UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file
number 1-8491
(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 Mineral Drive, Suite 200 Coeur d’Alene, Idaho |
83815-9408 | |
Address of Principal Executive Offices |
Zip Code | |
208-769-4100
Registrant’s Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
Common Stock, par value $0.25 per share |
HL |
New York Stock Exchange | ||
Series B Cumulative Convertible Preferred Stock, par value $0.25 per share |
HL-PB |
New York Stock Exchange | ||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2
of the Exchange Act. | Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☐ | Smaller reporting company | ☐ | |||
| Emerging growth company | ☐ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act). Yes ☐ No ☒ Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
Shares Outstanding November 4, 2022 | |
Common stock, par value $0.25 per share |
606,270,618 |
Hecla Mining Company and Subsidiaries
Form 10 – Q
For the Quarter Ended September 30, 2022
INDEX
* | Page | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| 7 | ||||
| 9 | ||||
| 23 | ||||
| 60 | ||||
| 61 | ||||
| 61 | ||||
| 61 | ||||
| 62 | ||||
| 62 | ||||
| 64 | ||||
| * | Items 2, 3 and 5 of Part II are omitted as they are not applicable. |
2
Hecla Mining Company and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited)
(Dollars and shares in thousands, except for
per-share
amounts) | Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2022 |
September 30, 2021 |
September 30, 2022 |
September 30, 2021 |
|||||||||||||
| Sales |
$ | 146,339 | $ | 193,560 | $ | 524,080 | $ | 622,395 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Cost of sales and other direct production costs |
104,900 | 112,542 | 326,579 | 318,917 | ||||||||||||
| Depreciation, depletion and amortization |
32,992 | 45,790 | 106,362 | 138,918 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total cost of sales |
137,892 | 158,332 | 432,941 | 457,835 | ||||||||||||
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|
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|
|
|
|||||||||
| Gross profit |
8,447 | 35,228 | 91,139 | 164,560 | ||||||||||||
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|
|||||||||
| Other operating expenses: |
||||||||||||||||
| General and administrative |
11,003 | 8,874 | 28,989 | 27,985 | ||||||||||||
| Exploration and pre-development |
15,128 | 17,108 | 39,136 | 35,039 | ||||||||||||
| Care and maintenance costs |
5,092 | 6,910 | 16,539 | 17,014 | ||||||||||||
| Provision for closed operations and environmental matters |
1,781 | 7,564 | 4,154 | 12,297 | ||||||||||||
| Other operating expense |
902 | 3,344 | 5,310 | 10,626 | ||||||||||||
| |
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|
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|
|
|
|||||||||
| Total other operating expenses |
33,906 | 43,800 | 94,128 | 102,961 | ||||||||||||
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|
|
|
|||||||||
| (Loss) income from operations |
(25,459 | ) | (8,572 | ) | (2,989 | ) | 61,599 | |||||||||
| |
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|
|
|
|
|
|||||||||
| Other income (expense): |
||||||||||||||||
| Interest expense |
(10,874 | ) | (10,469 | ) | (31,785 | ) | (31,484 | ) | ||||||||
| Fair value adjustments, net |
(4,240 | ) | 9,287 | (14,703 | ) | (10,651 | ) | |||||||||
| Net foreign exchange gain |
5,667 | 3,995 | 8,111 | 24 | ||||||||||||
| Other income (expense) |
1,853 | 247 | 4,828 | (192 | ) | |||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total other (expense) income |
(7,594 | ) | 3,060 | (33,549 | ) | (42,303 | ) | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| (Loss) income before income and mining taxes |
(33,053 | ) | (5,512 | ) | (36,538 | ) | 19,296 | |||||||||
| Income and mining tax benefit |
9,527 | 4,533 | 3,642 | 3,924 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net (loss) income |
(23,526 | ) | (979 | ) | (32,896 | ) | 23,220 | |||||||||
| Preferred stock dividends |
(138 | ) | (138 | ) | (414 | ) | (414 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| (Loss) income applicable to common stockholders |
$ | (23,664 | ) | $ | (1,117 | ) | $ | (33,310 | ) | $ | 22,806 | |||||
| |
|
|
|
|
|
|
|
|||||||||
| Comprehensive income (loss): |
||||||||||||||||
| Net (loss) income |
$ | (23,526 | ) | $ | (979 | ) | $ | (32,896 | ) | $ | 23,220 | |||||
| Change in fair value of derivative contracts designated as hedge transactions |
(12,692 | ) | (6,267 | ) | 19,491 | (2,815 | ) | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Comprehensive (loss) income |
$ | (36,218 | ) | $ | (7,246 | ) | $ | (13,405 | ) | $ | 20,405 | |||||
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|
|||||||||
| Basic (loss) income per common share after preferred dividends |
$ | (0.04 | ) | $ | — | $ | (0.06 | ) | $ | 0.04 | ||||||
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|
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| Diluted (loss) income per common share after preferred dividends |
$ | (0.04 | ) | $ | — | $ | (0.06 | ) | $ | 0.04 | ||||||
| |
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|||||||||
| Weighted average number of common shares outstanding – basic |
554,531 | 536,966 | 544,000 | 535,542 | ||||||||||||
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| Weighted average number of common shares outstanding – diluted |
554,531 | 536,966 | 544,000 | 541,769 | ||||||||||||
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| Cash dividends declared per common share |
$ | 0.00625 | $ | 0.01 | $ | 0.0125 | $ | 0.02 | ||||||||
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The accompanying notes are an integral part of the interim condensed consolidated financial statements.
4
Hecla Mining Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
| Nine Months Ended | ||||||||
| September 30, 2022 |
September 30, 2021 |
|||||||
| Operating activities: |
||||||||
| Net (loss) income |
$ | (32,896 | ) | $ | 23,220 | |||
| Non-cash elements included in net (loss) income: |
||||||||
| Depreciation, depletion and amortization |
106,743 | 139,800 | ||||||
| Write-down of inventory |
2,159 | 6,524 | ||||||
| Fair value adjustments, net |
3,486 | (7,978 | ) | |||||
| Provision for reclamation and closure costs |
4,789 | 7,821 | ||||||
| Stock compensation |
4,298 | 4,774 | ||||||
| Deferred income taxes |
(17,828 | ) | (17,886 | ) | ||||
| Foreign exchange (gain) loss |
(8,353 | ) | 615 | |||||
| Other non-cash items, net |
2,454 | 1,167 | ||||||
| Change in assets and liabilities: |
||||||||
| Accounts receivable |
34,788 | (3,798 | ) | |||||
| Inventories |
(19,472 | ) | 22,372 | |||||
| Other current and non-current assets |
(3,420 | ) | 1,650 | |||||
| Accounts payable, accrued and other current liabilities |
(21,708 | ) | (14,689 | ) | ||||
| Accrued payroll and related benefits |
1,679 | (1,829 | ) | |||||
| Accrued taxes |
(2,652 | ) | 2,730 | |||||
| Accrued reclamation and closure costs and other non-current liabilities |
(297 | ) | 2,489 | |||||
| |
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|
|||||
| Cash provided by operating activities |
53,770 | 166,982 | ||||||
| Investing activities: |
||||||||
| Additions to properties, plants, equipment and mineral interests |
(93,237 | ) | (80,210 | ) | ||||
| Change in restricted cash |
2,011 | — | ||||||
| Proceeds from sale of investments |
9,375 | 1,811 | ||||||
| Proceeds from disposition of properties, plants and equipment |
748 | 562 | ||||||
| Purchases of investments |
(30,540 | ) | — | |||||
| Acquisitions, net |
8,952 | — | ||||||
| Pre-acquisition advance to Alexco |
(25,000 | ) | — | |||||
| Purchase of carbon credits |
— | (200 | ) | |||||
| |
|
|
|
|||||
| Net cash used in investing activities |
(127,691 | ) | (78,037 | ) | ||||
| Financing activities: |
||||||||
| Proceeds from sale of common stock, net |
4,542 | — | ||||||
| Acquisition of treasury stock |
(3,677 | ) | (4,525 | ) | ||||
| Dividends paid to common and preferred stockholders |
(10,549 | ) | (17,169 | ) | ||||
| Credit facility fees paid |
(517 | ) | (108 | ) | ||||
| Draw on revolving credit facility |
25,000 | — |
||||||
| Repayments of finance leases |
(5,222 | ) | (5,598 | ) | ||||
| |
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|
|||||
| Net cash provided by (used in) financing activities |
9,577 | (27,400 | ) | |||||
| Effect of exchange rates on cash |
(804 | ) | (471 | ) | ||||
| Net (decrease) increase in cash, cash equivalents and restricted cash |
(65,148 | ) | 61,074 | |||||
| Cash, cash equivalents and restricted cash at beginning of period |
211,063 | 130,883 | ||||||
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| Cash, cash equivalents and restricted cash at end of period |
$ | 145,915 | $ | 191,957 | ||||
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| Supplemental disclosure of cash flow information: |
||||||||
| Cash paid for interest |
$ | 37,179 | $ | 37,173 | ||||
| Cash paid for income and mining taxes, net |
$ | 13,061 | $ | 10,299 | ||||
| Significant non-cash investing and financing activities: |
||||||||
| Addition of finance lease obligations and right-of-use |
$ | 9,692 | $ | 4,006 | ||||
| Common stock issued to Alexco Resource Corp. shareholders |
$ | 68,733 | $ | — | ||||
| Common stock issued to settle acquired silver stream |
$ | 135,000 | $ | — | ||||
| Common stock issued to pension plans |
$ | 5,570 | $ | 22,250 | ||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
5
Hecla Mining Company and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except shares)
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
6
Hecla Mining Company and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(Dollars are in thousands, except for share and per share amounts)
Three Months Ended September 30, 2022 |
||||||||||||||||||||||||||||
Series B Preferred Stock |
Common Stock |
Capital Surplus |
Accumulated Deficit |
Accumulated Other Comprehensive Income (Loss), net |
Treasury Stock |
Total |
||||||||||||||||||||||
| Balances, July 1, 2022 |
$ | 39 | $ | 137,241 | $ | 2,043,621 | $ | (370,048 | ) | $ | 3,727 | $ | (31,698 | ) | $ | 1,782,882 | ||||||||||||
| Net loss |
— | — | — | (23,526 | ) | — | — | (23,526 | ) | |||||||||||||||||||
| Common stock issued to Alexco Resource Corp. shareholders (17,992,875 shares) |
— | 4,498 | 64,235 | — | — | — | 68,733 | |||||||||||||||||||||
| Common stock issued to settle the acquired silver stream (34,800,990 shares) |
— | 8,700 | 126,300 | — | — | — | 135,000 | |||||||||||||||||||||
| Common stock issued for 401(k) match (422,860 shares) |
— | 106 | 1,472 | — | — | — | 1,578 | |||||||||||||||||||||
| Common stock issued under ATM program, net (1,176,861 shares) |
— | 294 | 4,248 | — | — | — | 4,542 | |||||||||||||||||||||
| Common stock dividends declared (0.0625 cents per common share) |
— | — | — | (3,384 | ) | — | — | (3,384 | ) | |||||||||||||||||||
| Series B Preferred Stock dividends declared (87.5 cents per share) |
— | — | — | (138 | ) | — | — | (138 | ) | |||||||||||||||||||
| Restricted stock units granted |
— | — | 1,773 | — | — | — | 1,773 | |||||||||||||||||||||
| Other comprehensive loss |
— | — | — | — | (12,692 | ) | — | (12,692 | ) | |||||||||||||||||||
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| Balances, September 30, 2022 |
$ | 39 | $ | 150,839 | $ | 2,241,649 | $ | (397,096 | ) | $ | (8,965 | ) | $ | (31,698 | ) | $ | 1,954,768 | |||||||||||
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| Three Months Ended September 3 0 , 2021 |
||||||||||||||||||||||||||||
| Series B Preferred Stock |
Common Stock |
Capital Surplus |
Accumulated Deficit |
Accumulated Other Comprehensive Income (Loss), net |
Treasury Stock |
Total | ||||||||||||||||||||||
| Balances, July 1, 2021 |
$ | 39 | $ | 136,065 | $ | 2,024,645 | $ | (354,866 | ) | $ | (29,437 | ) | $ | (28,021 | ) | $ | 1,748,425 | |||||||||||
| Net loss |
— | — | — | (979 | ) | — | — | (979 | ) | |||||||||||||||||||
| Restricted stock units granted |
— | — | 1,472 | — | — | — | 1,472 | |||||||||||||||||||||
| Common stock dividends declared (1.125 cents per common share) |
— | — | — | (6,040 | ) | — | — | (6,040 | ) | |||||||||||||||||||
| Series B Preferred Stock dividends declared (87.5 cents per share) |
— | — | — | (138 | ) | — | — | (138 | ) | |||||||||||||||||||
| Common stock issued for 401(k) match (141,000 shares) |
— | 35 | 1,017 | — | — | — | 1,052 | |||||||||||||||||||||
| Common stock issued to pension plans (1,000,000 shares) |
— | 250 | 5,200 | — | — | — | 5,450 | |||||||||||||||||||||
| Other comprehensive loss |
— | — | — | — | (6,267 | ) | — | (6,267 | ) | |||||||||||||||||||
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| Balances, September 30, 2021 |
$ | 39 | $ | 136,350 | $ | 2,032,334 | $ | (362,023 | ) | $ | (35,704 | ) | $ | (28,021 | ) | $ | 1,742,975 | |||||||||||
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|||||||||||||||
7
Nine Months Ended September 30, 2022 |
||||||||||||||||||||||||||||
Series B Preferred Stock |
Common Stock |
Capital Surplus |
Accumulated Deficit |
Accumulated Other Comprehensive Income (Loss), net |
Treasury Stock |
Total |
||||||||||||||||||||||
Balances, January 1, 2022 |
$ | 39 | $ | 136,391 | $ | 2,034,485 | $ | (353,651 | ) | $ | (28,456 | ) | $ | (28,021 | ) | $ | 1,760,787 | |||||||||||
Net loss |
— | — | — | (32,896 | ) | — | — | (32,896 | ) | |||||||||||||||||||
Restricted stock units granted |
— | — | 3,881 | — | — | — | 3,881 | |||||||||||||||||||||
Restricted stock units and performance stock units distributed (1,789,042 shares) |
— | 447 | (447 | ) | — | — | (3,677 | ) | (3,677 | ) | ||||||||||||||||||
Common stock issued for 401(k) match (321,110 shares) |
— | 186 | 3,283 | — | — | — | 3,469 | |||||||||||||||||||||
Common stock issued to directors (98,310 shares) |
— | 25 | 392 | — | — | — | 417 | |||||||||||||||||||||
Common stock issued to pension plans (1,190,000 shares) |
— | 298 | 5,272 | — | — | — | 5,570 | |||||||||||||||||||||
Common stock issued to Alexco Resource Corp. shareholders (17,992,875 shares) |
— | 4,498 | 64,235 | — | — | — | 68,733 | |||||||||||||||||||||
Common stock issued to settle the acquired silver stream (34,800,990) |
— | 8,700 | 126,300 | — | — | — | 135,000 | |||||||||||||||||||||
Common stock issued under ATM program, net (1,176,861 shares) |
—— — |
294 | 4,248 | — |
— |
— |
4,542 | |||||||||||||||||||||
Common stock dividends declared (1.25 cents per common share) |
— | — | — | (10,135 | ) | — | — | (10,135 | ) | |||||||||||||||||||
Series B Preferred Stock dividends declared ($2.625 per share) |
— | — | — | (414 | ) | — | — | (414 | ) | |||||||||||||||||||
Other comprehensive income |
— | — | — | — | 19,491 | — | 19,491 | |||||||||||||||||||||
Balances, September 30, 2022 |
$ | 39 | $ | 150,839 | $ | 2,241,649 | $ | (397,096 | ) | $ | (8,965 | ) | $ | (31,698 | ) | $ | 1,954,768 | |||||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||
| Series B Preferred Stock |
Common Stock |
Capital Surplus |
Accumulated Deficit |
Accumulated Other Comprehensive Income (Loss), net |
Treasury Stock |
Total | ||||||||||||||||||||||
Balances, January 1, 2021 |
$ | 39 | $ | 134,629 | $ | 2,003,576 | $ | (368,074 | ) | $ | (32,889 | ) | $ | (23,496 | ) | $ | 1,713,785 | |||||||||||
Net income |
— | — | — | 23,220 | — | — | 23,220 | |||||||||||||||||||||
Restricted stock units granted |
— | — | 2,930 | — | — | — | 2,930 | |||||||||||||||||||||
Restricted stock units distributed (1,653,000 shares) |
— | 413 | (413 | ) | — | — | (4,525 | ) | (4,525 | ) | ||||||||||||||||||
Common stock dividends declared (3.125 cents per common share) |
— | — | — | (16,755 | ) | — | — | (16,755 | ) | |||||||||||||||||||
Series B Preferred Stock dividends declared ($2.625 per share) |
— | — | — | (414 | ) | — | — | (414 | ) | |||||||||||||||||||
Common stock issued for 401(k) match (524,000 shares) |
— | 131 | 3,324 | — | — | — | 3,455 | |||||||||||||||||||||
Common stock issued to pension plans (4,500,000 shares) |
— | 1,125 | 21,125 | — | — | — | 22,250 | |||||||||||||||||||||
Common stock issued to directors (207,000 shares) |
— | 52 | 1,792 | — | — | — | 1,844 | |||||||||||||||||||||
Other comprehensive loss |
— | — | — | — | (2,815 | ) | — | (2,815 | ) | |||||||||||||||||||
Balances, September 30, 2021 |
$ | 39 | $ | 136,350 | $ | 2,032,334 | $ | (362,023 | ) | $ | (35,704 | ) | $ | (28,021 | ) | $ | 1,742,975 | |||||||||||
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
8
Note 1. |
Basis of Preparation of Financial Statements |
The accompanying unaudited interim condensed consolidated financial statements of Hecla Mining Company and its subsidiaries (collectively, “Hecla,” “the Company,” “we,” “our,” or “us,” except where the context requires otherwise) have been prepared in accordance with the instructions to Form
10-Q
and do not include all information and disclosures required annually by generally accepted accounting principles in the United States (“GAAP”). Therefore, this information should be read in conjunction with Hecla Mining Company’s consolidated financial statements and notes contained in our annual report on Form 10-K
for the year ended December 31, 2021 (“2021 Form 10-K”).
The consolidated December 31, 2021 balance sheet data was derived from our audited consolidated financial statements. The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported. All such adjustments are, in the opinion of management, of a normal recurring nature. Operating results for the three- and nine-month periods ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. On September 7, 2022, the Company completed the acquisition of the remaining 90.1% 17,992,875 9.9
of Alexco Resource Corp. (“Alexco”) for non-cash consideration of
shares of Company common stock valued at $
68.7 million.
Total consideration for the acquisition, deemed to be an asset acquisition under GAAP, was
$
81.5million of which $76.4 million was non cash including the fair value of the Company’s common stock issued and the fair value of the
%
Alexco investment held by the Company prior to the completion of the acquisition and previously accounted for as marketable equity securities of $7.7 million. Acquisition costs also included transaction costs of $5.1 million. The total consideration was allocated to the acquired assets and assumed liabilities based on their estimated fair values on the acquisition date, which primarily consisted of mineral interests of
$
236.6million, a related deferred tax liability of
$
12.9million, net liabilities of $7.2 million, and a silver stream liability
ofmillion. Immediately following the closure of the acquisition, we settled the silver stream liability with the stream holder for
shares of Company common stock.
The 2019 novel strain of coronavirus
(“COVID-19”)
was characterized as a global pandemic by the World Health Organization on March 11, 2020. We continue to take precautionary measures to mitigate the impact of COVID-19,
including implementing operational plans and practices. As long as they are required, the operational practices implemented could continue to have an adverse impact on our operating results due to deferred production and revenues or additional costs. We incurred $0.4 million and $3.1 million in COVID-19
mitigation costs during the nine months ended September 30, 2022 and 2021, respectively. We continue to monitor the rapidly evolving situation and guidance from federal, state, local and foreign governments and public health authorities and may take additional actions based on their recommendations. The extent of the impact of COVID-19
on our business and financial results will also depend on future developments, including the duration and spread of the outbreak and the success of the current vaccination programs and the related impact on prices, demand, creditworthiness and other market conditions and governmental reactions, all of which are highly uncertain.
During the three months ended September 30, 2022, the Company recorded an out-of-period adjustment to correct an immaterial error related to the period ended June 30, 2022. This adjustment increased income taxes related to other comprehensive loss
by $12,649 for the three months ended September 30, 2022 to correct the previously recorded tax effect of changes in the fair value of derivative contracts designated as hedge transactions. This adjustment is non-cash, had no impact on net loss applicable to common shareholders and increased accumulated other comprehensive loss for the three months ended September 30, 2022 by $12,649.
Note 2. |
Business Segments and Sales of Products |
We discover, acquire and develop mines and other mineral interests and produce and market (i) concentrates, containing silver, gold, lead and zinc, (ii) carbon material containing silver and gold, and (iii) doré containing silver and gold. We are currently organized and managed in four segments: Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations.
General corporate activities not associated with operating mines and their various exploration activities, as well as discontinued operations, exploration and development projects and idle properties, are presented as “other.” Interest expense, interest income and income and mining taxes are considered general corporate items, and are not allocated to our segments.
The following tables present information about our reportable segments for the three and nine months ended September 30, 2022 and 2021 (in thousands):
9
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net sales to unaffiliated customers: |
||||||||||||||||
| Greens Creek |
$ | 60,875 | $ | 84,806 | $ | 239,688 | $ | 296,978 | ||||||||
| Lucky Friday |
28,460 | 29,783 | 102,380 | 98,550 | ||||||||||||
| Casa Berardi |
56,939 | 56,065 | 181,679 | 185,098 | ||||||||||||
| Nevada Operations |
— | 22,906 | 268 | 41,593 | ||||||||||||
| Other |
65 | — | 65 | 176 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| $ | 146,339 | $ | 193,560 | $ | 524,080 | $ | 622,395 | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Income (loss) from operations: |
||||||||||||||||
| Greens Creek |
$ | 1,378 | $ | 26,572 | $ | 63,768 | $ | 127,605 | ||||||||
| Lucky Friday |
4,269 | 6,187 | 18,568 | 24,247 | ||||||||||||
| Casa Berardi |
(5,226 | ) | (6,233 | ) | (8,497 | ) | 4,944 | |||||||||
| Nevada Operations |
(8,917 | ) | (12,077 | ) | (30,879 | ) | (35,558 | ) | ||||||||
| Other |
(16,963 | ) | (23,021 | ) | (45,949 | ) | (59,639 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| $ | (25,459 | ) | $ | (8,572 | ) | $ | (2,989 | ) | $ | 61,599 | ||||||
| |
|
|
|
|
|
|
|
|||||||||
The following table presents identifiable assets by reportable segment as of September 30, 2022 and December 31, 2021 (in thousands):
| September 30, 2022 |
December 31, 2021 |
|||||||
| Identifiable assets: |
||||||||
| Greens Creek |
$ | 594,811 | $ | 589,944 | ||||
| Lucky Friday |
534,114 | 516,545 | ||||||
| Casa Berardi |
692,833 | 701,868 | ||||||
| Nevada Operations |
467,532 | 468,985 | ||||||
| Other |
645,339 | 451,466 | ||||||
| |
|
|
|
|||||
| $ | 2,934,629 | $ | 2,728,808 | |||||
| |
|
|
|
|||||
Following the acquisition of Alexco (see ), our sales for the three and nine month periods ended September 30, 2022 are comprised of metal sales as described below and $65,000 of environmental services revenue.
