UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
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
incorporation or organization)
(I.R.S. EmployerIdentification No.)
6500 Mineral Drive, Suite 200
Coeur d’Alene, Idaho
83815-9408
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (208) 769-4100
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
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, 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). ☐
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 November 2, 2023
Common stock, par value
$0.25 par value per share
618,232,871
Hecla Mining Company and Subsidiaries
Form 10-Q
For the Quarter Ended September 30, 2023
INDEX*
Page
PART I.
FINANCIAL INFORMATION
3
Item 1.
Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations and Comprehensive Loss - Three Months Ended and Nine Months Ended September 30, 2023 and 2022
Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2023 and 2022
4
Condensed Consolidated Balance Sheets - September 30, 2023 and December 31, 2022
5
Condensed Consolidated Statements of Changes in Stockholders' Equity – Three Months Ended and Nine Months Ended September 30, 2023 and 2022
6
Notes to Condensed Consolidated Financial Statements (unaudited)
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
20
Overview
Consolidated Results of Operations
21
Reconciliation of Total Cost of Sales 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)
35
Financial Liquidity and Capital Resources
46
Contractual Obligations, Contingent Liabilities and Commitments
48
Critical Accounting Estimates
Off-Balance Sheet Arrangements
Guarantor Subsidiaries
49
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
52
Item 4.
Controls and Procedures
53
PART II.
OTHER INFORMATION
Legal Proceedings
Item 1A.
Risk Factors
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
54
Signatures
55
*Items 2 and 3 of Part II are omitted as they are not applicable.
2
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
(Dollars and shares in thousands, except for per-share amounts)
Three Months Ended
Nine Months Ended
September 30, 2023
September 30, 2022
Sales
$
181,906
146,339
559,537
524,080
Cost of sales and other direct production costs
112,212
104,900
345,516
326,579
Depreciation, depletion and amortization
36,217
32,992
107,937
106,362
Total cost of sales
148,429
137,892
453,453
432,941
Gross profit
33,477
8,447
106,084
91,139
Other operating expenses:
General and administrative
7,596
11,003
30,449
28,989
Exploration and pre-development
13,686
15,128
25,546
39,136
Ramp-up and suspension costs
21,025
5,092
48,684
16,539
Provision for closed operations and environmental matters
2,256
1,781
6,411
4,154
Other operating (income) expense, net
1,555
902
(2,729
)
5,310
Total other operating expenses
46,118
33,906
108,361
94,128
Loss from operations
(12,641
(25,459
(2,277
(2,989
Other income (expense):
Interest expense
(10,710
(10,874
(31,186
(31,785
Fair value adjustments, net
(6,397
(4,240
(5,774
(14,703
Net foreign exchange gain
4,176
5,667
434
8,111
Other income
1,657
1,853
4,425
4,828
Total other expense
(11,274
(7,594
(32,101
(33,549
Loss before income and mining taxes
(23,915
(33,053
(34,378
(36,538
Income and mining tax benefit (expense)
1,500
9,527
(6,904
3,642
Net loss
(22,415
(23,526
(41,282
(32,896
Preferred stock dividends
(138
(414
Net loss applicable to common stockholders
(22,553
(23,664
(41,696
(33,310
Comprehensive loss:
Change in fair value of derivative contracts designated as hedge transactions
(11,384
(12,692
364
19,491
Comprehensive loss
(33,799
(36,218
(40,918
(13,405
Basic loss per common share after preferred dividends
(0.04
(0.07
(0.06
Diluted loss per common share after preferred dividends
Weighted average number of common shares outstanding - basic
607,896
554,531
604,028
544,000
Weighted average number of common shares outstanding - diluted
Cash dividends declared per common share
0.00625
0.0125
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Operating activities:
Non-cash elements included in net loss:
111,705
106,743
Inventory adjustments
16,332
2,159
5,774
3,486
Provision for reclamation and closure costs
7,805
4,789
Stock-based compensation
5,122
4,298
Deferred income taxes
795
(17,828
Foreign exchange gain
(434
(8,353
Other non-cash items, net
1,624
2,454
Change in assets and liabilities:
Accounts receivable
25,020
34,788
Inventories
(24,339
(19,472
Other current and non-current assets
(15,045
(3,420
Accounts payable, accrued and other current liabilities
(2,389
(21,708
Accrued payroll and related benefits
(11,244
1,679
Accrued taxes
(1,008
(2,652
Accrued reclamation and closure costs and other non-current liabilities
(3,821
(297
Cash provided by operating activities
74,615
53,770
Investing activities:
Additions to properties, plants, equipment and mineral interests
(161,265
(93,237
Change in restricted cash
—
2,011
Proceeds from sale of investments
9,375
Proceeds from disposition of properties, plants and equipment
160
748
Purchases of investments
(1,753
(30,540
Acquisitions, net
8,952
Pre-acquisition advance to Alexco
(25,000
Net cash used in investing activities
(162,858
(127,691
Financing activities:
Proceeds from sale of common stock, net
25,888
4,542
Acquisition of treasury stock
(2,036
(3,677
Borrowing of debt
119,000
25,000
Repayment of debt
(39,000
Dividends paid to common and preferred stockholders
(11,755
(10,549
Credit facility fees paid
(517
Repayments of finance leases
(7,990
(5,222
Net cash provided by financing activities
84,107
9,577
Effect of exchange rates on cash
77
(804
Net decrease in cash, cash equivalents and restricted cash
(4,059
(65,148
Cash, cash equivalents and restricted cash at beginning of period
105,907
211,063
Cash, cash equivalents and restricted cash at end of period
101,848
145,915
Supplemental disclosure of cash flow information:
Cash paid for interest
37,514
37,179
Cash paid for income and mining taxes, net
7,385
13,061
Significant non-cash investing and financing activities:
Addition of finance lease obligations and right-of-use assets
16,092
9,692
Common stock issued to ATAC Resources Ltd. shareholders
18,789
Common stock issued to Alexco Resource Corp. shareholders
68,733
Common stock issued to settle acquired silver stream
135,000
Common stock issued to pension plans
5,570
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except shares)
December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents
100,685
104,743
Accounts receivable:
Trade
16,685
45,146
Other, net
15,286
10,695
Inventories:
Concentrates, doré, stockpiled ore, and metals in transit and in-process
33,993
37,303
Materials and supplies
63,355
53,369
Other current assets
18,410
16,471
Total current assets
248,414
267,727
Investments
16,594
24,018
Restricted cash
1,163
1,164
Properties, plants, equipment and mineral interests, net
2,648,309
2,569,790
Operating lease right-of-use assets
9,163
11,064
Deferred tax assets
3,349
21,105
Other non-current assets
34,164
32,304
Total assets
2,961,156
2,927,172
LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities
87,148
84,747
22,671
37,579
3,064
4,030
Finance leases
11,293
9,483
Accrued reclamation and closure costs
10,352
8,591
Accrued interest
5,191
14,454
Other current liabilities
5,652
19,582
Total current liabilities
145,371
178,466
109,613
108,408
Long-term debt including finance leases
604,953
517,742
Deferred tax liability
109,293
125,846
Other non-current liabilities
14,156
17,743
Total liabilities
983,386
948,205
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, 157,776 shares issued and outstanding, liquidation preference — $7,889
39
Common stock, $0.25 par value, authorized 750,000,000 shares; issued September 30, 2023 — 617,767,667 shares and December 31, 2022 — 607,619,495 shares
154,355
151,819
Capital surplus
2,311,266
2,260,290
Accumulated deficit
(456,968
(403,931
Accumulated other comprehensive income, net
2,812
2,448
Less treasury stock, at cost; September 30, 2023 — 8,535,161 and December 31, 2022 — 8,132,553 shares issued and held in treasury
(33,734
(31,698
Total stockholders’ equity
1,977,770
1,978,967
Total liabilities and stockholders’ equity
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(Dollars are in thousands, except for share and per share amounts)
Three Months Ended September 30, 2023
Series BPreferredStock
CommonStock
Capital Surplus
AccumulatedDeficit
AccumulatedOtherComprehensive Income (Loss), net
TreasuryStock
Total
Balances, July 1, 2023
153,334
2,289,607
(430,606
14,196
1,992,836
Stock-based compensation expense
1,758
Common stock ($0.00625 per share) and Series B Preferred Stock ($0.875 per share) dividends declared
(3,947
Common stock issued for 401(k) match (283,541 shares)
71
1,386
1,457
Common stock issued to ATAC Resources Ltd. shareholders (3,676,904 shares)
919
17,870
Common stock issued to directors (125,063 shares)
31
645
676
Other comprehensive (loss)
Balances, September 30, 2023
Three Months Ended September 30, 2022
Balances, July 1, 2022
137,241
2,043,621
(370,048
3,727
1,782,882
Common stock issued to Alexco Resource Corp. shareholders (17,992,875 shares)
4,498
64,235
Common stock issued to settle the acquired silver stream (34,800,990 shares)
8,700
126,300
Common stock issued for 401(k) match (422,860 shares)
106
1,472
1,578
Common stock issued under ATM program, net (1,176,861 shares)
294
4,248
(3,522
Restricted stock units granted
1,773
Balances, September 30, 2022
150,839
2,241,649
(397,096
(8,965
1,954,768
Nine Months Ended September 30, 2023
Balances, January 1, 2023
4,446
Incentive compensation units distributed (1,435,193 shares)
359
(359
Common stock ($0.0125 per share) and Series B Preferred Stock ($1.75 per share) dividends declared
Common stock issued under ATM program, net (4,253,334 shares)
1,063
24,825
Common stock issued for 401(k) match (657,678 shares)
164
3,549
3,713
Other comprehensive income
Nine Months Ended September 30, 2022
Balances, January 1, 2022
136,391
2,034,485
(353,651
(28,456
(28,021
1,760,787
3,881
Restricted stock units and performance stock units distributed (1,789,042 shares)
447
(447
186
3,283
3,469
Common stock issued to directors (98,310 shares)
25
392
417
Common stock issued to pension plans (1,190,000 shares)
298
5,272
Common stock issued to settle the acquired silver stream (34,800,990)
Common stock ($0.0125 per share) and Series B Preferred Stock ($2.625 per share) dividends declared
7
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 accounting principles generally accepted in the United States of America (“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, 2022 (“2022 Form 10-K”). The consolidated December 31, 2022 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 and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
On July 7, 2023, we completed the acquisition of ATAC Resources Ltd. ("ATAC"), a Canadian publicly traded company, for total consideration of approximately $19.4 million through the issuance of 3,676,904 shares of Hecla common stock to ATAC shareholders based on the share exchange ratio of 0.0166 Hecla share for each ATAC common share, and $0.6 million of acquisition costs. The acquisition was deemed to be an asset acquisition under GAAP as substantially all of the fair value of the gross assets acquired was concentrated in a single asset group being mineral interests. The total consideration was assigned to the estimated fair values of the assets acquired and liabilities assumed, with $18.1 million assigned to mineral interests. As part of the acquisition, we also acquired 5,502,956 units consisting of (i) shares of Cascadia Minerals Ltd. (“Cascadia”) representing a 19.9% stake, and (ii) full warrants with a five-year term for a CAD$2 million cash investment in Cascadia. Cascadia will be managed by the former management of ATAC, who will explore specific properties in the Yukon and British Columbia. We have the right to appoint two directors to Cascadia’s board.
