The accompanying notes are an integral part of the interim condensed consolidated financial statements.
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
The accompanying notes are an integral part of the interim condensed consolidated financial statements.
Note
1.
Basis of Preparation of Financial Statements
In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements and notes to the unaudited interim condensed consolidated financial statements contain all adjustments, consisting of normal recurring items and items which are nonrecurring, necessary to present fairly, in all material respects, the financial position of Hecla Mining Company and its consolidated subsidiaries (in this report, "Hecla" or "the Company" or “we” or “our” or “us” refers to Hecla Mining Company and our subsidiaries, unless the context requires otherwise). These unaudited interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related footnotes as set forth in our annual report filed on Form
10
-K for the year ended
December
31,
2018,
as it
may
be amended from time to time.
The results of operations for the periods presented
may
not
be indicative of those which
may
be expected for a full year. The unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures are adequate for the information
not
to be misleading.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting period and the disclosures of contingent liabilities. Accordingly, ultimate results could differ materially from those estimates.
Note
2.
Investments
At
June
30,
2019
and
December
31,
2018,
the fair value of our non-current investments was $5.8 million and $6.6 million, respectively. Our non-current investments consist of marketable equity securities which are carried at fair value. The cost basis of our non-current investments was approximately $8.0 million and $7.7 million at
June
30,
2019
and
December
31,
2018,
respectively. During the
six
months ended
June
30,
2019,
we recognized $1.0 million in net unrealized losses in current earnings. During the
six
months ended
June
30,
2018,
we recognized $0.3 million in net unrealized losses in current earnings.
Note
3.
Income Taxes
Major components of our income tax benefit (provision) for the
three
and
six
months ended
June 30, 2019
and
2018
are as follows (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
Foreign
|
|
|
(1,716
|
)
|
|
|
(2,965
|
)
|
|
|
(2,793
|
)
|
|
|
(4,171
|
)
|
Total current income tax benefit (provision)
|
|
|
(1,718
|
)
|
|
|
(2,966
|
)
|
|
|
(2,795
|
)
|
|
|
(4,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
5,456
|
|
|
|
—
|
|
|
|
7,933
|
|
|
|
—
|
|
Foreign
|
|
|
7,441
|
|
|
|
2,539
|
|
|
|
13,257
|
|
|
|
2,977
|
|
Total deferred income tax benefit (provision)
|
|
|
12,897
|
|
|
|
2,539
|
|
|
|
21,190
|
|
|
|
2,977
|
|
Total income tax benefit (provision)
|
|
$
|
11,179
|
|
|
$
|
(427
|
)
|
|
$
|
18,395
|
|
|
$
|
(1,195
|
)
|
The current income tax benefits (provisions) for the
three
and
six
months ended
June
30,
2019
and
2018
vary from the amounts that would have resulted from applying the statutory income tax rate to pre-tax income due primarily to the impact of taxation in foreign jurisdictions and a valuation allowance on the majority of U.S. deferred tax assets.
As of
June
30,
2019,
we have a net deferred tax liability in the U.S. of $45.4 million, a net deferred tax liability in Canada of $102.9 million, and a net deferred tax asset in Mexico of $3.4 million, for a consolidated worldwide net deferred tax liability of $144.9 million.
With the acquisition of Klondex Mines Ltd. ("Klondex") on
July 20, 2018 (
see
Note
13
), we acquired a U.S. consolidated tax group (the "Nevada U.S. Group") that did
not
join the existing consolidated U.S. tax group of Hecla Mining Company and subsidiaries (“Hecla U.S.”). Under acquisition accounting, we recorded a net deferred tax liability of $59.5 million. For the
six
months ended
June
30,
2019,
we recorded a tax benefit of $7.9 million in the Nevada U.S. Group. Net operating losses acquired as of the acquisition date are subject to limitation under Internal Revenue Code Section
382.
However, the annual limitation is
not
expected to have a material impact on our ability to utilize the losses.
For Hecla U.S., we recorded a full valuation allowance in the U.S. in
December 2017
as a result of U.S. tax reform. Our circumstances at
June
30,
2019
continued to support a full valuation allowance in the U.S. for Hecla U.S.
Note
4.
Commitments, Contingencies and Obligations
General
We follow GAAP guidance in determining our accruals and disclosures with respect to loss contingencies, and evaluate such accruals and contingencies for each reporting period. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable that a liability could be incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is
not
probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred.
Lucky Friday Water Permit Matters
In
December 2013,
the EPA issued to Hecla Limited a request for information under Section
308
of the Clean Water Act directing Hecla Limited to undertake a comprehensive groundwater investigation of Lucky Friday’s tailings pond
no.
3
to evaluate whether the pond is causing the discharge of pollutants via seepage to groundwater that is discharging to surface water. We completed the investigation mandated by the EPA and submitted a draft report to the agency in
December 2015.
We are waiting for the EPA’s response and we cannot predict what further action, if any, the agency
may
take.
Johnny M Mine Area near San Mateo, McKinley County and San Mateo Creek Basin, New Mexico
In
May 2011,
the EPA made a formal request to Hecla Mining Company for information regarding the Johnny M Mine Area near San Mateo, McKinley County, New Mexico, and asserted that Hecla Mining Company
may
be responsible under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") for environmental remediation and past costs the EPA has incurred at the site. Mining at the Johnny M Mine was conducted for a limited period of time by a predecessor of our subsidiary, Hecla Limited. In
August 2012,
Hecla Limited and the EPA entered into a Settlement Agreement and Administrative Order on Consent for Removal Action (“Consent Order”), pursuant to which Hecla Limited agreed to pay (i) $1.1 million to the EPA for its past response costs at the site and (ii) any future response costs at the site under the Consent Order, in exchange for a covenant
not
to sue by the EPA. Hecla Limited paid the $1.1 million to the EPA for its past response costs and in
December 2014
submitted to EPA the Engineering Evaluation and Cost Analysis (“EE/CA”) for the site. The EE/CA evaluates
three
alternative response actions:
1
)
no
action,
2
) off-site disposal, and
3
) on-site disposal. The range in estimated costs of these alternatives is $0 to $221 million. In the EE/CA, Hecla Limited recommended that EPA approve on-site disposal, which is currently estimated to cost $5.6 million, on the basis that it is the most appropriate response action under CERCLA. In
June 2015,
the EPA approved the EE/CA, with a few minor conditions. The EPA must still publish the EE/CA for public notice and comment, and the agency will
not
make a final decision on the appropriate response action until the public comment process is complete. It is anticipated that Hecla Limited will implement the response action selected by the EPA pursuant to an amendment to the Consent Order or a new order. Based on the foregoing, we believe it is probable that Hecla Limited will incur a liability for remediation at the site. In the
fourth
quarter of
2014,
we accrued $5.6 million, which continues to be our best estimate of that liability as of the date of this report. There can be
no
assurance that Hecla Limited’s liability will
not
be more than $5.6 million, or that its ultimate liability will
not
have a material adverse effect on Hecla Limited’s or our results of operations or financial position.
9
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 is considering listing the entire SMCB on CERCLA’s National Priorities List in order to address perceived groundwater issues within the SMCB. The EE/CA discussed above relates primarily to contaminated rock and soil,
not
groundwater. In the event that the SMCB is listed as a Superfund site, or for other reasons, 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 $5.6 million due to the increased scope of required remediation.
In
July 2018,
the EPA informed Hecla Limited that it and several other potentially responsible parties ("PRPs")
may
be liable for cleanup of the site or for costs incurred by the EPA in cleaning up the site. The EPA stated it has incurred approximately $9.6 million in response costs to date. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning the site, including the relative contributions of contamination by the various PRPs.
Carpenter Snow Creek and Barker-Hughesville Sites in Montana
In
July 2010,
the EPA made a formal request to Hecla Mining Company for information regarding the Carpenter Snow Creek Superfund site located in Cascade County, Montana. The Carpenter Snow Creek site is located in a historic mining district, and in the early
1980s
Hecla Limited leased
6
mining claims and performed limited exploration activities at the site. Hecla Limited terminated the mining lease in
1988.
In
June 2011,
the EPA informed Hecla Limited that it believes Hecla Limited, among several other viable companies,
may
be liable for cleanup of the site or for costs incurred by the EPA in cleaning up the site. The EPA stated in the letter that it has incurred approximately $4.5 million in response costs and estimated that total remediation costs
may
exceed $100 million. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning the site, including the relative contributions of contamination by various other PRPs.
In
February 2017,
the EPA made a formal request to Hecla Mining Company for information regarding the Barker-Hughesville Mining District Superfund site located in Judith Basin and Cascade Counties, Montana. Hecla Limited submitted a response in
April 2017.
The Barker-Hughesville site is located in a historic mining district, and between approximately
June
and
December 1983,
Hecla Limited was party to an agreement with another mining company under which limited exploration activities occurred at or near the site.
In
August 2018,
the EPA informed Hecla Limited that it and several other PRPs
may
be liable for cleanup of the site or for costs incurred by the EPA in cleaning up the site. The EPA did
not
include an amount of its alleged response costs to date. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning past or anticipated future costs at the site and the relative contributions of contamination by various other PRPs.
Potential Claim for Indemnification Against CoCa Mines, Inc.
In
1991,
Hecla Limited acquired CoCa Mines, Inc. (“CoCa”) and its subsidiary Creede Resources, Inc. (“CRI”). CoCa and CRI previously operated in the State of Colorado, but presently have limited assets and operations. Beginning in
2014,
and most recently in
January 2019,
a
third
party has alleged that CoCa and CRI are required by a
1989
agreement to indemnify it for certain environmental costs and liabilities it
may
incur with respect to the Nelson Tunnel/Commodore Waste Rock Pile Superfund site in Creede, Colorado. To date,
no
claim for indemnification has been made against CoCa or CRI; however, in
January 2019,
the party alleged that it
may
soon reach a settlement with the EPA under CERCLA with respect to the site, at which point it would then seek reimbursement from CoCa and CRI of all amounts paid to the EPA, as well as attorneys’ fees and costs. Until any such claim is made, we cannot predict whether a liability will be incurred or the amount of any such liability; however, as noted above, both CoCa and CRI have limited assets with which to satisfy any claim.
Montanore Project
In
October 2018,
a court in Lincoln County, Montana found that the adit (which is an underground tunnel) which we had intended to use to develop the Montanore project trespassed on certain unpatented mining claims we do
not
own, but through which the adit passes. In the case, which dates back to
2008,
the jury delivered a verdict against certain of our subsidiaries for $3,325,000. The subsidiaries appealed the finding of trespass and the award of damages to the Montana Supreme Court, and we believe there are strong arguments for reversal. There can be
no
assurance that the appeal will succeed. Further, on
May 6, 2019,
one
of the subsidiaries received a letter from the Montana Department of Environmental Quality ("DEQ") questioning the validity of its operating permit at Montanore in light of the trespass finding. Our subsidiary responded by explaining that we do
not
believe the
two
issues are related. There has been
no
response to date from DEQ. Finally, on
July 24, 2019,
a Montana state court issued an order vacating Montanore's water discharge permit, which was renewed effective as of
May 1, 2014,
and remanded the matter back to DEQ. As of
June
30,
2019,
we have accrued $1.1 million for estimated future reclamation costs at the Montanore project, and have surety bonding in place for that amount.
Litigation Related to Klondex Acquisition
Following the announcement of our proposed acquisition of Klondex, Klondex and members of the Klondex board of directors were named as defendants in several putative stockholder class actions brought by purported stockholders of Klondex challenging the proposed merger. The lawsuits were all filed in the United States District Court for the District of Nevada. On
December 18, 2018,
the remaining
three
cases were consolidated into a single case, Lawson v. Klondex Mines Ltd., et al.,
No.
3:18
-cv-
00284
(D. Nev.
June 15, 2018).
The plaintiffs generally claim that Klondex issued a proxy statement that included misstatements or omissions, in violation of sections
14
(a) and
20
(a) of the Securities Exchange Act of
1934,
as amended. The plaintiffs seek, among other things, to obtain rescissory damages and recover attorneys’ fees and costs.
Although it is
not
possible to predict the outcome of litigation matters with certainty, each of Klondex and its directors believe that each of the lawsuits are without merit, and the parties intend to vigorously defend against all claims asserted.