Note 1
Sales by metal for the three- and nine-month periods ended September 30, 2022 and 2021 were as follows (in thousands):
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Silver |
$ | 45,924 | $ | 61,890 | $ | 182,306 | $ | 232,414 | ||||||||
| Gold |
69,289 | 94,984 | 228,475 | 282,471 | ||||||||||||
| Lead |
16,033 | 18,082 | 56,912 | 56,198 | ||||||||||||
| Zinc |
28,051 | 30,273 | 94,865 | 89,501 | ||||||||||||
| Less: Smelter and refining charges |
(13,023 | ) | (11,669 | ) | (38,543 | ) | (38,189 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| $ | 146,274 | $ | 193,560 | $ | 524,015 | $ | 622,395 | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
Sales included net gains of $1.6 million and $8.1 million for the for more information.
three-and
nine-month periods ended September 30, 2022, respectively, on financially-settled forward contracts for silver, gold, lead and zinc contained in our sales. Sales included net gains of $5.0 million and $4.5 million for the three-and
nine-month periods ended September 30, 2021, respectively, on such contracts. See Note 8
10
Note 3. |
Income and Mining Taxes |
Major components of our income and mining tax benefit (provision) for the three and nine months ended September 30, 2022 and 2021 are as follows (in thousands):
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Current: | ||||||||||||||||
| Domestic |
$ | 253 | $ | (2,176 | ) | $ | (2,296 | ) | $ | (7,489 | ) | |||||
| Foreign |
(1,085 | ) | (1,578 | ) | (4,172 | ) | (4,690 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total current income and mining tax provision |
(832 | ) | (3,754 | ) | (6,468 | ) | (12,179 | ) | ||||||||
| Deferred: | ||||||||||||||||
| Domestic |
8,156 | 3,213 | 915 | 8,226 | ||||||||||||
| Foreign |
2,203 | 5,074 | 9,195 | 7,877 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total deferred income and mining tax benefit |
10,359 | 8,287 | 10,110 | 16,103 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total income and mining tax benefit (provision) |
$ | 9,527 | $ | 4,533 | $ | 3,642 | $ | 3,924 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
The income and mining tax benefit (provision) for the three and nine months ended September 30, 2022 and 2021 varies from the amounts that would have resulted from applying the statutory tax rates to
pre-tax
income due primarily to the impact of taxation in foreign jurisdictions and non-recognition
of net operating losses and foreign exchange gains and losses in certain jurisdictions. For the three-month and nine-month periods ended September 30, 2022, we used the annual effective tax rate method to calculate the tax provision, a change from the discrete method used for the three- and nine-month periods ended September 30, 2021, due to reversal of a valuation allowance in the fourth quarter of 2021. Valuation allowances on Nevada, Mexico and certain Canadian net operating losses were treated as discrete adjustments to the annual effective tax rate method calculation, partially causing the increase in the income tax rate for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021.
Note 4. |
Employee Benefit Plans |
We sponsor three defined benefit pension plans covering substantially all U.S. employees. Net periodic pension cost for the plans consisted of the following for the three and nine months ended September 30, 2022 and 2021 (in thousands):
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Service cost |
$ | 1,566 | $ | 1,455 | $ | 4,697 | $ | 4,365 | ||||||||
| Interest cost |
1,369 | 1,248 | 4,107 | 3,744 | ||||||||||||
| Expected return on plan assets |
(3,363 | ) | (2,313 | ) | (10,089 | ) | (6,939 | ) | ||||||||
| Amortization of prior service cost |
128 | 99 | 384 | 297 | ||||||||||||
| Amortization of net loss |
512 | 1,125 | 1,537 | 3,375 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net periodic pension cost |
$ | 212 | $ | 1,614 | $ | 636 | $ | 4,842 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
For the three- and nine-month periods ended September 30, 2022 and 2021, the service cost component of net periodic pension cost is included in the same line items of our condensed consolidated financial statements as other employee compensation costs. The net benefit related to all other components of net periodic pension cost of $1.4 million and $4.1 million, respectively, for the three- and nine-month periods ended September 30, 2022, and net expense of $0.2 million and $0.5 million for the three- and nine-month periods ended September 30, 2021, respectively, is included in other (expense) income on our condensed consolidated statements of operations and comprehensive income (loss).
11
In May 2022 and October 2022, we contributed $5.6 million and $4.2
million, respectively, in shares of our common stock to two of our defined benefit plans. In January 2021 and September 2021, we contributed
$16.8
million and $5.4 million, respectively, in shares of our common stock to three of our defined benefit plans. We do not expect to be required to make additional contributions to our defined benefit pension plans in 2022, but may elect to do so.
Note 5. |
(Loss) Income Per Common Share |
We calculate basic (loss) income per common share on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted income per share is calculated using the weighted average number of shares of common stock outstanding during the period plus the effect of potential dilutive common shares during the period using the treasury stock and
if-converted
methods. Potential dilutive shares of common stock include outstanding unvested restricted stock awards, deferred restricted stock units, warrants and convertible preferred stock for periods in which we have reported net income. For periods in which we report net losses, potential dilutive shares of common stock are excluded, as their conversion and exercise would be anti-dilutive.
The following table represents net (loss) income per common share – basic and diluted (in thousands, except income (loss) per share):
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
| Numerator |
||||||||||||||||
| Net (loss) income |
$ | (23,526 | ) | $ | (979 | ) | $ | (32,896 | ) | $ | 23,220 | |||||
| Preferred stock dividends |
(138 | ) | (138 | ) | (414 | ) | (414 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Net (loss) income applicable to common shares |
$ | (23,664 | ) | $ | (1,117 | ) | $ | (33,310 | ) | $ | 22,806 | |||||
| |
|
|
|
|
|
|
|
|||||||||
| Denominator |
||||||||||||||||
| Basic weighted average common shares |
554,531 | 536,966 | 544,000 | 535,542 | ||||||||||||
| Dilutive restricted stock units, warrants and deferred shares |
— | — | — | 6,227 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Diluted weighted average common shares |
554,531 | 536,966 | 544,000 | 541,769 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Basic (loss) income per common share |
$ |
(0.04 |
) |
$ |
— |
$ |
(0.06 |
) |
$ |
0.04 |
||||||
| Diluted (loss) income per common share |
$ |
(0.04 |
) |
$ |
— |
$ |
(0.06 |
) |
$ |
0.04 |
||||||
For the three month periods ended September 30, 2022 and 2021, respectively, and the nine month period ended September 30, 2022, all outstanding restricted stock units, warrants and deferred shares were excluded from the computation of diluted loss per share, as our reported net losses for those periods would cause their conversion and exercise to have no effect on the calculation of loss per share. For the nine months ended September 30, 2021, the calculation of diluted income per common share included (i) 2,496,622 restricted stock units, (ii) 1,578,293 warrants to purchase one share of common stock and (iii) 2,152,578 deferred compensation stock units that were dilutive.
Note 6. |
Stockholders’ Equity |
At-The-Market
Pursuant to an equity distribution agreement dated February 18, 2021, we may offer and sell up to 60 million shares of our common stock from time to time to or through sales agents. Sales of the shares, if any, will be made by means of ordinary brokers transactions or as otherwise agreed between the Company and the agents as principals. Whether or not we engage in sales from time to time may depend on a variety of factors, including share price, our cash resources, customary
black-out
restrictions, and whether we have any material inside information. The agreement can be terminated by us at any time. Any sales of shares under the equity distribution agreement are registered under the Securities Act of 1933, as amended, pursuant to a shelf registration statement on Form S-3.
As of September 30, 2022 we had sold 1,176,861 shares under the agreement for proceeds of $4.5 million, net of commissions and fees of approximately $0.1 million. All of the sales occurred during September 2022. 12
Stock-based Compensation Plans
The Company has stock incentive plans for executives, directors and eligible employees, comprised of performance shares and restricted stock. Stock-based compensation expense for restricted stock unit and performance-based grants (collectively “incentive compensation”) to employees and shares issued to
non-employee
directors totaled $1.8 million and $4.3 million for the three and nine months ended September 30, 2022, respectively, and $1.5 million and $4.8 million for the three and nine months ended September 30, 2021, respectively. At September 30, 2022, there was $8.4 million of unrecognized stock-based compensation cost which is expected to be recognized over a weighted-average remaining vesting period of 1.8 years.The following table summarizes the grants awarded during the nine months ended September 30, 2022:
| Grant date | Award type | Number granted | Grant date fair value | |||
| June 21, 2022 | Restricted stock | 1,103,801 | $ 4.43 | |||
| June 21, 2022 | Performance based | 322,799 | $ 3.78 | |||
| June 28, 2022 | Directors retainer | 98,310 | $ 4.24 | |||
| September 30, 2022 | Restricted stock | 121,826 | $ 3.94 |
In connection with the vesting of incentive compensation, employees have in the past, at their election and when permitted by us, chosen to satisfy their minimum tax withholding obligations through net share settlement, pursuant to which the Company withholds the number of shares necessary to satisfy such withholding obligations and pays the obligations in cash. As a result, in the first nine months of 2022, we withheld 737,258 shares valued at approximately $3.7 million, or approximately $4.99 per share. In the first nine months of 2021, we withheld 574,251 shares valued at approximately $4.5 million, or approximately $7.88 per share.
Common Stock Dividends
The following table summarizes the dividends our Board of Directors have declared and we have paid during 2022 pursuant to our dividend policy:
| Quarter | Realized Silver Price | Silver-linked component |
Minimum component | Total dividend per share | ||||
| First |
$24.68 | $0.0025 | $0.00375 | $0.00625 | ||||
| Second |
$20.68 | $0.0025 | $0.00375 | $0.00625 |
Note 7. |
Debt, Credit Facility and Leases |
Our debt as of September 30, 2022 and December 31, 2021 consisted of our 7.25% Senior Notes due February 15, 2028 (“Senior Notes”) and our Series
2020-A
Senior Notes due July 9, 2025 (the “IQ Notes”) and any drawn amounts on the New Credit Agreement, which is described separately below. The following tables summarize our long-term debt balances, excluding interest and borrowings under the New Credit Agreement, as of September 30, 2022 and December 31, 2021 (in thousands): September 30, 2022 |
||||||||||||
Senior Notes |
IQ Notes |
Total |
||||||||||
| Principal |
$ | 475,000 | $ | 35,194 | $ | 510,194 | ||||||
| Unamortized discount/premium and issuance costs |
(4,868 | ) | 419 | (4,449 | ) | |||||||
| |
|
|
|
|
|
|||||||
| Long-term debt balance |
$ | 470,132 | $ | 35,613 | $ | 505,745 | ||||||
| |
|
|
|
|
|
|||||||
13
December 31, 2021 |
||||||||||||
Senior Notes |
IQ Notes |
Total |
||||||||||
| Principal |
$ | 475,000 | $ | 38,051 | $ | 513,051 | ||||||
| Unamortized discount/premium and issuance costs |
(5,552 | ) | 596 | (4,956 | ) | |||||||
| |
|
|
|
|
|
|||||||
| Long-term debt balance |
$ | 469,448 | $ | 38,647 | $ | 508,095 | ||||||
| |
|
|
|
|
|
|||||||
The following table summarizes the scheduled annual future payments, including interest, for our Senior Notes, IQ Notes, and finance and operating leases as of September 30, 2022 (in thousands). The amounts for the IQ Notes are stated in U.S. dollars (“USD”) based on the USD/Canadian dollar (“CAD”) exchange rate as of September 30, 2022.
| Twelve-month period ending September 30, |
Senior Notes |
IQ Notes |
Finance Leases |
Operating Leases |
||||||||||||
| 2023 |
$ | 34,438 | $ | 2,293 | $ | 9,296 | $ | 3,101 | ||||||||
| 2024 |
34,438 | 2,293 | 7,206 | 1,565 | ||||||||||||
| 2025 |
34,438 | 36,964 | 3,779 | 1,065 | ||||||||||||
| 2026 |
34,438 | 1,980 | 1,060 | |||||||||||||
| 2027 |
34,438 | — | 37 |
979 | ||||||||||||
| Thereafter |
487,914 | — | — | 5,878 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 660,104 | $ | 41,550 | $ | 22,298 | $ | 13,648 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
Credit Facility
New $150 million facility
On July 21, 2022, we entered into a Credit Agreement (“New Credit Agreement”) with the various financial institutions (the “Lenders”), Bank of Montreal and Bank of America, N.A. as letters of credit issuers, and Bank of America, N.A., as administrative agent for the Lenders and as swingline lender, to replace our prior credit agreement. The New Credit Agreement is a $150 million senior secured revolving facility, with an option to be increased in an aggregate amount not to exceed $75 million. The revolving loans under the New Credit Agreement will have a maturity date of July 21, 2026. Proceeds of the revolving loans under the New Credit Agreement may be used for general corporate purposes. The interest rate on the outstanding loans under the New Credit Agreement is based on the Company’s net leverage ratio and is calculated at (i) Term Secured Overnight Financing Rate (“SOFR”) plus 2% to 3.5%; or (ii) Bank of America’s Base Rate plus 1% to 2.5% with Base Rate being the highest of (i) the Bank of America prime rate, (ii) the Federal Funds rate plus .50% or (iii) Term SOFR plus 1.00%. For each amount drawn, we elect whether we draw on a one, three or six month basis or annual basis for SOFR. If we elect to draw for greater than six months, we pay interest quarterly on the outstanding amount.
We are also required to pay a commitment fee of between 0.45% to 0.78750%, depending on our net leverage ratio. Letters of credit issued under the New Credit Agreement bear a fee between 2.00% and 3.50% based on our net leverage ratio, as well as a fronting fee to each issuing bank at an agreed upon rate per annum on the average daily dollar amount of our letter of credit exposure.
Hecla Mining Company and certain of our subsidiaries are the borrowers under the New Credit Agreement, while certain of our other subsidiaries are guarantors of the borrowers’ obligations under the New Credit Agreement. As further security, the credit facility is collateralized by a mortgage on the Greens Creek mine, the equity interests of subsidiaries that own the Greens Creek mine or are part of the Greens Creek Joint Venture and our subsidiary Hecla Admiralty Company (the “Greens Creek Group”), and by all of the Green Creek Group’s rights and interests in the Greens Creek Joint Venture Agreement, and in all assets of the joint venture and of any member of the Greens Creek Group.
At September 30, 2022, we had drawn $25 million at an interest rate of 7.5% and had $7.8 million in outstanding letters of credit under the New Credit Agreement. Letters of credit that are outstanding reduce availability under the New Credit Agreement.
We believe we were in compliance with all covenants under the New Credit Agreement as of September 30, 2022.
14
Prior $250 million facility
In July 2018, we entered into a credit agreement (as amended, the “Prior Credit Agreement”) providing for a $250 million senior secured revolving credit facility which had a term ending on February 7, 2023. As of December 31, 2021, no amounts were outstanding under the facility.
We were also able to obtain letters of credit under the facility, and for any such letters we were required to pay a participation fee of between 2.25% and 4.00% of the amount of the letters of credit based on our total leverage ratio, as well as a fronting fee to each issuing bank of 0.20% annually on the average daily dollar amount of any outstanding letters of credit.
In connection with our entry into the New Credit Agreement, the Prior Credit Agreement was terminated on July 21, 2022. We believe we were in compliance with all covenants under the Prior Credit Agreement as of July 21, 2022.
Note 8. |
Derivative Instruments |
General
Our current risk management policy provides that up to 75% of five years foreign currency, lead and zinc metals price and silver and gold price exposure may be covered under a derivatives program with certain other limitations. The silver and gold price program can only establish a floor (puts). We are not currently utilizing this silver and gold program. Our program also utilizes derivatives to manage price risk exposure created from when revenue is recognized from a shipment of concentrate until final settlement.
These instruments expose us to (i) credit risk in the form of
non-performance
by counterparties for contracts in which the contract price exceeds the spot price of the hedged commodity or foreign currency and (ii) price risk to the extent that the spot price exceeds the contract price for quantities of our production and/or forecasted costs covered under contract positions. Foreign Currency
Our wholly-owned subsidiaries owning the Casa Berardi operation as well as the recently acquired Keno Hill development property which Alexco owned are
296USD-functional
entities which routinely incur expenses denominated in CAD. Such expenses expose us to exchange rate fluctuations between the USD and CAD. We have a program to manage our exposure to fluctuations in the USD exchange rate for these subsidiaries’ future operating and capital costs denominated in CAD. The program utilizes forward contracts to buy CAD, some of which are designated as cash flow hedges. As of September 30, 2022, we have forward contracts outstanding to buy a total of CAD$
539.9 million having a notional amount of USD$
408.7 million. The CAD contracts that are related to forecasted cash operating costs at Casa Berardi to be incurred from
2022 through
2026 have a total notional value of CAD$
430.3 million and have
CAD-to-USD
exchange rates ranging between
1.2702 and
1.3714.
As of September 30, 2022 and December 31, 2021, we recorded the following balances for the fair value of the contracts (in millions):
September 30, |
December 31, |
|||||||
Balance sheet line item: |
2022 |
2021 |
||||||
| Current derivatives assets |
$ | 0.3 | $ | 2.7 | ||||
| Non-current derivatives assets |
0.3 | 2.5 | ||||||
| Current derivatives liabilities |
5.8 | — | ||||||
| Non-current derivatives liabilities |
5.6 | — | ||||||
Net unrealized losses of approximately $10.8 million related to the effective portion of the hedges were included in accumulated other comprehensive income (loss) as of September 30, 2022. Unrealized gains and losses will be transferred from accumulated other comprehensive income (loss) to current earnings as the underlying operating expenses are recognized. We estimate approximately $5.1 million in net unrealized losses included in accumulated other comprehensive income (loss) as of September 30, 2022 will be reclassified to current earnings in the next twelve months. Net realized gains of approximately $0.2 million and $2.0 million on contracts related to underlying expenses which have been recognized were transferred from accumulated other comprehensive income (loss) and included in cost of sales and other direct production costs for the three and nine months ended September 30, 2022, respectively. No net unrealized gains or losses related to ineffective hedges were included in current earnings for the nine months ended September 30, 2022. Net losses of approximately $0.8 million and $1.1 million for the three and nine months ended September 30, 2022, respectively, related to contracts not designated as hedges were included in fair value adjustments, net on our consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2022.
15
Metals Prices
We are currently using financially-settled forward contracts to manage the exposure to:
| • | changes in prices of silver, gold, zinc and lead contained in our concentrate shipments between the time of shipment and final settlement; and |
| • | changes in prices of zinc and lead (but not silver and gold) contained in our forecasted future concentrate shipments. |
The following tables summarize the quantities of metals committed under forward sales contracts at September 30, 2022 and December 31, 2021:
September 30, 2022 |
Ounces/pounds under contract (in 000’s) |
Average price per ounce/pound |
||||||||||||||||||||||||||||||
Silver |
Gold |
Zinc |
Lead |
Silver |
Gold |
Zinc |
Lead |
|||||||||||||||||||||||||
(ounces) |
(ounces) |
(pounds) |
(pounds) |
(ounces) |
(ounces) |
(pounds) |
(pounds) |
|||||||||||||||||||||||||
| Contracts on provisional sales |
||||||||||||||||||||||||||||||||
| 2022 settlements |
2,235 | 1,840 | 18,739 | 14,991 | $ | 19.54 | $ | 1,760 | $ | 1.30 | $ | 0.96 | ||||||||||||||||||||
| Contracts on forecasted sales |
||||||||||||||||||||||||||||||||
| 2022 settlements |
2,235 | 1,840 | 8,763 | 1,984 | N/A | N/A | $ | 1.32 | $ | 0.97 | ||||||||||||||||||||||
| 2023 settlements |
— | — | 71,209 | 75,618 | N/A | N/A | $ | 1.30 | $ | 1.00 | ||||||||||||||||||||||
| 2024 settlements |
— | — | 78,760 | 31,526 | N/A | N/A | $ | 1.34 | $ | 1.00 | ||||||||||||||||||||||
| 2025 settlements |
— | — | 2,480 | — | N/A | N/A | $ | 1.33 | N/A | |||||||||||||||||||||||
December 31, 2021 |
Ounces/pounds under contract (in 000’s) |
Average price per ounce/pound |
||||||||||||||||||||||||||||||
Silver |
Gold |
Zinc |
Lead |
Silver |
Gold |
Zinc |
Lead |
|||||||||||||||||||||||||
(ounces) |
(ounces) |
(pounds) |
(pounds) |
(ounces) |
(ounces) |
(pounds) |
(pounds) |
|||||||||||||||||||||||||
| Contracts on provisional sales |
||||||||||||||||||||||||||||||||
| 2022 settlements |
1,814 | 6 | 13,371 | 4,575 | $ | 23.02 | $ | 1,812 | $ | 1.39 | $ | 0.96 | ||||||||||||||||||||
| Contracts on forecasted sales |
||||||||||||||||||||||||||||||||
| 2022 settlements |
— | — | 57,706 | 59,194 | N/A | N/A | $ | 1.28 | $ | 0.98 | ||||||||||||||||||||||
| 2023 settlements |
— | — | 76,280 | 71,650 | N/A | N/A | $ | 1.29 | $ | 1.00 | ||||||||||||||||||||||
Effective November 1, 2021, we designated the contracts for lead and zinc contained in our forecasted future shipments as hedges for accounting purposes, with gains and losses deferred to accumulated other comprehensive loss until the hedged product ships. Prior to November 1, 2021, these contracts had not been designated as hedges for hedge accounting and were therefore through earnings each period. The forward contracts for silver and gold contained in our concentrate shipments have not been designated as hedges and are through earnings each period.
marked-to-market
marked-to-market
We recorded the following balances for the fair value of the forward contracts as of September 30, 2022 and forward and put option contracts as of December 31, 2021 (in millions):
September 30, 2022 |
December 31, 2021 |
|||||||||||||||||||||||
| Balance sheet line item: | Contracts in an asset position |
Contracts in a liability position |
Net asset (liability) |
Contracts in an asset position |
Contracts in a liability position |
Net asset (liability) |
||||||||||||||||||
| Current derivatives assets |
$ | 6.9 | $ | — | $ | 6.9 | $ | — | $ | — | $ | — | ||||||||||||
| Non-current derivatives assets |
$ | 20.5 | $ | — | 20.5 | $ | — | $ | — | $ | — | |||||||||||||
| Current derivatives liabilities |
— | — | — | 0.7 | (20.1 | ) | (19.4 | ) | ||||||||||||||||
| Non-current derivatives liabilities |
— | — | — | 0.4 | (18.9 | ) | (18.5 | ) | ||||||||||||||||
Net unrealized gains of approximately $28.3 million related to the effective portion of the contracts designated as hedges were included in accumulated other comprehensive income (loss) as of September 30, 2022, and are net of related deferred taxes. Unrealized gains and losses will be transferred from accumulated other comprehensive income (loss) to current
16
earnings as the underlying operating sales are recognized. We estimate approximately $6.0 million in net unrealized gains included in accumulated other comprehensive income (loss) as of September 30, 2022 would be reclassified to current earnings in the next twelve months. We recognized a net gain of $1.6 million, including a $4.2 million loss transferred from accumulated other comprehensive income (loss), during the three months ended September 30, 2022. For the nine months ended September 30, 2022, we recognized a net gain of $8.1 million, including a $8.1 million loss transferred from accumulated other comprehensive income (loss). These losses were recognized on the contracts utilized to manage exposure to prices of metals in our concentrate shipments, which is included in sales. The net losses and gains recognized on the contracts offset gains and losses related
to
price adjustments on our provisional concentrate sales due to changes to silver, gold, lead and zinc prices between the time of sale and final settlement. We recognized a net gain of $12.1 million and a net loss of $4.7 million during the three and nine months ended September 30, 2021, respectively, on the contracts utilized to manage exposure to prices for forecasted future sales, which were not designated as hedges. The net gain or loss on these contracts are included as a separate line item under other income (expense), as they relate to forecasted future sales, as opposed to sales that have already taken place but are subject to final pricing as discussed in the preceding paragraph.
