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Hecla Mining (HL)

Filed: 4 Nov 21, 8:00pm
 

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

 

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

For the quarterly period ended September 30, 2021

 

or

 

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

For the transition period from                     to

 

Commission file number 

 

1-8491

 

HECLA MINING COMPANY

(Exact name of registrant as specified in its Charter)

 

Delaware

 

77-0664171

 
 

State or Other Jurisdiction of

 

I.R.S. Employer

 
 

Incorporation or Organization

 

Identification No.

 
     
 

6500 Mineral Drive, Suite 200

   
 

Coeur d'Alene, Idaho

 

83815-9408

 
 

Address of Principal Executive Offices

 

Zip Code

 
     

208-769-4100

Registrant's Telephone Number, Including Area Code

 

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

Title of each class

 

Trading Symbol(s)

 

Name of each exchange

on which registered

Common Stock, par value $0.25 per share

 

HL

 

New York Stock Exchange

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

 

HL-PB

 

New York Stock Exchange

 

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

Yes ☒    No ☐

 

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

Yes ☒    No ☐

 

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

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

                                    

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

 

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

 

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

 

Class

 

Shares Outstanding November 2, 2021

Common stock, par value

$0.25 per share

 

538,139,465

 

 

 

 

Hecla Mining Company and Subsidiaries

 

Form 10-Q

 

For the Quarter Ended September 30, 2021

 

INDEX*

 

   

Page

PART I - Financial Information 

 
    
  

Item 1  Condensed Consolidated Financial Statements (Unaudited)

 
    
  

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income - Three Months Ended and Nine Months Ended September 30, 2021 and 2020

3
    
  

Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2021 and 2020

4
    
  

Condensed Consolidated Balance Sheets - September 30, 2021 and December 31, 2020

5
    
  

Condensed Consolidated Statements of Changes in Stockholders' Equity - Three Months Ended and Nine Months Ended September 30, 2021 and 2020

6

    
  

Notes to Condensed Consolidated Financial Statements (Unaudited)

8
    
  

Forward Looking Statements

 
    
  

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

29

    
  

Item 3. Quantitative and Qualitative Disclosures About Market Risk

69

    
  

Item 4. Controls and Procedures

70

    

PART II - Other Information

 
    
  

Item 1  Legal Proceedings

70

    
  

Item 1A  Risk Factors

70

    
  

Item 2  Unregistered Sales of Securities and Use of Proceeds

70

    
  

Item 4  Mine Safety Disclosures

71

    
  

Item 6  Exhibits

71

    
  

Signatures

73

    
    

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

 

 

 

 

Part I - Financial Information

 

Item 1. Financial Statements

 

Hecla Mining Company and Subsidiaries

 

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

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

 

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30, 2021

  

September 30, 2020

  

September 30, 2021

  

September 30, 2020

 
      

Revised

      

Revised

 

Sales of products

 $193,560  $199,703  $622,395  $502,983 

Cost of sales and other direct production costs

  112,542   103,025   318,917   280,303 

Depreciation, depletion and amortization

  45,790   37,990   138,918   112,492 

Total cost of sales

  158,332   141,015   457,835   392,795 

Gross profit

  35,228   58,688   164,560   110,188 

Other operating expenses:

                

General and administrative

  8,874   11,713   27,985   27,631 

Exploration

  13,675   3,407   27,993   7,899 

Pre-development

  3,433   759   7,046   1,857 

Other operating expense

  3,344   3,499   10,626   5,864 

Provision for closed operations and environmental matters

  7,564   1,254   12,297   2,807 

Ramp-up and suspension costs

  6,910   1,541   17,014   24,109 

Foundation grant

  0   0   0   1,970 

Total other operating expense

  43,800   22,173   102,961   72,137 

(Loss) income from operations

  (8,572)  36,515   61,599   38,051 

Other income (expense):

                

Gain (loss) on derivative contracts

  12,148   (6,666)  (4,692)  (12,775)

Gain on exchange of investments

  0   0   1,158   0 

Unrealized (loss) gain on investments

  (2,861)  3,979   (7,117)  9,410 

Foreign exchange gain (loss)

  3,995   (2,196)  24   1,235 

Other income (expense)

  247   (392)  (192)  (2,141)

Interest expense

  (10,469)  (10,779)  (31,484)  (38,919)

Total other income (expense)

  3,060   (16,054)  (42,303)  (43,190)

(Loss) income before income and mining taxes

  (5,512)  20,461   19,296   (5,139)

Income and mining tax benefit (provision)

  4,533   (5,181)  3,924   (7,423)

Net (loss) income

  (979)  15,280   23,220   (12,562)

Preferred stock dividends

  (138)  (138)  (414)  (414)

(Loss) income applicable to common shareholders

 $(1,117) $15,142  $22,806  $(12,976)

Comprehensive (loss) income:

                

Net (loss) income

 $(979) $15,280  $23,220  $(12,562)

Change in fair value of derivative contracts designated as hedge transactions

  (6,267)  6,150   (2,815)  (2,801)

Comprehensive (loss) income

 $(7,246) $21,430  $20,405  $(15,363)

Basic (loss) income per common share after preferred dividends (in cents)

  (0.2)  2.9   4.3   (2.5)

Diluted (loss) income per common share after preferred dividends (in cents)

  (0.2)  2.8   4.2   (2.5)

Weighted average number of common shares outstanding - basic

  536,966   529,838   535,542   526,098 

Weighted average number of common shares outstanding - diluted

  536,966   535,788   541,769   526,098 

Cash dividends declared per common share (in cents)

  1.125   0.250   3.125   0.750 

 

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

 

 

 

Hecla Mining Company and Subsidiaries

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

 

  

Nine Months Ended

 
  

September 30, 2021

  

September 30, 2020

 
      

Revised

 

Operating activities:

        

Net income (loss)

 $23,220  $(12,562)

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

        

Depreciation, depletion and amortization

  139,800   120,076 

Gain on exchange of investments

  (1,158)  0 

Unrealized loss (gain) on investments

  7,117   (9,410)

Write-down to stockpile inventory

  6,524   0 

Provision for reclamation and closure costs

  7,821   4,638 

Stock compensation

  4,774   5,229 

Deferred income taxes

  (17,886)  (4,578)

Amortization of loan origination fees

  1,406   3,066 

(Gain) loss on derivative contracts

  (13,937)  4,483 

Foreign exchange loss (gain)

  615   (2,810)

Foundation grant

  0   1,970 
Other non-cash items, net  (239)  559 

Change in assets and liabilities, net of business acquisitions:

        

Accounts receivable

  (3,798)  (3,741)

Inventories

  22,372   (13,090)

Other current and non-current assets

  1,650   6,748 

Accounts payable and accrued liabilities

  (14,689)  (1,762)

Accrued payroll and related benefits

  (1,829)  11,317 

Accrued taxes

  2,730   3,276 

Accrued reclamation and closure costs and other non-current liabilities

  2,489   2,483 

Cash provided by operating activities

  166,982   115,892 

Investing activities:

        

Additions to properties, plants, equipment and mineral interests

  (80,210)  (54,382)

Purchase of carbon credits

  (200)  0 

Proceeds from exchange of investments

  1,811   0 

Proceeds from disposition of properties, plants, equipment and mineral interests

  562   305 

Purchases of investments

  0   (1,661)

Net cash used in investing activities

  (78,037)  (55,738)

Financing activities:

        

Acquisition of treasury shares

  (4,525)  (2,745)

Dividends paid to common shareholders

  (16,755)  (3,951)

Dividends paid to preferred shareholders

  (414)  (414)

Credit facility and debt issuance fees

  (108)  (1,287)

Borrowings on debt

  0   707,107 

Repayments of debt

  0   (716,500)

Repayments of finance leases

  (5,598)  (4,246)

Net cash used in financing activities

  (27,400)  (22,036)

Effect of exchange rates on cash

  (471)  (1,873)

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

  61,074   36,245 

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

  130,883   63,477 

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

 $191,957  $99,722 

Supplemental disclosure of cash flow information:

        

Cash paid for interest

 $37,173  $33,828 

Cash paid (received) for income and mining taxes

  10,299  $(2,608)

Significant non-cash investing and financing activities:

        

Addition of finance lease obligations

 $4,006  $5,747 

Payment of accrued compensation in stock

 $0  $5,095 

 

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

 

 

 

Hecla Mining Company and Subsidiaries

 

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except shares)

 

 

  

September 30, 2021

  

December 31, 2020

 
      

Revised

 

ASSETS

 

Current assets:

        

Cash and cash equivalents

 $190,904  $129,830 

Accounts receivable:

        

Trade

  32,821   27,864 

Other, net

  10,152   11,329 

Inventories:

        

Concentrates, doré, and stockpiled ore

  17,594   57,567 

Materials and supplies

  40,845   38,608 

Derivative assets

  5,220   3,470 

Other current assets

  12,744   15,644 

Total current assets

  310,280   284,312 

Investments

  8,030   15,148 

Restricted cash

  1,053   1,053 

Properties, plants, equipment and mineral interests, net

  2,331,018   2,378,074 

Operating lease right-of-use assets

  8,201   10,628 

Deferred income taxes

  5,576   2,912 

Derivative assets

  6,748   4,558 

Other non-current assets and deferred charges

  3,511   3,525 

Total assets

 $2,674,417  $2,700,210 

LIABILITIES

 

Current liabilities:

        

Accounts payable and accrued liabilities

 $62,571  $68,516 

Accrued payroll and related benefits

  26,493   31,807 

Accrued taxes

  8,557   5,774 

Finance leases

  5,637   6,491 

Operating leases

  2,385   3,008 

Accrued reclamation and closure costs

  11,036   5,582 

Accrued interest

  5,221   14,157 

Derivatives liabilities

  4,179   11,737 

Other current liabilities

  103   138 

Total current liabilities

  126,182   147,210 

Finance leases

  8,540   9,274 

Operating leases

  5,820   7,634 

Accrued reclamation and closure costs

  108,670   110,466 

Long-term debt

  507,712   507,242 

Deferred tax liability

  142,750   156,091 

Pension liability

  26,229   44,144 

Derivatives liabilities

  752   18 

Other non-current liabilities

  4,787   4,346 

Total liabilities

  931,442   986,425 

Commitments and contingencies (Notes 5, 8, 9, and 11)

          

SHAREHOLDERS’ EQUITY

 

Preferred stock, 5,000,000 shares authorized:

        

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

  39   39 

Common stock, $0.25 par value, 750,000,000 authorized shares; issued September 30, 2021 — 545,371,827 shares and December 31, 2020 — 538,487,415 shares

  136,350   134,629 

Capital surplus

  2,032,334   2,003,576 

Accumulated deficit

  (362,023)  (368,074)

Accumulated other comprehensive loss

  (35,704)  (32,889)

Less treasury stock, at cost; September 30, 2021 — 7,395,295 and December 31, 2020 — 6,821,044 shares issued and held in treasury

  (28,021)  (23,496)

Total shareholders’ equity

  1,742,975   1,713,785 

Total liabilities and shareholders’ equity

 $2,674,417  $2,700,210 

 

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

 

 

 

Hecla Mining Company and Subsidiaries

 

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

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

 

  

Three Months Ended September 30, 2021

 
  

Series B

Preferred

Stock

  

Common

Stock

  

Additional

Paid-In

Capital

  

Accumulated

Deficit

  

Accumulated

Other

Comprehensive

Loss, net

  

Treasury

Stock

  

Total

 

Balances, July 1, 2021 (Revised)

 $39  $136,065  $2,024,645  $(354,866) $(29,437) $(28,021) $1,748,425 

Net loss

  0   0   0   (979)  0   0   (979)

Restricted stock units granted

  0   0   1,472   0   0   0   1,472 

Common stock dividends declared (1.125 cents per common share)

  0   0   0   (6,040)  0   0   (6,040)

Series B Preferred Stock dividends declared (87.5 cents per share)

  0   0   0   (138)  0   0   (138)

Common stock issued for 401(k) match (141,000 shares)

  0   35   1,017   0   0   0   1,052 

Common stock issued to pension plans (1,000,000 shares)

  0   250   5,200   0   0   0   5,450 

Other comprehensive income

  0   0   0   0   (6,267)  0   (6,267)

Balances, September 30, 2021

 $39  $136,350  $2,032,334  $(362,023) $(35,704) $(28,021) $1,742,975 

 

  

Three Months Ended September 30, 2020

 
  

Series B

Preferred

Stock

  

Common

Stock

  

Additional

Paid-In

Capital

  

Accumulated

Deficit

  

Accumulated

Other

Comprehensive

Loss, net

  

Treasury

Stock

  

Total

 
              

Revised

          

Revised

 

Balances, July 1, 2020

 $39  $133,699  $1,982,400  $(380,205) $(46,261) $(23,496) $1,666,176 

Net income

  0   0   0   15,280   0   0   15,280 

Restricted stock units granted

  0   0   1,317   0   0   0   1,317 

Common stock dividends declared (0.25 cents per common share)

  0   0   0   (1,330)  0   0   (1,330)

Series B Preferred Stock dividends declared (87.5 cents per share)

  0   0   0   (138)  0   0   (138)

Common stock issued for 401(k) match (439,000 shares)

  0   110   1,303   0   0   0   1,413 

Common stock issued to pension plans (2,058,000 shares)

  0   514   11,917   0   0   0   12,431 

Common stock issued to directors (391,000 shares)

  0   98   1,385   0   0   0   1,483 

Other comprehensive loss

  0   0   0   0   6,150   0   6,150 

Balances, September 30, 2020

 $39  $134,421  $1,998,322  $(366,393) $(40,111) $(23,496) $1,702,782 

 

 

  

Nine Months Ended September 30, 2021

 
  

Series B

Preferred

Stock

  

Common

Stock

  

Additional

Paid-In

Capital

  

Accumulated

Deficit

  

Accumulated

Other

Comprehensive

Loss, net

  

Treasury

Stock

  

Total

 

Balances, January 1, 2021 (Revised)

 $39  $134,629  $2,003,576  $(368,074) $(32,889) $(23,496) $1,713,785 

Net income

  0   0   0   23,220   0   0   23,220 

Restricted stock units granted

  0   0   2,930   0   0   0   2,930 

Restricted stock units distributed (1,653,000 shares)

  0   413   (413)  0   0   (4,525)  (4,525)

Common stock dividends declared (3.125 cents per common share)

  0   0   0   (16,755)  0   0   (16,755)

Series B Preferred Stock dividends declared ($2.625 per share)

  0   0   0   (414)  0   0   (414)

Common stock issued for 401(k) match (524,000 shares)

  0   131   3,324   0   0   0   3,455 

Common stock issued to pension plans (4,500,000 shares)

  0   1,125   21,125   0   0   0   22,250 

Common stock issued to directors (207,000 shares)

  0   52   1,792   0   0   0   1,844 

Other comprehensive loss

  0   0   0   0   (2,815)  0   (2,815)

Balances, September 30, 2021

 $39  $136,350  $2,032,334  $(362,023) $(35,704) $(28,021) $1,742,975 

 

  

Nine Months Ended September 30, 2020

 
  

Series B

Preferred

Stock

  

Common

Stock

  

Additional

Paid-In

Capital

  

Accumulated

Deficit

  

Accumulated

Other

Comprehensive

Loss, net

  

Treasury

Stock

  

Total

 
              

Revised

          

Revised

 

Balances, January 1, 2020

 $39  $132,292  $1,973,700  $(349,220) $(37,310) $(22,967) $1,696,534 

Net loss

  0   0   0   (12,562)  0   0   (12,562)

Restricted stock units granted

  0   0   3,746   0   0   0   3,746 

Restricted stock units distributed (1,702,000 shares)

  0   426   (426)  0   0   (1,479)  (1,479)

Common stock dividends declared (0.75 cents per common share)

  0   0   0   (3,951)  0   0   (3,951)

Series B Preferred Stock dividends declared ($2.625 per share)

  0   0   0   (414)  0   0   (414)

Common stock issued for 401(k) match (1,396,000 shares)

  0   350   3,295   0   0   0   3,645 

Common stock issued for employee incentive compensation (2,800,000 shares)

  0   700   4,396   0   0   (1,266)  3,830 

Common stock issued to pension plans (2,225,000 shares)

  0   555   12,226   0   0   0   12,781 

Common stock issued to directors (391,000 shares)

  0   98   1,385   0   0   0   1,483 

Treasury shares issued to charitable foundation (650,000 shares)

  0   0   0   (246)  0   2,216   1,970 

Other comprehensive loss

  0   0   0   0   (2,801)  0   (2,801)

Balances, September 30, 2020

 $39  $134,421  $1,998,322  $(366,393) $(40,111) $(23,496) $1,702,782 

 

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

 

 

 

Note 1.  Basis of Preparation of Financial Statements

 

The accompanying unaudited interim condensed consolidated financial statements of Hecla Mining Company and its subsidiaries (collectively, “Hecla,” “the Company,” “we,” “our,” or “us,” except where the context requires otherwise) have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required annually by generally accepted accounting principles in the United States (“GAAP”). Therefore, this information should be read in conjunction with Hecla Mining Company’s consolidated financial statements and notes contained in our annual report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”). The consolidated December 31, 2020 balance sheet data was derived from our audited consolidated financial statements. The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported. All such adjustments are, in the opinion of management, of a normal recurring nature. Operating results for the three- and nine-month periods ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

 

The 2019 novel strain of coronavirus (“COVID-19”) was characterized as a global pandemic by the World Health Organization on March 11, 2020, and COVID-19 resulted in travel restrictions and business slowdowns or shutdowns in affected areas.  In late March 2020, the Government of Quebec ordered the mining industry to reduce to minimum operations as part of the fight against COVID-19, causing us to suspend our Casa Berardi operations from March 24, 2020 until April 15, 2020 when mining operations resumed.  In early April 2020, the Government of Mexico issued a similar order causing us to suspend our San Sebastian operations until May 30, 2020. In addition, restrictions imposed by the State of Alaska in late March 2020 caused us to revise the normal operating procedures for staffing operations at Greens Creek. These suspension orders impacted us in the first half of 2020 by curtailing our expected production of gold at Casa Berardi by approximately 11,700 ounces, which resulted in a reduction in related revenue for that period.  We continued to incur costs at Casa Berardi and San Sebastian while operations were suspended. At Casa Berardi and San Sebastian, suspension costs in 2020 totaled $1.6 million and $1.8 million, respectively. At Greens Creek, we incurred costs of approximately $1.0 million in the first nine months of 2021 and $2.3 million for the full year of 2020 related to quarantining employees from late March 2020 through the second quarter of 2021.  In addition, silver production at Greens Creek in the third quarter of 2021 was 30% lower than in the third quarter of 2020 due to reduced ore grades as a result of mine sequencing, which was impacted by manpower challenges due to COVID-19 and increased competition for labor which we expect to mitigate through schedule changes and other means.  At Casa Berardi, we incurred costs of approximately $1.9 million in the first nine months of 2021 related to COVID-19 procedures.  At the Lucky Friday, San Sebastian and Nevada Operations units, COVID-19 procedures have been implemented without a significant impact on operating or suspension costs or production.  It is possible that future restrictions at any of our operations could have an adverse impact on operations or financial results beyond the first nine months of 2021.