On
September 11, 2018,
a lawsuit was filed in the Ontario (Canada) Superior Court of Justice by Waterton Nevada Splitter LLC against Hecla Mining Company, our subsidiary Klondex Mines Unlimited Liability Company and Havilah Mining Corporation, an entity that was formed to own the Canadian assets of Klondex that we did
not
acquire as part of the Klondex acquisition, and of which we own approximately 13%. The lawsuit alleges that Hecla and Havilah are in breach of contract in connection with the issuance to Waterton of warrants to purchase Hecla common stock and Havilah common shares to replace warrants to purchase Klondex common shares that Waterton owned prior to the
July 2018
acquisition. The lawsuit claims Hecla and Havilah issued warrants to Waterton valued at $3.7 million but that Waterton was entitled to warrants valued at $8.9 million. We believe the lawsuit is without merit and will vigorously defend it.
On
May 24, 2019,
a purported Hecla stockholder filed a putative class action lawsuit in U.S. District Court for the Southern District of New York against Hecla and certain of our executive officers,
one
of whom is also a director. The complaint, purportedly brought on behalf of all purchasers of Hecla common stock from
March 19, 2018,
through and including
May 8, 2019,
asserts claims under Sections
10
(b) and
20
(a) of the Securities Exchange Act of
1934
and Rule
10b
-
5
promulgated thereunder and seeks, among other things, damages and costs and expenses. Specifically, the complaint alleges that Hecla, under the authority and control of the individual defendants, made certain false and misleading statements and allegedly omitted certain material information regarding Hecla’s Nevada Operations unit. The complaint alleges that these actions artificially inflated the market price of Hecla common stock during the class period, thus purportedly harming investors. A
second
suit was filed on
June 19, 2019,
alleging virtually identical claims. We cannot predict the outcome of these lawsuits or estimate damages if plaintiffs were to prevail. We believe that these claims are without merit and intend to defend them vigorously.
Related to the above described class action lawsuits, Hecla has been named as a nominal defendant in
two
shareholder derivative lawsuits which name as defendants members of Hecla’s board of directors and certain officers. The cases were filed on
July 12
and
August 2, 2019,
respectively, in the U.S. District Court for the District of Delaware. In general terms, the suits allege (i) violations of Sections
10
(b) and
14
(a) of the Securities Exchange Act of
1934
and Rule
10b
-
5
promulgated thereunder and (ii) breaches of fiduciary duties by the individual defendants and seek damages, purportedly on behalf of Hecla.
Debt
As discussed in
Note
9
, on
April 12, 2013,
we completed an offering of $500 million aggregate principal amount of Senior Notes. The net proceeds from the offering of the Senior Notes were used to partially fund the acquisition of Aurizon Mines Ltd. ("Aurizon") and for general corporate purposes, including expenses related to the Aurizon acquisition. Through the acquisition of Aurizon, we acquired our Casa Berardi mine and other interests in Quebec, Canada. In
2014,
we completed additional issuances of our Senior Notes in the aggregate principal amount of $6.5 million, which were contributed to
one
of our pension plans to satisfy the funding requirement for
2014.
Interest on the Senior Notes is payable on
May 1
and
November 1
of each year, commencing
November 1, 2013.
On
March 5, 2018,
we entered into a note purchase agreement pursuant to which we issued
CAD$40
million (approximately
USD$30.8
million at the time of the transaction) in aggregate principal amount of our Series
2018
-A Senior Notes due
May 1, 2021 (
the “Notes”) to Ressources Québec, a subsidiary of Investissment Québec, a financing arm of the Québec government. The Notes were issued at a discount of 0.58%, and bear interest at a rate of 4.68% per year, payable on
May 1
and
November 1
of each year, commencing
May 1, 2018.
The Notes are senior and unsecured and are pari passu in all material respects with the Senior Notes, including with respect to guarantees of the Notes by certain of our subsidiaries. The net proceeds from the Notes are required to be used for development and expansion of our Casa Berardi mine.
See
Note
9
for more information.
Other Commitments
Our contractual obligations as of
June
30,
2019
included approximately $2.5 million for various costs. In addition, our open purchase orders at
June
30,
2019
included approximately $1.6 million, $0.4 million, $4.4 million and $0.8 million for various capital and non-capital items at the Lucky Friday, Casa Berardi, Greens Creek and Nevada Operations units, respectively. We also have total commitments of approximately $14.3 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 $19.2 million on operating leases (see
Note
9
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
June
30,
2019,
we had surety bonds totaling $191.8 million and letters of credit totaling $3.0 million in place as financial support for future reclamation and closure costs, self-insurance, and employee benefit plans. Subsequent to
June
30,
2019,
we increased our letters of credit to a total of $23.0 million as of the date of this report. The obligations associated with these instruments are generally related to performance requirements that we address through ongoing operations. As the requirements are met, the beneficiary of the associated instruments cancels or returns the instrument to the issuing entity. Certain of these instruments are associated with operating sites with long-lived assets and will remain outstanding until closure of the sites. We believe we are in compliance with all applicable bonding requirements and will be able to satisfy future bonding requirements as they arise.
Other Contingencies
We also have certain other contingencies resulting from litigation, claims, EPA investigations, and other commitments and are subject to a variety of environmental and safety laws and regulations incident to the ordinary course of business. We currently have
no
basis to conclude that any or all of such contingencies will materially affect our financial position, results of operations or cash flows. However, in the future, there
may
be changes to these contingencies, or additional contingencies
may
occur, any of which might result in an accrual or a change in current accruals recorded by us, and there can be
no
assurance that their ultimate disposition will
not
have a material adverse effect on our financial position, results of operations or cash flows.
Note
5.
(Loss) Earnings Per Common Share
We are authorized to issue 750,000,000 shares of common stock, $0.25 par value per share. At
June
30,
2019,
there were 488,870,345 shares of our common stock issued and 5,941,436 shares issued and held in treasury, for a net of 488,870,345 shares outstanding. Basic and diluted (loss) earnings per common share, after preferred dividends, was $(0.10) and $0.03 for the
three
-month periods ended
June
30,
2019
and
2018,
respectively. Basic and diluted (loss) earnings per common share, after preferred dividends, was $(0.15) and $0.05 for the
six
-month periods ended
June
30,
2019
and
2018,
respectively.
Diluted (loss) earnings per share for the
three
and
six
months ended
June
30,
2019
and
2018
excludes the potential effects of outstanding shares of our convertible preferred stock, as their conversion would have
no
effect on the calculation of dilutive shares.
For the
three
-month and
six
-month periods ended
June
30,
2019,
all restricted share units, deferred shares and warrants were excluded from the computation of diluted loss per share, as our reported loss for those periods would cause them to have
no
effect on the calculation of loss per share. For the
three
-month and
six
-month periods ended
June
30,
2018,
the calculation of diluted income per share included dilutive (i) restricted stock units that were unvested or which vested in the current period of 1,268,601 and 1,179,086, respectively, and (ii) deferred shares of 1,721,932 for each period. For the
three
-month and
six
-month periods ended
June
30,
2018,
there were unvested restricted stock units of 2,218,281 and 2,307,796, respectively, and deferred shares of 106,185 for each period, which were
not
dilutive. There were no warrants outstanding during the
three
-month and
six
-month periods ended
June
30,
2018.
Note
6.
Business Segments and Sales of Products
We discover, acquire, develop, produce, and market concentrates and doré containing silver, gold, lead and zinc. We are currently organized and managed in five segments, which represent our operating units: the Greens Creek unit, the Lucky Friday unit, the Casa Berardi unit, the San Sebastian unit, and the Nevada Operations unit. The Nevada Operations unit was added as a result of our acquisition of Klondex in
July 2018 (
see
Note
13
for more information).
General corporate activities
not
associated with operating units and their various exploration activities, as well as discontinued operations and idle properties, are presented as “other.” Interest expense, interest income and income taxes are considered general corporate items, and are
not
allocated to our segments.
The following tables present information about reportable segments for the
three
and
six
months ended
June
30,
2019
and
2018
(in thousands):
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Net sales to unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greens Creek
|
|
$
|
55,398
|
|
|
$
|
74,605
|
|
|
$
|
135,527
|
|
|
$
|
140,455
|
|
Lucky Friday
|
|
|
4,951
|
|
|
|
3,287
|
|
|
|
7,133
|
|
|
|
8,264
|
|
Casa Berardi
|
|
|
45,500
|
|
|
|
56,103
|
|
|
|
85,562
|
|
|
|
111,651
|
|
San Sebastian
|
|
|
10,993
|
|
|
|
13,264
|
|
|
|
23,593
|
|
|
|
26,598
|
|
Nevada Operations
|
|
|
17,330
|
|
|
|
—
|
|
|
|
34,974
|
|
|
|
—
|
|
|
|
$
|
134,172
|
|
|
$
|
147,259
|
|
|
$
|
286,789
|
|
|
$
|
286,968
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greens Creek
|
|
$
|
9,141
|
|
|
$
|
25,516
|
|
|
$
|
34,574
|
|
|
$
|
48,668
|
|
Lucky Friday
|
|
|
(2,271
|
)
|
|
|
(5,261
|
)
|
|
|
(5,052
|
)
|
|
|
(9,407
|
)
|
Casa Berardi
|
|
|
(15,363
|
)
|
|
|
1,014
|
|
|
|
(25,882
|
)
|
|
|
4,264
|
|
San Sebastian
|
|
|
(1,923
|
)
|
|
|
(361
|
)
|
|
|
(3,435
|
)
|
|
|
4,656
|
|
Nevada Operations
|
|
|
(21,475
|
)
|
|
|
—
|
|
|
|
(35,466
|
)
|
|
|
—
|
|
Other
|
|
|
(11,586
|
)
|
|
|
(17,152
|
)
|
|
|
(24,340
|
)
|
|
|
(32,476
|
)
|
|
|
$
|
(43,477
|
)
|
|
$
|
3,756
|
|
|
$
|
(59,601
|
)
|
|
$
|
15,705
|
|
The following table presents identifiable assets by reportable segment as of
June
30,
2019
and
December
31,
2018
(in thousands):
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
Greens Creek
|
|
$
|
643,811
|
|
|
$
|
637,386
|
|
Lucky Friday
|
|
|
438,362
|
|
|
|
437,499
|
|
Casa Berardi
|
|
|
722,882
|
|
|
|
754,248
|
|
San Sebastian
|
|
|
53,606
|
|
|
|
44,152
|
|
Nevada Operations
|
|
|
571,177
|
|
|
|
581,194
|
|
Other
|
|
|
240,875
|
|
|
|
249,465
|
|
|
|
$
|
2,670,713
|
|
|
$
|
2,703,944
|
|
Our products consist of both metal concentrates, which we sell to custom smelters and brokers, and unrefined bullion bars (doré), which
may
be sold as doré or further refined before sale to precious metals traders. Revenue is recognized upon the completion of the performance obligations and transfer of control of the product to the customer.
For sales of metals from refined doré, which we currently have at our Casa Berardi, San Sebastian and Nevada Operations units, the performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of control of the agreed-upon metal quantities to the customer by the refiner. For sales of doré, the performance obligation is met, the transaction price is known, and revenue is recognized at the time of transfer of title and control of the doré containing the agreed-upon metal quantities to the customer. Refining, selling and shipping costs related to sales of doré and metals from doré are recorded to cost of sales as incurred.
For concentrate sales, which we currently have at our Greens Creek and Lucky Friday units, the performance obligation is met, the transaction price can be reasonably estimated, and revenue is recognized generally at the time of shipment. Concentrates sold at our Lucky Friday unit typically leave the mine and are received by the customer within the same day. However, there is a period of time between shipment of concentrates from our Greens Creek unit and their physical receipt by the customer, and judgment is required in determining when control has been transferred to the customer for those shipments. We have determined the performance obligation is met and title is transferred to the customer upon shipment of concentrate parcels from Greens Creek because, at that time,
1
) legal title is transferred to the customer,
2
) the customer has accepted the parcel and obtained the ability to realize all of the benefits from the product,
3
) the concentrate content specifications are known, have been communicated to the customer, and the customer has the significant risks and rewards of ownership of it,
4
) it is very unlikely a concentrate parcel from Greens Creek will be rejected by a customer upon physical receipt, and
5
) we have the right to payment for the parcel.
