Hecla Mining Company
10-K on 02/18/2021   Download
SEC Document
SEC Filing
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Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________

 

Form 10-K

____________________

 

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

  
 

For the fiscal year ended December 31, 2020

 

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 No. 1-8491

 

HECLA MINING COMPANY

(Exact name of registrant as specified in its Charter)

 

Delaware

77-0664171

State or Other Jurisdiction of
Incorporation or Organization

I.R.S. Employer
Identification No.

  

6500 N. Mineral Drive, Suite 200
Coeur dAlene, 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

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No

 

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, 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

 

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

 

The aggregate market value of the registrant’s voting Common Stock held by non-affiliates was $1,705,927,032 as of June 30, 2020. There were 527,839,028 shares of the registrant’s Common Stock outstanding as of June 30, 2020, and 535,187,791 shares outstanding as of February 16, 2021. 

 

Documents incorporated by reference herein:

 

To the extent herein specifically referenced in Part III, the information contained in the Proxy Statement for the 2021 Annual Meeting of Shareholders of the registrant, which will be filed with the Commission pursuant to Regulation 14A within 120 days of the end of the registrant’s 2020 fiscal year, is incorporated herein by reference. See Part III.

 

 

 

  

TABLE OF CONTENTS

 

Special Note on Forward-Looking Statements

1

Risk Factors Summary

1

PART I

3

Item 1. Business

3

Introduction

3

Products and Segments

6

Governmental Regulation

7

Physical Assets

8

Human Capital Management

8

Available Information

10

Item 1A. Risk Factors

10

Item 1B. Unresolved Staff Comments

37

Item 2. Properties

38

The Greens Creek Unit

38

The Lucky Friday Unit

43

The Casa Berardi Unit

47

The San Sebastian Unit

51

The Nevada Operations Unit

55

Item 3. Legal Proceedings

63

Item 4. Mine Safety Disclosures

63

PART II

64

Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

64

Item 6. Selected Financial Data

67

Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations

68

Overview

68

Results of Operations

70

The Greens Creek Segment

74

The Lucky Friday Segment

78

The Casa Berardi Segment

81

The San Sebastian Segment

83

The Nevada Operations Segment

85

Corporate Matters

88

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)

89

Reconciliation of Net Income (Loss) (GAAP) to Earnings Before Interest, Taxes, Depreciation, and Amortization (non-GAAP)

100

Financial Liquidity and Capital Resources

101

Contractual Obligations and Contingent Liabilities and Commitments

105

Off-Balance Sheet Arrangements

106

Critical Accounting Estimates

106

New Accounting Pronouncements

108

Guarantor Subsidiaries

109

Forward-Looking Statements

114

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

114

Provisional Sales

115

Commodity-Price Risk Management

115

Foreign Currency

117

Item 8. Financial Statements and Supplementary Data

118

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

118

Item 9A. Controls and Procedures

118

Disclosure Controls and Procedures

118

Managements Annual Report on Internal Control over Financial Reporting

119

Attestation Report of Independent Registered Public Accounting Firm

120

Item 9B. Other Information

121

PART III

122

Item 10. Directors, Executive Officers and Corporate Governance

122

Item 11. Executive Compensation

124

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

124

Item 13. Certain Relationships and Related Transactions, and Director Independence

124

Item 14. Principal Accountant Fees and Services

124

PART IV

125

Item 15. Exhibits and Financial Statement Schedules

125

Item 16. Form 10-K Summary

127

Signatures

128

Index to Consolidated Financial Statements

F-1

 

i

 

  

 

Special Note on Forward-Looking Statements

 

Certain statements contained in this report (including information incorporated by reference) are “forward-looking statements” and 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 ("Exchange Act"). Our forward-looking statements include our current expectations and projections about future production, results, performance, prospects and opportunities, including reserves and other mineralization. We have tried to identify these forward-looking statements by using words such as “may,” “might,” “will,” “expect,” “anticipate,” “believe,” “could,” “intend,” “plan,” “estimate,” "project" 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 production, results, performance, prospects or opportunities, including reserves and mineralization, to differ materially from those expressed in, or implied by, these forward-looking statements.

 

These risks, uncertainties and other factors include, but are not limited to, those set forth under Item 1A. Risk Factors and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Given these risks and uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements. Projections and other forward-looking statements included in this report have been prepared based on assumptions, which we believe to be reasonable, but not in accordance with United States generally accepted accounting principles (“GAAP”) or any guidelines of the Securities and Exchange Commission (“SEC”). Actual results may vary, perhaps materially. You are strongly cautioned not to place undue reliance on such projections and other 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 disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Risk Factors Summary

 

The following is a summary of the principal risks that could adversely affect our business, operations and financial results. These risks are described in more detail under Item 1A. Risk Factors of this report.

 

Financial Risks

 

 

A substantial or extended decline in metals prices would have a material adverse effect on us.

 

 

An extended decline in metals prices, an increase in operating or capital costs, mine accidents or closures, increasing regulatory obligations, or our inability to convert exploration potential to reserves may cause us to record write-downs, which could negatively impact our results of operations.

 

 

We have a substantial amount of debt that could impair our financial health and prevent us from fulfilling our obligations under our existing and future indebtedness.

 

 

We have had losses that could reoccur in the future. Our ability to recognize the benefits of deferred tax assets related to net operating loss carryforwards and other items is dependent upon future cash flows and taxable income.

 

 

Our accounting and other estimates may be imprecise.

 

 

Commodity and currency risk management activities could prevent us from realizing possible revenues or lower costs or expose us to losses.

 

Operation, Development, Exploration and Acquisition Risks

 

 

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.

 

1

 

 

The COVID-19 virus pandemic may heighten other risks.

 

 

Mining accidents or other adverse events at an operation could decrease our anticipated production or otherwise adversely affect our operations. Our operations may be adversely affected by risks and hazards associated with the mining industry that may not be fully covered by insurance.

 

 

Efforts to expand the finite lives of our mines may not be successful or could result in significant demands on our liquidity, and our costs of development of new orebodies and other capital costs may be higher than estimated. Our ore reserve estimates may be imprecise.

 

 

Our ability to market our metals production depends on the availability of smelters and/or refining facilities, and our operations and financial results may be affected by the disruptions or unavailability of such facilities. Shortages of critical parts and equipment may adversely affect our development projects.

 

 

We derive a significant amount of revenue from a relatively small number of customers.

 

 

Certain of our mines and exploration properties are located on land that is or may become subject to title claims and/or claims of cultural significance.

 

 

We may be subject to a number of unanticipated risks related to inadequate infrastructure.

 

 

We face inherent risks in acquisitions of other mining companies or properties that may adversely impact our growth strategy. The properties we may acquire may not produce as expected, and we may be unable to accurately determine reserve potential or identify associated liabilities. We may be unable to successfully integrate the operations of the properties we acquire, including our Nevada operations. We may not realize all of the anticipated benefits from our acquisitions.

 

 

The issues we have faced at our Nevada Operations unit could require us to write-down the associated long-lived assets. We could face similar issues at our other operations.

 

 

We face risks relating to transporting our products from our mines, as well as transporting employees and materials at Greens Creek.

 

Legal, Regulatory and Compliance Risks

 

 

Our operations are subject to complex, evolving and increasingly stringent environmental laws and regulations. Compliance with environmental regulations, and litigation based on such laws and regulations, involves significant costs and can threaten existing operations or constrain expansion opportunities. Mine closure and reclamation regulations impose substantial costs on our operations and include requirements that we provide financial assurance supporting those obligations.

 

 

We are required to obtain governmental permits and other approvals in order to conduct mining operations. We face substantial governmental regulation, including the Mine Safety and Health Act, various environmental laws and regulations and the 1872 Mining Law. Additionally, new federal and state laws, regulations and initiatives could impact our operations.

 

 

We are currently involved in ongoing legal disputes. Legal challenges could prevent the Rock Creek or Montanore projects from ever being developed. The titles to some of our properties may be defective or challenged.

 

 

Our environmental and asset retirement obligations may exceed the provisions we have made.

 

2

 

Risks Relating to Our Common Stock and Our Indebtedness

 

 

We may be unable to generate sufficient cash to service all of our debt and meet our other ongoing liquidity needs and may be forced to take other actions to satisfy our obligations, which may be unsuccessful.

 

 

The price of our stock has a history of volatility and could decline in the future. Our Series B preferred stock has a liquidation preference of $50 per share or $7.9 million. We may not be able to pay common or preferred stock dividends in the future. The issuance of additional shares of our preferred or common stock in the future could adversely affect holders of common stock.

 

 

Our existing stockholders are effectively subordinated to the holders of our 7.25% Senior Notes due February 15, 2028 ("Senior Notes"). Our Senior Notes and the guarantees thereof are effectively subordinated to any of our and our guarantors’ secured indebtedness to the extent of the value of the collateral securing that indebtedness. Our Senior Notes are structurally subordinated to all liabilities of our non-guarantor subsidiaries.

 

 

The provisions in our certificate of incorporation, our by-laws and Delaware law could delay or deter tender offers or takeover attempts. The terms of our debt impose restrictions on our operations.

 

PART I

 

Item 1. Business

 

For information regarding the organization of our business segments and our significant customers, see Note 12 of Notes to Consolidated Financial Statements.

 

Information set forth in Items 1A and 2 below are incorporated by reference into this Item 1.

 

Introduction

 

Hecla Mining Company and its subsidiaries have provided precious and base metals to the U.S. and worldwide since 1891 (in this report, “we” or “our” or “us” refers to Hecla Mining Company and our affiliates and subsidiaries, unless the context requires otherwise). We discover, acquire and develop mines and other mineral interests and produce and market (i) concentrates containing silver, gold (in the case of Greens Creek), lead and zinc, (ii) carbon material containing silver and gold, and (iii) unrefined doré containing silver and gold.  In doing so, we intend to manage our business activities in a safe, environmentally responsible and cost-effective manner.

 

The lead, zinc and bulk concentrates and carbon material we produce are sold to custom smelters, metal traders and third-party processors, and the unrefined doré we produce is sold to refiners or further refined before sale of the metals to traders.  We are organized and managed in five segments that encompass our operating units: the Greens Creek, Lucky Friday, Casa Berardi, San Sebastian and Nevada Operations units.

 

 

3

 

The map below shows the locations of our operating units and our exploration and pre-development projects, as well as our corporate offices located in Coeur d’Alene, Idaho, Vancouver, British Columbia and Val d'Or, Quebec.

 

hl20201231_10kimg001.gif

 

 

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 in a safe, environmentally responsible and cost-effective manner.

 

 

Maintaining and investing in exploration and pre-development projects in the vicinities of nine mining districts and projects we believe to be under-explored and under-invested: our Greens Creek unit on Alaska's Admiralty Island located near Juneau; North Idaho's Silver Valley in the historic Coeur d'Alene Mining District; the silver-producing district near Durango, Mexico; the Abitibi region of northwestern Quebec, Canada; our projects in Nevada; the Rock Creek and Montanore projects in northwestern Montana; the Creede district of southwestern Colorado; the Kinskuch project in British Columbia, Canada; and the Republic mining district in Washington state.

 

 

Improving operations at each of our units, which includes incurring costs for new technologies and equipment.

 

4

 

 

Expanding our proven and probable reserves and production capacity at our units.

 

 

Conducting our business with financial stewardship to preserve our financial position in varying metals price and operational environments.

 

 

Advancing permitting of the Rock Creek and Montanore projects.

 

 

Continuing to seek opportunities to acquire and invest in mining and exploration properties and companies.

 

Metals Prices

 

Our operating results are substantially dependent upon the prices of silver, gold, lead and zinc, which can fluctuate widely. The volatility of such prices is illustrated in the following table, which sets forth our average realized prices and the high, low and average daily closing market prices for silver, gold, lead and zinc for each of the last three years. The sources for the market prices are the London Market Fixing prices from the London Bullion Market Association for silver and gold and the Cash Official prices from the London Metals Exchange for lead and zinc.

 

   

2020

   

2019

   

2018

 

Silver (per oz.):

                       

Realized average

  $ 21.15     $ 16.65     $ 15.63  

Market average

  $ 20.51     $ 16.20     $ 15.71  

Market high

  $ 28.89     $ 19.31     $ 17.52  

Market low

  $ 12.01     $ 14.38     $ 13.97  

Gold (per oz.):

                       

Realized average

  $ 1,757     $ 1,413     $ 1,265  

Market average

  $ 1,770     $ 1,392     $ 1,269  

Market high

  $ 2,067     $ 1,546     $ 1,355  

Market low

  $ 1,474     $ 1,270     $ 1,178  

Lead (per lb.):

                       

Realized average

  $ 0.84     $ 0.91     $ 1.04  

Market average

  $ 0.83     $ 0.91     $ 1.02  

Market high

  $ 0.96     $ 1.03     $ 1.22  

Market low

  $ 0.72     $ 0.80     $ 0.85  

Zinc (per lb.):

                       

Realized average

  $ 1.03     $ 1.14     $ 1.27  

Market average

  $ 1.03     $ 1.16     $ 1.33  

Market high

  $ 1.29     $ 1.37     $ 1.64  

Market low

  $ 0.80     $ 1.00     $ 1.04  

 

Our results of operations are significantly impacted by fluctuations in the prices of silver, gold, lead and zinc, which 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 for information on a number of the factors that can impact prices of the metals we produce. Our average realized prices for silver and gold were higher, while the average realized prices for zinc and lead were lower, in 2020 compared to 2019 and in 2019 compared to 2018. Market metal price trends are a significant factor in our operating and financial performance.  We are unable to predict fluctuations in prices for metals and have limited control over the timing of our concentrate shipments which impacts our realized prices. However, we utilize financially-settled forward contracts for the metals we produce with the objective of managing the exposure to changes in prices of those metals contained in our concentrate shipments between the time of sale and final settlement. In addition, at times we utilize a similar program to manage the exposure to changes in prices of zinc and lead (but not silver and gold) contained in our forecasted future concentrate shipments.  In June 2019, we also began utilizing financially-settled put option contracts to manage the exposure of our forecasted future gold and silver sales to potential declines in market prices for those metals. See Note 11 of Notes to Consolidated Financial Statements for more information on our base and precious metal forward and put option contract programs.

 

5

 

A comprehensive discussion of our financial results for the years ended December 31, 2020, 2019 and 2018, individual operating unit performance and other significant items can be found in Item 7. Managements Discussion and Analysis of Consolidated Financial Condition and Results of Operations, as well as the Consolidated Financial Statements and Notes thereto.

 

Products and Segments

 

Our segments are differentiated by geographic region. We produce zinc, lead and bulk flotation concentrates at our Greens Creek unit and lead and zinc flotation concentrates at our Lucky Friday unit, each of which we sell to custom smelters and metal traders. The flotation concentrates produced at our Greens Creek and Lucky Friday units contain payable silver, zinc and lead, and at Greens Creek they also contain payable gold. At Greens Creek, we also produce gravity concentrate containing payable silver, gold and lead. Unrefined bullion (doré) is produced from the gravity concentrate by a third-party processor, and shipped to a refiner before sale of the metals to precious metal traders. We also produce unrefined gold and silver bullion bars (doré), loaded carbon and precipitates at our Casa Berardi, San Sebastian and Nevada Operations units, which are shipped to refiners before sale of the metals to precious metal traders. At times, we sell loaded carbon and precipitates directly to refiners. Payable metals are those included in our products which we are paid for by smelters, metal traders and refiners. Our segments as of December 31, 2020 included:

 

 

The Greens Creek unit located on Admiralty Island, near Juneau, Alaska. Greens Creek is 100% owned and has been in production since 1989, with a temporary care and maintenance period from April 1993 through July 1996.

 

 

The Lucky Friday unit located in northern Idaho. Lucky Friday is 100% owned and has been a producing mine for us since 1958. Unionized employees at Lucky Friday were on strike from mid-March 2017 until early January 2020, resulting in limited production during that time. Re-staffing of the mine and ramp-up activities have been substantially completed, and the mine has returned to full production starting in the fourth quarter of 2020.

 

 

The Casa Berardi unit located in the Abitibi region of northwestern Quebec, Canada. Casa Berardi is 100% owned and was acquired on June 1, 2013 with the purchase of all issued and outstanding common shares of Aurizon Mines Ltd. ("Aurizon"). Aurizon had operated and produced from the Casa Berardi mine since late 2006.

 

 

The San Sebastian unit located in the state of Durango, Mexico. San Sebastian is 100% owned, and had previously produced for us from both underground mines and open pits at various dates from 2001. Mine production was completed in the third quarter of 2020, with milling of remaining ore completed in the fourth quarter of 2020. We have continued to advance additional exploration targets near our operations at San Sebastian.

 

 

The Nevada Operations unit located in northern Nevada. Nevada Operations is 100% owned and was acquired on July 20, 2018 with the purchase of all of the issued and outstanding common shares of Klondex Mines Ltd ("Klondex"). Nevada Operations consists of four land packages in northern Nevada totaling approximately 110 square miles and containing operating or previously-operating mines with a history of high-grade gold production: Fire Creek, Hollister and Midas. As discussed in Item 7. Managements Discussion and Analysis of Consolidated Financial Condition and Results of Operations - The Nevada Operations Segment, in the second quarter of 2019, we ceased development to access new production areas at our Nevada Operations until completion of studies and test work, including the results of the mining and processing of a bulk sample of refractory ore through a third party ore processing agreement in the first quarter of 2021, resulting in, among other changes, an anticipated suspension of production in the first half of 2021.

 

6

 

The contributions to our consolidated sales by our operating units in 2020 were 47.4% from Greens Creek, 30.2% from Casa Berardi, 9.1% from Lucky Friday, 8.5% from Nevada Operations and 4.8% from San Sebastian.