Note 2. Business Segments and Sales of Products
We discover, acquire and develop mines and other mineral interests and produce and market (i) concentrates containing silver, gold, lead and zinc, (ii) carbon material containing silver and gold, and (iii) doré containing silver and gold. We are currently organized and managed in five segments: Greens Creek, Lucky Friday, Keno Hill, Casa Berardi and Nevada Operations.
General corporate activities not associated with operating mines and their various exploration activities, as well as idle properties and environmental remediation services in the Yukon, Canada, are presented as “other.” The nature of the items that reconcile income (loss) from operations to loss before income and mining taxes are not related to our reportable segments.
The following tables present information about our reportable segments sales for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
2023
2022
Total sales:
Greens Creek
96,459
60,875
290,961
239,688
Lucky Friday
21,409
28,460
113,167
102,380
Keno Hill
16,001
17,582
Casa Berardi
46,912
56,939
134,856
181,679
Nevada Operations
960
268
Other
1,125
65
Income (loss) from operations:
31,169
1,378
92,824
63,768
(4,935
4,269
20,161
18,568
(7,462
(2,324
(24,145
(12,433
(5,226
(35,492
(8,497
(6,061
(8,917
(16,981
(30,879
(12,919
(14,639
(38,644
(43,625
The following table presents total assets by reportable segment as of September 30, 2023 and December 31, 2022 (in thousands):
Total assets:
568,881
582,687
564,746
571,510
354,149
276,096
694,030
681,631
461,706
466,722
317,644
348,526
Our sales for the three and nine months ended September 30, 2023 and 2022 are comprised of metal sales and revenue from our environmental remediation services in the Yukon.
Total sales for the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
Silver
74,425
45,924
235,447
182,306
Gold
70,206
69,289
208,216
228,475
Lead
15,719
16,033
62,778
56,912
Zinc
33,066
28,051
91,912
94,865
Less: Smelter and refining charges
(12,550
(13,023
(40,743
(38,543
Total metal sales
180,866
146,274
557,610
524,015
Environmental remediation services
1,040
1,927
Total sales
Sales of metals for the three and nine months ended September 30, 2023 included net gains of $4.0 million and $13.1 million, respectively, on financially-settled forward option contracts for silver, gold, lead and zinc. Sales of metals for the three and nine months ended September 30, 2022 included net gains of $1.6 million and $8.1 million, respectively, on such contracts. See Note 8 for more information.
Note 3. Income and Mining Taxes
Major components of our income and mining tax benefit (expense) for the three and nine months ended September 30, 2023 and 2022 are as follows (in thousands):
September 30,
Current:
Domestic
(1,182
253
(2,980
(2,296
Foreign
(1,029
(1,085
(3,050
(4,172
Total current income and mining tax expense
(2,211
(832
(6,030
(6,468
Deferred:
(3,696
8,156
(17,619
915
7,407
2,203
16,745
9,195
Total deferred income and mining tax benefit (expense)
3,711
10,359
(874
10,110
Total income and mining tax benefit (expense)
The income and mining tax benefit (expense) for the three and nine months ended September 30, 2023 and 2022 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, non-recognition of net operating losses and foreign exchange gains and losses in certain jurisdictions.
For the three and nine months ended September 30, 2023, we used the annual effective tax rate method to calculate the tax provision. Valuation allowances on Nevada, Mexico and certain Canadian net operating losses were treated as discrete adjustments to the tax calculation including losses incurred by the acquired Alexco Resource Corp. entities ("Alexco"), which were acquired on September 7, 2022, and losses incurred by ATAC, which was acquired on July 7, 2023.
9
Note 4. Employee Benefit Plans
We sponsor three defined benefit pension plans, two of which cover substantially all U.S. employees. Net periodic pension (benefit) cost for the plans consisted of the following for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Service cost
949
1,566
2,847
4,697
Interest cost
1,993
1,369
5,979
4,107
Expected return on plan assets
(3,107
(3,363
(9,321
(10,089
Amortization of prior service cost
125
128
375
384
Amortization of net loss
(47
512
(141
1,537
Net periodic pension (benefit) cost
(87
212
(261
636
For the three and nine months ended September 30, 2023 and 2022, 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. The net benefit related to all other components of net periodic pension cost of $1.0 million and $3.1 million for the three and nine months ended September 30, 2023, respectively, and $1.4 million and $4.1 million for the three and nine months ended September 30, 2022, respectively, is included in other income on our condensed consolidated statements of operations and comprehensive loss.
Note 5. Loss Per Common Share
We calculate basic 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, deferred restricted 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.
The following table represents net loss per common share – basic and diluted (in thousands, except income (loss) per share):
Numerator
Denominator
Basic weighted average common shares
Dilutive restricted stock units, warrants and deferred shares
Diluted weighted average common shares
Basic loss per common share
Diluted loss per common share
For the three and nine months ended September 30, 2023 and 2022, all outstanding unvested restricted stock units, deferred restricted stock units, warrants and convertible preferred stock were excluded from the computation of diluted loss per share, as our reported net loss would cause their conversion and exercise to have an anti-dilutive effect on the calculation of diluted loss per share.
Note 6. Stockholders’ Equity
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 our 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 sales of shares under the equity
10
distribution agreement are registered under the Securities Act of 1933, as amended, pursuant to a shelf registration statement on Form S-3. Under the agreement, we have sold 8,113,553 shares for proceeds of $43.2 million, net of commissions and fees of $0.7 million. During the three months ended September 30, 2023, we did not sell any shares under the agreement. During the nine months ended September 30, 2023, we sold 4,253,334 shares under the agreement for proceeds of $25.9 million, net of commissions and fees of $0.4 million.
Stock-based Compensation Plans
The Company has stock incentive plans for executives, directors and eligible employees, comprised of performance shares and restricted stock. Stock-based compensation expense for restricted stock unit and performance-based grants (collectively "incentive compensation") to employees and shares issued to non-employee directors totaled $2.4 million and $5.1 million for the three and nine months ended September 30, 2023, respectively, and $1.8 million and $4.3 million for the three and nine months ended September 30, 2022, respectively. At September 30, 2023, there was $9.0 million of unrecognized stock-based compensation cost which is expected to be recognized over a weighted-average remaining vesting period of 1.5 years.
The following table summarizes the grants awarded during the nine months ended September 30, 2023:
Grant date
Award type
Number granted
Grant date fair value per share
June 21, 2023
Restricted stock
1,230,223
$5.05
Performance based
314,778
$3.54
August 7, 2023
51,357
$5.16
21,318
In connection with the vesting of incentive compensation, employees have in the past, at their election and when permitted by us, chosen to satisfy their minimum tax withholding obligations through net share settlement, pursuant to which the Company withholds the number of shares necessary to satisfy such withholding obligations and pays the obligations in cash. As a result, in the nine months ended September 30, 2023, we withheld 404,514 shares valued at approximately $2.0 million, or approximately $5.03 per share.
Common Stock Dividends
The following table summarizes the dividends our Board of Directors have declared and we have paid during 2023 pursuant to our dividend policy:
Quarter
Prior Quarter Realized Silver Price
Silver-linked component
Minimum component
Total dividend per share
First
22.03
$0.0025
$0.00375
$0.00625
Second
22.62
Third
23.67
Accumulated Other Comprehensive Income (Loss), Net
The following table lists the beginning balance, quarterly activity and ending balances, net of income and mining tax, of each component of “Accumulated other comprehensive income (loss), net” (in thousands):
Changes in fair value of derivative contracts designated as hedge transactions
AdjustmentsFor Pension Plans
TotalAccumulatedOtherComprehensiveIncome (Loss), Net
Balance January 1, 2023
9,162
(6,714
Changes in fair value of derivative contracts
8,665
Gains and deferred gains transferred from accumulated other comprehensive income
(2,149
Balance March 31, 2023
15,678
8,964
7,445
(2,213
Balance June 30, 2023
20,910
(5,265
(6,119
Balance September 30, 2023
9,526
11
Balance January 1, 2022
(4,675
(23,781
(31,798
Gains transferred from accumulated other comprehensive income
(1,367
Balance March 31, 2022
(37,840
(61,621
61,939
3,409
Balance June 30, 2022
27,508
(16,701
4,009
Balance September 30, 2022
14,816
Note 7. Debt, Credit Agreement and Leases
Our debt as of September 30, 2023 and December 31, 2022 consisted of our 7.25% Senior Notes due February 15, 2028 (“Senior Notes”), our Series 2020-A Senior Notes due July 9, 2025 (the “IQ Notes”) and any drawn amounts on our $150 million Credit Agreement, which is described separately below. The following tables summarize our long-term debt balances, excluding interest and borrowings under the Credit Agreement, as of September 30, 2023 and December 31, 2022 (in thousands):
Senior Notes
IQ Notes
Principal
475,000
35,677
510,677
Unamortized discount/premium and issuance costs
(3,958
284
(3,674
Long-term debt balance
471,042
35,961
507,003
35,614
510,614
(4,640
(4,248
470,360
36,006
506,366
The following table summarizes the scheduled annual future payments, including interest, for our Senior Notes, IQ Notes, and finance and operating leases as of September 30, 2023 (in thousands). Operating leases are included in other current and non-current liabilities on our condensed consolidated balance sheets. The amounts for the IQ Notes are stated in U.S. dollars (“USD”) based on the USD/Canadian dollar (“CAD”) exchange rate as of September 30, 2023.