Judgment is also required in identifying the performance obligations for our concentrate sales. Most of our concentrate sales involve “frame contracts” with smelters that can cover multiple years and specify certain terms under which individual parcels of concentrates are sold. However, some terms are
not
specified in the frame contracts and/or can be renegotiated as part of annual amendments to the frame contract. We have determined parcel shipments represent individual performance obligations satisfied at a point in time when control of the shipment is transferred to the customer.
The consideration we receive for our concentrate sales fluctuates due to changes in metals prices between the time of shipment and final settlement with the customer. However, we are able to reasonably estimate the transaction price for the concentrate sales at the time of shipment using forward prices for the month of settlement, and previously recorded sales and accounts receivable are adjusted to estimated settlement metals prices until final settlement with the customer. Also, it is unlikely a significant reversal of revenue for any
one
concentrate parcel will occur. As such, we use the expected value method to price the parcels until the final settlement date occurs, at which time the final transaction price is known. At
June
30,
2019,
metals contained in concentrates and exposed to future price changes totaled 1.7 million ounces of silver, 6,473 ounces of gold, 11,021 tons of zinc, and 3,142 tons of lead. However, as discussed in
Note
11
, we seek to mitigate the risk of negative price adjustments by using financially-settled forward contracts for some of our sales.
Sales and accounts receivable for concentrate shipments are recorded net of charges for treatment, refining, smelting losses, and other charges negotiated by us with the customers, which represent components of the transaction price. Charges are estimated by us upon shipment of concentrates based on contractual terms, and actual charges typically do
not
vary materially from our estimates. Costs charged by customers include fixed treatment and refining costs per ton of concentrate and
may
include price escalators which allow the customers to participate in the increase of lead and zinc prices above a negotiated baseline. Costs for shipping concentrates to customers are recorded to cost of sales as incurred.
Sales of metal concentrates and metal products are made principally to custom smelters, brokers and metals traders. The percentage of sales contributed by each segment is reflected in the following table:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greens Creek
|
|
|
41
|
%
|
|
|
51
|
%
|
|
|
48
|
%
|
|
|
49
|
%
|
Lucky Friday
|
|
|
4
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
3
|
%
|
Casa Berardi
|
|
|
34
|
%
|
|
|
38
|
%
|
|
|
30
|
%
|
|
|
39
|
%
|
San Sebastian
|
|
|
8
|
%
|
|
|
9
|
%
|
|
|
8
|
%
|
|
|
9
|
%
|
Nevada Operations
|
|
|
13
|
%
|
|
|
—
|
%
|
|
|
12
|
%
|
|
|
—
|
%
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Sales of products by metal for the
three
- and
six
-month periods ended
June
30,
2019
and
2018
were as follows (in thousands):
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver
|
|
$
|
36,298
|
|
|
$
|
38,425
|
|
|
$
|
81,804
|
|
|
$
|
73,647
|
|
Gold
|
|
|
78,166
|
|
|
|
77,635
|
|
|
|
157,845
|
|
|
|
150,679
|
|
Lead
|
|
|
6,670
|
|
|
|
10,690
|
|
|
|
15,695
|
|
|
|
19,917
|
|
Zinc
|
|
|
22,948
|
|
|
|
27,614
|
|
|
|
47,703
|
|
|
|
57,723
|
|
Less: Smelter and refining charges
|
|
|
(9,910
|
)
|
|
|
(7,105
|
)
|
|
|
(16,258
|
)
|
|
|
(14,998
|
)
|
|
|
$
|
134,172
|
|
|
$
|
147,259
|
|
|
$
|
286,789
|
|
|
$
|
286,968
|
|
The following is sales information by geographic area based on the location of smelters and brokers (for concentrate shipments) and location of parent companies (for doré sales to metals traders) for the
three
- and
six
-month periods ended
June
30,
2019
and
2018
(in thousands):
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
78,158
|
|
|
$
|
94,524
|
|
|
$
|
171,030
|
|
|
$
|
183,192
|
|
Korea
|
|
|
26,202
|
|
|
|
41,537
|
|
|
|
75,501
|
|
|
|
74,240
|
|
Japan
|
|
|
9,236
|
|
|
|
3,897
|
|
|
|
17,585
|
|
|
|
17,670
|
|
Netherlands
|
|
|
16,055
|
|
|
|
—
|
|
|
|
16,055
|
|
|
|
—
|
|
China
|
|
|
—
|
|
|
|
198
|
|
|
|
—
|
|
|
|
67
|
|
United States
|
|
|
3,228
|
|
|
|
4,407
|
|
|
|
7,801
|
|
|
|
8,488
|
|
Total, excluding gains/losses on forward contracts
|
|
$
|
132,879
|
|
|
$
|
144,563
|
|
|
$
|
287,972
|
|
|
$
|
283,657
|
|
Sales by significant product type for the
three
- and
six
-month periods ended
June
30,
2019
and
2018
were as follows (in thousands):
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doré and metals from doré
|
|
$
|
77,596
|
|
|
$
|
75,526
|
|
|
$
|
153,497
|
|
|
$
|
149,018
|
|
Lead concentrate
|
|
|
35,742
|
|
|
|
42,149
|
|
|
|
85,042
|
|
|
|
76,483
|
|
Zinc concentrate
|
|
|
15,738
|
|
|
|
22,579
|
|
|
|
39,530
|
|
|
|
48,231
|
|
Bulk concentrate
|
|
|
3,803
|
|
|
|
4,309
|
|
|
|
9,903
|
|
|
|
9,925
|
|
Total, excluding gains/losses on forward contracts
|
|
$
|
132,879
|
|
|
$
|
144,563
|
|
|
$
|
287,972
|
|
|
$
|
283,657
|
|
Sales of products included net gains of $1.3 million for the
second
quarter of
2019
and net losses of $1.2 million for the
first
half of
2019
on financially-settled forward and put option contracts for silver, gold, lead and zinc contained in our concentrate sales. Sales of products for the
three
- and
six
-month periods ended
June
30,
2018
included net gains of $2.7 million and $3.3 million, respectively, on forward contracts. See
Note
11
for more information.
Sales of products to significant customers as a percentage of total sales were as follows for the
three
- and
six
-month periods ended
June
30,
2019
and
2018:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CIBC
|
|
|
24
|
%
|
|
|
28
|
%
|
|
|
19
|
%
|
|
|
38
|
%
|
Scotia
|
|
|
28
|
%
|
|
|
18
|
%
|
|
|
28
|
%
|
|
|
10
|
%
|
Korea Zinc
|
|
|
20
|
%
|
|
|
28
|
%
|
|
|
20
|
%
|
|
|
26
|
%
|
Teck Metals Ltd.
|
|
|
3
|
%
|
|
|
17
|
%
|
|
|
9
|
%
|
|
|
11
|
%
|
Ocean Partners
|
|
|
12
|
%
|
|
|
—
|
%
|
|
|
6
|
%
|
|
|
—
|
%
|
Our trade accounts receivable balance related to contracts with customers was $6.9 million at
June
30,
2019
and $4.2 million at
December
31,
2018,
and included no allowance for doubtful accounts.
We have determined our contracts do
not
include a significant financing component. For doré sales and sales of metal from doré, payment is received at the time the performance obligation is satisfied. The amount of consideration for concentrate sales is variable, and we receive payment for a significant portion of the estimated value of concentrate parcels within a relatively short period of time after the performance obligation is satisfied.
We do
not
incur significant costs to obtain contracts, nor costs to fulfill contracts which are
not
addressed by other accounting standards. Therefore, we have
not
recognized an asset for such costs as of
June
30,
2019
or
December
31,
2018.
The sales and income (loss) from operations amounts reported above include results from our Lucky Friday segment. The Lucky Friday mine is our only operation where some of our employees are subject to a collective bargaining agreement, and the most recent agreement expired on
April 30, 2016.
On
February 19, 2017,
the unionized employees voted against our contract offer, and on
March 13, 2017
went on strike and have been on strike since that time. Production at Lucky Friday was suspended from the start of the strike until
July 2017,
when limited production resumed. For the
first
six
months of
2019
and
2018,
suspension costs
not
related to production of $3.0 million and $9.4 million, respectively, along with $2.1 million and $2.4 million, respectively, in non-cash depreciation expense, are reported in a separate line item on our consolidated statements of operations. We cannot predict how long the strike will last or whether an agreement will be reached. As a result of the strike or other related events, operations at Lucky Friday could continue to be disrupted, which could adversely affect our financial condition and results of operations. If the strike continues for a further extended period or it is determined an eventual resolution is unlikely, it
may
be appropriate in the future to review the carrying value of properties, plants, equipment and mineral interests at Lucky Friday. Under such review, if estimated undiscounted cash flows from Lucky Friday were less than its carrying value, an impairment loss would be recognized for the difference between the carrying value and the estimated fair value. The carrying value of properties, plants, equipment and mineral interests at Lucky Friday as of
June
30,
2019
was approximately $435.9 million. However, Lucky Friday has significant identified reserves and mineralized material and a current estimated mine life of approximately 17 years.
Note
7.
Employee Benefit Plans
We sponsor defined benefit pension plans covering substantially all U.S. employees. Net periodic pension cost for the plans consisted of the following for the
three
and
six
months ended
June
30,
2019
and
2018
(in thousands):
|
|
Three Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Service cost
|
|
$
|
1,100
|
|
|
$
|
1,252
|
|
Interest cost
|
|
|
1,620
|
|
|
|
1,377
|
|
Expected return on plan assets
|
|
|
(1,496
|
)
|
|
|
(1,634
|
)
|
Amortization of prior service cost
|
|
|
15
|
|
|
|
15
|
|
Amortization of net loss
|
|
|
1,097
|
|
|
|
931
|
|
Net periodic pension cost
|
|
$
|
2,336
|
|
|
$
|
1,941
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Service cost
|
|
$
|
2,200
|
|
|
$
|
2,504
|
|
Interest cost
|
|
|
3,240
|
|
|
|
2,754
|
|
Expected return on plan assets
|
|
|
(2,992
|
)
|
|
|
(3,268
|
)
|
Amortization of prior service cost
|
|
|
30
|
|
|
|
30
|
|
Amortization of net (gain) loss
|
|
|
2,194
|
|
|
|
1,862
|
|
Net periodic pension cost
|
|
$
|
4,672
|
|
|
$
|
3,882
|
|
For the
three
- and
six
-month periods ended
June
30,
2019
and
2018,
the service cost component of net periodic pension cost is included in the same line items of our condensed consolidated financial statements as other employee compensation costs. The net expense related to all other components of net periodic pension cost of $1.2 million and $2.5 million, respectively, for the
three
- and
six
-month periods ended
June
30,
2019,
and $0.7 million and $1.4 million, respectively, the for the
three
- and
six
-month periods ended
June
30,
2018,
is included in other (expense) income on our condensed consolidated statements of operations and comprehensive (loss) income.
In
May 2019,
we contributed $3.6 million in shares of our common stock to our defined benefit plans, and do
no
t
expect to make additional contributions to the plans in
2019.
We expect to contribute approximately $0.6 million to our unfunded supplemental executive retirement plan during
2019.
Note
8.
Stockholders’ Equity
Stock-based Compensation Plans
We periodically grant restricted stock unit awards, performance-based shares and shares of common stock to our employees and directors. We measure compensation cost for restricted stock units and stock grants at the closing price of our stock at the time of grant. We measure compensation cost for performance-based grants using a Monte Carlo simulation to estimate their value at grant date. Restricted stock unit and performance-based share grants vest after a specified period with compensation cost amortized over that period. Although we have
no
current plans to issue stock options, we
may
do so in the future.
In
April 2019,
the Board of Directors granted 3,597,380 shares of common stock to employees for payment of long-term incentive compensation for the period ended
December 31, 2018.
The shares were distributed in
April 2019,
and $8.3 million in expense related to the stock awards was recognized in the periods prior to
March
31,
2019.
In
June 2019,
the Board of Directors granted the following restricted stock unit awards to employees which will result in a total expense of $5.9 million:
|
•
|
2,971,188 restricted stock units, with
one
third
of those vesting in
June 2020,
one
third
vesting in
June 2021,
and
one
third
vesting in
June 2022;
|
|
•
|
165,764 restricted stock units, with
one
half of those vesting in
June 2020
and
one
-half vesting in
June 2021;
and
|
|
•
|
63,589 restricted stock units that vest in
June 2020.
|
Expense of $2.1 million related to the unit awards discussed above vesting in
2020
will be recognized on a straight-line basis over the 12 months following the date of the award. Expense of $2.0 million related to the unit awards discussed above vesting in
2021
will be recognized on a straight-line basis over the 24 months following the date of the award. Expense of $1.8 million related to the unit awards discussed above vesting in
2022
will be recognized on a straight-line basis over the 36-month period following the date of the award.