 

The following table illustrates our metal quantities produced and sold for the last three years:

 

     

Year Ended December 31,

 
     

2020

   

2019

   

2018

 

Silver -

Ounces produced

    13,542,957       12,605,234       10,369,503  
 

Payable ounces sold

    12,305,917       11,548,373       9,254,385  

Gold -

Ounces produced

    208,962       272,873       262,103  
 

Payable ounces sold

    202,694       275,060       247,528  

Lead -

Tons produced

    34,127       24,210       20,091  
 

Payable tons sold

    29,108       19,746       16,214  

Zinc -

Tons produced

    63,112       58,857       56,023  
 

Payable tons sold

    46,349       39,381       39,273  

 

Governmental Regulation

 

The following is a summary of governmental regulation compliance areas which we believe are significant to our business and may have a material effect on our consolidated financial statements, earnings and/or competitive position.

 

Health and Safety

 

We are subject to the regulations of the Mine Safety and Health Administration (“MSHA”) in the United States, the Commission of Labor Standards, Pay Equity and Occupational Health and Safety in Quebec, and the Mexico Ministry of Economy and Mining, and work with these agencies to address issues outlined in any investigations and inspections and continue to evaluate our safety practices. We strive to achieve excellent mine safety and health performance, and attempt to implement reasonable best practices with respect to mine safety and emergency preparedness. Achieving and maintaining compliance with regulations will be challenging and may increase our operating costs. See Human Capital - Health and Safety below and Item 1A. Risk FactorsWe face substantial governmental regulation, including the Mine Safety and Health Act, various environmental laws and regulations and the 1872 Mining Law.

 

Environmental

 

Our operations are subject to various environmental laws and regulations at the federal and state/provincial level. Compliance with environmental regulations, and litigation based on environmental laws and regulations, involves significant costs and can threaten existing operations or constrain expansion opportunities. Mine closure and reclamation regulations impose substantial costs on our operations and include requirements that we provide financial assurance supporting those obligations. We have over $180 million of financial assurances, primarily in the form of surety bonds, for reclamation company-wide. We anticipate approximately $6 million in expenditures in 2021 for idle property management and environmental permit compliance. We also plan to invest approximately $3 million in 2021 in on-going reclamation works at the former Troy Mine in Montana; the projected remaining cost for reclamation at the site is included in our accrued reclamation and closure costs liability. See Item 1A. Risk FactorsWe face substantial governmental regulation, including the Mine Safety and Health Act, various environmental laws and regulations and the 1872 Mining Law; Our operations are subject to complex, evolving and increasingly stringent environmental laws and regulations; Compliance with environmental regulations, and litigation based on such regulations, involves significant costs and can threaten existing operations or constrain expansion opportunities; Our environmental and asset retirement obligations may exceed the provisions we have made; and New federal and state laws, regulations and initiatives could impact our operations.

 

7

 

Licenses, Permits and Claims/Concessions

 

We are required to obtain various licenses and permits to operate our mines and conduct exploration and reclamation activities. See Item 1A. Risk FactorsWe are required to obtain governmental permits and other approvals in order to conduct mining operations. The El Toro area at San Sebastian, the Rock Creek and Montanore projects, and our planned open pits at Casa Berardi can only be developed if we are successful in obtaining the necessary permits. See Item 1A. Risk Factors We are required to obtain governmental permits and other approvals in order to conduct mining operations and Legal challenges could prevent the Rock Creek or Montanore projects from ever being developed. In addition, our operations and exploration activities at our Casa Berardi and San Sebastian units are conducted pursuant to claims or concessions granted by the host government, and otherwise are subject to claims renewal and minimum work commitment requirements, which are subject to certain political risks associated with foreign operations. See Item 1A. Risk FactorsOur foreign activities are subject to additional inherent risks.

 

Taxes and Royalties

 

We are subject to various taxes and government royalties in the jurisdictions where we operate, including those specific to mining activities. These include: federal income taxes; state/provincial income taxes; county property taxes and sales and use tax in the U.S.; goods and services tax in Canada; value added tax in Mexico; mining-specific taxes in Alaska, Nevada and Quebec; and mining royalties in Mexico. Accrual and payment of taxes and accounting for deferred taxes can involve significant estimates and assumptions and can have a material impact on our consolidated financial statements. Tax rates and the calculations of taxes can change significantly and are influenced by changes in political administrations and other factors. See Item 1A. Risk FactorsOur accounting and other estimates may be imprecise; 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; Our foreign activities are subject to additional inherent risks; and We face substantial governmental regulation, including the Mine Safety and Health Act, various environmental laws and regulations and the 1872 Mining Law. Also, see Note 6 of Notes to Consolidated Financial Statements for more information on income taxes.

 

Physical Assets

 

Our business is capital intensive and requires ongoing capital investment for the replacement, modernization and expansion of equipment and facilities and to develop new ore reserves. At December 31, 2020, the book value of our properties, plants, equipment and mineral interests, net of accumulated depreciation, was approximately $2.3 billion.  For more information see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. We maintain insurance policies against property loss and business interruption.  However, such insurance contains exclusions and limitations on coverage, and there can be no assurance that claims would be paid under such insurance policies in connection with a particular event.  See Item 1A. Risk Factors Our operations may be adversely affected by risks and hazards associated with the mining industry that may not be fully covered by insurance.

 

Human Capital Management

 

As of December 31, 2020, we employed approximately 1,600 people, of which approximately 900 were employed in the United States, 650 in Canada, and 50 in Mexico. The vast majority of our employees are full-time. Approximately 15% of our employees were covered by a collective bargaining agreement.

 

One of our greatest resources is our people, with the attraction, development and retention of talent critical to delivering our business strategy. Key areas of focus for us include:

 

8

 

Health and Safety

 

The safety and health of our employees is of paramount importance, and we go to great lengths to keep employees safe. We continue to invest in effective ways to operate our mines more safely. Our goal is to achieve world-class safety and health performance by promoting a deeply rooted value-based culture of safety and utilizing technology and innovation to continually improve safe operations. We know that instilling the behavior of safety awareness is fundamental to making our workplace as safe as possible. So, we invest in our people with training and the latest technology and workforce development programs that focus on safety first. All employees receive training that complies with or exceeds the applicable safety and health regulations as set by the governing body in the jurisdiction in which each operation is located. As part of our commitment to safety, we track a variety of safety performance indicators, including injuries, near misses, observations, and equipment damages. Our goal is to reduce safety incidents and improve upon the previous year’s performance. Company-wide, our All Injury Frequency Rate ("AIFR"), calculated as the number of incidents in the period multiplied by 200,000 hours and divided by the number of hours worked in the period, dropped 70% from 2014 to 2019. In 2020, we reduced our AIFR by 24% to 1.22, the lowest level in our history and 46% below the U.S. national average for MSHA's "metal and nonmetal" category.

 

During fiscal year 2020, we launched a proactive response to the escalating COVID-19 outbreak and temporarily suspended operations at our Casa Berardi mine, starting at the end of March, and at our San Sebastian mine, in early April, due to government mandated closures. Those sites returned to full operations in mid-April and early-May, respectively. To mitigate the impact of COVID-19, we have taken precautionary measures, including implementing very detailed corporate and site-specific plans in February and early March 2020. Our plans included being flexible and quickly adapting to changing circumstances and government mandates. Even before mining was deemed an essential industry in the United States, we implemented procedures and policies to help keep our workers safe and ensure our supply chain, such as limiting site access, adopting social distancing, enhanced cleaning practices, implementing temperature testing, and quarantining protocols. We also commenced remote work protocols for those employees who wished to work remotely and could effectively do so. We took these actions to secure the safety of our employees, our vendors, and the communities in which our team members live and work, and to adhere to Center for Disease Control recommendations.

 

Compensation and Benefits

 

We are often among the largest private-sector employers in the communities in which we operate. We strive to provide a compensation and benefits package that succeeds in attracting, motivating, and retaining employees.  For many decades, we have been at the forefront of offering competitive wages and among the highest valued benefits in the communities where we operate.  The competitive wage and benefit package has been key to the strong retention of our employees. In addition to competitive base wages, we offer retirement benefits, health insurance benefits, incentive plans, and paid time off.  We believe our retirement benefits in particular, which include both defined benefit and defined contribution plans, set us apart from many other employers.

 

Retention and Employee Development

 

A key element of our employee retention has been our culture. Maintaining a work environment in which our employees are provided the tools they need to grow and succeed and supporting the communities in which our mines and offices are located has been part of our culture for over a century. Our employees benefit from company-sponsored health and wellness programs that cover education, health interventions and disease management. Our responsibility to ensure a safe workplace extends to providing opportunities for employee wellness. In combination with the Hecla Foundation, we support employees both at the work site and in the communities in which we operate.

 

We are committed to hiring talented people, developing effective leaders and providing an inclusive workplace. The mining workforce of the future, like all industries, will see a continual change in the jobs and skill sets required as we adopt new technologies and make our workplace safer and more efficient. We are also committed to helping employees update their skills. For example, we are working with North Idaho College’s Career Training Center to develop a training curriculum to update the worker skill sets necessary to meet the changing mining workforce dynamic. In addition, we have long supported the Pathways to Mining Careers program, a career training partnership with the University of Alaska Southeast in Juneau. We also offer a reimbursement program to assist with educational expenses for employees who are interested in furthering their education. Advanced education can improve job performance and increase advancement opportunities for the employee, while providing flexibility to our company by increasing the employee’s knowledge base and skill set.

 

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Annual employee surveys are conducted to gauge employee concerns and morale. The results of the surveys, and any responsive measures, are shared with our board of directors. Strategic talent reviews and succession planning reviews are conducted periodically across all business areas, and our training programs are adapted accordingly. The CEO, senior level company leadership and board of directors regularly review top talent across the organization. Creating more opportunities for women, indigenous people and minorities are among our priorities for employee development. We also strive to maintain an inclusive workplace, and provide periodic training to employees to help meet that goal. Our employees are required to abide by our Code of Conduct, which is available on our website, to promote the conduct of our business in a consistently legal and ethical manner. Among other provisions, the Code of Conduct reflects that it is our policy and practice not to discriminate against any employee because of race, color, religion, national origin, sex, sexual orientation, gender identity or expression, age, or physical or other disability. We expect our leaders to set the example by being positive role models and good mentors for our employees.

 

We employ our Vice President-Human Resources who is responsible for developing and executing our human capital strategy. The position is an executive-level position to reflect the priority we place on utilizing our human capital resources to meet our business strategy.

 

Available Information

 

Hecla Mining Company is a Delaware corporation. Our current holding company structure dates from the incorporation of Hecla Mining Company in 2006 and the renaming of our subsidiary (previously Hecla Mining Company) as Hecla Limited. Our principal executive offices are located at 6500 N. Mineral Drive, Suite 200, Coeur d’Alene, Idaho 83815-9408. Our telephone number is (208) 769-4100. Our web site address is www.hecla-mining.com. We file our annual, quarterly and current reports and any amendments to these reports with the SEC, copies of which are available on our website or from the SEC free of charge (www.sec.gov or 800-SEC-0330). Our restated certificate of incorporation, bylaws, charters of our audit, compensation, and corporate governance and directors nominating committees, as well as our Code of Ethics for the Chief Executive Officer and Senior Financial Officers and our Code of Conduct, are also available on our website. In addition, any amendments to our Code of Ethics or waivers granted to our directors and executive officers will be posted on our website. Each of these documents may be periodically revised, so you are encouraged to visit our website for any updated terms. We will provide copies of these materials to stockholders upon request using the above-listed contact information, directed to the attention of Investor Relations, or via e-mail request sent to hmc-info@hecla-mining.com.

 

 

Item 1A. Risk Factors

 

The following risks and uncertainties, together with the other information set forth in this report, should be carefully considered by those who invest in our securities. Any of the following material risk factors could adversely affect our business, financial condition or operating results and could decrease the value of our common or preferred stock or other outstanding securities. These are not all of the risks we face, and other factors not presently known to us or that we currently believe are immaterial may also affect our business if they occur.

 

Financial Risks

 

A substantial or extended decline in metals prices would have a material adverse effect on us.

 

Our revenue is derived primarily from the sale of concentrates and doré containing silver, gold, lead and zinc and, as a result, our earnings are directly related to the prices of these metals. Silver, gold, lead and zinc prices fluctuate widely and are affected by numerous factors, including:

 

 

speculative activities;

 

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relative exchange rates of the U.S. dollar;

 

 

global and regional demand and production;

 

 

political instability;

 

 

inflation, recession or increased or reduced economic activity; and

 

 

other political, regulatory and economic conditions.

 

These factors are largely beyond our control and are difficult to predict. If the market prices for these metals fall below our production, exploration or development costs for a sustained period of time, we will experience losses and may have to discontinue exploration, development or operations, or incur asset write-downs at one or more of our properties. See Item 1. Business - Introduction for information on the average, high, and low daily closing prices for silver, gold, lead and zinc for the last five years. February 16, 2021, the closing prices for silver, gold, lead and zinc were $27.57 per ounce, $1,794 per ounce, $0.96 per pound and $1.28 per pound, respectively.

 

An extended decline in metals prices, an increase in operating or capital costs, mine accidents or closures, increasing regulatory obligations, or our inability to convert exploration potential to reserves may cause us to record write-downs, which could negatively impact our results of operations.

 

When events or changes in circumstances indicate the carrying value of our long-lived assets may not be recoverable, we review the recoverability of the carrying value by estimating the future undiscounted cash flows expected to result from the use and eventual disposition of the asset. Impairment must be recognized when the carrying value of the asset exceeds these cash flows. Recognizing impairment write-downs could negatively impact our results of operations. Metal price estimates are a key component used in the evaluation of the carrying values of our assets, as the evaluation involves comparing carrying values to the average estimated undiscounted cash flows resulting from operating plans using various metals price scenarios. Our estimates of undiscounted cash flows for our long-lived assets also include an estimate of the market value of the exploration potential beyond the current operating plans.

 

We determined that there were no events or change in circumstances indicating the carrying value of our long-lived assets may not be recoverable as of December 31, 2020. For more discussion, see Note 4 of Notes to Consolidated Financial Statements and the below risk factors, “We may not realize all of the anticipated benefits from our acquisitions, including our acquisition of Klondex” and “The issues we have faced at our Nevada Operations unit could require us to write-down the associated long-lived assets. We could face similar issues at our other operations. Such write-downs may adversely affect our results of operations and financial condition.” If the prices of silver, gold, zinc and lead decline for an extended period of time, if we fail to control production or capital costs, if regulatory issues increase costs or decrease production, or if we do not realize the mineable ore reserves or exploration potential at our mining properties, we may be required to recognize asset write-downs in the future. In addition, the perceived market value of the exploration potential of our properties is dependent upon prevailing metals prices as well as our ability to discover economic ore. A decline in metals prices for an extended period of time or our inability to convert exploration potential to reserves could significantly reduce our estimates of the value of the exploration potential at our properties and result in asset write-downs.

 

We have a substantial amount of debt that could impair our financial health and prevent us from fulfilling our obligations under our existing and future indebtedness.

 

As of December 31, 2020, we had total indebtedness of approximately $523.0 million, primarily in the form of our Senior Notes. Our level of debt and our debt service obligations may have adverse effects on our business, financial condition, cash flows or results of operations, including:

 

 

making it more difficult for us to satisfy our obligations with respect to the Senior Notes;

 

 

reducing the amount of funds available to finance our operations, capital expenditures and other activities;

 

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increasing our vulnerability to economic downturns and industry conditions;

 

 

limiting our flexibility in responding to changing business and economic conditions;

 

 

jeopardizing our ability to execute our business plans;

 

 

placing us at a disadvantage when compared to our competitors that have less debt;

 

 

increasing our cost of borrowing; and

 

 

limiting our ability to borrow additional funds.

 

We and our subsidiaries may incur substantial additional indebtedness in the future. Although the indenture governing our Senior Notes contains restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions and, under certain circumstances, the amount of additional indebtedness that could be incurred in compliance with these restrictions could be substantial. In July 2018, we entered into our $250 million senior credit facility. Like the indenture, the credit agreement governing the revolving credit facility also has restrictions on the incurrence of additional indebtedness but with a number of significant qualifications and exceptions. If new debt is added to our and our subsidiaries’ existing debt levels, the risks associated with such debt that we currently face would increase. In addition, the indenture governing the Senior Notes does not prevent us from incurring additional indebtedness under the indenture.

 

We have had losses that could reoccur in the future.

 

We have experienced volatility in our net (loss) income reported in the last five years, as shown in Item 6. Selected Financial Data, including net losses of $16.8 million in 2020, $99.6 million in 2019, $26.6 million in 2018 and $28.5 million in 2017, and net income of $61.6 million in 2016. A comparison of operating results over the past three years can be found in Results of Operations in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.

 

Many of the factors affecting our operating results are beyond our control, including, but not limited to, the volatility of metals prices; smelter terms; rock and soil conditions; seismic events; availability of hydroelectric power; diesel fuel prices; interest rates; foreign exchange rates; global or regional political or economic policies; inflation; availability and cost of labor; economic developments and crises; governmental regulations; continuity of orebodies; ore grades; recoveries; performance of equipment; price speculation by certain investors; and purchases and sales by central banks and other holders and producers of gold and silver in response to these factors. We cannot assure you that we will not experience net losses in the future.

 

Our accounting and other estimates may be imprecise.

 

Preparing consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts and related disclosure of assets, liabilities, revenue and expenses at the date of the consolidated financial statements and reporting periods. The more significant areas requiring the use of management assumptions and estimates relate to:

 

 

mineral reserves, mineralized material, and other resources that are the basis for future income and cash flow estimates and units-of-production depreciation, depletion and amortization calculations;

 

 

future ore grades, throughput and recoveries;

 

 

future metals prices;

 

 

future capital and operating costs;

 

 

environmental, reclamation and closure obligations;

 

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permitting and other regulatory considerations;

 

 

asset impairments;

 

 

valuation of business combinations;

 

 

future foreign exchange rates, inflation rates and applicable tax rates;

 

 

reserves for contingencies and litigation; and

 

 

deferred tax asset valuation allowance.

 

Future estimates and actual results may differ materially from these estimates as a result of using different assumptions or conditions. For additional information, see Critical Accounting Estimates in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations, Note 2 of Notes to Consolidated Financial Statements, and the risk factors set forth below: Our costs of extending existing reserves or development of new orebodies and other capital costs may be higher and provide less return than we estimated, Our ore reserve estimates may be imprecise, We are currently involved in ongoing legal disputes that may materially adversely affect us,” and “Our environmental and asset retirement obligations may exceed the provisions we have made.

