasury

Stock

  

Total

 

Balances, January 1, 2021

 $39  $134,629  $2,003,576  $(391,374) $(32,889) $(23,496) $1,690,485 

Net income

           18,971         18,971 

Restricted stock units granted

        483            483 

Common stock dividends declared ($0.00875 per common share)

           (4,688)        (4,688)

Series B Preferred Stock dividends declared ($0.875 per share)

           (138)        (138)

Common stock issued for 401(k) match (165,000 shares)

     42   1,088            1,130 

Shares issued to pension plans (3,500,000 shares)

     875   15,925            16,800 

Other comprehensive income

              1,832      1,832 

Balances, March 31, 2021

 $39  $135,546  $2,021,072  $(377,229) $(31,057) $(23,496) $1,724,875 

 

 

  

Three Months Ended March 31, 2020

 
  

Series B

Preferred

Stock

  

Common

Stock

  

Additional

Paid-In

Capital

  

Accumulated

Deficit

  

Accumulated

Other

Comprehensive

Loss, net

  

Treasury

Stock

  

Total

 

Balances, January 1, 2020, as revised (see Note 1)

  39   132,292   1,973,700   (365,186)  (37,310)  (22,967)  1,680,568 

Net loss

           (17,185)        (17,185)

Restricted stock units granted

        1,219            1,219 

Common stock dividends declared ($0.0025 per common share)

           (1,304)        (1,304)

Series B Preferred Stock dividends declared ($0.875 per share)

           (138)        (138)

Common stock issued for 401(k) match (352,000 shares)

     89   1,114            1,203 

Other comprehensive loss

              (19,335)     (19,335)

Balances, March 31, 2020

 $39  $132,381  $1,976,033  $(383,813) $(56,645) $(22,967) $1,645,028 

 

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

 

6

 

 

Note 1.    Basis of Preparation of Financial Statements

 

The accompanying unaudited interim condensed consolidated financial statements of Hecla Mining Company and its subsidiaries (collectively, “Hecla”, “the Company”, “we”, “our” or “us”, except where the context requires otherwise) have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required annually by generally accepted accounting principles in the United States (“GAAP”). Therefore, this information should be read in conjunction with Hecla Mining Company’s consolidated financial statements and notes contained in our annual report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”). The consolidated December 31, 2020 balance sheet data was derived from our audited consolidated financial statements. The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported. All such adjustments are, in the opinion of management, of a normal recurring nature. Operating results for the three-month period ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

 

The 2019 novel strain of coronavirus ("COVID-19") was characterized as a global pandemic by the World Health Organization on March 11, 2020, and COVID-19 resulted in travel restrictions and business slowdowns or shutdowns in affected areas. In late March 2020, the Government of Quebec ordered the mining industry to reduce to minimum operations as part of the fight against COVID-19, causing us to suspend our Casa Berardi operations from March 24, 2020 until April 15, 2020 when mining operations resumed. In early April 2020, the Government of Mexico issued a similar order causing us to suspend our San Sebastian operations until May 30, 2020. In addition, restrictions imposed by the State of Alaska in late March caused us to revise the normal operating procedures for staffing operations at Greens Creek. These suspension orders impacted us in the first half of 2020 by curtailing our expected production of gold at Casa Berardi by approximately 11,700 ounces, which resulted in a reduction in related revenue for that period. We continued to incur costs at Casa Berardi and San Sebastian while operations were suspended. At Casa Berardi and San Sebastian, suspension costs in 2020 totaled $1.6 million and $1.8 million, respectively. In addition, we incurred costs of approximately $0.6 million in the first quarter of 2021 and $2.3 million for the full year of 2020 related to quarantining employees at Greens Creek, which started in late March 2020. At Lucky Friday and Nevada Operations, COVID-19 procedures have been implemented without a significant impact on production or operating costs. It is possible that future restrictions at any of our operations could have an adverse impact on operations or financial results beyond the first quarter of 2021.

 

We have taken precautionary measures to mitigate the impact of COVID-19, including implementing operational plans and practices. As long as they are required, the operational practices implemented could have an adverse impact on our operating results due to deferred production and revenues or additional costs. We continue to monitor the rapidly evolving situation and guidance from federal, state, local and foreign governments and public health authorities and may take additional actions based on their recommendations. The extent of the impact of COVID-19 on our business and financial results will also depend on future developments, including the duration and spread of the outbreak and the success of the current vaccination programs being rolled out within the markets in which we operate and the related impact on prices, demand, creditworthiness and other market conditions and governmental reactions, all of which are highly uncertain.

 

Correction of an Immaterial Error

 

During the first quarter of 2021 we reclassified certain state mining income taxes from Cost of sales and other direct production costs to Income and mining tax provision prospectively effective January 1, 2021. The reclassification required us to recognize previously unrecognized deferred taxes. The impact of this was an adjustment of $11.9 million to accumulated deficit at January 1, 2019 to recognize the deferred tax liability.  This adjustment resulted in the January 1, 2020 accumulated deficit balance presented in this Form 10-Q to increase to $365.2 million.

 

 

 

Note 2.    Business Segments and Sales of Products

 

We discover, acquire and develop mines and other mineral interests and produce and market concentrates, carbon material and doré containing silver, gold, lead and zinc. We are currently organized and managed in five segments, which represent our operating units: the Greens Creek unit, the Lucky Friday unit, the Casa Berardi unit, the San Sebastian exploration unit, and the Nevada Operations unit.