In
June 2019,
the Board of Directors granted performance-based share awards to certain executive employees. The value of the awards will be based on the ranking of the market performance of our common stock relative to the performance of the common stock of a group of peer companies over the 3-year measurement period ending
December 31, 2021.
The number of shares to be issued will be based on the value of the awards divided by the share price at grant date. The expense related to the performance-based awards will be recognized on a straight-line base over the 30 months following the date of the award.
Stock-based compensation expense for restricted stock unit and performance-based grants to employees and shares issued to nonemployee directors recorded in the
first
six
months of
2019
totaled $3.6 million, compared to $2.4 million in the same period last year.
In connection with the vesting of restricted stock units and other stock grants, employees have in the past, at their election and when permitted by us, chosen to satisfy their minimum tax withholding obligations through net share settlement, pursuant to which the Company withholds the number of shares necessary to satisfy such withholding obligations and pays the obligations in cash. As a result, in the
first
six
months of
2019
we withheld 714,645 shares valued at approximately $1.6 million, or approximately $2.30 per share. In the
first
six
months of
2018
we withheld 697,341 shares valued at approximately $2.7 million, or approximately $3.86 per share.
Common Stock Dividends
In
September 2011
and
February 2012,
our Board of Directors adopted a common stock dividend policy that has
two
components: (
1
) a dividend that links the amount of dividends on our common stock to our average quarterly realized silver price in the preceding quarter, and (
2
) a minimum annual dividend of $0.01 per share of common stock, in each case, payable quarterly, if and when declared. For illustrative purposes only, the table below summarizes potential per share dividend amounts at different quarterly average realized price levels according to the
first
component of the policy:
Quarterly average realized silver price
per ounce
|
|
Quarterly dividend per
share
|
|
Annualized dividend
per share
|
$30
|
|
$0.01
|
|
$0.04
|
$35
|
|
$0.02
|
|
$0.08
|
$40
|
|
$0.03
|
|
$0.12
|
$45
|
|
$0.04
|
|
$0.16
|
$50
|
|
$0.05
|
|
$0.20
|
On
August 5, 2019,
our Board of Directors declared a common stock dividend, pursuant to the minimum annual dividend component of the policy described above, of $0.0025 per share, for a total dividend of approximately $1.0 million payable in
September 2019.
Because the average realized silver price for the
second
quarter of
2019
was $15.01 per ounce, below the minimum threshold of $30 according to the policy,
no
silver-price-linked component was declared or paid. The declaration and payment of common stock dividends is at the sole discretion of our Board of Directors.
At-The-Market Equity Distribution Agreement
Pursuant to an equity distribution agreement dated
February 23, 2016,
we
may
issue and sell shares of our common stock from time to time through ordinary broker transactions having an aggregate offering price of up to $75 million, with the net proceeds available for general corporate purposes. The terms of sales transactions under the agreement, including trading day(s), number of shares sold in the aggregate, number of shares sold per trading day, and the floor selling price per share, are proposed by us to the sales agent. 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. The shares issued under the equity distribution agreement are registered under the Securities Act of
1933,
as amended, pursuant to a shelf registration statement on Form S-
3.
As of
June
30,
2019,
we had sold 7,173,614 shares under the agreement for total proceeds of approximately $24.5 million, net of commissions of approximately $0.6 million. No shares were sold under the agreement during the
first
six
months of
2019.
Common Stock Repurchase Program
On
May 8, 2012,
we announced that our Board of Directors approved a stock repurchase program. Under the program, 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
June
30,
2019,
934,100 shares have been purchased at an average price of $3.99 per share, leaving approximately 19.1 million shares that
may
yet be purchased under the program. The closing price of our common stock at
August
5,
2019,
was
$2.01
per share. No shares were purchased under the program during the
first
six
months of
2019.
Note
9.
Debt, Credit Facilities and Leases
Senior Notes
On
April 12, 2013,
we completed an offering of $500 million in aggregate principal amount of our Senior Notes due
May 1, 2021
in a private placement conducted pursuant to Rule
144A
and Regulation S under the Securities Act of
1933,
as amended, and in
2014,
an additional $6.5 million aggregate principal amount of the Senior Notes was issued to
one
of our pension plans. The Senior Notes were subsequently exchanged for substantially identical Senior Notes registered with the SEC. The Senior Notes are governed by the Indenture, dated as of
April 12, 2013,
as amended (the "Indenture"), among Hecla Mining Company ("Hecla") and certain of our subsidiaries and The Bank of New York Mellon Trust Company, N.A., as trustee. The net proceeds from the initial offering of the Senior Notes ($490 million) were used to partially fund the acquisition of Aurizon and for general corporate purposes, including expenses related to the Aurizon acquisition.
The Senior Notes are recorded net of a 2% initial purchaser discount totaling $10 million at the time of the
April 2013
issuance and having an unamortized balance of $2.4 million as of
June
30,
2019.
The Senior Notes bear interest at a rate of 6.875% per year from the date of original issuance or from the most recent payment date on which interest has been paid or provided for. Interest on the Senior Notes is payable on
May 1
and
November 1
of each year, commencing
November 1, 2013.
During each of the
six
months ended
June
30,
2019
and
2018,
interest expense related to the Senior Notes and amortization of the initial purchaser discount and fees related to the issuance of the Senior Notes totaled $18.1 million.
The Senior Notes are guaranteed on a senior unsecured basis by certain of our subsidiaries (the "Guarantors"). The Senior Notes and the guarantees are, respectively, Hecla's and the Guarantors' general senior unsecured obligations and are subordinated to all of Hecla's and the Guarantors' existing and future secured debt to the extent of the assets securing that secured debt. In addition, the Senior Notes are effectively subordinated to all of the liabilities of Hecla's subsidiaries that are
not
guaranteeing the Senior Notes, to the extent of the assets of those subsidiaries.
The Senior Notes became redeemable in whole or in part, at any time and from time to time after
May 1, 2016,
on the redemption dates and at the redemption prices specified in the Indenture, plus accrued and unpaid interest, if any, to the date of redemption. As of
May 1, 2019,
the redemption price is 100% of the outstanding principal amount.
Upon the occurrence of a change of control (as defined in the Indenture), each holder of Senior Notes will have the right to require us to purchase all or a portion of such holder's Senior Notes pursuant to a change of control offer (as defined in the Indenture), at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase, subject to the rights of holders of the Senior Notes on the relevant record date to receive interest due on the relevant interest payment date.
Ressources Québec Notes
On
March 5, 2018,
we entered into a note purchase agreement pursuant to which we issued
CAD$40
million (approximately
USD$30.8
million at the time of the transaction) in aggregate principal amount of our Series
2018
-A Senior Notes due
May 1, 2021 (
the “RQ Notes”) to Ressources Québec, a subsidiary of Investissment Québec, a financing arm of the Québec government. Because the RQ notes are denominated in CAD, the reported USD-equivalent principal balance changes with movements in the exchange rate. The RQ Notes were issued at a discount of 0.58%, or
CAD$0.2
million, and bear interest at a rate of 4.68% per year, payable on
May 1
and
November 1
of each year, commencing
May 1, 2018.
The RQ Notes are senior and unsecured and are pari passu in all material respects with the Senior Notes, including with respect to guarantees of the RQ Notes by certain of our subsidiaries. The net proceeds from the RQ Notes were required to be used for development and expansion of our Casa Berardi mine. During the
six
months ended
June
30,
2019
and
2018,
interest expense related to the RQ Notes, including discount and origination fees, totaled $0.7 million for each period.
As of
June
30,
2019,
the annual future obligations related to our debt, including interest, were (in thousands):
Twelve-month period
ending June 30,
|
|
Senior Notes
|
|
|
RQ Notes
|
|
|
Total
|
|
2020 (interest only)
|
|
$
|
34,822
|
|
|
$
|
1,430
|
|
|
$
|
36,252
|
|
2021 (principal and interest)
|
|
|
535,518
|
|
|
|
31,756
|
|
|
$
|
567,274
|
|
Total
|
|
|
570,340
|
|
|
|
33,186
|
|
|
|
603,526
|
|
Less: interest
|
|
|
(63,840
|
)
|
|
|
(2,622
|
)
|
|
$
|
(66,462
|
)
|
Principal
|
|
|
506,500
|
|
|
|
30,564
|
|
|
|
537,064
|
|
Less: unamortized discount
|
|
|
(2,396
|
)
|
|
|
—
|
|
|
$
|
(2,396
|
)
|
Long-term debt
|
|
$
|
504,104
|
|
|
$
|
30,564
|
|
|
$
|
586,667
|
|
Credit Facilities
In
July 2018,
we entered into a $250 million senior secured revolving credit facility which replaced our previous $100 million credit facility and has a term ending on
June 14, 2022,
provided, however, that if we do
not
refinance our outstanding Senior Notes by
November 1, 2020,
the term of the credit facility ends on
November 1, 2020.
As of
June
30,
2019,
the credit facility was collateralized by the assets of certain of our subsidiaries, shares of common stock held in our material domestic subsidiaries and by our joint venture interests in the Greens Creek mine, all of our rights and interests in the joint venture agreement, and all of our rights and interests in the assets of the joint venture. Below is information on the interest rates, standby fee, and financial covenant terms under our credit facility in place as of
June
30,
2019:
Interest rates:
|
|
|
|
|
|
Spread over the London Interbank Offer Rate
|
|
2.25
|
-
|
3.25%
|
|
Spread over alternative base rate
|
|
1.25
|
-
|
2.25%
|
|
Standby fee per annum on undrawn amounts
|
|
|
0.50
%
|
|
|
Covenant financial ratios:
|
|
|
|
|
|
Senior leverage ratio (debt secured by liens/EBITDA)
1
|
|
not more than 2.50:1
|
|
Leverage ratio (total debt less unencumbered cash/EBITDA)
1
|
|
not more than 4.50:1
|
|
Interest coverage ratio (EBITDA/interest expense)
1
|
|
not less than 3.00:1
|
|
1
EBITDA is calculated as defined in the credit agreement.
In
July 2019,
we entered into an amendment to the revolving credit facility to, among other things:
|
i.
|
change the leverage ratio to
not
more than:
|
|
1.
|
6.50:1
as of the last day of any fiscal quarter ending on or after
June 30, 2019
but on or prior to
September 30, 2019;
|
|
2.
|
6.00:1
as of the last day of the fiscal quarter ending
December 31, 2019;
|
|
3.
|
5.50:1
as of the last day of the fiscal quarter ending
March 31, 2020;
|
|
4.
|
5.00:1
as of the last day of the fiscal quarter ending
June 30, 2020;
and
|
|
5.
|
4.00:1
as of the last day of any fiscal quarter ending
September 30, 2020
and thereafter.
|
|
ii.
|
lower the amount available to be borrowed to $150 million until the earlier of (i) our election to restore the amount available to $250 million following the fiscal quarter ending
September 30, 2020
or (ii) our election to restore the amount available to $250 million by demonstrating
two
consecutive quarters of leverage ratio less than or equal to
4.00:1
beginning in the
third
quarter of
2019.
|
|
iii.
|
add Hecla Quebec as a Guarantor on the credit facility, pledge the equity of our ownership of Hecla Quebec (which owns the Casa Berardi mine), and grant a
first
priority lien on Casa Berardi and its related assets.
|
We are also able to obtain letters of credit under the facility, and for any such letters we are required to pay a participation fee of between 2.25% and 3.25% based on our total leverage ratio, as well as a fronting fee to each issuing bank of 0.20% annually on the average daily dollar amount of any outstanding letters of credit. There were $3.0 million in letters of credit outstanding as of
June
30,
2019.
Subsequent to
June
30,
2019,
we utilized an additional $20.0 million in letters of credit for financial support for environmental reclamation obligations, and there is a total of $23.0 million in letters of credit outstanding as of the date of this report.
We believe we were in compliance with all covenants under the credit agreement, and had $52.0 million drawn under the agreement, in addition to the $3.0 million in letters of credit outstanding, as of
June
30,
2019.