 

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

 

In the third quarter of 2021, we identified errors impacting amounts reported for accumulated depreciation, depletion and amortization ("DDA") and DDA expense for our Casa Berardi unit from June 1, 2013 through June 30, 2021.  Certain amounts in the condensed consolidated financial statements and notes thereto for the prior period have been revised to correct these errors.  See Note 2 for more information on the errors and revisions made to amounts reported for the prior periods.

 

8

 

 

 

Note 2. Revision of Previously Issued Financial Statements for Immaterial Misstatements

 

Casa Berardi DDA

 

In the third quarter of 2021, we determined accumulated DDA and DDA expense at Casa Berardi, a business unit within our Hecla Quebec Inc. subsidiary, were overstated for the periods from June 1, 2013 through June 30, 2021 as a result of errors in calculation from the date of acquisition of Casa Berardi.  DDA was overstated by approximately $38.2 million in the aggregate over 8 years as a result of errors in the calculation of straight-line depreciation on machinery, equipment and buildings.

 

We assessed the materiality of the effect of the errors on our prior quarterly and annual financial statements, both quantitatively and qualitatively, in accordance with the SEC’s Staff Accounting Bulletin ("SAB") No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” and concluded the errors were not material to any of our previously issued financial statements.  Consequently, we will correct these errors prospectively and revise our financial statements when the consolidated balance sheets, statements of operations and comprehensive income and cash flows for such prior periods are included in future filings (the "Revisions"). The Revisions had no net impact on our sales or net cash provided by operating activities for any period presented.  The impact of these misstatements on prior periods is more fully disclosed below.

 

Reclassification of State Mining Income Taxes

 

As disclosed during the first quarter of 2021, we reclassified certain state mining income taxes from Cost of sales and other direct production costs to Income and mining tax provision prospectively effective January 1, 2021. In connection with the revision of our historical financial statements for the correction of the depreciation adjustment described above, we are also revising our previously issued financial statements for this reclassification that required us to recognize previously unrecognized deferred taxes.

 

The following tables present a summary of the impact, by financial statement line item, of the Revisions for the three months ended March 31, 2021 and 2020, June 30, 2021 and 2020 and September 30, 2020, the six months ended June 30, 2021and 2020, the nine months ended September 30, 2020, as of and for the years ended December 31, 2020 and 2019, and for the year ended December 31, 2018:

 

  

Three Months Ended March 31, 2021

 

(in thousands, except per share amounts)

 

As Previously

Reported

  

Adjustment

  

As Revised

 

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

            

Depreciation, depletion and amortization

 $49,331  $(2,589) $46,742 

Total cost of sales

  146,040   (2,589)  143,451 

Gross profit

  64,812   2,589   67,401 

Income from operations

  38,449   2,589   41,038 

Income before income and mining taxes

  23,605   2,589   26,194 

Income and mining tax provision

  (4,634)  (109)  (4,743)

Net income

  18,971   2,480   21,451 

Income applicable to common shareholders

  18,833   2,480   21,313 

Comprehensive income

  20,803   2,480   23,283 

Basic income per common share after preferred dividends (in cents)

  3.5   0.5   4.0 

Diluted income per common share after preferred dividends (in cents)

  3.5   0.5   4.0 
            

Condensed Consolidated Statements of Cash Flows (Unaudited)

            

Net income

  18,971   2,480   21,451 

Depreciation, depletion and amortization

  49,546   (2,589)  46,957 

Deferred income taxes

  32   109   141 

Cash provided by operating activities

  37,936   0   37,936 

 

9

 
  

Three Months Ended June 30, 2021

 

(in thousands, except per share amounts)

 

As Previously

Reported

  

Adjustment

  

As Revised

 

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

            

Depreciation, depletion and amortization

 $48,403  $(2,671) $45,732 

Total cost of sales

  158,723   (2,671)  156,052 

Gross profit

  59,260   2,671   61,931 

Income from operations

  26,462   2,671   29,133 

Loss before income and mining taxes

  (4,057)  2,671   (1,386)

Income and mining tax benefit

  4,842   (708)  4,134 

Net income

  785   1,963   2,748 

Income applicable to common shareholders

  647   1,963   2,610 

Comprehensive income

  2,405   1,963   4,368 

Basic income per common share after preferred dividends (in cents)

  0.1   0.4   0.5 

Diluted income per common share after preferred dividends (in cents)

  0.1   0.4   0.5 

 

 
  

Six Months Ended June 30, 2021

 

(in thousands, except per share amounts)

 

As Previously

Reported

  

Adjustment

  

As Revised

 

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

            

Depreciation, depletion and amortization

 $97,734  $(5,260) $92,474 

Total cost of sales

  304,763   (5,260)  299,503 

Gross profit

  124,072   5,260   129,332 

Income from operations

  64,911   5,260   70,171 

Income before income and mining taxes

  19,548   5,260   24,808 

Income and mining tax benefit (provision)

  208   (817)  (609)

Net income

  19,756   4,443   24,199 

Income applicable to common shareholders

  19,480   4,443   23,923 

Comprehensive income

  23,208   4,443   27,651 

Basic income per common share after preferred dividends (in cents)

  3.6   0.7   4.3 

Diluted income per common share after preferred dividends (in cents)

  3.6   0.7   4.3 
            

Condensed Consolidated Statements of Cash Flows (Unaudited)

            

Net income

  19,756   4,443   24,199 

Depreciation, depletion and amortization

  98,121   (5,260)  92,861 

Deferred income taxes

  (8,562)  817   (7,745)

Cash provided by operating activities

  124,240   0   124,240 

 

10

 
  

Three Months Ended March 31, 2020

 

(in thousands, except per share amounts)

 

As Previously

Reported

  

Adjustment

  

As Revised

 

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

            

Cost of sales and other direct production costs

 $85,887  $(167) $85,720 

Depreciation, depletion and amortization

  39,666   (1,851)  37,815 

Total cost of sales

  125,553   (2,018)  123,535 

Gross profit

  11,372   2,018   13,390 

Loss from operations

  (15,064)  2,018   (13,046)

Loss before income and mining taxes

  (18,247)  2,018   (16,229)

Income and mining tax benefit

  1,062   (657)  405 

Net loss

  (17,185)  1,361   (15,824)

Loss applicable to common shareholders

  (17,323)  1,361   (15,962)

Comprehensive loss

  (36,520)  1,361   (35,159)

Basic loss per common share after preferred dividends (in cents)

  (3.3)  0.3   (3.0)

Diluted loss per common share after preferred dividends (in cents)

  (3.3)  0.3   (3.0)
            

Condensed Consolidated Statements of Cash Flows (Unaudited)

            

Net loss

  (17,185)  1,361   (15,824)

Depreciation, depletion and amortization

  41,630   (1,851)  39,779 

Deferred income taxes

  (3,252)  490   (2,762)

Cash provided by operating activities

  4,927   0   4,927 

 

 

  

Three Months Ended June 30, 2020

 

(in thousands, except per share amounts)

 

As Previously Reported

  

Adjustment

  

As Revised

 

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

            

Cost of sales and other direct production costs

 $92,853  $(1,295) $91,558 

Depreciation, depletion and amortization

  39,423   (2,736)  36,687 

Total cost of sales

  132,276   (4,031)  128,245 

Gross profit

  34,079   4,031   38,110 

Income from operations

  9,874   4,031   13,905 

Loss before income and mining taxes

  (13,402)  4,031   (9,371)

Income and mining tax provision

  (626)  (2,020)  (2,646)

Net loss

  (14,028)  2,011   (12,017)

Income applicable to common shareholders

  (14,166)  2,011   (12,155)

Comprehensive loss

  (3,644)  2,011   (1,633)

Basic loss per common share after preferred dividends (in cents)

  (2.7)  0.4   (2.3)

Diluted loss per common share after preferred dividends (in cents)

  (2.7)  0.4   (2.3)

 

11

 
  

Six Months Ended June 30, 2020

 

(in thousands, except per share amounts)

 

As Previously Reported

  

Adjustment

  

As Revised

 

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

            

Cost of sales and other direct production costs

 $178,740  $(1,462) $177,278 

Depreciation, depletion and amortization

  79,089   (4,587)  74,502 

Total cost of sales

  257,829   (6,049)  251,780 

Gross profit

  45,451   6,049   51,500 

(Loss) income from operations

  (4,513)  6,049   1,536 

Loss before income and mining taxes

  (31,649)  6,049   (25,600)

Income and mining tax benefit (provision)

  436   (2,678)  (2,242)

Net loss

  (31,213)  3,371   (27,842)

Loss applicable to common shareholders

  (31,489)  3,371   (28,118)

Comprehensive loss

  (40,164)  3,371   (36,793)

Basic loss per common share after preferred dividends (in cents)

  (6.0)  0.6   (5.4)

Diluted loss per common share after preferred dividends (in cents)

  (6.0)  0.6   (5.4)
             

Condensed Consolidated Statements of Cash Flows (Unaudited)

            

Net loss

  (31,213)  3,371   (27,842)

Depreciation, depletion and amortization

  84,185   (4,587)  79,598 

Deferred income taxes

  (5,165)  1,216   (3,949)

Cash provided by operating activities

  42,453   0   42,453 

 

 

  

Three Months Ended September 30, 2020

 

(in thousands, except per share amounts)

 

As Previously Reported

  

Adjustment

  

As Revised

 

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

            

Cost of sales and other direct production costs

 $105,977  $(2,952) $103,025 

Depreciation, depletion and amortization

  40,238   (2,248)  37,990 

Total cost of sales

  146,215   (5,200)  141,015 

Gross profit

  53,488   5,200   58,688 

Income from operations

  31,315   5,200   36,515 

Income before income and mining taxes

  15,261   5,200   20,461 

Income and mining tax provision

  (1,633)  (3,548)  (5,181)

Net income

  13,628   1,652   15,280 

Income applicable to common shareholders

  13,490   1,652   15,142 

Comprehensive income

  19,778   1,652   21,430 

Basic income per common share after preferred dividends (in cents)

  2.6   0.3   2.9 

Diluted income per common share after preferred dividends (in cents)

  2.6   0.2   2.8 

 

12

 
  

Nine Months Ended September 30, 2020

 

(in thousands, except per share amounts)

 

As Previously Reported

  

Adjustment

  

As Revised

 

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

            

Cost of sales and other direct production costs

 $284,717  $(4,414) $280,303 

Depreciation, depletion and amortization

  119,327   (6,835)  112,492 

Total cost of sales

  404,044   (11,249)  392,795 

Gross profit

  98,939   11,249   110,188 

Income from operations

  26,802   11,249   38,051 

Loss before income and mining taxes

  (16,388)  11,249   (5,139)

Income and mining tax benefit (provision)

  (1,197)  (6,226)  (7,423)

Net loss

  (17,585)  5,023   (12,562)

Loss applicable to common shareholders

  (17,999)  5,023   (12,976)

Comprehensive income

  (20,386)  5,023   (15,363)

Basic loss per common share after preferred dividends (in cents)

  (3.4)  0.9   (2.5)

Diluted loss per common share after preferred dividends (in cents)

  (3.4)  0.9   (2.5)
             

Condensed Consolidated Statements of Cash Flows (Unaudited)

            

Net loss

  (17,585)  5,023   (12,562)

Depreciation, depletion and amortization

  126,911   (6,835)  120,076 

Deferred income taxes

  (6,390)  1,812   (4,578)

Cash provided by operating activities

  115,892   0   115,892 

 

 

  

For the Year Ended December 31, 2018

 

(in thousands, except per share amounts)

 

As Previously

Reported

  

Adjustment

  

As Revised

 

Consolidated Statements of Operations and Comprehensive Loss

            

Cost of sales and other direct production costs

 $353,994  $(1,844) $352,150 

Depreciation, depletion and amortization

  134,044   (2,224)  131,820 

Total cost of sales

  488,038   (4,068)  483,970 

Gross profit

  79,099   (4,068)  75,031 

Loss from operations

  (39,126)  4,068   (35,058)

Loss before income and mining taxes

  (33,264)  4,068   (29,196)

Income and mining tax benefit

  6,701   (4,256)  2,445 

Net loss

  (26,563)  (188)  (26,751)

Loss applicable to common shareholders

  (27,115)  (188)  (27,303)

Comprehensive loss

  (44,370)  (188)  (44,558)

Basic loss per common share after preferred dividends (in cents)

  (6.3)     (6.3)

Diluted loss per common share after preferred dividends (in cents)

  (6.3)     (6.3)
             

Consolidated Statements of Cash Flows

            

Net loss

  (26,563)  (188)  (26,751)

Depreciation, depletion and amortization

  140,905   (2,224)  138,681 

Deferred income taxes

  6,278   2,412   8,690 

Cash provided by operating activities

  94,221   0   94,221 

 

13

 

 

  

As of and for the Year Ended December 31, 2019

 

(in thousands, except per share amounts)

 

As Previously

Reported

  

Adjustment

  

As Revised

 

Consolidated Balance Sheet

            

Inventories: Concentrates, doré, and stockpiled ore

 $30,364  $(286) $30,078 

Total current assets

  179,124   (286)  178,838 

Properties, plants, equipment and mineral interests, net

  2,423,698   23,752   2,447,450 

Total assets

  2,637,308   23,466   2,660,774 

Deferred tax liability

  138,282   19,355   157,637 

Total liabilities

  944,885   19,355   964,240 

Accumulated deficit

  (353,331)  4,111   (349,220)

Total shareholders' equity

  1,692,423   4,111   1,696,534 

Total liabilities and shareholders' equity

  2,637,308   23,466   2,660,774 

Consolidated Statements of Operations and Comprehensive Loss

            

Cost of sales and other direct production costs

 $450,349  $(2,364) $447,985 

Depreciation, depletion and amortization

  199,518   (8,067)  191,451 

Total cost of sales

  649,867   (10,431)  639,436 

Gross profit

  23,399   10,431   33,830 

Loss from operations

  (57,109)  10,431   (46,678)

Loss before income and mining taxes

  (123,658)  10,431   (113,227)

Income and mining tax benefit

  24,101   (5,783)  18,318 

Net loss

  (99,557)  4,648   (94,909)

Loss applicable to common shareholders

  (100,109)  4,648   (95,461)

Comprehensive loss

  (94,398)  4,648   (89,750)

Basic loss per common share after preferred dividends (in cents)

  (20.4)  0.9   (19.5)

Diluted loss per common share after preferred dividends (in cents)

  (20.4)  0.9   (19.5)
             

Consolidated Statements of Cash Flows

            

Net loss

  (99,557)  4,648   (94,909)

Depreciation, depletion and amortization

  204,475   (8,067)  196,408 

Deferred income taxes

  5,668   3,419   9,087 

Cash provided by operating activities

  120,866   0   120,866 

 

14

 
  

As of and for the Year Ended December 31, 2020

 

(in thousands, except per share amounts)

 

As Previously

Reported

  

Adjustment

  

As Revised

 

Consolidated Balance Sheet

            

Inventories: Concentrates, doré, and stockpiled ore

 $57,936  $(369) $57,567 

Total current assets

  284,681   (369)  284,312 

Properties, plants, equipment and mineral interests, net

  2,345,219   32,855   2,378,074 

Total assets

  2,667,724   32,486   2,700,210 

Accrued taxes

  8,349   (2,575)  5,774 

Total current liabilities

  149,785   (2,575)  147,210 

Deferred tax liability

  132,475   23,616   156,091 

Total liabilities

  965,384   21,041   986,425 

Accumulated deficit

  (379,519)  11,445   (368,074)

Total shareholders' equity

  1,702,340   11,445   1,713,785 

Total liabilities and shareholders' equity

  2,667,724   32,486   2,700,210 
             

Consolidated Statements of Operations and Comprehensive Loss

            

Cost of sales and other direct production costs

  389,040   (6,377)  382,663 

Depreciation, depletion and amortization

  157,130   (9,020)  148,110 

Total cost of sales

  546,170   (15,397)  530,773 

Gross profit

  145,703   15,397   161,100 

Income from operations

  51,581   15,397   66,978 

Loss before income and mining taxes

  (16,655)  15,397   (1,258)

Income and mining tax provision

  (135)  (8,064)  (8,199)

Net loss

  (16,790)  7,333   (9,457)

Loss applicable to common shareholders

  (17,342)  7,333   (10,009)

Comprehensive loss

  (12,369)  7,333   (5,036)

Basic loss per common share after preferred dividends (in cents)

  (3.3)  1.4   (1.9)

Diluted loss per common share after preferred dividends (in cents)

  (3.3)  1.4   (1.9)
             

Consolidated Statements of Cash Flows

            

Net loss

  (16,790)  7,333   (9,457)

Depreciation, depletion and amortization

  164,026   (9,020)  155,006 

Deferred income taxes

  (5,505)  1,687   (3,818)

Cash provided by operating activities

  180,793   0   180,793 

 

15

 

 

Note 3.    Business Segments and Sales of Products

 

We discover, acquire and develop mines and other mineral interests and produce and market concentrates, carbon material and doré which contain silver, gold, lead and zinc. We are currently organized and managed in 5 segments, which represent our operating units: the Greens Creek unit, the Lucky Friday unit, the Casa Berardi unit, the San Sebastian exploration unit, and the Nevada Operations unit.

 

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

 

The following tables present information about our reportable segments for the three and nine months ended September 30, 2021 and 2020 (in thousands):

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Net sales to unaffiliated customers:

                

Greens Creek

 $84,806  $93,494  $296,978  $232,218 

Lucky Friday

  29,783   20,812   98,550   35,097 

Casa Berardi

  56,065   53,554   185,098   149,731 

San Sebastian

  0   9,138   176   23,998 

Nevada Operations

  22,906   22,705   41,593   61,939 
  $193,560  $199,703  $622,395  $502,983 

Income (loss) from operations:

      Revised       Revised 

Greens Creek

 $26,572  $44,477  $127,605  $76,762 

Lucky Friday

  6,187   950   24,247   (12,388)

Casa Berardi

  (6,233)  1,419   4,944   5,330 

San Sebastian

  (1,727)  1,946   (4,951)  1,766 

Nevada Operations

  (12,077)  5,486   (35,558)  6,830 

Other

  (21,294)  (17,763)  (54,688)  (40,249)
  $(8,572) $36,515  $61,599  $38,051 

 

The following table presents identifiable assets by reportable segment as of September 30, 2021 and December 31, 2020 (in thousands):

 

  

September 30, 2021

  

December 31, 2020

 

Identifiable assets:

      Revised 

Greens Creek

 $607,207  $610,360 

Lucky Friday

  512,742   520,463 

Casa Berardi

  705,328   727,008 

San Sebastian

  38,186   42,617 

Nevada Operations

  477,621   513,309 

Other

  333,333   286,453 
  $2,674,417  $2,700,210 

 

16

 

Sales of products by metal for the three- and nine-month periods ended September 30, 2021 and 2020 were as follows (in thousands):

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 
                 

Silver

 $61,890  $79,684  $232,414  $179,013 

Gold

  94,984   98,457   282,471   278,363 

Lead

  18,082   13,370   56,198   32,244 

Zinc

  30,273   26,779   89,501   65,540 

Less: Smelter and refining charges

  (11,669)  (18,587)  (38,189)  (52,177)

Sales of products

 $193,560  $199,703  $622,395  $502,983 

 

Sales of products for the three- and nine-month periods ended September 30, 2021 included net gains of $5.0 million and $4.5 million, respectively, on financially-settled forward contracts for silver, gold, lead and zinc contained in our sales. Sales of products for the three- and nine-month periods ended September 30, 2020 included net losses of $9.6 million and $12.9 million, respectively, on such contracts. See Note 9 for more information.