Twelve-month period ending September 30,
Finance Leases
Operating Leases
2024
34,438
2,324
9,313
1,802
2025
37,468
8,888
1,277
2026
6,415
1,273
2027
3,389
1,199
2028
487,912
4,156
1,081
Thereafter
5,807
625,664
39,792
32,161
12,439
Less: effect of discounting
(2,918
(3,069
29,243
9,370
Credit Agreement
On July 21, 2022, we entered into a revolving credit facility (the "Credit Agreement") with various financial institutions (the “Lenders”), Bank of Montreal and Bank of America, N.A. as letters of credit issuers, and Bank of America, N.A., as administrative agent for the Lenders and as swingline lender, to replace our prior credit agreement. The Credit Agreement is a $150 million senior secured revolving facility, with an option to be increased in an aggregate amount not to exceed $75 million. Any revolving loans under the Credit Agreement have a maturity date of July 21, 2026. Proceeds of the revolving loans under the Credit Agreement may be used for general corporate purposes. The interest rate on the outstanding loans under the Credit Agreement is based on the Company’s net
12
leverage ratio and is calculated at (i) Term Secured Overnight Financing Rate ("SOFR") plus 2% to 3.5% or (ii) Bank of America’s Base Rate plus 1% to 2.5% with Base Rate being the highest of (i) the Bank of America prime rate, (ii) the Federal Funds rate plus .50% or (iii) Term SOFR plus 1.00%. For each amount drawn, we elect whether we draw on a one, three or six month basis or annual basis for SOFR. If we elect to draw for greater than six months, we pay interest quarterly on the outstanding amount.
We are also required to pay a commitment fee of between 0.45% to 0.78750%, depending on our net leverage ratio. Letters of credit issued under the Credit Agreement bear a fee between 2.00% and 3.50% based on our net leverage ratio, as well as a fronting fee to each issuing bank at an agreed upon rate per annum on the average daily dollar amount of our letter of credit exposure.
Hecla Mining Company and certain of our subsidiaries are the borrowers under the Credit Agreement, while certain of our other subsidiaries are guarantors of the borrowers’ obligations under the Credit Agreement. As further security, the Credit Agreement is collateralized by a mortgage on the Greens Creek mine, the equity interests of subsidiaries that own the Greens Creek mine or are part of the Greens Creek Joint Venture and our subsidiary Hecla Admiralty Company (the “Greens Creek Group”), and by all of the Green Creek Group’s rights and interests in the Greens Creek Joint Venture Agreement, and in all assets of the joint venture and of any member of the Greens Creek Group.
At September 30, 2023, we had net draws of $80.0 million outstanding at an interest rate of 8.0%, and $6.7 million of outstanding letters of credit. Letters of credit that are outstanding reduce availability under the Credit Agreement.
We believe we were in compliance with all covenants under the Credit Agreement as of September 30, 2023.
Note 8. Derivative Instruments
General
Our current risk management policy provides that up to 75% of five years of our foreign currency, lead and zinc metals price and silver and gold price exposure may be covered under a derivatives program with certain other limitations. Our program also utilizes derivatives to manage price risk exposure created from when revenue is recognized from a shipment of concentrate until final settlement.
These instruments 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 or currency exchange rate 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 operation and Keno Hill operation are USD-functional entities which routinely incur expenses denominated in CAD. Such expenses expose us to exchange rate fluctuations between the USD and CAD. We have a program to manage our exposure to fluctuations in the USD exchange rate for these subsidiaries' future operating and capital costs denominated in CAD. The program related to forecasted cash operating costs at Casa Berardi and Keno Hill utilizes forward contracts to buy CAD, some of which are designated as cash flow hedges. As of September 30, 2023, we have a total of 642 forward contracts outstanding to buy a total of CAD $510.8 million having a notional amount of USD$383.6 million for Casa Berardi, Keno Hill, and some corporate Canadian expenses. The CAD contracts that are related to forecasted cash operating costs at Casa Berardi and Keno Hill from 2023-2026 have a total notional value of CAD$406.3 million and have CAD-to-USD exchange rates ranging between 1.27550 and 1.37250 The CAD contracts that are related to forecasted capital expenditures at Casa Berardi from 2023-2026 have a total notional value of CAD$52.6 million at an average CAD-to-USD exchange rate of 1.357. The CAD contracts that are related to forecasted capital expenditures at Keno Hill from 2023-2026 have a total notional value of CAD$27.1 million at an average CAD-to-USD exchange rate of 1.3533.
As of September 30, 2023 and December 31, 2022, we recorded the following balances for the fair value of the foreign currency forward contracts (in millions):
December 31,
Balance sheet line item:
0.9
1.1
0.4
3.3
4.0
2.2
3.6
Net unrealized losses of $4.9 million related to the effective portion of the foreign currency forward contracts designated as hedges are included in accumulated other comprehensive income (loss) as of September 30, 2023. Unrealized gains and losses will be
13
transferred from accumulated other comprehensive income (loss) to current earnings as the underlying operating expenses are recognized. We estimate $2.9 million in net unrealized losses included in accumulated other comprehensive income (loss) as of September 30, 2023 will be reclassified to current earnings in the next twelve months. Net realized losses of $0.6 million and $2.5 million on contracts related to underlying expenses which have been recognized were transferred from accumulated other comprehensive income (loss) and included in cost of sales and other direct production costs for the three and nine months ended September 30, 2023, respectively. Net losses of $3.2 million and net gains of $0.1 million for the three and nine months ended September 30, 2023, respectively, related to contracts not designated as hedges and no net unrealized gains or losses related to ineffectiveness of the hedges are included in fair value adjustments, net on our consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2023, respectively.
Metals Prices
We are currently using financially-settled forward contracts to manage the exposure to:
The following tables summarize the quantities of metals committed under forward metals contracts at September 30, 2023 and December 31, 2022:
Ounces/pounds under contract (in 000's)
Average price per ounce/pound
(ounces)
(pounds)
Contracts on provisional sales
2023 settlements
931
11,188
23.30
N/A
1.00
Contracts on forecasted sales
441
7,992
1.51
0.99
2024 settlements
74,902
0.97
2025 settlements
44,754
3,124
18,629
11,960
21.55
1,795
1.38
0.98
37,533
75,618
1.34
45,856
We recorded the following balances for the fair value of the forward metals contracts as of September 30, 2023 and December 31, 2022 (in millions):
Contracts in an asset position
Contracts in a liability position
Net asset (liability)
1.2
0.1
(12.1
(2.5
Net realized and unrealized gains of $15.1 million related to the effective portion of the forward metals contracts designated as hedges were included in accumulated other comprehensive income (loss) as of September 30, 2023. Unrealized gains and losses will be transferred from accumulated other comprehensive income (loss) to current earnings as the underlying forecasted sales are recognized. We estimate $11.7 million in net realized and unrealized gains included in accumulated other comprehensive income (loss) as of September 30, 2023 would be reclassified to current earnings in the next twelve months. The realized gains arose due to cash settlement of zinc contracts prior to maturity in 2022 and during the second quarter of 2023 for net proceeds of $17.4 million and $7.6 million, respectively. We recognized a net gain of $4.0 million, including a $6.7 million gain transferred from accumulated other comprehensive income (loss), and a net gain of $1.6 million, during the three months ended September 30, 2023 and 2022, respectively. We recognized a net gain of $13.1 million, including a $13.0 million gain transferred from accumulated other comprehensive income (loss), and a net gain of $8.1 million, during the nine months ended September 30, 2023 and 2022, respectively. These gains and losses were recognized on the contracts utilized to manage exposure to prices of metals in our concentrate shipments, which are included in sales. The net losses
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and gains recognized on the contracts offset gains and 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.
Credit-risk-related Contingent Features
Certain of our derivative contracts contain cross default provisions which provide that a default under our Credit Agreement would cause a default under the derivative contract. As of September 30, 2023, 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 $7.1 million as of September 30, 2023, which includes accrued interest but excludes any adjustment for nonperformance risk. If we were in breach of any of these provisions at September 30, 2023, we could have been required to settle our obligations under the agreements at their termination value of $7.1 million.
Note 9. Fair Value Measurement
Fair value adjustments, net is comprised of the following (in thousands):
Gain (loss) on derivative contracts
(2,160
873
1,848
(20
Unrealized loss on equity securities investments
(4,237
(5,110
(7,622
(14,749
Gain on disposition or exchange of investments
(3
66
Total fair value adjustments, net
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.
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 atSeptember 30,2023
Balance atDecember 31,2022
InputHierarchy Level
Assets:
Cash and cash equivalents:
Money market funds and other bank deposits
Level 1
Current and non-current investments:
Equity securities - mining industry
Trade accounts receivable:
Receivables from provisional concentrate sales
Level 2
Restricted cash balances:
Certificates of deposit and other deposits
Derivative contracts - current and non-current derivatives assets:
Foreign exchange contracts
1,343
1,518
Metal forward contracts
1,241
1,309
137,711
177,898
Liabilities:
Derivative contracts - current derivatives liabilities and other non-currentliabilities:
5,549
7,548
1,128
14,643
6,677
22,191
Cash and cash equivalents consist primarily of money market funds and are valued at cost, which approximates fair value.
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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 investments 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 metals.
We use financially-settled forward contracts to manage exposure to changes in the exchange rate between USD and CAD, and the impact on CAD-denominated operating and capital costs incurred at our Casa Berardi operation and the Keno Hill operation (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 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.
At September 30, 2023, our Senior Notes and IQ Notes were recorded at their carrying value of $471.0 million and $36.0 million, respectively, net of unamortized initial purchaser discount/premium and issuance costs. The estimated fair values of our Senior Notes and IQ Notes were $460.2 million and $34.2 million, respectively, at September 30, 2023. Quoted market prices, which we consider to be Level 1 inputs, are utilized to estimate fair values of the Senior Notes. Unobservable inputs which we consider to be Level 3, including an assumed current annual yield of 8.06%, are utilized to estimate the fair value of the IQ Notes. See Note 7 for more information.