Finance Leases
We have entered into various lease agreements, primarily for equipment at our Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations units, which we have determined to be finance leases. At
June
30,
2019,
the total liability balance associated with finance leases, including certain purchase option amounts, was $13.4 million, with $5.4 million of the liability classified as current and the remaining $8.0 million classified as non-current. At
December
31,
2018,
the total liability balance associated with finance leases was $13.1 million, with $5.3 million of the liability classified as current and $7.9 million classified as non-current. The right-of-use assets for our finance leases are recorded in properties, plants, equipment and mineral interests, net, on our condensed consolidated balance sheets and totaled $20.1 million as of
June
30,
2019
and $20.0 million as of
December
31,
2018,
net of accumulated depreciation. Expense during the
first
half of
2019
related to finance leases included $3.4 million for amortization of the right-of-use assets and $0.4 million for interest expense. The total obligation for future minimum payments on finance leases was $14.3 million at
June
30,
2019,
with $0.9 million attributed to interest. The weighted-average remaining lease term for our finance leases as of
June
30,
2019
was approximately 1.8 years.
At
June
30,
2019,
the annual maturities of finance lease commitments, including interest, were (in thousands):
Twelve-month period
ending June 30,
|
|
|
|
|
2020
|
|
$
|
6,047
|
|
2021
|
|
|
4,886
|
|
2022
|
|
|
2,845
|
|
2023
|
|
|
487
|
|
Total
|
|
|
14,265
|
|
Less: imputed interest
|
|
|
(860
|
)
|
Finance lease liability
|
|
$
|
13,405
|
|
Operating Leases
We have entered into various lease agreements, primarily for equipment, buildings and other facilities, and land at our operating units and corporate offices, which we have determined to be operating leases. Some of the operating leases allow for extension of the lease beyond the current term at our option. We have considered the likelihood and estimated duration of the extension options in determining the lease term for measurement of the liability and right-of-use asset. For our operating leases as of
June
30,
2019,
we have assumed discount rates of between 5% and 6.5%. At
June
30,
2019,
the total liability balance associated with the operating leases was $19.0 million, with $6.6 million of the liability classified as current and the remaining $12.4 million classified as non-current. The right-of-use assets for our operating leases are recorded as a non-current asset on our condensed consolidated balance sheets and totaled $19.0 million as of
June
30,
2019.
Lease expense on operating leases during the
first
half of
2019
totaled $4.0 million. The total obligation for future minimum operating lease payments, including assumed extensions beyond the current lease terms, was $19.2 million at
June
30,
2019.
The weighted-average remaining lease term for our operating leases as of
June
30,
2019
was approximately 4.5 years.
At
June
30,
2019,
the annual maturities of undiscounted operating lease payments, including assumed extensions beyond the current lease terms, were (in thousands):
Twelve-month period
ending June 30,
|
|
|
|
|
2020
|
|
$
|
7,585
|
|
2021
|
|
|
3,703
|
|
2022
|
|
|
3,099
|
|
2023
|
|
|
2,286
|
|
2024
|
|
|
1,181
|
|
More than 5 years
|
|
|
1,316
|
|
Total
|
|
|
19,170
|
|
Effect of discounting
|
|
|
(132
|
)
|
Operating lease liability
|
|
$
|
19,038
|
|
Note
10.
Developments in Accounting Pronouncements
Accounting Standards Updates Adopted
In
February 2016,
the FASB issued ASU
No.
2016
-
02
Leases (Topic
842
). The update modified the classification criteria and requires lessees to recognize the assets and liabilities on the balance sheet for most leases. The update was effective for fiscal years beginning after
December 15, 2018,
with early adoption permitted. We adopted the guidance effective
January 1, 2019,
and recognized a liability and right-of-use asset of $22.4 million as of that date for our identified operating leases. We elected the transition option to apply the new guidance as of that effective date without adjusting comparative periods presented. In the adoption of ASU
No.
2016
-
02,
we elected to
not
assess leases with terms less than
twelve
months in length. We also elected practical expedients which permitted us to forgo reassessing the following upon adoption: (i) whether any expired or existing contracts are or contain leases, (ii) the classification of leases as operating or capital under the previous accounting guidance, and (iii) treatment of initial indirect costs for any existing leases. In addition, we elected to
not
reassess whether land easements represent leases, as we did
not
treat them as leases under the previous guidance. See
Note
9
for information on our leases.
In
August 2017,
the FASB issued ASU
No.
2017
-
12
Derivatives and Hedging (Topic
815
): Targeted Improvements to Accounting for Hedging Activities. The objective of the update is to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements, and simplify the application of existing hedge accounting guidance. The update was effective for fiscal years beginning after
December 15, 2018,
and interim periods within those fiscal years, with early adoption permitted. Adoption of this update as of
January 1, 2019
did
not
have a material impact on our consolidated financial statements.
In
February 2018,
the FASB issued ASU
No.
2018
-
02
Income Statement - Reporting Comprehensive Income (Topic
220
): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in the update allow a reclassification from other comprehensive income to retained earnings for "stranded" tax effects resulting from the reduction in the historical corporate tax rate under the Tax Cuts and Jobs Act enacted in
December 2017.
The update was effective for fiscal years beginning after
December 15, 2018.
We elected to
not
reclassify stranded tax effects, and adoption of this update as of
January 1, 2019
did
not
have a material impact on our consolidated financial statements.
In
June 2018,
the FASB issued ASU
No.
2018
-
07
Compensation - Stock Compensation (Topic
718
): Improvements to Nonemployee Share-Based Payment Accounting. The update involves simplification of several aspects of accounting for nonemployee share-based payment transactions by expanding the scope of Topic
718
to include nonemployee awards. The update was effective for fiscal years beginning after
December 15, 2018,
and interim periods within those fiscal years, with early adoption permitted. Adoption of this update as of
January 1, 2019
did
not
have a material impact on our consolidated financial statements.
Accounting Standards Updates to Become Effective in Future Periods
In
August 2018,
the FASB issued ASU
No.
2018
-
13
Fair Value Measurement (Topic
820
): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The update removes, modifies and makes additions to certain disclosure requirements with respect to fair value measurements. The update is effective for fiscal years beginning after
December 15, 2019,
with early adoption permitted. We are evaluating the impact of this update on our fair value measurement disclosures.
In
August 2018,
the FASB issued ASU
No.
2018
-
14
Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic
715
-
20
): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. The update removes several disclosure requirements, adds
two
new disclosure requirements, and clarifies other disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans. The update is effective for fiscal years beginning after
December 15, 2020,
with early adoption permitted. We are evaluating the impact of this update on our disclosures involving our defined benefit pension plans.
Note
11.
Derivative Instruments
Foreign Currency
Our wholly-owned subsidiaries owning the Casa Berardi and San Sebastian mines are U.S. dollar ("USD")-functional entities which routinely incur expenses denominated in Canadian dollars ("CAD") and Mexican pesos ("MXN"), respectively, and such expenses expose us to exchange rate fluctuations between the USD and CAD and MXN. In
April 2016,
we initiated a program to manage our exposure to fluctuations in the exchange rate between the USD and CAD and the impact on our future operating costs denominated in CAD. In
October 2016,
we also initiated a program to manage our exposure to the impact of fluctuations in the exchange rate between the USD and MXN on our future operating costs denominated in MXN. The programs utilize forward contracts to buy CAD and MXN, and each contract is designated as a cash flow hedge. As of
June
30,
2019,
we have 127 forward contracts outstanding to buy
CAD$283.2
million having a notional amount of
US$218.5
million, and 14 forward contracts outstanding to buy
MXN$67.3
million having a notional amount of
USD$
3.3million. The CAD contracts are related to forecasted cash operating costs at Casa Berardi to be incurred from
2019
through
2023
and have CAD-to-USD exchange rates ranging between 1.2702 and 1.3332. The MXN contracts are related to forecasted cash operating costs at San Sebastian to be incurred from
2019
through
2020
and have MXN-to-USD exchange rates ranging between 20.2420 and 20.8550. Our risk management policy provides that up to 75% of our planned cost exposure for 5 years into the future
may
be hedged under such programs, and for potential additional programs to manage other foreign currency-related exposure areas.
As of
June
30,
2019,
we recorded the following balances for the fair value of the contracts:
|
•
|
a current asset of $0.6 million, which is included in other current assets;
|
|
•
|
a non-current asset of $0.5 million, which is included in other non-current assets;
|
|
•
|
a current liability of $0.6 million, which is included in other current liabilities; and
|
|
•
|
a non-current liability of $1.1 million, which is included in other non-current liabilities.
|
Net unrealized losses of approximately $1.0 million related to the effective portion of the hedges were included in accumulated other comprehensive loss as of
June
30,
2019.
Unrealized gains and losses will be transferred from accumulated other comprehensive loss to current earnings as the underlying operating expenses are recognized. We estimate approximately $0.3 million in net unrealized losses included in accumulated other comprehensive loss as of
June
30,
2019
would be reclassified to current earnings in the next
twelve
months. Net realized losses of approximately $0.7 million on contracts related to underlying expenses which have been recognized were transferred from accumulated other comprehensive loss and included in cost of sales and other direct production costs for the
six
months ended
June
30,
2019.
No net unrealized gains or losses related to ineffectiveness of the hedges were included in current earnings for the
six
months ended
June
30,
2019.
Metals Prices
We
may
at times use commodity forward sales commitments, commodity swap contracts and commodity put and call option contracts to manage our exposure to fluctuation in the prices of certain metals we produce. Contract positions are designed to ensure that we will receive a defined minimum price for certain quantities of our production, thereby partially offsetting our exposure to fluctuations in market prices. Our risk management policy allows for up to 75% of our planned metals price exposure for 5 years into the future, with certain other limitations, to be covered under such programs that would establish a ceiling for prices to be realized on future metals sales. These instruments do, however, expose us to (i) credit risk in the form of non-performance by counterparties for contracts in which the contract price exceeds the spot price of a commodity and (ii) price risk to the extent that the spot price exceeds the contract price for quantities of our production covered under contract positions.
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 Greens Creek concentrate shipments between the time of shipment and final settlement. In addition, we currently use financially-settled forward contracts to manage the exposure to changes in prices of zinc and lead (but
not
silver and gold) contained in our forecasted future Greens Creek concentrate shipments. The following tables summarize the quantities of metals for which we have entered into forward sales contracts at
June
30,
2019
and
December
31,
2018:
June 30, 2019
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 settlements
|
|
|
—
|
|
|
|
—
|
|
|
|
15,047
|
|
|
|
3,329
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
1.19
|
|
|
$
|
0.89
|
|
Contracts on forecasted sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 settlements
|
|
|
—
|
|
|
|
—
|
|
|
|
25,629
|
|
|
|
1,653
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
1.25
|
|
|
$
|
0.96
|
|
2020 settlements
|
|
|
—
|
|
|
|
—
|
|
|
|
12,125
|
|
|
|
1,102
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
1.27
|
|
|
$
|
0.96
|
|
December 31, 2018
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 settlements
|
|
|
842
|
|
|
|
4
|
|
|
|
18,450
|
|
|
|
2,700
|
|
|
$
|
14.69
|
|
|
$
|
1,260
|
|
|
$
|
1.15
|
|
|
$
|
0.89
|
|
In
June 2019,
we began using financially-settled put option contracts to manage the exposure of our forecasted future gold and silver sales to reductions in market prices for those metals. These put contracts give as the option, but
not
the obligation, to sell quantities of silver and gold in the future at established prices. The following table summarizes the quantities of metals for which we have entered into put contracts and the average exercise prices as of
June
30,
2019:
June 30, 2019
|
|
Ounces under
contract (in 000's)
|
|
|
Average price per ounce
|
|
|
|
Silver
|
|
|
Gold
|
|
|
Silver
|
|
|
Gold
|
|
|
|
(ounces)
|
|
|
(ounces)
|
|
|
(ounces)
|
|
|
(ounces)
|
|
Contracts on forecasted sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 settlements
|
|
|
3,059
|
|
|
|
106
|
|
|
$
|
14.56
|
|
|
$
|
1,317
|
|
In
July 2019,
we entered into additional put contracts which establish the minimum prices at which we can sell up to approximately 8.6 million ounces of silver and 194,000 ounces of gold at $15.13 and $1,400, respectively, per ounce. These contracts relate to production for the remainder of
2019
and a portion of
2020,
and have total premiums of approximately $12.0 million to be paid upon settlement.
These forward and put option contracts are
not
designated as hedges and are marked-to-market through earnings each period.