Credit-risk-related Contingent Features
Certain of our derivative contracts contain cross default provisions which provide that a default under our New Credit Agreement would cause a default under the derivative contract. As of September 30, 2022, we have not posted any collateral related to these contracts. The fair value of derivatives in a net liability position related to these agreements was $14.2 million as of September 30, 2022, which includes accrued interest but excludes any adjustment for nonperformance risk. If we were in breach of any of these provisions at September 30, 2022, we could have been required to settle our obligations under the agreements at their termination value of $14.2 million.
Note 9. |
Fair Value Measurement |
Fair value adjustments, net is comprised of the following:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
(Loss) gain on derivative contracts |
$ | 873 | $ | 12,148 | $ | (20) | $ | (4,692 | ) | |||||||
Unrealized loss on investments in equity securities |
(5,110 | ) | (2,861 | ) | (14,749 | ) | (7,117 | ) | ||||||||
(Loss) gain on disposition or exchange of investments |
(3 | ) | — | 66 | 1,158 | |||||||||||
Total fair value adjustments, net |
$ | (4,240 | ) | $ | 9,287 | $ | (14,703 | ) | $ | (10,651 | ) | |||||
Accounting guidance has established a hierarchy for inputs used to measure assets and liabilities at fair value on a recurring basis. The three levels included in the hierarchy are:
Level 1: quoted prices in active markets for identical assets or liabilities;
Level 2: significant other observable inputs; and
Level 3: significant unobservable inputs.
The table below sets forth our assets and liabilities that were accounted for at fair value on a recurring basis and the fair value calculation input hierarchy level that we have determined applies to each asset and liability category (in thousands).
17
Description |
Balance at September 30, 2022 |
Balance at December 31, 2021 |
Input Hierarchy Level |
|||||||||
Assets: |
||||||||||||
Cash and cash equivalents: |
||||||||||||
Money market funds and other bank deposits |
$ | 144,669 | $ | 210,010 | Level 1 | |||||||
Current and non-current investments |
||||||||||||
Equity securities |
13,299 | 14,470 | Level 1 | |||||||||
Trade accounts receivable: |
||||||||||||
Receivables from provisional concentrate sales |
12,477 | 36,437 | Level 2 | |||||||||
Restricted cash balances: |
||||||||||||
Certificates of deposit and other deposits |
1,246 | 1,053 | Level 1 | |||||||||
Derivative contracts – current and non-current derivatives assets: |
||||||||||||
Foreign exchange contracts |
591 | 5,207 | Level 2 | |||||||||
Metal forward and put option contracts |
27,393 | — | Level 2 | |||||||||
Total assets |
$ | 199,675 | $ | 267,177 | ||||||||
Liabilities: |
||||||||||||
Derivative contracts – current derivatives liabilities and other non-current liabilities: |
||||||||||||
Foreign exchange contracts |
$ | 11,334 | $ | 8 | Level 2 | |||||||
Metal forward and put option contracts |
— | 37,873 | Level 2 | |||||||||
Total liabilities |
$ | 11,334 | $ | 37,881 | ||||||||
Cash and cash equivalents consist primarily of money market funds and are valued at cost, which approximates fair value, and a small portion consists of municipal bonds having maturities of less than 90 days, which are recorded at fair value.
Current and
non-current
restricted cash balances consist primarily of certificates of deposit, U.S. Treasury securities, and other deposits and are valued at cost, which approximates fair value. Our
non-current
available for sale securities consist of marketable equity securities of companies in the mining industry which are valued using quoted market prices for each security. Trade accounts receivable from provisional concentrate sales are subject to final pricing and valued using quoted prices based on forward curves for the particular metals. The embedded derivative contained in our concentrate sales is adjusted to fair market value through earnings each period prior to final settlement.
We use financially-settled forward contracts to manage exposure to changes in the exchange rate between USD and CAD, and the impact on for more information). The fair value of each contract represents the present value of the difference between the forward exchange rate for the contract settlement period as of the measurement date and the contract settlement exchange rate.
CAD-denominated
operating and capital costs incurred at our Casa Berardi unit and the Keno Hill mine (see Note 8
We use financially-settled forward contracts to manage the exposure to changes in prices of silver, gold, zinc and lead contained in our concentrate shipments that have not reached final settlement. We also use financially-settled forward contracts to manage the exposure to changes in prices of silver, gold, zinc and lead contained in our forecasted future sales (see for more information). The fair value of each forward contract represents the present value of the difference between the forward metal price for the contract settlement period as of the measurement date and the contract settlement metal price.
Note 8
At September 30, 2022, our Senior Notes and IQ Notes were recorded at their carrying value of $470.1 million and $35.6 million, respectively, net of unamortized initial purchaser discount/premium and issuance costs. The estimated fair values of our Senior Notes and IQ Notes were $442.2 million and $32.7 million, respectively, at September 30, 2022. Quoted market prices, which we consider to be Level 1 inputs, are utilized to estimate fair values of the Senior Notes. Unobservable inputs which we consider to be Level 3, including an assumed current annual yield of 8.7%, are utilized to estimate the fair value of the IQ Notes. See for more information.
Note 7
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Note 10. |
Commitments, Contingencies and Obligations |
General
We follow GAAP guidance in determining our accruals and disclosures with respect to loss contingencies, and evaluate such accruals and contingencies for each reporting period. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable that a liability could be incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred.
Johnny M Mine Area near San Mateo, McKinley County and San Mateo Creek Basin, New Mexico
In August 2012, Hecla Limited and the U.S. Environmental Protection Agency (the “EPA”) entered into a Settlement Agreement and Administrative Order on Consent for Removal Action (“Consent Order”) regarding the Johnny M Mine Area near San Mateo, McKinley County, New Mexico. Mining at the Johnny M Mine was conducted for a limited period of time by a predecessor of Hecla Limited, and the EPA had previously asserted that Hecla Limited may be responsible under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) for environmental remediation and past costs incurred by the EPA at the site. Under the Consent Order, Hecla Limited agreed to pay (i) $1.1 million to the EPA for its past response costs at the site and (ii) any future response costs at the site under the Consent Order, in exchange for a covenant not to sue by the EPA. In December 2014, Hecla Limited submitted to the EPA the Engineering Evaluation and Cost Analysis (“EE/CA”) for the site which recommended
on-site
disposal of mine-related material. In January 2021, the parties began negotiating a new consent order to design and implement the on-site
disposal response action recommended in the EE/CA. Based on the foregoing, we believe it is probable that Hecla Limited will incur a liability for the CERCLA removal action and we increased our accrual by $2.9 million to $9.0 million in the first quarter of 2021, primarily representing estimated costs to begin design and implementation of the remedy. It is possible that Hecla Limited’s liability will be more than $9.0 million, and any increase in liability could have a material adverse effect on Hecla Limited’s or our results of operations or financial position. The Johnny M Mine is in an area known as the San Mateo Creek Basin (“SMCB”), which is an approximately 321 square mile area in New Mexico that contains numerous legacy uranium mines and mills. In addition to Johnny M, Hecla Limited’s predecessor was involved at other mining sites within the SMCB. The EPA appears to have deferred consideration of listing the SMCB site on CERCLA’s National Priorities List (“Superfund”) by removing the site from its emphasis list, and is working with various potentially responsible parties (“PRPs”) at the site in order to study and potentially address perceived groundwater issues within the SMCB. The EE/CA discussed above relates primarily to contaminated rock and soil at the Johnny M site, not groundwater and not elsewhere within the SMCB site. It is possible that Hecla Limited’s liability at the Johnny M Site, and for any other mine site within the SMCB at which Hecla Limited’s predecessor may have operated, will be greater than our current accrual of $9.0 million due to the increased scope of required remediation.
In July 2018, the EPA informed Hecla Limited that it and several other PRPs may be liable for cleanup of the SMCB site or for costs incurred by the EPA in cleaning up the site. The EPA stated it has incurred approximately $9.6 million in response costs to date. On May 2, 2022, Hecla Limited received a letter from an attorney representing a PRP notifying Hecla Limited that three PRPs will seek cost recovery and contribution from Hecla Limited under CERCLA for certain investigatory work performed by the PRPs at the SMCB site. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning the site, including the relative contributions of contamination by the various PRPs.
Carpenter Snow Creek and Barker-Hughesville Sites in Montana
In July 2010, the EPA made a formal request to Hecla for information regarding the Carpenter Snow Creek Superfund site located in Cascade County, Montana. The Carpenter Snow Creek site is located in a historical mining district, and in the early 1980s Hecla Limited leased 6 mining claims and performed limited exploration activities at the site. Hecla Limited terminated the mining lease in 1988.
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In June 2011, the EPA informed Hecla Limited that it believes Hecla Limited, and several other PRPs, may be liable for cleanup of the site or for costs incurred by the EPA in cleaning up the site. The EPA stated in the letter that it has incurred approximately $4.5 million in response costs and estimated that total remediation costs may exceed $100 million. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning the site, including the relative contributions of contamination by various other PRPs.
In February 2017, the EPA made a formal request to Hecla for information regarding the Barker-Hughesville Mining District Superfund site located in Judith Basin and Cascade Counties, Montana. Hecla Limited submitted a response in April 2017. The Barker-Hughesville site is located in a historic mining district, and between approximately June and December 1983, Hecla Limited was party to an agreement with another mining company under which limited exploration activities occurred at or near the site.
In August 2018, the EPA informed Hecla Limited that it and several other PRPs may be liable for cleanup of the site or for costs incurred by the EPA in cleaning up the site. The EPA did not include an amount of its alleged response costs to date. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning past or anticipated future costs at the site and the relative contributions of contamination by various other PRPs.
Greens Creek and Lucky Friday Environmental Issues
On June 30, 2022, our Greens Creek mine received a Notice of Violation (“NOV”) from the EPA alleging that the mine treated, stored, and disposed of certain hazardous waste without a permit in violation of the Resource Conservation and Recovery Act (“RCRA”), relating to the alleged presence of lead outside the concentrate storage building and the alleged improper reuse/recycling of certain materials produced from the
on-site
laboratories. The NOV contained two other less significant alleged violations. We disagree with several of the EPA’s allegations on a factual and legal basis. Currently, the EPA has not initiated any formal enforcement proceeding against our Greens Creek subsidiary. In civil judicial cases, EPA can seek statutory penalties up to $81,540 per day per violation and, in administrative settlements, the EPA can seek administrative penalties of up to $47,423 per day per violation plus the economic benefit of noncompliance. The EPA typically pursues administrative penalties and assesses lower penalties on a per day basis. At this time, we cannot reasonably assess the amount of penalties the EPA may seek, or predict the terms of any potential settlement with the EPA.
On July 12, 2022, our Lucky Friday mine received a NOV from the EPA alleging violations of the Clean Water Act (“CWA”) between 2018 and 2021 relating primarily to concentration levels of zinc and lead in the mine’s permitted water discharges. Currently, the EPA has not initiated any formal enforcement proceeding against our Lucky Friday subsidiary. In civil judicial cases, the EPA can seek statutory penalties up to $59,973 per day per violation and, in administrative actions, EPA can seek administrative penalties up to $23,989 per day per violation with a maximum administrative penalty of $299,989 for all alleged violations. The EPA typically pursues administrative penalties. At this time, we cannot reasonably assess the amount of penalties the EPA may seek, or predict the terms of any potential settlement with the EPA.
Litigation Related to Klondex Acquisition
On May 24, 2019, a purported Hecla stockholder filed a putative class action lawsuit in the U.S. District Court for the Southern District of New York against Hecla and certain of our executive officers, one of whom is also a director. The complaint, purportedly brought on behalf of all purchasers of Hecla common stock from March 19, 2018 through and including May 8, 2019, asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule
10b-5
promulgated thereunder and seeks, among other things, damages and costs and expenses. Specifically, the complaint alleges that Hecla, under the authority and control of the individual defendants, made certain material false and misleading statements and omitted certain material information regarding Hecla’s Nevada Operations. The complaint alleges that these misstatements and omissions artificially inflated the market price of Hecla common stock during the class period, thus purportedly harming investors. Filings with the court regarding our motion to dismiss the lawsuit were completed in the first quarter of 2021. We cannot predict the outcome of this lawsuit or estimate damages if plaintiffs were to prevail. We believe that these claims are without merit and intend to defend them vigorously. Related to this class action lawsuit, Hecla has been named as a nominal defendant in a shareholder derivative lawsuit which also names as defendants certain current and past (i) members of Hecla’s board of directors and (ii) officers of Hecla. The case was filed on May 4, 2022 in the Delaware Chancery Court. In general terms, the suit alleges breaches of fiduciary duties by the individual defendants, waste of corporate assets and unjust enrichment, and seeks damages, purportedly on behalf of Hecla.
20
Debt
See for information on the commitments related to our debt arrangements as of September 30, 2022.
Note 7
Other Commitments
Our contractual obligations as of September 30, 2022 included open purchase orders and commitments of approximately $9.0 million, $20.4 million, $1.2 million We also have total commitments of approximately $22.3 million relating to scheduled payments on finance leases, including interest, primarily for equipment at our Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations units, and total commitments of approximately $13.6 million relating to payments on operating leases (see for more information). As part of our ongoing business and operations, we are required to provide surety bonds, bank letters of credit, and restricted deposits for various purposes, including financial support for environmental reclamation obligations and workers compensation programs. As of September 30, 2022, we had surety bonds totaling $193.8 million and letters of credit totaling $7.8 million in place as financial support for future reclamation and closure costs, self-insurance, and employee benefit plans. The obligations associated with these instruments are generally related to performance requirements that we address through ongoing operations. As the requirements are met, the beneficiary of the associated instruments cancels or returns the instrument to the issuing entity. Certain of these instruments are associated with operating sites with long-lived assets and will remain outstanding until closure of the sites. We believe we are in compliance with all applicable bonding requirements and will be able to satisfy future bonding requirements as they arise.
,
$2.6 millionand
$0.3 million
for various capital and non-capital
items at Greens Creek, Lucky Friday, Casa Berardi,
Nevada Operations and Keno Hill, respectively.
Note 7
Other Contingencies
We also have certain other contingencies resulting from litigation, claims, EPA investigations, and other commitments and are subject to a variety of environmental and safety laws and regulations incident to the ordinary course of business. We currently have no basis to conclude that any or all of such contingencies will materially affect our financial position, results of operations or cash flows. However, in the future, there may be changes to these contingencies, or additional contingencies may occur, any of which might result in an accrual or a change in current accruals recorded by us, and there can be no assurance that their ultimate disposition will not have a material adverse effect on our financial position, results of operations or cash flows.
Note |
11. Developments in Accounting Pronouncements |
Accounting Standards Updates Adopted
In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU
No. 2020-06
Debt – Debt with Conversion and Other Options (Subtopic 470-20)
and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40):
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The update is to address issues identified as a result of the complexity associated with applying GAAP to certain financial instruments with characteristics of liabilities and equity. The update is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years and with early adoption permitted. We adopted the update as of January 1, 2022, which did not have a material impact on our consolidated financial statements or disclosures. 21
In October 2021, the FASB issued ASU , which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC . The update will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. The update is effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted. We adopted the new standard effective January 1, 2022, which did not have a material impact on our consolidated financial statements or disclosures.
2021-08,
Business Combinations (Topic 805): Accounting for Contract Assets and Contract
Liabilities from Contracts with Customers
2014-09,
Revenue from Contracts with Customers (Topic 606)
Accounting Standards Updates to Become Effective in Future Periods
In 2017, the United Kingdom’s Financial Conduct Authority (“FCA”) announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate (“LIBOR”), which have been widely used as reference rates for various securities and financial contracts, including loans, debt and derivatives. This announcement indicated that the continuation of LIBOR on the current basis would not be guaranteed after 2021. Subsequently in March 2021, the FCA announced some USD LIBOR tenors (overnight, 1 month, 3 month, 6 month and 12 month) will continue to be published until June 30, 2023. Regulators in the U.S. and other jurisdictions have been working to replace these rates with alternative reference interest rates that are supported by transactions in liquid and observable markets, such as SOFR. Our New Credit Agreement references SOFR-based rates, compared to our prior credit facility which referenced LIBOR based- rates. Certain of our derivative instruments reference LIBOR-based rates and are in the process of being amended to eliminate the LIBOR-based rate references prior to January 1, 2023. We do not expect a significant impact to our financial results, financial position or cash flows from the transition from LIBOR to alternative reference interest rates, but we will continue to monitor the impact of this transition until it is completed.
22
Forward-Looking Statements
Certain statements contained in this Form
10-Q,
including in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk, are intended to be covered by the safe harbor provided for under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Our forward-looking statements include our current expectations and projections about future results, performance, results of litigation, prospects and opportunities, including reserves and other mineralization. We have tried to identify these forward-looking statements by using words such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “feel,” “plan,” “estimate,” “project,” “forecast” and similar expressions. These forward-looking statements are based on information currently available to us and are expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties and other factors include, but are not limited to, those set forth under in our 2021 Form in our Quarterly Report on Form
Part I, Item 1A. – Risk Factors
10-K,
as updated in Part II, Item 1.A. – Risk Factors
10-Q
for the quarter ended June 30, 2022. Given these risks and uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements. All subsequent written and oral forward-looking statements attributable to Hecla Mining Company or to persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Except as required by federal securities laws, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), “Hecla,” “the Company,” “we,” “us” and “our” refer to Hecla Mining Company and its consolidated subsidiaries, except where the context requires otherwise. You should read this discussion in conjunction with our consolidated financial statements, the related MD&A and the discussion of our Business and Properties in our 2021 Form
10-K
filed with the United States Securities and Exchange Commission (the “SEC”). The results of operations reported and summarized below are not necessarily indicative of future operating results (refer to “Forward-Looking Statements” above for further discussion). References to “Notes” are Notes included in our Notes to Condensed Consolidated Financial Statements (Unaudited). Throughout MD&A, all references to losses or income per share are on a diluted basis. Overview
Established in 1891, we believe we are the oldest operating precious metals mining company in the United States. We are the largest silver producer in the United States, producing over 40% of the U.S. silver production at our Greens Creek and Lucky Friday operations. We produce gold at our Casa Berardi operation in Quebec, Canada, and Greens Creek, and produced gold at our Nevada Operations segment prior to suspension of operations during 2021. We are developing the Keno Hill mine in the Yukon, Canada which we acquired on September 7, 2022, and which we believe could become Canada’s largest silver producer. Based upon our operational footprint, we believe we have low political and economic risk compared to other mines located in other parts of the world. Our exploration interests are located in the United States, Canada and Mexico. Our operating and strategic framework is based on expanding our production and locating and developing new resource potential in a safe and responsible manner.
Acquisition of Alexco
We completed the acquisition of Alexco on September 7, 2022, for consideration of $81.5 million, which we have accounted for as an asset acquisition, and are continuing to advance the development of Keno Hill which we believe could become Canada’s largest silver producer. See of
Note 1
Notes to Condensed Consolidated Financial Statements (unaudited)
23
regarding our acquisition of Alexco. Immediately following the acquisition of Alexco, we terminated the acquired silver stream on the Keno Hill property for $135 million, through the issuance of 34,800,990 Hecla common shares to Wheaton Precious Metals, the silver stream holder.