 

7

 

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

 

The following tables present information about our reportable segments for the three months ended March 31, 2021 and 2020 (in thousands):

 

   

Three Months Ended
March 31,

 
   

2021

   

2020

 

Net sales to unaffiliated customers:

               

Greens Creek

  $ 98,409     $ 53,833  

Lucky Friday

    29,122       2,830  

Casa Berardi

    72,911       46,172  

San Sebastian

    173       9,927  

Nevada Operations

    10,237       24,163  
    $ 210,852     $ 136,925  

Income (loss) from operations:

               

Greens Creek

  $ 44,600     $ 4,117  

Lucky Friday

    6,323       (8,120 )

Casa Berardi

    9,117       (3,880 )

San Sebastian

    (2,263 )     679  

Nevada Operations

    (3,140 )     2,889  

Other

    (16,188 )     (10,749 )
    $ 38,449     $ (15,064 )

 

The following table presents identifiable assets by reportable segment as of March 31, 2021 and December 31, 2020 (in thousands):

 

   

March 31, 2021

   

December 31, 2020

 

Identifiable assets:

               

Greens Creek

  $ 609,612     $ 610,360  

Lucky Friday

    513,645       520,463  

Casa Berardi

    683,103       694,522  

San Sebastian

    41,238       42,617  

Nevada Operations

    510,514       513,309  

Other

    296,965       286,453  
    $ 2,655,077     $ 2,667,724  

 

8

 

Sales of products by metal for the three-month periods ended March 31, 2021 and 2020 were as follows (in thousands):

 

   

Three Months Ended March 31,

 
   

2021

   

2020

 
                 

Silver

  $ 77,760     $ 37,572  

Gold

    101,408       90,694  

Lead

    15,893       6,420  

Zinc

    29,191       17,308  

Less: Smelter and refining charges

    (13,400 )     (15,069 )

Sales of products

  $ 210,852     $ 136,925  

 

Sales of products for the first three months of 2021 and 2020 included net gains of $2.8 million and $1.7 million, respectively, on financially-settled forward and put option contracts for silver, gold, lead and zinc contained in our sales.  See Note 8 for more information.

 

 

 

Note 3.   Income and Mining Taxes

 

Major components of our income and mining tax (provision) benefit for the three months ended March 31, 2021 and 2020 are as follows (in thousands):

 

   

Three Months Ended

 
   

March 31,

 
   

2021

   

2020

 

Current:

               

Domestic

  $ (2,277 )   $ (732 )

Foreign

    (2,286 )     (2,069 )

Total current income and mining tax provision

    (4,563 )     (2,801 )
                 

Deferred:

               

Domestic

    319       1,250  

Foreign

    (390 )     2,613  

Total deferred income and mining tax (provision) benefit

    (71 )     3,863  

Total income and mining tax (provision) benefit

  $ (4,634 )   $ 1,062  

 

The income and mining tax (provision) benefit for the three months ended March 31, 2021 and 2020 varies from the amounts that would have resulted from applying the statutory tax rates to pre-tax income due primarily to the impact of taxation in foreign jurisdictions and reversal of the valuation allowance portion related to net operating loss utilization.

 

Effective January 1, 2021, we prospectively reclassified certain income based state and provincial taxes from Cost of Sales and other direct production costs to Income and mining tax (provision) benefit. The income and mining tax provision for the three months ended March 31, 2021 increased by $3.1 million due to the reclassification.

 

9

 

 

Note 4.   Employee Benefit Plans

 

We sponsor defined benefit pension plans covering substantially all U.S. employees.  Net periodic pension cost for the plans consisted of the following for the three months ended March 31, 2021 and 2020 (in thousands):

 

   

Three Months Ended

March 31,

 
   

2021

   

2020

 

Service cost

  $ 1,455     $ 1,334  

Interest cost

    1,248       1,404  

Expected return on plan assets

    (2,313 )     (1,872 )

Amortization of prior service cost

    99       29  

Amortization of net loss

    1,125       1,163  

Net periodic pension cost

  $ 1,614     $ 2,058  

 

The service cost component of net periodic pension cost is included in the same line items of our condensed consolidated financial statements as other employee compensation costs, and the net expense for the three months ended March 31, 2021 and 2020 of $0.2 million and $0.7 million, respectively, related to all other components of net periodic pension cost is included in other (expense) income on our condensed consolidated statements of operations and comprehensive income (loss).

 

In January 2021, we contributed $16.8 million in shares of our common stock to our supplemental executive retirement plan, and expect to contribute approximately $0.8 million during the remainder of 2021. We do not expect to be required to contribute to our defined benefit pension plans in 2021, but may do so.

 

 

 

Note 5.    Income (Loss) Per Common Share

 

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

 

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

 

10

 

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

 

   

Three Months Ended March 31,

 
   

2021

   

2020

 

Numerator

               

Net income (loss)

  $ 18,971     $ (17,185 )

Preferred stock dividends

    (138 )     (138 )

Net income (loss) applicable to common shares

  $ 18,833     $ (17,323 )
                 

Denominator

               

Basic weighted average common shares

    534,101       523,215  

Dilutive restricted stock units, warrants and deferred shares

    6,426        

Diluted weighted average common shares

    540,527       523,215  
                 

Basic income (loss) per common share

  $ 0.04     $ (0.03 )

Diluted income (loss) per common share

  $ 0.03     $ (0.03 )

 

Diluted income (loss) per share for the three months ended March 31, 2021 and 2020 excludes the potential effects of outstanding shares of our convertible preferred stock, as their conversion would have no effect on the calculation of dilutive shares.

 

For the three months ended March 31, 2021, the calculation of diluted income per common share included (i) 2,863,038 restricted stock units that were unvested during the period, (ii) 1,536,615 warrants to purchase one share of common stock and (iii) 2,026,440 deferred shares that were dilutive. For the three months ended March 31, 2020, all outstanding restricted stock units, warrants and deferred shares were excluded from the computation of diluted loss per share, as our reported net losses for those periods would cause their conversion and exercise to have no effect on the calculation of loss per share.

 

 

 

Note 6.    Stockholders Equity

 

Stock-based Compensation Plans

 

Stock-based compensation expense for restricted stock unit and performance-based grants to employees and shares issued to non-employee directors totaled $0.5 million and $1.2 million for the first three months of 2021 and 2020, respectively.

 

Common Stock Dividends

 

On February 18, 2021, our Board of Directors declared a quarterly cash dividend of $0.00875 per share of common stock, consisting of $0.00375 per share for the minimum dividend component of our common stock dividend policy and $0.005 per share for the silver-linked dividend component of the policy, for a total dividend of $4.7 million paid in March 2021. The realized silver price of $25.16 in the fourth quarter of 2020 satisfied the criterion for the silver-linked dividend component of our common stock dividend policy.

 

During May 2021, our Board of Directors approved an increase in our silver-linked dividend by $0.01 per year and approved a quarterly silver-linked dividend of $0.075 based on the first quarter of 2021 realized silver price of $25.66. The table below provides an overview of the augmented silver-linked dividend policy and the increased minimum dividends.