We recorded a current asset of $5.9 million for the fair value of the contracts outstanding, and a current liability of $4.0 million for premiums on the put contracts, as of
June
30,
2019.
We recognized a $1.2 million net loss during the
first
six
months of
2019
on the contracts utilized to manage exposure to prices of metals in our concentrate shipments, which is included in sales of products. The net loss recognized on the contracts offsets gains 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 $2.0 million net gain during the
first
half of
2019
on the contracts utilized to manage exposure to prices for forecasted future sales. The net gain on these contracts is included as a separate line item under other income (expense), as they relate to forecasted future shipments, as opposed to sales that have already taken place but are subject to final pricing as discussed in the preceding paragraph. The net gain for the
first
half of
2019
is the result of decreasing zinc and lead prices, partially offset by increasing gold and silver prices. This program, when utilized, is designed to mitigate the impact of potential future declines in gold, silver, lead and zinc prices from the price levels established in the contracts (see average price information below). When those prices increase compared to the contract prices, we incur losses on the contracts.
Credit-risk-related Contingent Features
Certain of our derivative contracts contain cross default provisions which provide that a default under our revolving credit agreement would cause a default under the derivative contract. As of
June
30,
2019,
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 $1.7 million as of
June
30,
2019,
which includes accrued interest but excludes any adjustment for nonperformance risk. If we were in breach of any of these provisions at
June
30,
2019,
we could have been required to settle our obligations under the agreements at their termination value of $1.7 million.
Note
12.
Fair Value Measurement
Accounting guidance has established a hierarchy for inputs used to measure assets and liabilities at fair value on a recurring basis. The
three
levels included in the hierarchy are:
Level
1:
quoted prices in active markets for identical assets or liabilities;
Level
2:
significant other observable inputs; and
Level
3:
significant unobservable inputs.
The table below sets forth our assets and liabilities that were accounted for at fair value on a recurring basis and the fair value calculation input hierarchy level that we have determined applies to each asset and liability category (in thousands).
Description
|
|
Balance at
June 30, 2019
|
|
|
Balance at
December 31, 2018
|
|
Input
Hierarchy Level
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
Money market funds and other bank deposits
|
|
$
|
9,434
|
|
|
$
|
27,389
|
|
Level 1
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
Equity securities – mining industry
|
|
|
5,815
|
|
|
|
6,583
|
|
Level 1
|
Trade accounts receivable:
|
|
|
|
|
|
|
|
|
|
Receivables from provisional concentrate sales
|
|
|
6,877
|
|
|
|
4,184
|
|
Level 2
|
Restricted cash balances:
|
|
|
|
|
|
|
|
|
|
Certificates of deposit and other deposits
|
|
|
1,025
|
|
|
|
1,025
|
|
Level 1
|
Derivative contracts:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
1,014
|
|
|
|
209
|
|
Level 2
|
Metal forward and put option contracts
|
|
|
5,936
|
|
|
|
23
|
|
Level 2
|
Total assets
|
|
$
|
30,101
|
|
|
$
|
39,413
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Derivative contracts:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
1,702
|
|
|
$
|
373
|
|
Level 2
|
Metal forward and put option contracts
|
|
|
—
|
|
|
|
8,595
|
|
Level 2
|
Total Liabilities
|
|
$
|
1,702
|
|
|
$
|
8,968
|
|
|
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 include amounts due to us for shipments of concentrates, doré and metals sold from doré to customers. Revenues and the corresponding accounts receivable for sales of metals products are recorded when title and risk of loss transfer to the customer (generally at the time of ship loading, or at the time of customer arrival for trucked products). Sales of concentrates are recorded using estimated forward prices for the anticipated month of settlement applied to our estimate of payable metal quantities contained in each shipment. Sales are recorded net of estimated treatment and refining charges, which are also impacted by changes in metals prices and quantities of contained metals. We estimate the prices at which sales of our concentrates will be settled due to the time elapsed between shipment and final settlement with the customer. Receivables for previously recorded concentrate sales are adjusted to reflect estimated forward metals prices at the end of each period until final settlement by the customer. We obtain the forward metals prices used each period from a pricing service. Changes in metals prices between shipment and final settlement result in changes to revenues previously recorded upon shipment. The embedded derivative contained in our concentrate sales is adjusted to fair market value through earnings each period prior to final settlement.
We use financially-settled forward contracts to manage exposure to changes in the exchange rate between USD and CAD and MXN, and the impact on CAD- and MXN-denominated operating costs incurred at our Casa Berardi and San Sebastian units (see
Note
11
for more information). These contracts qualify for hedge accounting, with unrealized gains and losses related to the effective portion of the contracts included in accumulated other comprehensive loss, and unrealized gains and losses related to the ineffective portion of the contracts included in earnings each period. The fair value of each contract represents the present value of the difference between the forward exchange rate for the contract settlement period as of the measurement date and the contract settlement exchange rate.
We use financially-settled forward contracts to manage the exposure to changes in prices of silver, gold, zinc and lead contained in our concentrate shipments that have
not
reached final settlement. We also use financially-settled forward and put option contracts to manage the exposure to changes in prices of gold, silver, zinc and lead contained in our forecasted future sales (see
Note
11
for more information). These contracts do
not
qualify for hedge accounting, and are marked-to-market through earnings each period. The fair value of each forward contract represents the present value of the difference between the forward metal price for the contract settlement period as of the measurement date and the contract settlement metal price. The fair value of each put option contract is measured using the Black-Scholes pricing model, with inputs for the period-end metal price and assumed metal price volatility and discount rate.
Our Senior Notes, which were recorded at their carrying value of $504.1 million, net of unamortized initial purchaser discount at
June
30,
2019,
had a fair value of $483.4 million at
June
30,
2019.
Quoted market prices, which we consider to be Level
1
inputs, are utilized to estimate fair values of the Senior Notes. See
Note
9
for more information.
Note
13.
Acquisition of Klondex
On
July 20, 2018,
we acquired all of the issued and outstanding common shares of Klondex Mines Ltd. ("Klondex") for consideration valued at $2.27 per Klondex share (the "Arrangement"). The acquisition resulted in our 100% ownership of
three
land packages in northern Nevada totaling approximately
110
square miles and containing operating or previously-operating mines with a history of high-grade gold production, along with various other gold properties. We believe the acquisition has the potential to increase our annual gold production. Under the terms of the Arrangement, each holder of Klondex common shares had the option to receive either (i) $2.47 in cash per Klondex share (the “Cash Alternative”), (ii) 0.6272 of a Hecla share per Klondex share (the “Share Alternative”), or (iii)
US$0.8411
in cash and 0.4136 of a Hecla share per Klondex share (the “Combined Alternative”), subject in the case of the Cash Alternative and the Share Alternative to pro-ration based on a maximum cash consideration of $153.2 million and a maximum number of Hecla shares issued of 75,276,176. Klondex shareholders also received shares of a newly formed company which holds the Canadian assets previously owned by Klondex (Havilah Mining Corporation ("Havilah")). Klondex had 180,499,319 issued and outstanding common shares prior to consummation of the Arrangement. An additional 1,549,626 Klondex common shares were issued immediately prior to consummation of the Arrangement related to conversion of in-the-money Klondex options and certain outstanding restricted share units, resulting in a total of 182,048,945 issued and outstanding Klondex common shares at the time of consummation of the Arrangement. In connection with the Arrangement, we also issued an aggregate of 4,136,000 warrants to purchase one share of our common stock (“Hecla Warrants”) to holders of warrants to purchase Klondex common shares. Of the Hecla Warrants, 2,068,000 have an exercise price of $8.02 and expire in
April 2032,
and 2,068,000 have an exercise price of $1.57 and expire in
February 2029.
In addition, we settled share-based payment awards held by Klondex directors and employees for cash of $2.0 million. Consideration for the Arrangement was cash of $161.7 million, 75,276,176 shares of our common stock valued at $242.4 million, and issuance of the Hecla Warrants valued at $9.8 million, for total consideration of $413.9 million. The Hecla Warrants were valued using the Black-Scholes model and based on the exercise price and term of the warrants, the price of our common stock at the time of issuance of the warrants, and assumptions for the discount rate and volatility and dividend rate of our common stock. The cash consideration includes $7.0 million for our subscription for common shares of Havilah and $1.5 million for settlement of certain equity compensation instruments.
The following summarizes the allocation of purchase price to the fair value of assets acquired and liabilities assumed as of the date of acquisition (in thousands):
Consideration:
|
|
|
|
|
Cash payments
|
|
$
|
161,704
|
|
Hecla stock issued (75,276,176 shares at $3.22 per share)
|
|
|
242,389
|
|
Hecla warrants issued
|
|
|
9,830
|
|
Total consideration
|
|
$
|
413,923
|
|
|
|
|
|
|
Fair value of net assets acquired:
|
|
|
|
|
Assets:
|
|
|
|
|
Cash
|
|
$
|
12,874
|
|
Accounts receivable
|
|
|
3,453
|
|
Inventory - supplies
|
|
|
6,565
|
|
Inventory - finished goods, in-process material and stockpiled ore
|
|
|
10,075
|
|
Other current assets
|
|
|
2,583
|
|
Properties, plants, equipment and mineral interests
|
|
|
510,015
|
|
Non-current investments
|
|
|
1,596
|
|
Non-current restricted cash and investments
|
|
|
9,504
|
|
Total assets
|
|
|
556,665
|
|
Liabilities:
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
17,799
|
|
Accrued payroll and related benefits
|
|
|
8,245
|
|
Accrued taxes
|
|
|
421
|
|
Lease liability
|
|
|
2,080
|
|
Debt
|
|
|
35,086
|
|
Asset retirement obligation
|
|
|
19,571
|
|
Deferred tax liability
|
|
|
59,540
|
|
Total liabilities
|
|
|
142,742
|
|
Net assets
|
|
$
|
413,923
|
|
The allocation of purchase price above was finalized in the
second
quarter of
2019,
with adjustments made to the previously-reported preliminary allocation to decrease the property, plants, equipment and mineral interests, accrued payroll and related benefits, and deferred tax liability balances by $2.8 million, $2.1 million and $0.7 million, respectively.
In the
second
quarter of
2019,
we conducted a review of our Nevada operations which resulted in (i) a plan to curtail development and limit near-term mining at Fire Creek to areas where development has already been completed and (ii) suspension of production at Hollister and development of the Hatter Graben project at Hollister, resulting in lower anticipated near-term production and capitalized development costs. We determined this review and the resulting plans represented a triggering event requiring an assessment of recoverability of the carrying value of our long-lived assets ("carrying value assessment") in Nevada. In our carrying value assessment, our estimate of undiscounted future cash flows exceeded the carrying value of the Nevada assets, and we concluded impairment was
not
indicated, as of
June 30, 2019.
Estimates of undiscounted future cash flows are dependent upon, among other factors, estimates of: (i) metals to be extracted and recovered from proven and probable ore reserves and identified mineralization beyond proven and probable reserves, (ii) future operating and capital costs, and (iii) future metals prices. The carrying value assessment assumed a slow-down and deferral of near-term production over a period of
twelve
months as we continue to address operational challenges and assess the appropriate next steps. In the assessment, resumption of previously-anticipated production levels is assumed to take place in the
first
part of
2021;
however, this will be contingent upon the resolution of operational issues, including, but
not
limited to: (i) ore grade control, (ii) mill recoveries and reconciliation, (iii) the potential availability of
third
-party processing of ore produced at the Fire Creek mine, and (iv) availability of sufficient resources (including funding) to resume and complete necessary development work and drilling on a timely basis (collectively the "Operational Issues").
Our estimates of undiscounted future cash flows for our Nevada assets are most sensitive to (i) changes in metal prices and (ii) the timely resumption of previously-anticipated production levels. Our carrying value assessment assumed a weighted-average gold price of approximately $1,345 per ounce. A sensitivity analysis was performed, and decreasing the weighted-average gold price assumption to below approximately $1,280 per ounce, with all other variables held constant, would have resulted in estimated undiscounted future cash flows that were less than the carrying value of the Nevada assets as of
June 30, 2019.