Note 10. Commitments, Contingencies and Obligations
Johnny M Mine Area near San Mateo, McKinley County and San Mateo Creek Basin, New Mexico
In August 2012, Hecla Limited and the U.S. Environmental Protection Agency (the “EPA”) entered into a Settlement Agreement and Administrative Order on Consent for Removal Action (“Consent Order”) regarding the Johnny M Mine Area near San Mateo, McKinley County, New Mexico. Mining at the Johnny M Mine was conducted for a limited period of time by a predecessor of Hecla Limited, and the EPA had previously asserted that Hecla Limited may be responsible under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) for environmental remediation and past costs incurred by the EPA at the site. Under the Consent Order, 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. In December 2014, Hecla Limited submitted to the 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 parties began negotiating 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 accrued $10.1 million, primarily representing estimated current costs to design and implement the remedy, which are subject to change as fieldwork is performed. It is possible that Hecla Limited’s liability will be more than $10.1 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 $10.1 million due to the increased scope of required remediation.
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. On May 2, 2022, Hecla Limited received a letter from a PRP notifying Hecla Limited that three PRPs will seek cost recovery and
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contribution from Hecla Limited under CERCLA for certain investigatory work performed by the PRPs at the SMCB site. 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 for information regarding the Carpenter Snow Creek Superfund site located in Cascade County, Montana. The Carpenter Snow Creek site is located in a historical 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 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.
Lucky Friday Environmental Issues
On July 12, 2022, our Lucky Friday mine received a NOV from the EPA alleging violations of the Clean Water Act between 2018 and 2021 relating primarily to concentration levels of zinc and lead in the mine’s permitted water discharges. Currently, the EPA has not initiated any formal enforcement proceeding against our Lucky Friday subsidiary. In civil judicial cases, the EPA can seek statutory penalties up to $59,973 per day per violation and, in administrative actions, the EPA can seek administrative penalties up to $23,989 per day per violation with a maximum administrative penalty of $299,989 for all alleged violations. The EPA typically pursues administrative penalties. At this time, we cannot reasonably assess the amount of penalties the EPA may seek, or predict the terms of any potential settlement with the EPA.
Litigation Related to Klondex Acquisition
On May 24, 2019, a purported Hecla stockholder filed a putative class action lawsuit in the 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. 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. The Court granted our Motion to Dismiss the lawsuit, without prejudice, in February 2023, and the plaintiffs filed an amended complaint in March 2023 which repeats the same claims. We have filed a Motion to Dismiss the amended complaint. We cannot predict the outcome of this lawsuit or estimate damages if plaintiffs were to prevail. We believe that these claims are without merit and intend to defend them vigorously.
Related to this class action lawsuit, Hecla has been named as a nominal defendant in a shareholder derivative lawsuit which also names as defendants certain current and past (i) members of Hecla’s board of directors and (ii) officers of Hecla. The case was filed on May 4, 2022 in the Delaware Chancery Court. In general terms, the suit alleges breaches of fiduciary duties by the individual defendants, waste of corporate assets and unjust enrichment, and seeks damages, purportedly on behalf of Hecla.
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Debt
See Note 7 for information on the commitments related to our debt arrangements as of September 30, 2023.
Other Commitments
Our contractual obligations as of September 30, 2023 included open purchase orders and commitments of approximately $15.0 million, $9.7 million, $10.3 million, $3.5 million and $1.8 million for various capital and non-capital items at Greens Creek, Lucky Friday, Keno Hill, Casa Berardi and Nevada Operations, respectively. We also have total commitments of approximately $32.2 million relating to scheduled payments on finance leases, including interest, primarily for equipment at our Greens Creek, Lucky Friday, Casa Berardi, and Keno Hill units, and total commitments of approximately $12.4 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 September 30, 2023, we had surety bonds totaling $193.4 million and letters of credit totaling $6.7 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.
Note 11. Developments in Accounting Pronouncements
Accounting Standards Updates Adopted
In March 2020, ASU No. 2020-04 was issued which provides optional guidance for a limited period of time to ease the potential burden on accounting for contract modifications caused by reference rate reform. In January 2021, ASU No. 2021-01 was issued which broadened the scope of ASU No. 2020-04 to include certain derivative instruments. In December 2022, ASU No. 2022-06 was issued which deferred the sunset date of ASU No. 2020-04. The guidance is effective for all entities as of March 12, 2020 through December 31, 2024. The guidance may be adopted over time as reference rate reform activities occur and should be applied on a prospective basis. Certain of our derivative instruments previously referenced London Interbank Offered Rate ("LIBOR") based rates and have been amended to eliminate the LIBOR-based rate references prior to July 1, 2023. There have been no significant impacts to our financial results, financial position or cash flows from the transition from LIBOR to alternative reference interest rates.
Note 12. Subsequent Events
On November 1, 2023, we participated in an equity offering of Dolly Varden Silver Corporation acquiring 15,384,616 shares of common stock for CAD$10 million (USD$7.3 million).
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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 Disclosures 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 2022 Form 10-K. 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.
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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 2022 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.
Established in 1891, we are the oldest operating precious metals mining company in the United States. We are the largest silver producer in the United States, producing over 45% of the U.S. silver production at our Greens Creek and Lucky Friday operations. We produce gold at our Casa Berardi and Greens Creek operations. In addition, we are developing the Keno Hill mine in the Yukon Territory, Canada which we acquired on September 7, 2022. We began ramp-up of the Keno Hill mill during the second quarter of 2023. Based upon the jurisdictions in which we operate, we believe we have lower political and economic risk compared to other mining companies whose mines are located in other parts of the world. Our exploration interests are located in the United States, Canada and Mexico. Our operating and strategic framework is based on expanding our production and locating and developing new resource potential in a safe and responsible manner.
Third Quarter 2023 Highlights
Operational:
Financial:
Year to date 2023 Highlights
External Factors that Impact our Results
Our financial results vary as a result of fluctuations in market prices primarily for silver and gold and, to a lesser extent, zinc and lead. World market prices for these commodities have fluctuated historically and are affected by numerous factors beyond our control. Beginning in 2020, with the onset of the COVID-19 pandemic, and continuing in 2023 because of a series of macro-economic factors, there has been significant volatility in the financial and commodities markets, including the precious metals market. We believe the outlook for precious metals fundamentals in the medium- and long-term are favorable. Refer to “Markets” and see Item 1A. “Risk Factors” contained in Part I of our annual report on Form 10-K for the year ended December 31, 2022 ("2022 Form 10-K"), for further discussion. Because we cannot control the price of our products, the key measures that management focuses on in operating our business are production volumes, payable sales volumes, Cash Cost, After By-product Credits, per Ounce (non-GAAP) and All-In Sustaining Cost, After By-product Credits, per Ounce (“AISC”) (non-GAAP), operating cash flows, capital expenditures, free cash flow and adjusted EBITDA. The average realized prices for all metals sold by us continued to exhibit significant volatility period over period. We have also experienced significant cost inflation across our operations, principally associated with higher energy prices, increased costs for other consumables such as reagents, explosives and steel, and higher labor and contractor costs.
Total sales for the three and nine months ended September 30, 2023 and 2022 were as follows:
(in thousands)
Total metal sales for the three and nine months ended September 30, 2023 and 2022, and the approximate variances attributed to differences in metals prices, sales volumes and smelter terms, were as follows:
Base metals
Less: smelter and refining charges
Total sales of products
Three months ended September 30, 2022
44,084
Variances - 2023 versus 2022:
Price
13,104
7,336
760
29,791
Volume
15,397
(6,419
(3,890
(418
4,670
Smelter terms
131
Three months ended September 30, 2023
48,785
Nine months ended September 30, 2022
151,777
18,808
11,256
(6,057
1,489
25,496
34,333
(31,515
8,970
(3,964
7,824
275
Nine months ended September 30, 2023
154,690
The fluctuations in sales for the three and nine months ended September 30, 2023 compared to the same periods in 2022 were primarily due to the following two reasons:
Silver –
London PM Fix ($/ounce)
23.57
19.22
23.44
21.94
Realized price per ounce
23.71
18.30
23.28
21.25
Gold –
1,929
1,728
1,932
1,825
1,908
1,713
1,921
1,817
Lead –
LME Final Cash Buyer ($/pound)
0.90
Realized price per pound
1.07
0.95
1.02
Zinc –
1.10
1.48
1.22
1.65
1.52
1.23
1.47
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. We recorded net positive price adjustments to provisional settlements of $8.1 million and $12.3 million for the three and nine months ended September 30, 2023, respectively, and net negative price adjustments of $6.6 million and $21.5 million for the three and nine months ended September 30, 2022, respectively. The price adjustments related to silver, gold, zinc and lead contained in our concentrate shipments were partially offset by gains and losses on forward contracts for those metals. 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, doré and carbon material shipped during the period.
Silver -
Ounces produced
3,533,704
3,549,392
11,407,232
10,525,917
Payable ounces sold
3,142,227
2,479,724
10,107,415
8,554,894
Gold -
39,269
44,747
114,091
132,173
36,792
40,443
108,372
125,721
Lead -
Tons produced
8,024
11,600
34,583
35,794
Payable tons sold
7,440
8,049
30,848
28,788
Zinc -
14,636
15,859
47,715
47,571
10,993
11,523
34,326
32,328
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 the concentrates we produce 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.
22
Sales, total cost of sales, gross profit (loss), Cash Cost, After By-product Credits, per Ounce (“Cash Cost”) (non-GAAP) and AISC (non-GAAP) at our operating units for the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands, except for Cash Cost and AISC):
Total Silver (2)
Nevada Operations and Other (3)
Total Gold
Three Months Ended September 30, 2023:
133,869
48,037
(60,322
(14,344
(16,001
(90,667
(56,822
(940
(57,762
Gross profit (loss)
36,137
7,065
43,202
(9,910
185
(9,725
Cash Cost (1)
3.04
4.74
3.31
1,475
AISC (1)
8.18
10.63
11.39
1,695
Three Months Ended September 30, 2022:
89,335
57,004
(52,502
(24,164
(76,666
(59,532
(1,694
(61,226
8,373
4,296
12,669
(2,593
(1,629
(4,222
2.65
5.23
3.43
1,349
7.07
15.98
12.93
1,669
421,710
2,971
137,827
(189,664
(81,068
(17,582
(288,314
(162,396
(2,743
(165,139
101,297
32,099
133,396
(27,540
228
(27,312
1.81
5.51
2.86
1,635
5.67
12.21
10.52
2,075
342,068
333
182,012
(162,644
(83,779
(246,423
(183,570
(2,948
(186,518
77,044
18,601
95,645
(1,891
(2,615
(4,506
(0.49
4.77
1.11
1,409
4.02
12.86
9.49
1,678
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 Keno Hill is appropriate because:
23
Accordingly, we believe the identification of gold, lead and zinc as by-product credits at Greens Creek, Lucky Friday and Keno Hill 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 at those locations. 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 Keno Hill 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 the Casa Berardi or Nevada Operations 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.