 

 

 

Note 4.   Income and Mining Taxes

 

Major components of our income and mining tax benefit (provision) for the three and nine months ended September 30, 2021 and 2020 are as follows (in thousands):

 

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2021

  

2020

  

2021

  

2020

 
       Revised       Revised 

Current:

                

Domestic

 $(2,176) $(705) $(7,489) $1,690 

Foreign

  (1,578)  (2,286)  (4,690)  (6,005)

Total current income and mining tax provision

  (3,754)  (2,991)  (12,179)  (7,695)
                 

Deferred:

                

Domestic

  3,213   (2,761)  8,226   (1,108)

Foreign

  5,074   571   7,877   1,380 

Total deferred income and mining tax benefit

  8,287   (2,190)  16,103   272 

Total income and mining tax benefit (provision)

 $4,533  $(5,181) $3,924  $(7,423)

 

The income and mining tax benefit (provision) for the three and nine months ended September 30, 2021 and 2020 varies from the amounts that would have resulted from applying the statutory tax rates to pre-tax income due primarily to the impact of taxation in foreign jurisdictions and reversal of the valuation allowance portion related to net operating loss utilization. The valuation allowance reversed for utilization of net operating loss carryforward for the three and nine months ended September 30, 2021 totaled $1.1 million and $9.7 million, respectively.

 

 

 

Note 5.   Employee Benefit Plans

 

We sponsor defined benefit pension plans covering substantially all U.S. employees.  Net periodic pension cost for the plans consisted of the following for the three and nine months ended September 30, 2021 and 2020 (in thousands):

 

 

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Service cost

 $1,455  $1,334  $4,365  $4,002 

Interest cost

  1,248   1,404   3,744   4,212 

Expected return on plan assets

  (2,313)  (1,872)  (6,939)  (5,616)

Amortization of prior service cost

  99   29   297   87 

Amortization of net loss

  1,125   1,163   3,375   3,489 

Net periodic pension cost

 $1,614  $2,058  $4,842  $6,174 

 

For the three- and nine-month periods ended September 30, 2021 and 2020, 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 expense related to all other components of net periodic pension cost of $0.2 million and $0.5 million for the three- and nine-month periods ended September 30, 2021, respectively, and $0.7 million and $2.2 million for the three- and nine-month periods ended September 30, 2020, respectively, is included in other (expense) income on our condensed consolidated statements of operations and comprehensive income (loss).

 

In January 2021, we contributed $16.8 million in shares of our common stock to our supplemental executive retirement plan, and expect to contribute approximately $0.8 million in cash during 2021. In September 2021, we contributed $5.5 million in shares of our common stock to our defined benefit pension plans. We do not expect to be required to make additional contributions to our defined benefit pension plans in 2021, but may choose to do so.

 

 

Note 6.    (Loss) Income Per Common Share

 

We calculate basic (loss) income per common share on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted (loss) 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, 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.

 

18

 

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

 

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 
       Revised       Revised 

Numerator

                

Net (loss) income

 $(979) $15,280  $23,220  $(12,562)

Preferred stock dividends

  (138)  (138)  (414)  (414)

Net (loss) income applicable to common shares

 $(1,117) $15,142  $22,806  $(12,976)
                 

Denominator

                

Basic weighted average common shares

  536,966   529,838   535,542   526,098 

Dilutive restricted stock units, warrants and deferred shares

  0   5,950   6,227   0 

Diluted weighted average common shares

  536,966   535,788   541,769   526,098 
                 

Basic (loss) income per common share (in cents)

  (0.2)  2.9   4.3   (2.5)

Diluted (loss) income per common share (in cents)

  (0.2)  2.8   4.2   (2.5)

 

Diluted (loss) income per share for the three and nine months ended September 30, 2021 and 2020 excludes the potential effects of outstanding shares of our convertible preferred stock, as their conversion would have no effect on the calculation of dilutive shares.

 

For the three-month period ended September 30, 2021 and nine-month period ended September 30, 2020, all restricted share units, deferred shares and warrants were excluded from the computation of diluted loss per share, as our reported loss for that period would cause their conversion and exercise to have no effect on the calculation of loss per share.  For the nine-month period ended September 30, 2021, the calculation of diluted income per common share included (i) 2,496,622 unvested restricted stock units during the period, (ii) 1,578,293 warrants to purchase one share of common stock and (iii) 2,152,578 deferred shares that were dilutive. For the three-month period ended September 30, 2020, the calculation of diluted income per common share included (i) unvested 2,499,956 restricted stock units during the period, (ii) 1,454,246 warrants to purchase one share of common stock and (iii) 1,996,112 deferred shares that were dilutive.

 

Note 7.    Stockholders Equity

 

Stock-based Compensation Plans

 

In June 2021, the board of directors granted the following restricted stock unit awards to our employees:

 

 

552,660 restricted stock units, with 177,872 of those vesting in June 2022, 177,878 vesting in June 2023, and 196,910 vesting in June 2024;

 

47,590 restricted stock units, with one half of those vesting in each of June 2022 and June 2023, respectively; and

 

29,187 restricted stock units that vest in June 2022.

 

Stock-based compensation expense will be recognized on a straight-line basis over the vesting period of the respective award. Total stock-based compensation expense of $5.0 million related to the above awards will be recognized as follows: $1.7 million, $2.2 million, $0.9 million and $0.2 million during 2021, 2022, 2023 and 2024, respectively.

 

In June 2021, the board of directors granted performance-based share awards to certain executive employees.  The value of the awards (if any) will be based on the ranking of the market performance of our common stock relative to that of a group of peer companies over the three-year measurement period ending December 31, 2023.  The number of shares to be issued will be based on the value of the awards divided by the share price at grant date.  The expense related to the performance-based awards will be recognized on a straight-line basis over the thirty months following the date of the award.  A total of between 0 and approximately 1.2 million shares will be issued based on the value of performance-based share awards granted in June 2019 and having a measurement period ending on December 31, 2021.

 

19

 

Stock-based compensation expense for restricted stock unit and performance-based grants to employees and shares issued to non-employee directors totaled $1.5 million and $4.8 million in the third quarter and first nine months of 2021, respectively, and $2.8 million and $5.2 million in the third quarter and first nine months of 2020, respectively.

 

In connection with the vesting of restricted stock units and other stock grants, 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, and retains as treasury stock, the number of shares necessary to satisfy such withholding obligations and pays the obligations in cash.  As a result, in the first nine months of 2021 we withheld 574,251 shares valued at approximately $4.5 million, or approximately $7.88 per share. In the first nine months of 2020 we withheld 1,183,773 shares valued at approximately $2.7 million, or approximately $2.32 per share.

 

Common Stock Dividends

 

In each of May and September 2021, our Board of Directors approved an increase in our silver-linked dividend policy by 1 cent per year, and in September 2021 also approved a reduction in the minimum realized silver price threshold to $20 from $25 per ounce. We realized silver prices of $25.66, $27.14 and $23.97 in the first, second and third quarters of 2021, respectively, thus satisfying the criterion for the silver-linked dividend component of our common stock dividend policy. As a result, on May 5, 2021 and August 4, 2021, our Board of Directors declared quarterly cash dividends of 1.125 cents per share of common stock, consisting of 0.375 cent per share for the minimum dividend component and 0.75 cent per share for the silver-linked dividend component of our dividend policy, and on November 3, 2021, declared a quarterly cash dividend of 0.625 cent per share of common stock, consisting of 0.375 cent per share for the minimum dividend component and 0.25 cent per share for the silver-linked dividend component of our dividend policy. In total, dividends of $6.0 million were paid in each of June and September 2021, and $3.4 million in dividends is expected to be paid in December 2021. 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

(cents per share)

  

Annualized Silver-

Linked Dividend

(cents per share)

  

Annualized

Minimum

Dividend

(cents per

share)

  

Annualized

Dividends per

Share: Silver-

Linked and

Minimum (cents per

share)

 
 $20   0.25   1   1.5   2.5 
 $25   1   4   1.5   5.5 
 $30   1.5   6   1.5   7.5 
 $35   2.5   10   1.5   11.5 
 $40   3.5   14   1.5   15.5 
 $45   4.5   18   1.5   19.5 
 $50   5.5   22   1.5   23.5 

 

At-The-Market Equity Distribution Agreement

 

Pursuant to an equity distribution agreement dated February 18, 2021, we may offer and sell up to 60 million shares of our common stock from time to time to or through sales agents. Sales of the shares, if any, will be made by means of ordinary brokers transactions or as otherwise agreed between the Company and the agents as principals. Whether or not we engage in sales from time to time may depend on a variety of factors, including share price, our cash resources, customary black-out restrictions, and whether we have any material inside information. The agreement can be terminated by us at any time. Any shares issued under the equity distribution agreement are registered under the Securities Act of 1933, as amended, pursuant to a shelf registration statement on Form S-3. NaN shares have been sold under the agreement as of September 30, 2021.

 

 

 

Note 8.    Debt, Credit Facility and Leases

 

Our debt as of September 30, 2021 and December 31, 2020 consisted of our 7.25% Senior Notes due February 15, 2028 ("Senior Notes”) and our Series 2020-A Senior Notes due July 9, 2025 (the “IQ Notes”). The following tables summarize our long-term debt balances, excluding interest, as of September 30, 2021 and December 31, 2020 (in thousands):

 

  

September 30, 2021

 
  

Senior Notes

  

IQ Notes

  

Total

 

Principal

 $475,000  $37,862  $512,862 

Unamortized discount/premium and issuance costs

  (5,779)  629   (5,150)

Long-term debt balance

 $469,221  $38,491  $507,712 

 

  

December 31, 2020

 
  

Senior Notes

  

IQ Notes

  

Total

 

Principal

 $475,000  $37,886  $512,886 

Unamortized discount/premium and issuance costs

  (6,462)  818   (5,644)

Long-term debt balance

 $468,538  $38,704  $507,242 

 

The following table summarizes the scheduled annual future payments, including interest, for our Senior Notes, IQ Notes, and finance and operating leases as of September 30, 2021 (in thousands). The amounts for the IQ Notes are stated in U.S. dollars (“USD”) based on the USD/Canadian dollar (“CAD”) exchange rate as of September 30, 2021.

 

Twelve-month

period ending

September 30,

 

Senior Notes

  

IQ Notes

  

Finance Leases

  

Operating Leases

 

2022

 $34,438  $2,467  $6,336  $3,166 

2023

  34,438   2,467   4,590   2,590 

2024

  34,438   2,467   3,313   1,037 

2025

  34,438   2,467   855   533 

2026

  34,438   37,301   0   524 

Thereafter

  522,349   0   0   1,953 

Total

 $694,539  $47,169  $15,094  $9,803 

 

Credit Facility

 

In July 2018, we entered into a $250 million senior secured revolving credit facility which has a term ending on February 7, 2023. As of September 30, 2021 and December 31, 2020, 0 amounts were outstanding under the facility.

 

We are also able to obtain letters of credit under the facility, and for any such letters we are required to pay a participation fee of between 2.25% and 4.00% of the amount of the letters of credit based on our total leverage ratio, as well as a fronting fee to each issuing bank of 0.20% annually on the average daily dollar amount of any outstanding letters of credit. There were $21.0 million in letters of credit outstanding as of September 30, 2021.

 

We believe we were in compliance with all covenants under the credit agreement as of September 30, 2021. 

 

 

 

Note 9.    Derivative Instruments

 

General

 

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

 

 

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

 

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

 

our planned silver and gold metals price exposure for five years into the future, with certain other limitations, may be covered under derivatives programs that would establish a floor, but not a ceiling, for prices to be realized on future metals sales. We currently do not utilize this program.

 

In addition, our risk management policy provides that price exposure between the time of shipment and final settlement on silver, gold, lead and zinc contained in our concentrate shipments may be covered under derivatives programs that would establish prices to be realized on those sales.

 

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 exceeds the contract price for quantities of our production and/or forecasted costs covered under contract positions.

 

Foreign Currency

 

Our wholly-owned subsidiary owning the Casa Berardi operation is a USD-functional currency entity which routinely incurs 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 exchange rate between the USD and CAD for this subsidiary’s future operating costs denominated in CAD. The program utilizes forward contracts to buy CAD, and each contract is designated as a cash flow hedge. As of September 30, 2021, we have 73 forward contracts outstanding to buy a total of CAD$245.6 million having a notional amount of USD$187.7 million. The CAD contracts are related to forecasted cash operating costs at Casa Berardi to be incurred from 2021 through 2025 and have CAD-to-USD exchange rates ranging between 1.2702 and 1.3753.

 

As of September 30, 2021 and December 31, 2020, we recorded the following balances for the fair value of the contracts (in millions):

 

  

September 30,

  

December 31,

 

Balance sheet line item:

 

2021

  

2020

 

Current derivatives assets

 $2.5  $3.5 

Non-current derivatives assets

  2.2   4.2 

Current derivatives liability

  0   0 

Non-current derivative liability

  0.2   0 

 

Net unrealized gains of approximately $4.8 million related to the effective portion of the hedges were included in accumulated other comprehensive loss as of September 30, 2021. Unrealized gains and losses will be transferred from accumulated other comprehensive loss to current earnings as the underlying operating expenses are recognized. We estimate approximately $2.7 million in net unrealized gains included in accumulated other comprehensive loss as of September 30, 2021 will be reclassified to current earnings in the next twelve months. Net realized gains of approximately $3.5 million on contracts related to underlying expenses which have been recognized were transferred from accumulated other comprehensive loss and included in cost of sales and other direct production costs for the nine months ended September 30, 2021. NaN net unrealized gains or losses related to ineffectiveness of the hedges were included in current earnings for the nine months ended September 30, 2021.

 

22

 

Metals Prices

 

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

 

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

 

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

 

The following tables summarize the quantities of metals committed under forward sales contracts at September 30, 2021 and December 31, 2020:

September 30, 2021

 

Ounces/pounds under contract (in 000s)

  

Average price per ounce/pound

 
  

Silver

  

Gold

  

Zinc

  

Lead

  

Silver

  

Gold

  

Zinc

  

Lead

 
  

(ounces)

  

(ounces)

  

(pounds)

  

(pounds)

  

(ounces)

  

(ounces)

  

(pounds)

  

(pounds)

 

Contracts on provisional sales

                                

2021 settlements

  1,190   4   20,867   9,866  $23.15  $1,776  $1.35  $1.01 

Contracts on forecasted sales

                                

2021 settlements

        7,771   6,779   N/A   N/A  $1.26  $0.94 

2022 settlements

        60,043   63,769   N/A   N/A  $1.28  $0.98 

2023 settlements

        76,280   70,327   N/A   N/A  $1.29  $1.00 

2024 settlements

        43,762      N/A   N/A  $1.31   N/A 

 

December 31, 2020

 

Ounces/pounds under contract (in 000s)

  

Average price per ounce/pound

 
  

Silver

  

Gold

  

Zinc

  

Lead

  

Silver

  

Gold

  

Zinc

  

Lead

 
  

(ounces)

  

(ounces)

  

(pounds)

  

(pounds)

  

(ounces)

  

(ounces)

  

(pounds)

  

(pounds)

 

Contracts on provisional sales

                                

2021 settlements

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

Contracts on forecasted sales

                                

2021 settlements

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

2022 settlements

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

 

As of September 30, 2021, these forward contracts are not designated as hedges for accounting purposes and are adjusted to fair value through earnings each period.  Effective in the fourth quarter of 2021, we anticipate designating as hedges forwards contracts utilized to manage exposure to prices for forecasted future zinc and lead sales. As a result, unrealized gains and losses related to the effective portion of the hedges for the designated contracts will be included in accumulated other comprehensive loss, and then transferred from accumulated other comprehensive loss to current earnings as the underlying sales are recognized.

 

23

 

We recorded the following balances for the fair value of the forward contracts as of September 30, 2021 and forward and put option contracts as of December 31, 2020 (in millions):

 

  

September 30, 2021

  

December 31, 2020

 

Balance sheet line item:

 

Contracts in an

asset position

  

Contracts in

a liability

position

  

Net asset

(liability)

�� 

Contracts in

an asset

position

  

Contracts in a

liability

position

  

Net asset

(liability)

 

Current derivatives assets

 $3.1  $(0.4) $2.7  $0.2  $(0.2) $0 

Non-current derivatives assets

  7.1   (2.5)  4.6   0.5   (0.1)  0.4 

Current derivatives liabilities

  0.3   (4.4)  (4.1)  0.1   (11.8)  (11.7)

Non-current derivatives liabilities

  1.2   (1.8)  (0.6)  0   0   0 

 

We recognized net gains of $5.0 million and $4.5 million during the third quarter and first nine months of 2021, respectively, and net losses of $9.6 million and $12.9 million during the third quarter and first nine months of 2020, respectively, on the contracts utilized to manage exposure to prices of metals in our concentrate shipments, which is included in sales of products.  The net gains and/or losses recognized on the contracts offset gains and/or losses related to price adjustments on our provisional concentrate sales due to changes to silver, gold, lead and zinc prices between the time of sale and final settlement.

 

We recognized a net gain of $12.1 million and net loss of $4.7 million during the third quarter and first nine months of 2021, respectively, and net losses of $6.7 million and $12.8 million during the third quarter and first nine months of 2020, respectively, on the contracts utilized to manage exposure to prices for forecasted future sales. The net losses on these contracts are included as a separate line item under other income (expense), as they relate to forecasted future sales, as opposed to sales that have already taken place but are subject to final pricing as discussed in the preceding paragraph.  The net losses in the 2021 periods were the result of increasing zinc and lead prices, while the net losses for the 2020 periods were the result of increasing silver, gold and zinc prices, partially offset by decreasing lead prices.

 

Credit-risk-related Contingent Features

 

Certain of our derivative contracts contain cross default provisions which provide that a default under our revolving credit agreement would cause a default under the derivative contract. As of September 30, 2021, we have not posted any collateral related to these contracts. The fair value of derivatives in a net liability position related to these agreements was $9.3 million as of September 30, 2021, which includes accrued interest but excludes any adjustment for nonperformance risk. If we were in breach of any of these provisions at September 30, 2021, we could have been required to settle our obligations under the agreements at their termination value of $9.3 million.