 

Commodity and currency risk management activities could prevent us from realizing possible revenues or lower costs or expose us to losses.

 

We periodically enter into risk management activities to manage the exposure to changes in prices of silver, gold, lead and zinc contained in our concentrate shipments between the time of sale and final settlement. We also utilize such programs to manage the exposure to changes in the prices of metals contained in our forecasted future shipments. Such activities are utilized in an attempt to partially insulate our operating results from changes in prices for those metals. However, such activities may prevent us from realizing revenues in the event that the market price of a metal exceeds the price stated in a contract, and may also result in significant mark-to-market fair value adjustments, which may have a material adverse impact on our reported financial results. In addition, we are exposed to credit risk with our counterparties, and we may experience losses if a counterparty fails to purchase under a contract when the contract price exceeds the spot price of a commodity.

 

In 2016, we also initiated financially-settled forward contract programs to manage exposure to fluctuations in the exchange rates between the U.S. dollar (“USD”) and the Canadian dollar (“CAD”) and the Mexican peso (“MXN”) and the impact on our future operating costs denominated in CAD and MXN. As with our metals derivatives, such activities may prevent us from realizing possible lower costs on a USD-basis in the event that the USD strengthens relative to the CAD or MXN compared to the exchange rates stated in the forward contracts, and also expose us to counterparty credit risk.

 

See Note 11 of Notes to Consolidated Financial Statements for more information on these forward contract programs.

 

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.

 

We recognize the expected future tax benefit from deferred tax assets when the tax benefit is considered to be more likely than not of being realized. Otherwise, a valuation allowance is applied against deferred tax assets, reducing the value of such assets. Assessing the recoverability of deferred tax assets requires management to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecasted income from operations and the application of existing tax laws in each jurisdiction. Metal price and production estimates are key components used in the determination of our ability to realize the expected future benefit of our deferred tax assets. To the extent that future taxable income differs significantly from estimates as a result of a decline in metals prices or other factors, our ability to realize the deferred tax assets could be impacted. Additionally, significant future issuances of common stock or common stock equivalents, or changes in the direct or indirect ownership of our common stock or common stock equivalents, could limit our ability to utilize our net operating loss carryforwards pursuant to Section 382 of the Internal Revenue Code. Future changes in tax law or changes in ownership structure could limit our ability to utilize our recorded tax assets. Due to the changes to tax laws under the Tax Cuts and Jobs Act enacted in December 2017, we determined it is more likely than not we will not realize the net deferred tax assets in the “Hecla U.S. tax group,” our U.S. consolidated tax group which is exclusive of our U.S. consolidated tax group located in Nevada (“Nevada U.S. tax group”). We currently do not have valuation allowances for certain amounts related to the Nevada U.S. tax group and certain foreign deferred tax assets, and our deferred tax assets as of December 31, 2020 were $233.0 million, net of $77.2 million in valuation allowances. See Note 6 of Notes to Consolidated Financial Statements for further discussion of our deferred tax assets.

 

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Returns for investments in pension plans and pension plan funding requirements are uncertain.

 

We maintain defined benefit pension plans for most U.S. employees, which provide for defined benefit payments after retirement for those employees. Canadian and Mexican employees participate in public retirement systems for those countries and are not eligible to participate in the defined benefit pension plans that we maintain for U.S. employees. The ability of the pension plans maintained for U.S. employees to provide the specified benefits depends on our funding of the plans and returns on investments made by the plans. Returns, if any, on investments are subject to fluctuations based on investment choices and market conditions. In addition, we have a supplemental executive retirement plan which was unfunded as of December 31, 2020. A sustained period of low returns or losses on investments, or future benefit obligations that exceed our estimates, could require us to fund the pension plans to a greater extent than anticipated. See Note 9 of Notes to Consolidated Financial Statements for more information on our pension plans.

 

Operation, Development, Exploration and Acquisition Risks

 

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.

 

If any of our facilities or the facilities of our suppliers, third-party service providers, or customers is affected by natural disasters, such as earthquakes, floods, fires, power shortages or outages, public health crises, such as pandemics and epidemics, political crises, such as terrorism, war, political instability or other conflict, or other events outside of our control, our operations or financial results could suffer. Any of these events could materially and adversely impact us in a number of ways, including through decreased production, increased costs, decreased demand for our products due to reduced economic activity or other factors, or the failure by counterparties to perform under contracts or similar arrangements.

 

For example, the current pandemic caused by the novel coronavirus COVID-19 has 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 the COVID-19 virus, causing us to suspend our Casa Berardi operations from approximately March 24 until April 15, when limited mining operations resumed. And in early April, the Government of Mexico issued a similar order causing us to suspend our San Sebastian operations through April 30, and the order was subsequently extended to May 30. In addition, restrictions imposed by the State of Alaska in late March have caused us to revise the normal operating procedures for staffing operations at Greens Creek. At Casa Berardi and San Sebastian, suspension costs in 2020 totaled $1.6 million and $1.8 million, respectively. In addition, we incurred costs of approximately $2.3 million in 2020 related to quarantining employees at Greens Creek, which started in late March 2020. COVID-19 also negatively impacted our gold production at Casa Berardi in 2020 by approximately 11,700 ounces. It is possible that the changes at Casa Berardi, San Sebastian or Greens Creek (or at any other operation) could continue to have an adverse impact on operations or 2021 financial results, including materially so, if restrictions continue longer than anticipated or become broader.

 

The additional protocols implemented at our mine sites and other restrictions in response to the pandemic have limited the access of our contractors, consultants and other third-party service providers to our operations. As a result, less exploration and confirmation drilling has occurred at some of our operations and exploration properties which in turn has limited reserve and resource conversion in 2020. It is possible restrictions and procedures related to the pandemic could continue to limit access of contractors and others to our operations and have a negative impact on our recognition of reserves and resources or other areas.

 

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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 and any subsequent variants on our business and financial results will also depend on future developments, including the duration and spread of the outbreak 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.

 

COVID-19 virus pandemic may heighten other risks.

 

To the extent that the COVID-19 virus pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other Risk Factors described herein, including, but not limited to, risks related to commodity prices and commodity markets, commodity price fluctuations, our indebtedness, information systems and cyber security and risks relating to our mining operations such as risks related to mineral reserve and mineral resource estimates, production forecasts, impacts of governmental regulations, international operations, availability of infrastructure and employees and challenging global financial conditions.

 

Mining accidents or other adverse events at an operation could decrease our anticipated production or otherwise adversely affect our operations.

 

Production may be reduced below our historical or estimated levels for many reasons, including, but not limited to, mining accidents; unfavorable ground or shaft conditions; work stoppages or slow-downs; lower than expected ore grades; unexpected regulatory actions; if the metallurgical characteristics of ore are less economic than anticipated; or because our equipment or facilities fail to operate properly or as expected. Our mines are subject to risks relating to ground instability, including, but not limited to, pit wall failure, crown pillar collapse, stope failure or the breach or failure of a tailings impoundment. Both the Lucky Friday and Casa Berardi mines have a history of ground instability underground and related incidents which in the past have resulted in loss of production at these facilities and some of the other effects described below. The occurrence of an event such as those described above could result in loss of life or temporary or permanent cessation of operations, any of which could have a material adverse effect on our financial condition and results of operations. Other closures or impacts on operations or production may occur at any of our mines at any time, whether related to accidents, changes in conditions, changes to regulatory policy, or as precautionary measures.

 

In addition, our operations are typically in remote locations, where conditions can be inhospitable, including with respect to weather, surface conditions, interactions with wildlife or otherwise in or near dangerous conditions. In the past we have had employees, contractors, or employees of contractors get injured, sometimes fatally, while working in such challenging locations. An accident or injury to a person at or near one of our operations could have a material adverse effect on our financial condition and results of operations.

 

Our operations may be adversely affected by risks and hazards associated with the mining industry that may not be fully covered by insurance.

 

Our business is capital intensive, requiring ongoing investment for the replacement, modernization or expansion of equipment and facilities. Our mining and milling operations are subject to risks of process disruptions and equipment malfunctions. Equipment and supplies may from time to time be unavailable on a timely basis. Our business is subject to a number of other risks and hazards including:

 

 

environmental hazards;

 

 

unusual or unexpected geologic formations;

 

 

rock bursts, ground falls, pit wall failures, or tailings impoundment breaches or failures;

 

 

seismic activity;

 

 

underground fires or floods;

 

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unanticipated hydrologic conditions, including flooding and periodic interruptions due to inclement or hazardous weather conditions;

 

 

political and country risks;

 

 

civil unrest or terrorism;

 

 

Changes in interpretation or enforcement of regulatory and permitting requirements;

 

 

industrial accidents;

 

 

disruption, damage or failure of technology systems related to operation of equipment and other aspects of our mine operations;

 

 

labor disputes or strikes; and

 

 

our operating mines have tailing ponds which could fail or leak as a result of seismic activity, unusual weather or for other reasons.

 

Such risks could result in:

 

 

personal injury or fatalities;

 

 

damage to or destruction of mineral properties or producing facilities;

 

 

environmental damage and financial penalties;

 

 

delays in exploration, development or mining;

 

 

monetary losses;

 

 

inability to meet our financial obligations;

 

 

asset impairment charges;

 

 

legal liability; and

 

 

temporary or permanent closure of facilities.

 

We maintain insurance to protect against losses that may result from some of these risks, such as property loss and business interruption, in amounts we believe to be reasonably consistent with our historical experience, industry practice and circumstances surrounding each identified risk. Such insurance, however, contains exclusions and limitations on coverage, particularly with respect to environmental liability, political risk and seismic events. We cannot assure you that claims would be paid under such insurance policies in connection with a particular event. Insurance specific to environmental risks is generally either unavailable or, we believe, too expensive for us, and we therefore do not maintain environmental insurance. Occurrence of events for which we are not insured may have an adverse effect on our business.

 

Our costs of extending existing reserves or development of new orebodies and other capital costs may be higher and provide less return than we estimated.

 

Capitalized development projects may cost more and provide less return than we estimate. If we are unable to realize a return on these investments, we may incur a related asset write-down that could adversely affect our financial results or condition.

 

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Our ability to sustain or increase our current level of metals production partly depends on our ability to develop new orebodies and/or expand existing mining operations. Before we can begin a development project, we must first determine whether it is economically feasible to do so. This determination is based on estimates of several factors, including:

 

 

ore reserves;

 

 

expected ore grades and recovery rates of metals from the ore;

 

 

future metals prices;

 

 

facility and equipment costs;

 

 

availability of adequate staffing;

 

 

availability of affordable sources of power and adequacy of water supply;

 

 

exploration and drilling success;

 

 

capital and operating costs of a development project;

 

 

environmental and closure, permitting and other regulatory considerations and costs;

 

 

adequate access to the site, including competing land uses (such as agriculture);

 

 

applicable tax rates;

 

 

foreign currency fluctuation and inflation rates; and

 

 

availability and cost of financing.

 

Many of these estimates are based on geological and other interpretive data, which may be imprecise. As a result, actual operating and capital costs and returns from a development project may differ substantially from our estimates, and, as such, it may not be economically feasible to continue with a development project.

 

Our ore reserve estimates may be imprecise.

 

Our ore reserve figures and costs are primarily estimates and are not guarantees that we will recover the indicated quantities of these metals. You are cautioned not to place undue reliance on estimates of reserves (or mineralized material or other resource estimates). Reserves are estimates made by our professional technical personnel of the amount of metals that they believe could be economically and legally extracted or produced at the time of the reserve determination. No assurance can be given that the estimated amount of metal or the indicated level of recovery of these metals will be realized. Reserve estimation is an interpretive process based upon available data and various assumptions. Our reserve estimates may change. Reserves are valued based on estimates of costs and metals prices, which may not be consistent among our properties or across the industry. The estimated quantities and economic value of ore reserves may be adversely affected by:

 

 

declines in the market price of the various metals we mine;

 

 

increased production or capital costs;

 

 

reduction in the grade or tonnage of the deposit;

 

 

decrease in throughput;

 

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increase in the dilution of the ore;

 

 

future foreign currency rates, inflation rates and applicable tax rates;

 

 

reduced metal recovery; and

 

 

changes in environmental, permitting or other regulatory requirements.

 

Short-term operating factors relating to our ore reserves, such as the need to sequentially develop orebodies and the processing of new or different ore grades, may adversely affect our cash flow.

 

If the prices of metals that we produce decline substantially below the levels used to calculate reserves for an extended period, we could experience:

 

 

delays in new project development;

 

 

net losses;

 

 

reduced cash flow;

 

 

reductions in reserves;

 

 

write-downs of asset values; and

 

 

mine closure.

 

Additionally, the term “mineralized material” does not indicate proven and probable reserves as defined by the Securities and Exchange Commission (“SEC”) or our standards. Estimates of mineralized material are subject to further exploration and development, and are, therefore, subject to considerable uncertainty. Despite our history of converting mineralized material to reserves through additional drilling and study work, we cannot be certain that any part or parts of the mineralized material deposit will ever be confirmed or converted into reserves as defined by the SEC or that mineralized material can be economically or legally extracted.

 

Efforts to expand the finite lives of our mines may not be successful or could result in significant demands on our liquidity, which could hinder our growth.

 

One of the risks we face is that mines are depleting assets. Thus, in order to maintain or increase production we must continually replace depleted ore reserves by locating and developing additional ore. Our ability to expand or replace ore reserves primarily depends on the success of our exploration programs. Mineral exploration, particularly for silver and gold, is highly speculative and expensive. It involves many risks and is often non-productive. Even if we believe we have found a valuable mineral deposit, it may be several years before production from that deposit is possible. During that time, it may become no longer feasible to produce those minerals for economic, regulatory, political or other reasons. As a result of high costs and other uncertainties, we may not be able to expand or replace our existing ore reserves as they are depleted, which would adversely affect our business and financial position in the future. For example, the additional protocols implemented at our mine sites and other restrictions in response to the pandemic have also limited the access of our contractors, consultants, and other third-party service providers to our operations. As a result, less exploration and confirmation drilling has occurred at some of our operations and exploration properties, which in turn has limited reserve and resource conversion in 2020.

 

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Our ability to market our metals production depends on the availability of smelters and/or refining facilities and our operations and financial results may be affected by disruptions or closures or the unavailability of smelters and/or refining facilities for other reasons.

 

We sell our metals products to smelters and metal traders. Our doré bars are sent to refiners for further processing before being sold to metal traders. Access to refiners and smelters on economical terms is critical to our ability to sell our products to buyers and generate revenues. If smelters or refiners are unavailable or unwilling to accept our products, or we are otherwise unable to sell our products to customers on acceptable commercial and legal terms, our operations and financial results could be adversely affected. See Note 12 of Notes to Consolidated Financial Statements for more information on the distribution of our sales and our significant customers.

 

We derive a significant amount of revenue from a relatively small number of customers and occasionally enter into concentrate spot market sales with metal traders.

 

For the fiscal year ended December 31, 2020, the four largest customers accounted for approximately 33%, 16%, 14% and 13%, respectively, of our total revenues. Given our operations produce unique qualities of concentrates, which a limited number of smelters can process effectively, we enter into long-term benchmark contracts for a majority of our total concentrates production. We expose lesser portions of our concentrates production to spot market sales to metal traders to benefit from favorable spot market sales terms from time to time. Our results of operations, financial condition and cash flows could be materially adversely affected if one or more of our long-term customers were to decide to interrupt or curtail their activities, terminate their contracts with us or fail to renew existing contracts. Additionally, if spot market conditions deteriorate rapidly, we could have difficulty selling a portion of our concentrates, and metal traders could refuse to perform under existing contracts, which could also result in materially adverse effects on our results of operations, financial conditions and cash flows. See Note 12 of Notes to Consolidated Financial Statements for more information on the distribution of our sales and our significant customers.

 

Shortages of critical parts and equipment may adversely affect our operations and development projects.

 

We have been impacted, from time to time, by increased demand for critical resources such as input commodities, drilling equipment, trucks, shovels and tires. These shortages have, at times, impacted the efficiency of our operations, and resulted in cost increases and delays in construction of projects; thereby impacting operating costs, capital expenditures and production and construction schedules.

 

Our foreign activities are subject to additional inherent risks.

 

We currently have foreign operations in Mexico and Canada, and we expect to continue to conduct operations there and possibly other international locations in the future. Because we conduct operations internationally, we are subject to political, social, legal and economic risks such as:

 

 

the effects of local political, labor and economic developments and unrest;

 

 

significant or abrupt changes in the applicable regulatory or legal climate;

 

 

significant changes to regulations or laws or the interpretation or enforcement of them, including with respect to tax and profit-sharing matters arising out of the use of outsourced labor and other services at our San Sebastian operation in Mexico;

 

 

exchange controls and export restrictions;

 

 

expropriation or nationalization of assets with inadequate compensation;

 

 

unfavorable currency fluctuations, particularly in the exchange rate between the U.S. dollar and the Canadian dollar and Mexican Peso;

 

 

repatriation restrictions;

 

 

invalidation and unavailability of governmental orders, permits or agreements;

 

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property ownership disputes;

 

 

renegotiation or nullification of existing concessions, licenses, permits and contracts;

 

 

criminal activity, corruption, demands for improper payments, expropriation, and uncertain legal enforcement and physical security;

 

 

failure to maintain compliance with corruption and transparency statutes, including the U.S. Foreign Corrupt Practices Act;

 

 

disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations;

 

 

fuel or other commodity shortages;

 

 

illegal mining;

 

 

laws or policies of foreign countries and the United States affecting trade, investment and taxation;

 

 

opposition to our presence, operations, properties or plans by governmental or non-governmental organizations or civic groups;

 

 

civil disturbances, war and terrorist actions; and

 

 

seizures of assets.

 

The occurrence of any one or combination of these events, many of which are beyond our control, could materially adversely affect our financial condition or results of operations.