 

Quarterly Average Realized Silver Price per Ounce

  

Quarterly Silver-Linked Dividend per Share

  

Annualized Silver-Linked Dividend per Share

  

Annualized Minimum Dividend

  

Annualized Dividends per Share: Silver-Linked and Minimum

 
$25  $0.0075  $0.03  $0.015  $0.045 
$30  $0.0125  $0.05  $0.015  $0.065 
$35  $0.0225  $0.09  $0.015  $0.105 
$40  $0.0325  $0.13  $0.015  $0.145 
$45  $0.0425  $0.17  $0.015  $0.185 
$50  $0.0525  $0.21  $0.015  $0.225 

 

At-The-Market Equity Distribution Agreement

 

Pursuant to an equity distribution agreement dated February 18, 2021, we may offer and sell up to 60 million shares of our common stock from time to time to or through sales agents. Sales of the shares, if any, will be made by means of ordinary brokers transactions or as otherwise agreed between the Company and the agents as principals. Whether or not we engage in sales from time to time may depend on a variety of factors, including share price, our cash resources, customary black-out restrictions, and whether we have any material inside information. The agreement can be terminated by us at any time. Any shares issued under the equity distribution agreement are registered under the Securities Act of 1933, as amended, pursuant to a shelf registration statement on Form S-3. No shares have been sold under the agreement as of March 31, 2021.

 

11

 

 

Note 7.    Debt, Credit Facility and Leases

 

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

 

  

March 31, 2021

 
  

Senior Notes

  

IQ Notes

  

Total

 

Principal

 $475,000  $38,359  $513,359 

Unamortized discount/premium and issuance costs

  (6,234)  867   (5,367)

Long-term debt balance

 $468,766  $39,226  $507,992 

 

 

  

December 31, 2020

 
  

Senior Notes

  

IQ Notes

  

Total

 

Principal

 $475,000  $37,886  $512,886 

Unamortized discount/premium and issuance costs

  (6,462)  818   (5,644)

Long-term debt balance

 $468,538  $38,704  $507,242 

 

The following table summarizes the scheduled annual future payments, including interest, for our Senior Notes, IQ Notes, and finance and operating leases as of March 31, 2021 (in thousands). The amounts for the IQ Notes are stated in U.S. dollars ("USD") based on the USD/Canadian dollar ("CAD") exchange rate as of March 31, 2021.

 

Twelve-month

period ending

March 31,

 

Senior Notes

  

IQ Notes

  

Finance Leases

  

Operating Leases

 

2022

 $34,438  $2,499  $7,329  $3,696 

2023

  34,438   2,499   5,132   2,706 

2024

  34,438   2,499   3,643   2,002 

2025

  34,438   2,499   2,076   549 

2026

  34,438   39,045      525 

Thereafter

  539,568         2,213 

Total

 $711,758  $49,041  $18,180  $11,691 

 

Credit Facility

 

In July 2018, we entered into a $250 million senior secured revolving credit facility which has a term ending on February 7, 2023. As of March 31, 2021 and December 31, 2020, no amounts were outstanding under the facility.

 

12

 

We are also able to obtain letters of credit under the facility, and for any such letters we are required to pay a participation fee of between 2.25% and 4.00% of the amount of the letters of credit based on our total leverage ratio, as well as a fronting fee to each issuing bank of 0.20% annually on the average daily dollar amount of any outstanding letters of credit. There were $20.3 million in letters of credit outstanding as of March 31, 2021.

 

We believe we were in compliance with all covenants under the credit agreement as of March 31, 2021.  

 

 

 

Note 8.    Derivative Instruments

 

General

 

Our current risk management policy provides that up to 75% of:

 

 

our future foreign currency-related operating cost exposure for five years into the future may be hedged and for potential additional programs to manage other foreign currency-related exposure areas; and

 

our planned lead and zinc metals price exposure for five years into the future, with certain other limitations, to be covered under derivatives programs that would establish a ceiling for prices to be realized on future metals sales.

 

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

 

 

Foreign Currency

 

Our wholly-owned subsidiaries owning the Casa Berardi and San Sebastian operations are USD-functional entities which routinely incur expenses denominated in CAD and Mexican pesos ("MXN"), respectively. Such expenses expose us to exchange rate fluctuations between the USD and CAD and MXN. We have a program to manage our exposure to fluctuations in the exchange rate between the USD and CAD and MXN for these subsidiaries' future operating costs denominated in CAD and MXN. The programs utilize forward contracts to buy CAD and MXN, and each contract is designated as a cash flow hedge. As of March 31, 2021, we have 133 forward contracts outstanding to buy a total of CAD$256.8 million having a notional amount of USD$194.8 million. The CAD contracts are related to forecasted cash operating costs at Casa Berardi to be incurred from 2021 through 2024 and have CAD-to-USD exchange rates ranging between 1.2702 and 1.3785. There were no outstanding contracts for MXN as of March 31, 2021.

 

As of March 31, 2021 and December 31, 2020, we recorded the following balances for the fair value of the contracts (in millions):

 

  

March 31,

  

December 31,

 

Balance sheet line item:

 

2021

  

2020

 

Current derivatives assets

 $5.0  $3.5 

Non-current derivatives assets

  4.2   4.2 

 

Net unrealized gains of approximately $9.5 million related to the effective portion of the hedges were included in accumulated other comprehensive loss as of March 31, 2021. Unrealized gains and losses will be transferred from accumulated other comprehensive loss to current earnings as the underlying operating expenses are recognized. We estimate approximately $4.8 million in net unrealized gains included in accumulated other comprehensive loss as of March 31, 2021 will be reclassified to current earnings in the next twelve months. Net realized gains of approximately $0.6 million on contracts related to underlying expenses which have been recognized were transferred from accumulated other comprehensive loss and included in cost of sales and other direct production costs for the three months ended March 31, 2021. No net unrealized gains or losses related to ineffectiveness of the hedges were included in current earnings for the three months ended March 31, 2021.