 

 

Note 10.    Fair Value Measurement

 

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

 

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

 

Level 2: significant other observable inputs; and

 

Level 3: significant unobservable inputs.

 

24

 

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

 

Description

 

Balance at

September 30, 2021

  

Balance at

December 31, 2020

 

Input

Hierarchy Level

Assets:

         

Cash and cash equivalents:

         

Money market funds and other bank deposits

 $190,904  $129,830 

Level 1

Current and non-current investments:

         

Equity securities

  8,030   19,389 

Level 1

Trade accounts receivable:

         

Receivables from provisional concentrate sales

  32,821   27,864 

Level 2

Restricted cash balances:

         

Certificates of deposit and other deposits

  1,053   1,053 

Level 1

Derivative contracts - current and non-current derivative assets:

         

Foreign exchange contracts

  4,655   7,647 

Level 2

Metal forward and put option contracts

  7,313   381 

Level 2

Total assets

 $244,776  $186,164  
          

Liabilities:

         

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

         

Foreign exchange contracts

 $200  $19 

Level 2

Metal forward and put option contracts

  4,731   11,737 

Level 2

Total liabilities

 $4,931  $11,756  

 

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

 

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

 

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

 

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

 

We use financially-settled forward contracts to manage exposure to changes in the exchange rate between USD and CAD, and the impact on CAD-denominated operating costs incurred at our Casa Berardi unit (see Note 9 for more information). The fair value of each contract represents the present value of the difference between the forward exchange rate for the contract settlement period as of the measurement date and the contract settlement exchange rate.

 

We use financially-settled forward contracts to manage the exposure to changes in prices of silver, gold, zinc and lead contained in our concentrate shipments that have not reached final settlement.  We also use financially-settled forward and put option contracts to manage the exposure to changes in prices of silver, gold, zinc and lead contained in our forecasted future sales (see Note 9 for more information).  The fair value of each forward contract represents the present value of the difference between the forward metal price for the contract settlement period as of the measurement date and the contract settlement metal price. The fair value of each put option contract is measured using the Black-Scholes pricing model, with inputs for the period-end metal price and assumed metal price volatility and discount rate.

 

25

 

At September 30, 2021, our Senior Notes, which had a carrying value of $469.2 million, net of unamortized initial purchaser discount and issuance costs, had a fair value of $513.2 million. Quoted market prices, which we consider to be Level 1 inputs, are utilized to estimate fair values of the Senior Notes. See Note 8 for more information.

 

 

Note 11.    Commitments, Contingencies and Obligations

 

General

 

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

 

Johnny M Mine Area near San Mateo, McKinley County and San Mateo Creek Basin, New Mexico

 

In May 2011, the EPA made a formal request to Hecla Mining Company for information regarding the Johnny M Mine Area near San Mateo, McKinley County, New Mexico, and asserted that Hecla Mining Company may be responsible under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) for environmental remediation and past costs the EPA has incurred at the site. Mining at the Johnny M Mine was conducted for a limited period of time by a predecessor of our subsidiary, Hecla Limited. In August 2012, Hecla Limited and the EPA entered into a Settlement Agreement and Administrative Order on Consent for Removal Action (“Consent Order”), pursuant to which Hecla Limited agreed to pay (i) $1.1 million to the EPA for its past response costs at the site and (ii) any future response costs at the site under the Consent Order, in exchange for a covenant not to sue by the EPA. Hecla Limited paid the $1.1 million to the EPA for its past response costs and in December 2014 submitted to EPA the Engineering Evaluation and Cost Analysis (“EE/CA”) for the site which recommended on-site disposal of mine-related material. In January 2021, the EPA contacted Hecla Limited to begin negotiations on a new consent order to design and implement the on-site disposal response action recommended in the EE/CA. Based on the foregoing, we believe it is probable that Hecla Limited will incur a liability for the CERCLA removal action and we increased our accrual to $9.0 million in the first quarter of 2021 ($6.1 million at December 31, 2020) primarily representing estimated costs to begin design and implementation of the remedy. It is possible that Hecla Limited’s liability will be more than $9.0 million, and any increase in liability could have a material adverse effect on Hecla Limited’s or our results of operations or financial position.

 

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

 

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

 

26

 

Carpenter Snow Creek and Barker-Hughesville Sites in Montana

 

In July 2010, the EPA made a formal request to Hecla Mining Company for information regarding the Carpenter Snow Creek Superfund site located in Cascade County, Montana. The Carpenter Snow Creek site is located in a historic mining district, and in the early 1980s Hecla Limited leased 6 mining claims and performed limited exploration activities at the site. Hecla Limited terminated the mining lease in 1988.

 

In June 2011, the EPA informed Hecla Limited that it believes Hecla Limited, and several other PRPs, may be liable for cleanup of the site or for costs incurred by the EPA in cleaning up the site. The EPA stated in the letter that it has incurred approximately $4.5 million in response costs and estimated that total remediation costs may exceed $100 million. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning the site, including the relative contributions of contamination by various other PRPs.

 

In February 2017, the EPA made a formal request to Hecla Mining Company for information regarding the Barker-Hughesville Mining District Superfund site located in Judith Basin and Cascade Counties, Montana. Hecla Limited submitted a response in April 2017. The Barker-Hughesville site is located in a historic mining district, and between approximately June and December 1983, Hecla Limited was party to an agreement with another mining company under which limited exploration activities occurred at or near the site.

 

In August 2018, the EPA informed Hecla Limited that it and several other PRPs may be liable for cleanup of the site or for costs incurred by the EPA in cleaning up the site. The EPA did not include an amount of its alleged response costs to date. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning past or anticipated future costs at the site and the relative contributions of contamination by various other PRPs.

 

Litigation Related to Klondex Acquisition

 

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

 

Debt

 

See Note 8 for information on the commitments related to our debt arrangements as of September 30, 2021.

 

27

 

Other Commitments

 

Our contractual obligations as of September 30, 2021 included approximately $0.7 million for various costs. In addition, our open purchase orders at September 30, 2021 included approximately $8.5 million, $0.5 million, $5.5 million and $4.7 million for various capital and non-capital items at the Lucky Friday, Casa Berardi, Greens Creek and Nevada Operations units, respectively. We also have total commitments of approximately $15.1 million relating to scheduled payments on finance leases, including interest, primarily for equipment at our Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations units, and total commitments of approximately $9.8 million relating to payments on operating leases (see Note 8 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, 2021, we had surety bonds totaling $182.6 million and letters of credit totaling $21.0 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 12.    Developments in Accounting Pronouncements

 

Accounting Standards Updates Adopted

 

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

 

Accounting Standards Updates to Become Effective in Future Periods

 

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

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

 

 

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.

 

28

 

These risks, uncertainties and other factors include, but are not limited to, those set forth under Part I, Item 1A. – Risk Factors in our annual report filed on Form 10-K for the year ended December 31, 2020 ("2020 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.

 

 

 

Item 2.    Managements 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 2020 Form 10-K filed with the United States Securities and Exchange Commission (the “SEC”). The results of operations reported and summarized below are not necessarily indicative of future operating results (refer to “Forward-Looking Statements” above for further discussion). References to “Notes” are Notes included in our Notes to Condensed Consolidated Financial Statements (Unaudited). Throughout MD&A, all references to losses or income per share are on a diluted basis.

 

Overview

 

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

 

 

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

 

 

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

 

 

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

 

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

 

 

map01.jpg

 

 

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

 

 

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

 

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

 

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

 

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

 

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

 

anticipate net zero scope 1 and scope 2 emissions in 2021 with the purchase of carbon credits in the third quarter of 2021;
 

advancing permitting of one or both of our Montana projects;

 

maintaining and investing in exploration and pre-development projects in the vicinities of eleven mining districts and projects we believe to be under-explored and under-invested: North Idaho’s Silver Valley in the historic Coeur d'Alene Mining District; our Greens Creek unit on Alaska’s Admiralty Island located near Juneau; the silver-producing district near Durango, Mexico; in the vicinity of our Casa Berardi mine and the Heva-Hosco project in the Abitibi region of northwestern Quebec, Canada; our projects located in two districts in northern Nevada; our projects in northwestern Montana; the Kinskuch property in British Columbia, Canada; the Republic district in northeastern Washington; and the Creede district of southwestern Colorado; and

 

 

 

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

 

The COVID-19 outbreak impacted our operations in 2020, including adversely impacting our expected production of gold at Casa Berardi, and has continued to impact our operations in 2021, including in the third quarter.  We incurred additional costs of approximately $1.0 million in the first nine months of 2021 and $2.3 million for the full year of 2020 related to quarantining employees at Greens Creek, which started in late March 2020 and was discontinued in the second quarter of 2021. In addition, silver production at Greens Creek in the third quarter of 2021 was 30% lower than in the third quarter of 2020 due to reduced ore grades as a result of mine sequencing, which was impacted by manpower challenges due to COVID-19 and increased competition for labor which we expect to mitigate through schedule changes and other means.  See each segment section below for information on how those operations have been impacted by COVID-19. To mitigate the impact of COVID-19, we have taken precautionary measures, including implementing operational plans and practices. As long as they are required, the operational practices implemented could continue to have an adverse impact on our operating results due to additional costs or deferred production and revenues.  We anticipate continuing to incur COVID mitigation costs at Casa Berardi and experience potential manpower challenges at Greens Creek in the fourth quarter of 2021, and there is uncertainty related to the potential additional impacts COVID-19 could have on our operations and financial results for that period.  In our 2020 Form 10-K, see Item IA. Risk Factors - Natural disasters, public health crises (including COVID-19), political crises, and other catastrophic events or other events outside of our control may materially and adversely affect our business or financial results and COVID-19 virus pandemic may heighten other risks for information on how restrictions related to COVID-19 have recently affected some of our operations

 

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

 

Volatility in global financial markets and other factors can pose a significant challenge to our ability to access credit and equity markets, should we need to do so, and to predict sales prices for our products. To help mitigate this challenge, we utilize forward contracts to manage exposure to declines in the prices of (i) silver, gold, zinc and lead contained in our concentrates that have been shipped but have not yet settled, and (ii) the zinc and lead content that we forecast in future concentrate shipments. We have also utilized put option contracts to manage exposure to declines in the prices of silver and gold in our forecasted future sales of those metals. In addition, we have in place a $250 million revolving credit agreement, of which $21.0 million was used as of September 30, 2021 for letters of credit, leaving approximately $229.0 million available for borrowing.

 

We strive to achieve excellent mine safety and health performance. We seek to implement this goal by: training employees in safe work practices; establishing, following and improving safety standards; investigating accidents, incidents and losses to avoid recurrence; involving employees in the establishment of safety standards; and participating in the National Mining Association’s CORESafety program. We attempt to implement reasonable best practices with respect to mine safety and emergency preparedness. We respond to issues outlined in MSHA's investigations and inspections and continue to evaluate our safety practices. There can be no assurance that our practices will mitigate or eliminate all safety risks. Achieving and maintaining compliance with MSHA regulations will be challenging and may increase our operating costs. See Item 1A. Risk Factors - We face substantial governmental regulation, including the Mine Safety and Health Act, various environmental laws and regulations and the 1872 Mining Law in our 2020 Form 10-K.

 

Another challenge for us is the risk associated with environmental litigation and ongoing reclamation activities. As described in Item 1A. Risk Factors in our 2020 Form 10-K and in Note 11 of Notes to Condensed Consolidated Financial Statements (Unaudited), it is possible that our estimate of these liabilities may change in the future, affecting our strategic plans.  We are involved in various environmental legal matters and the estimate of our environmental liabilities and liquidity needs, as well as our strategic plans, may be significantly impacted as a result of these matters or new matters that may arise.  For example, the Rock Creek project received an adverse court decision in April 2021 which could impact our strategic plan to permit, develop or operate that project, at least with respect to timing.  We strive for compliance with applicable laws and regulations and attempt to resolve environmental litigation on terms as favorable to us as possible.

 

 

Consolidated Results of Operations

 

Sales of products by metal for the three- and nine-month periods ended September 30, 2021 and 2020 were as follows:

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 

(in thousands)

 

2021

  

2020

  

2021

  

2020

 

Silver

 $61,890  $79,684  $232,414  $179,013 

Gold

  94,984   98,457   282,471   278,363 

Lead

  18,082   13,370   56,198   32,244 

Zinc

  30,273   26,779   89,501   65,540 

Less: Smelter and refining charges

  (11,669)  (18,587)  (38,189)  (52,177)

Sales of products

 $193,560  $199,703  $622,395  $502,983 

 

The fluctuations in sales in the third quarter and first nine months of 2021 compared to the same periods of 2020 are primarily due to the following two reasons:

 

 

Lower average realized silver and gold prices, and higher average realized lead and zinc prices, in the third quarter of 2021 compared to the same period in 2020. Average realized silver, gold, lead and zinc prices were higher in the first nine months of 2021 compared to the same period in 2020. These price variances are illustrated in the table below.

 

   

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   

2021

  

2020

  

2021

  

2020

 

Silver –

London PM Fix ($/ounce)

 $24.36  $24.40  $25.78  $19.22 
 

Realized price per ounce

 $23.97  $25.32  $25.75  $19.72 

Gold –

London PM Fix ($/ounce)

 $1,789  $1,911  $1,801  $1,735 
 

Realized price per ounce

 $1,792  $1,929  $1,794  $1,745 

Lead –

LME Final Cash Buyer ($/pound)

 $1.06  $0.85  $0.98  $0.81 
 

Realized price per pound

 $1.02  $0.86  $1.00  $0.81 

Zinc –

LME Final Cash Buyer ($/pound)

 $1.36  $1.06  $1.31  $0.97 
 

Realized price per pound

 $1.35  $1.04  $1.34  $0.94 

 

Average realized prices typically differ from average market prices primarily because concentrate sales are generally recorded as revenues at the time of shipment at forward prices for the estimated month of settlement, which differ from average market prices.  Due to the time elapsed between shipment of concentrates and final settlement with the customers, we must estimate the prices at which sales of our metals will be settled.  Previously recorded sales are adjusted to estimated settlement metals prices each period through final settlement.  For the third quarter and first nine months of 2021, we recorded net positive price adjustments to provisional settlements of $0.1 million and $3.7 million, respectively, compared to a net negative price adjustment to provisional settlements of $4.3 million and net positive price adjustment of $5.3 million, respectively, in the comparable 2020 periods. The price adjustments related to silver, gold, lead and zinc contained in our concentrate shipments were partially offset by gains and losses on forward contracts for those metals. See Note 9 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.

 

 

 

Lower quantities of silver and zinc sold, partially offset by higher gold and lead volume, in the third quarter of 2021 compared to the third quarter of 2020. For the first nine months of 2021, sales volumes for all payable metals except lead were lower compared to the same period of 2020. See The Greens Creek Segment, The Lucky Friday Segment, The Casa Berardi Segment, The San Sebastian Segment and The Nevada Operations Segment sections below for more information on metal production and sales volumes at each of our operating segments. Total metals production and sales volumes for each period are shown in the following table:

 

   

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
   

2021

  

2020

  

2021

  

2020

 

Silver -

Ounces produced

  2,676,084   3,541,371   9,660,313   10,190,621 
 

Payable ounces sold

  2,581,690   3,147,048   9,027,180   9,077,966 

Gold -

Ounces produced

  42,207   41,174   153,350   159,948 
 

Payable ounces sold

  53,000   51,049   157,454   159,550 

Lead -

Tons produced

  9,904   9,750   32,148   24,620 
 

Payable tons sold

  8,835   7,792   28,166   19,948 

Zinc -

Tons produced

  15,546   17,997   48,864   48,699 
 

Payable tons sold

  11,174   12,892   33,344   34,717 

 

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.

 

Sales, total cost of sales, gross profit, Cash Cost, After By-product Credits, per Ounce (“Cash Cost”) (non-GAAP) and All-In Sustaining Cost, After By-product Credits, per Ounce (“AISC”) (non-GAAP) at our operating units for the three and nine months ended September 30, 2021 and 2020 were as follows (in thousands, except for Cash Cost and AISC):

 

  

Silver

  

Gold

 
  

Greens

Creek

  

Lucky

Friday

  

San

Sebastian

  

Total

Silver (2)

  

Casa

Berardi

  

Nevada

Operations

  

Total

Gold

 

Three Months Ended September 30, 2021:

                            

Sales

 $84,806  $29,783  $  $114,589  $56,065  $22,906  $78,971 

Total cost of sales

  (55,193)  (23,591)     (78,784)  (58,164)  (21,384)  (79,548)

Gross profit

 $29,613  $6,192  $  $35,805  $(2,099) $1,522  $(577)

Cash Cost per silver or gold ounce (1)

 $0.74  $6.35  $  $2.49  $1,175  $1,038  $1,163 

AISC per silver or gold ounce (1)

 $5.94  $16.79  $  $12.82  $1,476  $1,167  $1,450 

Three Months Ended September 30, 2020:

                            

Sales

 $93,494  $20,812  $9,138  $123,444  $53,554  $22,705  $76,259 

Total cost of sales (3)

  (48,105)  (21,500)  (5,960)  (75,565)  (51,573)  (13,877)  (65,450)

Gross profit (loss)

 $45,389  $(688) $3,178  $47,879  $1,981  $8,828  $10,809 

Cash Cost per silver or gold ounce (1)

 $3.00  $  $7.53  $3.41  $1,398  $  $1,398 

AISC per silver or gold ounce (1)

 $6.58  $  $8.87  $10.52  $1,855  $  $1,855 

 

 

  

Silver

  

Gold

 
  

Greens

Creek

  

Lucky

Friday

  

San

Sebastian

  

Total

Silver (2)

  

Casa

Berardi

  

Nevada

Operations

  

Total

Gold

 

Nine Months Ended September 30, 2021:

                            

Sales

 $296,978  $98,550  $176  $395,704  $185,098  $41,593  $226,691 

Total cost of sales

  (163,861)  (74,287)  (95)  (238,243)  (172,760)  (46,832)  (219,592)

Gross profit (loss)

 $133,117  $24,263  $81  $157,461  $12,338  $(5,239) $7,099 

Cash Cost per silver or gold ounce (1)

 $(1.03) $7.37  $  $1.26  $1,127  $1,124  $1,127 

AISC per silver or gold ounce (1)

 $2.40  $15.00  $  $8.88  $1,387  $1,167  $1,349 

Nine Months Ended September 30, 2020:

                            

Sales

 $232,218  $35,097  $23,998  $291,313  $149,731  $61,939  $211,670 

Total cost of sales (3)

  (153,496)  (35,787)  (18,271)  (207,554)  (140,893)  (44,348)  (185,241)

Gross profit (loss)

 $78,722  $(690) $5,727  $83,759  $8,838  $17,591  $26,429 

Cash Cost per silver or gold ounce (1)

 $4.45  $  $5.93  $4.58  $1,181  $716  $1,053 

AISC per silver or gold ounce (1)

 $7.03  $  $6.76  $10.09  $1,493  $787  $1,299 

 

 

(1)

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

 

 

(2)

The calculation of AISC, After By-product Credits, Per Ounce for our consolidated silver properties includes corporate costs for general and administrative expense and sustaining exploration and capital costs.