 

Our operations and properties in Canada expose us to additional political risks.

 

Our properties in Canada may be of particular interest or sensitivity to one or more interest groups, including aboriginal groups (which are generally referred to as “First Nations”). We have mineral projects in Quebec and British Columbia that are or may be in areas with a First Nations presence. It is our practice to work closely with and consult with First Nations in areas in which our projects are located or which could be impacted by our activities. However, there is no assurance that relationships with such groups will be positive. Accordingly, it is possible that our production, exploration or development activities on these properties could be interrupted or otherwise adversely affected in the future by political uncertainty, native land claims entitlements, expropriations of property, changes in applicable law, governmental policies and policies of relevant interest groups, including those of First Nations. Any changes in law or relations or shifts in political conditions may be beyond our control, or we may enter into agreements with First Nations, all of which may adversely affect our business and operations and if significant, may result in the impairment or loss of mineral concessions or other mineral rights, or may make it impossible to continue our mineral production, exploration or development activities in the applicable area, any of which could have an adverse effect on our financial condition and results of operations.

 

Certain of our mines and exploration properties are located on land that is or may become subject to traditional territory, title claims and/or claims of cultural significance, and such claims and the attendant obligations of the federal government to those tribal communities and stakeholders may affect our current and future operations.

 

Indigenous interests and rights as well as related consultation issues may impact our ability to pursue exploration, development and mining at certain of our properties in Nevada, Montana, Alaska, British Columbia and Quebec. There is no assurance that claims or other assertion of rights by tribal communities and stakeholders or consultation issues will not arise on or with respect to our properties or activities. These could result in significant costs and delays or materially restrict our activities. Opposition by Indigenous Nations and stakeholders to our presence, operations or development on land subject to their traditional territory or title claims or in areas of cultural significance could negatively impact us in terms of permitting delay, public perception, costly legal proceedings, potential blockades or other interference by third parties in our operations, or court-ordered relief impacting our operations. In addition, we may be required to, or may voluntarily, enter into certain agreements with such Indigenous Nations in order to facilitate development of our properties, which could reduce the expected earnings or income from any future production.

 

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We may be subject to a number of unanticipated risks related to inadequate infrastructure.

 

Mining, processing, development, exploration and other activities depend on adequate infrastructure. Reliable roads, bridges, ports, power sources, internet access and water supply are important to our operations, and their availability and condition affect capital and operating costs. Unusual, infrequent or extreme weather phenomena, sabotage, amount or complexity of required investment, or other interference in the maintenance or provision of such infrastructure, or government intervention, could adversely affect our mining operations.

 

We face inherent risks in acquisitions of other mining companies or properties that may adversely impact our growth strategy.

 

We are actively seeking to expand our mineral reserves by acquiring other mining companies or properties. Although we are pursuing opportunities that we feel are in the best interest of our stockholders, these pursuits are costly and often unproductive.

 

There is a limited supply of desirable mineral properties available in the United States and foreign countries where we would consider conducting exploration and/or production activities. For those that exist, we face strong competition from other mining companies, many of which have greater financial resources than we do. Therefore, we may be unable to acquire attractive companies or mining properties on terms that we consider acceptable.

 

Furthermore, there are inherent risks in any acquisition we may undertake which could adversely affect our current business and financial condition and our growth. For example, we may not realize the expected value of the companies or properties that are acquired due to declines in metals prices, lower than expected quality of orebodies, inability to achieve the expected or minimum level of operating performance, failure to obtain permits, labor problems, changes in regulatory environment, failure to achieve anticipated synergies, an inability to obtain financing, and other factors described in these risks factors. Acquisitions of other mining companies or properties may also expose us to new legal, geographic, political, operating, and geological risks.

 

See the risk factor below, “We may not realize all of the anticipated benefits from our acquisitions, including our acquisition of Klondex,” for developments at our Nevada Operations unit.

 

We may be unable to successfully integrate the operations of the properties we acquire.

 

Integration of the businesses or the properties we acquire with our existing business is a complex, time-consuming and costly process. Failure to successfully integrate the acquired properties and operations in a timely manner may have a material adverse effect on our business, financial condition, results of operations and cash flows. The difficulties of combining the acquired operations with our existing business include, among other things:

 

 

operating a larger organization;

 

 

operating in multiple legal jurisdictions;

 

 

coordinating geographically and linguistically disparate organizations, systems and facilities;

 

 

adapting to additional political, regulatory, legal and social requirements;

 

 

integrating corporate, technological and administrative functions; and

 

 

diverting management’s attention from other business concerns.

 

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The process of integrating operations could cause an interruption of, or a slowdown in, the activities of our business. Members of our senior management may be required to devote considerable amounts of time to this integration process, which will decrease the time they will have to manage other parts of our business. If our senior management is not able to effectively manage the integration process, or if any business activities are interrupted as a result of the integration process, our business could suffer.

 

The issues we have faced at our Nevada Operations unit could require us to write-down the associated long-lived assets. We could face similar issues at our other operations. Such write-downs may adversely affect our results of operations and financial condition.

 

We review our long-lived assets for recoverability pursuant to the Financial Accounting Standard Board’s Accounting Standards Codification Section 360. Under that standard, we review the recoverability of our long-lived assets, such as our mining properties, upon a triggering event. Such review involves comparing an asset’s carrying value to its fair value. When the carrying value of the asset exceeds its fair value (which is based on estimating the future undiscounted cash flows expected to result from the use and eventual disposition of the asset), an impairment must be recognized. We conduct a review of the financial performance of our mines in connection with the preparation of our financial statements for each reported period and determine whether any triggering events are indicated.

 

As disclosed in Note 4 of Notes to Consolidated Financial Statements, we determined that there were no triggering events to indicate the carrying value of our long-lived assets in Nevada or at our other operating, pre-development or exploration properties were not recoverable as of December 31, 2020. However, we determined that changes to our plans in Nevada during the second quarter of 2019 represented a triggering event requiring an assessment of recoverability of the carrying value of our long-lived assets in Nevada. Although we concluded the carrying value assessment indicated no impairment at our Nevada Operations unit, at that time, such analysis was, and any future analysis will be, based on estimates, judgments and assumptions which may turn out to be incorrect or inaccurate.

 

The estimates, judgments and assumptions we use in any fair value/impairment assessment of our long-lived assets relate to factors impacting the future cash flows estimated at any of our operations, including, but not limited to: (i) metals to be extracted and recovered from proven and probable ore reserves and, to some extent, identified mineralization beyond proven and probable reserves, (ii) future operating and capital costs, and (iii) future metals prices. These estimates, judgments and assumptions are made in good faith and using management's best judgments; however, there can be no assurance that any of them will prove to be accurate. Evaluation of the possibility of a future impairment loss, as well as the calculation of the amount of any impairment loss, involve significant estimates, judgment and assumptions, and no assurance can be given as to whether or not we will recognize an impairment loss in the future, or if the amount of loss would be within any estimated range we may disclose. As a result, in future periods we could face another triggering event which could lead to an impairment charge, and any such impairment charge could be material.

 

We may not realize all of the anticipated benefits from our acquisitions, including our acquisition of Klondex.

 

We may not realize all (or any) of the anticipated benefits from any acquisition, such as increased earnings, cost savings and revenue enhancements, for various reasons, including difficulties integrating operations and personnel, higher than expected acquisition and operating costs or other difficulties, unknown liabilities which may be significant, inaccurate reserve estimates, unrealized exploration potential, ore grades or mill recoveries that are lower than required for portions of the orebodies to be economic, and fluctuations in market prices.

 

At our Nevada Operations unit acquired via the Klondex acquisition in July 2018, total capital and production costs exceeded revenues in 2018 and the first half of 2019. As a result, in the second quarter of 2019 we conducted a review of those operations and ceased all development to access new production areas. Production at Fire Creek is expected to continue during the first half of 2021, and then be subsequently suspended as we continue studies of hydrology, mining and milling. See the risk factors above, “An extended decline in metals prices, an increase in operating or capital costs, mine accidents or closures, increasing regulatory obligations, or our inability to convert exploration potential to reserves may cause us to record write-downs, which could negatively impact our results of operations, and The issues we have faced at our Nevada Operations unit could require us to write-down the associated long-lived assets. We could face similar issues at our other operations. Such write-downs may adversely affect our results of operations and financial condition.

 

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The properties we may acquire may not produce as expected, and we may be unable to determine reserve potential, identify liabilities associated with the acquired properties or obtain protection from sellers against such liabilities.

 

The properties we acquire in any acquisition, including our Nevada Operations unit, may not produce as expected, may be in an unexpected condition and we may be subject to increased costs and liabilities, including environmental liabilities. Although we review properties prior to acquisition in a manner consistent with industry practices, such reviews are not capable of identifying all existing or potential adverse conditions. Generally, it is not feasible to review in depth every individual property involved in each acquisition. Even a detailed review of records and properties may not necessarily reveal existing or potential problems or permit a buyer to become sufficiently familiar with the properties to fully assess their condition, any deficiencies, and development potential. See the risk factors above, “We may not realize all of the anticipated benefits from our acquisitions, including our acquisition of Klondex, and An extended decline in metals prices, an increase in operating or capital costs, mine accidents or closures, increasing regulatory obligations, or our inability to convert exploration potential to reserves may cause us to record write-downs, which could negatively impact our results of operations.”

 

We face risks relating to transporting our products from our mines, as well as transporting employees and materials at Greens Creek.

 

Certain of the products we ship to our customers are subject to regulatory requirements regarding shipping, packaging, and handling of products that may be considered dangerous to human health or the environment. Although we believe we are currently in compliance with all material regulations applicable to shipping, packaging, and handling our products, the chemical properties of our products or existing regulations could change and cause us to fall out of compliance or force us to incur substantial additional expenditures to maintain compliance with applicable regulations. Further, we do not ship our own products but instead rely on third party carriers to ship our products to our customers. To the extent that any of our carriers are unable or unwilling to ship our products in accordance with applicable regulations, including because of difficulty in obtaining, or increased cost of, insurance, or are involved in accidents during transit, we could be forced to find alternative shipping arrangements, assuming such alternatives would be available, and we could face liability as a result of any accident. Any such changes to our current shipping arrangements or accidents involving the shipment of our products could have a material adverse impact on our operations and financial results.

 

In addition, Greens Creek operates on an island and is substantially dependent on various forms of marine transportation for the transportation of employees and materials to the mine and for the export of its products from the mine. Any disruption to these forms of marine transportation could adversely impact mine operations, and possible effects could include suspension of operations.

 

Legal, Regulatory and Compliance Risks

 

We face substantial governmental regulation, including the Mine Safety and Health Act, various environmental laws and regulations and the 1872 Mining Law.

 

Our business is subject to extensive U.S. and foreign federal, state, provincial and local laws and regulations governing environmental protection, natural resources, prospecting, development, production, post-closure reclamation, taxes, labor standards and occupational health and safety laws and regulations, including mine safety, toxic substances and other matters. The costs associated with compliance with such laws and regulations are substantial. Possible future laws and regulations, or more restrictive interpretations of current laws and regulations by governmental authorities, could cause additional expense, capital expenditures, restrictions on or suspensions of operations and delays in the development of new properties.

 

U.S. surface and underground mines like those at our Lucky Friday, Greens Creek and Nevada Operations units are continuously inspected by MSHA, which inspections often lead to notices of violation under the Mine Safety and Health Act. Any of our U.S. mines could be subject to a temporary or extended shutdown as a result of a violation alleged by MSHA.

 

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In addition, we have been and are currently involved in lawsuits or regulatory actions in which allegations have been made of our causing environmental damage, being responsible for environmental damage caused by others, violating environmental laws, or violating environmental permits, and we may be subject to similar lawsuits or actions in the future. Moreover, such environmental matters have involved both our current and historical operations as well as the historical operations of entities and properties we have acquired. See the risk factors below titled “Our operations are subject to complex, evolving and increasingly stringent environmental laws and regulations, Compliance with environmental regulations, and litigation based on such regulations, involves significant costs and can threaten existing operations or constrain expansion opportunities,” and “Our environmental and asset retirement obligations may exceed the provisions we have made.”

 

Some mining laws prevent mining companies that have been found to engage in bad conduct from obtaining future permits until remediation or restitution has occurred. If we are found to be responsible for any such conduct, our ability to operate existing projects or develop new projects might be impaired until we satisfy costly conditions.

 

We cannot assure you that we will at all times be in compliance with applicable laws, regulations and permitting requirements. Failure to comply with applicable laws, regulations and permitting requirements may result in lawsuits or regulatory actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, which may require corrective measures including capital expenditures, installation of additional equipment or remedial actions. Any one or more of these liabilities could have a material adverse impact on our financial condition.

 

In addition to existing regulatory requirements, legislation and regulations may be adopted, regulatory procedures modified, or permit limits reduced at any time, any of which could result in additional exposure to liability, operating expense, capital expenditures or restrictions and delays in the mining, production or development of our properties. Mining accidents and fatalities or toxic waste releases, whether or not at our mines or related to metals mining, may increase the likelihood of additional regulation or changes in law or enhanced regulatory scrutiny. In addition, enforcement or regulatory tools and methods available to regulatory bodies such as MSHA or the U.S. Environmental Protection Agency (“EPA”), which have not been or have infrequently been used against us or the mining industry, in the future could be used against us or the industry in general.

 

From time to time, the U.S. Congress considers proposed amendments to the 1872 Mining Law, which governs mining claims and related activities on federal lands. The extent of any future changes is not known and the potential impact on us as a result of U.S. Congressional action is difficult to predict. Changes to the 1872 Mining Law, if adopted, could adversely affect our ability to economically develop mineral reserves on federal lands.

 

Our operations are subject to complex, evolving and increasingly stringent environmental laws and regulations. Compliance with environmental regulations, and litigation based on such regulations, involves significant costs and can threaten existing operations or constrain expansion opportunities.

 

Our operations, both in the United States and internationally, are subject to extensive environmental laws and regulations governing wastewater discharges; remediation, restoration and reclamation of environmental contamination; the generation, storage, treatment, transportation and disposal of hazardous substances; solid waste disposal; air emissions; protection of endangered and protected species and designation of critical habitats; mine closures and reclamation; and other related matters. In addition, we must obtain regulatory permits and approvals to start, continue and expand operations. New or revised environmental regulatory requirements are frequently proposed, many of which result in substantially increased costs for our business. See the risk factor above, “We are required to obtain governmental permits and other approvals in order to conduct mining operations” and the risk factor below, “Mine closure and reclamation regulations impose substantial costs on our operations, and include requirements that we provide financial assurance supporting those obligations. These costs could significantly increase.”

 

Our U.S. operations are subject to the Clean Water Act, which requires permits for certain discharges into waters of the United States. Such permitting has been a frequent subject of litigation and enforcement activity by environmental advocacy groups and the EPA, respectively, which has resulted in declines in such permits or extensive delays in receiving them, as well as the imposition of penalties for permit violations. In 2015, the regulatory definition of “waters of the United States” that are protected by the Clean Water Act was expanded by the EPA, thereby imposing significant additional restrictions on waterway discharges and land uses. However, in 2018, implementation of the relevant rule was suspended for two years, and in December 2019 a revised definition that narrows the 2015 version was implemented. Even with the recently narrowed rule, it is possible that in the future the definition could again be expanded, or states could take action to address a perceived fall-off in protection under the Clean Water Act, either of which could increase litigation involving water discharge permits, which may result in delays in, or in some instances preclude, the commencement or continuation of development or production operations. Enforcement actions by the EPA or other federal or state agencies could also result. Adverse outcomes in lawsuits challenging permits or failure to comply with applicable regulations or permits could result in the suspension, denial, or revocation of required permits, or the imposition of penalties, any of which could have a material adverse impact on our cash flows, results of operations, or financial condition. See Note 8 of Notes to Consolidated Financial Statements.

 

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Some of the mining wastes from our U.S. mines currently are exempt to a limited extent from the extensive set of EPA regulations governing hazardous waste under the Resource Conservation and Recovery Act (“RCRA”). If the EPA were to repeal this exemption, and designate these mining wastes as hazardous under RCRA, we would be required to expend additional amounts on the handling of such wastes and to make significant expenditures to construct hazardous waste storage or disposal facilities. In addition, if any of these wastes or other substances we release or cause to be released into the environment cause or has caused contamination in or damage to the environment at a U.S. mining facility, that facility could be designated as a “Superfund” site under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”). Under CERCLA, any present owner or operator of a Superfund site or the owner or operator at the time of contamination may be held jointly and severally liable regardless of fault and may be forced to undertake extensive remedial cleanup action or to pay for the cleanup efforts. The owner or operator also may be liable to federal, state and tribal governmental entities for the cost of damages to natural resources, which could be substantial. Additional regulations or requirements also are imposed on our tailings and waste disposal areas in Alaska under the federal Clean Water Act. See Note 8 of Notes to Consolidated Financial Statements.

 

Legislative and regulatory measures to address climate change and greenhouse gas emissions are in various phases of consideration. If adopted, such measures could increase our cost of environmental compliance and also delay or otherwise negatively affect efforts to obtain permits and other regulatory approvals with regard to existing and new facilities. Proposed measures could also result in increased cost of fuel and other consumables used at our operations, including the diesel generation of electricity at our Greens Creek operation, used when we are unable to access hydroelectric power. Climate change legislation may also affect our smelter customers that burn fossil fuels, resulting in fewer customers or increased costs to us, and may affect the market for the metals we produce with effects on prices that are not possible for us to predict.

 

Adoption of these or similar new environmental regulations or more stringent application of existing regulations may materially increase our costs, threaten certain operating activities and constrain our expansion opportunities.

 

Some of our facilities are located in or near environmentally sensitive areas such as salmon fisheries, endangered species habitats, wilderness areas, national monuments and national forests, and we may incur additional costs to mitigate potential environmental harm in such areas.