 

13

 

Metals Prices

 

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

 

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

 

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

 

The following tables summarize the quantities of metals committed under forward sales contracts at March 31, 2021 and December 31, 2020:

 

March 31, 2021

 

Ounces/pounds under contract (in 000's)

  

Average price per ounce/pound

 
  

Silver

  

Gold

  

Zinc

  

Lead

  

Silver

  

Gold

  

Zinc

  

Lead

 
  

(ounces)

  

(ounces)

  

(pounds)

  

(pounds)

  

(ounces)

  

(ounces)

  

(pounds)

  

(pounds)

 

Contracts on provisional sales

                                

2021 settlements

  1,492   5   12,070   1,587  $25.48  $1,736  $1.26  $0.89 

Contracts on forecasted sales

                                

2021 settlements

        33,841   30,479   N/A   N/A  $1.20  $0.89 

2022 settlements

        53,407   42,715   N/A   N/A  $1.26  $0.96 

2023 settlements

        41,171      N/A   N/A  $1.27   N/A 

 

 

December 31, 2020

 

Ounces/pounds under contract (in 000's)

  

Average price per ounce/pound

 
  

Silver

  

Gold

  

Zinc

  

Lead

  

Silver

  

Gold

  

Zinc

  

Lead

 
  

(ounces)

  

(ounces)

  

(pounds)

  

(pounds)

  

(ounces)

  

(ounces)

  

(pounds)

  

(pounds)

 

Contracts on provisional sales

                                

2021 settlements

  1,282   4   23,314   4,905  $25.00  $1,858  $1.19  $0.90 

Contracts on forecasted sales

                                

2021 settlements

        41,577   30,876   N/A   N/A  $1.17  $0.88 

2022 settlements

        18,519      N/A   N/A  $1.28   N/A 

 

In June 2019, we began utilizing financially-settled put option contracts to manage the exposure of our forecasted future gold and silver sales to potential declines in market prices for those metals. These put contracts gave us the option, but not the obligation, to realize established prices on quantities of silver and gold to be sold in the future. As of December 31, 2020, we had put contracts that provided average floor prices of $16.50 per ounce for silver and $1,650 per ounce for gold for a total of 1.1 million silver ounces and 12,992 gold ounces. We had no put option contracts outstanding as of March 31, 2021.

 

These forward and put option contracts are not designated as hedges for accounting purposes and are marked-to-market through earnings each period.  

 

14

 

We recorded the following balances for the fair value of the forward contracts as of March 31, 2021 and forward and put option contracts as of December 31, 2020 (in millions):

 

  

March 31, 2021

  

December 31, 2020

 

Balance sheet line item:

 

Contracts in an

asset position

  

Contracts in

a liability

position

  

Net asset

(liability)

  

Contracts in

an asset

position

  

Contracts in a

liability

position

  

Net asset

(liability)

 

Current derivatives assets

 $3.3  $(1.1) $2.2  $0.2  $(0.2) $ 

Non-current derivatives assets

  2.3   (0.2)  2.1   0.5   (0.1)  0.4 

Current derivatives liability

     (3.9)  (3.9)  0.1   (11.8)  (11.7)

Other non-current liabilities

  0.4   (1.2)  (0.8)         

 

We recognized $2.8 million and $1.7 million net gains during the first quarters of 2021 and 2020, respectively, on the contracts utilized to manage exposure to prices of metals in our concentrate shipments, which is included in sales of products.  The net gains recognized on the contracts offsets losses related to price adjustments on our provisional concentrate sales due to changes to silver, gold, lead and zinc prices between the time of sale and final settlement.

 

We recognized $0.5 million and $7.9 million net gains during the first quarters of 2021 and 2020, respectively, on the contracts utilized to manage exposure to prices for forecasted future sales. The net gains on these contracts are included as a separate line item under other income (expense), as they relate to forecasted future sales, as opposed to sales that have already taken place but are subject to final pricing as discussed in the preceding paragraph.  The net gain for the first quarter of 2021 is the result of a decrease in zinc and lead prices.

 

Credit-risk-related Contingent Features

 

Certain of our derivative contracts contain cross default provisions which provide that a default under our revolving credit agreement would cause a default under the derivative contract. As of March 31, 2021, we have not posted any collateral related to these contracts. The fair value of derivatives in a net liability position related to these agreements was $6.4 million as of March 31, 2021, which includes accrued interest but excludes any adjustment for nonperformance risk. If we were in breach of any of these provisions at March 31, 2021, we could have been required to settle our obligations under the agreements at their termination value of $6.4 million.

 

 

 

Note 9.    Fair Value Measurement

 

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

 

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

 

Level 2: significant other observable inputs; and

 

Level 3: significant unobservable inputs.

 

15

 

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

 

Description

 

Balance at

March 31, 2021

   

Balance at

December 31, 2020

 

Input

Hierarchy Level

Assets:

                 

Cash and cash equivalents:

                 

Money market funds and other bank deposits

  $ 139,750     $ 129,830  

Level 1

Current and non-current investments:

                 

Equity securities – mining industry

    11,717       19,389  

Level 1

Trade accounts receivable:

                 

Receivables from provisional concentrate sales

    35,274       27,864  

Level 2

Restricted cash balances:

                 

Certificates of deposit and other bank deposits

    1,053       1,053  

Level 1

Derivative contracts - current and non-current derivatives assets:

                 

Metal forward and put option contracts

    4,349       381  

Level 2

Foreign exchange contracts

    9,192       7,647  

Level 2

Total assets

  $ 201,335     $ 186,164    
                   

Liabilities:

                 

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

                 

Metal forward and put option contracts

  $ 4,742     $ 11,737  

Level 2

Foreign exchange contracts

          19  

Level 2

Total Liabilities

  $ 4,742     $ 11,756    

 

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

 

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

 

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

 

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

 

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

 

We use financially-settled forward contracts to manage the exposure to changes in prices of silver, gold, zinc and lead contained in our concentrate shipments that have not reached final settlement.  We also use financially-settled forward and put option contracts to manage the exposure to changes in prices of silver, gold, zinc and lead contained in our forecasted future sales (see Note 8 for more information).  The fair value of each forward contract represents the present value of the difference between the forward metal price for the contract settlement period as of the measurement date and the contract settlement metal price. The fair value of each put option contract is measured using the Black-Scholes pricing model, with inputs for the period-end metal price and assumed metal price volatility and discount rate.

 

16

 

Our Senior Notes, which were recorded at their carrying value of $468.8 million, net of unamortized initial purchaser discount and issuance costs, had a fair value of $509.7 million at March 31, 2021. Quoted market prices, which we consider to be Level 1 inputs, are utilized to estimate fair values of the Senior Notes. See Note 7 for more information.

 

 

 

Note 10.    Commitments, Contingencies and Obligations

 

General

 

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

 

Lucky Friday Water Permit Matters

 

In December 2013, the Environmental Protection Agency ("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.