 

 

(3)

See Note 2 of Notes to Condensed Consolidated Financial Statements (Unaudited) for information on revisions to amounts previously reported for total cost of sales.

 

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

 

 

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

 

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

 

metallurgical treatment maximizes silver recovery;

 

the Greens Creek and Lucky Friday deposits are massive sulfide deposits containing an unusually high proportion of silver; and in most of their working areas, Greens Creek and Lucky Friday utilize selective mining methods in which silver is the metal targeted for highest recovery.

 

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

 

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

 

 

We believe the identification of silver as a by-product credit is appropriate at Casa Berardi and Nevada Operations because of its lower economic value compared to gold and due to the fact that gold is the primary product we intend to produce there. In addition, we do not receive sufficient revenue from silver at Casa Berardi 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 recorded a loss applicable to common shareholders of $1.1 million (0.2 cents per basic common share) for the third quarter of 2021 and income applicable to common shareholders of $22.8 million (4.3 cents per basic common share) for the first nine months of 2021 compared to income applicable to common shareholders of $15.1 million (2.9 cents per basic common share) for the third quarter of 2020 and a loss of $13.0 million (2.5 cents per basic common share) for the first nine months of 2020.  The following factors impacted the results for the third quarter and first nine months of 2021 compared to the same periods in 2020:

 

 

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

 

There were no ramp-up costs at Lucky Friday in 2021 compared to ramp-up income of $1.6 million and costs of $11.7 million in the third quarter and first nine months of 2020, respectively. See The Lucky Friday Segment section below.

 

Lower interest expense by $7.4 million in the first nine months of 2021 compared to the same period of 2020, with the decrease due to the following items: (i) interest recognized on both our 7.25% Senior Notes due February 15, 2028 (“Senior Notes”) and our previously-outstanding 6.875% Senior Notes that were due in 2021 (“2021 Notes”) for an overlapping period of almost one month in 2020, as the Senior Notes were issued on February 19, 2020 and the 2021 Notes were redeemed on March 19, 2020, (ii) $1.7 million in unamortized initial purchaser discount on the 2021 Notes recognized as expense upon their redemption and (iii) reduced debt in 2021, as no amounts were drawn on our revolving credit facility during the first nine months of 2021. We utilized the facility during the first nine months of 2020 to mitigate potential impacts of COVID-19, with all amounts repaid by the end of the third quarter of 2020.

 

Net foreign exchange gains of $4.0 million in the third quarter of 2021 and $24 thousand in the first nine months of 2021 versus a net loss of $2.2 million in the third quarter of 2020 and gain of $1.2 million in the first nine months of 2020. The variances are primarily related to the impact of changes in the CAD-to-USD exchange rate on the remeasurement of our net monetary liabilities in Quebec. During the third quarter and first nine months of 2021, the CAD weakened relative to the USD, resulting in a lower USD value for our net monetary liabilities denominated in CAD and a foreign exchange gain for the period. The CAD strengthened relative to the USD during the third quarter of 2020, but weakened during the first nine months of 2020.

 

Provision for closed operations and environmental matters increased by $6.3 million and $9.5 million in the third quarter and first nine months of 2021, respectively, compared to the same periods of 2020. The increase was primarily due to a $6.5 million settlement of a lawsuit in the third quarter of 2021 related to a 1989 agreement entered into by our subsidiary, CoCa Mines, Inc., and its subsidiary, Creede Resources, Inc. (see Part II - Other Information, Item 1. Legal Proceedings for more information). The variance for the nine-month period was also the result of a $2.9 million increase in the accrual for estimated costs at the Johnny M site in New Mexico in the first quarter of 2021 (see Note 11 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information).

 

Higher other operating expense by $4.8 million in the first nine months of 2021 compared to the same period of 2020 due to costs incurred to identify and implement potential operational improvements at Casa Berardi and Lucky Friday.

 

General and administrative expense decreased by $2.8 million and increased by $0.4 million in the third quarter and first nine months of 2021, respectively, compared to the same periods of 2020. The third quarter variance was the result of timing of issuance of certain equity compensation awards, with the increase for the nine-month period primarily due to higher accrued incentive compensation expense.

 

 

 

An unrealized loss on investments in other mining companies of $2.9 million in the third quarter of 2021 compared to a gain of $4.0 million in the third quarter of 2020. In the first nine months of 2021, we had a net loss on investments of $5.9 million, comprised of a $7.1 million unrealized loss and a $1.2 million gain on exchange of investments, compared to an unrealized gain of $9.4 million in the first nine months of 2020.

 

Exploration and pre-development expense increased by $12.9 million and $25.3 million in the third quarter and first nine months of 2021, respectively, compared to the same periods in 2020. In the first nine months of 2021, exploration was primarily at our San Sebastian, Casa Berardi, Greens Creek and Nevada Operations units and our Kinskuch property, while pre-development expense included $2.6 million and $4.9 million in the third quarter and first nine months of 2021, respectively, related to development of the decline to allow drilling of the Hatter Graben area in Nevada.

 

A gain on metal derivatives contracts of $12.1 million and a loss of $4.7 million in the third quarter and first nine months of 2021, respectively, compared to losses of $6.7 million and $12.8 million in the third quarter and first nine months of 2020, respectively (see Note 9 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information).

 

Income and mining tax benefits of $4.5 million and $3.9 million in the third quarter and first nine months of 2021, respectively, compared to provisions of $5.2 million and $7.4 million, respectively, in the comparable 2020 periods. The benefits in the 2021 periods are primarily the result of losses in Nevada, Mexico and Quebec.
 

In June 2020, we gifted and recognized expense for 650,000 shares of our common stock valued at $2.0 million at the time of the gift to the Hecla Charitable Foundation (the “Foundation”). The Foundation is a 501(c)(3) entity established in 2007 to provide grants and disburse funds for educational and charitable purposes to qualifying organizations in order to promote the social, environmental and economic sustainability and development of the communities where we have operations and activities.

 

 

The Greens Creek Segment

 

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

 

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Sales

 $84,806  $93,494  $296,978  $232,218 

Cost of sales and other direct production costs (1)

  (42,096)  (36,370)  (121,451)  (116,344)

Depreciation, depletion and amortization

  (13,097)  (11,735)  (42,410)  (37,152)

Cost of sales and other direct production costs and depreciation, depletion and amortization

  (55,193)  (48,105)  (163,861)  (153,496)

Gross profit

 $29,613  $45,389  $133,117  $78,722 

Tons of ore milled

  211,142   215,237   620,153   629,316 

Production:

                

Silver (ounces)

  1,837,270   2,634,436   6,980,587   8,164,062 

Gold (ounces)

  9,734   12,838   35,859   38,215 

Zinc (tons)

  13,227   16,187   41,191   44,858 

Lead (tons)

  4,591   5,909   15,142   16,996 

Payable metal quantities sold:

                

Silver (ounces)

  1,774,421   2,311,477   6,493,528   7,158,933 

Gold (ounces)

  9,232   9,924   31,599   32,600 

Zinc (tons)

  9,472   11,666   27,783   31,968 

Lead (tons)

  3,834   4,214   12,098   12,907 

Ore grades:

                

Silver ounces per ton

  11.14   15.04   13.84   15.79 

Gold ounces per ton

  0.07   0.08   0.08   0.08 

Zinc percent

  7.05

%

  8.17

%

  7.41

%

  7.76

%

Lead percent

  2.68

%

  3.26

%

  2.96

%

  3.22

%

Total production cost per ton

 $181.60  $167.87  $178.29  $174.66 

Cash Cost, After By-product Credits, Per Silver Ounce (2)

 $0.74  $3.00  $(1.03) $4.45 

All-In Sustaining Costs (“AISC”), After By-Product Credits, per Silver Ounce (2)

 $5.94  $6.58  $2.40  $7.03 

 

 

(1)

See Note 2 of Notes to Condensed Consolidated Financial Statements (Unaudited) for information on revisions to amounts previously reported for cost of sales and other direct production costs.

 

 

(2)

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

 

The $15.8 million decrease in gross profit in the third quarter of 2021 compared to the third quarter of 2020 was primarily due to lower ore grades due to mine sequencing and lower realized silver and gold prices.  Mine sequencing during the third quarter was impacted by manpower challenges due to COVID-19 and increased competition for labor, which we expect to address through schedule changes and other means.  As a result, lower grade material was produced from more easily accessible areas of the mine, and deeper, higher-grade material will be mined in the future.  The $54.4 million increase in gross profit in the first nine months of 2021 compared to the same period in 2020 was due to:  (i) higher realized prices for silver, gold, lead and zinc and (ii) lower concentrate treatment costs of $18.9 million primarily as a result of favorable changes in smelter terms, with approximately $4.0 million of the variance expected to be non-recurring.  The impacts of the factors above were partially offset by lower metal sales volume primarily due to lower ore grades.

 

 

The charts below illustrate the factors contributing to the variances in Cash Cost, After By-product Credits, Per Silver Ounce for the third quarter and first nine months of 2021 versus the same periods in 2020:

 

graph01.jpg

 

img01.jpg

 

 

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

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2021

  

2020

  

2021

  

2020

 

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

 $26.76  $23.18  $21.05  $21.57 

By-product credits

  (26.02)  (20.18)  (22.08)  (17.12)

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

 $0.74  $3.00  $(1.03) $4.45 

 

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

 

  

Three Months Ended September 30,

  

Nine Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 

AISC, Before By-product Credits, per Silver Ounce

 $31.96  $26.76  $24.48  $24.15 

By-product credits

  (26.02)  (20.18)  (22.08)  (17.12)

AISC, After By-product Credits, per Silver Ounce

 $5.94  $6.58  $2.40  $7.03 

 

The decrease in Cash Costs and AISC, After By-product Credits, per Silver Ounce for the third quarter and first nine months of 2021 compared to 2020 was primarily due to higher by-product credits and lower treatment costs.

 

Restrictions imposed by the State of Alaska beginning in late March 2020 in response to the COVID-19 virus pandemic, including the requirement for employees returning to Alaska to self-quarantine for 14 days (changed in June 2020 to 7 days and subsequently discontinued), caused us to revise the normal operating procedures and incur additional costs for staffing operations at Greens Creek, including for quarantining employees from late March 2020 through the second quarter of 2021.  In addition, manpower challenges impacted mine operations during the third quarter of 2021, and, although we anticipate mitigating them in the fourth quarter, they could continue to have an impact for the remainder of the year. The changes at Greens Creek have not materially impacted our operations to date; however, restrictions and other challenges related to COVID-19 and increased competition for labor could have a material impact if they continue longer than anticipated or become broader.

 

 

The Lucky Friday Segment

 

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

 

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Sales

 $29,783  $20,812  $98,550  $35,097 

Cost of sales and other direct production costs

  (17,001)  (18,544)  (53,959)  (30,635)

Depreciation, depletion and amortization

  (6,590)  (2,956)  (20,328)  (5,152)

Cost of sales and other direct production costs and depreciation, depletion and amortization

  (23,591)  (21,500)  (74,287)  (35,787)

Gross profit (loss)

 $6,192  $(688) $24,263  $(690)

Tons of ore milled

  78,227   55,050   241,740   109,951 

Production:

                

Silver (ounces)

  831,532   636,389   2,608,727   1,201,674 

Lead (tons)

  5,313   3,841   17,006   7,624 

Zinc (tons)

  2,319   1,810   7,673   3,841 

Payable metal quantities sold:

                

Silver (ounces)

  783,672   585,119   2,481,753   1,110,568 

Lead (tons)

  5,001   3,579   16,068   7,042 

Zinc (tons)

  1,702   1,226   5,561   2,749 

Ore grades:

                

Silver ounces per ton

  11.21   12.10   11.34   11.43 

Lead percent

  7.22

%

  7.35

%

  7.43

%

  7.33

%

Zinc percent

  3.30

%

  3.76

%

  3.48

%

  3.89

%

Total production cost per ton

  190.66      189.06    

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

 $6.35  $  $7.37  $ 

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

 $16.79  $  $15.00  $ 

 

 

(1)

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

 

The increases in gross profit, ore tonnage and metals production in the third quarter and first nine months of 2021 compared to the same periods in 2020 are the result of returning to full production during the fourth quarter of 2020 (discussed further below). Sales were higher by 43% and 181% for the third quarter and first nine months of 2021, respectively, compared to the same periods of 2020 due to the increase in production, and were also impacted by lower realized silver prices and higher realized lead and zinc prices in the third quarter of 2021, and higher realized prices for all three metals in the first nine months of 2021, compared to the same periods in 2020.

 

The charts below illustrate the factors contributing to Cash Cost, After By-product Credits, Per Silver Ounce for the third quarter and first nine months of 2021. Total production costs and Cash Cost and AISC, After By-product Credits, Per Silver Ounce are not presented for the third quarter and first nine months of 2020, as production was limited during the ramp-up after the strike (discussed below) and results are not comparable.   

 

 

img04.jpg

 

img05.jpg

 

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

 

  

Three Months

Ended

September 30,

  

Nine Months

Ended

September 30,

 
  

2021

  

2021

 

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

 $24.14  $24.70 

By-product credits

  (17.79)  (17.33)

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

 $6.35  $7.37 

 

 

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

 

  

Three Months

Ended

September 30,

  

Nine Months

Ended

September 30,

 
  

2021

  

2021

 

AISC, Before By-product Credits, per Silver Ounce

 $34.58  $32.33 

By-product credits

  (17.79)  (17.33)

AISC, After By-product Credits, per Silver Ounce

 $16.79  $15.00 

 

Following settlement of the strike by unionized employees at Lucky Friday in early 2020, we commenced restaffing and ramp-up procedures and the mine returned to full production in the fourth quarter of 2020.  Ramp-up activities resulted in income of $1.6 million in the third quarter of  2020 and costs of $11.7 million in the first nine months of 2020, which included non-cash depreciation expense of $2.2 million and $6.3 million, respectively, and are included in a separate line item on our consolidated statements of operations.  This ramp-up income and costs are excluded from the calculation of gross profit, Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce, when presented.

 

The Casa Berardi Segment

 

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

 

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Sales

 $56,065  $53,554  $185,098  $149,731 

Cost of sales and other direct production costs

  (38,196)  (36,350)  (111,601)  (96,579)

Depreciation, depletion and amortization (1)

  (19,968)  (15,223)  (61,159)  (44,314)

Cost of sales and other direct production costs and depreciation, depletion and amortization

  (58,164)  (51,573)  (172,760)  (140,893)

Gross profit (loss)

 $(2,099) $1,981  $12,338  $8,838 

Tons of ore milled

  398,143   288,682   1,141,229   900,720 

Production:

                

Gold (ounces)

  29,722   26,405   97,245   83,913 

Silver (ounces)

  7,012   3,855   25,604   15,284 

Payable metal quantities sold:

                

Gold (ounces)

  31,227   28,133   102,711   85,969 

Silver (ounces)

  7,764   4,769   24,538   17,575 

Ore grades:

                

Gold ounces per ton

  0.087   0.114   0.102   0.114 

Silver ounces per ton

  0.02   0.02   0.02   0.02 

Total production cost per ton

 $86.95  $127.46  $95.13  $108.85 

Cash Cost, After By-product Credits, per Gold Ounce (2)

 $1,175  $1,398  $1,127  $1,181 

AISC, After By-product Credits, per Gold Ounce (2)

 $1,476  $1,855  $1,387  $1,493 

 

 

(1)

See Note 2 of Notes to Condensed Consolidated Financial Statements (Unaudited) for information on revisions to amounts previously reported for depreciation, depletion and amortization.

 

 

(2)

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

 

 

Gross profit decreased by $4.1 million and increased by $3.5 million for the third quarter and first nine months of 2021, respectively, compared to the same periods of 2020.  The decrease in the third quarter was due to lower realized gold prices and higher cost of sales resulting from increased production costs due to:  (i) a 38% increase in ore tonnage, (ii) mill contractor costs related to maintenance and optimization activities, and (iii) higher underground maintenance costs resulting from repairs and replacements of major components for the production fleet. The increase in gross profit for the nine-month period was due to higher sales resulting from increased gold production, partially offset by higher cost of sales as a result of the same factors discussed above impacting costs for the third quarter.  The lower production in the 2020 periods was partially due to a government COVID-19-related order. We suspended operations at Casa Berardi from March 24, 2020 until April 15, 2020, in response to the Government of Quebec’s COVID-19 order for the mining industry.

 

Total capital additions increased by $14.0 million in the first nine months of 2021 compared to the same period of 2020 primarily due to growth capital costs incurred for development of the new 160 zone open pit mine. Limited ore production from the 160 zone pit is expected to begin in the fourth quarter of 2021.

 

The charts below illustrate the factors contributing to Cash Cost, After By-product Credits, Per Gold Ounce for the third quarter and first nine months of 2021 and 2020:

 

img06.jpg

 

 

img07.jpg

 

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

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2021

  

2020

  

2021

  

2020

 

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

 $1,181  $1,402  $1,134  $1,184 

By-product credits

  (6)  (4)  (7)  (3)

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

 $1,175  $1,398  $1,127  $1,181 

 

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

 

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2021

  

2020

  

2021

  

2020

 

AISC, Before By-product Credits, per Gold Ounce

 $1,482  $1,859  $1,394  $1,496 

By-product credits

  (6)  (4)  (7)  (3)

AISC, After By-product Credits, per Gold Ounce

 $1,476  $1,855  $1,387  $1,493 

 

The decrease in Cash Cost and AISC, After By-product Credits, per Gold Ounce for the third quarter and first nine months of 2021 compared to the same periods in 2020 was primarily due to higher gold production, partially offset by higher production costs, as discussed above, with AISC, After By-product Credits, per Gold Ounce also impacted by higher exploration spending. Sustaining capital was lower in the third quarter of 2021, but higher in the first nine months of 2021, compared to the same periods of 2020.

 

 

The San Sebastian Segment

 

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

 

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Sales

 $  $9,138  $176  $23,998 

Cost of sales and other direct production costs

     (5,179)  (95)  (15,122)

Depreciation, depletion and amortization

     (781)     (3,149)

Cost of sales and other direct production costs and depreciation, depletion and amortization

     (5,960)  (95)  (18,271)

Gross profit

 $  $3,178  $81  $5,727 

Payable metal quantities sold:

                

Silver (ounces)

     229,250   3,493   745,726 

Gold (ounces)

     1,713   47   5,757 

 

The $3.2 million and $5.6 million decreases in gross profit for the third quarter and first nine months of 2021, respectively, compared to the same periods in 2020 are primarily due to the suspension of production, as mining at San Sebastian was completed in the third quarter of 2020 and milling was completed in the fourth quarter of 2020. Exploration and evaluation activities are ongoing.