 

In addition to evolving and expanding environmental regulations providing governmental authorities with the means to make claims against us, private parties have in the past and may in the future bring claims against us based upon damage to property and injury to persons resulting from the environmental, health and safety impacts of prior and current operations (including for exposure to or contamination by lead). Laws in the U.S. such as CERCLA and similar state laws may expose us to joint and several liability or claims for contribution made by the government (state or federal) or private parties. Moreover, exposure to these liabilities arises not only from our existing but also from closed operations, operations sold to third parties, or operations in which we had a leasehold, joint venture, or other interest. Because liability under CERCLA is often alleged on a joint and several basis against any property owner or operator or arranger for the transport of hazardous waste, and because we have been in operation since 1891, our exposure to environmental claims may be greater because of the bankruptcy or dissolution of other mining companies which may have engaged in more significant activities at a mining site than we but which are no longer available for governmental agencies or other claimants to make claims against or obtain judgments from. Similarly, there is also the potential for claims against us based on agreements entered into by certain affiliates and predecessor companies relating to the transfer of businesses or properties, which contained indemnification provisions relating to environmental matters. In each of the types of cases described in this paragraph, the government (federal or state) or private parties could seek to hold Hecla Limited or Hecla Mining Company liable for the actions of their subsidiaries or predecessors.

 

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The laws and regulations, changes in such laws and regulations, and lawsuits and enforcement actions described in this risk factor could lead to the imposition of substantial fines, remediation costs, penalties and other civil and criminal sanctions against us. Further, substantial costs and liabilities, including for restoring the environment after the closure of mines, are inherent in our operations. There is no assurance that any such law, regulation, enforcement or private claim, or reclamation activity, would not have a material adverse effect on our financial condition, results of operations or cash flows.

 

Mine closure and reclamation regulations impose substantial costs on our operations and include requirements that we provide financial assurance supporting those obligations. These costs could significantly increase and we might not be able to provide financial assurance.

 

We are required by U.S. federal and state laws and regulations and by laws and regulations in the foreign jurisdictions in which we operate to reclaim our mining properties. The specific requirements may change and vary among jurisdictions, but they are similar in that they aim to minimize long term effects of exploration and mining disturbance by requiring the control of possible deleterious effluents and re-establishment to some degree of pre-disturbance land forms and vegetation. In some cases, we are required to provide financial assurances as security for reclamation costs, which may exceed our estimates for such costs. Conversely, our reclamation costs may exceed the financial assurances in place and those assurances may ultimately be unavailable to us.

 

The EPA and other state, provincial or federal agencies may also require financial assurance for investigation and remediation actions that are required under settlements of enforcement actions under CERCLA or equivalent state regulations. Currently there are no financial assurance requirements for active mining operations under CERCLA, and a lawsuit filed by several environmental organizations which sought to require the EPA to adopt financial assurance rules for mining companies with active mining operations was dismissed by a federal court. In the future, financial assurance rules under CERCLA, if adopted, could be financially material and adverse to us. See the risk factors, “Our operations are subject to complex, evolving and increasingly stringent environmental laws and regulations. Compliance with environmental regulations, and litigation based on such regulations, involves significant costs and can threaten existing operations or constrain expansion opportunities” and “We are required to obtain governmental permits and other approvals in order to conduct mining operations."

 

We are required to obtain governmental permits and other approvals in order to conduct mining operations.

 

In the ordinary course of business, mining companies are required to seek governmental permits and other approvals for continuation or expansion of existing operations or for the commencement of new operations. Obtaining the necessary governmental permits is a complex, time-consuming and costly process. The duration and success of our efforts to obtain permits are contingent upon many variables not within our control. Obtaining environmental permits, including the approval of reclamation plans, may increase costs and cause delays or halt the continuation of mining operations depending on the nature of the activity to be permitted and the interpretation of applicable requirements established by the permitting authority. Interested parties, including governmental agencies and non-governmental organizations or civic groups, may seek to prevent issuance of permits and intervene in the process or pursue extensive appeal rights. Past or ongoing violations of laws or regulations involving obtaining or complying with permits could provide a basis to revoke existing permits, deny the issuance of additional permits, or commence a regulatory enforcement action, each of which could have a material adverse impact on our operations or financial condition. In addition, evolving reclamation or environmental concerns may threaten our ability to renew existing permits or obtain new permits in connection with future development, expansions and operations. We cannot assure you that all necessary approvals and permits will be obtained and, if obtained, that the costs involved will not exceed those that we previously estimated. It is possible that the costs and delays associated with the compliance with evolving standards and regulations could become such that we would not proceed with a particular development or operation.

 

Specific examples of where we face permitting risk include the following:

 

 

Continued extension of the planned life of mine at Greens Creek will require future expansion of the tailings storage facility. This will involve federal permitting under the National Environmental Policy Act (NEPA) and either an environmental assessment or environmental impact statement. While efforts are underway in Congress to streamline the federal permitting process, e.g. including mining under the FAST-41 regulatory process, our experience suggests this permitting process could be lengthy. Thus, we plan to initiate the permitting process in the near term even though tailings capacity at Greens Creek is estimated to remain sufficient for the next 10 years.

 

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At Casa Berardi, obtaining permits and modifications to the mine license area will be required to successfully develop the planned open pit extensions at the site and for long term management of tailings and waste rock generated through mining operations.

 

 

At San Sebastian, regulatory approvals and landowner consents are required to successfully develop new mineralization.

 

 

At Hollister in Nevada, state approvals will be required for waste rock management from development of the Hatter Graben or other mine expansions. This permitting will require coordination with the Western Shoshone who have long-standing ties to this land area.

 

See the risk factors above, “Certain of our mines and exploration properties are located on land that is or may become subject to traditional territory, title claims and/or claims of cultural significance by certain Indigenous Nations, and such claims and the attendant obligations of the federal government to those tribal communities and stakeholders may affect our current and future operations. and Legal challenges could prevent the Rock Creek or Montanore projects from ever being developed.”

 

We are often required to post surety bonds or cash collateral to secure our reclamation obligations and we may be unable to obtain the required surety bonds or may not have the resources to provide cash collateral, and the bonds or collateral may not fully cover the cost of reclamation and any such shortfall could have a material adverse impact on our financial condition. Further, when we use the services of a surety company to provide the required bond for reclamation, the surety companies often require us to post collateral with them, including letters of credit. Currently we utilize letters of credit issued under our revolving credit facility as the source of such collateral, and as a result, there are less funds available for us to borrow under the facility for other purposes. In the event that we are unable to obtain necessary bonds or to post sufficient collateral, we may experience a material adverse affect on our operations or financial results. See the risk factors below, “Our Senior Notes and the guarantees thereof are effectively subordinated to any of our and our guarantors secured indebtedness to the extent of the value of the collateral securing that indebtedness, Any downgrade in the credit ratings assigned to us or our debt securities could increase future borrowing costs, adversely affect the availability of new financing and may result in increased collateral requirements under our existing surety bond portfolio,” and “Mine closure and reclamation regulations impose substantial costs on our operations, and include requirements that we provide financial assurance supporting those obligations. These costs could significantly increase.”

 

We are currently involved in ongoing legal disputes that may materially adversely affect us.

 

There are several ongoing legal disputes in which we are involved, including putative class action and derivative lawsuits filed against us involving our Nevada Operations unit, and additional actions may be filed against us and our board and certain officers. We may be subject to future claims, including additional claims relating to our Nevada Operations unit. Further, we have experienced in the past, and could experience in the future, claims regarding environmental damage or compliance, safety conditions or other matters at our mines. The outcomes of these pending and potential claims are uncertain. We may not resolve these claims favorably. Depending on the outcome, these actions could cause adverse financial effects or reputational harm to us. If any of these disputes result in a substantial monetary judgment against us, are settled on terms unfavorable to us, or otherwise impact our operations (such as by limiting our ability to obtain permits or approvals), our financial results or condition could be materially adversely affected. For a description of some of the lawsuits and other claims in which we are involved, see Note 8 of Notes to Consolidated Financial Statements.

 

Our environmental and asset retirement obligations may exceed the provisions we have made.

We are subject to significant environmental obligations. At December 31, 2020, we had accrued $116.0 million as a provision for environmental and asset retirement obligations. We cannot assure you that we have accurately estimated these obligations, and in the future our accrual could materially change and we could voluntarily incur expenditures in excess of our accrual. Our environmental and asset retirement obligations and voluntary expenditures could have a material adverse impact on our cash flows, results of operations, or financial condition. For information on our potential environmental liabilities and asset retirement obligations, see Note 5 and Note 8 of Notes to Consolidated Financial Statements.

 

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New federal and state laws, regulations and initiatives could impact our operations.

 

In recent years there have been several proposed or implemented ballot initiatives that sought to directly or indirectly curtail or eliminate mining in certain states, including Alaska, where our Greens Creek mine operates, and Montana, where we are seeking to develop the Montanore and Rock Creek projects. While both a salmon initiative in Alaska and a water treatment initiative in Montana were defeated by voters in November 2018, in the future similar or other initiatives that could impact our operations may be on the ballot in these states or other jurisdictions (including local or international) in which we currently or may in the future operate. To the extent any such initiative was passed and became law, there could be a material adverse impact on our financial condition, results of operations or cash flows.

 

Legal challenges could prevent the Rock Creek or Montanore projects from ever being developed.

 

The proposed development of our Rock Creek project has been challenged by several regional and national conservation groups at various times since the U.S. Forest Service (“USFS”) issued its initial Record of Decision (“ROD”) in 2003 approving Revett Mining Company’s plan of operation (Revett is now our wholly-owned subsidiary, named Hecla Montana, Inc.). Some of these challenges have alleged violations of a variety of federal and state laws and regulations pertaining to water rights and permitting activities at Rock Creek, including the Endangered Species Act, NEPA, the 1872 Mining Law, the Federal Land Policy Management Act, the Wilderness Act, the National Forest Management Act, the Clean Water Act, the Clean Air Act, the Forest Service Organic Act of 1897, and the Administrative Procedure Act. As a result of litigation challenging the ROD, in May 2010, the USFS was directed by the Montana Federal District Court to produce a Supplemental Environmental Impact Statement (“SEIS”) to address NEPA procedural deficiencies that were identified by the court. The new SEIS was prepared and in August 2018, a new final ROD was issued. In early 2019, a group of environmental groups and other organizations filed a lawsuit challenging the ROD. We have updated and the USFS has partially approved its Plan of Operations to reflect the new final ROD. In April 2020, the Montana Department of Environmental Quality ("DEQ") approved modifications to the existing exploration license to match the ROD. We cannot predict how any future challenges will be resolved or if they will continue to delay the planned development at Rock Creek. Even if the ROD is successfully defended, we would still be required to comply with a number of requirements and conditions as Rock Creek development progresses, failing which could make us unable to continue with development activities.

 

A joint final Environmental Impact Statement with respect to our Montanore project was issued in December 2015 by the USFS and DEQ, and each agency issued a ROD in February 2016 providing approval for development of the Montanore project. However, private conservation groups have taken and may in the future take actions to oppose or delay the Montanore project. On May 30, 2017, the Montana Federal District Court issued Opinions and Orders in three lawsuits challenging previously granted environmental approvals for the Montanore project. The Orders overturned the approvals for the project granted by the USFS and the United States Fish and Wildlife Service, and in each case remanded the ROD and associated planning documents for further review by the agencies consistent with the Court’s Opinions. In June 2017, the Court vacated the agencies’ approvals for the project. As a result, additional work must be performed by the agencies to address the deficiencies in the ROD and associated planning documents identified by the Court, and new approvals must be granted, before the project may proceed beyond certain preliminary actions. The USFS has issued a draft SEIS for the evaluation phase for public comment. A final SEIS and ROD is expected later in 2021. In addition, Montanore’s updated water discharge permit under Montana law was found to be invalid by the Montana Supreme Court in November 2020. As a result, the site is operating under the previously issued permit as authorized by law.

 

In March 2018, each of Hecla Mining Company and our CEO was notified by the DEQ of alleged violations of Montana’s mine reclamation statutes and related regulations due to our CEO having been an officer of a mining company that declared bankruptcy in 1998, together with the fact that subsequently, proceeds from that company’s sureties were insufficient to fully fund reclamation at that company’s mine sites in Montana. To date, no action has been taken to revoke or deny any permits held by our subsidiaries, however, those subsidiaries have commenced litigation challenging the DEQ’s assertion. The DEQ in turn initiated litigation against Hecla Mining Company and our CEO in an effort to halt the development of the Montanore and Rock Creek projects. The lawsuit was dismissed in August 2020, but the plaintiffs are seeking a rehearing. It is possible that the litigation may be resolved unfavorably, which could have the effect of delaying, increasing the costs of, or preventing exploration and development efforts at the two projects.

 

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The titles to some of our properties may be defective or challenged.

 

Unpatented mining claims constitute a significant portion of our undeveloped property holdings in the United States. For our operations in Canada and Mexico, we hold mining claims, mineral concession titles and mining leases that are obtained and held in accordance with the laws of the respective countries, which provide Hecla the right to exploit and explore the properties. The validity of the claims, concessions and leases could be uncertain and may be contested. Although we have conducted title reviews of our property holdings, title review does not necessarily preclude third parties (including governments) from challenging our title. In accordance with mining industry practice, we do not generally obtain title opinions until we decide to develop a property. Therefore, while we have attempted to acquire satisfactory title to our undeveloped properties, some titles may be defective.

 

Risks Relating to Our Common Stock and Our Indebtedness

 

We may be unable to generate sufficient cash to service all of our debt and meet our other ongoing liquidity needs and may be forced to take other actions to satisfy our obligations, which may be unsuccessful.

 

Our ability to make scheduled payments or to refinance our debt obligations and to fund our planned capital expenditures and other ongoing liquidity needs depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. There can be no assurance that our business will generate sufficient cash flow from operations or that borrowings will be available to us to pay the principal, premium, if any, and interest on our debt or to fund our other liquidity needs. We may need to refinance all or a portion of our debt on or before maturity. We may be unable to refinance any of our debt on commercially reasonable terms or at all.

 

In addition, we conduct substantially all of our operations through our subsidiaries, certain of which are not guarantors of our debt. Accordingly, repayment of our debt is dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Unless they are guarantors of our debt, our subsidiaries do not have any obligation to pay amounts due on our debt or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our debt. Each subsidiary is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. While the credit agreement governing our revolving credit facility and the indenture governing our Senior Notes limit the ability of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to qualifications and exceptions. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our debt.

 

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures or to sell assets, seek additional capital or restructure or refinance our debt. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments and the indenture governing our Senior Notes may restrict us from adopting some of these alternatives. Further, these alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In addition, any failure to make payments of interest and principal on our outstanding debt on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional debt.

 

The price of our stock has a history of volatility and could decline in the future.

 

Shares of our common and outstanding preferred stock are listed on the New York Stock Exchange (“NYSE”). The market price for our stock has been volatile, often based on:

 

 

changes in metals prices, particularly silver and gold;

 

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our results of operations and financial condition as reflected in our public news releases or periodic filings with the SEC;

 

 

fluctuating proven and probable reserves;

 

 

factors unrelated to our financial performance or future prospects, such as global economic developments, market perceptions of the attractiveness of particular industries, or the reliability of metals markets;

 

 

market prices of our publicly traded debt;

 

 

political and regulatory risk;

 

 

the success of our exploration, pre-development, and capital programs;

 

 

ability to meet production estimates;

 

 

environmental, safety and legal risk;

 

 

the extent and nature of analytical coverage concerning our business; and

 

 

the trading volume and general market interest in our securities.

 

The market price of our stock at any given point in time may not accurately reflect our value, and may prevent stockholders from realizing a profit on, or recovering, their investment.

 

Our Series B preferred stock has a liquidation preference of $50 per share or $7.9 million.

 

If we were liquidated, holders of our preferred stock would be entitled to receive approximately $7.9 million (plus any accrued and unpaid dividends) from any liquidation proceeds before holders of our common stock would be entitled to receive any proceeds, but after holders of all notes issued under the indenture governing our Senior Notes received any proceeds.

 

We may not be able to pay common or preferred stock dividends in the future.

 

Since January 2010, we have paid all regular quarterly dividends on our Series B preferred stock. The annual dividend payable on the Series B preferred stock is currently $0.6 million. Prior to 2010, there were numerous occasions when we did not declare dividends on the Series B Preferred Stock, but instead deferred them. We cannot assure you that we will continue to pay preferred stock dividends in the future.

 

Our board of directors adopted a common stock dividend policy that has two components: (1) a dividend that links the amount of dividends on our common stock to our average quarterly realized silver price in the preceding quarter, and (2) a minimum annual dividend of $0.015 per share of common stock, in each case payable quarterly, when declared. See Note 10 of Notes to Consolidated Financial Statements for more information on our common stock dividend policy.

 

From the fourth quarter of 2011 through and including the fourth quarter of 2020, our board of directors has declared a common stock dividend under the policy described above (although in most cases only a minimum dividend was declared and none relating to the average realized price of silver due to the prices not meeting the policy threshold). The declaration and payment of common stock dividends, whether pursuant to the policy or in addition thereto, is at the sole discretion of our board of directors, and we cannot assure you that we will continue to declare and pay common stock dividends in the future. In addition, the indenture governing our Senior Notes limits our ability to pay dividends.

 

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Our existing stockholders are effectively subordinated to the holders of our Senior Notes.

 

In the event of our liquidation or dissolution, stockholders’ entitlement to share ratably in any distribution of our assets would be subordinated to the holders of our Senior Notes. Any rights that a stockholder may have in the event of bankruptcy, liquidation or a reorganization of us or any of our subsidiaries, and any consequent rights of stockholders to realize on the proceeds from the sale of any of our or our subsidiaries’ assets, will be effectively subordinated to the claims of the holders of our Senior Notes.

 

The issuance of additional shares of our preferred or common stock in the future could adversely affect holders of common stock.

 

The market price of our common stock may be influenced by any preferred or common stock we may issue. Our board of directors is authorized to issue additional classes or series of preferred stock without any action on the part of our stockholders. This includes the power to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights and preferences over common stock with respect to dividends or upon the liquidation, dissolution or winding up of the business and other terms. If we issue preferred stock in the future that has preference over our common stock with respect to the payment of dividends or upon liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of holders of the common stock or the market price of the common stock could be adversely affected.