If events or changes occur that adversely affect our estimate of undiscounted future cash flows from our Nevada assets, including (i) an increase in expected costs, (ii) a sustained decline in metals prices, or (iii) suspension of production and placement of our Nevada operations on care-and-maintenance due to the inability to resolve the Operational Issues identified above in a timely manner, or other factors, we
may
be required to again perform the carrying value assessment for our Nevada assets. If a future assessment indicates the carrying value of the assets exceeds the estimated undiscounted future cash flows, an impairment loss, which could be material, would be recognized for the difference between the carrying value and fair value of the assets. We currently do
not
expect a further delay in resumption of previously-anticipated production levels beyond the
first
part of
2021.
However, if it is determined a viable longer-term production plan that addresses the Operational Issues identified above cannot be established, the recoverability of the carrying value of the Nevada assets would be impacted, resulting in a review at that time. The estimate of potential impairment involves significant judgment and assumptions, and
no
assurance can be given as to whether we will recognize an impairment in the future or the amount of a potential impairment. The carrying value of our properties, plants, equipment and mineral interests in Nevada as of
June 30, 2019
was $545.4 million, including $382.2 million attributable to value beyond proven and probable reserves.
See
Part II, Item
1A
- Risk Factors
for a discussion of certain risks relating to our recent and ongoing analysis of the carrying value of the Nevada assets.
Note
14.
Guarantor Subsidiaries
Presented below are Hecla’s unaudited interim condensed consolidating financial statements as required by Rule
3
-
10
of Regulation S-
X
of the Securities Exchange Act of
1934,
as amended, resulting from the guarantees by certain of Hecla's subsidiaries of the Senior Notes and RQ Notes (see
Note
9
for more information). As of
June
30,
2019,
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.; and Klondex Hollister Mine Inc. It is expected that in the
third
quarter of
2019
Hecla Quebec Inc. will be added as a Guarantor of the Senior Notes and RQ Notes. We completed the initial offering of the Senior Notes on
April 12, 2013,
and a related exchange offer for virtually identical notes registered with the SEC on
January 3, 2014.
We issued the RQ Notes on
March 5, 2018.
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 consolidated financial statements set forth elsewhere in this report. Investments in the subsidiaries are accounted for under the equity method. Accordingly, the entries necessary to consolidate Hecla, the Guarantors, and our non-guarantor subsidiaries are reflected in the intercompany eliminations column. In the course of preparing consolidated financial statements, we eliminate the effects of various transactions conducted between Hecla and its subsidiaries and among the subsidiaries. While valid at an individual subsidiary level, such activities are eliminated in consolidation because, when taken as a whole, they do
not
represent business activity with
third
-party customers, vendors, and other parties. Examples of such eliminations include the following:
|
•
|
Investments in subsidiaries
. The acquisition of a company results in an investment in debt or equity capital on the records of the parent company and a contribution to debt or equity capital on the records of the subsidiary. Such investments and capital contributions are eliminated in consolidation.
|
|
•
|
Capital contributions
. Certain of Hecla's subsidiaries do
not
generate cash flow, either at all or that is sufficient to meet their capital needs, and their cash requirements are routinely met with inter-company advances from their parent companies. Generally on an annual basis, when
not
otherwise intended as debt, the boards of directors of such parent companies declare contributions of capital to their subsidiary companies, which increase the parents' investment and the subsidiaries' additional paid-in capital. In consolidation, investments in subsidiaries and related additional paid-in capital are eliminated.
|
|
•
|
Debt.
At times, inter-company debt agreements have been established between certain of Hecla's subsidiaries and their parents. The related debt liability and receivable balances, accrued interest expense (if any) and income activity (if any), and payments of principal and accrued interest amounts (if any) by the subsidiary companies to their parents are eliminated in consolidation.
|
|
•
|
Dividends.
Certain of Hecla's subsidiaries which generate cash flow routinely provide cash to their parent companies through inter-company transfers. On at least an annual basis, the boards of directors of such subsidiary companies declare dividends to their parent companies, which reduces the subsidiaries' retained earnings and increases the parents' dividend income. In consolidation, such activity is eliminated.
|
|
•
|
Deferred taxes
. Our ability to realize deferred tax assets and liabilities is considered on a consolidated basis for subsidiaries within the United States, with all subsidiaries' estimated future taxable income contributing to the ability to realize all such assets and liabilities. However, when Hecla's subsidiaries are viewed independently, we use the separate return method to assess the realizability of each subsidiary's deferred tax assets and whether a valuation allowance is required against such deferred tax assets. In some instances, a parent company or subsidiary
may
possess deferred tax assets whose realization depends on the future taxable incomes of other subsidiaries on a consolidated-return basis, but would
not
be considered realizable if such parent or subsidiary filed on a separate stand-alone basis. In such a situation, a valuation allowance is assessed on that subsidiary's deferred tax assets, with the resulting adjustment reported in the eliminations column of the guarantor and parent's financial statements, as is the case in the financial statements set forth below. The separate return method can result in significant eliminations of deferred tax assets and liabilities and related income tax provisions and benefits. Non-current deferred tax asset balances are included in other non-current assets on the consolidating balance sheets and make up a large portion of that item, particularly for the guarantor balances.
|
Separate financial statements of the Guarantors are
not
presented because the guarantees by the Guarantors are joint and several and full and unconditional, except for certain customary release provisions, including: (
1
) the sale or disposal of all or substantially all of the assets of the Guarantor; (
2
) the sale or other disposition of the capital stock of the Guarantor; (
3
) the Guarantor is designated as an unrestricted entity in accordance with the applicable provisions of the indenture; (
4
) Hecla ceases to be a borrower as defined in the indenture; and (
5
) upon legal or covenant defeasance or satisfaction and discharge of the indenture.
Unaudited Interim Condensed Consolidating Balance Sheets
|
|
As of June 30, 2019
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
14
|
|
|
$
|
2,107
|
|
|
$
|
7,313
|
|
|
$
|
—
|
|
|
$
|
9,434
|
|
Other current assets
|
|
|
12,108
|
|
|
|
62,222
|
|
|
|
61,728
|
|
|
|
(74
|
)
|
|
|
135,984
|
|
Properties, plants, equipment and mineral interests, net
|
|
|
1,913
|
|
|
|
1,785,072
|
|
|
|
698,884
|
|
|
|
—
|
|
|
|
2,485,869
|
|
Intercompany receivable (payable)
|
|
|
152,061
|
|
|
|
(364,163
|
)
|
|
|
(199,609
|
)
|
|
|
411,711
|
|
|
|
—
|
|
Investments in subsidiaries
|
|
|
1,506,079
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,506,079
|
)
|
|
|
—
|
|
Other non-current assets
|
|
|
286,460
|
|
|
|
22,798
|
|
|
|
(117,873
|
)
|
|
|
(151,959
|
)
|
|
|
39,426
|
|
Total assets
|
|
$
|
1,958,635
|
|
|
$
|
1,508,036
|
|
|
$
|
450,443
|
|
|
$
|
(1,246,401
|
)
|
|
$
|
2,670,713
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
(314,607
|
)
|
|
$
|
122,102
|
|
|
$
|
44,741
|
|
|
$
|
265,617
|
|
|
$
|
117,853
|
|
Long-term debt
|
|
|
586,667
|
|
|
|
18,226
|
|
|
|
2,197
|
|
|
|
—
|
|
|
|
607,090
|
|
Non-current portion of accrued reclamation
|
|
|
—
|
|
|
|
89,209
|
|
|
|
14,573
|
|
|
|
—
|
|
|
|
103,782
|
|
Non-current deferred tax liability
|
|
|
—
|
|
|
|
66,781
|
|
|
|
87,496
|
|
|
|
(5,939
|
)
|
|
|
148,338
|
|
Other non-current liabilities
|
|
|
47,347
|
|
|
|
6,116
|
|
|
|
959
|
|
|
|
—
|
|
|
|
54,422
|
|
Stockholders' equity
|
|
|
1,639,228
|
|
|
|
1,205,602
|
|
|
|
300,477
|
|
|
|
(1,506,079
|
)
|
|
|
1,639,228
|
|
Total liabilities and stockholders' equity
|
|
$
|
1,958,635
|
|
|
$
|
1,508,036
|
|
|
$
|
450,443
|
|
|
$
|
(1,246,401
|
)
|
|
$
|
2,670,713
|
|
|
|
As of December 31, 2018
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,265
|
|
|
$
|
8,661
|
|
|
$
|
12,463
|
|
|
$
|
—
|
|
|
$
|
27,389
|
|
Other current assets
|
|
|
6,388
|
|
|
|
69,574
|
|
|
|
60,868
|
|
|
|
(69
|
)
|
|
|
136,761
|
|
Properties, plants, equipment and mineral interests, net
|
|
|
1,913
|
|
|
|
1,795,994
|
|
|
|
722,097
|
|
|
|
—
|
|
|
|
2,520,004
|
|
Intercompany receivable (payable)
|
|
|
171,905
|
|
|
|
(222,815
|
)
|
|
|
(171,834
|
)
|
|
|
222,744
|
|
|
|
—
|
|
Investments in subsidiaries
|
|
|
1,577,564
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,577,564
|
)
|
|
|
—
|
|
Other non-current assets
|
|
|
276,641
|
|
|
|
9,030
|
|
|
|
(122,969
|
)
|
|
|
(142,912
|
)
|
|
|
19,790
|
|
Total assets
|
|
$
|
2,040,676
|
|
|
$
|
1,660,444
|
|
|
$
|
500,625
|
|
|
$
|
(1,497,801
|
)
|
|
$
|
2,703,944
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
(234,133
|
)
|
|
$
|
118,863
|
|
|
$
|
45,922
|
|
|
$
|
205,542
|
|
|
$
|
136,194
|
|
Long-term debt
|
|
|
532,799
|
|
|
|
141,870
|
|
|
|
1,989
|
|
|
|
(135,988
|
)
|
|
|
540,670
|
|
Non-current portion of accrued reclamation
|
|