We reported a net loss applicable to common stockholders of $22.6 million for the three months ended September 30, 2023, compared to a net loss applicable to common stockholders of $23.7 million in the comparable period in 2022. The following were the significant drivers of changes in net loss applicable to common stockholders compared to 2022:
We reported a net loss applicable to common stockholders of $41.7 million for the nine months ended September 30, 2023, compared to a net loss applicable to common stockholders of $33.3 million in the comparable period in 2022. The following were the significant drivers of changes in net loss applicable to common stockholders compared to 2022:
24
Dollars are in thousands (except per ounce and per ton amounts)
(49,307
(42,197
(151,107
(127,290
(11,015
(10,305
(38,557
(35,354
Tons of ore milled
228,978
229,975
694,610
651,220
Production:
Silver (ounces)
2,343,192
2,468,280
7,471,725
7,308,660
Gold (ounces)
15,010
11,412
46,245
35,227
Lead (tons)
4,740
4,428
14,668
14,495
Zinc (tons)
13,224
12,580
38,961
38,470
Payable metal quantities sold:
1,973,606
1,663,909
6,421,060
5,702,301
12,371
7,478
38,025
25,952
3,600
2,755
11,506
10,069
9,444
9,138
27,648
25,725
Ore grades:
Silver ounces per ton
13.1
13.6
13.4
13.8
Gold ounces per ton
0.09
0.07
Lead percent
2.5
%
2.4
2.6
2.7
Zinc percent
6.5
6.3
6.7
Total production cost per ton
200.30
185.34
197.94
191.58
Cash Cost, After By-product Credits, per Silver Ounce (1)
AISC, After By-Product Credits, per Silver Ounce (1)
Capital additions
12,060
6,988
27,546
24,748
The $27.8 million increase in gross profit for the three months ended September 30, 2023 compared to the same period in 2022 was primarily due to higher sales reflecting a combination or higher realized prices and sales volumes for all metals, partially offset by higher cost of sales and other direct production costs attributable to higher contractor labor maintenance expense, and higher depreciation, depletion and amortization reflecting the higher sales volumes. Capital additions increased by $5.1 million in the same period primarily due to higher mobile equipment purchases and the camp housing project.
The $24.3 million increase in gross profit for the nine months ended September 30, 2023 compared to the same period in 2022 was primarily due to higher sales reflecting higher realized prices for all metals, except zinc, in addition to higher sales volumes of all metals sold, partially offset by higher cost of sales and other direct production costs reflecting more ore mined and processed and cost increases in consumables, labor, maintenance and contractor costs, and higher depreciation, depletion and amortization reflecting the higher sales volumes. Capital additions increased by $2.8 million in the same period primarily due to the camp housing project.
26
The charts below illustrate the factors contributing to Cash Cost, After By-product Credits, per Silver Ounce:
Cash Cost, Before By-product Credits, per Silver Ounce
25.48
22.69
24.03
22.24
By-product credits
(22.44
(20.04
(22.22
(22.73
Cash Cost, After By-product Credits, per Silver Ounce
27
AISC, Before By-product Credits, per Silver Ounce
30.62
27.11
27.89
26.75
AISC, After By-product Credits, per Silver Ounce
The increase in Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce for the three and nine month periods ended September 30, 2023 compared to the same period in 2022 was primarily due to higher production costs in 2023.
28
(10,038
(16,903
(57,327
(59,624
(4,306
(7,261
(23,741
(24,155
36,619
90,749
225,965
265,971
475,414
1,074,230
3,024,544
3,188,565
2,957
7,172
19,171
21,299
1,159
3,279
7,810
9,101
534,183
801,115
2,974,835
2,822,281
3,330
5,295
18,809
18,720
981
2,385
6,061
6,602
12.5
14.0
12.7
8.6
8.5
8.9
3.5
4.2
4.1
3.9
191.81
207.10
223.44
220.41
AISC, After By-product Credits, per Silver Ounce (1)
15,494
16,125
46,518
37,278
During August 2023, the mine was suspended while repairing an unused station in the #2 ventilation shaft, which is also the secondary egress. The operation remained suspended due to a fire at the unused station. By early September, the fire had been extinguished, normal ventilation was reestablished and the workforce recalled. Following evaluation of alternatives, it was determined that in order to safely bring the mine back into production in the most rapid and cost effective way, a new secondary egress needed to be developed to bypass the damaged portion of the #2 shaft. The new egress will extend an existing ramp 1,600 feet, install a 290-foot-long manway raise, and develop a 850 foot ventilation raise. It is anticipated that this work will result in operations being suspended for the remainder of 2023. The Company has property and business interruption insurance coverage with an underground sub-limit of $50.0 million, and has begun discussions with the insurance provider to recover property damage and business interruption insurance proceeds. There can be no assurance that we will succeed in receiving such proceeds.
Gross profit increased by $2.8 million and $13.5 million for the three and nine month periods ended September 30, 2023, respectively, compared to the same periods in 2022. For both the three and nine month periods ended September 30, 2023, $12.0 million of site specific suspension costs were included within Ramp-up and suspension costs on our condensed consolidated statements of operations and comprehensive loss. For both the three and nine month periods ended September 30, 2023, the increase in gross profit was attributable to higher realized prices for silver and lead, and the impact of mining and processing more high grade material, particularly for silver.
Capital additions decreased by $0.6 million in the three months ended September 30, 2023, compared to the same period in 2022, reflecting lower development and pre-production drilling following suspension of operations in August 2023. Capital additions increased by $9.2 million for the nine months ended September 30, 2023, compared to the same period in 2022, primarily due to expenditures on key projects including the installation of a new service hoist and coarse ore bunker, increased development, and pre-production drilling to achieve a sustained ore production rate for the annual throughput goal of 425,000 tons, prior to suspension of operations in August 2023.
29
The charts below illustrate the factors contributing to Cash Cost, After By-product Credits, Per Silver Ounce:
20.20
22.87
21.45
(15.46
(17.64
(15.94
(18.67
30
26.09
33.62
28.15
31.53
The decrease in Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce for the three and nine month periods ended September 30, 2023 compared to the same period in 2022 was primarily due to lower by-product credits in 2023.
(14,053
(15,373
(1,948
(2,209
24,616
36,680
710,012
894,276
252
943
327
744
628,571
694,198
569
617
509
533
33.0
28.2
3.1
2.1
We acquired our Keno Hill operations as part of the Alexco acquisition on September 7, 2022, and have focused on development activities and began ramp-up of the mill during the second quarter. The average throughput during the third quarter was 268 tons per day, with silver grades milled of 33 ounces per ton. Tonnage mined was constrained by delays in infrastructure construction which has impacted development rates. Key underground infrastructure projects include the shotcrete plant, which is now complete, and the cemented rockfill plant, which is expected to be completed at the end of November. With the delay in major construction projects, camp facilities at the mine were constrained, which was also a factor in the slower ramp-up of the mine. Modifications to the secondary crushing circuit are substantially complete, and commissioning is underway. The changes are expected to increase crusher availability and efficiency.
During the three and nine months ended September 30, 2023, Keno Hill recorded sales and cost of sales of $16.0 million and $17.6 million, respectively, related to the concentrate produced and sold. During the three and nine months ended September 30, 2023, $5.1 million and $20.4 million, respectively, of site specific ramp up costs were included with Ramp-up and suspension costs and $1.7 million and $3.1 million, respectively, of site specific exploration costs were included within Exploration and pre-development a reported on our condensed consolidated statements of operations and comprehensive loss. During the three and nine months ended September 30, 2023, Keno Hill recorded capital additions of $11.5 million and $32.1 million, respectively, related to various mine underground development projects, mobile equipment purchases, crushers modification and a camp upgrade.
(37,842
(44,443
(119,108
(137,176
(18,980
(15,089
(43,288
(46,394
Gross loss
343,619
389,941
1,091,477
1,177,709
24,259
33,335
67,846
96,881
5,084
6,882
22,329
24,423
32,965
69,804
99,703
5,864
14,700
17,209
23,950
0.08
0.10
0.02
103.75
114.52
103.63
115.15
Cash Cost, After By-product Credits, per Gold Ounce (1)
AISC, After By-product Credits, per Gold Ounce (1)
16,225
10,771
54,127
26,672
As part of the transition of the Casa Berardi mine from a combined underground and open pit operation to an open pit only operation, the lower margin east mine underground operations were closed in July 2023 and only the higher margin stopes of the west underground mine will be mined through mid-2024, at which time most underground activity, except for exploration will cease. This strategic change has resulted in production and sales decreasing significantly compared to the three and nine month periods in 2022. Following suspension of underground mining stopping in mid-2024, Casa Berardi is expected to produce gold only from the 160 open pit, and at lower volumes than historic production levels. We expect production from the 160 open pit to conclude during 2027. We forecast a gap in production from 2028 to 2030 when no ore will be mined. During this hiatus, our focus will be on investing in infrastructure and equipment, and on permitting and stripping two expected new open pits, Principal and West Mine Crown Pillar. From 2028 to 2030, there is not expected to be any cash flow from Casa Berardi to offset its operating and capital expenses, and instead our liquidity and capital resources are expected to come from our other operating units. We expect to resume open pit mining at Casa Berardi in 2030, and anticipate that the mine will generate significant free cash flow at the current gold price.
Gross loss increased by $7.3 million to $9.9 million for the three month period ended September 30, 2023, compared to a gross loss of $2.6 million in the same period in 2022. The increase in gross loss includes $3.3 million in product inventory net realizable value write downs attributable to higher depreciation, depletion and amortization expense, reflecting the accelerated amortization of the west underground mine, the purchase of mobile equipment fleet in June and early July 2023 and the cessation of capitalization of any underground mine development costs effective July 2023. Processing of lower grade tonnage from both the underground and surface operations, higher costs related to mill maintenance and optimization activities, and higher fuel and other consumables costs, also contributed to the increased gross loss compared to the same period in 2022. Capital additions increased by $5.5 million in the three months ended September 30, 2023 compared to the same period in 2022, primarily related to the construction of tailings storage facilities.