 

The provisions in our certificate of incorporation, our by-laws and Delaware law could delay or deter tender offers or takeover attempts.

 

Certain provisions in our restated certificate of incorporation, our by-laws and Delaware law could make it more difficult for a third party to acquire control of us, even if that transaction could be beneficial to stockholders. These impediments include:

 

 

the classification of our board of directors into three classes serving staggered three-year terms, which makes it more difficult to quickly replace board members;

 

 

the ability of our board of directors to issue shares of preferred stock with rights as it deems appropriate without stockholder approval;

 

 

a provision that special meetings of our board of directors may be called only by our chief executive officer or a majority of our board of directors;

 

 

a provision that special meetings of stockholders may only be called pursuant to a resolution approved by a majority of our board of directors;

 

 

a prohibition against action by written consent of our stockholders;

 

 

a provision that our board members may only be removed for cause and by an affirmative vote of at least 80% of the outstanding voting stock;

 

 

a provision that our stockholders comply with advance-notice provisions to bring director nominations or other matters before meetings of our stockholders;

 

 

a prohibition against certain business combinations with an acquirer of 15% or more of our common stock for three years after such acquisition unless the stock acquisition or the business combination is approved by our board prior to the acquisition of the 15% interest, or after such acquisition our board and the holders of two-thirds of the other common stock approve the business combination; and

 

 

a prohibition against our entering into certain business combinations with interested stockholders without the affirmative vote of the holders of at least 80% of the voting power of the then outstanding shares of voting stock.

 

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In addition, amendment of most of the provisions described above requires approval of at least 80% of the outstanding voting stock.

 

Our Senior Notes and the guarantees thereof are effectively subordinated to any of our and our guarantors secured indebtedness to the extent of the value of the collateral securing that indebtedness.

 

Our Senior Notes and the guarantees thereof are not secured by any of our assets or the assets of our subsidiaries. The indenture governing the Senior Notes permits us to incur secured debt up to specified limits. As a result, the Senior Notes and the guarantees thereof are effectively subordinated to our and our subsidiary guarantors’ future secured indebtedness with respect to the collateral that secures such indebtedness, including any borrowings under our revolving credit facility. Upon a default in payment on, or the acceleration of, any of our secured indebtedness, or in the event of a bankruptcy, insolvency, liquidation, dissolution, reorganization or other insolvency proceeding involving us or such guarantor, the proceeds from the sale of collateral securing any secured indebtedness will be available to pay obligations on the Senior Notes only after such secured indebtedness has been paid in full. As a result, the holders of the Senior Notes may receive less, ratably, than the holders of secured debt in the event of a bankruptcy, insolvency, liquidation, dissolution, reorganization or other insolvency proceeding involving us or such guarantor.

 

Any draw-downs on our $250 million revolving credit facility would be secured debt. We did not have a balance drawn on the revolving credit facility as of December 31, 2020, but utilized $20.3 million of the facility with letters of credit. See the risk factor above “We are required to obtain governmental permits and other approvals in order to conduct mining operations” for more information.

 

The terms of our debt impose restrictions on our operations.

 

The indenture governing our Senior Notes includes several significant covenants. These covenants could adversely affect us by limiting our ability to plan for or react to market conditions or to meet our capital needs. These covenants, among other things:

 

 

make it more difficult for us to satisfy our obligations with respect to the Senior Notes and our other debt;

 

 

limit our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements, or require us to make divestitures;

 

 

require a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;

 

 

increase our vulnerability to general adverse economic and industry conditions;

 

 

limit our flexibility in planning for and reacting to changes in the industry in which we compete;

 

 

place us at a disadvantage compared to other, less leveraged competitors; and

 

 

increase our cost of borrowing additional funds.

 

These restrictions may affect our ability to grow in accordance with our strategy. Further, our financial results, our substantial indebtedness and our credit ratings could adversely affect the availability and terms of any financing.

 

In addition, our revolving credit facility requires us to comply with various covenants, including certain financial ratios, that restrict management’s discretion to operate our business in certain circumstances. For example, these restrictions include limitations that could affect our ability to incur additional indebtedness, place liens or mortgages on our assets, sell assets or release collateral. These restrictions could make it more difficult for us to obtain additional financing or take advantage of business opportunities. Furthermore, a breach of any of these covenants could result in an event of default under the agreement governing our revolving credit facility that, if not cured or waived, could give the holders of the defaulted debt the right to terminate commitments to lend and cause all amounts outstanding with respect to the debt to be due and payable immediately. Acceleration of any of our debt could result in cross-defaults under our other debt instruments, including the indenture governing our Senior Notes, as well as certain forward sales contracts which may be outstanding from time to time. Our assets and cash flow may be insufficient to repay borrowings fully under all of our outstanding debt instruments if any of our debt instruments are accelerated upon an event of default, which could force us into bankruptcy or liquidation. In such an event, we may be unable to repay our debt obligations. In addition, in some instances, this would create an event of default under the indenture governing our Senior Notes.

 

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Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly.

 

Borrowings under our credit facility are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease. Assuming all revolving loans currently available to us were fully drawn, each one percentage point change in interest rates would result in a $2.3 million change in annual cash interest expense on our credit facility.

 

Key terms of the Senior Notes will be suspended if the Senior Notes achieve investment grade ratings and no default or event of default has occurred and is continuing.

 

Many of the covenants in the indenture governing the Senior Notes will be suspended if the Senior Notes are rated investment grade by Standard & Poor’s and Moody’s provided at such time no default or event of default has occurred and is continuing, including those covenants that restrict, among other things, our ability to pay dividends, incur debt and to enter into certain other transactions. We cannot assure you that the Senior Notes will ever be rated investment grade. However, suspension of these covenants would allow us to engage in certain transactions that would not be permitted while these covenants were in force, and the effects of any such transactions will be permitted to remain in place even if the Senior Notes are subsequently downgraded below investment grade.

 

We may be unable to repurchase Senior Notes in the event of a change of control as required by the indenture.

 

Upon the occurrence of certain kinds of change of control events specified in the indenture, holders of the Senior Notes will have the right to require us to repurchase all of the Senior Notes at a repurchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of repurchase. Any change of control also would constitute a default under our revolving credit facility. Therefore, upon the occurrence of a change of control, the lenders under our revolving credit facility would have the right to accelerate their loans and, if so accelerated, we would be required to repay all of our outstanding obligations under such facility. We may not be able to pay the Senior Note holders the required price for their notes at that time because we may not have available funds to pay the repurchase price. In addition, the terms of other existing or future debt may prevent us from paying the Senior Note holders. We cannot assure you that we would be able to repay such other debt or obtain consents from the holders of such other debt to repurchase the Senior Notes. Any requirement to offer to purchase any outstanding Senior Notes may result in us having to refinance our outstanding indebtedness, which we may not be able to do. In addition, even if we were able to refinance our outstanding indebtedness, such financing may be on terms unfavorable to us.

 

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Holders of the Senior Notes may not be able to determine when a change of control giving rise to their right to have the Senior Notes repurchased has occurred following a sale of substantially all of our assets.

 

The definition of change of control in the indenture governing the Senior Notes includes a phrase relating to the sale of “all or substantially all” of our assets. There is no precise established definition of the phrase “substantially all” under applicable law. Accordingly, the ability of a holder of Senior Notes to require us to repurchase its notes as a result of a sale of less than all our assets to another person may be uncertain.

 

Federal and state fraudulent transfer laws may permit a court to void the Senior Notes or any of the guarantees thereof, and if that occurs, holders of the Senior Notes may not receive any payments on the notes.

 

Federal and state fraudulent transfer and conveyance statutes may apply to the issuance of the Senior Notes and the incurrence of any guarantees of the Senior Notes. Under federal bankruptcy law and comparable provisions of state fraudulent transfer or conveyance laws, which may vary from state to state, the Senior Notes or any guarantees thereof could be voided as a fraudulent transfer or conveyance if we or any existing or future subsidiary guarantors, as applicable, (a) issued the Senior Notes or incurred such guarantee with the intent of hindering, delaying or defrauding creditors or (b) received less than reasonably equivalent value or fair consideration in return for either issuing the Senior Notes or incurring the guarantee and, in the case of (b) only, one of the following is also true at the time thereof:

 

 

we or the subsidiary guarantor, as applicable, were insolvent or rendered insolvent by reason of the issuance of the Senior Notes or the incurrence of the guarantee;

 

 

the issuance of the Senior Notes or the incurrence of the guarantee left us or the subsidiary guarantor, as applicable, with an unreasonably small amount of capital or assets to carry on the business; or

 

 

we or the subsidiary guarantor intended to, or believed that we or such subsidiary guarantor would, incur debts beyond our or such subsidiary guarantor’s ability to pay as they mature.

 

As a general matter, value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or a valid antecedent debt is satisfied. A court would likely find that any subsidiary guarantor did not receive reasonably equivalent value or fair consideration for its guarantee to the extent such subsidiary guarantor did not obtain a reasonably equivalent benefit from the issuance of the Senior Notes.

 

We cannot be certain as to the standards a court would use to determine whether or not we or any subsidiary guarantor was insolvent at the relevant time or, regardless of the standard that a court uses, whether the Senior Notes or any guarantees would be subordinated to our or any subsidiary guarantor’s other debt. In general, however, a court would deem an entity insolvent if:

 

 

the sum of its debts, including contingent and unliquidated liabilities, was greater than the fair saleable value of all of its assets;

 

 

the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

 

 

it could not pay its debts as they became due.

 

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The subsidiary guarantees contain a “savings clause” intended to limit the subsidiary guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its subsidiary guarantee to be a fraudulent transfer. This provision may not be effective to protect any subsidiary guarantees from being avoided under fraudulent transfer law. Furthermore, in Official Committee of Unsecured Creditors of TOUSA, Inc. v Citicorp North America, Inc., the U.S. Bankruptcy Court in the Southern District of Florida held that a savings clause similar to the savings clause used in the indenture was unenforceable. As a result, the subsidiary guarantees in that case were found to be fraudulent conveyances. The United States Court of Appeals for the Eleventh Circuit affirmed the liability findings of the Bankruptcy Court without ruling directly on the enforceability of savings clauses generally. If the TOUSA decision were followed by other courts, the risk that the guarantees would be deemed fraudulent conveyances would be significantly increased.

 

To the extent that any subsidiary guarantee is avoided, then, as to that subsidiary, the guaranty would not be enforceable.

 

If a court were to find that the issuance of the Senior Notes or the incurrence of any guarantee was a fraudulent transfer or conveyance, the court could (1) void the payment obligations under the Senior Notes or such guarantee, (2) subordinate the Senior Notes or such guarantee to presently existing and future indebtedness of ours or of the related subsidiary guarantor or (3) require the holders of the Senior Notes to repay any amounts received with respect to such guarantee. In the event of a finding that a fraudulent transfer or conveyance occurred, holders of the Senior Notes may not receive any repayment on the Senior Notes. Further, the avoidance of the Senior Notes could result in an event of default with respect to our and our subsidiaries’ other debt that could result in acceleration of that debt.

 

General Risk Factors

 

Global financial events or developments impacting major industrial or developing countries may have an impact on our business and financial condition in ways that we currently cannot predict.

 

The 2020 pandemic and 2008 credit crisis and related turmoil in the global financial system and ensuing recession had an impact on our business and financial position, and similar events in the future could also impact us. The re-emergence of a financial crisis or recession or reduced economic activity in the United States, China, India and other industrialized or developing countries, or disruption of key sectors of the economy such as oil and gas, may have a significant effect on our results of operations or limit our ability to raise capital through credit and equity markets. The prices of the metals that we produce are affected by a number of factors, and it is unknown how these factors may be impacted by a global financial event or developments impacting major industrial or developing countries.

 

Tariffs, other potential changes to tariff and import/export regulations, and ongoing trade disputes between the United States and other jurisdictions may have a negative effect on global economic conditions and our business, financial results and financial condition.

 

In 2018, the United States imposed and enacted tariffs on certain items. Since their enactment, there have been ongoing discussions and activities regarding changes to other U.S. trade policies and treaties. In response, a number of markets, including China, into which we have in the past and may in the future sell our products, have implemented tariffs on U.S. imports, or are threatening to impose tariffs on U.S. imports or to take other measures in response to these U.S. actions. These developments may have a material adverse effect on global economic conditions and the stability of global financial markets, and they may significantly reduce global trade and, in particular, trade between China and the United States. Any of these factors could depress economic activity, restrict our access to customers and have a material adverse effect on our business, financial condition and results of operations. In addition, any actions by foreign markets to implement further trade policy changes, including limiting foreign investment or trade, increasing regulatory scrutiny or taking other actions which impact U.S. companies’ ability to obtain necessary licenses or approvals could negatively impact our business.

 

In September 2018, in response to tariffs on Chinese goods implemented by the United States, China imposed a 10% tariff on lead concentrates and a 20% tariff on silver concentrates, which we produce and ship to China and from time to time. However, tariff exemptions were granted to a number of smelters in China in 2020, and we sold silver concentrates to China representing approximately 10% of our total revenues for the year which were not subject to tariffs due to the exemptions. We sold no lead or silver concentrates to China in 2019. While to date the direct impact of tariffs has been immaterial on our sales and treatment charges, they may also have an impact on our sales and treatment charges outside of China, and there can be no assurance that the tariff exemptions will continue.

 

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These tariffs are relatively recent and are subject to a number of uncertainties as they are implemented, including future adjustments and changes in the countries excluded from such tariffs. The ultimate reaction of other countries, and businesses in those countries, and the impact of these tariffs or other actions on the United States, China, the global economy and our business, financial condition and results of operations, cannot be predicted at this time, nor can we predict the impact of any other developments with respect to global trade.

 

Our profitability could be affected by the prices of other commodities.

 

Our profitability is sensitive to the costs of commodities such as fuel (in particular as used at Greens Creek to generate electricity when hydropower is unavailable), steel, and cement. While the recent prices for such commodities have been stable or in decline, prices have been historically volatile, and material increases in commodity costs could have a significant effect on our results of operations.

 

Our business depends on availability of skilled miners and good relations with employees.

 

We are dependent upon the ability and experience of our executive officers, managers, employees, contractors and their employees, and other personnel, and we cannot assure you that we will be able to retain such employees or contractors. We compete with other companies both in and outside the mining industry in recruiting and retaining qualified employees and contractors knowledgeable about the mining business. From time to time, we have encountered, and may in the future encounter, difficulty recruiting skilled mining personnel at acceptable wage and benefit levels in a competitive labor market, and may be required to utilize contractors, which can be more costly. Temporary or extended lay-offs due to mine closures may exacerbate such issues and result in vacancies or the need to hire less skilled or efficient employees or contractors. The loss of skilled employees or contractors or our inability to attract and retain additional highly skilled employees and contractors could have an adverse effect on our business and future operations.

 

We or our contractors may experience labor disputes, work stoppages or other disruptions in production that could adversely affect our business and results of operations. The Lucky Friday mine is our only operation where some of our employees are subject to a collective bargaining agreement, and the unionized employees were on strike from March 13, 2017 until January 7, 2020, when the union ratified a new collective bargaining agreement. The strike significantly impacted production at the Lucky Friday and caused significant costs and expenses during each year of the strike. Any future strikes or other labor or related disruptions could adversely affect our financial condition and results of operations.

 

Our information technology systems may be vulnerable to disruption which could place our systems at risk from data loss, operational failure, or compromise of confidential information.

 

We rely on various information technology systems and on third party developers and contractors in connection with operations, including production, equipment operation and financial support systems. While we regularly monitor the security of our systems, they remain vulnerable to disruption, damage or failure from a variety of sources, including errors by employees or contractors, computer viruses, cyber-attacks including phishing, ransomware and similar malware, misappropriation of data by outside parties, and various other threats. Techniques used to obtain unauthorized access to or sabotage our systems are under continuous and rapid evolution, and we may be unable to detect efforts to disrupt our data and systems in advance. Breaches and unauthorized access carry the potential to cause losses of assets or production, operational delays, equipment failure that could cause other risks to be realized, inaccurate recordkeeping, or disclosure of confidential information, any of which could result in financial losses and regulatory or legal exposure, and could have a material adverse effect on our cash flows, financial condition or results of operations.

 

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Competition from other mining companies may harm our business.

 

We compete with other mining companies, some of which have greater financial resources than we do or other advantages, in various areas which include:

 

 

attracting and retaining key executives, skilled labor, and other employees;

 

 

for the services of other skilled personnel and contractors and their specialized equipment, components and supplies, such as drill rigs, necessary for exploration and development;

 

 

for contractors that perform mining and other activities and milling facilities which we lease or toll mill through; and

 

 

for rights to mine properties.

 

Additional issuances of equity securities by us would dilute the ownership of our existing stockholders and could reduce our earnings per share.

 

We may issue securities in the future in connection with raising capital, acquisitions, strategic transactions or for other purposes. To the extent we issue any additional equity securities (or securities convertible into equity), the ownership of our existing stockholders would be diluted and our earnings per share could be reduced.

 

If a large number of shares of our common stock are sold in the public market, the sales could reduce the trading price of our common stock and impede our ability to raise future capital.

 

We cannot predict what effect, if any, future issuances by us of our common stock or other equity will have on the market price of our common stock. Any shares that we may issue may not have any resale restrictions, and therefore could be immediately sold by the holders. The market price of our common stock could decline if certain large holders of our common stock, or recipients of our common stock, sell all or a significant portion of their shares of common stock or are perceived by the market as intending to sell these shares other than in an orderly manner. In addition, these sales could also impair our ability to raise capital through the sale of additional common stock in the capital markets.

 

Any downgrade in the credit ratings assigned to us or our debt securities could increase future borrowing costs, adversely affect the availability of new financing and may result in increased collateral requirements under our existing surety bond portfolio.