 

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 Mine 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 which recommended on-site disposal of mine-related material. In January 2021, the EPA contacted Hecla Limited to begin negotiations on a new consent order to design and implement the on-site disposal response action recommended in the EE/CA. Based on the foregoing, we believe it is probable that Hecla Limited will incur a liability for the CERCLA removal action and we have increased our accrual to $9.0 million in the first quarter of 2021 ($6.1 million at December 31, 2020) primarily representing estimated costs to begin design and implementation of the remedy. It is possible that Hecla Limited’s liability will be more than $9.0 million, and any increase in liability could have a material adverse effect on Hecla Limited’s or our results of operations or financial position.

 

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

 

17

 

In July 2018, the EPA informed Hecla Limited that it and several other PRPs may be liable for cleanup of the SMCB site or for costs incurred by the EPA in cleaning up the site. The EPA stated it has incurred approximately $9.6 million in response costs to date. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning the site, including the relative contributions of contamination by the various PRPs.

 

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

 

In February 2017, the EPA made a formal request to Hecla 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 of contamination by various other PRPs.

 

Claim for Indemnification Against CoCa Mines, Inc.

 

In 1991, Hecla Limited acquired CoCa Mines, Inc. (“CoCa”) and its subsidiary Creede Resources, Inc. (“CRI”). CoCa and CRI previously operated in the State of Colorado, but presently have limited assets and operations. Between 2014 and 2019, a PRP alleged that CoCa and CRI are required by a 1989 agreement to indemnify it for certain environmental costs and liabilities it may incur with respect to the Nelson Tunnel/Commodore Waste Rock Pile Superfund site in Creede, Colorado. In 2016, without admitting any liability, Hecla Limited, CoCa and CRI entered into a Consent Decree with the United States and the State of Colorado settling any regulatory liability they may have had at the site. On October 30, 2019, the PRP filed a lawsuit in Mineral County, Colorado alleging, among other things, that CoCa and CRI are in breach of contract for failure to indemnify the PRP for its liability to the U.S. under CERCLA with respect to the site. In addition, the lawsuit names Hecla Limited as a defendant in its role as the shareholder of CoCa. The PRP seeks in excess of $5 million in damages, including attorneys’ fees and costs. The lawsuit will be vigorously defended and we believe strong defenses exist against all claims made therein and, as noted above, both CoCa and CRI have limited assets with which to satisfy any claim.

 

18

 

Litigation Related to Klondex Acquisition

 

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

 

Debt

 

See Note 7 for information on the commitments related to our debt arrangements as of March 31, 2021.

 

Other Commitments

 

Our contractual obligations as of March 31, 2021 included approximately $2.1 million for various costs. In addition, our open purchase orders at March 31, 2021 included approximately $4.0 million, $0.7 million, $2.8 million and $2.7 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 $18.2 million relating to scheduled payments on finance leases, including interest, primarily for equipment at our Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations units, and total commitments of approximately $11.7 million relating to payments on operating leases (see Note 7 for more information). As part of our ongoing business and operations, we are required to provide surety bonds, bank letters of credit, and restricted deposits for various purposes, including financial support for environmental reclamation obligations and workers compensation programs. As of March 31, 2021, we had surety bonds totaling $176.8 million and letters of credit totaling $20.3 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.

 

19

 

 

Note 11.    Developments in Accounting Pronouncements

 

Accounting Standards Updates Adopted

 

In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update contains a number of provisions intended to simplify the accounting for income taxes. The update is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We adopted the update as of January 1, 2021, which did not have a material impact on our consolidated financial statements or disclosures.

 

Accounting Standards Updates to Become Effective in Future Periods

 

In August 2020, the FASB issued ASU No. 2020-06 Debt - Debt with Conversion and Other Options (Subtopic

470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The update is to address issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. The update is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years and with early adoption permitted. We are evaluating the impact of this update on our consolidated financial statements.

 

20

 

 

Forward-Looking Statements

 

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

 

These risks, uncertainties and other factors include, but are not limited to, those set forth under Part I, Item 1A Risk Factors in our annual report filed on Form 10-K for the year ended December 31, 2020. Given these risks and uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements.  All subsequent written and oral forward-looking statements attributable to Hecla Mining Company or to persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.  Except as required by federal securities laws, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

21

 

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

 

In this Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), “Hecla”,” the Company”, “we,” “us” and “our” refer to Hecla Mining Company and its consolidated subsidiaries, except where the context requires otherwise. You should read this discussion in conjunction with our consolidated financial statements, the related MD&A and the discussion of our Business and Properties in our annual report on Form 10-K for the year ended December 31, 2020 ("2020 Form 10-K"), filed with the United States Securities and Exchange Commission (the “SEC”). The results of operations reported and summarized below are not necessarily indicative of future operating results (refer to “Forward-Looking Statements” above for further discussion). References to “Notes” are Notes included in our Notes to Condensed Consolidated Financial Statements (Unaudited). Throughout MD&A, all references to losses or income per share are on a diluted basis.

 

 

Overview

 

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

 

 

concentrates containing silver, gold, lead and zinc, which is shipped to various smelters or sold to metal traders;

 

 

unrefined doré containing gold and silver, which is sold to refiners or further refined before sale of the metals to traders; and

 

 

carbon material containing gold and silver, which is sold to third-party processors.

 

Our operating properties comprise our five business segments for financial reporting purposes: the Greens Creek operating unit on Admiralty Island in Alaska, the Lucky Friday operating unit in Idaho, the Casa Berardi operating unit in Quebec, Canada, the San Sebastian operating unit in Durango, Mexico, and the Nevada Operations unit in northern Nevada. Since our operating mines are located in the United States, Canada, and Mexico, we believe they have low or relatively moderate political risk, and less economic risk than mines located in other parts of the world. Our exploration interests are also in the United States, Canada, and Mexico, and are located in historical mining districts. The map below shows the locations of our operating units, our exploration and pre-development projects, as well as our corporate offices located in Coeur d'Alene, Idaho and Vancouver, British Columbia.