Gross loss increased by $25.6 million to $27.5 million for the nine month period ended September 30, 2023, compared to a gross loss of $1.9 million for the same period in 2022. This increase in gross loss includes $10.8 million in product inventory net realizable value write downs due to a combination of higher direct production costs during the first six months of the year and higher depreciation, depletion and amortization expense effective July 2023, reflecting the accelerated amortization of the west underground mine. The increase in gross loss was also due to the processing of lower grade ore tonnage from both the underground and surface operations, higher costs related to mill maintenance and optimization activities, higher underground maintenance costs resulting from repairs and replacements of major components for the production fleet, and higher fuel and other consumables costs, compared to the same periods in 2022. Suspension costs amounted to $2.2 million for the nine month period ended September 30, 2023. Casa Berardi's operations were suspended for 20 days in June 2023, due to wildfires in Quebec which resulted in the Quebec Ministry of Natural
32
Resources and Forests closing certain forest lands and access roads. No production or sales took place during the suspension period. Total capital additions increased by $27.5 million for the nine months ended September 30, 2023 compared to the same period in 2022, primarily due to purchases of new surface fleet equipment as the mine transitions from an underground to an open pit operation and the construction of tailings storage facilities.
The charts below illustrate the factors contributing to Cash Cost, After By-product Credits, Per Gold Ounce:
Cash Cost, Before By-product Credits, per Gold Ounce
1,480
1,353
1,641
1,415
(5
(4
(6
Cash Cost, After By-product Credits, per Gold Ounce
33
AISC, Before By-product Credits, per Gold Ounce
1,700
1,673
2,081
1,684
AISC, After By-product Credits, per Gold Ounce
The increase in Cash Cost After By-product Credits, per Gold Ounce, for the three and nine month periods ended September 30, 2023 compared to the same periods for 2022 was primarily due to a combination of higher production costs and lower gold production. The lower production for the three and nine month periods ended September 30, 2023 combined with increased sustaining capital also negatively impacted AISC, After By-product Credits, per Gold Ounce.
(34
(1,285
(877
(2,418
34
(338
(140
(460
(1,623
(1,017
(2,878
Gross (loss) profit
(57
(2,610
544
110
6,363
The gross loss of $57 thousand for the nine months ended September 30, 2023 was attributable to write downs of stockpiled material to net realizable value reflecting a lower gold price received for the processing and sale of refractory ore at a third party facility.
Exploration and pre-development activities continued in the three and nine months ended September 30, 2023 and were focused on target generation through detailed modeling and analysis of geological mapping and sampling. Exploration core drilling also began during the second quarter at our Aurora Project.
See Item 1A. Risk Factors - Issues we have faced at certain segments could require us to write-down the associated long-lived assets. We could face similar issues at our other operations. Such write-downs may adversely affect our results of operations and financial condition in our 2022 Form 10-K for a discussion of certain risks relating to our recent and ongoing analysis of the carrying value of the Nevada assets.
Corporate Matters
Income Taxes
During the three and nine months ended September 30, 2023, an income and mining tax benefit of $1.5 million and an expense of $6.9 million, respectively, resulted in an effective tax rate of 6.3% and -20.1%, respectively. This compares to an income and mining tax benefit of $9.5 million and $3.6 million during the three and nine months ended September 30, 2022, which resulted in an effective tax rate of 29.0% and 10.0%, respectively. The comparability of our income and mining tax (expense) benefit and effective tax rate for the reported periods was impacted by multiple factors, primarily: (i) mining taxes; (ii) variations in our income before income taxes; (iii) geographic distribution of that income; (iv) foreign exchange rates including non-recognition of foreign exchange gains and losses; (v) percentage depletion; and (vi) the non-recognition of tax assets. The effective tax rate will fluctuate, sometimes significantly, period to period. The change in the effective tax rate during the three and nine months ended September 30, 2023 compared to the comparable periods in 2022 is primarily related to the reported consolidated loss as well as the incurred losses at the consolidated Alexco subsidiaries, which were acquired September 7, 2022, and the Nevada operations, for which no tax benefit is recognized due to uncertainty surrounding our ability to utilize these future tax benefits. Since the three months ended March 31, 2022, we have used the annual effective tax rate method to calculate the quarterly tax provision.
Each reporting period we have assessed our deferred tax balances based on a review of long-range forecasts and quarterly activity. A valuation allowance is provided for deferred tax assets for which it is more likely than not the related tax benefits will not be realized. We analyze our deferred tax assets and, if it is determined that we will not realize all or a portion of our deferred tax assets, we will record or increase a valuation allowance. Conversely, if it is determined we will ultimately more likely than not be able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced. There are a number of factors that impact our ability to realize our deferred tax assets. Valuation allowances are provided on deferred tax assets in Nevada, Mexico, and certain Canadian jurisdictions. For additional information, please see risk factors Our accounting and other estimates may be imprecise and Our ability to recognize the benefits of deferred tax assets related to net operating loss carryforwards and other items is dependent on future cash flows and taxable income in Item 1A - Risk Factors in our 2022 Form 10-K.
The tables below present reconciliations between the most comparable GAAP measure of total cost of sales to the non-GAAP measures of (i) Cash Cost, Before By-product Credits, (ii) Cash Cost, After By-product Credits, (iii) AISC, Before By-product Credits and (iv) AISC, After By-product Credits for our operations and for the Company for the three and nine months ended September 30, 2023 and 2022.
Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce are measures developed by precious metals companies (including the Silver Institute and the World Gold Council) in an effort to provide a uniform standard for comparison purposes. There can be no assurance, however, that these non-GAAP measures as we report them are the same as those reported by other mining companies.
Cash Cost, After By-product Credits, per Ounce is an important operating statistic that we utilize to measure each mine's operating performance. We use AISC, After By-product Credits, per Ounce as a measure of our mines' net cash flow after costs for reclamation and sustaining capital. This is similar to the Cash Cost, After By-product Credits, per Ounce non-GAAP measure we report, but also includes reclamation and sustaining capital costs. Current GAAP measures used in the mining industry, such as cost of goods sold, do not capture all the expenditures incurred to discover, develop and sustain silver and gold production. Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce also allow us to benchmark the performance of each of our mines versus those of our competitors. As a silver and gold mining company, we also use these statistics on an aggregate basis - aggregating the Greens Creek and Lucky Friday mines to compare our performance with that of other silver mining companies, and aggregating Casa Berardi and Nevada Operations for comparison with other gold mining companies. Similarly, these statistics are useful in identifying acquisition and investment opportunities as they provide a common tool for measuring the financial performance of other mines with varying geologic, metallurgical and operating characteristics.
Cash Cost, Before By-product Credits and AISC, Before By-product Credits include all direct and indirect operating cash costs related directly to the physical activities of producing metals, including mining, processing and other plant costs, third-party refining expense, on-site general and administrative costs, royalties and mining production taxes. AISC, Before By-product Credits for each mine also includes reclamation and sustaining capital costs. AISC, Before By-product Credits for our consolidated silver properties also includes corporate costs for general and administrative expense and sustaining capital costs. By-product credits include revenues earned
from all metals other than the primary metal produced at each unit. As depicted in the tables below, by-product credits comprise an essential element of our silver unit cost structure, distinguishing our silver operations due to the polymetallic nature of their orebodies.
In addition to the uses described above, Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce provide management and investors an indication of operating cash flow, after consideration of the average price received from production. We also use these measurements for the comparative monitoring of performance of our mining operations period-to-period from a cash flow perspective.
The Casa Berardi and Nevada Operations and combined gold properties information below reports Cash Cost, After By-product Credits, per Gold Ounce and AISC, After By-product Credits, per Gold Ounce for the production of gold, their primary product, and by-product revenues earned from silver, which is a by-product at Casa Berardi and Nevada Operations. Only costs and ounces produced relating to units with the same primary product are combined to represent Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce. Thus, the gold produced at our Casa Berardi and Nevada Operations units is not included as a by-product credit when calculating Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce for the total of Greens Creek and Lucky Friday, our combined silver properties. Similarly, the silver produced at our other two units is not included as a by-product credit when calculating the gold metrics for Casa Berardi and Nevada Operations.
In thousands (except per ounce amounts)
Keno Hill (6)
Corporate (2)
Total Silver
60,322
14,344
90,667
(17,269
Treatment costs
10,369
1,368
1,033
12,770
Change in product inventory
377
(2,450
(2,073
Reclamation and other costs
(348
(168
(516
Exclusion of Lucky Friday cash costs (8)
Exclusion of Keno Hill cash costs (6)
(15,086
Cash Cost, Before By-product Credits (1)
59,705
8,768
68,473
722
101
823
Sustaining capital
11,330
7,386
237
18,953
Exclusion of Lucky Friday sustaining costs (8)
(4,934
AISC, Before By-product Credits (1)
71,757
11,321
7,833
90,911
By-product credits:
(20,027
(2,019
(22,046
(25,344
(7,201
(5,368
(12,569
Exclusion of Lucky Friday by-product credits (8)
Total By-product credits
(52,572
(6,711
(59,283
Cash Cost, After By-product Credits
7,133
2,057
9,190
AISC, After By-product Credits
19,185
4,610
31,628
2,343
475
2,818
Exclusion of Lucky Friday ounces produced (8)
(41
Divided by ounces produced
2,777
Cash Cost, Before By-product Credits, per Ounce
24.66
By-product credits per ounce
(21.35
Cash Cost, After By-product Credits, per Ounce
AISC, Before By-product Credits, per Ounce
32.74
AISC, After By-product Credits, per Ounce
36
Nevada Operations and Other (4)
56,822
940
57,762
(18,948
254
(1,977
(219
Exclusion of Nevada Operations and Other costs
(972
35,900
219
5,133
41,252
(119
35,781
41,133
37
(36,217
13,024
(4,050
(735
104,373
1,042
24,086
132,163
(59,402
44,971
72,761
38
Three Months Ended September 30, 2022 (5)
52,502
24,164
76,666
(17,566
9,477
4,791
14,268
4,464
3,022
7,486
(118
(152
(270
56,020
24,564
80,584
705
282
987
10,219
11,264
187
21,670
66,944
36,110
11,190
114,244
(26,244
(7,155
(33,399
(17,019
(6,212
(11,796
(18,008
(49,475
(18,951
(68,426
6,545
5,613
12,158
17,469
17,159
45,818
2,469
1,075
3,544
22.74
(19.31
32.24
59,532
429
420
(203
45,089
204
10,457
55,750
(131
44,958
55,619
136,198
(32,655
14,697
7,906
(473
125,673
1,191
32,127
169,994
(68,557
57,116
101,437
40
189,664
81,068
288,314
(64,507
31,114
10,832
1,146
43,092
(2,479
(3,313
(5,792
(214
(826
(1,040
(16,519
179,528
64,000
243,528
2,166
671
2,837
26,686
24,251
831
51,768
208,380
83,988
31,280
323,648
(64,955
(14,284
(79,239
(79,089
(22,002
(33,953
(55,955
(166,046
(47,561
(213,607
13,482
16,439
29,921
42,334
36,427
110,041
7,472
3,025
10,497
2,984
10,456
23.29
(20.43
30.95
41
Casa Berardi (7)
162,396
2,743
165,139
(142
(43,430
1,072
(5,345
(655
Exclusion of Casa Berardi cash costs (3)
(2,851
(2,601
111,329
655
29,175
141,159
(390
110,939
140,769
68
42
(107,937
44,164
(11,137
(1,695
354,857
3,492
80,943
464,807
(213,997
140,860
250,810
43
Nine Months Ended September 30, 2022 (5)
Corporate and other(2)
162,644
83,779
246,423
(59,509
27,369
13,271
40,640
9,899
2,620
12,519
(1,988
(769
(2,757
162,570
74,746
237,316
2,115
846
2,961
30,843
24,937
334
56,114
195,528
100,529
29,323
325,380
(87,723
(21,358
(109,081
(55,966
(22,449
(38,175
(60,624
(166,138
(59,533
(225,671
(3,568
15,213
11,645
29,390
40,996
99,709
7,309
3,189
10,498
22.61
(21.50
30.99
183,570
1,345
(936
(623
136,962
623
25,587
163,172
(485
136,477
162,687
97
44
429,993
(105,903
41,985
11,583
(3,380
374,278
3,584
81,701
488,552
(226,156
148,122
262,396
45
We have a disciplined cash management strategy of maintaining financial flexibility to execute our capital priorities and provide long-term value to our stockholders. Consistent with that strategy, we aim to maintain an acceptable level of net debt and sufficient liquidity to fund debt service costs, operations, capital expenditures, exploration and pre-development projects, while returning cash to stockholders through dividends and potential share repurchases.