 

As of February 18, 2021, our Senior Notes were rated “B” with a stable outlook by Standard & Poor’s and “Caa1” with a stable outlook by Moody’s Investors Service. We cannot assure you that any rating currently assigned by Standard & Poor’s or Moody’s to us or our debt securities (including the Senior Notes) will remain unchanged for any given period of time or that a rating will not be lowered if, in that rating agency’s judgment, future circumstances relating to the basis of the rating so warrant. If we are unable to maintain our outstanding debt and financial ratios at levels acceptable to the credit rating agencies, or should our business prospects or financial results deteriorate, including as a result of declines in silver and gold prices or other factors beyond our control, our ratings could be downgraded by the rating agencies. Downgrading the credit rating of our debt securities or placing us on a watch list for possible future downgrading would likely adversely impact us, including our ability to obtain financing on favorable terms, if at all, increase borrowing costs, result in increased collateral requirements under our surety bond portfolio, and have an adverse effect on the market price of our securities, including our Senior Notes.

 

 

Item 1B. Unresolved Staff Comments

 

None.

 

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Item 2. Properties

 

OPERATING PROPERTIES

 

The Greens Creek Unit

 

Various of our subsidiaries collectively own 100% of the Greens Creek mine, located on Admiralty Island near Juneau in southeast Alaska. Admiralty Island is accessed by boat, float plane, or helicopter. On the island, the mine site and various surface facilities are accessed by 13 miles of all-weather gravel roads. The Greens Creek mine has been in production since 1989, with a temporary care and maintenance period from April 1993 through July 1996.  Since the start of production, Greens Creek has been owned and operated through various joint venture arrangements.  For approximately 15 years prior to April 16, 2008, our wholly-owned subsidiary, Hecla Alaska LLC, owned an undivided 29.7% joint venture interest in the assets of Greens Creek.  On April 16, 2008, we completed the acquisition of all of the equity of two Rio Tinto subsidiaries holding a combined 70.3% joint venture interest in the Greens Creek mine, and which previously operated the mine, for approximately $758.5 million.  The acquisition of these two joint venture participants gave us control of 100% of the joint venture that owns and operates the Greens Creek mine.

 

The Greens Creek orebody contains silver, zinc, gold and lead, and lies within the Admiralty Island National Monument, an environmentally sensitive area. The Greens Creek property includes 440 unpatented lode mining claims, 58 unpatented millsite claims, 17 patented lode claims and one patented millsite. In addition, the Greens Creek site includes properties under lease from the U.S. Forest Service ("USFS") for a road right-of-way, mine waste area and tailings storage facility. The USFS leases have varying expiration terms. Greens Creek also has title to mineral rights on 7,301 acres of federal land acquired through a land exchange with the USFS.  We are currently exploring, but not mining, on such federal land.  The claims and leases above comprise a total area of approximately 24 square miles.

 

The project consists of the mine, an ore concentrating mill, a tailings storage area, a ship-loading facility, camp facilities, a ferry dock, and other related infrastructure.  The map below illustrates the location and access to Greens Creek:

 

hl20201231_10kimg002.gif

 

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The Greens Creek deposit is a polymetallic, stratiform, massive sulfide deposit. The host rock consists of predominantly marine sedimentary, and mafic to ultramafic volcanic and plutonic rocks, which have been subjected to multiple periods of deformation. These deformational episodes have imposed intense tectonic fabrics on the rocks. Mineralization occurs most often along the contact between a structural hanging wall of quartz mica carbonate phyllites and a structural footwall of graphitic and calcareous argillite. Major sulfide minerals are pyrite, sphalerite, galena, and tetrahedrite/tennanite.

 

Pursuant to a 1996 land exchange agreement, the joint venture owning Greens Creek transferred private property equal to a value of $1.0 million to the USFS and received exploration and mining rights to approximately 7,300 acres of land with mining potential surrounding the existing mine. Any production from new ore discoveries on the exchanged lands will be subject to a federal royalty included in the land exchange agreement. The royalty is only due on any production from reserves that are not part of Greens Creek’s extralateral rights. Thus far, there has been no production triggering payment of the royalty. The royalty is 3% if the average value of the ore during a year is greater than approximately $161 per ton at December 31, 2020.

 

Greens Creek is an underground mine accessed by a ramp from surface which produces approximately 2,300 tons of ore per day. The primary mining methods are cut and fill and longhole stoping. The Greens Creek ore processing facility includes a SAG/ball mill grinding circuit to grind the run of mine ore to liberate the minerals and produce a slurry suitable for differential flotation of mineral concentrates.  A gravity circuit recovers free gold that exists as electrum, a gold/silver alloy in the ore.  Gravity concentrates are produced from this circuit prior to flotation. Three flotation concentrates are produced: a lead concentrate which contains most of the silver recovered; a zinc concentrate which is low in precious metals content; and a zinc-rich bulk concentrate that contains gold, silver, zinc, and lead and must be marketed to a smelter utilizing an Imperial Smelting Furnace (ISF) which can simultaneously produce both zinc and lead.  Doré is produced from the gravity concentrate by a third-party processor and further refined and sold to precious metal traders. The concentrate products are sold to a number of smelters and traders worldwide.  See Note 12 of Notes to Consolidated Financial Statements for information on the significant customers for Greens Creek’s products. Concentrates are shipped from the Hawk Inlet marine terminal about nine miles from the mill.

 

In 2020, ore was processed at an average rate of approximately 2,236 tons per day and total mill recovery was approximately 82% for silver, 92% for zinc, 83% for lead and 73% for gold.  The processing facility was originally constructed in 1988, with the first production commencing in 1989. Various modifications and upgrades have been made since that time.  Changes to the flotation circuit have included:  installation of regrind mills in 1992; mill recommissioning in 1996; expansion of concentrate cleaning equipment in 2000 and 2001; addition of a swing cell option in 2004, allowing for a reduction in bulk concentrate production; addition of an on-stream analyzer in 2006; expansion of lead rougher equipment in 2007; retrofit of two column sparge systems in 2010 and 2011; replacement of the carbon flotation columns complete with sparger upgrades in 2012 and 2013; installation of a replacement on-stream analyzer with an additional multiplexer in 2013 and 2014; and replacement of the sulfuric acid system with a carbon dioxide system for pH control in 2015. Significant changes to the grinding circuit since original construction have included a new motor, two stage screening, and various internal lining modifications for the SAG mill, and replacement of the primary cyclones and the addition of a trommel magnet in the ball mill. In 2017, the swing cells were replaced with Woodgrove staged flotation reactor cells.

 

Electricity for the Greens Creek unit is provided through the purchase of surplus hydroelectric power from Alaska Electric Light and Power Company (“AEL&P”), to the extent it is available after the power needs of Juneau and the surrounding area are met. When weather conditions are not favorable to maintain lake water levels sufficient to meet all of the power needs at Greens Creek by available hydroelectric power, the mine relies on power provided by on-site diesel generators, which can supply the full electrical load of the operation.

 

The employees at Greens Creek are employees of Hecla Greens Creek Mining Company, our wholly-owned subsidiary, and are not represented by a bargaining agent. There were 443 employees at the Greens Creek unit at December 31, 2020.

 

Definition drilling during 2020, which was limited because the pandemic reduced drilling contractor access, focused on upgrading mineralized material at the 200 South, East Ore, Southwest, 9a, and Upper Plate zones. After applying economic analysis to these drilling results, we believe this mineralized material will likely be converted to reserves in the future, primarily in the East Ore, 200 South, Upper Plate, and 9a zones. Underground exploration activities at Greens Creek in 2020 identified mineralization along trend of the 200 South Zone, confirming mineralization is consistent along the upper trend for 350 feet between previously drilled areas, and mineralization occurs along the lower trend in line with, and 200 feet south of, previous drilling.

 

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Planned activities to potentially add reserves in 2021 include additional drilling of the East Ore, West, 9A, Upper Plate, Southwest, Northwest West, 200 South, 5250, and Gallagher zones. Underground exploration targets in 2021 are expected to include the 200 South, Gallagher, and East Ore zones while surface exploration will test the Lil’Sore Trend and 5250 Zone target areas in the district. Development continues to advance two exploration drifts to the south, which we believe will enable definition and drilling of targets in the deepest areas of the 200 South Zone.

 

As of December 31, 2020, we have recorded a $42.7 million asset retirement obligation for reclamation and closure costs. We maintained a $92.2 million reclamation and long-term water treatment bond for Greens Creek as of December 31, 2020.  The net book value of the Greens Creek unit property and its associated plant, equipment and mineral interests was approximately $569.3 million as of December 31, 2020.

 

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The current mine plan at Greens Creek utilizes estimates of reserves and mineralized material for approximately 11 years of production. Information with respect to production, cost of sales and other direct production costs and depreciation, depletion and amortization, average Cash Cost, After By-product Credits, Per Silver Ounce, All-In Sustaining Costs ("AISC"), After By-product Credits, Per Silver Ounce, and proven and probable ore reserves for the past three years is set forth in the following table.

 

   

Years Ended December 31,

 

Production

 

2020

   

2019

   

2018

 

Ore milled (tons)

    818,408       846,076       845,398  

Silver (ounces)

    10,494,726       9,890,125       7,953,003  

Gold (ounces)

    48,491       56,625       51,493  

Zinc (tons)

    56,814       56,805       55,350  

Lead (tons)

    21,400       20,112       18,960  
                         

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

  $ 217,125     $ 211,719     $ 190,066  

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

  $ 5.49     $ 1.97     $ (1.13 )

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

  $ 8.57     $ 5.99     $ 5.58  
                         

Proven Ore Reserves(2,3,4,5,6,7)

                       

Total tons

    3,200       7,200       6,200  

Silver (ounces per ton)

    21.8       14.8       13.8  

Gold (ounces per ton)

    0.10       0.08       0.10  

Zinc (percent)

    7.8       5.4       7.0  

Lead (percent)

    3.7       2.6       2.8  

Contained silver (ounces)

    70,100       106,200       85,800  

Contained gold (ounces)

    300       600       600  

Contained zinc (tons)

    250       390       440  

Contained lead (tons)

    120       180       180  
                         

Probable Ore Reserves(2,3,4,5,6,7)

                       

Total tons

    8,975,100       10,713,400       9,269,500  

Silver (ounces per ton)

    12.4       12.2       11.5  

Gold (ounces per ton)

    0.09       0.09       0.09  

Zinc (percent)

    7.3       7.3       7.6  

Lead (percent)

    2.8       2.8       2.8  

Contained silver (ounces)

    111,333,300       130,791,300       106,972,000  

Contained gold (ounces)

    827,300       931,600       839,500  

Contained zinc (tons)

    652,170       778,020       706,040  

Contained lead (tons)

    254,840       305,010       262,760  
                         

Total Proven and Probable Ore Reserves(2,3,4,5,6,7)

                       

Total tons

    8,978,300       10,720,600       9,275,700  

Silver (ounces per ton)

    12.4       12.2       11.5  

Gold (ounces per ton)

    0.09       0.09       0.09  

Zinc (percent)

    7.3       7.3       7.6  

Lead (percent)

    2.8       2.8       2.8  

Contained silver (ounces)

    111,403,400       130,897,500       107,057,800  

Contained gold (ounces)

    827,600       932,200       840,100  

Contained zinc (tons)

    652,420       778,410       706,480  

Contained lead (tons)

    254,960       305,190       262,940  

 

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(1)

Includes by-product credits from gold, lead and zinc production. Cash Cost, After By-product Credits, Per Silver Ounce and AISC, After By-product Credits, Per Silver Ounce represent non-GAAP measurements that management uses to monitor and evaluate the performance of our mining operations. We believe these measurements provide indicators of economic performance and efficiency at each location and on a consolidated basis, as well as providing a meaningful basis to compare our results to those of other mining companies and other operating mining properties. A reconciliation of cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, to these non-GAAP measures can be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, under Reconciliation of Costs 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 term “reserve” means that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. The term “economically,” as used in the definition of reserve, means that profitable extraction or production has been established or analytically demonstrated to be viable and justifiable under reasonable investment and market assumptions. The term “legally,” as used in the definition of reserve, does not imply that all permits needed for mining and processing have been obtained or that other legal issues have been completely resolved. However, for a reserve to exist, we must have a justifiable expectation, based on applicable laws and regulations, that issuance of permits or resolution of legal issues necessary for mining and processing at a particular deposit will be accomplished in the ordinary course and in a time frame consistent with our current mine plans.

 

(3)

Proven and probable ore reserves are calculated and reviewed in-house and are subject to periodic audit by others, although audits are not performed on an annual basis. Cutoff grade assumptions vary by ore body and are developed based on reserve metals price assumptions, anticipated mill recoveries and smelter payables, and cash operating costs.  Due to multiple ore metals, and complex combinations of ore types, metal ratios and metallurgical performances at Greens Creek, the cutoff grade is expressed in terms of net smelter return (“NSR”), rather than metal grade.  The cutoff grade at Greens Creek is $205 per ton NSR for all zones except Gallagher and additional small headings, which have cutoff grades of $210 and $240, respectively, per ton NSR.  Our estimates of proven and probable reserves are based on the following metals prices:

 

   

December 31,

 
   

2020

   

2019

   

2018

 

Silver (per ounce)

  $ 16.00     $ 14.50     $ 14.50  

Gold (per ounce)

  $ 1,300     $ 1,300     $ 1,200  

Lead (per pound)

  $ 0.90     $ 0.90     $ 0.90  

Zinc (per pound)

  $ 1.15     $ 1.15     $ 1.15  

 

(4)

Reserves are in-place materials that incorporate estimates of the amount of waste that must be mined along with the ore and expected mining recovery. The 2020 reserve model assumes average total mill recoveries of 82% for silver, 72% for gold, 92% for zinc and 84% for lead.

 

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(5)

The change in reserves in 2020 versus 2019 was due to continued depletion of the deposit through production and limitations on drilling activities due to COVID-19. The change in reserves in 2019 versus 2018 was due to data from new drill holes, new density measurements, new resource modeling techniques and various design changes made to reduce dilution, partially offset by continued depletion of the deposit through production. 

 

(6)

Probable reserves at the Greens Creek unit are based on average drill spacing of 50 to 100 feet. Proven reserves typically require that mining samples are partly the basis of the ore grade estimates used, while probable reserve grade estimates can be based entirely on drilling results.  The proven reserves reported for Greens Creek for 2020 represent stockpiled ore.

 

(7)

Greens Creek reserve estimates were prepared by Paul Jensen, Chief Geologist, Joshua Pritts, Resource Geologist, and Kyle Mehalek, Chief Mine Engineer, at the Greens Creek unit and reviewed by Keith Blair, Chief Geologist, and Kurt Allen, Director of Exploration, at Hecla Limited.

 

The Lucky Friday Unit

 

Since 1958, we have owned and operated the Lucky Friday mine, a deep underground silver, lead and zinc mine located in the Coeur d’Alene Mining District in northern Idaho. Lucky Friday is one-quarter mile east of Mullan, Idaho, and is adjacent to U.S. Interstate 90. The mine site and various surface facilities are accessed by paved roads from U.S. Interstate 90. 

 

The Lucky Friday mine is comprised of 710 acres of patented mining claims and fee lands and 535 acres of unpatented mining claims.  We also own or control approximately 26 square miles of mineral interests, which include patented mining and millsite claims, fee lands, and unpatented mining claims, that are adjacent to the Lucky Friday mine property.  On November 6, 2008, we, through the Silver Hunter Mining Company (“Silver Hunter”), completed the acquisition of substantially all the assets of Independence Lead Mines Company, which held an interest in the Gold Hunter property. The acquisition included all future interests or royalty obligations to Independence and the mining claims pertaining to the operating agreement with Hecla Limited that was assigned to Silver Hunter.  Below is a map illustrating the location and access to the Lucky Friday unit:

 

hl20201231_10kimg003.jpg

 

43

 

There have been two ore-bearing structures mined at the Lucky Friday unit. The first, mined through 2001, was the Lucky Friday Vein, a fissure vein typical of many in the Coeur d’Alene Mining District. The ore body is located in the Revett Formation, which is known to provide excellent host rocks for a number of ore bodies in the Coeur d’Alene Mining District. The Lucky Friday Vein strikes northeasterly and dips steeply to the south with an average width of six to seven feet. Its principal ore minerals are galena and tetrahedrite with minor amounts of sphalerite and chalcopyrite. The ore occurs as a single continuous ore body in and along the Lucky Friday Vein. The major part of the ore body has extended from 1,200 feet to 6,020 feet below surface.

 

The second ore-bearing structure is known as the Lucky Friday Expansion Area, or Gold Hunter. It is located about 5000 feet northwest of the Lucky Friday workings and was discovered by Hecla in 1991.  It was put into production pursuant to an operating agreement with Silver Hunter, our wholly owned subsidiary.  High grade silver mineralization occurs in steeply dipping veins hosted in a 200-foot thick siliceous lens within the Wallace Formation that transitions to the St. Regis Formation at about 5,900 feet below surface. We currently are mining at approximately 6,300 feet below surface. The veins are sub-parallel and strike west-northwest with a dip of 85 degrees to the south.  The strike length of the mineralized package is approximately 2,150 feet.  The 30 Vein, which contains higher silver grades, is the primary producer and represents approximately 57% of our current proven and probable ore reserve tonnages, while the remaining 43% of our reserves are contained in various intermediate veins having lower silver grades than 30 Vein. The width of 30 Vein ranges from approximately 0.5 feet to 15.4 feet, with an average width of approximately 7.4 feet.

 

Access to the mining horizons from the surface is by shaft access.  Once underground, trackless drifts and ramps are utilized to reach the mining areas.  An internal, hoisting shaft was completed in 2017 to extend access at depth in the Gold Hunter area.  The principal mining methods in use at the Lucky Friday unit consist of underhand systems with integral paste fill and varying degrees of mechanization.  The most prevalent system in use in 2020 was underhand cut and fill. This method utilizes rubber-tired equipment to access the veins through ramps developed outside of the ore body. Once a cut is taken along the strike of the vein, it is backfilled with cemented tailings and the next cut is accessed below from the ramp system.  In 2020, we began testing a new underhand method that has the potential for increased mechanization.  It is akin to longhole stoping but is conducted over shorter vertical intervals and without an undercut.  Work has been underway since 2017 to develop a fully mechanized underhand method which would utilize a remote vein miner for mechanical excavation. Fabrication of the remote vein miner was completed in 2019.  Testing and modification of the machine at the manufacturer's facilities proceeded in 2020 but has been delayed by COVID-19.  Delivery to Lucky Friday is expected in 2021.