 

22

 

a1.jpg

 

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

 

 

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

 

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

 

optimizing and improving operations at our units, which includes incurring costs for new technologies and equipment that may not result in measurable benefits;

 

expanding our proven and probable reserves and production capacity at our units;

 

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

 

advancing permitting of the Rock Creek and Montanore projects;

 

maintaining and investing in exploration and pre-development projects in the vicinities of seven mining districts and projects 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 northwestern Quebec, Canada; our projects in northern Nevada; the Rock Creek and Montanore projects in northwestern Montana; and the Creede district of southwestern Colorado; and

 

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

 

23

 

The COVID-19 outbreak impacted our operations in 2020, including adversely impacting our expected production of gold at Casa Berardi, and has continued to impact our operations in 2021. We incurred additional costs of approximately $0.6 million in the first quarter of 2021 and $2.3 million for the full year of 2020 related to quarantining employees at Greens Creek, which started in late March 2020. See each segment section below for information on how those operations have been impacted by COVID-19. To mitigate the impact of COVID-19, we have taken precautionary measures, including implementing operational plans and practices and increasing our cash reserves through a temporary draw-down of our revolving credit facility, which has since been fully repaid. As long as they are required, the operational practices implemented could continue to have an adverse impact on our operating results due to additional costs or deferred production and revenues. There is uncertainty related to the potential additional impacts COVID-19 could have on our operations and financial results for the remainder of 2021. In our 2020 Form 10-K, see Item IA. Risk Factors - Natural disasters, public health crises (including COVID-19), political crises, and other catastrophic events or other events outside of our control may materially and adversely affect our business or financial results and COVID-19 virus pandemic may heighten other risks for information on how restrictions related to COVID-19 have recently affected some of our operations.

 

A number of key factors may impact the execution of our strategy, including regulatory issues and metals prices. Metals prices can be very volatile and are influenced by a number of factors beyond our control (except on a limited basis through the use of derivative contracts). See Item 7. Critical Accounting Estimates in our 2020 Form 10-K. The average realized prices of silver, gold lead and zinc were higher in the first three months of 2021 than in the comparable period last year, as illustrated by the table in Results of Operations below. While we believe longer-term global economic and industrial trends could result in continued demand for the metals we produce, prices have been volatile and there can be no assurance that current prices will continue.

 

Volatility in global financial markets and other factors can pose a significant challenge to our ability to access credit and equity markets, should we need to do so, and to predict sales prices for our products. To help mitigate this challenge, we utilize forward contracts to manage exposure to declines in the prices of (i) silver, gold, zinc and lead contained in our concentrates that have been shipped but have not yet settled, and (ii) zinc and lead that we forecast for future concentrate shipments. We have also utilized put option contracts to manage exposure to declines in the prices of silver and gold in our forecasted future sales of those metals. In addition, we have in place a $250 million revolving credit agreement, of which $20.3 million was used as of March 31, 2021 for letters of credit, leaving approximately $229.7 million available for borrowing.

 

We strive to achieve excellent mine safety and health performance. We seek to implement this goal by: training employees in safe work practices; establishing, following and improving safety standards; investigating accidents, incidents and losses to avoid recurrence; involving employees in the establishment of safety standards; and participating in the National Mining Association’s CORESafety program. We attempt to implement reasonable best practices with respect to mine safety and emergency preparedness. We work with MSHA to address issues outlined in its investigations and inspections and continue to evaluate our safety practices. Achieving and maintaining compliance with MSHA regulations will be challenging and may increase our operating costs. See Item 1A. Risk Factors - We face substantial governmental regulation, including the Mine Safety and Health Act, various environmental laws and regulations and the 1872 Mining Law in our 2020 Form 10-K.

 

Another challenge for us is the risk associated with environmental litigation and ongoing reclamation activities. As described Item 1A. Risk Factors in our 2020 Form 10-K and in Note 10 of Notes to Condensed Consolidated Financial Statements (Unaudited), it is possible that our estimate of these liabilities (and our ability to estimate liabilities in general) may change in the future, affecting our strategic plans. We are involved in various environmental legal matters and the estimate of our environmental liabilities and liquidity needs, as well as our strategic plans, may be significantly impacted as a result of these matters or new matters that may arise. We strive to ensure that our activities are conducted in compliance with applicable laws and regulations and attempt to resolve environmental litigation on terms as favorable to us as possible.

 

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Consolidated Results of Operations

 

Sales of products by metal for the three-month periods ended March 31, 2021 and 2020 were as follows:

 

   

Three Months Ended

March 31,

 

(in thousands)

 

2021

   

2020

 

Silver

  $ 77,760     $ 37,572  

Gold

    101,408       90,694  

Lead

    15,893       6,420  

Zinc

    29,191       17,308  

Less: Smelter and refining charges

    (13,400 )     (15,069 )

Sales of products

  $ 210,852     $ 136,925  

 

The fluctuations in sales for the first quarter of 2021 compared to the first quarter of 2020 were primarily due to the following two reasons:

 

 

Higher average realized prices for silver, gold, lead and zinc. These price variances are illustrated in the table below.

 

   

Three months ended March 31,

 
   

2021

   

2020

 

Silver –  London PM Fix ($/ounce)

  $ 26.29     $ 16.94  
Realized price per ounce   $ 25.66     $ 14.48  

Gold –   London PM Fix ($/ounce)

  $ 1,798     $ 1,583  
Realized price per ounce   $ 1,770     $ 1,588  

Lead –   LME Final Cash Buyer ($/pound)

  $ 0.92     $ 0.84  
Realized price per pound   $ 0.92     $ 0.78  

Zinc –    LME Final Cash Buyer ($/pound)

  $ 1.25     $ 0.96  
Realized price per pound   $ 1.32     $ 0.88  

 

Average realized prices typically differ from average market prices primarily because concentrate sales are generally recorded as revenues at the time of shipment at forward prices for the estimated month of settlement, which differ from average market prices.  Due to the time elapsed between shipment of concentrates and final settlement with the customers, we must estimate the prices at which sales of our metals will be settled.  Previously recorded sales are adjusted to estimated settlement metals prices each period through final settlement.  For the first quarter of 2021, we recorded net positive price adjustments to provisional settlements of $0.6 million compared to net positive price adjustments to provisional settlements of $2.6 million in the first quarter of 2020. The price adjustments related to silver, gold, lead and zinc contained in our concentrate shipments were largely offset by gains and losses on forward contracts for those metals for the first quarter of 2021. See Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information.  The gains and losses on these contracts are included in revenues and impact the realized prices for silver, gold, lead and zinc.  Realized prices are calculated by dividing gross revenues for each metal (which include the price adjustments and gains and losses on the forward contracts discussed above) by the payable quantities of each metal included in concentrate and doré shipped during the period.