Third Quarter 2022 Highlights
Operational:
| • | Produced 3.6 million ounces of silver and 44,747 ounces of gold. See Consolidated Results of Operations by-product credits, per silver and gold ounce for the three-month periods ended September 30, 2022 and 2021. |
| • | Continued mitigation of the impacts of COVID-19 through refinement of our operational plans and procedures to protect our workforce, operations and communities while maintaining liquidity. |
Financial:
| • | Reported sales of $146.3 million. |
| • | Made capital expenditures (excluding lease additions and other non-cash items) of approximately $37.4 million, including $7.0 million at Greens Creek, $16.1 million at Lucky Friday, $10.8 million at Casa Berardi. |
| • | Returned $3.5 million to our stockholders through payment of dividends. |
| • | Spent $15.1 million on exploration and pre-development activities. |
Year to date 2022 Highlights
Operational:
| • | Produced 10.5 million ounces of silver and 132,108 ounces of gold. See Consolidated Results of Operations by-product credits, per silver and gold ounce for the nine-month periods ended September 30, 2022 and 2021. |
| • | Continued our trend of strong safety performance, as our All Injury Frequency Rate (“AIFR”) for the year to date was 1.3, 38% below the U.S. national average for MSHA’s “metal and nonmetal” category and 10% below our AIFR of 1.45 for the full year of 2021. |
| • | Continued mitigation of the impacts of COVID-19 through refinement of our operational plans and procedures to protect our workforce, operations and communities while maintaining liquidity. |
Financial:
| • | Reported sales of $524.1 million. |
| • | Generated $53.8 million in net cash provided by operating activities. See the Financial Liquidity and Capital Resources |
| • | Made capital expenditures (excluding lease additions and other non-cash items) of approximately $93.2 million, including $24.7 million at Greens Creek, $37.3 million at Lucky Friday, $26.7 million at Casa Berardi, $3.8 million at Corporate and Other. |
| • | Returned $10.5 million to our stockholders through payment of dividends. |
| • | Spent $39.1 million on exploration and pre-development activities. |
Our current business strategy is to focus our financial and human resources in the following areas:
| • | executing value enhancing transactions, such as with the recently consummated Alexco acquisition; |
| • | advancing the development of the Keno Hill mine with the anticipation of commencement of production before the end of 2023; |
| • | rapidly responding to the threats from the COVID-19 pandemic to protect our workforce, operations and communities while maintaining liquidity; |
| • | operating our properties safely, in an environmentally responsible and cost-effective manner; |
| • | maintaining and investing in exploration and pre-development projects in the vicinities of eleven mining districts and projects we believe to be under-explored and under-invested: Greens Creek on Alaska’s Admiralty Island located near |
24
| Juneau; North Idaho’s Silver Valley in the historic Coeur d’Alene Mining District; the silver-producing district near Durango, Mexico; in the vicinity of our Casa Berardi mine and the Heva-Hosco project in the Abitibi region of northwestern Quebec, Canada; our projects located in two districts in Nevada; our 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 mines, which includes incurring costs for new technologies and equipment; |
| • | expanding our proven and probable reserves, mineral resources and production capacity at our properties; |
| • | conducting our business with financial stewardship to preserve our financial position in varying metals price and operational environments; |
| • | advancing permitting of our Montana assets; and |
| • | continuing to seek opportunities to acquire and invest in mining and exploration properties and companies. |
We strive to achieve excellent mine safety and health performance. We seek to implement this goal by: training employees in safe work practices; establishing, following and improving safety standards; investigating accidents, incidents and losses to avoid recurrence; involving employees in the establishment of safety standards; and participating in the National Mining Association’s CORESafety program. We seek to implement reasonable best practices with respect to mine safety and emergency preparedness. We respond to issues outlined in investigations and inspections by MSHA, the Commission of Labor Standards, Pay Equity and Occupational Health and Safety in Quebec, and the Mexico Ministry of Economy and Mining and continue to evaluate our safety practices. There can be no assurance that our practices will mitigate or eliminate all safety risks. Achieving and maintaining compliance with regulations will be challenging and may increase our operating costs. See in our 2021 Form
Item 1A. Risk Factors – We face substantial governmental regulation, including the Mine Safety and Health Act, various environmental laws and regulations and the 1872 Mining Law
10-K
.
Since its outbreak in 2020, the and for information on how restrictions related to
COVID-19
pandemic continues to impact our operational practices and we continue to incur incremental costs and modify our operational plans to keep our workforce safe. In 2020, the pandemic adversely impacted our expected production of gold at Casa Berardi and exploration drilling at Greens Creek. We incurred $0.4 million and $3.1 million in COVID-19
mitigation costs during the nine months ended September 30, 2022 and 2021, respectively. To mitigate the impact of COVID-19,
we have taken precautionary measures, including implementing operational plans and practices and increasing our cash reserves. As long as they are required, the operational practices implemented could continue to have an adverse impact on our operating results due to additional costs or deferred production and revenues. There is uncertainty related to the potential additional impacts COVID-19
and any subsequent variants could have on our operations and financial results for the rest of 2022. In our 2021 Form 10-K,
see Item IA. Risk Factors – Natural disasters, public health crises (including
COVID-19),
political crises, and other catastrophic events or other events outside of our control may materially and adversely affect our business or financial resultsCOVID-19
virus pandemic may heighten other risks COVID-19
have recently affected some of our operations. A number of key factors may impact the execution of our strategy, including regulatory issues, metals prices and inflationary pressures on input costs. Metals prices can be very volatile and are influenced by a number of factors beyond our control (except on a limited basis through the use of derivative contracts) including recent central bank actions to raise interest rates which have negatively impacted precious metals prices. See in our 2021 Form of . The average realized prices for all metals sold by us were lower in the three months ended September 30, 2022, than in the comparable period last year. The average realized prices for all metals sold by us were lower, except for zinc and gold, in the nine months ended September 30, 2022 than in the comparable period last year, as illustrated by the table in below. While we believe longer-term global economic and industrial trends could result in continued demand for the metals we produce, prices have been volatile and there can be no assurance that current prices will continue. We have also experienced significant cost inflation compared to 2021 across our operations, principally associated with higher energy prices, increased costs for other consumables such as reagents, explosives and steel, and labor and contractor costs.
Item 7.
Critical Accounting Estimates
10-K
and above in Note 8
Notes to Condensed Consolidated Financial Statements (Unaudited)
Results of Operations
Volatility in global financial markets and other factors can pose a significant challenge to our ability to access credit and equity markets, should we need to do so, and to predict sales prices for our products. To help mitigate this challenge, we utilize forward contracts to manage exposure to declines in the prices of (i) silver, gold, zinc and lead contained in our concentrates that have been shipped but have not yet settled, and (ii) zinc and lead that we forecast for future concentrate shipments. In addition, we have in place a $150 million revolving credit agreement, of which we had drawn $25.0 million as of September 30, 2022, and an additional $7.8 million was used as of September 30, 2022 for letters of credit, leaving approximately $117.2 million available for borrowing.
Another challenge for us is the risk associated with environmental litigation and ongoing reclamation activities. As described in in our 2021 Form of it is possible that our estimate of these liabilities (and our ability to estimate liabilities in general) may change in the future, affecting our strategic plans. We are involved in various environmental legal matters and the estimate of
Item 1A. Risk Factors
10-K
and above in Note 10
Notes to Condensed Consolidated Financial Statements (Unaudited),
25
our environmental liabilities and liquidity needs, as well as our strategic plans, may be significantly impacted as a result of these matters or new matters that may arise. We strive to ensure that our activities are conducted in compliance with applicable laws and regulations and attempt to resolve environmental litigation on terms as favorable to us as possible.
26
Consolidated Results of Operations
Sales by metal for the three- and nine-month periods ended September 30, 2022 and 2021 were as follows:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Silver |
$ | 45,924 | $ | 61,890 | $ | 182,306 | $ | 232,414 | ||||||||
| Gold |
69,289 | 94,984 | 228,475 | 282,471 | ||||||||||||
| Lead |
16,033 | 18,082 | 56,912 | 56,198 | ||||||||||||
| Zinc |
28,051 | 30,273 | 94,865 | 89,501 | ||||||||||||
| Less: smelter charges |
(13,023 | ) | (11,669 | ) | (38,543 | ) | (38,189 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Sales of products |
$ | 146,274 | $ | 193,560 | $ | 524,015 | $ | 622,395 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
Sales by metal for the three- and nine-month periods ended September 30, 2022 and 2021, and the approximate variances attributed to differences in metals prices, sales volumes and smelter terms, were as follows:
| (in thousands) | Silver |
Gold |
Base metals |
Less: smelter and refining charges |
Total sales of products |
|||||||||||||||
| Three months ended September 30, 2021 |
$ | 61,890 | $ | 94,984 | $ | 48,355 | $ | (11,669 | ) | $ | 193,560 | |||||||||
| Variances - 2022 versus 2021: |
||||||||||||||||||||
| Price |
(13,459 | ) | (3,125 | ) | (3,637 | ) | (1,475 | ) | (21,696 | ) | ||||||||||
| Volume |
(2,134 | ) | (22,570 | ) | (634 | ) | 162 | (25,176 | ) | |||||||||||
| Smelter terms |
(373 | ) | — | — | (41 | ) | (414 | ) | ||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Three months ended September 30, 2022 |
$ | 45,924 | $ | 69,289 | $ | 44,084 | $ | (13,023 | ) | $ | 146,274 | |||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| (in thousands) | Silver |
Gold |
Base metals |
Less: smelter and refining charges |
Total sales of products |
|||||||||||||||
| Nine months ended September 30, 2021 |
$ | 232,414 | $ | 282,471 | $ | 145,699 | $ | (38,189 | ) | $ | 622,395 | |||||||||
| Variances - 2022 versus 2021: |
||||||||||||||||||||
| Price |
(37,682 | ) | 2,557 | 7,748 | (3,381 | ) | (30,758 | ) | ||||||||||||
| Volume |
(12,335 | ) | (56,468 | ) | (1,670 | ) | 1,567 | (68,906 | ) | |||||||||||
| Smelter terms |
(91 | ) | (85 | ) | — | 1,460 | 1,284 | |||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Nine months ended September 30, 2022 |
$ | 182,306 | $ | 228,475 | $ | 151,777 | $ | (38,543 | ) | $ | 524,015 | |||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
The fluctuations in sales for the third quarter and first nine months of 2022 compared to the same periods of 2021 were primarily due to the following two reasons:
| • | Lower average realized prices for all metals sold during the third quarter and first nine months of 2022, except for gold and zinc for which the average realized price was higher during the nine months ended September 30, 2022 all compared to the same periods of 2021. These price variances are illustrated in the following table: |
27
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||
| Silver – | London PM Fix ($/ounce) | $ | 19.22 | $ | 24.36 | $ | 21.94 | $ | 25.78 | |||||||||||
| Realized price per ounce | $ | 18.30 | $ | 23.97 | $ | 21.25 | $ | 25.75 | ||||||||||||
| Gold – | London PM Fix ($/ounce) | $ | 1,728 | $ | 1,789 | $ | 1,825 | $ | 1,801 | |||||||||||
| Realized price per ounce | $ | 1,713 | $ | 1,792 | $ | 1,817 | $ | 1,794 | ||||||||||||
| Lead – | LME Final Cash Buyer ($/pound) | $ | 0.90 | $ | 1.06 | $ | 0.98 | $ | 0.98 | |||||||||||
| Realized price per pound | $ | 0.95 | $ | 1.02 | $ | 0.98 | $ | 1.00 | ||||||||||||
| Zinc – | LME Final Cash Buyer ($/pound) | $ | 1.48 | $ | 1.36 | $ | 1.65 | $ | 1.31 | |||||||||||
| Realized price per pound | $ | 1.23 | $ | 1.35 | $ | 1.47 | $ | 1.34 | ||||||||||||
Average realized prices typically differ from average market prices primarily because concentrate sales are generally recorded as revenues at the time of shipment at forward prices for the estimated month of settlement, which differ from average market prices. Due to the time elapsed between shipment of concentrates and final settlement with the customers, we must estimate the prices at which sales of our metals will be settled. Previously recorded sales are adjusted to estimated settlement metals prices each period through final settlement. For the three- and nine-month periods ended September 30, 2022, we recorded net negative price adjustments to provisional settlements of $6.6 million and $21.5 million, respectively, compared to net positive price adjustments to provisional settlements of $0.1 million and $3.7 million, respectively, in the three and nine months ended September 31, 2021. The price adjustments related to silver, gold, zinc and lead contained in our concentrate shipments were partially offset by gains and losses on forward contracts for those metals. See of for more information. The gains and losses on these contracts are included in revenues and impact the realized prices for silver, gold, lead and zinc. Realized prices are calculated by dividing gross revenues for each metal (which include the price adjustments and gains and losses on the forward contracts discussed above) by the payable quantities of each metal included in concentrate, doré and carbon material shipped during the period.
Note 8
Notes to Condensed Consolidated Financial Statements (Unaudited)
| • | Lower quantities of all metals sold in the third quarter and first nine months of 2022 compared to 2021 (except for lead in the nine months and zinc in the three months ended September 30, 2022, respectively, due to higher production at Lucky Friday during the first nine months of 2022), primarily due to the decision to defer a silver concentrate shipment at Greens Creek to October 2022 to ensure adequate concentrate volumes for cost-effective shipping, and the non-recurrence of Nevada refractory ore processing at a third-party facility in 2021. See The Greens Creek Segment, The Lucky Friday Segment, The Casa Berardi Segment The Nevada Operations Segment |
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||
| Silver - |
Ounces produced | 3,549,392 | 2,676,084 | 10,525,917 | 9,660,313 | |||||||||||||||
| Payable ounces sold | 2,479,724 | 2,581,690 | 8,554,894 | 9,027,180 | ||||||||||||||||
| Gold - |
Ounces produced | 44,747 | 42,207 | 132,173 | 153,350 | |||||||||||||||
| Payable ounces sold | 40,443 | 53,000 | 125,721 | 157,454 | ||||||||||||||||
| Lead - |
Tons produced | 11,600 | 9,904 | 35,794 | 32,148 | |||||||||||||||
| Payable tons sold | 8,049 | 8,835 | 28,788 | 28,166 | ||||||||||||||||
| Zinc - |
Tons produced | 15,859 | 15,546 | 47,571 | 48,864 | |||||||||||||||
| Payable tons sold | 11,523 | 11,174 | 32,328 | 33,344 | ||||||||||||||||
The difference between what we report as “ounces/tons produced” and “payable ounces/tons sold” is attributable to the difference between the quantities of metals contained in the concentrates we produce versus the portion of those metals actually paid for by our customers according to the terms of our sales contracts. Differences can also arise from inventory changes incidental to shipping schedules, or variances in ore grades which impact the amount of metals contained in concentrates produced and sold.
28
Sales, total cost of sales, gross profit, Cash Cost, After
By-product
Credits, per Ounce (“Cash Cost”) (non-GAAP)
and All-In
Sustaining Cost, After By-product
Credits, per Ounce (“AISC”) (non-GAAP)
at our operating units for the three- and nine -months ended September 30, 2022 and 2021 were as follows (in thousands, except for Cash Cost and AISC): | Silver | Gold | |||||||||||||||||||||||||||
| Greens Creek |
Lucky Friday |
Other | Total Silver (2) |
Casa Berardi |
Nevada Operations |
Total Gold |
||||||||||||||||||||||
| Three Months Ended September 30, 2022: |
||||||||||||||||||||||||||||
| Sales |
$ | 60,875 | $ | 28,460 | $ | — | $ | 89,335 | $ | 56,939 | $ | — | $ | 56,939 | ||||||||||||||
| Total cost of sales |
(52,502 | ) | (24,164 | ) | — | (76,666 | ) | (59,532 | ) | (1,623 | ) | (61,155 | ) | |||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Gross profit (loss) |
$ | 8,373 | $ | 4,296 | $ | — | $ | 12,669 | $ | (2,593 | ) | $ | (1,623 | ) | $ | (4,216 | ) | |||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Cash Cost per silver or gold ounce (1) |
$ | 2.65 | $ | 5.23 | $ | — | $ | 3.43 | $ | 1,349 | $ | — | $ | 1,349 | ||||||||||||||
| AISC per silver or gold ounce (1) |
$ | 8.61 | $ | 15.98 | $ | — | $ | 14.20 | $ | 1,738 | $ | — | $ | 1,738 | ||||||||||||||
| Three Months Ended September 30, 2021: |
||||||||||||||||||||||||||||
| Sales |
$ | 84,806 | $ | 29,783 | $ | — | $ | 114,589 | $ | 56,065 | $ | 22,906 | $ | 78,971 | ||||||||||||||
| Total cost of sales |
(55,193 | ) | (23,591 | ) | (78,784 | ) | (58,164 | ) | (21,384 | ) | (79,548 | ) | ||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Gross profit (loss) |
$ | 29,613 | $ | 6,192 | $ | — | $ | 35,805 | $ | (2,099 | ) | $ | 1,522 | $ | (577 | ) | ||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Cash Cost per silver or gold ounce (1) |
$ | 0.74 | $ | 6.35 | $ | — | $ | 2.49 | $ | 1,175 | $ | 1,038 | $ | 1,163 | ||||||||||||||
| AISC per silver or gold ounce (1) |
$ | 5.94 | $ | 16.79 | $ | — | $ | 12.82 | $ | 1,476 | $ | 1,167 | $ | 1,450 | ||||||||||||||
| Silver | Gold | |||||||||||||||||||||||||||
| Greens Creek |
Lucky Friday |
Other | Total Silver (2) |
Casa Berardi |
Nevada Operations |
Total Gold |
||||||||||||||||||||||
| Nine Months Ended September 30, 2022: |
||||||||||||||||||||||||||||
| Sales |
$ | 239,688 | $ | 102,380 | $ | — | $ | 342,068 | $ | 181,679 | $ | 268 | $ | 181,947 | ||||||||||||||
| Total cost of sales |
(162,644 | ) | (83,779 | ) | — | (246,423 | ) | (183,570 | ) | (2,878 | ) | (186,448 | ) | |||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Gross profit |
$ | 77,044 | $ | 18,601 | $ | — | $ | 95,645 | $ | (1,891 | ) | $ | (2,610 | ) | $ | (4,501 | ) | |||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Cash Cost per silver or gold ounce (1) |
$ | (0.49 | ) | $ | 4.77 | $ | — | $ | 1.11 | $ | 1,409 | $ | — | $ | 1,409 | |||||||||||||
| AISC per silver or gold ounce (1) |
$ | 4.69 | $ | 12.86 | $ | — | $ | 10.17 | $ | 1,729 | $ | — | $ | 1,729 | ||||||||||||||
| Nine Months Ended September 30, 2021: |
||||||||||||||||||||||||||||
| Sales |
$ | 296,978 | $ | 98,550 | $ | 176 | $ | 395,704 | $ | 185,098 | $ | 41,593 | $ | 226,691 | ||||||||||||||
| Total cost of sales |
(163,861 | ) | (74,287 | ) | (95 | ) | (238,243 | ) | (172,760 | ) | (46,832 | ) | (219,592 | ) | ||||||||||||||
| |
|
|
|
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|
|
|
|
|
|
|
|
|
|||||||||||||||
| Gross profit |
$ | 133,117 | $ | 24,263 | $ | 81 | $ | 157,461 | $ | 12,338 | $ | (5,239 | ) | $ | 7,099 | |||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Cash Cost per silver or gold ounce (1) |
$ | (1.03 | ) | $ | 7.37 | $ | — | $ | 1.26 | $ | 1,127 | $ | 1,124 | $ | 1,127 | |||||||||||||
| AISC per silver or gold ounce (1) |
$ | 2.40 | $ | 15.00 | $ | — | $ | 8.88 | $ | 1,387 | $ | 1,167 | $ | 1,349 | ||||||||||||||
| (1) | A reconciliation of these non-GAAP measures to total cost of sales, the most comparable GAAP measure, can be found below in Reconciliation of Total Cost of Sales (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP) |
| (2) | The calculation of AISC, After By-product Credits, Per Ounce for our consolidated silver properties includes corporate costs for general and administrative expense and sustaining exploration and capital costs. |
While revenue from zinc, lead and gold
by-products
is significant, we believe that identification of silver as the primary product of Greens Creek and Lucky Friday is appropriate because: | • | silver has historically accounted for a higher proportion of revenue than any other metal and is expected to do so in the future; |
29
| • | we have historically presented these units as a primary silver producer, based on the original analysis that justified putting the project into production, and believe that consistency in disclosure is important to our investors regardless of the relationships of metals prices and production from year to year; |
| • | metallurgical treatment maximizes silver recovery; |
| • | the Greens Creek and Lucky Friday deposits are massive sulfide deposits containing an unusually high proportion of silver; and |
| • | in most of their working areas, Greens Creek and Lucky Friday utilize selective mining methods in which silver is the metal targeted for highest recovery. |
Accordingly, we believe the identification of gold, lead and zinc as
by-product
credits at Greens Creek and Lucky Friday is appropriate because of their lower economic value compared to silver and due to the fact that silver is the primary product we intend to produce. In addition, we have not consistently received sufficient revenue from any single by-product
metal to warrant classification of such as a co-product.
We periodically review our revenues to ensure that reporting of primary products and
by-products
is appropriate. Because for Greens Creek, Lucky Friday and San Sebastian we consider zinc, lead and gold to be by-products
of our silver production, the values of these metals offset operating costs within our calculations of Cash Cost, After By-product
Credits, per Silver Ounce and AISC, After By-product
Credits, per Silver Ounce. We believe the identification of silver as a
by-product
credit is appropriate at Casa Berardi and Nevada Operations because of its lower economic value compared to gold and due to the fact that gold is the primary product we intend to produce there. In addition, we do not receive sufficient revenue from silver at Casa Berardi to warrant classification of such as a co-product.
Because we consider silver to be a by-product
of our gold production at Casa Berardi and Nevada Operations, the value of silver offsets operating costs within our calculations of Cash Cost, After By-product
Credits, per Gold Ounce and AISC, After By-product
Credits, per Gold Ounce. For the third quarter we recorded loss applicable to common stockholders of $23.7 million (($0.04) per basic common share) compared to $1.1 million ($Nil) per basic common share) in the third quarter of 2021. The variances in gross profit (loss) at our operating units as illustrated in the table above contributed to the results for the third quarter of 2022 compared to the same period in 2021. See and sections below.
The Greens Creek Segment,
The Lucky Friday Segment, The Casa Berardi Segment
The Nevada Operations Segment
In addition to the impact of lower gross profit on loss applicable to common stockholders, the following were the other significant drivers of changes in loss applicable to common stockholders compared to the prior period in 2021:
| • | General and administrative costs increased by $2.1 million primarily due to the impact of the Alexco acquisition closed on September 7, 2022 and compensation adjustments effective July 1, 2022. |
| • | Fair value adjustments, net were losses of $4.2 million versus a gain of $9.3 million in 2021 primarily due to the accounting for our base metals contracts as accounting hedges effective November 1, 2021, which resulted in unrealized gains/losses on these contracts being deferred on the balance sheet, versus them being recognized in the statement of operations in the 2021 comparable quarter (see Notes 8 and 9 Notes to Condensed Consolidated Financial Statements (Unaudited) |
| • | Exploration and pre-development decreased by $2.0 million primarily due to lower expenditures at the Hatter Graben project in Nevada. |
| • | Provision for closed operations and environmental matters decreased by $5.8 million primarily due to the settlement in 2021 of a lawsuit for $6.5 million related to a 1989 agreement entered into by our subsidiary, CoCa Mines, Inc. and its subsidiary, Creede Resources, Inc. |
| • | Other operating expense decreased by $2.4 million primarily due to the receipt of $2.5 million in insurance proceeds related to a coverage lawsuit received during September 2022 and the completion of projects to identify and implement potential operational improvements at our operating sites. |
| • | Net foreign exchange gains increased by $1.7 million reflecting the continued depreciation of the CAD against the USD in 2022. The change is primarily related to the impact of changes in the CAD-to-USD |
For the first nine months of 2022, we recorded loss applicable to common stockholders of $33.3 million (($0.06) per basic common share) compared to income applicable to common stockholders of $22.8 million ($0.04 per basic common share) in the first nine months of 2021. The variances in gross profit (loss) at our operating units as illustrated in the table above contributed to the results for the first nine months of 2022 compared to the same period in 2021. See and sections below.