 

Ore at the Lucky Friday unit is processed using a conventional lead/zinc flotation flowsheet.  Run of mine ore is crushed in a conventional three stage crushing plant consisting of a primary jaw crusher, followed by secondary and tertiary cone crushing circuits.  Crushed ore is ground in a ball mill, and the ground slurry reports to the lead flotation circuit.  The lead circuit tailings report to the zinc flotation circuit.  Lead and zinc concentrates are thickened and filtered, and concentrate products are shipped to smelters for final processing.  The original flotation mill was constructed in 1960 and had a capacity of 750 tons per day. Various modifications and upgrades have been made since that time, and the plant capacity currently is estimated at 1,000 tons per day. Total mill recovery was approximately 96% for silver, 95% for lead and 91% for zinc during 2020. All lead and zinc concentrate sales during 2020 were shipped to Teck Resources Limited's smelter in Trail, British Columbia, Canada.

 

Avista Corporation supplies electrical power to the Lucky Friday unit.

 

At December 31, 2020, there were 327 employees at Lucky Friday. The United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial, and Service Workers International Union is the bargaining agent for Lucky Friday’s 241 hourly employees as of December 31, 2020. The current labor agreement expires on January 6, 2023. Re-staffing of the mine and ramp-up activities, following a strike that started in March 2017 and ended in early January 2020, have been substantially completed, with a return to full production starting in the fourth quarter of 2020.

 

The net book value of the Lucky Friday unit property and its associated plant, equipment and mineral interests was approximately $495.6 million as of December 31, 2020. The vintage of the facilities at Lucky Friday ranges from the 1950s to 2020.    

 

The current mine plan at Lucky Friday utilizes estimates of reserves and mineralized material for approximately 17 years of production.

 

There was no exploration at Lucky Friday in 2020, and no exploration activities are planned in 2021.

 

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Information with respect to the Lucky Friday unit’s production, cost of sales and other direct production costs and depreciation, depletion and amortization, average Cash Cost, After By-product Credits, Per Silver Ounce, AISC, After By-product Credits, Per Silver Ounce, and proven and probable ore reserves for the past three years is set forth in the table below.

 

   

Years Ended December 31,

 

Production

 

2020

   

2019

   

2018

 

Ore milled (tons)

    179,208       57,091       17,309  

Silver (ounces)

    2,031,874       632,944       169,041  

Lead (tons)

    12,727       4,098       1,131  

Zinc (tons)

    6,298       2,052       673  
                         

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

  $ 56,706     $ 16,621     $ 9,750  

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

  $ 9.34     $     $  

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

  $ 18.22     $     $  
                         

Proven Ore Reserves(2,3,4,5,6)

                       

Total tons

    4,392,500       4,184,700       4,230,200  

Silver (ounces per ton)

    14.2       15.4       15.4  

Lead (percent)

    8.8       9.6       9.6  

Zinc (percent)

    4.1       4.1       4.1  

Contained silver (ounces)

    62,290,100       64,505,700       65,234,100  

Contained lead (tons)

    386,210       401,020       406,080  

Contained zinc (tons)

    180,060       172,880       174,630  
                         

Probable Ore Reserves(2,3,4,5,6)

                       

Total tons

    1,371,900       1,386,300       1,386,600  

Silver (ounces per ton)

    10.7       11.4       11.4  

Lead (percent)

    7.2       7.6       7.6  

Zinc (percent)

    3.9       3.7       3.7  

Contained silver (ounces)

    14,701,600       15,815,400       15,815,300  

Contained lead (tons)

    99,170       104,720       104,720  

Contained zinc (tons)

    53,190       50,640       50,640  
                         

Total Proven and Probable Ore Reserves(2,3,4,5,6)

                       

Total tons

    5,764,400       5,571,000       5,616,800  

Silver (ounces per ton)

    13.4       14.4       14.4  

Lead (percent)

    8.4       9.1       9.1  

Zinc (percent)

    4.0       4.0       4.0  

Contained silver (ounces)

    76,991,700       80,321,100       81,049,400  

Contained lead (tons)

    485,380       505,740       510,800  

Contained zinc (tons)

    233,250       223,520       225,270  

 

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(1)

Includes by-product credits from lead and zinc production. Cash Cost, After By-product Credits, Per Silver Ounce and AISC, After By-product Credits, Per Silver Ounce, represent non-GAAP measurements that management uses to monitor and evaluate the performance of our mining operations. We believe these measurements provide indicators of economic performance and efficiency at each location and on a consolidated basis, as well as providing a meaningful basis to compare our results to those of other mining companies and other operating mining properties. Costs of Sales and Other Direct Production Costs and Depreciation, Depletion and Amortization is presented for the full year of 2020. However, Cash Cost, After By-product Credits and AISC, After By-product Credits only reflect results for the fourth quarter of 2020, as production was ramped-up during the first three quarters of 2020 following the end of the strike. A reconciliation of cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, to these non-GAAP measures can be found in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations, under Reconciliation of Costs 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 term “reserve” means that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. The term “economically,” as used in the definition of reserve, means that profitable extraction or production has been established or analytically demonstrated to be viable and justifiable under reasonable investment and market assumptions. The term “legally,” as used in the definition of reserve, does not imply that all permits needed for mining and processing have been obtained or that other legal issues have been completely resolved. However, for a reserve to exist, we must have a justifiable expectation, based on applicable laws and regulations, that issuance of permits or resolution of legal issues necessary for mining and processing at a particular deposit will be accomplished in the ordinary course and in a time frame consistent with our current mine plans.

 

(3)

Proven and probable ore reserves are calculated and reviewed in-house and are subject to periodic audit by others, although audits are not performed on an annual basis. Cutoff grade assumptions vary by ore body and are developed based on reserve metals price assumptions, anticipated mill recoveries and smelter payables, and cash operating costs. Due to multiple ore metals, and complex combinations of ore types, metal ratios and metallurgical performances at Lucky Friday, the cutoff grade is expressed in terms of net smelter return (“NSR”), rather than metal grade.  The cutoff grade at Lucky Friday ranges from $216 per ton NSR to $231 per ton NSR.  Our estimates of proven and probable reserves are based on the following metals prices:

 

   

December 31,

 
   

2020

   

2019

   

2018

 

Silver (per ounce)

  $ 16.00     $ 14.50     $ 14.50  

Lead (per pound)

  $ 0.90     $ 0.90     $ 0.90  

Zinc (per pound)

  $ 1.15     $ 1.15     $ 1.15  

 

(4)

Reserves are in-place materials that incorporate estimates of the amount of waste that must be mined along with the ore and expected mining recovery. The 2020 reserve model assumes average total mill recoveries of 96% for silver, 94% for lead and 92% for zinc.

 

(5)

The change in reserves in 2020 from 2019 was due to inclusion of definition drilling information, partially offset by depletion of the deposit through production. The change in reserve in 2019 from 2018 was because of depletion of the deposit through production.

 

(6)

Lucky Friday reserve estimates were prepared by Ben Chambers, Mine Geologist and Wes Johnson, Technical Services Manager, at the Lucky Friday unit. The estimates were reviewed by Joshua Pritts, Resource Geologist, Keith Blair, Chief Geologist, and Kurt Allen, Director of Exploration, at Hecla Limited.

 

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The Casa Berardi Unit

 

In 2013, as a result of our acquisition of Aurizon, we acquired the Casa Berardi operation, located 95 kilometers north of La Sarre in the Abitibi Region of northwestern Quebec, Canada. The property borders Ontario to the west and covers parts of Casa Berardi, Dieppe, Raymond, D'Estrees, and Puiseaux townships. The project area extends east-west for more than 37 kilometers and reaches 3.5 kilometers north-south. The Casa Berardi mine gold deposits are located along a 5 kilometer east-west mineralized corridor.

 

Aurizon acquired the claims, leases and infrastructure comprising the Casa Berardi mine project in 1998 from TVX Gold Inc. Aurizon engaged in exploration programs beginning in 1998, and production began in late 2006.

 

The nearest commercial airport to the Casa Berardi mine is located at Rouyn-Noranda. La Sarre can be reached from Rouyn-Noranda via provincial roads 101 and 111. A 38 kilometer all-season gravel road accesses the mine from the paved Route des Conquérants road, which runs north from its intersection with road 393 north of La Sarre and passes through the village of Villebois. The mine access road intersection is approximately 21 kilometers north of Villebois. A gravel road links the East Mine and the West Mine (which roughly represent the east-west boundaries of the mining lease), and a number of forestry roads provide access to the rest of the project area, from east and west.

 

Hecla Quebec Inc., Hecla’s wholly owned subsidiary, owns a 100% interest in the mineral titles and mining leases comprising the current Casa Berardi operations. It is composed of 69 contiguous claims, covering 3,148.3 hectares (7,779.6 acres) and two mining leases covering 481.4 hectares (1,189.7 acres).  The total area of the Casa Berardi property is 3,629.75 hectares (8,969.3 acres or approximately 14 square miles), and all the claims and leases are in good standing. We own an additional approximately 45 square miles of exploration property located adjacent to the current Casa Berardi operations and comprised of approximately 230 claims, most of which are subject to a 1% NSR royalty in favor of Lake Shore Gold Corp.

 

Under the Quebec Mining Act, claims are required to be renewed every two years. Statutorily prescribed minimum work commitments apply to all claims and leases. As of December 31, 2020, the claims and leases comprising part of the Casa Berardi mine have excess work credits of CAD$17.1 million. Claims and leases for our other projects in Quebec have excess work credits of CAD$29.5 million as of December 31, 2020. We also hold a non-exclusive lease for a sand and gravel pit, a tailings lease, and an additional 12 acres of land contiguous to a mining lease for rock waste material storage.

 

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The mine and mill complex are permitted to process 1,600,000 dry metric tonnes (approximately 1,764,000 tons) of ore per year (4,900 tons per day). The mining operations consist of underground and open pit mines. The surface infrastructures include a cyanidation processing mill (carbon-in-leach), tailings impoundment areas, and other support facilities and infrastructure. The map below illustrates the location and access to Casa Berardi:

 

hl20201231_10kimg004.jpg

 

 

Prior to Aurizon’s ownership, the Casa Berardi underground mine operated from 1988 to 1997, producing approximately 3.9 million tons of ore at an average gold grade of 0.2 ounces per ton from the West Mine and the East Mine.

 

Casa Berardi can be classified as an Archean sedimentary-hosted orogenic gold deposit. Mineralization is found in large low-sulphide quartz veins developed against the Casa Berardi fault, and in disseminated sulfides and stockworks lenses associated with strongly carbonate-sericite altered ductile deformation zones obliquely oriented to the Casa Berardi fault, and extending a few hundred meters on both sides of the fault following northwest and northeast orientations. Gold mineralization emplacement was coeval with the fault`s evolution and shows a strong structural control and vertical extension, even if other factors such as the nature of some host rocks and lithological contacts seem to have favored gold deposition. The mineralization system is composed of large, low-sulfide quartz veins and low-grade stockworks and carbonate-mica replacement zones forming in the West Mine and Principal area.

 

Current reserves at the Casa Berardi mine comprise eight zones at the West Mine, spread over a moderate horizontal distance from each other and located at different mine elevations, plus open pit and underground areas at the East Mine.

 

The ore at Casa Berardi is extracted using a combination of underground and open pit mining methods. The underground mines at Casa Berardi are trackless and are accessed by a combination of ramps and a production shaft. The mining method is longhole stoping using a combination of traverse and longitudinal orientations depending upon the widths of the zone. The combined ore production rate from the underground zones is in the range of 2,000 to 2,200 tons per day.

 

Open pit mining is used to extract near surface mineralization, both above the existing underground mining horizons and in areas without economic underground resources. At present, one open pit mine is in production and another is being developed. Three additional pits are anticipated. The combined ore production rate from the open pit zones is highly variable depending on the mining sequence and ore release rates. Open pit ore is fed to the plant roughly in equal proportion to the underground ore and any surplus is stockpiled.

 

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The mill utilizes a combination of gravity recovery for coarse gold and cyanidation for fine gold. The ore is crushed and ground to produce a slurry suitable for the subsequent recovery processes. Crushing and grinding is accomplished by a jaw crusher followed by a SAG mill and ball mill. Coarse gold reports to the gravity circuit consisting of Knelson concentrators followed by high intensity leaching and electrowinning. Fine gold reports to the cyanide leach train. Due to the presence of naturally occurring organic carbon in the ore, the Carbon-In-Leach ("CIL") approach is used in cyanidation circuit. Gold is adsorbed onto carbon in the leach train and later desorbed for electrowinning. Sludge from the electrowinning cells is melted in a furnace to produce doré, the final product produced at Casa Berardi. In 2020, the mill processed 1,283,701 tons, for an average of 3,699 tons per day.

 

Power supply to the site is provided by a 55 kilometer, 120kV power line from the Hydro-Québec transformation station located in the town of Normétal.

 

The employees at Casa Berardi are employees of Hecla Quebec Inc., our wholly-owned subsidiary, and are not represented by a bargaining agent. There were 646 employees at the Casa Berardi unit at December 31, 2020. We also utilize third-party contractors, which use their employees and equipment, for some of the mining activities at Casa Berardi.

 

The current mine plan at Casa Berardi utilizes estimates of reserves and mineralized material for approximately 13 years of production, and includes anticipated production from the underground and open pit mine areas.

 

In-stope and definition underground drilling during 2020 concentrated within the 113, 118, 119, 123, 128, 148, and 152 zones to refine orebody shapes and gold grade distributions for mine planning and reserves. Underground exploration drilling of the 113, 118, 123, and 128 zones in the West Mine focused on expanding mineralization down-plunge and testing extensions to the west and to the east of each zone. Drilling of the 148 and 152 zones in the East Mine tested extensions of the previously identified high grade mineralization down plunge. Surface definition and exploration drilling continues to define limits for the 160 Pit and expands the 159 zone to the east which is open for expansion.

 

The currently contemplated underground in-stope and definition drilling programs for 2021 are expected to appraise the high-grade ore shoots of the 113, 118, 124, 123, 128, and 134 zones in the western part of the mine and high-grade extensions of the 146 and 148 zones in the East Mine. Surface definition drilling planned for 2021 is expected to focus on the 160 and WMCP zones. Exploration drilling from underground is currently expected to evaluate extensions of the 113, 118 and 128 zones in the western part of the mine and the 148, 152, and 157 zones in the East Mine, while surface drilling is expected to evaluate the high-grade potential of the western extension of the WMCP mineralized lenses at depth and to the west and the eastern extensions of the 160 and 159 zone lenses at depth and to the east.

 

Hecla acquired Aurizon on June 1, 2013 for approximately CAD$740.8 million (US$714.5 million), and has operated the Casa Berardi mine since the acquisition. The net book value of the Casa Berardi unit property and its associated plant, equipment and mineral interests was approximately $635.8 million as of December 31, 2020. As of December 31, 2020, we have recorded an $11.7 million asset retirement obligation for reclamation and closure costs. We maintain a surety bond as financial guarantee for future reclamation and closure work.

 

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Information with respect to the Casa Berardi unit’s production, cost of sales and other direct production costs and depreciation, depletion and amortization, average Cash Cost, After By-product Credits, Per Gold Ounce, AISC, After By-product Credits, Per Gold Ounce, and proven and probable ore reserves for the past three years is set forth in the table below.

   

Year Ended December 31,

 

Production

 

2020

   

2019

   

2018

 

Ore milled (tons)

    1,283,701       1,378,065       1,375,718  

Gold (ounces)

    121,492       134,409       162,744  

Silver (ounces)

    24,142       31,540       38,086  
                         

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

  $ 203,434     $ 217,682     $ 199,402  

Cash Cost, After By-product Credits, Per Gold Ounce (1)

  $ 1,131     $ 1,051     $ 800  

AISC, After By-product Credits, Per Gold Ounce (1)

  $ 1,436     $ 1,354     $ 1,080  
                         

Proven Ore Reserves(2,3,4,5,6)

                       

Total tons

    5,474,900       6,847,000       6,789,700  

Gold (ounces per ton)

    0.10       0.09       0.08  

Contained gold (ounces)

    567,400       603,500       563,400  
                         

Probable Ore Reserves(2,3,4,5,6)

                       

Total tons

    11,295,600       13,780,400       16,953,500  

Gold (ounces per ton)

    0.09       0.08       0.08  

Contained gold (ounces)

    974,600       1,114,300       1,343,300  
                         

Total Proven and Probable Ore Reserves(2,3,4,5,6)

                       

Total tons

    16,770,500       20,627,400       23,743,200  

Gold (ounces per ton)

    0.09       0.08       0.08  

Contained gold (ounces)

    1,542,000       1,717,800       1,906,700  

 

(1)

Includes by-product credits from silver production. Cash Cost, After By-product Credits, Per Gold Ounce and AISC, After By-product Credits, Per Gold Ounce represent non-GAAP measurements that management uses to monitor and evaluate the performance of our mining operations. We believe these measurements provide indicators of economic performance and efficiency at each location and on a consolidated basis, as well as providing a meaningful basis to compare our results to those of other mining companies and other operating mining properties. A reconciliation of cost of sales and other direct production costs and depreciation, depletion and amortization, the most comparable GAAP measure, to these non-GAAP measures can be found in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations, under 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 term “reserve” means that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. The term “economically,” as used in the definition of reserve, means that profitable extraction or production has been established or analytically demonstrated to be viable and justifiable under reasonable investment and market assumptions. The term “legally,” as used in the definition of reserve, does not imply that all permits needed for mining and processing have been obtained or that other legal issues have been completely resolved. However, for a reserve to exist, we must have a justifiable expectation, based on applicable laws and regulations, that issuance of permits or resolution of legal issues necessary for mining and processing at a particular deposit will be accomplished in the ordinary course and in a time frame consistent with our current mine plans.

 

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(3)