 

25

 

 

Higher quantities of silver, gold, zinc and lead sold as a result of the timing of shipments and higher production of silver, lead and zinc. See The Greens Creek Segment, The Lucky Friday Segment, The Casa Berardi Segment, The San Sebastian Segment and The Nevada Operations Segment sections below for more information on metals production and sales volumes at each of our operating segments. Total metals production and sales volumes for each period are shown in the following table:

 

   

Three Months Ended

March 31,

 
   

2021

   

2020

 

Silver -  Ounces produced

    3,459,446       3,245,469  
Payable ounces sold     3,030,026       2,582,279  

Gold -    Ounces produced

    52,004       58,792  
Payable ounces sold     57,286       57,103  

Lead -    Tons produced

    10,704       5,893  
Payable tons sold     8,668       4,130  

Zinc -    Tons produced

    16,107       12,847  
Payable tons sold     11,027       9,836  

 

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

 

Sales, total cost of sales, gross profit, Cash Cost, After By-product Credits, per Ounce ("Cash Cost") (non-GAAP) and All-In Sustaining Cost, After By-product Credits, per Ounce ("AISC") (non-GAAP) at our operating units for the three-months ended March 31, 2021 and 2020 were as follows (in thousands, except for Cash Cost and AISC):

 

   

Silver

   

Gold

 
   

Greens Creek

   

Lucky Friday

   

San Sebastian

   

Total Silver

   

Casa Berardi

   

Nevada Operations

   

Total Gold

 

Three Months Ended March 31, 2021:

                                                       

Sales

  $ 98,409     $ 29,122     $ 173     $ 127,704     $ 72,911     $ 10,237     $ 83,148  

Total cost of sales

    (53,181 )     (22,794 )     (94 )     (76,069 )     (62,516 )     (7,455 )     (69,971 )

Gross profit

  $ 45,228     $ 6,328     $ 79     $ 51,635     $ 10,395     $ 2,782     $ 13,177  

Cash Cost per silver or gold ounce

  $ (0.67 )   $ 7.62     $     $ 1.40     $ 1,027     $ 1,416     $ 1,052  

AISC per silver or gold ounce

  $ 1.59     $ 14.24     $     $ 7.21     $ 1,272     $ 1,461     $ 1,284  

Three Months Ended March 31, 2020:

                                                       

Sales

  $ 53,833     $ 2,830     $ 9,927     $ 66,590     $ 46,172     $ 24,163     $ 70,335  

Total cost of sales

    (49,182 )     (2,832 )     (8,300 )     (60,314 )     (48,325 )     (16,914 )     (65,239 )

Gross profit

  $ 4,651     $ (2 )   $ 1,627     $ 6,276     $ (2,153 )   $ 7,249     $ 5,096  

Cash Cost per silver or gold ounce

  $ 5.63     $     $ 6.91     $ 5.77     $ 1,268     $ 735     $ 1,061  

AISC per silver or gold ounce

  $ 7.90     $     $ 9.59     $ 11.06     $ 1,615     $ 808     $ 1,302  

 

 

(1)

A reconciliation of these non-GAAP measures to cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, can be found below in Reconciliation of Cost of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP).

 

26

 

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

 

 

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

 

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

 

metallurgical treatment maximizes silver recovery;

 

the Greens Creek deposit is a massive sulfide deposit containing an unusually high proportion of silver; and in most of its working areas, Greens Creek utilizes selective mining methods in which silver is the metal targeted for highest recovery.

 

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

 

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

 

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

 

For the first quarter of 2021, we recorded income applicable to common stockholders of $18.8 million ($0.04 per basic common share), compared to a loss of $17.3 million ($0.03 per basic common share) during the first quarter of 2020. The following factors contributed to the results for the first three months of 2021 compared to the first quarter of 2020:

 

 

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

 

Ramp-up costs at Lucky Friday decreased by $8.1 million in the first quarter of 2021 compared to the first quarter of 2020 due to the return to full production starting in the fourth quarter of 2020. See The Lucky Friday Segment section below.

 

Lower interest expense by $5.6 million in the first quarter of 2021 compared to the first quarter of 2020, with the decrease due to the following items in 2020: (i) interest recognized on both our 7.25% Senior Notes due February 15, 2028 ("Senior Notes") and our previously-outstanding 6.875% Senior Notes that were due in 2021 ("2021 Notes") for an overlapping period of almost one month, as the Senior Notes were issued on February 19, 2020 and the 2021 Notes were redeemed on March 19, 2020, (ii) $1.7 million in unamortized initial purchaser discount on the 2021 Notes recognized as expense upon their redemption and (iii) higher interest related to amounts drawn on our revolving credit facility.

 

A net loss on investments in other mining companies of $2.4 million, including a $3.6 million unrealized loss and a $1.2 million gain on exchange of investments, in the first quarter of 2021 compared to a net loss of $1.0 million in the first quarter of 2020.

 

27

 

 

Higher other operating expense by $2.7 million in the first quarter of 2021 compared to the first quarter of 2020 due to project costs incurred to identify and implement potential operational improvements at Casa Berardi.

 

Provision for closed operations and environmental matters increased by $3.2 million in the first quarter of 2021 compared to the first quarter of 2020 primarily due to a $2.9 million increase in the accrual for estimated costs at the Johnny M site in New Mexico (see Note 10 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information).

 

Exploration and pre-development expense increased by $3.6 million in the first quarter of 2021 compared to the first quarter of 2020. In the first quarter of 2021, exploration was primarily at our San Sebastian, Casa Berardi and Nevada Operations units.

 

A gain on metal derivatives contracts of $0.5 million in the first quarter of 2021 compared to a gain of $7.9 million in the first quarter of 2020. See Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information.

 

A net foreign exchange loss in the first quarter of 2021 of $2.1 million versus a net gain of $6.6 million in the first quarter of 2020, with the variance primarily related to the impact of a weakening of the Canadian dollar ("CAD") relative to the U.S. dollar ("USD") on remeasurement of our assets and liabilities in Quebec. During the first quarter of 2021, the applicable CAD-to-USD exchange rate decreased from 1.2732 to 1.2575, compared to an increase in the rate from 1.2989 to 1.4186 during the first quarter of 2020.