At September 30, 2023, we had $100.7 million in cash and cash equivalents, of which $7.1 million was held in foreign subsidiaries' local currency that we anticipate utilizing for near-term operating, exploration or capital costs by those foreign subsidiaries. We also have USD cash and cash equivalent balances held by our foreign subsidiaries that, if repatriated, may be subject to withholding taxes. We expect that there would be no additional tax burden upon repatriation after considering the cash cost associated with the withholding taxes. We believe that our liquidity and capital resources from our U.S. operations are adequate to fund our U.S. operations and corporate activities.
Pursuant to our common stock dividend policy described in Note 11 of Notes to Consolidated Financial Statements in our 2022 Form 10-K, our board of directors declared and paid dividends on our common stock of $3.8 million in each of the first and second quarters, $3.9 million in the third quarter of 2023 and $3.4 million in each of the first, second and third quarters of 2022. Our dividend policy has a silver-linked component which ties the amount of declared common stock dividends to our realized silver price for the preceding quarter. Another component of our common stock dividend policy anticipates paying an annual minimum dividend.
For illustrative purposes only, the table below summarizes potential dividend amounts under our dividend policy.
Quarterly Average Realized Silver Price ($ per ounce)
Quarterly Silver-Linked Dividend ($ per share)
Annualized Silver-Linked Dividend ($ per share)
Annualized Minimum Dividend ($ per share)
Annualized Dividends per Share: Silver-Linked and Minimum ($ per share)
Less than $20
$—
$0.015
$0.01
$0.025
$0.010
$0.04
$0.055
$0.06
$0.075
$0.10
$0.115
$0.035
$0.14
$0.155
$0.045
$0.18
$0.195
50
$0.22
$0.235
The declaration and payment of dividends on our common stock is at the sole discretion of our board of directors, and there can be no assurance that we will continue to declare and pay common stock dividends in the future.
Pursuant to our stock repurchase program described in Note 11 of Notes to Consolidated Financial Statements in our 2022 Form 10-K, we are authorized to repurchase up to 20 million shares of our outstanding common stock from time to time in open market or privately negotiated transactions, depending on prevailing market conditions and other factors. The repurchase program may be modified, suspended or discontinued by us at any time. Whether or not we engage in repurchases from time to time may depend on a variety of factors, including not only price and cash resources, but customary black-out restrictions, whether we have any material inside information, limitations on share repurchases or cash usage that may be imposed by our credit agreement or in connection with issuances of securities, alternative uses for cash, applicable law, and other investment opportunities from time to time. As of September 30, 2023 and December 31, 2022, 934,100 shares had been purchased in prior periods at an average price of $3.99 per share, leaving 19.1 million shares that may yet be purchased under the program. We have not repurchased any shares since June 2014.
As discussed in Note 6 of Notes to Condensed Consolidated Financial Statements (Unaudited) 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 in “at-the-market” offerings. 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 equity distribution agreement can be terminated by us at any time. Any sales of shares under that agreement are registered under the Securities Act of 1933, as amended, pursuant to a shelf registration statement on Form S-3. During the three months ended September 30, 2023, we did not sell any shares under the agreement. During the nine months ended September 30, 2023, we sold 4,253,334 shares under the agreement for proceeds of $25.9 million, net of commissions and fees of $0.4 million.
As a result of our current cash balances, the performance of our current and expected operations, current metals prices, proceeds from potential at-the-market sales of common stock, and availability under our Credit Agreement, we believe we will be able to meet our obligations and other potential cash requirements during the next 12 months and beyond. Our obligations and other uses of cash may include, but are not limited to: debt service obligations related to the Senior Notes and IQ Notes; principal and interest payments
under our Credit Agreement; care-and-maintenance; capital expenditures at our operations; potential acquisitions of other mining companies or properties; regulatory matters; litigation; potential repurchases of our common stock under the program described above; and payment of dividends on common stock, if declared by our board of directors.
We currently estimate a range of approximately $225 to $235 million will be spent in 2023 on capital expenditures, primarily for equipment, infrastructure, and development at our mines, including $161.3 million already incurred as of September 30, 2023, before any lease financing. We also estimate exploration and pre-development expenditures will total approximately $32.5 million in 2023, including $25.5 million already incurred as of September 30, 2023. Our expenditures for these items and our related plans for 2023 may change based upon our financial position, metals prices, and other considerations. Our ability to fund the activities described above will depend on our operating performance, metals prices, our ability to estimate revenues and costs, sources of liquidity available to us, including the revolving credit facility, and other factors. A sustained downturn in metals prices, significant increase in operational or capital costs or other uses of cash, our inability to access the credit facility or the sources of liquidity discussed above, or other factors beyond our control could impact our plans.
We may defer some capital investment and/or exploration and pre-development activities, engage in asset sales or secure additional capital if necessary to maintain liquidity. We also may pursue additional acquisition opportunities, which could require additional equity issuances or other forms of financing. There can be no assurance that such financing will be available to us.
Our liquid assets include (in millions):
Cash and cash equivalents held in U.S. dollars
93.6
86.8
Cash and cash equivalents held in foreign currency
7.1
17.9
Total cash and cash equivalents
100.7
104.7
Marketable equity securities - non-current
16.6
24.0
Total cash, cash equivalents and investments
117.3
128.7
Cash and cash equivalents decreased by $4.0 million in the first nine months of 2023. Cash held in foreign currencies represents balances in Canadian dollars and Mexican Pesos. The value of non-current marketable equity securities decreased by $7.4 million.
Cash provided by operating activities (in millions)
74.6
53.8
Cash provided by operating activities for the nine months ended September 30, 2023 of $74.6 million represented a $20.8 million increase compared to the $53.8 million provided in the same period for 2022. $42.6 million of the variance was attributable to a higher income adjusted for non cash items in the nine months ended September 30, 2023 reflecting higher realized prices for silver, gold and lead, partially offset by higher total cost of sales. The remaining variance was attributable to changes in net working capital resulting from higher vendor payments and changes in fair value of the net hedge book.
Cash used in investing activities (in millions)
(162.9
(127.7
During the nine months ended September 30, 2023, we invested $161.3 million in capital expenditures, an increase of $68.0 million compared to the same period in 2022. The variance was primarily due to $32.1 million invested at Keno Hill during the nine months ended September 30, 2023 and increased capital spending at Casa Berardi and Lucky Friday. During the same period in 2022, we made a pre-acquisition advance of $25.0 million to Alexco and generated proceeds of $9.4 million upon disposal of an investment.
Cash provided by financing activities (in millions)
84.1
9.6
During the nine months ended September 30, 2023, we had net draws on our revolving credit facility resulting in $80 million outstanding at an interest rate of 8% on September 30, 2023. During the nine months ended September 30, 2023 and 2022, we paid cash dividends on our common and preferred stock totaling $11.8 million and $10.5 million, respectively. During the nine months ended September 30, 2023 and 2022, we issued stock under our ATM program described above for net proceeds of $25.9 million and $4.5 million, respectively. We made repayments on our finance leases of $8.0 million and $5.2 million in the nine months ended September 30, 2023 and 2022, respectively.
47
The table below presents our fixed, non-cancelable contractual obligations and commitments primarily related to our Senior Notes, IQ Notes, credit facility, outstanding purchase orders, certain capital expenditures and lease arrangements as of September 30, 2023 (in thousands):
Payments Due By Period
Less than 1 year
1-3 years
4-5 years
More than5 years
Purchase obligations (1)
40,326
Credit facility(2)
80,474
1,302
81,776
Finance lease commitments (3)
15,303
7,545
Operating lease commitments (4)
2,550
2,280
Senior Notes (5)
68,876
522,350
IQ Notes (6)
Total contractual cash obligations
168,677
125,499
532,175
832,158
We record liabilities for costs associated with mine closure, reclamation of land and other environmental matters. At September 30, 2023, our liabilities for these matters totaled $120.0 million. Future expenditures related to closure, reclamation and environmental expenditures at our sites are difficult to estimate, although we anticipate we will incur expenditures relating to these obligations over the next 30 years. For additional information relating to our environmental obligations, see Note 10 of Notes to Condensed Consolidated Financial Statements (Unaudited).
There have been no significant changes to the critical accounting estimates disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2022 Form 10-K.