The Greens Creek Segment,
The Lucky Friday Segment, The Casa Berardi Segment
The Nevada Operations Segment
30
In addition to the impact of lower gross profit on loss applicable to common stockholders, the following were the other significant drivers of changes in loss applicable to common stockholders compared to the prior period in 2021:
| • | Exploration and pre-development expense increased by $4.1 million reflecting increased exploration spending across the Company’s exploration portfolio primarily at San Sebastian, Casa Berardi, Greens Creek and the Nevada Operations. Pre-development expense was for the development of a decline to the Hatter Graben area at the Hollister mine in Nevada. |
| • | Fair value adjustments, net losses increased by $4.1 million due to unrealized losses on our equity securities portfolio increasing by $7.6 million offset by a lower loss of $4.7 million on our derivative contracts primarily due to the accounting for our base metals contracts as accounting hedges effective November 1, 2021, which resulted in unrealized gains/losses on these contracts being deferred on the balance sheet, versus them being recognized in the income statement in 2021 the comparable quarter (see Notes 8 and 9 Notes to Condensed Consolidated Financial Statements (Unaudited) |
| • | Net foreign exchange gains increased by $8.1 million reflecting the continued depreciation of the CAD against the USD in 2022. The change is primarily related to the impact of changes in the CAD-to-USD |
| • | Provision for closed operations and environmental matters decreased by $8.1 million primarily due to the settlement in 2021 of a lawsuit for $6.5 million related to a 1989 agreement entered into by our subsidiary, CoCa Mines, Inc. and its subsidiary, Creede Resources, Inc and an increase in the estimated costs accrual for the Johnny M. site in New Mexico of $2.9 million in 2021(see Note 10 Notes to Condensed Consolidated Financial Statements (Unaudited) |
| • | Other operating expense decreased by $5.3 million primarily due to the receipt of $4.2 million in insurance proceeds related to a coverage lawsuit received during June and September 2022 and the completion of projects to identify and implement potential operation improvements at our operating sites. |
31
Greens Creek
Dollars are in thousands (except per ounce and per ton amounts) |
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Sales |
$ | 60,875 | $ | 84,806 | $ | 239,688 | $ | 296,978 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Cost of sales and other direct production costs |
(42,197 | ) | (42,096 | ) | (127,290 | ) | (121,451 | ) | ||||||||
| Depreciation, depletion and amortization |
(10,305 | ) | (13,097 | ) | (35,354 | ) | (42,410 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total cost of sales |
(52,502 | ) | (55,193 | ) | (162,644 | ) | (163,861 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Gross profit |
$ | 8,373 | $ | 29,613 | $ | 77,044 | $ | 133,117 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Tons of ore milled |
229,975 | 211,142 | 651,220 | 620,153 | ||||||||||||
| Production: |
||||||||||||||||
| Silver (ounces) |
2,468,280 | 1,837,270 | 7,308,660 | 6,980,587 | ||||||||||||
| Gold (ounces) |
11,412 | 9,734 | 35,227 | 35,859 | ||||||||||||
| Zinc (tons) |
12,580 | 13,227 | 38,470 | 41,191 | ||||||||||||
| Lead (tons) |
4,428 | 4,591 | 14,495 | 15,142 | ||||||||||||
| Payable metal quantities sold: |
||||||||||||||||
| Silver (ounces) |
1,663,909 | 1,774,421 | 5,702,301 | 6,493,528 | ||||||||||||
| Gold (ounces) |
7,478 | 9,232 | 25,952 | 31,599 | ||||||||||||
| Zinc (tons) |
9,138 | 9,472 | 25,725 | 27,783 | ||||||||||||
| Lead (tons) |
2,755 | 3,834 | 10,069 | 12,098 | ||||||||||||
| Ore grades: |
||||||||||||||||
| Silver ounces per ton |
13.63 | 11.14 | 13.83 | 13.84 | ||||||||||||
| Gold ounces per ton |
0.07 | 0.07 | 0.07 | 0.08 | ||||||||||||
| Zinc percent |
6.3 | % | 7.1 | % | 6.7 | % | 7.4 | % | ||||||||
| Lead percent |
2.4 | % | 2.7 | % | 2.7 | % | 3.0 | % | ||||||||
| Total production cost per ton |
$ | 185.34 | $ | 181.60 | $ | 191.58 | $ | 178.29 | ||||||||
| Cash Cost, After By-product Credits, Per Silver Ounce (1) |
$ | 2.65 | $ | 0.74 | $ | (0.49 | ) | $ | (1.03 | ) | ||||||
| AISC, After By-Product Credits, per Silver Ounce (1) |
$ | 8.61 | $ | 5.94 | $ | 4.69 | $ | 2.40 | ||||||||
| Capital additions |
$ | 6,988 | $ | 6,228 | $ | 24,748 | $ | 14,339 | ||||||||
| (1) | A reconciliation of these non-GAAP measures to total cost of sales, the most comparable GAAP measure, can be found below in Reconciliation of Total Cost of Sales (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP) |
The $21.2 million and $56.1 million decreases in gross profit for the third quarter and first nine months of 2022, respectively, compared to the same periods of 2021 were primarily due to: (i) lower payable metals sold for all metals produced reflecting the decision to defer a silver concentrate shipment to October to ensure adequate concentrate volumes for cost-effective shipment, (ii) lower realized prices for all metals in both the three and nine month periods respectively, with the exception of zinc in the nine month period ended September 30, 2022, and (iii) higher production costs reflecting the impact of inflationary cost increases in consumables, labor and contractor costs.
The charts below illustrate the factors contributing to the variances in Cash Cost, After
By-product
Credits, Per Silver Ounce for the third quarter and first nine months of 2022 compared to the same periods of 2021. The following table summarizes the components of Cash Cost, After
By-product
Credits, per Silver Ounce: 32
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Cash Cost, Before By-product Credits, per Silver Ounce |
$ | 22.69 | $ | 26.76 | $ | 22.24 | $ | 21.05 | ||||||||
| By-product credits |
(20.04 | ) | (26.02 | ) | (22.73 | ) | (22.08 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Cash Cost, After By-product Credits, per Silver Ounce |
$ | 2.65 | $ | 0.74 | $ | (0.49 | ) | $ | (1.03 | ) | ||||||
| |
|
|
|
|
|
|
|
|||||||||
The following table summarizes the components of AISC, After
By-product
Credits, per Silver Ounce: | Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| AISC, Before By-product Credits, per Silver Ounce |
$ | 28.65 | $ | 31.96 | $ | 27.42 | $ | 24.48 | ||||||||
| By-product credits |
(20.04 | ) | (26.02 | ) | (22.73 | ) | (22.08 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| AISC, After By-product Credits, per Silver Ounce |
$ | 8.61 | $ | 5.94 | $ | 4.69 | $ | 2.40 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
33
The increase in Cash Cost, After
By-product
Credits, per Silver Ounce for the third quarter and first nine months of 2022 compared to 2021 was primarily due to higher cash costs reflecting inflationary cost pressures and lower by-product
credits for the three months ended September 30, 2022. The increase in AISC, After
By-product
Credits, per Silver Ounce for the third quarter and first nine months of 2022 compared to 2021 was primarily due to higher sustaining capital of $10.2 million and $30.8 million for the third quarter and first nine months of 2022, respectively, compared to $6.2 million and $17.5 million, respectively, in 2021, reflecting the costs being incurred on camp construction and higher definition and development drilling during 2022 compared to 2021. Lucky Friday
Dollars are in thousands (except per ounce and per ton amounts) |
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Sales |
$ | 28,460 | $ | 29,783 | $ | 102,380 | $ | 98,550 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Cost of sales and other direct production costs |
(16,903 | ) | (17,001 | ) | (59,624 | ) | (53,959 | ) | ||||||||
| Depreciation, depletion and amortization |
(7,261 | ) | (6,590 | ) | (24,155 | ) | (20,328 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total cost of sales |
(24,164 | ) | (23,591 | ) | (83,779 | ) | (74,287 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Gross profit |
$ | 4,296 | $ | 6,192 | $ | 18,601 | $ | 24,263 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Tons of ore milled |
90,749 | 78,227 | 265,971 | 241,740 | ||||||||||||
| Production: |
||||||||||||||||
| Silver (ounces) |
1,074,230 | 831,532 | 3,188,565 | 2,608,727 | ||||||||||||
| Lead (tons) |
7,172 | 5,313 | 21,299 | 17,006 | ||||||||||||
| Zinc (tons) |
3,279 | 2,319 | 9,101 | 7,673 | ||||||||||||
| Payable metal quantities sold: |
||||||||||||||||
| Silver (ounces) |
801,115 | 783,672 | 2,822,281 | 2,481,753 | ||||||||||||
| Lead (tons) |
5,295 | 5,001 | 18,720 | 16,068 | ||||||||||||
| Zinc (tons) |
2,385 | 1,702 | 6,602 | 5,561 | ||||||||||||
| Ore grades: |
||||||||||||||||
| Silver ounces per ton |
12.50 | 11.21 | 12.67 | 11.34 | ||||||||||||
| Lead percent |
8.5 | % | 7.2 | % | 8.5 | % | 7.4 | % | ||||||||
| Zinc percent |
4.2 | % | 3.3 | % | 3.9 | % | 3.5 | % | ||||||||
| Total production cost per ton |
$ | 207.1 | $ | 190.66 | $ | 220.41 | $ | 189.06 | ||||||||
| Cash Cost, After By-product Credits, per Silver Ounce (1) |
$ | 5.23 | $ | 6.35 | $ | 4.77 | $ | 7.37 | ||||||||
| AISC, After By-product Credits, per Silver Ounce (1) |
$ | 15.98 | $ | 16.79 | $ | 12.86 | $ | 15.00 | ||||||||
| Capital additions |
$ | 16,125 | $ | 9,133 | $ | 37,278 | $ | 20,776 | ||||||||
| (1) | A reconciliation of these non-GAAP measures to total cost of sales, the most comparable GAAP measure, can be found below in Reconciliation of Total Cost of Sales (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP) |
Gross profit for the three months ended September 30, 2022 decreased by $1.9 million compared to the same period in 2021, as the impact of increased sales quantities from mining and processing more high grade material and in higher volumes, did not offset the combination of lower realized silver, lead and zinc prices compared to 2021, and increased production costs from more ore mined and processed and inflationary cost increases in consumables and contractor maintenance costs. Gross profit for the nine month period September 30, 2022 decreased by $5.7 million compared to the same period in 2021, as increased sales from a combination of mining and processing more high grade material and in higher volumes did not offset the impact of lower silver and lead realized prices and higher production costs which were the result of the same factors experienced in the three months ended September 30, 2022.
The charts below illustrate the factors contributing to Cash Cost, After
By-product
Credits, Per Silver Ounce for the third quarter and first nine months of 2022 compared to the same periods of 2021. 34
The following table summarizes the components of Cash Cost, After
By-product
Credits, per Silver Ounce: | Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Cash Cost, Before By-product Credits, per Silver Ounce |
$ | 22.87 | $ | 24.14 | $ | 23.44 | $ | 24.70 | ||||||||
| By-product credits |
(17.64 | ) | (17.79 | ) | (18.67 | ) | (17.33 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Cash Cost, After By-product Credits, per Silver Ounce |
$ | 5.23 | $ | 6.35 | $ | 4.77 | $ | 7.37 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
The following table summarizes the components of AISC, After
By-product
Credits, per Silver Ounce: 35
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| AISC, Before By-product Credits, per Silver Ounce |
$ | 33.62 | $ | 34.58 | $ | 31.53 | $ | 32.33 | ||||||||
| By-product credits |
(17.64 | ) | (17.79 | ) | (18.67 | ) | (17.33 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| AISC, After By-product Credits, per Silver Ounce |
$ | 15.98 | $ | 16.79 | 12.86 | $ | 15.00 | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
The decrease in Cash Cost and AISC, After
By-product
Credits, per Silver Ounce for the three and nine month periods ended September 30, 2022 compared to the three and nine month periods ended September 30, 2021 was due to higher silver production resulting from increased grades and volumes processed, higher by-product
credits (for the nine months ended September 30, 2022) due to higher realized zinc prices, and concentrate quality improvement resulting in higher lead and zinc production, with the decrease in AISC, After By-product
Credits, per Silver Ounce partially offset by higher sustaining capital spending. The Casa Berardi Segment
Dollars are in thousands (except per ounce and per ton amounts) |
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Sales |
$ | 56,939 | $ | 56,065 | $ | 181,679 | $ | 185,098 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Cost of sales and other direct production costs |
(44,443 | ) | (38,196 | ) | (137,176 | ) | (111,601 | ) | ||||||||
| Depreciation, depletion and amortization |
(15,089 | ) | (19,968 | ) | (46,394 | ) | (61,159 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total cost of sales |
(59,532 | ) | (58,164 | ) | (183,570 | ) | (172,760 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Gross profit |
$ | (2,593 | ) | $ | (2,099 | ) | $ | (1,891 | ) | $ | 12,338 | |||||
| |
|
|
|
|
|
|
|
|||||||||
| Tons of ore milled |
389,941 | 398,143 | 1,177,709 | 1,141,229 | ||||||||||||
| Production: |
||||||||||||||||
| Gold (ounces) |
33,335 | 29,722 | 96,881 | 97,245 | ||||||||||||
| Silver (ounces) |
6,882 | 7,012 | 22,329 | 25,604 | ||||||||||||
| Payable metal quantities sold: |
||||||||||||||||
| Gold (ounces) |
32,965 | 31,227 | 99,703 | 102,711 | ||||||||||||
| Silver (ounces) |
14,700 | 7,764 | 23,950 | 24,538 | ||||||||||||
| Ore grades: |
||||||||||||||||
| Gold ounces per ton |
0.10 | 0.09 | 0.09 | 0.10 | ||||||||||||
| Silver ounces per ton |
0.02 | 0.02 | 0.02 | 0.02 | ||||||||||||
| Total production cost per ton |
$ | 114.52 | $ | 86.95 | $ | 115.15 | $ | 95.13 | ||||||||
| Cash Cost, After By-product Credits, per Gold Ounce (1) |
$ | 1,349 | $ | 1,175 | $ | 1,409 | $ | 1,127 | ||||||||
| AISC, After By-product Credits, per Gold Ounce (1) |
$ | 1,738 | $ | 1,476 | $ | 1,729 | $ | 1,387 | ||||||||
| Capital additions |
$ | 10,771 | $ | 11,488 | $ | 26,672 | $ | 37,488 | ||||||||
| (1) | A reconciliation of these non-GAAP measures to total cost of sales, the most comparable GAAP measure, can be found below in Reconciliation of Total Cost of Sales (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP) |
Gross profit decreased by $0.5 million and $14.2 million for the third quarter and first nine months of 2022, respectively, compared to the same periods of 2021. The decrease for the third quarter and first nine months of 2022 was due to lower realized prices and higher cost of sales resulting from increased production costs due to: (i) higher ore tonnage for the nine month period only, (ii) mill contractor costs related to maintenance and optimization activities, (iii) higher underground maintenance costs resulting from repairs and replacements of major components for the production fleet and (iv) higher fuel and other consumables costs which have been negatively impacted by current inflationary pressures. The impact of higher costs of sales and lower realized prices was partially offset by increased sales volume in the third quarter of 2022. Lower sales volume in the first nine months of 2022 compared to 2021 due to lower grades mined and processed, was partially offset by higher realized gold price.
36
Total capital additions decreased by $0.7 million and $10.8 million in the third quarter of 2022 and first nine months of 2022 respectively, compared to the same periods of 2021, reflecting lower development costs following commissioning of the new 160 zone open pit mine in the fourth quarter of 2021.
The charts below illustrate the factors contributing to Cash Cost, After
By-product
Credits, Per Gold Ounce for the third quarter and first nine months of 2022 and 2021: 
The following table summarizes the components of Cash Cost, After
By-product
Credits, per Gold Ounce: 37
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Cash Cost, Before By-product Credits, per Gold Ounce |
$ | 1,353 | $ | 1,181 | $ | 1,415 | $ | 1,134 | ||||||||
| By-product credits |
(4) | (6) | (6) | (7) | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Cash Cost, After By-product Credits, per Gold Ounce |
$ | 1,349 | $ | 1,175 | $ | 1,409 | $ | 1,127 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
The following table summarizes the components of AISC, After
By-product
Credits, per Gold Ounce: | Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| AISC, Before By-product Credits, per Gold Ounce |
$ | 1,742 | $ | 1,482 | $ | 1,735 | $ | 1,394 | ||||||||
| By-product credits |
(4) | (6) | (6) | (7) | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| AISC, After By-product Credits, per Gold Ounce |
$ | 1,738 | $ | 1,476 | $ | 1,729 | $ | 1,387 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
The increase in Cash Cost After
By-product
Credits, per Gold Ounce for the third quarter and first nine months of 2022 compared to the same periods in 2021 was primarily due to higher production costs, as discussed above, partially offset by higher gold production in the third quarter of 2022 compared with the same period in 2021. The lower production in 2022 also negatively impacted AISC, After By-product
Credits, per Gold Ounce, however this was partially offset by lower sustaining capital spent in 2022 compared to 2021. The Nevada Operations Segment
Dollars are in thousands (except per ounce and per ton amounts) |
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Sales |
$ | — | $ | 22,906 | $ | 268 | $ | 41,593 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Cost of sales and other direct production costs |
(1,285 | ) | (15,249 | ) | (2,418 | ) | (31,811 | ) | ||||||||
| Depreciation, depletion and amortization |
(338 | ) | (6,135 | ) | (460 | ) | (15,021 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total cost of sales |
(1,623 | ) | (21,384 | ) | (2,878 | ) | (46,832 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Gross (loss) profit |
$ | (1,623 | ) | $ | 1,522 | $ | (2,610 | ) | $ | (5,239 | ) | |||||
| |
|
|
|
|
|
|
|
|||||||||
| Payable metal quantities sold: |
||||||||||||||||
| Gold (ounces) |
— | 12,542 | 65 | 23,097 | ||||||||||||
| Silver (ounces) |
— | 15,833 | 6,363 | 23,868 | ||||||||||||
The gross loss of $1.6 million for the three months ended September 30, 2022, was attributable to write downs of stockpiled material to net realizable value reflecting a lower spot gold price, versus the gross profit realized in the comparable period in 2021, due to processing and sale of refractory ore at a third party facility.
The decrease in gross loss for the first nine months of 2022 compared to the same period of 2021 was primarily the result of lower sales volumes and lower write-downs of ore stockpiled to estimated net realizable value. During 2021, production and revenue were generated from processing of the stockpiled in the second quarter of 2021 after processing of the remaining
non-refractory
ore at the Midas mill and third-party processing of refractory ore in a roaster and autoclave facility, respectively. Fire Creek was placed on care-and-maintenance
non-refractory
ore stockpile. Care and maintenance costs are reported in a separate line item on our consolidated statements of operations and excluded from the calculations of cost of sales and other direct production costs and depreciation, depletion and amortization. Exploration activities and
pre-development
activities continued in 2022 and was focused on drill testing targets at Aurora, Midas and the Hatter Graben in addition to target generation through detailed mapping, sampling and geological mapping. See in our 2021 Form
Item 1A. Risk Factors – Operation, Development, Exploration and Acquisition Risks
10-K
for a discussion of certain risks relating to our recent and ongoing analysis of the carrying value of the Nevada assets. 38
Corporate Matters
Employee Benefit Plans
Our three defined benefit pension plans (the “DB plans”) provide a significant benefit to our employees, but represent a liability to us. The liability recorded for the underfunded status of our plans was $4.8 million and $6.0 million as of September 30, 2022 and December 31, 2021, respectively. During May 2022, we contributed an aggregate of $5.6 million in shares of our common stock to two of our DB plans. We contributed an additional $4.2 million in shares of our common stock to one of our DB plans in October 2022 and do not expect to make additional contributions to our DB plans in 2022, but may choose to do so. While the economic variables which will determine future funding requirements are uncertain, we expect contributions to continue to be required in future years under the provisions of two DB plans, and we periodically examine the plans for affordability and competitiveness. Seeofin our 2021 Form
Note 6
Notes to Consolidated Financial Statements
10-K
for more information. Income Taxes
During the third quarter and first nine months of 2022, an income and mining tax benefit of approximately $9.5 million and $3.6 million resulted in an effective tax rate of 29% and 10% for the respective periods. This compares to an income and mining tax benefit of $4.5 million and $3.9 million for the third quarter and first nine months of 2021, or an effective tax rate of 82.2% and (20.3)% for the respective periods. The comparability of our income and mining tax (provision) benefit and effective tax rate for the reported periods was impacted by multiple factors, primarily: (i) mining taxes; (ii) variations in our income before income taxes; (iii) geographic distribution of that income; (iv) foreign exchange rates including
non-recognition
of foreign exchange gains and losses; (v) percentage depletion; and (vi) the non-recognition
of tax assets. The effective tax rate will fluctuate, sometimes significantly, period to period. Beginning with the period ended March 31, 2022 and including the period September 30, 2022, we used the annual effective tax rate method to calculate the quarterly tax provision, a change from the discrete method used for the period ended September 30, 2021, due to reversal of valuation allowance in the fourth quarter of 2021. Each reporting period we assess our deferred tax balances based on a review of long-range forecasts and quarterly activity. A valuation allowance is provided for deferred tax assets for which it is more likely than not the related tax benefits will not be realized. We analyze our deferred tax assets and, if it is determined that we will not realize all or a portion of our deferred tax assets, we will record or increase a valuation allowance. Conversely, if it is determined we will ultimately more likely than not be able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced. There are a number of factors that impact our ability to realize our deferred tax assets. Valuation allowances are provided on deferred tax assets in Nevada, Mexico, and certain Canadian jurisdictions. For additional information, please see in our 2021 Form
Item 1A – Risk Factors
10-K.