 

Suspension-related costs at San Sebastian totaling $0.6 million and $2.0 million for the third quarter and first nine months of 2021, respectively, are reported in a separate line item on our consolidated statements of operations.          

 

 

The Nevada Operations Segment

 

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

 

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  

2021

  

2020

  

2021

  

2020

 

Sales

 $22,906  $22,705  $41,593  $61,939 

Cost of sales and other direct production costs

  (15,249)  (6,582)  (31,811)  (21,623)

Depreciation, depletion and amortization

  (6,135)  (7,295)  (15,021)  (22,725)

Cost of sales and other direct production costs and depreciation, depletion and amortization

  (21,384)  (13,877)  (46,832)  (44,348)

Gross profit (loss)

 $1,522  $8,828  $(5,239) $17,591 

Payable metal quantities sold:

                

Gold (ounces)

  12,542   11,280   23,097   35,224 

Silver (ounces)

  15,833   16,433   23,868   45,164 

 

The decreases in gross profit for the third quarter and first nine months of 2021 compared to the same periods of 2020 were primarily the result of lower ore grades, with the third quarter also impacted by lower realized gold prices and the nine-month period impacted by increased write-downs of ore stockpile to net realizable value.  Processing of the stockpiled non-refractory ore at the Midas mill and third-party processing of a bulk sample of refractory ore in a roaster commenced at the end of the first quarter of 2021 and was completed in the second quarter. We also processed an additional approximately 14,200 tons of Fire Creek refractory ore at a third-party facility, and we anticipate production and sales from the remaining approximately 2,200 tons of previously stockpiled material processed at the third-party autoclave facility will be recognized in the fourth quarter of 2021. The write-downs of ore stockpile inventory totaled approximately $0.1 million and $9.7 million in the third quarter and first nine months of 2021, respectively, compared to $1.5 million of such write-downs in the first nine months of 2020, with no portion of that amount recognized in the third quarter of 2020.  During the second half of 2020, all ore mined at the Nevada Operations was stockpiled, with no ore milled and no production reported during that period.  Mining of non-refractory ore at Fire Creek in areas where development has already been performed was completed in the fourth quarter of 2020.  Fire Creek was placed on care-and-maintenance in the second quarter of 2021 after processing of the remaining non-refractory ore stockpile.

 

 

Production was suspended at the Hollister mine in the third quarter of 2019 and at the Midas mine and Aurora mill in late 2019. Suspension-related costs at the Nevada Operations unit totaling $6.3 million and $15.0 million for the third quarter and first nine months of 2021, respectively, and $2.9 million and $9.6 million in the third quarter and first nine months of 2020, respectively, are reported in a separate line item on our consolidated statements of operations and excluded from the calculations of cost of sales and other direct production costs and depreciation, depletion and amortization, total production costs per ton and Cash Cost and AISC, After By-product Credits, per Gold Ounce.

 

See Item 1A. Risk Factors - Operation, Development, Exploration and Acquisition Risks in our 2020 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

 

Employee Benefit Plans

 

Our defined benefit pension plans provide a significant benefit to our employees, but represent a significant liability to us. The net liability recorded for the underfunded status of our plans was $27.0 million and $44.9 million as of September 30, 2021 and December 31, 2020, respectively. In September 2021, we contributed $5.5 million in shares of our common stock to our defined benefit pension plans (see Part II - Other Information, Item 2. Unregistered Sales of Securities and Use of Proceeds for more information). We do not expect to be required to make additional contributions to our defined benefit pension plans in 2021, but may choose to do so. In January 2021, we contributed $16.8 million in shares of our common stock to our supplemental executive retirement plan (“SERP”), and expect to contribute approximately $0.8 million in cash to the SERP in 2021. While the economic variables which will determine future funding requirements are uncertain, we expect contributions to continue to be required in future years under current defined benefit pension plan provisions, and we periodically examine the defined benefit pension plans and SERP for affordability and competitiveness. See Note 9 of Notes to Consolidated Financial Statements in our 2020 Form 10-K for more information.

 

Income Taxes

 

During the third quarter and first nine months of 2021, income and mining tax benefits of approximately $4.5 million and $3.9 million, respectively, resulted in effective tax rates of 82% and (20)%, respectively, for those periods. This compares to income and mining tax provisions of $5.2 million and $7.4 million, or effective tax rates of 25% and (144)%, for the third quarter and first nine months of 2020, respectively. The comparability of our income and mining tax (provision) 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; (v) percentage depletion; and (vi) the non-recognition of tax assets. Therefore, the effective tax rate will fluctuate, sometimes significantly, period to period.

 

Each reporting period we assess 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 that 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. For additional information, please see Note 4 of Notes to Condensed Consolidated Financial Statements (Unaudited) and Item 1A. Risk Factors - 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 our 2020 10-K.

 

 

Reconciliation of Cost of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization (GAAP)

to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP)

 

The tables below present reconciliations between the most comparable GAAP measure of cost of sales and other direct production costs and depreciation, depletion and amortization 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 at our five operating units and for the Company for the three- and nine-month periods ended September 30, 2021 and 2020.

 

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 exploration, pre-development, 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 on-site exploration, 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, Lucky Friday and San Sebastian 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 on-site exploration, 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 exploration and 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.  However, comparability of Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce for the third quarter and first nine months of 2021 to the same periods of 2020 is impacted by, among other factors, the return to full production at Lucky Friday and suspension of production at San Sebastian in the fourth quarter of 2020.

 

 

The Casa Berardi, 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, Lucky Friday and San Sebastian, our combined silver properties. Similarly, the silver produced at our other three 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)

 

Three Months Ended September 30, 2021

 
  

Greens

Creek

  

Lucky

Friday(2)

  

San

Sebastian(3)

  

Corporate(4)

  

Total Silver

 

Cost of sales and other direct production costs and depreciation, depletion and amortization

 $55,193   23,591  $      $78,784 

Depreciation, depletion and amortization

  (13,097)  (6,590)         (19,687)

Treatment costs

  7,979   3,427          11,406 

Change in product inventory

  (122)  (68)         (190)

Reclamation and other costs

  (786)  (281)         (1,067)

Cash Cost, Before By-product Credits (1)

  49,167   20,079          69,246 

Reclamation and other costs

  848   264          1,112 

Sustaining exploration

  2,472         474   2,946 

Sustaining capital

  6,228   8,406         14,634 

General and administrative

              8,874   8,874 

AISC, Before By-product Credits (1)

  58,715   28,749          96,812 

By-product credits:

                    

Zinc

  (25,295)  (4,611)         (29,906)

Gold

  (14,864)            (14,864)

Lead

  (7,640)  (10,188) $       (17,828)

Total By-product credits

  (47,799)  (14,799)         (62,598)

Cash Cost, After By-product Credits

 $1,368  $5,280  $      $6,648 

AISC, After By-product Credits

 $10,916  $13,950  $      $34,214 

Divided by silver ounces produced

  1,837   832          2,669 

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

 $26.76  $24.14  $      $25.93 

By-product credits per ounce

  (26.02) $(17.79)         (23.44)

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

 $0.74  $6.35  $      $2.49 

AISC, Before By-product Credits, per Silver Ounce

 $31.96  $34.58  $      $36.26 

By-product credits per ounce

  (26.02) $(17.79)         (23.44)

AISC, After By-product Credits, per Silver Ounce

 $5.94  $16.79  $      $12.82 

 

 

In thousands (except per ounce amounts)

 

Three Months Ended September 30, 2021

 
  

Casa Berardi(5)

  

Nevada

Operations(6)

  

Total Gold

 

Cost of sales and other direct production costs and depreciation, depletion and amortization

 $58,164  $21,384  $79,548 

Depreciation, depletion and amortization

  (19,968)  (6,135)  (26,103)

Treatment costs

  475   1   476 

Change in product inventory

  (3,369)  (12,389)  (15,758)

Reclamation and other costs

  (210)     (210)

Cash Cost, Before By-product Credits (1)

  35,092   2,861   37,953 

Reclamation and other costs

  209   327   536 

Sustaining exploration

  1,541      1,541 

Sustaining capital

  7,208   29   7,237 

AISC, Before By-product Credits (1)

  44,050   3,217   47,267 

By-product credits:

            

Silver

  (169)  (6)  (175)

Total By-product credits

  (169)  (6)  (175)

Cash Cost, After By-product Credits

 $34,923  $2,855  $37,778 

AISC, After By-product Credits

 $43,881  $3,211  $47,092 

Divided by gold ounces produced

  30   3   33 

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

 $1,181  $1,040  $1,168 

By-product credits per ounce

  (6)  (2)  (5)

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

 $1,175  $1,038  $1,163 

AISC, Before By-product Credits, per Gold Ounce

 $1,482  $1,169  $1,455 

By-product credits per ounce

  (6)  (2)  (5)

AISC, After By-product Credits, per Gold Ounce

 $1,476  $1,167  $1,450 

 

 

In thousands (except per ounce amounts)

 

Three Months Ended September 30, 2021

 
  

Total

Silver

  

Total Gold

  

Total

 

Cost of sales and other direct production costs and depreciation, depletion and amortization

 $78,784   79,548  $158,332 

Depreciation, depletion and amortization

  (19,687)  (26,103)  (45,790)

Treatment costs

  11,406   476   11,882 

Change in product inventory

  (190)  (15,758)  (15,948)

Reclamation and other costs

  (1,067)  (210)  (1,277)

Cash Cost, Before By-product Credits (1)

  69,246   37,953   107,199 

Reclamation and other costs

  1,112   536   1,648 

Sustaining exploration

  2,946   1,541   4,487 

Sustaining capital

  14,634   7,237   21,871 

General and administrative

  8,874      8,874 

AISC, Before By-product Credits (1)

  96,812   47,267   144,079 

By-product credits:

            

Zinc

  (29,906)     (29,906)

Gold

  (14,864)     (14,864)

Lead

  (17,828)     (17,828)

Silver

     (175)  (175)

Total By-product credits

  (62,598)  (175)  (62,773)

Cash Cost, After By-product Credits

 $6,648  $37,778  $44,426 

AISC, After By-product Credits

 $34,214  $47,092  $81,306 

Divided by ounces produced

  2,669   33     

Cash Cost, Before By-product Credits, per Ounce

 $25.93  $1,168     

By-product credits per ounce

  (23.44)  (5)    

Cash Cost, After By-product Credits, per Ounce

 $2.49  $1,163     

AISC, Before By-product Credits, per Ounce

 $36.26  $1,455     

By-product credits per ounce

  (23.44)  (5)    

AISC, After By-product Credits, per Ounce

 $12.82  $1,450     

 

 

In thousands (except per ounce amounts)

 

Three Months Ended September 30, 2020

 
  

Greens

Creek

  

Lucky

Friday(2)

  

San

Sebastian

  

Corporate(4)

  

Total

Silver

 

Cost of sales and other direct production costs and depreciation, depletion and amortization (7)

  48,105   21,500  $5,960      $75,565 

Depreciation, depletion and amortization

  (11,735)  (2,956)  (781)      (15,472)

Treatment costs

  22,675   4,038   81       26,794 

Change in product inventory

  2,899   11   826       3,736 

Reclamation and other costs (8)

  (891)     (392)      (1,283)

Exclusion of Lucky Friday cash costs

     (22,593)         (22,593)

Cash Cost, Before By-product Credits (1)

  61,053      5,694       66,747 

Reclamation and other costs

  788      114       902 

Sustaining exploration

  370         429   799 

Sustaining capital

  8,265      244   38   8,547 

General and administrative (8)

              10,345   10,345 

AISC, Before By-product Credits (1)

  70,476      6,052       87,340 

By-product credits:

                    

Zinc

  (23,772)            (23,772)

Gold

  (21,226)     (3,686)      (24,912)

Lead

  (8,149)            (8,149)

Total By-product credits

  (53,147)     (3,686)      (56,833)

Cash Cost, After By-product Credits

  7,906  $  $2,008      $9,914 

AISC, After By-product Credits

  17,329  $  $2,366      $30,507 

Divided by ounces produced

  2,634      267       2,901 

Cash Cost, Before By-product Credits, per Ounce

  23.18  $  $21.34      $23.00 
By-product credits per ounce  (20.18)     (13.81)      (19.59)
Cash Cost, After By-product Credits, per Ounce $3.00  $  $7.53      $3.41 
AISC, Before By-product Credits, per Ounce $26.76  $  $22.68      $30.11 

By-product credits per ounce

  (20.18)     (13.81)      (19.59)

AISC, After By-product Credits, per Ounce

 $6.58  $  $8.87      $10.52 

 

 

In thousands (except per ounce amounts)

 

Three Months Ended September 30, 2020

 
  

Casa Berardi

  

Nevada

Operations

  

Total Gold

 

Cost of sales and other direct production costs and depreciation, depletion and amortization (7)

 $51,573  $13,877  $65,450 

Depreciation, depletion and amortization (7)

  (15,223)  (7,295)  (22,518)

Treatment costs

  562      562 

Change in product inventory

  543   6,920   7,463 

Reclamation and other costs (8)

  (449)  (324)  (773)

Exclusion of Nevada cash costs

     (13,178)  (13,178)

Cash Cost, Before By-product Credits (1)

  37,006      37,006 

Reclamation and other costs

  97      97 

Sustaining exploration

  335      335 

Sustaining capital

  11,629      11,629 

AISC, Before By-product Credits (1)

  49,067      49,067 

By-product credits:

            

Silver

  (93)     (93)

Total By-product credits

  (93)     (93)

Cash Cost, After By-product Credits

 $36,913  $  $36,913 

AISC, After By-product Credits

 $48,974  $  $48,974 

Divided by ounces produced

  26      26 

Cash Cost, Before By-product Credits, per Ounce

 $1,402  $  $1,402 

By-product credits per ounce

  (4     (4)

Cash Cost, After By-product Credits, per Ounce

 $1,398  $   1,398 

AISC, Before By-product Credits, per Ounce

 $1,859  $  $1,859 

By-product credits per ounce

  (4)     (4)

AISC, After By-product Credits, per Ounce

 $1,855  $  $1,855 

 

 

In thousands (except per ounce amounts)

 

Three Months Ended September 30, 2020

 
  

Total

Silver

  

Total Gold

  

Total

 

Cost of sales and other direct production costs and depreciation, depletion and amortization (7)

 $75,565   65,450  $141,015 

Depreciation, depletion and amortization (7)

  (15,472)  (22,518)  (37,990)

Treatment costs

  26,794   562   27,356 

Change in product inventory

  3,736   7,463   11,199 

Reclamation and other costs (8)

  (1,283)  (773)  (2,056)

Exclusion of cash costs

  (22,593)  (13,178)  (35,771)

Cash Cost, Before By-product Credits (1)

  66,747   37,006   103,753 

Reclamation and other costs

  902   97   999 

Sustaining exploration

  799   335   1,134 

Sustaining capital

  8,547   11,629   20,176 

General and administrative (8)

  10,345      10,345 

AISC, Before By-product Credits (1)

  87,340   49,067   136,407 

By-product credits:

            

Zinc

  (23,772)     (23,772)

Gold

  (24,912)     (24,912)

Lead

  (8,149)     (8,149)

Silver

     (93)  (93)

Total By-product credits

  (56,833)  (93)  (56,926)

Cash Cost, After By-product Credits

 $9,914  $36,913  $46,827 

AISC, After By-product Credits

 $30,507  $48,974  $79,481 

Divided by ounces produced

  2,901   26     

Cash Cost, Before By-product Credits, per Ounce

 $23.00  $1,402     

By-product credits per ounce

  (19.59)  (4)    

Cash Cost, After By-product Credits, per Ounce

 $3.41  $1,398     

AISC, Before By-product Credits, per Ounce

 $30.11  $1,859     

By-product credits per ounce

  (19.59)  (4)    

AISC, After By-product Credits, per Ounce

 $10.52  $1,855     

 

 

In thousands (except per ounce amounts)

 

Nine Months Ended September 30, 2021

 
  

Greens

Creek

  

Lucky

Friday(2)

  

San

Sebastian(3)

  

Corporate(4)

  

Total Silver

 

Cost of sales and other direct production costs and depreciation, depletion and amortization

 $163,861  $74,287  $95      $238,243 

Depreciation, depletion and amortization

  (42,410)  (20,328)         (62,738)

Treatment costs

  27,444   13,087          40,531 

Change in product inventory

  (156)  (1,757)         (1,913)

Reclamation and other costs

  (1,777)  (840)  (95)      (2,712)

Cash Cost, Before By-product Credits (1)

  146,962   64,449          211,411 

Reclamation and other costs

  2,543   792          3,335 

Sustaining exploration

  3,895         1,359   5,254 

Sustaining capital

  17,459   19,104         36,563 

General and administrative

              27,985   27,985 

AISC, Before By-product Credits (1)

  170,859   84,345          284,548 

By-product credits:

                    

Zinc

  (74,571)  (14,457)         (89,028)

Gold

  (56,299)            (56,299)

Lead

  (23,265)  (30,762)         (54,027)

Total By-product credits

  (154,135)  (45,219)         (199,354)

Cash Cost, After By-product Credits

 $(7,173) $19,230  $      $12,057 

AISC, After By-product Credits

 $16,724  $39,126  $      $85,194 

Divided by silver ounces produced

  6,981   2,609          9,590 

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

 $21.05  $24.70  $      $22.05 

By-product credits per ounce

  (22.08)  (17.33)         (20.79)

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

 $(1.03) $7.37  $      $1.26 

AISC, Before By-product Credits, per Silver Ounce

 $24.48  $32.33  $      $29.67 

By-product credits per ounce

  (22.08)  (17.33)         (20.79)

AISC, After By-product Credits, per Silver Ounce

 $2.40  $15.00  $      $8.88 

 

 

In thousands (except per ounce amounts)

 

Nine Months Ended September 30, 2021

 
  

Casa Berardi(5)

  

Nevada

Operations(6)

  

Total Gold

 

Cost of sales and other direct production costs and depreciation, depletion and amortization

 $172,760  $46,832  $219,592 

Depreciation, depletion and amortization

  (61,159)  (15,021)  (76,180)

Treatment costs

  1,723   1,731   3,454 

Change in product inventory

  (2,401)  (9,951)  (12,352)

Reclamation and other costs

  (632)  299   (333)

Cash Cost, Before By-product Credits (1)

  110,291   23,890   134,181 

Reclamation and other costs

  632   681   1,313 

Sustaining exploration

  3,551      3,551 

Sustaining capital

  21,030   195   21,225 

AISC, Before By-product Credits (1)

  135,504   24,766   160,270 

By-product credits:

            

Silver

  (656)  (1,131)  (1,787)

Total By-product credits

  (656)  (1,131)  (1,787)

Cash Cost, After By-product Credits

 $109,635  $22,759  $132,394 

AISC, After By-product Credits

 $134,848  $23,635  $158,483 

Divided by gold ounces produced

  97   20   117 

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

 $1,134  $1,180  $1,142 

By-product credits per ounce

  (7)  (56)  (15)