At September 30, 2023, we had no existing off-balance sheet arrangements, as defined under SEC regulations, that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Presented below are Hecla’s unaudited interim condensed consolidating financial statements as required by Rule 3-10 of Regulation S-X of the Securities Exchange Act of 1934, as amended, resulting from the guarantees by certain of Hecla's subsidiaries of the Senior Notes and IQ Notes (see Note 7 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information). The Guarantors consist of the following of Hecla's 100%-owned subsidiaries: Hecla Limited; Silver Hunter Mining Company; Rio Grande Silver, Inc.; Hecla MC Subsidiary, LLC; Hecla Silver Valley, Inc.; Burke Trading, Inc.; Hecla Montana, Inc.; Revett Silver Company; RC Resources, Inc.; Troy Mine Inc.; Revett Exploration, Inc.; Revett Holdings, Inc.; Mines Management, Inc.; Newhi, Inc.; Montanore Minerals Corp.; Hecla Alaska LLC; Hecla Greens Creek Mining Company; Hecla Admiralty Company; Hecla Juneau Mining Company; Klondex Holdings Inc.; Klondex Gold & Silver Mining Co.; Klondex Midas Holdings Limited; Klondex Aurora Mine Inc.; Klondex Hollister Mine Inc.; Hecla Quebec, Inc.; and Alexco Resource Corp. We completed the offering of the Senior Notes on February 19, 2020 under our shelf registration statement previously filed with the SEC. We issued the IQ Notes in four equal tranches between July and October 2020.
The unaudited interim condensed consolidating financial statements below have been prepared from our financial information on the same basis of accounting as the unaudited interim condensed consolidated financial statements set forth elsewhere in this report. Investments in the subsidiaries are accounted for under the equity method. Accordingly, the entries necessary to consolidate Hecla, the Guarantors, and our non-guarantor subsidiaries are reflected in the intercompany eliminations column. In the course of preparing consolidated financial statements, we eliminate the effects of various transactions conducted between Hecla and its subsidiaries and among the subsidiaries. While valid at an individual subsidiary level, such activities are eliminated in consolidation because, when taken as a whole, they do not represent business activity with third-party customers, vendors, and other parties. Examples of such eliminations include the following:
Separate financial statements of the Guarantors are not presented because the guarantees by the Guarantors are joint and several and full and unconditional, except for certain customary release provisions, including: (1) the sale or disposal of all or substantially all of the assets of the Guarantor; (2) the sale or other disposition of the capital stock of the Guarantor; (3) the Guarantor is designated as an unrestricted entity in accordance with the applicable provisions of the indenture; (4) Hecla ceases to be a borrower as defined in the indenture; and (5) upon legal or covenant defeasance or satisfaction and discharge of the indenture.
Unaudited Interim Condensed Consolidating Balance Sheets
As of December 31, 2022
Parent
Guarantors
Non-Guarantors
Eliminations
Consolidated
Assets
69,889
20,152
14,702
4,959
147,103
10,922
162,984
Properties, plants, equipment and mineral interests - net
1,913
2,288,199
279,678
Intercompany receivable (payable)
(159,442
(598,248
303,433
454,257
Investments in subsidiaries
2,128,366
(2,128,366
355,631
20,870
43,241
(330,087
89,655
2,401,316
1,878,076
651,976
(2,004,196
Liabilities and Stockholders' Equity
Current liabilities
(93,660
134,016
13,939
124,171
Long-term debt
506,364
11,378
0
Non-current portion of accrued reclamation
101,900
6,508
Non-current deferred tax liability
113,876
11,970
9,645
6,720
Stockholders' equity
1,510,186
618,181
(2,128,367
Total liabilities and stockholders' equity
As of September 30, 2023
79,524
20,323
838
9,961
130,264
7,504
147,729
2,639,949
8,360
(182,251
(747,432
601,714
327,969
2,300,473
(2,300,473
410,122
19,983
13,036
(378,708
64,433
2,617,829
2,063,087
631,452
(2,351,212
47,017
141,532
7,592
(50,770
587,003
17,950
107,589
2,024
6,039
1,397
1,680,003
620,439
(2,300,442
Unaudited Interim Condensed Consolidating Statements of Operations
Revenues
13,088
546,449
Cost of sales
(2,535
(342,981
(345,516
Depreciation, depletion, amortization
(12,962
(16,389
(1,098
(30,449
(323
(22,740
(2,483
(25,546
Equity in earnings of subsidiaries
(34,334
34,334
Other (expense) income
13,330
(78,562
(4,017
(15,218
(84,467
Income (loss) before income and mining taxes
(23,736
(22,160
(7,598
19,116
(Expense) benefit from income taxes
(17,544
(4,575
15,215
Net income (loss)
(41,280
(26,735
34,331
Income (loss) applicable to common stockholders
(41,694
Changes in comprehensive income (loss)
Comprehensive income (loss)
(40,916
51
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The following discussion about our exposure to market risks and risk management activities includes forward-looking statements that involve risks and uncertainties, as well as summarizes the financial instruments held by us at September 30, 2023, which are sensitive to changes in commodity prices and foreign exchange rates and are not held for trading purposes. Actual results could differ materially from those projected in the forward-looking statements. In the normal course of business, we also face risks that are either non-financial or non-quantifiable (See Item 1A. – Risk Factors of our 2022 Form 10-K).
Changes in the market prices of silver, gold, lead and zinc can significantly affect our profitability and cash flow. Metals prices can and often do fluctuate widely and are affected by numerous factors beyond our control (see Item 1A – Risk Factors – A substantial or extended decline in metals prices would have a material adverse effect on us in our 2022 Form 10-K). We utilize financially-settled forward and put option contracts to manage our exposure to changes in prices for silver, gold, zinc and lead.
Provisional Sales
Sales of all metals products sold directly to customers, including by-product metals, are recorded as revenues when all performance obligations have been completed and the transaction price can be determined or reasonably estimated. For concentrate sales, revenues are generally recorded at the time of shipment at forward prices for the estimated month of settlement. Due to the time elapsed between shipment to the customer and the final settlement with the customer we must estimate the prices at which sales of our metals will be settled. Previously recorded sales are adjusted to estimated settlement metals prices until final settlement by the customer. Changes in metals prices between shipment and final settlement will result in changes to revenues previously recorded upon shipment. Metals prices can and often do fluctuate widely and are affected by numerous factors beyond our control (see Item 1A – Risk Factors – A substantial or extended decline in metals prices would have a material adverse effect on us in our 2022 Form 10-K). At September 30, 2023, metals contained in concentrate sales and exposed to future price changes totaled 0.9 million ounces of silver and 5,075 tons of lead. If the price for each metal were to change by 10%, the change in the total value of the concentrates sold would be approximately $3.3 million. As discussed in Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited), we utilize a program designed and intended to mitigate the risk of negative price adjustments with limited mark-to-market financially-settled forward contracts for our silver, gold, zinc and lead sales.
Commodity-Price Risk Management
See Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited) and Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2022 Form 10-K for a description of our commodity-price risk management program.
Foreign Currency Risk Management
We operate or have mining interests in Canada, which exposes us to risks associated with fluctuations in the exchange rates between the USD and the CAD. We determined the functional currency for our Canadian operations is the USD. As such, foreign exchange gains and losses associated with the re-measurement of monetary assets and liabilities from CAD to USD are recorded to earnings each period. For the three and nine months ended September 30, 2023, we recognized a net foreign exchange gain of $4.2 million and $0.4 million, respectively, compared to a net foreign exchange gain of $5.7 million and $8.1 million for the three and nine months ended September 30, 2022, respectively. Foreign currency exchange rates are influenced by a number of factors beyond our control. A 10% change in the exchange rate between the USD and CAD from the rate at September 30, 2023 would have resulted in a change of approximately $11.2 million in our net foreign exchange gain or loss. We do not hedge the remeasurement of monetary assets and liabilities. We do hedge some of our operating and capital costs denominated in foreign currency.
See Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited) and Note 9 of Notes to Consolidated Financial Statements in our 2022 Form 10-K for a description of our foreign currency risk management.
Item 4. Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures as required by Securities Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures, including controls and procedures designed to ensure that information required to be disclosed by us is accumulated and communicated to our management (including our CEO and CFO), were effective as of September 30, 2023, in assuring them in a timely manner that material information required to be disclosed in this report has been properly recorded, processed, summarized and reported. There were no changes in our internal control over financial reporting during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Internal control systems, no matter how well designed and operated, have inherent limitations. Therefore, even a system which is determined to be effective cannot provide absolute assurance that all control issues have been detected or prevented. Our systems of internal controls are designed to provide reasonable assurance with respect to financial statement preparation and presentation.
Part II - Other Information
Item 1. Legal Proceedings
For information concerning legal proceedings, refer to Note 10 of Notes to Condensed Consolidated Financial Statements (Unaudited), which is incorporated by reference into this Item 1.
Item 1A. Risk Factors
Item 1A. – Risk Factors of our 2022 Form 10-K set forth information relating to important risks and uncertainties that could materially adversely affect our business, financial condition or operating results.
Item 4. Mine Safety Disclosures
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in exhibit 95 to this Quarterly Report.
Item 5. Other Information
Item 5(c) During the three months ended September 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits
Hecla Mining Company and Wholly Owned Subsidiaries
Form 10-Q – September 30, 2023
Index to Exhibits
Exhibit
Number
10.1
Form of Change in Control Agreement dated August 16, 2023, between Registrant and Carlos Aguiar, incorporated by reference to exhibit 10.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (File No. 1-8491). (1)
10.2
Form of Indemnification Agreement dated August 16, 2023, between Registrant and Carlos Aguiar, incorporated by reference to exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (File No. 1-8491). (1)
31.1*
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
95*
Mine safety information listed in Section 1503 of the Dodd-Frank Act.
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. **
101.SCH
Inline XBRL Taxonomy Extension Schema Document **
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document **
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document **
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document **
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document **
104
Cover Page Interactive Data File (embedded within the Inline XBRL document) **
* Filed herewith
** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
(1) Indicates a management contract or compensatory plan or arrangement.
Items 2 and 3 of Part II are not applicable and are omitted from this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
Date:
November 7, 2023
By:
/s/ Phillips S. Baker, Jr.
Phillips S. Baker, Jr., President,
Chief Executive Officer and Director
/s/ Russell D. Lawlar
Russell D. Lawlar, Senior Vice President,
Chief Financial Officer