 

An income and mining tax provision of $4.6 million in the first quarter of 2021 compared to an income and mining tax benefit of $1.1 million in the first quarter of 2020.  The provision in the 2021 period is primarily the result of income in Quebec and the reclassification of certain income-based state and provincial taxes from Cost of sales and other direct production costs to Income and mining tax provision (see Note 3 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information).

 

28

 

The Greens Creek Segment

 

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

 

Three months ended March 31,

 
   

2021

   

2020

 

Sales

  $ 98,409     $ 53,833  

Cost of sales and other direct production costs

    (38,360 )     (36,753 )

Depreciation, depletion and amortization

    (14,821 )     (12,429 )

Total cost of sales

    (53,181 )     (49,182 )

Gross profit

  $ 45,228     $ 4,651  

Tons of ore milled

    194,080       198,804  

Production:

               

Silver (ounces)

    2,584,870       2,775,707  

Gold (ounces)

    13,266       12,273  

Zinc (tons)

    13,354       12,487  

Lead (tons)

    4,924       5,198  

Payable metal quantities sold:

               

Silver (ounces)

    2,247,274       2,093,720  

Gold (ounces)

    10,547       10,321  

Zinc (tons)

    9,097       9,652  

Lead (tons)

    3,645       3,460  

Ore grades:

               

Silver ounces per ton

    16.01       16.87  

Gold ounces per ton

    0.09       0.08  

Zinc percent

    7.62       6.89  

Lead percent

    3.06       3.12  

Total production cost per ton

  $ 182.61     $ 185.92  

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

  $ (0.67 )   $ 5.63  

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

  $ 1.59     $ 7.90  

Capital additions

  $ 4,892     $ 5,510  

 

 

(1)

A reconciliation of these non-GAAP measures to cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, can be found below in Reconciliation of Cost of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP).

 

The $40.6 million increase in gross profit during the first quarter of 2021 compared to the same 2020 period was the result of higher sales due to:

 

 

higher realized prices for silver, gold, zinc and lead;

 

higher overall metals sales volumes due to the timing of concentrate shipments. Silver sales volume was higher in spite of lower silver production primarily resulting from lower grades due to normal variations in the ore body; and

 

lower concentrate treatment costs of $5.7 million primarily as a result of favorable changes in smelter terms, with approximately $4 million to be non-recurring.

 

29

 

The chart below illustrates the factors contributing to the variances in Cash Cost, After By-product Credits, per Silver Ounce for the first quarter of 2021 compared to the first quarter of 2020:

 

a2.jpg

 

 

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

 

   

Three Months Ended March 31,

 
   

2021

   

2020

 

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

  $ 18.98     $ 20.09  

By-product credits

    (19.65 )     (14.46 )

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

  $ (0.67 )   $ 5.63  

 

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

 

   

Three Months Ended March 31,

 
   

2021

   

2020

 

AISC, Before By-product Credits, per Silver Ounce

  $ 21.24     $ 22.36  

By-product credits

    (19.65 )     (14.46 )

AISC, After By-product Credits, per Silver Ounce

  $ 1.59     $ 7.90  

 

The decrease in Cash Costs and AISC, After By-Product Credits, per Silver Ounce for the first quarter of 2021 compared to 2020 was primarily due to the higher by-product credits, lower treatment costs and reclassification of mine license tax from production costs to income and mining tax provision effective January 1, 2021.

 

Restrictions imposed by the State of Alaska beginning in late March 2020 in response to the COVID-19 virus pandemic, including the requirement for employees returning to Alaska to self-quarantine for 14 days (changed in June 2020 to 7 days), has caused us to revise the normal operating procedures and incur additional costs for staffing operations at Greens Creek. The changes at Greens Creek have not materially impacted our operations to date; however, restrictions could have a material impact if they continue longer than anticipated or become broader.

 

30

 

The Lucky Friday Segment

 

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

 

Three Months Ended March 31,

 
   

2021

   

2020

 

Sales

  $ 29,122     $ 2,830  

Cost of sales and other direct production costs

    (16,458 )     (2,530 )

Depreciation, depletion and amortization

    (6,336 )     (302 )

Total cost of sales

    (22,794 )     (2,832 )

Gross profit (loss)

  $ 6,328     $ (2 )

Tons of ore milled

    81,071       10,219  

Production:

               

Silver (ounces)

    863,901       95,748  

Lead (tons)

    5,780       695  

Zinc (tons)

    2,753       360  

Payable metal quantities sold:

               

Silver (ounces)

    763,823       101,102  

Lead (tons)

    5,023       670  

Zinc (tons)

    1,930       184  

Ore grades:

               

Silver ounces per ton

    11.18       9.87  

Lead percent

    7.51       7.23  

Zinc percent

    3.70       3.85  

Total production cost per ton

  $ 181.28     $  

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

  $ 7.62     $  

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

  $ 14.24     $  

Capital additions

  $ 5,912     $ 4,295  

 

The increases in sales, gross profit, ore tonnage and metals production in the first quarter of 2021 compared to the first quarter of 2020 was the result of a full quarter of production following the return to full production during the fourth quarter of 2020 (discussed further below).         

 

31

 

The chart below illustrates the factors contributing to Cash Cost, After By-product Credits, per Silver Ounce for the first quarter of 2021. Total production costs and Cash Cost and AISC, After By-product Credits, per Silver Ounce are not presented for the first quarter of 2020, as production was limited during the ramp-up after the strike and results are not comparable.

 

a3.jpg

 

 

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

 

   

Three Months Ended March 31,

 
   

2021

 

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

    24.43  

By-product credits

    (16.81 )

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

    7.62  

 

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

 

   

Three Months Ended March 31,

 
   

2021

 

AISC, Before By-product Credits, per Silver Ounce

  $ 31.05  

By-product credits

    (16.81 )

AISC, After By-product Credits, per Silver Ounce

    14.24  

 

Many of the employees at our Lucky Friday unit are represented by a union, and the current collective bargaining agreement with the union expires on January 6, 2023. The unionized employees were on strike from March 13, 2017 until January 7, 2020, when the union ratified a new collective bargaining agreement. Salaried personnel performed limited production and capital improvements from July 2017 until the end of the strike. Re-staffing of the mine commenced in the first quarter of 2020. We have substantially completed the re-staffing and ramp-up process, and the mine ha