Reconciliation of Total Cost of Sales to Cash Cost, Before
By-product
Credits and Cash Cost, After By-product
Credits (non-GAAP)
and All-In
Sustaining Cost, Before By-product
Credits and All-In
Sustaining Cost, After By-product
Credits (non-GAAP)
The tables below present reconciliations between the most comparable GAAP measure of total cost of sales to the
non-GAAP
measures of (i) Cash Cost, Before By-product
Credits, (ii) Cash Cost, After By-product
Credits, (iii) AISC, Before By-product
Credits and (iv) AISC, After By-product
Credits for our operations and for the Company for the three- and nine-month periods ended September 30, 2022 and 2021. Cash Cost, After
By-product
Credits, per Ounce and AISC, After By-product
Credits, per Ounce are measures developed by precious metals companies (including the Silver Institute and the World Gold Council) in an effort to provide a uniform standard for comparison purposes. There can be no assurance, however, that these non-GAAP
measures as we report them are the same as those reported by other mining companies. Cash Cost, After
By-product
Credits, per Ounce is an important operating statistic that we utilize to measure each mine’s operating performance. We use AISC, After By-product
Credits, per Ounce as a measure of our mines’ net cash flow after costs for exploration, pre-development,
reclamation, and sustaining capital. This is similar to the Cash Cost, After By-product
Credits, per Ounce non-GAAP
measure we report, but also includes on-site
exploration, reclamation, and sustaining capital costs. Current GAAP measures used in the mining industry, such as cost of goods sold, do not capture all the expenditures incurred to discover, develop and sustain silver and gold production. Cash Cost, After By-product
Credits, per 39
Ounce and AISC, After
By-product
Credits, per Ounce also allow us to benchmark the performance of each of our mines versus those of our competitors. As a silver and gold mining company, we also use these statistics on an aggregate basis – aggregating the Greens Creek and Lucky Friday mines to compare our performance with that of other silver mining companies, and aggregating Casa Berardi and Nevada Operations for comparison with other gold mining companies. Similarly, these statistics are useful in identifying acquisition and investment opportunities as they provide a common tool for measuring the financial performance of other mines with varying geologic, metallurgical and operating characteristics. Cash Cost, Before
By-product
Credits and AISC, Before By-product
Credits include all direct and indirect operating cash costs related directly to the physical activities of producing metals, including mining, processing and other plant costs, third-party refining expense, on-site
general and administrative costs, royalties and mining production taxes. AISC, Before By-product
Credits for each mine also includes on-site
exploration, reclamation, and sustaining capital costs. AISC, Before By-product
Credits for our consolidated silver properties also includes corporate costs for general and administrative expense and sustaining exploration and capital costs. By-product
credits include revenues earned from all metals other than the primary metal produced at each unit. As depicted in the tables below, by-product
credits comprise an essential element of our silver unit cost structure, distinguishing our silver operations due to the polymetallic nature of their orebodies. In addition to the uses described above, Cash Cost, After from a cash flow perspective.
By-product
Credits, per Ounce and AISC, After By-product
Credits, per Ounce provide management and investors an indication of operating cash flow, after consideration of the average price received from production. We also use these measurements for the comparative monitoring of performance of our mining operations period-to-period
The Casa Berardi, Nevada Operations and combined gold properties information below reports Cash Cost, After Cost, After
By-product
Credits, per Gold Ounce and AISC, After By-product
Credits, per Gold Ounce for the production of gold, their primary product, and by-product
revenues earned from silver, which is a by-product
at Casa Berardi and Nevada Operations. Only costs and ounces produced relating to units with the same primary product are combined to represent Cash Cost, After By-product
Credits, per Ounce and AISC, After By-product
Credits, per Ounce. Thus, the gold produced at our Casa Berardi and Nevada Operations units is not included as a by-product
credit when calculating CashBy-product
Credits, per Silver Ounce and AISC, After By-product
Credits, per Silver Ounce for the total of Greens Creek and Lucky Friday, our combined silver properties. Similarly, the silver produced at our other two units is not included as a by-product
credit when calculating the gold metrics for Casa Berardi and Nevada Operations. 40
In thousands (except per ounce amounts) |
Three Months Ended September 30, 2022 | |||||||||||||||
| Greens Creek |
Lucky Friday |
Corporate (2) |
Total Silver |
|||||||||||||
| Total cost of sales |
$ | 52,502 | $ | 24,164 | $ | — | $ | 76,666 | ||||||||
| Depreciation, depletion and amortization |
(10,305 | ) | (7,261 | ) | — | (17,566 | ) | |||||||||
| Treatment costs |
9,477 | 4,791 | — | 14,268 | ||||||||||||
| Change in product inventory |
4,464 | 3,022 | — | 7,486 | ||||||||||||
| Reclamation and other costs |
(118 | ) | (152 | ) | — | (270 | ) | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Cash Cost, Before By-product Credits (1) |
56,020 | 24,564 | 80,584 | |||||||||||||
| Reclamation and other costs |
705 | 282 | — | 987 | ||||||||||||
| Sustaining exploration |
3,776 | — | 722 | 4,498 | ||||||||||||
| Sustaining capital |
10,219 | 11,264 | 187 | 21,670 | ||||||||||||
| General and administrative |
— | — | 11,003 | 11,003 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| AISC, Before By-product Credits (1) |
70,720 | 36,110 | 11,912 | 118,742 | ||||||||||||
| By-product credits: |
||||||||||||||||
| Zinc |
(26,244 | ) | (7,155 | ) | — | (33,399 | ) | |||||||||
| Gold |
(17,019 | ) | — | — | (17,019 | ) | ||||||||||
| Lead |
(6,212 | ) | (11,796 | ) | — | (18,008 | ) | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total By-product credits |
(49,475 | ) | (18,951 | ) | — | (68,426 | ) | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Cash Cost, After By-product Credits |
$ | 6,545 | $ | 5,613 | $ | — | $ | 12,158 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| AISC, After By-product Credits |
$ | 21,245 | $ | 17,159 | 11,912 | $ | 50,316 | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Divided by ounces produced |
2,469 | 1,075 | 3,544 | |||||||||||||
| Cash Cost, Before By-product Credits, per Ounce |
$ | 22.69 | $ | 22.87 | $ | 22.74 | ||||||||||
| By-product credits per ounce |
(20.04 | ) | (17.64 | ) | (19.31 | ) | ||||||||||
| |
|
|
|
|
|
|||||||||||
| Cash Cost, After By-product Credits, per Ounce |
$ | 2.65 | $ | 5.23 | $ | 3.43 | ||||||||||
| |
|
|
|
|
|
|||||||||||
| AISC, Before By-product Credits, per Ounce |
$ | 28.65 | $ | 33.62 | $ | 33.51 | ||||||||||
| By-product credits per ounce |
(20.04 | ) | (17.64 | ) | (19.31 | ) | ||||||||||
| |
|
|
|
|
|
|||||||||||
| AISC, After By-product Credits, per Ounce |
$ | 8.61 | $ | 15.98 | $ | 14.20 | ||||||||||
| |
|
|
|
|
|
|||||||||||
41
In thousands (except per ounce amounts) |
Three Months ended September 30, 2022 |
|||||||
| Casa Berardi |
Total Gold | |||||||
| Total cost of sales |
$ | 59,532 | $ | 59,532 | ||||
| Depreciation, depletion and amortization |
(15,089 | ) | (15,089 | ) | ||||
| Treatment costs |
429 | 429 | ||||||
| Change in product inventory |
420 | 420 | ||||||
| Reclamation and other costs |
(203 | ) | (203 | ) | ||||
| |
|
|
|
|||||
| Cash Cost, Before By-product Credits (1) |
45,089 | 45,089 | ||||||
| Reclamation and other costs |
204 | 204 | ||||||
| Sustaining exploration |
2,314 | 2,314 | ||||||
| Sustaining capital |
10,457 | 10,457 | ||||||
| |
|
|
|
|||||
| AISC, Before By-product Credits (1) |
58,064 | 58,064 | ||||||
| By-product credits: |
||||||||
| Silver |
(131 | ) | (131 | ) | ||||
| |
|
|
|
|||||
| Total By-product credits |
(131 | ) | (131 | ) | ||||
| |
|
|
|
|||||
| Cash Cost, After By-product Credits |
$ | 44,958 | $ | 44,958 | ||||
| |
|
|
|
|||||
| AISC, After By-product Credits |
$ | 57,933 | $ | 57,933 | ||||
| |
|
|
|
|||||
| Divided by ounces produced |
33 | 33 | ||||||
| Cash Cost, Before By-product Credits, per Ounce |
$ | 1,353 | $ | 1,353 | ||||
| By-product credits per ounce |
(4 | ) | (4 | ) | ||||
| |
|
|
|
|||||
| Cash Cost, After By-product Credits, per Ounce |
$ | 1,349 | $ | 1,349 | ||||
| |
|
|
|
|||||
| AISC, Before By-product Credits, per Ounce |
$ | 1,742 | $ | 1,742 | ||||
| By-product credits per ounce |
(4 | ) | (4 | ) | ||||
| |
|
|
|
|||||
| AISC, After By-product Credits, per Ounce |
$ | 1,738 | $ | 1,738 | ||||
| |
|
|
|
|||||
42
In thousands (except per ounce amounts) |
Three Months ended September 30, 2022 |
|||||||||||
| Total Silver | Total Gold | Total | ||||||||||
| Total cost of sales |
$ | 76,666 | $ | 59,532 | $ | 136,198 | ||||||
| Depreciation, depletion and amortization |
(17,566 | ) | (15,089 | ) | (32,655 | ) | ||||||
| Treatment costs |
14,268 | 429 | 14,697 | |||||||||
| Change in product inventory |
7,486 | 420 | 7,906 | |||||||||
| Reclamation and other costs |
(270 | ) | (203 | ) | (473 | ) | ||||||
| |
|
|
|
|
|
|||||||
| Cash Cost, Before By-product Credits (1) |
80,584 | 45,089 | 125,673 | |||||||||
| Reclamation and other costs |
987 | 204 | 1,191 | |||||||||
| Sustaining exploration |
4,498 | 2,314 | 6,812 | |||||||||
| Sustaining capital |
21,670 | 10,457 | 32,127 | |||||||||
| General and administrative |
11,003 | — | 11,003 | |||||||||
| |
|
|
|
|
|
|||||||
| AISC, Before By-product Credits (1) |
118,742 | 58,064 | 176,806 | |||||||||
| By-product credits: |
||||||||||||
| Zinc |
(33,399 | ) | — | (33,399 | ) | |||||||
| Gold |
(17,019 | ) | — | (17,019 | ) | |||||||
| Lead |
(18,008 | ) | — | (18,008 | ) | |||||||
| Silver |
— | (131 | ) | (131 | ) | |||||||
| |
|
|
|
|
|
|||||||
| Total By-product credits |
(68,426 | ) | (131 | ) | (68,557 | ) | ||||||
| |
|
|
|
|
|
|||||||
| Cash Cost, After By-product Credits |
$ | 12,158 | $ | 44,958 | $ | 57,116 | ||||||
| |
|
|
|
|
|
|||||||
| AISC, After By-product Credits |
$ | 50,316 | $ | 57,933 | $ | 108,249 | ||||||
| |
|
|
|
|
|
|||||||
| Divided by ounces produced |
3,544 | 33 | ||||||||||
| Cash Cost, Before By-product Credits, per Ounce |
$ | 22.74 | $ | 1,353 | ||||||||
| By-product credits per ounce |
(19.31 | ) | (4 | ) | ||||||||
| |
|
|
|
|||||||||
| Cash Cost, After By-product Credits, per Ounce |
$ | 3.43 | $ | 1,349 | ||||||||
| |
|
|
|
|||||||||
| AISC, Before By-product Credits, per Ounce |
$ | 33.51 | $ | 1,742 | ||||||||
| By-product credits per ounce |
(19.31 | ) | (4 | ) | ||||||||
| |
|
|
|
|||||||||
| AISC, After By-product Credits, per Ounce |
$ | 14.20 | $ | 1,738 | ||||||||
| |
|
|
|
|||||||||
43
In thousands (except per ounce amounts) |
Three Months Ended September 30, 2021 | |||||||||||||||
| Greens Creek |
Lucky Friday |
Corporate and other (2) |
Total Silver |
|||||||||||||
| Total cost of sales |
$ | 55,193 | $ | 23,591 | $ | — | $ | 78,784 | ||||||||
| Depreciation, depletion and amortization |
(13,097 | ) | (6,590 | ) | — | (19,687 | ) | |||||||||
| Treatment costs |
7,979 | 3,427 | — | 11,406 | ||||||||||||
| Change in product inventory |
(122 | ) | (68 | ) | — | (190 | ) | |||||||||
| Reclamation and other costs |
(786 | ) | (281 | ) | — | (1,067 | ) | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Cash Cost, Before By-product Credits (1) |
49,167 | 20,079 | — | 69,246 | ||||||||||||
| Reclamation and other costs |
848 | 264 | — | 1,112 | ||||||||||||
| Sustaining exploration |
2,472 | — | 474 | 2,946 | ||||||||||||
| Sustaining capital |
6,228 | 8,406 | — | 14,634 | ||||||||||||
| General and administrative |
— | — | 8,874 | 8,874 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| AISC, Before By-product Credits (1) |
58,715 | 28,749 | 9,348 | 96,812 | ||||||||||||
| By-product credits: |
||||||||||||||||
| Zinc |
(25,295 | ) | (4,611 | ) | — | (29,906 | ) | |||||||||
| Gold |
(14,864 | ) | — | — | (14,864 | ) | ||||||||||
| Lead |
(7,640 | ) | (10,188 | ) | — | (17,828 | ) | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total By-product credits |
(47,799 | ) | (14,799 | ) | — | (62,598 | ) | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Cash Cost, After By-product Credits |
$ | 1,368 | $ | 5,280 | — | $ | 6,648 | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| AISC, After By-product Credits |
$ | 10,916 | $ | 13,950 | 9,348 | $ | 34,214 | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Divided by ounces produced |
1,837 | 832 | 2,669 | |||||||||||||
| Cash Cost, Before By-product Credits, per Ounce |
$ | 26.76 | $ | 24.14 | $ | 25.93 | ||||||||||
| By-product credits per ounce |
(26.02 | ) | (17.79 | ) | (23.44 | ) | ||||||||||
| |
|
|
|
|
|
|||||||||||
| Cash Cost, After By-product Credits, per Ounce |
$ | 0.74 | $ | 6.35 | $ | 2.49 | ||||||||||
| |
|
|
|
|
|
|||||||||||
| AISC, Before By-product Credits, per Ounce |
$ | 31.96 | $ | 34.58 | $ | 36.26 | ||||||||||
| By-product credits per ounce |
(26.02 | ) | (17.79 | ) | (23.44 | ) | ||||||||||
| |
|
|
|
|
|
|||||||||||
| AISC, After By-product Credits, per Ounce |
$ | 5.94 | $ | 16.79 | $ | 12.82 | ||||||||||
| |
|
|
|
|
|
|||||||||||
44
In thousands (except per ounce amounts) |
Three Months Ended September 30, 2021 | |||||||||||
| Casa Berardi |
Nevada Operations |
Total Gold | ||||||||||
| Total cost of sales |
$ | 58,164 | $ | 21,384 | $ | 79,548 | ||||||
| Depreciation, depletion and amortization |
(19,968 | ) | (6,135 | ) | (26,103 | ) | ||||||
| Treatment costs |
475 | 1 | 476 | |||||||||
| Change in product inventory |
(3,369 | ) | (12,389 | ) | (15,758 | ) | ||||||
| Reclamation and other costs |
(210 | ) | — | (210 | ) | |||||||
| Exclusion of Nevada Operations costs |
— | — | — | |||||||||
| |
|
|
|
|
|
|||||||
| Cash Cost, Before By-product Credits (1) |
35,092 | 2,861 | 37,953 | |||||||||
| Reclamation and other costs |
209 | 327 | 536 | |||||||||
| Sustaining exploration |
1,541 | — | 1,541 | |||||||||
| Sustaining capital |
7,208 | 29 | 7,237 | |||||||||
| |
|
|
|
|
|
|||||||
| AISC, Before By-product Credits (1) |
44,050 | 3,217 | 47,267 | |||||||||
| By-product credits: |
||||||||||||
| Silver |
(169 | ) | (6 | ) | (175 | ) | ||||||
| |
|
|
|
|
|
|||||||
| Total By-product credits |
(169 | ) | (6 | ) | (175 | ) | ||||||
| |
|
|
|
|
|
|||||||
| Cash Cost, After By-product Credits |
$ | 34,923 | $ | 2,855 | $ | 37,778 | ||||||
| |
|
|
|
|
|
|||||||
| AISC, After By-product Credits |
$ | 43,881 | $ | 3,211 | $ | 47,092 | ||||||
| |
|
|
|
|
|
|||||||
| Divided by ounces produced |
30 | 3 | 33 | |||||||||
| Cash Cost, Before By-product Credits, per Ounce |
$ | 1,181 | $ | 1,040 | $ | 1,168 | ||||||
| By-product credits per ounce |
(6 | ) | (2 | ) | (5 | ) | ||||||
| |
|
|
|
|
|
|||||||
| Cash Cost, After By-product Credits, per Ounce |
$ | 1,175 | $ | 1,038 | $ | 1,163 | ||||||
| |
|
|
|
|
|
|||||||
| AISC, Before By-product Credits, per Ounce |
$ | 1,482 | $ | 1,169 | $ | 1,455 | ||||||
| By-product credits per ounce |
(6 | ) | (2 | ) | (5 | ) | ||||||
| |
|
|
|
|
|
|||||||
| AISC, After By-product Credits, per Ounce |
$ | 1,476 | $ | 1,167 | $ | 1,450 | ||||||
| |
|
|
|
|
|
|||||||
45
In thousands (except per ounce amounts) |
Three Months Ended September 30, 2021 | |||||||||||
| Total Silver |
Total Gold | Total | ||||||||||
| Total cost of sales |
$ | 78,784 | $ | 79,548 | $ | 158,332 | ||||||
| Depreciation, depletion and amortization |
(19,687 | ) | (26,103 | ) | (45,790 | ) | ||||||
| Treatment costs |
11,406 | 476 | 11,882 | |||||||||
| Change in product inventory |
(190 | ) | (15,758 | ) | (15,948 | ) | ||||||
| Reclamation and other costs |
(1,067 | ) | (210 | ) | (1,277 | ) | ||||||
| Exclusion of Nevada Operations costs |
— | |||||||||||
| |
|
|
|
|
|
|||||||
| Cash Cost, Before By-product Credits (1) |
69,246 | 37,953 | 107,199 | |||||||||
| Reclamation and other costs |
1,112 | 536 | 1,648 | |||||||||
| Sustaining exploration |
2,946 | 1,541 | 4,487 | |||||||||
| Sustaining capital |
14,634 | 7,237 | 21,871 | |||||||||
| General and administrative |
8,874 | — | 8,874 | |||||||||
| |
|
|
|
|
|
|||||||
| AISC, Before By-product Credits (1) |
96,812 | 47,267 | 144,079 | |||||||||
| By-product credits: |
||||||||||||
| Zinc |
(29,906 | ) | — | (29,906 | ) | |||||||
| Gold |
(14,864 | ) | — | (14,864 | ) | |||||||
| Lead |
(17,828 | ) | — | (17,828 | ) | |||||||
| Silver |
— | (175 | ) | (175 | ) | |||||||
| |
|
|
|
|
|
|||||||
| Total By-product credits |
(62,598 | ) | (175 | ) | (62,773 | ) | ||||||
| |
|
|
|
|
|
|||||||
| Cash Cost, After By-product Credits |
$ | 6,648 | $ | 37,778 | $ | 44,426 | ||||||
| |
|
|
|
|
|
|||||||
| AISC, After By-product Credits |
$ | 34,214 | $ | 47,092 | $ | 81,306 | ||||||
| |
|
|
|
|
|
|||||||
| Divided by ounces produced |
2,669 | 33 | ||||||||||
| Cash Cost, Before By-product Credits, per Ounce |
$ | 25.93 | $ | 1,168 | ||||||||
| By-product credits per ounce |
(23.44 | ) | (5 | ) | ||||||||
| |
|
|
|
|||||||||
| Cash Cost, After By-product Credits, per Ounce |
$ | 2.49 | $ | 1,163 | ||||||||
| |
|
|
|
|||||||||
| AISC, Before By-product Credits, per Ounce |
$ | 36.26 | $ | 1,455 | ||||||||
| By-product credits per ounce |
(23.44 | ) | (5 | ) | ||||||||
| |
|
|
|
|||||||||
| AISC, After By-product Credits, per Ounce |
$ | 12.82 | $ | 1,450 | ||||||||
| |
|
|
|
|||||||||
46
In thousands (except per ounce amounts) |
Nine Months Ended September 30, 2022 | |||||||||||||||
| Greens Creek |
Lucky Friday |
Corporate (1) |
Total Silver | |||||||||||||
| Total cost of sales |
$ | 162,644 | $ | 83,779 | $ | — | $ | 246,423 | ||||||||
| Depreciation, depletion and amortization |
(35,354 | ) | (24,155 | ) | — | (59,509 | ) | |||||||||
| Treatment costs |
27,369 | 13,271 | — | 40,640 | ||||||||||||
| Change in product inventory |
9,899 | 2,620 | — | 12,519 | ||||||||||||
| Reclamation and other costs |
(1,988 | ) | (769 | ) | — | (2,757 | ) | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Cash Cost, Before By-product Credits (1) |
162,570 | 74,746 | — | 237,316 | ||||||||||||
| Reclamation and other costs |
2,115 | 846 | — | 2,961 | ||||||||||||
| Sustaining exploration |
4,870 | — | 2,207 | 7,077 | ||||||||||||
| Sustaining capital |
30,843 | 24,937 | 334 | 56,114 | ||||||||||||
| General and administrative |
— | — | 28,989 | 28,989 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| AISC, Before By-product Credits (1) |
200,398 | 100,529 | 31,530 | 332,457 | ||||||||||||
| By-product credits: |
||||||||||||||||
| Zinc |
(87,723 | ) | (21,358 | ) | — | (109,081 | ) | |||||||||
| Gold |
(55,966 | ) | — | — | (55,966 | ) | ||||||||||
| Lead |
(22,449 | ) | (38,175 | ) | — | (60,624 | ) | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total By-product credits |
(166,138 | ) | (59,533 | ) | — | (225,671 | ) | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Cash Cost, After By-product Credits |
$ | (3,568 | ) | $ | 15,213 | — | $ | 11,645 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| AISC, After By-product Credits |
$ | 34,260 | $ | 40,996 | $ | 31,530 | $ | 106,786 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Divided by ounces produced |
7,309 | 3,189 | 10,498 | |||||||||||||
| Cash Cost, Before By-product Credits, per Ounce |
$ | 22.24 | $ | 23.44 | $ | 22.61 | ||||||||||
| By-product credits per ounce |
(22.73 | ) | (18.67 | ) | (21.50 | ) | ||||||||||
| |
|
|
|
|
|
|||||||||||
| Cash Cost, After By-product Credits, per Ounce |
$ | (0.49 | ) | $ | 4.77 | $ | 1.11 | |||||||||
| |
|
|
|
|
|
|||||||||||
| AISC, Before By-product Credits, per Ounce |
$ | 27.42 | $ | 31.53 | $ | 31.67 | ||||||||||
| By-product credits per ounce |
(22.73 | ) | (18.67 | ) | (21.50 | ) | ||||||||||
| |
|
|
|
|
|
|||||||||||
| AISC, After By-product Credits, per Ounce |
$ | 4.69 | $ | 12.86 | $ | 10.17 | ||||||||||
| |
|
|
|
|
|
|||||||||||
47
In thousands (except per ounce amounts) |
Nine Months Ended September 30, 2022 |
|||||||
| Casa Berardi |
Total Gold |
|||||||
| Total cost of sales |
$ | 183,570 | $ | 183,570 | ||||
| Depreciation, depletion and amortization |
(46,394 | ) | (46,394 | ) | ||||
| Treatment costs |
1,345 | 1,345 | ||||||
| Change in product inventory |
(936 | ) | (936 | ) | ||||
| Reclamation and other costs |
(623 | ) | (623 | ) | ||||
| |
|
|
|
|||||
| Cash Cost, Before By-product Credits (1) |
136,962 | 136,962 | ||||||
| Reclamation and other costs |
623 | 623 | ||||||
| Sustaining exploration |
4,886 | 4,886 | ||||||
| Sustaining capital |
25,587 | 25,587 | ||||||
| |
|
|
|
|||||
| AISC, Before By-product Credits (1) |
168,058 | 168,058 | ||||||
| By-product credits: |
||||||||
| Silver |
(485 | ) | (485 | ) | ||||
| |
|
|
|
|||||
| Total By-product credits |
(485 | ) | (485 | ) | ||||
| |
|
|
|
|||||
| Cash Cost, After By-product Credits |
$ | 136,477 | $ | 136,477 | ||||
| |
|
|
|
|||||
| AISC, After By-product Credits |
$ | 167,573 | $ | 167,573 | ||||
| |
|
|
|
|||||
| Divided by ounces produced |
97 | 97 | ||||||
| Cash Cost, Before By-product Credits, per Ounce |
$ | 1,415 | $ | 1,415 | ||||
| By-product credits per ounce |
(6 | ) | (6 | ) | ||||
| |
|
|
|
|||||
| Cash Cost, After By-product Credits, per Ounce |
$ | 1,409 | $ | 1,409 | ||||
| |
|
|
|
|||||
| AISC, Before By-product Credits, per Ounce |