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

 $1,127  $1,124  $1,127 

AISC, Before By-product Credits, per Gold Ounce

 $1,394  $1,223  $1,364 

By-product credits per ounce

  (7)  (56)  (15)

AISC, After By-product Credits, per Gold Ounce

 $1,387  $1,167  $1,349 

 

 

In thousands (except per ounce amounts)

 

Nine Months Ended September 30, 2021

 
  

Total

Silver

  

Total Gold

  

Total

 

Cost of sales and other direct production costs and depreciation, depletion and amortization

 $238,243   219,592  $457,835 

Depreciation, depletion and amortization

  (62,738)  (76,180)  (138,918)

Treatment costs

  40,531   3,454   43,985 

Change in product inventory

  (1,913)  (12,352)  (14,265)

Reclamation and other costs

  (2,712)  (333)  (3,045)

Cash Cost, Before By-product Credits (1)

  211,411   134,181   345,592 

Reclamation and other costs

  3,335   1,313   4,648 

Sustaining exploration

  5,254   3,551   8,805 

Sustaining capital

  36,563   21,225   57,788 

General and administrative

  27,985      27,985 

AISC, Before By-product Credits (1)

  284,548   160,270   444,818 

By-product credits:

            

Zinc

  (89,028)     (89,028)

Gold

  (56,299)     (56,299)

Lead

  (54,027)     (54,027)

Silver

     (1,787)  (1,787)

Total By-product credits

  (199,354)  (1,787)  (201,141)

Cash Cost, After By-product Credits

 $12,057  $132,394  $144,451 

AISC, After By-product Credits

 $85,194  $158,483  $243,677 

Divided by ounces produced

  9,590   117     

Cash Cost, Before By-product Credits, per Ounce

 $22.05  $1,142     

By-product credits per ounce

  (20.79)  (15)    

Cash Cost, After By-product Credits, per Ounce

 $1.26  $1,127     

AISC, Before By-product Credits, per Ounce

 $29.67  $1,364     

By-product credits per ounce

  (20.79)  (15)    

AISC, After By-product Credits, per Ounce

 $8.88  $1,349     

 

 

In thousands (except per ounce amounts)

 

Nine Months Ended September 30, 2020

 
  

Greens

Creek

  

Lucky

Friday(2)

  

San

Sebastian

  

Corporate(4)

  

Total

Silver

 

Cost of sales and other direct production costs and depreciation, depletion and amortization (7)

 $153,496  $35,787  $18,271      $207,554 

Depreciation, depletion and amortization

  (37,152)  (5,152)  (3,149)      (45,453)

Treatment costs

  58,517   7,502   232       66,251 

Change in product inventory

  1,749   807   681       3,237 

Reclamation and other costs (8)

  (478)     (1,050)      (1,528)

Exclusion of Lucky Friday cash costs

     (38,944)         (38,944)

Cash Cost, Before By-product Credits (1)

  176,132      14,985       191,117 

Reclamation and other costs

  2,365      342       2,707 

Sustaining exploration

  374         1,362   1,736 

Sustaining capital

  18,276      299   38   18,613 

General and administrative (8)

              26,263   26,263 

AISC, Before By-product Credits (1)

  197,147      15,626       240,436 

By-product credits:

                    

Zinc

  (59,711)            (59,711)

Gold

  (57,850)     (10,402)      (68,252)

Lead

  (22,208)            (22,208)

Total By-product credits

  (139,769)     (10,402)      (150,171)

Cash Cost, After By-product Credits

 $36,363  $  $4,583      $40,946 

AISC, After By-product Credits

 $57,378  $  $5,224      $90,265 

Divided by ounces produced

  8,164      772       8,936 

Cash Cost, Before By-product Credits, per Ounce

 $21.57  $   19.40      $21.39 

By-product credits per ounce

  (17.12)     (13.47)      (16.81)
Cash Cost, After By-product Credits, per Ounce $4.45  $   5.93      $4.58 
AISC, Before By-product Credits, per Ounce $24.15  $  $20.23      $26.90 
By-product credits per ounce  (17.12)     (13.47)      (16.81)

AISC, After By-product Credits, per Ounce

 $7.03  $  $6.76      $10.09 

 

 

In thousands (except per ounce amounts)

 

Nine Months Ended September 30, 2020

 
  

Casa Berardi

  

Nevada

Operations

  

Total Gold

 

Cost of sales and other direct production costs and depreciation, depletion and amortization (7)

 $140,893  $44,348  $185,241 

Depreciation, depletion and amortization (7)

  (44,314)  (22,725)  (67,039)

Treatment costs

  1,693   45   1,738 

Change in product inventory

  1,751   15,869   17,620 

Reclamation and other costs (8)

  (637)  (978)  (1,615)

Exclusion of Nevada cash costs

     (13,178)  (13,178)

Cash Cost, Before By-product Credits (1)

  99,386   23,381   122,767 

Reclamation and other costs

  287   654   941 

Sustaining exploration

  1,493      1,493 

Sustaining capital

  24,413   1,600   26,013 

AISC, Before By-product Credits (1)

  125,579   25,635   151,214 

By-product credits:

            

Silver

  (285)  (635)  (920)

Total By-product credits

  (285)  (635)  (920)

Cash Cost, After By-product Credits

 $99,101  $22,746  $121,847 

AISC, After By-product Credits

 $125,294  $25,000  $150,294 

Divided by ounces produced

  84   32   116 

Cash Cost, Before By-product Credits, per Ounce

 $1,184  $736  $1,061 

By-product credits per ounce

  (3)  (20)  (8)

Cash Cost, After By-product Credits, per Ounce

 $1,181  $716  $1,053 

AISC, Before By-product Credits, per Ounce

 $1,496  $807  $1,307 

By-product credits per ounce

  (3)  (20)  (8)

AISC, After By-product Credits, per Ounce

 $1,493  $787  $1,299 

 

 

In thousands (except per ounce amounts)

 

Nine Months Ended September 30, 2020

 
  

Total

Silver

  

Total Gold

  

Total

 

Cost of sales and other direct production costs and depreciation, depletion and amortization (7)

 $207,554   185,241  $392,795 

Depreciation, depletion and amortization (7)

  (45,453)  (67,039)  (112,492)

Treatment costs

  66,251   1,738   67,989 

Change in product inventory

  3,237   17,620   20,857 

Reclamation and other costs (8)

  (1,528)  (1,615)  (3,143)

Exclusion of cash costs

  (38,944)  (13,178)  (52,122)

Cash Cost, Before By-product Credits (1)

  191,117   122,767   313,884 

Reclamation and other costs

  2,707   941   3,648 

Sustaining exploration

  1,736   1,493   3,229 

Sustaining capital

  18,613   26,013   44,626 

General and administrative (8)

  26,263      26,263 

AISC, Before By-product Credits (1)

  240,436   151,214   391,650 

By-product credits:

            

Zinc

  (59,711)     (59,711)

Gold

  (68,252)     (68,252)

Lead

  (22,208)     (22,208)

Silver

     (920)  (920)

Total By-product credits

  (150,171)  (920)  (151,091)

Cash Cost, After By-product Credits

 $40,946  $121,847  $162,793 

AISC, After By-product Credits

 $90,265  $150,294  $240,559 

Divided by ounces produced

  8,936   116     

Cash Cost, Before By-product Credits, per Ounce

 $21.39  $1,061     
By-product credits per ounce  (16.81)  (8)    
Cash Cost, After By-product Credits, per Ounce $4.58  $1,053     
AISC, Before By-product Credits, per Ounce $26.90  $1,307     

By-product credits per ounce

  (16.81)  (8)    

AISC, After By-product Credits, per Ounce

 $10.09  $1,299     

 

(1)

Includes all direct and indirect operating costs related to the physical activities of producing metals, including mining, processing and other plant costs, third-party refining and marketing expense, on-site general and administrative costs and royalties, before by-product revenues earned from all metals other than the primary metal produced at each unit. AISC, Before By-product Credits also includes on-site exploration, reclamation, and sustaining capital costs.

 

(2)

The unionized employees at Lucky Friday were on strike from March 2017 until January 2020, and production at Lucky Friday was limited from the start of the strike until the ramp-up was substantially completed in the fourth quarter of 2020. Costs related to ramp-up activities totaling $5.4 million, along with $6.3 million in non-cash depreciation expense, in the first nine months of 2020 have been excluded from the calculations of cost of sales and other direct production costs and depreciation, depletion and amortization, Cash Cost, Before By-product Credits, Cash Cost, After By-product Credits, AISC, Before By-product Credits, and AISC, After By-product Credits.

 

 

(3)

Mining at San Sebastian was completed in the third quarter of 2020, and milling was completed in the fourth quarter of 2020. Suspension-related costs at San Sebastian totaling $2.0 million for the first nine months of 2021 are reported in a separate line item on our consolidated statements of operations and excluded from the calculations of cost of sales and other direct production costs and depreciation, depletion and amortization, Cash Cost, Before By-product Credits, Cash Cost, After By-product Credits, AISC, Before By-product Credits, and AISC, After By-product Credits.

 

(4)

AISC, Before By-product Credits for our consolidated silver properties includes corporate costs for general and administrative expense, exploration and sustaining capital.

 

 

(5)

In late March 2020, the Government of Quebec ordered the mining industry to reduce to minimum operations as part of the fight against the COVID-19 virus, causing us to suspend our Casa Berardi operations from approximately March 24 until April 15, when limited mining operations resumed, resulting in reduced mill throughput. Suspension-related costs totaling $1.6 million for the first nine months of 2020 are reported in a separate line item on our consolidated statements of operations and excluded from the calculations of cost of sales and other direct production costs and depreciation, depletion and amortization, Cash Cost, Before By-product Credits, Cash Cost, After By-product Credits, AISC, Before By-product Credits, and AISC, After By-product Credits.

 

(6)

Production was suspended at the Hollister and Midas mines and Aurora mill in the latter part of 2019. Suspension-related costs at Nevada Operations totaling $15.0 million and $9.6 million for the first nine months of 2021 and 2020, respectively, are reported in a separate line item on our consolidated statements of operations and excluded from the calculations of cost of sales and other direct production costs and depreciation, depletion and amortization, Cash Cost, Before By-product Credits, Cash Cost, After By-product Credits, AISC, Before By-product Credits, and AISC, After By-product Credits.

 

(7)

See Note 2 of Notes to Condensed Consolidated Financial Statements (Unaudited) for information on revisions to amounts previously reported for cost of sales and other direct production costs and depreciation, depletion and amortization.

 

(8)

Excludes the discretionary portion of general and administrative costs for Greens Creek, Casa Berardi and corporate of $0.4 million, $0.4 million and $1.4 million, respectively, for the third quarter and first nine months of 2020.

 

Financial Liquidity and Capital Resources

 

We have a disciplined cash management strategy of maintaining financial flexibility to execute our capital priorities and provide long-term value to our shareholders. Consistent with that strategy, we aim to maintain an acceptable level of net debt and sufficient liquidity to fund debt service costs, operations, capital development and exploration projects, while returning cash to stockholders through dividends and potential share repurchases.

 

At September 30, 2021, we had $190.9 million in cash and cash equivalents, of which $15.3 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.

 

Our liquid assets include (in millions):

 

  

September 30,

2021

  

December 31,

2020

 

Cash and cash equivalents held in U.S. dollars

 $175.6  $116.4 

Cash and cash equivalents held in foreign currency

  15.3   13.4 

Total cash and cash equivalents

  190.9   129.8 

Marketable equity securities - current and non-current

  8.0   19.3 

Total cash, cash equivalents and investments

 $198.9  $149.1 

 

Cash and cash equivalents increased by $61.1 million in the first nine months of 2021. Cash held in foreign currencies represents balances in Canadian dollars and Mexican pesos, with the $1.9 million increase in the first nine months of 2021 resulting from increases in CAD held. The value of marketable equity securities decreased by $11.3 million.

 

 

On February 19, 2020, we completed an offering of Senior Notes in the total principal amount of USD$475 million. The Senior Notes are due February 15, 2028 and bear interest at a rate of 7.25% per year from the most recent payment date on which interest has been paid or provided for.  In July 2020, we agreed to issue our Series 2020-A Senior Notes due July 9, 2025 (the “IQ Notes”) for CAD$50 million (approximately USD$36.8 million at the time of the transaction) in aggregate principal amount, which mature in July 2025 and bear interest at a rate of 6.515% per year. We also have a $250 million revolving credit facility, with interest payable on amounts drawn at an annual rate of between 2.25% and 4.00% over the London Interbank Offered Rate, or between 1.25% and 3.00% over an alternative base rate. There was no amount outstanding under the revolving credit facility as of September 30, 2021, with the exception of $21.0 million utilized for letters of credit. See Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information on our debt arrangements.

 

We continue to address the COVID-19 outbreak and face uncertainty related to the potential additional impacts it could have on our operations. It is possible that future restrictions at any of our operations could have a material adverse impact on operations or financial results beyond 2021. We have taken precautionary measures to mitigate the impact of COVID-19, including implementing revised operational plans. COVID-19 and these revised plans have had negative impacts on operations and financial results, including the impact of manpower challenges on mine sequencing at Greens Creek, resulting in lower grade material mined during the third quarter of 2021, with higher grade production being deferred to future periods. COVID-19 and the revised operational practices, as long as they are required, could continue to have an adverse impact on our operating results due to deferred production and revenues or additional costs. The impacts of COVID-19 and increasing or prolonged restrictions, if required, on our operations could require access to additional sources of liquidity, which may not be available to us. See Item 1A. Risk Factors - Natural disasters, public health crises, political crises (including COVID-19), and other catastrophic events or other events outside of our control may materially and adversely affect our business or financial results and COVID-19 virus pandemic may heighten other risks in our 2020 Form 10-K for information on how restrictions related to COVID-19 have affected some of our operations.

 

Pursuant to our common stock dividend policy described in Note 7 of Notes to Condensed Consolidated Financial Statements (Unaudited) and Note 10 of Notes to Consolidated Financial Statements in our 2020 Form 10-K, our Board of Directors declared and paid dividends on common stock totaling $16.8 million in the first nine months of 2021 and $4.0 million in the first nine months of 2020. 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. In each of May and September 2021, our Board of Directors approved an increase in our silver-linked dividend policy by 1 cent per year, and in September 2021 also approved a reduction in the minimum realized silver price threshold to $20 from $25 per ounce. We realized silver prices of $25.66, $27.14 and $23.97 in the first, second and third quarters of 2021, respectively, thus satisfying the criterion for the silver-linked dividend component of our common stock dividend policy. As a result, on May 5, 2021 and August 4, 2021, our Board of Directors declared quarterly cash dividends of 1.125 cents per share of common stock, consisting of 0.375 cent per share for the minimum dividend component and 0.75 cent per share for the silver-linked dividend component of our dividend policy, and on November 3, 2021, declared a quarterly cash dividend of 0.625 cent per share of common stock, consisting of 0.375 cent per share for the minimum dividend component and 0.25 cent per share for the silver-linked dividend component of our dividend policy. In total, dividends of $6.0 million were paid in each of June and September 2021, and $3.4 million in dividends is expected to be paid in December 2021. 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

(cents per share)

  

Annualized Silver-

Linked Dividend

(cents per share)

  

Annualized

Minimum

Dividend

(cents per

share)

  

Annualized

Dividends per

Share: Silver-

Linked and

Minimum (cents

per share)

 
 $20   0.25   1   1.5   2.5 
 $25   1   4   1.5   5.5 
 $30   1.5   6   1.5   7.5 
 $35   2.5   10   1.5   11.5 
 $40   3.5   14   1.5   15.5 
 $45   4.5   18   1.5   19.5 
 $50   5.5   22   1.5   23.5 

 

The declaration and payment of dividends on 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 10 of Notes to Consolidated Financial Statements in our 2020 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, 2021 and December 31, 2020, 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. The closing price of our common stock at November 2, 2021, was $5.87 per share. 

 

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” (ATM) 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 agreement can be terminated by us at any time. Any shares issued under the equity distribution agreement are registered under the Securities Act of 1933, as amended, pursuant to a shelf registration statement on Form S-3. No shares have been sold under the agreement as of September 30, 2021.

 

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.

 

 

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 of our revolving credit facility, we believe we will be able to meet our obligations and other potential cash requirements during the next 12 months from the date of this report. 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 revolving credit facility; deferral of revenues, care-and-maintenance and other costs related to addressing the impacts of COVID-19 on our operations; 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 total of approximately $120 million will be spent in 2021 on capital expenditures, primarily for equipment, infrastructure, and development at our mines, including $75.2 million already incurred as of September 30, 2021 and excluding $9.1 million for the acquisition of royalty interests and land at our operations.  We also estimate exploration and pre-development expenditures will total approximately $48.5 million in 2021, including $35.0 million already incurred as of September 30, 2021. Our expenditures for these items and our related plans for 2021 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.

  

Nine Months Ended

 
  

September 30, 2021

  

September 30, 2020

 

Cash provided by operating activities (in millions)

 $167.0  $115.9 

 

Cash provided by operating activities in the first nine months of 2021 increased by $51.1 million compared to the same period in 2020 due to higher net income, as adjusted for non-cash items, and lower product inventory, partially offset by  lower accounts payable and accruals for incentive compensation. 

 

  

Nine Months Ended

 
  

September 30, 2021

  

September 30, 2020

 

Cash used in investing activities (in millions)

 $(78.0) $(55.7)

 

During the first nine months of 2021, we invested $80.2 million in capital expenditures, including $9.1 million for acquisition of royalty interests and land at our operations and excluding $4.0 million in non-cash capital lease additions, an increase of $25.8 million compared to the same period in 2020. The variance was primarily due to increased spending at Casa Berardi and Lucky Friday.  We recognized proceeds from the exchange of investments in the first nine months of 2021 and purchased marketable equity securities having a cost basis of $1.7 million during the first nine months of 2020. 

 

  

Nine Months Ended

 
  

September 30, 2021

  

September 30, 2020

 

Cash used in financing activities (in millions)

 $(27.4) $(22.0)

 

In the first nine months of 2020, we received $469.5 million and $27.6 million in net proceeds from the issuance of our Senior Notes and IQ Notes, respectively, drew $210.0 million on our revolving credit facility, and had debt repayments of $506.5 million for redemption of our 2021 Notes and $210.0 million for our revolving credit facility. We had no borrowings or repayments of debt during the first nine months of 2021. During the first nine months of 2021 and 2020, we paid cash dividends on our common stock totaling $16.8 million and $4.0 million, respectively, and cash dividends of $0.4 million on our Series B Preferred Stock in each of those periods, with the increase in common dividends resulting from higher realized silver prices and amendments to our dividend policy discussed above. We made repayments on our capital leases of $5.6 million and $4.2 million in the nine-month periods ended September 30, 2021 and 2020, respectively. We acquired treasury shares for $4.5 million and $2.7 million in the first nine months of 2021 and 2020, respectively, as a result of employees' elections to utilize net share settlement to satisfy their tax withholding obligations related to incentive compensation paid in stock and vesting of restricted stock units.