$ | 1,735 | $ | 1,735 | ||||
| By-product credits per ounce |
(6 | ) | (6 | ) | ||||
| |
|
|
|
|||||
| AISC, After By-product Credits, per Ounce |
$ | 1,729 | $ | 1,729 | ||||
| |
|
|
|
|||||
48
In thousands (except per ounce amounts) |
Nine Months Ended September 30, 2022 | |||||||||||
| Total Silver | Total Gold | Total | ||||||||||
| Total cost of sales |
$ | 246,423 | $ | 183,570 | $ | 429,993 | ||||||
| Depreciation, depletion and amortization |
(59,509 | ) | (46,394 | ) | (105,903 | ) | ||||||
| Treatment costs |
40,640 | 1,345 | 41,985 | |||||||||
| Change in product inventory |
12,519 | (936 | ) | 11,583 | ||||||||
| Reclamation and other costs |
(2,757 | ) | (623 | ) | (3,380 | ) | ||||||
| |
|
|
|
|
|
|||||||
| Cash Cost, Before By-product Credits (1) |
237,316 | 136,962 | 374,278 | |||||||||
| Reclamation and other costs |
2,961 | 623 | 3,584 | |||||||||
| Sustaining exploration |
7,077 | 4,886 | 11,963 | |||||||||
| Sustaining capital |
56,114 | 25,587 | 81,701 | |||||||||
| General and administrative |
28,989 | — | 28,989 | |||||||||
| |
|
|
|
|
|
|||||||
| AISC, Before By-product Credits (1) |
332,457 | 168,058 | 500,515 | |||||||||
| By-product credits: |
||||||||||||
| Zinc |
(109,081 | ) | — | (109,081 | ) | |||||||
| Gold |
(55,966 | ) | — | (55,966 | ) | |||||||
| Lead |
(60,624 | ) | — | (60,624 | ) | |||||||
| Silver |
(485 | ) | (485 | ) | ||||||||
| |
|
|
|
|
|
|||||||
| Total By-product credits |
(225,671 | ) | (485 | ) | (226,156 | ) | ||||||
| |
|
|
|
|
|
|||||||
| Cash Cost, After By-product Credits |
$ | 11,645 | $ | 136,477 | $ | 148,122 | ||||||
| |
|
|
|
|
|
|||||||
| AISC, After By-product Credits |
$ | 106,786 | $ | 167,573 | $ | 274,359 | ||||||
| |
|
|
|
|
|
|||||||
| Divided by ounces produced |
10,498 | 97 | ||||||||||
| Cash Cost, Before By-product Credits, per Ounce |
$ | 22.61 | $ | 1,415 | ||||||||
| By-product credits per ounce |
(21.50 | ) | (6 | ) | ||||||||
| |
|
|
|
|||||||||
| Cash Cost, After By-product Credits, per Ounce |
$ | 1.11 | $ | 1,409 | ||||||||
| |
|
|
|
|||||||||
| AISC, Before By-product Credits, per Ounce |
$ | 31.67 | $ | 1,735 | ||||||||
| By-product credits per ounce |
(21.50 | ) | (6 | ) | ||||||||
| |
|
|
|
|||||||||
| AISC, After By-product Credits, per Ounce |
$ | 10.17 | $ | 1,729 | ||||||||
| |
|
|
|
|||||||||
49
In thousands (except per ounce amounts) |
Nine Months Ended September 30, 2021 | |||||||||||||||
| Greens Creek |
Lucky Friday |
Corporate and other (2) |
Total Silver | |||||||||||||
| Total cost of sales |
$ | 163,861 | $ | 74,287 | $ | 95 | $ | 238,243 | ||||||||
| Depreciation, depletion and amortization |
(42,410 | ) | (20,328 | ) | — | (62,738 | ) | |||||||||
| Treatment costs |
27,444 | 13,087 | — | 40,531 | ||||||||||||
| Change in product inventory |
(156 | ) | (1,757 | ) | — | (1,913 | ) | |||||||||
| Reclamation and other costs |
(1,777 | ) | (840 | ) | (95 | ) | (2,712 | ) | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Cash Cost, Before By-product Credits (1) |
146,962 | 64,449 | 211,411 | |||||||||||||
| Reclamation and other costs |
2,543 | 792 | 3,335 | |||||||||||||
| Sustaining exploration |
3,895 | — | 1,359 | 5,254 | ||||||||||||
| Sustaining capital |
17,459 | 19,104 | — | 36,563 | ||||||||||||
| General and administrative |
— | — | 27,985 | 27,985 | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| AISC, Before By-product Credits (1) |
170,859 | 84,345 | 29,344 | 284,548 | ||||||||||||
| By-product credits: |
||||||||||||||||
| Zinc |
(74,571 | ) | (14,457 | ) | — | (89,028 | ) | |||||||||
| Gold |
(56,299 | ) | — | (56,299 | ) | |||||||||||
| Lead |
(23,265 | ) | (30,762 | ) | — | (54,027 | ) | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total By-product credits |
(154,135 | ) | (45,219 | ) | — | (199,354 | ) | |||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Cash Cost, After By-product Credits |
$ | (7,173 | ) | $ | 19,230 | $ | — | $ | 12,057 | |||||||
| |
|
|
|
|
|
|
|
|||||||||
| AISC, After By-product Credits |
$ | 16,724 | $ | 39,126 | $ | 29,344 | $ | 85,194 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Divided by ounces produced |
6,981 | 2,609 | 9,590 | |||||||||||||
| Cash Cost, Before By-product Credits, per Ounce |
$ | 21.05 | $ | 24.70 | $ | 22.05 | ||||||||||
| By-product credits per ounce |
(22.08 | ) | (17.33 | ) | (20.79 | ) | ||||||||||
| |
|
|
|
|
|
|||||||||||
| Cash Cost, After By-product Credits, per Ounce |
$ | (1.03 | ) | $ | 7.37 | $ | 1.26 | |||||||||
| |
|
|
|
|
|
|||||||||||
| AISC, Before By-product Credits, per Ounce |
$ | 24.48 | $ | 32.33 | $ | 29.67 | ||||||||||
| By-product credits per ounce |
(22.08 | ) | (17.33 | ) | (20.79 | ) | ||||||||||
| |
|
|
|
|
|
|||||||||||
| AISC, After By-product Credits, per Ounce |
$ | 2.40 | $ | 15.00 | $ | 8.88 | ||||||||||
| |
|
|
|
|
|
|||||||||||
50
In thousands (except per ounce amounts) |
Nine Months Ended September 30, 2021 | |||||||||||
| Casa Berardi |
Nevada Operations |
Total Gold |
||||||||||
| Total cost of sales |
$ | 172,760 | $ | 46,832 | $ | 219,592 | ||||||
| Depreciation, depletion and amortization |
(61,159 | ) | (15,021 | ) | (76,180 | ) | ||||||
| Treatment costs |
1,723 | 1,731 | 3,454 | |||||||||
| Change in product inventory |
(2,401 | ) | (9,951 | ) | (12,352 | ) | ||||||
| Reclamation and other costs |
(632 | ) | 299 | (333 | ) | |||||||
| |
|
|
|
|
|
|||||||
| Cash Cost, Before By-product Credits (1) |
110,291 | 23,890 | 134,181 | |||||||||
| Reclamation and other costs |
632 | 681 | 1,313 | |||||||||
| Sustaining exploration |
3,551 | — | 3,551 | |||||||||
| Sustaining capital |
21,030 | 195 | 21,225 | |||||||||
| |
|
|
|
|
|
|||||||
| AISC, Before By-product Credits (1) |
135,504 | 24,766 | 160,270 | |||||||||
| By-product credits: |
||||||||||||
| Silver |
(656 | ) | (1,131 | ) | (1,787 | ) | ||||||
| |
|
|
|
|
|
|||||||
| Total By-product credits |
(656 | ) | (1,131 | ) | (1,787 | ) | ||||||
| |
|
|
|
|
|
|||||||
| Cash Cost, After By-product Credits |
$ | 109,635 | $ | 22,759 | $ | 132,394 | ||||||
| |
|
|
|
|
|
|||||||
| AISC, After By-product Credits |
$ | 134,848 | $ | 23,635 | $ | 158,483 | ||||||
| |
|
|
|
|
|
|||||||
| Divided by ounces produced |
97 | 20 | 117 | |||||||||
| Cash Cost, Before By-product Credits, per Ounce |
$ | 1,134 | $ | 1,180 | $ | 1,142 | ||||||
| By-product credits per ounce |
(7 | ) | (56 | ) | (15 | ) | ||||||
| |
|
|
|
|
|
|||||||
| Cash Cost, After By-product Credits, per Ounce |
$ | 1,127 | $ | 1,124 | $ | 1,127 | ||||||
| |
|
|
|
|
|
|||||||
| AISC, Before By-product Credits, per Ounce |
$ | 1,394 | $ | 1,223 | $ | 1,364 | ||||||
| By-product credits per ounce |
(7 | ) | (56 | ) | (15 | ) | ||||||
| |
|
|
|
|
|
|||||||
| AISC, After By-product Credits, per Ounce |
$ | 1,387 | $ | 1,167 | $ | 1,349 | ||||||
| |
|
|
|
|
|
|||||||
51
In thousands (except per ounce amounts) |
Nine Months Ended September 30, 2021 | |||||||||||
| Total Silver | Total Gold | Total | ||||||||||
| Total cost of sales |
$ | 238,243 | $ | 219,592 | 457,835 | |||||||
| Depreciation, depletion and amortization |
(62,738 | ) | (76,180 | ) | (138,918 | ) | ||||||
| Treatment costs |
40,531 | 3,454 | 43,985 | |||||||||
| Change in product inventory |
(1,913 | ) | (12,352 | ) | (14,265 | ) | ||||||
| Reclamation and other costs |
(2,712 | ) | (333 | ) | (3,045 | ) | ||||||
| |
|
|
|
|
|
|||||||
| Cash Cost, Before By-product Credits (1) |
211,411 | 134,181 | 345,592 | |||||||||
| Reclamation and other costs |
3,335 | 1,313 | 4,648 | |||||||||
| Sustaining exploration |
5,254 | 3,551 | 8,805 | |||||||||
| Sustaining capital |
36,563 | 21,225 | 57,788 | |||||||||
| General and administrative |
27,985 | — | 27,985 | |||||||||
| |
|
|
|
|
|
|||||||
| AISC, Before By-product Credits (1) |
284,548 | 160,270 | 444,818 | |||||||||
| By-product credits: |
||||||||||||
| Zinc |
(89,028 | ) | — | (89,028 | ) | |||||||
| Gold |
(56,299 | ) | — | (56,299 | ) | |||||||
| Lead |
(54,027 | ) | — | (54,027 | ) | |||||||
| Silver |
— | (1,787 | ) | (1,787 | ) | |||||||
| |
|
|
|
|
|
|||||||
| Total By-product credits |
(199,354 | ) | (1,787 | ) | (201,141 | ) | ||||||
| |
|
|
|
|
|
|||||||
| Cash Cost, After By-product Credits |
$ | 12,057 | $ | 132,394 | $ | 144,451 | ||||||
| |
|
|
|
|
|
|||||||
| AISC, After By-product Credits |
$ | 85,194 | $ | 158,483 | $ | 243,677 | ||||||
| |
|
|
|
|
|
|||||||
| Divided by ounces produced |
9,590 | 117 | ||||||||||
| Cash Cost, Before By-product Credits, per Ounce |
$ | 22.05 | $ | 1,142 | ||||||||
| By-product credits per ounce |
(20.79 | ) | (15 | ) | ||||||||
| |
|
|
|
|||||||||
| Cash Cost, After By-product Credits, per Ounce |
$ | 1.26 | $ | 1,127 | ||||||||
| |
|
|
|
|||||||||
| AISC, Before By-product Credits, per Ounce |
$ | 29.67 | $ | 1,364 | ||||||||
| By-product credits per ounce |
(20.79 | ) | (15 | ) | ||||||||
| |
|
|
|
|||||||||
| AISC, After By-product Credits, per Ounce |
$ | 8.88 | $ | 1,349 | ||||||||
| |
|
|
|
|||||||||
| (1) | Includes all direct and indirect operating costs related to the physical activities of producing metals, including mining, processing and other plant costs, third-party refining and marketing expense, on-site general and administrative costs and royalties, before by-product revenues earned from all metals other than the primary metal produced at each operation. AISC, Before By-product Credits also includes on-site exploration, reclamation, and sustaining capital costs. |
| (2) | AISC, Before By-product Credits for our consolidated silver properties includes corporate costs for general and administrative expense, exploration and sustaining capital. |
Financial Liquidity and Capital Resources
We have a disciplined cash management strategy of maintaining financial flexibility to execute our capital priorities and provide long-term value to our stockholders. Consistent with that strategy, we aim to maintain sufficient liquidity to fund debt service costs, operations, capital development and exploration projects, while returning cash to stockholders through dividends and potential share repurchases.
At September 30, 2022, we had $144.7 million in cash and cash equivalents, of which $30.8 million was held in foreign subsidiaries’ local currency that we anticipate utilizing for near-term operating, exploration or capital costs by those foreign subsidiaries. We also have USD cash and cash equivalent balances held by our foreign subsidiaries that, if repatriated,
52
may be subject to withholding taxes. We expect that there would be no additional tax burden upon repatriation after considering the cash cost associated with the withholding taxes. We believe that our liquidity and capital resources from our U.S. operations are adequate to fund our U.S. operations and corporate activities.
As discussed in above, we continue to address the
Overview
COVID-19
outbreak and face uncertainty related to the potential additional impacts it could have on our operations. The impacts of COVID-19
and increasing or prolonged restrictions, if required, on our operations could require access to additional sources of liquidity, which may not be available to us. Pursuant to our common stock dividend policy described in of in our 2021 Form
Note 12
Notes to Consolidated Financial Statements
10-K,
our board of directors declared and paid dividends on our common stock totaling $3.4 million in each of the first, second and third quarters of 2022 and $4.7 million, $6.0 million and $6.0 million in the comparable periods of 2021, respectively. Our dividend policy has a silver-linked component which ties the amount of declared common stock dividends to our realized silver price for the preceding quarter. Another component of our common stock dividend policy anticipates paying an annual minimum dividend. For illustrative purposes only, the table below summarizes potential dividend amounts under our dividend policy.
Quarterly Average Realized Silver Price ($ per ounce) |
Quarterly Silver- Linked Dividend ($ per share) |
Annualized Silver-Linked Dividend ($ per share) |
Annualized Minimum Dividend ($ per share) |
Annualized Dividends per Share: Silver- Linked and Minimum ($ per share) | |||||||||||||||||||
| Less than $20 | $— | $— | $0.015 | $0.015 | |||||||||||||||||||
| $20 | $0.0025 | $0.01 | $0.015 | $0.025 | |||||||||||||||||||
| $25 | $0.0100 | $0.04 | $0.015 | $0.055 | |||||||||||||||||||
| $30 | $0.0150 | $0.06 | $0.015 | $0.075 | |||||||||||||||||||
| $35 | $0.0250 | $0.10 | $0.015 | $0.115 | |||||||||||||||||||
| $40 | $0.0350 | $0.14 | $0.015 | $0.155 | |||||||||||||||||||
| $45 | $0.0450 | $0.18 | $0.015 | $0.195 | |||||||||||||||||||
| $50 | $0.0550 | $0.22 | $0.015 | $0.235 | |||||||||||||||||||
The declaration and payment of dividends on our common stock is at the sole discretion of our board of directors, and there can be no assurance that we will continue to declare and pay common stock dividends in the future.
Pursuant to our stock repurchase program described in of in our 2021 Form
Note 12
Notes to Consolidated Financial Statements
10-K,
we are authorized to repurchase up to 20 million shares of our outstanding common stock from time to time in open market or privately negotiated transactions, depending on prevailing market conditions and other factors. The repurchase program may be modified, suspended or discontinued by us at any time. Whether or not we engage in repurchases from time to time may depend on a variety of factors, including not only price and cash resources, but customary black-out
restrictions, whether we have any material inside information, limitations on share repurchases or cash usage that may be imposed by our credit agreement or in connection with issuances of securities, alternative uses for cash, applicable law, and other investment opportunities from time to time. As of September 30, 2022 and December 31, 2021, 934,100 shares had been purchased in prior periods at an average price of $3.99 per share, leaving 19.1 million shares that may yet be purchased under the program. We have not repurchased any shares since June 2014. The closing price of our common stock at November 4, 2022, was $4.76 per share. As discussed in of, pursuant to an equity distribution agreement dated February 18, 2021, we may offer and sell up to 60 million shares of our common stock from time to time to or through sales agents in (ATM) offerings. Sales of the shares, if any, will be made by means of ordinary brokers transactions or as otherwise agreed between the Company and the agents as principals. Whether or not we engage in sales from time to time may depend on a variety of factors, including share price, our cash resources, customary
Note 6
Notes to Condensed Consolidated Financial Statements (Unaudited)
“at-the-market”
black-out
restrictions, and whether we have any material inside information. The agreement can be terminated by us at any time. Any sales of shares under the equity distribution agreement are registered under the Securities Act of 1933, as amended, pursuant to a shelf registration statement on Form S-3.
As of September 30, 2022, we had sold 1,176,861 shares under the agreement for proceeds of $4.5 million, net of commissions and fees of approximately $0.1 million. All of the sales occurred during September 2022. 53
As a result of our current cash balances, the performance of our current and expected operations, current metals prices, proceeds from potential sales of common stock, and availability under our New Credit Agreement, we believe we will be able to meet our obligations and other potential cash requirements during the next 12 months from the date of this report. Our obligations and other uses of cash may include, but are not limited to: debt service obligations related to the Senior Notes and IQ Notes; principal and interest payments under our New Credit Agreement; deferral of revenues, and other costs related to addressing the impacts of
at-the-market
care-and-maintenance
COVID-19
on our operations; capital expenditures at our operations; potential acquisitions of other mining companies or properties; regulatory matters; litigation; potential repurchases of our common stock under the program described above; and payment of dividends on common stock, if declared by our board of directors. We currently estimate a range of approximately $150 to 165 million will be spent in 2022 on capital expenditures, primarily for equipment, infrastructure, and development at our mines, including $93.2 million already incurred as of September 30, 2022, before any lease financing. We also estimate exploration and pre-development
expenditures will total approximately $45.0 million in 2022, including $39.1 million already incurred as of September 30, 2022. Our expenditures for these items and our related plans for 2022 may change based upon our financial position, metals prices, and other considerations. Our ability to fund the activities described above will depend on our operating performance, metals prices, our ability to estimate revenues and costs, sources of liquidity available to us, including the revolving credit facility, and other factors. A sustained downturn in metals prices, significant increase in operational or capital costs or other uses of cash, our inability to access the credit facility or the sources of liquidity discussed above, or other factors beyond our control could impact our plans. We may defer some capital investment and/or exploration and
pre-development
activities, engage in asset sales or secure additional capital if necessary to maintain liquidity. We also may pursue additional acquisition opportunities, which could require additional equity issuances or other forms of financing. There can be no assurance that such financing will be available to us. Our liquid assets include (in millions):
September 30, 2022 |
December 31, 2021 |
|||||||
| Cash and cash equivalents held in U.S. dollars |
$ | 113.9 | $ | 196.2 | ||||
| Cash and cash equivalents held in foreign currency |
30.8 | 13.8 | ||||||
| |
|
|
|
|||||
| Total cash and cash equivalents |
144.7 | 210.0 | ||||||
| Marketable equity securities – non-current |
13.3 | 14.4 | ||||||
| |
|
|
|
|||||
| Total cash, cash equivalents and investments |
$ | 158.0 | $ | 224.4 | ||||
| |
|
|
|
|||||
Cash and cash equivalents decreased by $65.3 million in the first nine months of 2022. Cash held in foreign currencies represents balances in Canadian dollars and Mexican Pesos (“MXN”), with the $17.0 million increase in the first nine months of 2022 resulting from increases in CAD held following the Alexco acquisition. The value of
non-current
marketable equity securities decreased by $1.1 million. Nine Months Ended |
||||||||
September 30, 2022 |
September 30, 2021 |
|||||||
| Cash provided by operating activities (in millions) |
$ |
53.8 |
$ |
167.0 |
||||
Cash provided by operating activities in the first nine months of 2022 of $53.8 million represented a $113.2 million decrease compared to the $167.0 million provided by operating activities in the first nine months of 2021. $93.2 million of the variance was the result of a net loss compared to a net income in 2021, as adjusted for
non-cash
items. Net working capital changes in 2022 resulted in an outflow of $11.0 million versus an inflow of $8.9 million in 2021 reflecting an increase in inventory balances in 2022 due to the deferral of a shipment from Greens Creek to the fourth quarter of 2022 and an inventory build at Lucky Friday, changes in fair value of the net hedge book and collections of accounts receivable balances. Nine Months Ended |
||||||||
September 30, 2022 |
September 30, 2021 |
|||||||
| Cash used in investing activities (in millions) |
$ |
(127.7 |
) |
$ |
(78.0 |
) | ||
54
During the first nine months of 2022, we invested $93.2 million in capital expenditures, excluding $9.7 million in
non-cash
finance lease additions, an increase of $13.0 million compared to the same period in 2021. The variance was primarily due to increased spending at Lucky Friday and Greens Creek partially offset by lower spending at Casa Berardi. As a result of the Alexco acquisition, we assumed a cash balance of $9.0 million, net of transaction costs of $5.1 million having advanced $25.0 million to Alexco pre-acquisition,
to enable them to fund development of the Keno Hill mining district prior to the acquisition closing. During the first nine months of 2022, we acquired investments in other mining companies and short term investments for a total of $30.5 million, and disposed of the short-term investments and a mining company investment, generating total proceeds of $9.4 million. | Nine Months Ended | ||||||||
| September 30, 2022 |
September 30, 2021 |
|||||||
| Cash provided by (used in) financing activities (in millions) |
$ |
9.5 |
$ |
(27.4 |
) | |||
During the first nine months of 2022 and 2021, we paid cash dividends on our common and preferred stock totaling $10.5 million and $17.2 million, respectively. Due to lower realized silver prices during 2022 to date, the dividends paid on our common stock were $6.8 million lower than in the prior year, reflecting our dividend policy discussed above. We issued stock under our ATM program described above for net proceeds of $4.5 million in 2022. We made repayments on our finance leases of $5.2 million and $5.6 million in the nine-month periods ended September 30, 2022 and 2021, respectively. We acquired treasury shares for $3.7 million and $4.5 million in the first half of 2022 and 2021, respectively, as a result of employees’ elections to utilize net share settlement to satisfy their tax withholding obligations related to incentive compensation paid in stock.
The effect of changes in foreign exchange rates resulted in a $0.8 million decrease in cash and cash equivalents in the first nine months of 2022 compared to a decrease of $0.5 million of 2021, with the variance due to depreciation of the CAD and MXN relative to the USD in the 2022 period.
Contractual Obligations, Contingent Liabilities and Commitments
The table below presents our fixed,
non-cancelable
contractual obligations and commitments primarily related to our Senior Notes, IQ Notes, credit facility, outstanding purchase orders, certain capital expenditures and lease arrangements as of September 30, 2022 (in thousands): | Payments Due By Period | ||||||||||||||||||||
| Less than 1 year |
1-3 years |
4-5 years |
More than 5 years |
Total | ||||||||||||||||
| Purchase obligations (1) |
$ | 33,514 | $ | — | $ | — | $ | — | $ | 33,514 | ||||||||||
| Credit facility (2) |
25,722 | 1,447 | 583 | — | 27,752 | |||||||||||||||
| Finance lease commitments (3) |
9,296 | 10,985 | 2,017 | — | 22,298 | |||||||||||||||
| Operating lease commitments (4) |
3,101 | 2,630 | 2,039 | 5,878 | 13,648 | |||||||||||||||
| Senior Notes (5) |
34,438 | 68,876 | 68,876 | 487,914 | 660,104 | |||||||||||||||
| IQ Notes (6) |
2,293 | 39,257 | — | — | 41,550 | |||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Total contractual cash obligations |
$ | 108,364 | $ | 123,195 | $ | 73,515 | $ | 493,792 | $ | 798,866 | ||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| (1) | Consists of open purchase orders and commitments of approximately $9.0 million at Greens Creek, $1.2 million at Casa Berardi, $20.4 million at Lucky Friday, $2.6 million at the Nevada Operations and $0.3 at Keno Hill. |
| (2) | The New Credit Agreement provides for a $150 million revolving credit facility, under which $25 million was drawn as of September 30, 2022 and repaid October 4, 2022. We had $7.8 million in letters of credit outstanding as of September 30, 2022. The amounts in the table above assume no additional amounts will be drawn in future periods, and include only the standby fee on the current undrawn balance. For more information on our credit facility, see Note 7 Notes to Condensed Consolidated Financial Statements (Unaudited) |
| (3) | Includes scheduled finance lease payments of $14.2 million, $3.4 million, $1.4 million, $0.049 million (including interest) and $3.3 million, respectively, for equipment at our Greens Creek, Lucky Friday, Casa Berardi, Nevada Operations and Keno Hill. |
55
| (4) | We enter into operating leases in the normal course of business. Substantially all lease agreements have fixed payment terms based on the passage of time. Some lease agreements provide us with the option to renew the lease or purchase the leased property. Our future operating lease obligations would change if we exercised these renewal options and if we entered into additional operating lease arrangements. |
| (5) | On February 19, 2020, we completed an offering of $475 million in aggregate principal amount of our Senior Notes due February 15, 2028. The Senior Notes bear interest at a rate of 7.25% per year, with interest payable on February 15 and August 15 of each year. See Note 7 Notes to Condensed Consolidated Financial Statements (Unaudited) |
| (6) | On July 9, 2020, we entered into a note purchase agreement pursuant to which we issued our IQ Notes for CAD$50 million (approximately USD$36.8 million at the time of the transaction) in aggregate principal amount. The IQ Notes bear interest on amounts outstanding at a rate of 6.515% per year, payable on January 9 and July 9 of each year. See Note 7 Notes to Condensed Consolidated Financial Statements (Unaudited) |
We record liabilities for costs associated with mine closure, reclamation of land and other environmental matters. At September 30, 2022, our liabilities for these matters totaled $116.3 million. Future expenditures related to closure, reclamation and environmental expenditures at our sites are difficult to estimate, although we anticipate we will incur expenditures relating to these obligations over the next 30 years. For additional information relating to our environmental obligations, see of .
Note 10
Notes to Condensed Consolidated Financial Statements (Unaudited)
Critical Accounting Estimates
There have been no significant changes to the critical accounting estimates disclosed in in our 2021 Form
Management’s Discussion and Analysis of Financial Condition and Results of Operations
10-K.
Off-Balance
Sheet Arrangements At September 30, 2022, we had no existing
off-balance
sheet arrangements, as defined under SEC regulations, that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. Guarantor Subsidiaries
Presented below are Hecla’s unaudited interim condensed consolidating financial statements as required by Rule of for more information). The Guarantors consist of the following of Hecla’s 100%-owned subsidiaries: Hecla Limited; Silver Hunter Mining Company; Rio Grande Silver, Inc.; Hecla MC Subsidiary, LLC; Hecla Silver Valley, Inc.; Burke Trading, Inc.; Hecla Montana, Inc.; Revett Silver Company; RC Resources, Inc.; Troy Mine Inc.; Revett Exploration, Inc.; Revett Holdings, Inc.; Mines Management, Inc.; Newhi, Inc.; Montanore Minerals Corp.; Hecla Alaska LLC; Hecla Greens Creek Mining Company; Hecla Admiralty Company; Hecla Juneau Mining Company; Klondex Holdings Inc.; Klondex Gold & Silver Mining Co.; Klondex Midas Holdings Limited; Klondex Aurora Mine Inc.; Klondex Hollister Mine Inc.; and Hecla Quebec, Inc. We completed the offering of the Senior Notes on February 19, 2020 under our shelf registration statement previously filed with the SEC. We issued the IQ Notes in four equal tranches between July and October 2020.
3-10
of Regulation S-X
of the Securities Exchange Act of 1934, as amended, resulting from the guarantees by certain of Hecla’s subsidiaries of the Senior Notes and IQ Notes (see Note 7
Notes to Condensed Consolidated Financial Statements (Unaudited)
The unaudited interim condensed consolidating financial statements below have been prepared from our financial information on the same basis of accounting as the unaudited interim condensed consolidated financial statements set forth elsewhere in this report. Investments in the subsidiaries are accounted for under the equity method. Accordingly, the entries necessary to consolidate Hecla, the Guarantors, and our
non-guarantor
subsidiaries are reflected in the intercompany eliminations column. In the course of preparing consolidated financial statements, we eliminate the effects of various transactions conducted between Hecla and its subsidiaries and among the subsidiaries. While valid at an individual subsidiary level, such activities are eliminated in consolidation because, when taken as a whole, they do not represent business activity with third-party customers, vendors, and other parties. Examples of such eliminations include the following: 56
| • | Investments in subsidiaries |
| • | Capital contributions paid-in capital. In consolidation, investments in subsidiaries and related additional paid-in capital are eliminated. |
| • | Debt. |
| • | Dividends. |
| • | Deferred taxes Non-current deferred tax asset balances are included in other non-current assets on the consolidating balance sheets and make up a large portion of that item, particularly for the guarantor balances. |
Separate financial statements of the Guarantors are not presented because the guarantees by the Guarantors are joint and several and full and unconditional, except for certain customary release provisions, including: (1) the sale or disposal of all or substantially all of the assets of the Guarantor; (2) the sale or other disposition of the capital stock of the Guarantor; (3) the Guarantor is designated as an unrestricted entity in accordance with the applicable provisions of the indenture; (4) Hecla ceases to be a borrower as defined in the indenture; and (5) upon legal or covenant defeasance or satisfaction and discharge of the indenture.
57
Unaudited Interim Condensed Consolidating Balance Sheets
As of September 30, 2022 |
||||||||||||||||||||
Parent |
Guarantors |
Non- Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
(in thousands) |
||||||||||||||||||||
| Assets |
||||||||||||||||||||
| Cash and cash equivalents |
$ | 100,333 | $ | 24,486 | $ | 19,850 | $ | — | $ | 144,669 | ||||||||||
| Other current assets |
11,939 | 118,657 | 8,655 | — | 139,251 | |||||||||||||||
| Properties, plants, equipment and mineral interests, net |
1,913 | 2,288,145 | 263,916 | 2,553,974 | ||||||||||||||||
| Intercompany receivable (payable) |
(195,180 | ) | (188,353 | ) | 321,214 | 62,319 | — | |||||||||||||
| Investments in subsidiaries |
2,110,836 | — | — | (2,110,836 | ) | — | ||||||||||||||
| Other non-current assets |
378,230 | 29,860 | 32,545 | (343,900 | ) | 96,735 | ||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Total assets |
$ | 2,408,071 | $ | 2,272,795 | $ | 646,180 | $ | (2,392,417 | ) | $ | 2,934,629 | |||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Liabilities and Stockholders’ Equity |
||||||||||||||||||||
| Current liabilities |
$ | (105,320 | ) | $ | 246,660 | $ | 12,561 | $ | 7,484 | $ | 161,385 | |||||||||
| Long-term debt |
530,745 | 20,242 | — | — | 550,987 | |||||||||||||||
| Non-current portion of accrued reclamation |
— | 99,888 | 5,829 | — | 105,717 | |||||||||||||||
| Non-current deferred tax liability |
22,098 | 408,148 | 13,043 | (289,064 | ) | 154,225 | ||||||||||||||
| Other non-current liabilities |
5,780 | 1,076 | 691 | — | 7,547 | |||||||||||||||
| Stockholders’ equity |
1,954,768 | 1,496,781 | 614,056 | (2,110,837 | ) | 1,954,768 | ||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Total liabilities and stockholders’ equity |
$ | 2,408,071 | $ | 2,272,795 | $ | 646,180 | $ | (2,392,417 | ) | $ | 2,934,629 | |||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
Unaudited Interim Condensed Consolidating Statements of Operations
Three Months Ended September 30, 2022 |
||||||||||||||||||||
Parent |
Guarantors |
Non- Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
(in thousands) |
||||||||||||||||||||
| Revenues |
$ | 1,640 | $ | 144,634 | $ | 65 | $ | — | $ | 146,339 | ||||||||||
| Cost of sales |
204 | (105,031 | ) | (73 | ) | — | (104,900 | ) | ||||||||||||
| Depreciation, depletion, amortization |
— | (32,992 | ) | — | — | (32,992 | ) | |||||||||||||
| General and administrative |
(3,792 | ) | (5,664 | ) | (1,547 | ) | — | (11,003 | ) | |||||||||||
| Exploration and pre-development |
(292 | ) | (13,143 | ) | (1,693 | ) | — | (15,128 | ) | |||||||||||
| Equity in earnings of subsidiaries |
2,871 | — | — | (2,871 | ) | — | ||||||||||||||
| Other (expense) income |
(32,300 | ) | 12,289 | (4,398 | ) | 9,040 | (15,369 | ) | ||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Income (loss) before income taxes |
(31,669 | ) | 93 | (7,646 | ) | 6,169 | (33,053 | ) | ||||||||||||
| (Provision) benefit from income taxes |
8,142 | 10,424 | — | (9,039 | ) | 9,527 | ||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income (loss) |
(23,527 | ) | 10,517 | (7,646 | ) | (2,870 | ) | (23,526 | ) | |||||||||||
| Preferred stock dividends |
(138 | ) | — | — | — | (138 | ) | |||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Income (loss) applicable to common stockholders |
$ | (23,665 | ) | $ | 10,517 | $ | (7,646 | ) | $ | (2,870 | ) | $ | (23,664 | ) | ||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income (loss) |
(23,527 | ) | 10,517 | (7,646 | ) | (2,870 | ) | (23,526 | ) | |||||||||||
| Changes in comprehensive income (loss) |
(12,692 | ) | — | — | — | (12,692 | ) | |||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Comprehensive income (loss) |
$ | (36,219 | ) | $ | 10,517 | $ | (7,646 | ) | $ | (2,870 | ) | $ | (36,218 | ) | ||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
58
Nine Months Ended September 30, 2022 |
||||||||||||||||||||
Parent |
Guarantors |
Non- Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
(in thousands) |
||||||||||||||||||||
| Revenues |
$ | 8,193 | $ | 515,822 | $ | 65 | $ | — | $ | 524,080 | ||||||||||
| Cost of sales |
2,000 | (328,506 | ) | (73 | ) | — | (326,579 | ) | ||||||||||||
| Depreciation, depletion, amortization |
— | (106,362 | ) | — | — | (106,362 | ) | |||||||||||||
| General and administrative |
(12,682 | ) | (14,464 | ) | (1,843 | ) | — | (28,989 | ) | |||||||||||
| Exploration and pre-development |
(586 | ) | (32,489 | ) | (6,061 | ) | — | (39,136 | ) | |||||||||||
| Equity in earnings of subsidiaries |
(5,476 | ) | — | — | 5,476 | — | ||||||||||||||
| Other expense |
(25,483 | ) | (13,577 | ) | (11,653 | ) | (8,839 | ) | (59,552 | ) | ||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Income (loss) before income taxes |
(34,034 | ) | 20,424 | (19,565 | ) | (3,363 | ) | (36,538 | ) | |||||||||||
| (Provision) benefit from income taxes |
1,137 | (6,345 | ) | 11 | 8,839 | 3,642 | ||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income (loss) |
(32,897 | ) | 14,079 | (19,554 | ) | 5,476 | (32,896 | ) | ||||||||||||
| Preferred stock dividends |
(414 | ) | — | — | — | (414 | ) | |||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Income (loss) applicable to common stockholders |
$ | (33,311 | ) | $ | 14,079 | $ | (19,554 | ) | $ | 5,476 | $ | (33,310 | ) | |||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income (loss) |
(32,897 | ) | 14,079 | (19,554 | ) | 5,476 | (32,896 | ) | ||||||||||||
| Changes in comprehensive income (loss) |
19,491 | — | — | — | 19,491 | |||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Comprehensive income (loss) |
$ | (13,406 | ) | $ | 14,079 | $ | (19,554 | ) | $ | 5,476 | $ | (13,405 | ) | |||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
59
Unaudited Interim Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2022 |
||||||||||||||||||||
Parent |
Guarantors |
Non- Guarantors |
Eliminations |
Consolidated |
||||||||||||||||
(in thousands) |
||||||||||||||||||||
| Cash flows from operating activities |
$ | 287,919 | $ | 145,834 | $ | (153,190 | ) | $ | (226,793 | ) | $ | 53,770 | ||||||||
| Cash flows from investing activities: |
||||||||||||||||||||
| Additions to properties, plants, and equipment |
— | (90,138 | ) | (3,099 | ) | — | (93,237 | ) | ||||||||||||
| Acquisition, net |
8,952 | |
— |
|
|
8,952 |
| |||||||||||||
| Other investing activities, net |
(573,131 | ) | (1,880 | ) | (16,525 | ) | 548,130 | (43,406 | ) | |||||||||||
| Cash flows from financing activities: |
||||||||||||||||||||
| Dividends paid to stockholders |
(10,549 | ) | — | — | — | (10,549 | ) | |||||||||||||
| Issuance of debt |
25,000 | — | — | 25,000 | ||||||||||||||||
| Payments on debt |
— | (5,222 | ) | — | — | (5,222 | ) | |||||||||||||
| Other financing activity |
187,036 | (37,653 | ) | 172,302 | (321,337 | ) | 348 | |||||||||||||
| Effect of exchange rate changes on cash |
— | 548 | (256 | ) | — | (804 | ) | |||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Changes in cash, cash equivalents and restricted cash |
(74,773 | ) | 10,393 | (768 | ) | (65,148 | ) | |||||||||||||
| Beginning cash, cash equivalents and restricted cash |
175,108 | 15,135 | 20,820 | — | 211,063 | |||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Ending cash, cash equivalents and restricted cash |
$ | 100,335 | $ | 25,528 | $ | 20,052 | $ | — | $ | 145,915 | ||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
The following discussion about our exposure to market risks and risk management activities includes forward-looking statements that involve risks and uncertainties, as well as summarizes the financial instruments held by us at September 30, 2022, which are sensitive to changes in commodity prices and foreign exchange rates and are not held for trading purposes. Actual results could differ materially from those projected in the forward-looking statements. In the normal course of business, we also face risks that are either of our 2021 Form in our Quarterly Report on Form
non-financial
or non-quantifiable
(See Item 1A. – Risk Factors
10-K),
as updated in Part II. Item 1A – Risk Factors
10-Q
for the quarter ended June 30, 2022. Metals Prices
Changes in the market prices of silver, gold, lead and zinc can significantly affect our profitability and cash flow. Metals prices can and often do fluctuate widely and are affected by numerous factors beyond our control (see in our 2021 Form
Item 1A – Risk Factors – A substantial or extended decline in metals prices would have a material adverse effect on us
10-K).
We utilize financially-settled forward and put option contracts to manage our exposure to changes in prices for silver, gold, zinc and lead. Provisional Sales
Sales of all metals products sold directly to customers, including in our 2021 Form of , we utilize a program designed and intended to mitigate the risk of negative price adjustments with limited financially-settled forward contracts for our silver, gold, zinc and lead sales.
by-product
metals, are recorded as revenues when all performance obligations have been completed and the transaction price can be determined or reasonably estimated. For concentrate sales, revenues are generally recorded at the time of shipment at forward prices for the estimated month of settlement. Due to the time elapsed between shipment to the customer and the final settlement with the customer we must estimate the prices at which sales of our metals will be settled. Previously recorded sales are adjusted to estimated settlement metals prices until final settlement by the customer. Changes in metals prices between shipment and final settlement will result in changes to revenues previously recorded upon shipment. Metals prices can and often do fluctuate widely and are affected by numerous factors beyond our control (see Item 1A – Risk Factors –
A substantial or extended decline in metals prices would have a material adverse effect on us
10-K). At
September 30, 2022, metals contained in concentrate sales and exposed to future price changes totaled 2.235 million ounces of silver, 1,840 ounces of gold, 8,500 tons of zinc, and 6,800 tons of lead. If the price for each metal were to change by 10%, the change in the total value of the concentrates sold would be approximately $8.2 million. As discussed in Note 8
Notes to Condensed Consolidated Financial Statements (Unaudited)
mark-to-market
60
Commodity-Price Risk Management
See of and in our 2021 Form
Note 8
Notes to Condensed Consolidated Financial Statements (Unaudited)
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
10-K
for a description of our commodity-price risk management program. Foreign Currency Risk Management
We operate or have mining interests in Canada and Mexico, which exposes us to risks associated with fluctuations in the exchange rates between the USD and the CAD and MXN, respectively. We have determined the functional currency for our Canadian and Mexican operations is the USD. As such, foreign exchange gains and losses associated with the
re-measurement
of monetary assets and liabilities from CAD and MXN to USD are recorded to earnings each period. For the three and nine months ended September 30, 2022 we recognized a net foreign exchange gain of $5.7 million and $8.1 million respectively, compared to $4.0 million and $0.02 million, respectively for the comparable periods in 2021. Foreign currency exchange rates are influenced by a number of factors beyond our control. A 10% change in the exchange rate between the USD and CAD from the rate at September 30, 2022 would have resulted in a change of approximately $7.2 million in our net foreign exchange gain or loss. A 10% change in the exchange rate between the USD and MXN from the rate at September 30, 2022 would have resulted in a change of approximately $0.027 million in our net foreign exchange gain or loss. We do not hedge the remeasurement of monetary assets and liabilities. We do hedge some of our operating and capital costs denominated in foreign currency. See of and of in our 2021 Form
Note 8
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 11
Notes to Consolidated Financial Statements
10-K
for a description of our foreign currency risk management. Item 4. |
Controls and Procedures |
An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures as required by Securities Exchange Act Rules
13a-15(e)
and 15d-15(e)
as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures, including controls and procedures designed to ensure that information required to be disclosed by us is accumulated and communicated to our management (including our CEO and CFO), were effective as of September 30, 2022, in assuring them in a timely manner that material information required to be disclosed in this report has been properly recorded, processed, summarized and reported. There were no changes in our internal control over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Internal control systems, no matter how well designed and operated, have inherent limitations. Therefore, even a system which is determined to be effective cannot provide absolute assurance that all control issues have been detected or prevented. Our systems of internal controls are designed to provide reasonable assurance with respect to financial statement preparation and presentation.
Part II - Other Information
Hecla Mining Company and Subsidiaries
Item 1. |
Legal Proceedings |
For information concerning legal proceedings, refer to of , which is incorporated by reference into this Item 1.
Note 10
Notes to Condensed Consolidated Financial Statements (Unaudited)
Item 1A. |
Risk Factors |
Item 1A. – Risk Factors
10-K
and Item 1A. – Risk Factors of Part II of our Quarterly Report on Form 10-Q
for our fiscal quarter ended June 30, 2022 set forth information relating to important risks and uncertainties that could materially adversely affect our business, financial condition or operating results. 61
Item 4. |
Mine Safety Disclosures |
The information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation
S-K
is included in exhibit 95 to this Quarterly Report. Item 6. Exhibits
| * | Filed herewith. |
62
** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
Items 3 and 5 of Part II are not applicable and are omitted from this report.
63
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| HECLA MINING COMPANY (Registrant) | ||||||
| Date: | November 9, 2022 | By: |
/s/ Phillips S. Baker, Jr. | |||
| Phillips S. Baker, Jr., President, | ||||||
| Chief Executive Officer and Director | ||||||
| Date: | November 9, 2022 | By: |
/s/ Russell D. Lawlar | |||
| Russell D. Lawlar, Senior Vice President, | ||||||
| Chief Financial Officer |
64