 

 

The effect of changes in foreign exchange rates resulted in a $0.5 million decrease in cash and cash equivalents in the first nine months of 2021 compared to a decrease of $1.9 million in the first nine months of 2020, with the variance due to strengthening of the CAD and MXN relative to the USD in 2021.

 

Contractual Obligations, Contingent Liabilities and Commitments

 

The table below presents our fixed, non-cancelable contractual obligations and commitments primarily related to our Senior Notes, IQ Notes, revolving credit facility, outstanding purchase orders, certain capital expenditures and lease arrangements as of September 30, 2021 (in thousands):

 

  

Payments Due By Period

 
  

Less than 1

year

  

1-3 years

  

3-5 years

  

More than

5 years

  

Total

 

Purchase obligations (1)

 $19,291  $  $  $  $19,291 

Contractual obligations (2)

  664            664 

Finance lease commitments (3)

  6,336   7,903   855      15,094 

Operating lease commitments (4)

  3,166   3,627   1,057   1,953   9,803 

Supplemental executive retirement plan (5)

  759   1,789   2,833   6,249   11,630 

Revolving credit facility (6)

  1,717   612         2,329 

Senior Notes (7)

  34,438   68,876   68,876   522,349   694,539 

IQ Notes (8)

  2,467   4,934   39,768      47,169 

Total contractual cash obligations

 $68,838  $87,741  $113,389  $530,551  $800,519 

 

 

(1)

Consists of open purchase orders of approximately $5.5 million at the Greens Creek unit, $8.5 million at the Lucky Friday unit, $0.5 million at the Casa Berardi unit and $4.7 million at the Nevada Operations unit.

 

 

(2)

As of September 30, 2021, we were committed to approximately $0.7 million for various items at Greens Creek. 

 

 

(3)

Includes scheduled finance lease payments of $14.1 million, $0.9 million and $0.1 million (including interest), respectively, for equipment at our Greens Creek, Casa Berardi and Nevada Operations units.  These leases have fixed payment terms and contain bargain purchase options at the end of the lease periods (see Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information).

 

 

(4)

We enter into operating leases in the normal course of business.  Substantially all lease agreements have fixed payment terms based on the passage of time.  Some lease agreements provide us with the option to renew the lease or purchase the leased property.  Our future operating lease obligations would change if we exercised these renewal options and if we entered into additional operating lease arrangements.

 

 

(5)

We sponsor defined benefit pension plans covering substantially all U.S. employees and provide certain post-retirement benefits for qualifying retired employees, along with a supplemental executive retirement plan (“SERP”). These amounts represent our estimate of the future benefit payment requirements for the next 10 years for the SERP as of September 30, 2021. However, in January 2021, we contributed $16.8 million in shares of our common stock to the SERP in order to fund future benefit payments.  We believe we will have future funding requirements related to our defined benefit pension plans and benefit payment obligations for the SERP beyond 10 years; however, such funding requirements are not fixed in nature and are difficult to estimate, as they involve significant assumptions. See Note 5 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information.

 

 

(6)

We have a $250 million revolving credit agreement under which we are required to pay a standby fee of between 0.5625% and 1.00% per annum on undrawn amounts and interest of between 2.25% and 4.00% over the London Interbank Offered Rate or between 1.25% and 3.00% over an alternative base rate on drawn amounts under the revolving credit agreement. We had $21.0 million in letters of credit outstanding as of September 30, 2021. The amounts in the table above assume no additional amounts will be drawn in future periods, and include only the standby fee on the current undrawn balance. For more information on our credit facility, see Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited).

 

 

 

(7)

On February 19, 2020, we completed an offering of $475 million in aggregate principal amount of our Senior Notes due February 15, 2028. The Senior Notes bear interest at a rate of 7.25% per year from the original date of issuance or the most recent payment date to which interest has been paid or provided for.  Interest on the Senior Notes is payable on February 15 and August 15 of each year, commencing August 15, 2020. See Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information.

 

 

(8)

On July 9, 2020, we entered into a note purchase agreement pursuant to which we issued our IQ Notes for CAD$50 million (approximately USD$36.8 million at the time of the transaction) in aggregate principal amount. The IQ Notes were issued at a premium of 103.65%, or CAD$1.8 million, implying an effective annual yield of 5.74% and an aggregate principal amount to be repaid of CAD$48.2 million. The IQ Notes were issued in four equal installments of CAD$12.5 million on July 9, August 9, September 9 and October 9, 2020. The IQ Notes bear interest on amounts outstanding at a rate of 6.515% per year, payable on January 9 and July 9 of each year, commencing January 9, 2021. See Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information.

 

We record liabilities for costs associated with mine closure, reclamation of land and other environmental matters.  At September 30, 2021, our liabilities for these matters totaled $119.7 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 11 of Notes to Condensed Consolidated Financial Statements (Unaudited).

 

Off-Balance Sheet Arrangements         

 

At September 30, 2021, 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.

 

Guarantor Subsidiaries

 

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 8 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; and Hecla Quebec, Inc. 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:

 

 

Investments in subsidiaries. The acquisition of a company results in an investment in debt or equity capital on the records of the parent company and a contribution to debt or equity capital on the records of the subsidiary. Such investments and capital contributions are eliminated in consolidation.

 

 

Capital contributions. Certain of Hecla’s subsidiaries do not generate cash flow, either at all or that is sufficient to meet their capital needs, and their cash requirements are routinely met with inter-company advances from their parent companies. Generally on an annual basis, when not otherwise intended as debt, the boards of directors of such parent companies declare contributions of capital to their subsidiary companies, which increase the parents' investment and the subsidiaries' additional paid-in capital. In consolidation, investments in subsidiaries and related additional paid-in capital are eliminated.

 

 

Debt.  At times, inter-company debt agreements have been established between certain of Hecla’s subsidiaries and their parents. The related debt liability and receivable balances, accrued interest expense (if any) and income activity (if any), and payments of principal and accrued interest amounts (if any) by the subsidiary companies to their parents are eliminated in consolidation.

 

 

Dividends.  Certain of Hecla’s subsidiaries which generate cash flow routinely provide cash to their parent companies through inter-company transfers. On at least an annual basis, the boards of directors of such subsidiary companies declare dividends to their parent companies, which reduces the subsidiaries' retained earnings and increases the parents' dividend income. In consolidation, such activity is eliminated.

 

 

Deferred taxes. Our ability to realize deferred tax assets and liabilities is considered for two consolidated tax groups of subsidiaries within the United States: The Nevada U.S. Group and the Hecla U.S. Group. Within each tax group, all subsidiaries' estimated future taxable income contributes to the ability of their tax group to realize all such assets and liabilities. However, when Hecla’s subsidiaries are viewed independently, we use the separate return method to assess the realizability of each subsidiary’s deferred tax assets and whether a valuation allowance is required against such deferred tax assets. In some instances, a parent company or subsidiary may possess deferred tax assets whose realization depends on the future taxable incomes of other subsidiaries on a consolidated-return basis, but would not be considered realizable if such parent or subsidiary filed on a separate stand-alone basis. In such a situation, a valuation allowance is assessed on that subsidiary’s deferred tax assets, with the resulting adjustment reported in the eliminations column of the guarantor and parent’s financial statements, as is the case in the unaudited interim financial statements set forth below. The separate return method can result in significant eliminations of deferred tax assets and liabilities and related income tax provisions and benefits. Non-current deferred tax asset balances are included in other non-current assets on the consolidating balance sheets and make up a large portion of that item, particularly for the guarantor balances.

 

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 September 30, 2021

 
  

Parent

  

Guarantors

  

Non-

Guarantors

  

Eliminations

  

Consolidated

 
  

(in thousands)

 

Assets

                    

Cash and cash equivalents

 $138,350  $29,737  $22,817  $  $190,904 

Other current assets

  6,616   111,247   1,513      119,376 

Properties, plants, equipment and mineral interests - net

  1,913   2,320,850   8,255      2,331,018 

Intercompany receivable (payable)

  (458,892)  443,348   274,212   (258,668)   

Investments in subsidiaries

  2,589,521         (2,589,521)   

Other non-current assets

  305,478   19,943   (122,676)  (169,626)  33,119 

Total assets

 $2,582,986  $2,925,125  $184,121  $(3,017,815) $2,674,417 

Liabilities and Shareholders' Equity

                    

Current liabilities

 $291,220  $227,627  $1,881  $(394,546) $126,182 

Long-term debt

  507,712   14,228   132      522,072 

Non-current portion of accrued reclamation

     103,400   5,270      108,670 

Non-current deferred tax liability

  15,808   160,690      (33,748)  142,750 

Other non-current liabilities

  25,271   5,793   704      31,768 

Shareholders' equity

  1,742,975   2,413,387   176,134   (2,589,521)  1,742,975 

Total liabilities and shareholders' equity

 $2,582,986  $2,925,125  $184,121  $(3,017,815) $2,674,417 

 

Unaudited Interim Condensed Consolidating Statements of Operations

 

  

Three Months Ended September 30, 2021

 
  

Parent

  

Guarantors

  

Non-

Guarantors

  

Eliminations

  

Consolidated

 
  

(in thousands)

 

Revenues

 $4,950  $188,607  $3  $  $193,560 

Cost of sales

  1,481   (114,022)  (1)     (112,542)

Depreciation, depletion, amortization

     (45,790)        (45,790)

General and administrative

  (3,334)  (5,077)  (463)     (8,874)

Exploration and pre-development

     (14,651)  (2,457)     (17,108)

Loss on derivative contracts

  12,148            12,148 

Equity in earnings of subsidiaries

  (13,806)        13,806    

Other (expense) income

  (7,028)  (3,619)  (9,324)  (6,935)  (26,906)

Income (loss) before income taxes

  (5,589)  5,448   (12,242)  6,871   (5,512)

(Provision) benefit from income taxes

  4,610   (8,504)  1,492   6,935   4,533 

Net income (loss)

  (979)  (3,056)  (10,750)  13,806   (979)

Preferred stock dividends

  (138)           (138)

Income (loss) applicable to common shareholders

  (1,117)  (3,056)  (10,750)  13,806   (1,117)

Net income (loss)

  (979)  (3,056)  (10,750)  13,806   (979)

Changes in comprehensive income (loss)

  (6,267)           (6,267)

Comprehensive income (loss)

 $(7,246) $(3,056) $(10,750) $13,806  $(7,246)

 

 

  

Nine Months Ended September 30, 2021

 
  

Parent

  

Guarantors

  

Non-

Guarantors

  

Eliminations

  

Consolidated

 
  

(in thousands)

 

Revenues

 $4,477  $617,742  $176  $  $622,395 

Cost of sales

  3,452   (322,260)  (109)     (318,917)

Depreciation, depletion, amortization

     (138,918)        (138,918)

General and administrative

  (13,083)  (14,324)  (578)     (27,985)

Exploration and pre-development

  (14)  (30,770)  (4,255)     (35,039)

Loss on derivative contracts

  (4,692)           (4,692)

Equity in earnings of subsidiaries

  20,057         (20,057)   

Other (expense) income

  11,779   (42,867)  (15,513)  (30,947)  (77,548)

Income (loss) before income taxes

  21,976   68,603   (20,279)  (51,004)  19,296 

(Provision) benefit from income taxes

  1,244   (30,410)  2,143   30,947   3,924 

Net income (loss)

  23,220   38,193   (18,136)  (20,057)  23,220 

Preferred stock dividends

  (414)           (414)

Income (loss) applicable to common shareholders

  22,806   38,193   (18,136)  (20,057)  22,806 

Net income (loss)

  23,220   38,193   (18,136)  (20,057)  23,220 

Changes in comprehensive income (loss)

  (2,815)           (2,815)

Comprehensive income (loss)

 $20,405  $38,193  $(18,136) $(20,057) $20,405 

 

Unaudited Interim Condensed Consolidating Statements of Cash Flows

 

  

Nine Months Ended September 30, 2021

 
  

Parent

  

Guarantors

  

Non-Guarantors

  

Eliminations

  

Consolidated

 
  

(in thousands)

 

Cash flows from operating activities

 $513,050  $222,828  $(23,055) $(545,841) $166,982 

Cash flows from investing activities:

                    

Additions to properties, plants, equipment and mineral interests

     (80,207)  (3)      (80,210)

Other investing activities, net

  (850,032)  2,330   44   849,831   2,173 

Cash flows from financing activities:

                    

Dividends paid to shareholders

  (17,169)            (17,169)

Payments on debt

     (5,598)         (5,598)

Other financing activity, net

  403,245   (120,578)  16,690   (303,990)  (4,633)

Effect of exchange rates on cash

     (440)  (31)     (471)

Changes in cash, cash equivalents and restricted cash and cash equivalents

  49,094   18,335   (6,355)     61,074 

Beginning cash, cash equivalents and restricted cash and cash equivalents

  89,256   12,455   29,172      130,883 

Ending cash, cash equivalents and restricted cash and cash equivalents

 $138,350  $30,790  $22,817  $  $191,957 

 

 

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, 2021, 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 2020 Form 10-K).

 

Metals Prices

 

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 2020 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 2020 Form 10-K).  At September 30, 2021, metals contained in concentrate sales and exposed to future price changes totaled 1.5 million ounces of silver, 3,902 ounces of gold, 11,904 tons of zinc, and 6,096 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 $8.3 million.  As discussed in Note 9 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 9 of Notes to Condensed Consolidated Financial Statements (Unaudited) and Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2020 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 and Mexico, which exposes us to risks associated with fluctuations in the exchange rates between the USD and the CAD and MXN, respectively. We have determined the functional currency for our Canadian and Mexican operations is the USD. As such, foreign exchange gains and losses associated with the re-measurement of monetary assets and liabilities from CAD and MXN to USD are recorded to earnings each period. For the nine months ended September 30, 2021 and 2020, we recognized net foreign exchange gains of $24 thousand and $1.2 million, 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, 2021 would have resulted in a change of approximately $11.1 million in our net foreign exchange gain or loss. A 10% change in the exchange rate between the USD and MXN from the rate at September 30, 2021 would have resulted in a change of approximately $0.1 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 9 of Notes to Condensed Consolidated Financial Statements (Unaudited) and Note 11 of Notes to Consolidated Financial Statements in our 2020 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, 2021, 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 quarter ended September 30, 2021 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 certain legal proceedings, refer to Note 11 of Notes to Condensed Consolidated Financial Statements (Unaudited), which is incorporated by reference into this Item 1. In addition, Hecla Mining Company’s subsidiary Hecla Limited and its subsidiary CoCa Mines Inc. ("CoCa"), and CoCa’s subsidiary Creede Resources, Inc. (collectively, the “Subsidiaries”) settled a lawsuit in Mineral County, Colorado (previously discussed in our prior filings, including our quarterly report on Form 10-Q for the quarter ended June 30, 2020) involving a claim of breach of contract for failure to indemnify a potentially responsible party for its liability to the United States under CERCLA at a Superfund site in Colorado. In exchange for the payment of $6.45 million, the Subsidiaries were granted a full release with respect to the claims made in the lawsuit, which was dismissed, with prejudice, on September 7, 2021.

 

Item 1A.    Risk Factors

 

Item 1A. Risk Factors of our 2020 Form 10-K sets forth information relating to important risks and uncertainties that could materially adversely affect our business, financial condition or operating results.  

 

Item 2. Unregistered Sales of Securities and Use of Proceeds

 

On September 22, 2021, we issued 100,000 unregistered shares of our common stock to the Lucky Friday Pension Plan Trust and 900,000 shares to the Hecla Mining Company Retirement Plan Trust in private placements in order to fund those defined benefit pension plans. The private placements were exempt from registration under the Securities Act of 1933 pursuant to section 4(a)(2) of that Act. The shares were subsequently registered for resale on a registration statement on Form S-3 filed with the SEC on November 3, 2021. We did not receive any cash proceeds from the issuance of the shares. The shares had a value of approximately $5.5 million at the time of issuance.

 

 

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 6.    Exhibits

 

Hecla Mining Company and Wholly Owned Subsidiaries

Form 10-Q – September 30, 2021

Index to Exhibits

 

3.1

Bylaws of the Registrant, as amended August 21, 2021. Filed as exhibit 3.2 to Registrant’s Current Report Form 8-K filed on August 23, 2021 (File No. 1-8491) and incorporated herein by reference.

 

4.1

Registration Rights Agreement, dated as of September 22, 2021, among Hecla Mining Company, as Issuer, and the Hecla Mining Company Retirement Plan Trust, which is the funding vehicle for the Hecla Mining Company Retirement Plan, a tax-qualified employee benefit pension plan sponsored by Hecla Mining Company, and the Lucky Friday Pension Plan Trust, which is the funding vehicle for the Lucky Friday Pension Plan. *

 

10.1

Hecla Mining Company 2010 Stock Incentive Plan (Amended and Restated as of August 21, 2021). *

 

10.2

Form of Indemnification Agreement dated July 1, 2021, between Registrant and Kurt Allen, 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)

 

10.3

Form of Change in Control Agreement dated July 1, 2021, between Registrant and Kurt Allen, 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)

 

31.1

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

 

31.2

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

 

32.1

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

 

32.2

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

 

99.1

Contribution Agreement, dated as of September 22, 2021, among Hecla Mining Company, as sponsor of the Hecla Mining Company Retirement Plan, the Retirement Committee, as the named fiduciary of the Hecla Mining Company Retirement Plan, and U.S. Bank National Association, as trustee of the Hecla Mining Company Retirement Plan Trust. *

 

99.2

Contribution Agreement, dated as of September 22, 2021, among Hecla Mining Company, Hecla Limited as sponsor of the Lucky Friday Pension Plan, the Pension Committee, as the named fiduciary of the Lucky Friday Pension Plan, and U.S. Bank National Association, as trustee of the Hecla Mining Company Retirement Plan Trust. *

 

 

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 its XBRL tags are embedded within the Inline XBRL document. **

 

101.SCH

Inline XBRL Taxonomy Extension Schema.**

 

101.CAL

Inline XBRL Taxonomy Extension Calculation.**

 

101.DEF

Inline XBRL Taxonomy Extension Definition.**

 

101.LAB

Inline XBRL Taxonomy Extension Labels.**

 

101.PRE

Inline XBRL Taxonomy Extension Presentation.**

 

104

Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 


(1)         Indicates a management contract or compensatory plan or arrangement.

 

* 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.

 

Items 3 and 5 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.

 

  

HECLA MINING COMPANY

 
  

(Registrant)

 
     

Date:

November 4, 2021  

By:

/s/ Phillips S. Baker, Jr.

 
   

Phillips S. Baker, Jr., President,

 
   

Chief Executive Officer and Director

 
     

Date:

November 4, 2021  

By:

/s/ Russell D. Lawlar

 
   

Russell D. Lawlar, Senior Vice President,

 
   

Chief Financial Officer and Treasurer

 

 

73