|
—
|
|
|
|
94,602
|
|
|
|
10,377
|
|
|
|
—
|
|
|
|
104,979
|
|
Non-current deferred tax liability
|
|
|
—
|
|
|
|
64,639
|
|
|
|
98,689
|
|
|
|
10,209
|
|
|
|
173,537
|
|
Other non-current liabilities
|
|
|
51,047
|
|
|
|
5,659
|
|
|
|
895
|
|
|
|
—
|
|
|
|
57,601
|
|
Stockholders' equity
|
|
|
1,690,963
|
|
|
|
1,234,811
|
|
|
|
342,753
|
|
|
|
(1,577,564
|
)
|
|
|
1,690,963
|
|
Total liabilities and stockholders' equity
|
|
$
|
2,040,676
|
|
|
$
|
1,660,444
|
|
|
$
|
500,625
|
|
|
$
|
(1,497,801
|
)
|
|
$
|
2,703,944
|
|
Unaudited Interim Condensed Consolidating Statements of Operations
|
|
Three Months Ended June 30, 2019
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Revenues
|
|
$
|
1,292
|
|
|
$
|
76,213
|
|
|
$
|
56,667
|
|
|
$
|
—
|
|
|
$
|
134,172
|
|
Cost of sales
|
|
|
(257
|
)
|
|
|
(58,994
|
)
|
|
|
(45,687
|
)
|
|
|
—
|
|
|
|
(104,938
|
)
|
Depreciation, depletion, amortization
|
|
|
—
|
|
|
|
(29,068
|
)
|
|
|
(20,409
|
)
|
|
|
—
|
|
|
|
(49,477
|
)
|
General and administrative
|
|
|
(4,766
|
)
|
|
|
(3,738
|
)
|
|
|
(414
|
)
|
|
|
—
|
|
|
|
(8,918
|
)
|
Exploration and pre-development
|
|
|
(3
|
)
|
|
|
(2,097
|
)
|
|
|
(3,044
|
)
|
|
|
—
|
|
|
|
(5,144
|
)
|
Research and development
|
|
|
—
|
|
|
|
(153
|
)
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
(158
|
)
|
Gain on derivative contracts
|
|
|
3,798
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,798
|
|
Acquisition costs
|
|
|
(163
|
)
|
|
|
(81
|
)
|
|
|
(153
|
)
|
|
|
—
|
|
|
|
(397
|
)
|
Equity in earnings of subsidiaries
|
|
|
(48,370
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
48,370
|
|
|
|
—
|
|
Other expense
|
|
|
1,939
|
|
|
|
(6,091
|
)
|
|
|
(20,058
|
)
|
|
|
(2,439
|
)
|
|
|
(26,649
|
)
|
Income (loss) before income taxes
|
|
|
(46,530
|
)
|
|
|
(24,009
|
)
|
|
|
(33,103
|
)
|
|
|
45,931
|
|
|
|
(57,711
|
)
|
(Provision) benefit from income taxes
|
|
|
(2
|
)
|
|
|
(2,859
|
)
|
|
|
11,601
|
|
|
|
2,439
|
|
|
|
11,179
|
|
Net income (loss)
|
|
|
(46,532
|
)
|
|
|
(26,868
|
)
|
|
|
(21,502
|
)
|
|
|
48,370
|
|
|
|
(46,532
|
)
|
Preferred stock dividends
|
|
|
(138
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(138
|
)
|
Income (loss) applicable to common stockholders
|
|
|
(46,670
|
)
|
|
|
(26,868
|
)
|
|
|
(21,502
|
)
|
|
|
48,370
|
|
|
|
(46,670
|
)
|
Net income (loss)
|
|
|
(46,532
|
)
|
|
|
(26,868
|
)
|
|
|
(21,502
|
)
|
|
|
48,370
|
|
|
|
(46,532
|
)
|
Changes in comprehensive income (loss)
|
|
|
3,540
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,540
|
|
Comprehensive income (loss)
|
|
$
|
(42,992
|
)
|
|
$
|
(26,868
|
)
|
|
$
|
(21,502
|
)
|
|
$
|
48,370
|
|
|
$
|
(42,992
|
)
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Revenues
|
|
$
|
(1,185
|
)
|
|
$
|
178,645
|
|
|
$
|
109,329
|
|
|
$
|
—
|
|
|
$
|
286,789
|
|
Cost of sales
|
|
|
(718
|
)
|
|
|
(125,863
|
)
|
|
|
(88,743
|
)
|
|
|
—
|
|
|
|
(215,324
|
)
|
Depreciation, depletion, amortization
|
|
|
—
|
|
|
|
(49,940
|
)
|
|
|
(38,324
|
)
|
|
|
—
|
|
|
|
(88,264
|
)
|
General and administrative
|
|
|
(9,159
|
)
|
|
|
(8,849
|
)
|
|
|
(869
|
)
|
|
|
—
|
|
|
|
(18,877
|
)
|
Exploration and pre-development
|
|
|
(19
|
)
|
|
|
(3,641
|
)
|
|
|
(6,742
|
)
|
|
|
—
|
|
|
|
(10,402
|
)
|
Research and development
|
|
|
—
|
|
|
|
(506
|
)
|
|
|
(55
|
)
|
|
|
—
|
|
|
|
(561
|
)
|
Loss on derivative contracts
|
|
|
1,999
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,999
|
|
Acquisition costs
|
|
|
(121
|
)
|
|
|
(136
|
)
|
|
|
(153
|
)
|
|
|
—
|
|
|
|
(410
|
)
|
Equity in earnings of subsidiaries
|
|
|
(70,803
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
70,803
|
|
|
|
—
|
|
Other expense
|
|
|
7,943
|
|
|
|
(11,821
|
)
|
|
|
(32,700
|
)
|
|
|
(8,832
|
)
|
|
|
(45,410
|
)
|
Income (loss) before income taxes
|
|
|
(72,063
|
)
|
|
|
(22,111
|
)
|
|
|
(58,257
|
)
|
|
|
61,971
|
|
|
|
(90,460
|
)
|
(Provision) benefit from income taxes
|
|
|
(2
|
)
|
|
|
(6,775
|
)
|
|
|
16,340
|
|
|
|
8,832
|
|
|
|
18,395
|
|
Net income (loss)
|
|
|
(72,065
|
)
|
|
|
(28,886
|
)
|
|
|
(41,917
|
)
|
|
|
70,803
|
|
|
|
(72,065
|
)
|
Preferred stock dividends
|
|
|
(276
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(276
|
)
|
Income (loss) applicable to common stockholders
|
|
|
(72,341
|
)
|
|
|
(28,886
|
)
|
|
|
(41,917
|
)
|
|
|
70,803
|
|
|
|
(72,341
|
)
|
Net income (loss)
|
|
|
(72,065
|
)
|
|
|
(28,886
|
)
|
|
|
(41,917
|
)
|
|
|
70,803
|
|
|
|
(72,065
|
)
|
Changes in comprehensive income (loss)
|
|
|
7,799
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,799
|
|
Comprehensive income (loss)
|
|
$
|
(64,266
|
)
|
|
$
|
(28,886
|
)
|
|
$
|
(41,917
|
)
|
|
$
|
70,803
|
|
|
$
|
(64,266
|
)
|
|
|
Three Months Ended June 30, 2018
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Revenues
|
|
$
|
2,697
|
|
|
$
|
75,197
|
|
|
$
|
69,365
|
|
|
$
|
—
|
|
|
$
|
147,259
|
|
Cost of sales
|
|
|
(73
|
)
|
|
|
(37,489
|
)
|
|
|
(42,878
|
)
|
|
|
—
|
|
|
|
(80,440
|
)
|
Depreciation, depletion, amortization
|
|
|
—
|
|
|
|
(11,996
|
)
|
|
|
(19,821
|
)
|
|
|
—
|
|
|
|
(31,817
|
)
|
General and administrative
|
|
|
(4,615
|
)
|
|
|
(4,602
|
)
|
|
|
(570
|
)
|
|
|
—
|
|
|
|
(9,787
|
)
|
Exploration and pre-development
|
|
|
(72
|
)
|
|
|
(3,064
|
)
|
|
|
(6,117
|
)
|
|
|
—
|
|
|
|
(9,253
|
)
|
Research and development
|
|
|
—
|
|
|
|
(1,579
|
)
|
|
|
(758
|
)
|
|
|
—
|
|
|
|
(2,337
|
)
|
Gain on derivative contracts
|
|
|
16,804
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,804
|
|
Acquisition costs
|
|
|
(940
|
)
|
|
|
(68
|
)
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
(1,010
|
)
|
Foreign exchange gain (loss)
|
|
|
(5,731
|
)
|
|
|
(74
|
)
|
|
|
8,281
|
|
|
|
—
|
|
|
|
2,476
|
|
Suspension costs
|
|
|
—
|
|
|
|
(6,801
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,801
|
)
|
Equity in earnings of subsidiaries
|
|
|
5,745
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,745
|
)
|
|
|
—
|
|
Other (expense) income
|
|
|
(1,741
|
)
|
|
|
(1,616
|
)
|
|
|
(5,522
|
)
|
|
|
(3,714
|
)
|
|
|
(12,593
|
)
|
Income (loss) before income taxes
|
|
|
12,074
|
|
|
|
7,908
|
|
|
|
1,978
|
|
|
|
(9,459
|
)
|
|
|
12,501
|
|
(Provision) benefit from income taxes
|
|
|
—
|
|
|
|
(3,715
|
)
|
|
|
(426
|
)
|
|
|
3,714
|
|
|
|
(427
|
)
|
Net income (loss)
|
|
|
12,074
|
|
|
|
4,193
|
|
|
|
1,552
|
|
|
|
(5,745
|
)
|
|
|
12,074
|
|
Preferred stock dividends
|
|
|
(138
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(138
|
)
|
Income (loss) applicable to common stockholders
|
|
|
11,936
|
|
|
|
4,193
|
|
|
|
1,552
|
|
|
|
(5,745
|
)
|
|
|
11,936
|
|
Net income (loss)
|
|
|
12,074
|
|
|
|
4,193
|
|
|
|
1,552
|
|
|
|
(5,745
|
)
|
|
|
12,074
|
|
Changes in comprehensive income (loss)
|
|
|
(5,162
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,162
|
)
|
Comprehensive income (loss)
|
|
$
|
6,912
|
|
|
$
|
4,193
|
|
|
$
|
1,552
|
|
|
$
|
(5,745
|
)
|
|
$
|
6,912
|
|
|
|
Six Months Ended June 30, 2018
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Revenues
|
|
$
|
3,312
|
|
|
$
|
145,408
|
|
|
$
|
138,248
|
|
|
$
|
—
|
|
|
$
|
286,968
|
|
Cost of sales
|
|
|
402
|
|
|
|
(72,190
|
)
|
|
|
(81,521
|
)
|
|
|
—
|
|
|
|
(153,309
|
)
|
Depreciation, depletion, amortization
|
|
|
—
|
|
|
|
(23,256
|
)
|
|
|
(36,615
|
)
|
|
|
—
|
|
|
|
(59,871
|
)
|
General and administrative
|
|
|
(8,448
|
)
|
|
|
(8,050
|
)
|
|
|
(1,024
|
)
|
|
|
—
|
|
|
|
(17,522
|
)
|
Exploration and pre-development
|
|
|
(127
|
)
|
|
|
(5,003
|
)
|
|
|
(12,488
|
)
|
|
|
—
|
|
|
|
(17,618
|
)
|
Research and development
|
|
|
—
|
|
|
|
(2,061
|
)
|
|
|
(1,712
|
)
|
|
|
—
|
|
|
|
(3,773
|
)
|
Loss on derivative contracts
|
|
|
20,811
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,811
|
|
Acquisition costs
|
|
|
(3,300
|
)
|
|
|
(68
|
)
|
|
|
(149
|
)
|
|
|
—
|
|
|
|
(3,517
|
)
|
Foreign exchange gain (loss)
|
|
|
(14,435
|
)
|
|
|
(74
|
)
|
|
|
19,577
|
|
|
|
—
|
|
|
|
5,068
|
|
Suspension costs
|
|
|
—
|
|
|
|
(11,818
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,818
|
)
|
Equity in earnings of subsidiaries
|
|
|
23,513
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(23,513
|
)
|
|
|
—
|
|
Other (expense) income
|
|
|
(1,414
|
)
|
|
|
(3,393
|
)
|
|
|
(9,901
|
)
|
|
|
(9,202
|
)
|
|
|
(23,910
|
)
|
Income (loss) before income taxes
|
|
|
20,314
|
|
|
|
19,495
|
|
|
|
14,415
|
|
|
|
(32,715
|
)
|
|
|
21,509
|
|
(Provision) benefit from income taxes
|
|
|
—
|
|
|
|
(9,203
|
)
|
|
|
(1,194
|
)
|
|
|
9,202
|
|
|
|
(1,195
|
)
|
Net income (loss)
|
|
|
20,314
|
|
|
|
10,292
|
|
|
|
13,221
|
|
|
|
(23,513
|
)
|
|
|
20,314
|
|
Preferred stock dividends
|
|
|
(276
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(276
|
)
|
Income (loss) applicable to common stockholders
|
|
|
20,038
|
|
|
|
10,292
|
|
|
|
13,221
|
|
|
|
(23,513
|
)
|
|
|
20,038
|
|
Net income (loss)
|
|
|
20,314
|
|
|
|
10,292
|
|
|
|
13,221
|
|
|
|
(23,513
|
)
|
|
|
20,314
|
|
Changes in comprehensive income (loss)
|
|
|
(7,267
|
)
|
|
|
—
|
|
|
|
38
|
|
|
|
(38
|
)
|
|
|
(7,267
|
)
|
Comprehensive income (loss)
|
|
$
|
13,048
|
|
|
$
|
10,292
|
|
|
$
|
13,259
|
|
|
$
|
(23,551
|
)
|
|
$
|
13,048
|
|
Unaudited Interim Condensed Consolidating Statements of Cash Flows
|
|
Six Months Ended June 30, 2019
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Cash flows from operating activities
|
|
$
|
(168,393
|
)
|
|
$
|
2,714
|
|
|
$
|
12,414
|
|
|
$
|
137,550
|
|
|
$
|
8,713
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to properties, plants, and equipment
|
|
|
—
|
|
|
|
(52,144
|
)
|
|
|
(19,101
|
)
|
|
|
|
|
|
|
(71,245
|
)
|
Other investing activities, net
|
|
|
71,485
|
|
|
|
17
|
|
|
|
(99
|
)
|
|
|
(71,485
|
)
|
|
|
(82
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to stockholders
|
|
|
(2,706
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
(2,706
|
)
|
Issuance of debt
|
|
|
170,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
170,000
|
|
Payments on debt
|
|
|
(118,000
|
)
|
|
|
(2,475
|
)
|
|
|
(902
|
)
|
|
|
|
|
|
|
(121,377
|
)
|
Other financing activity
|
|
|
41,363
|
|
|
|
20,906
|
|
|
|
2,106
|
|
|
|
(66,065
|
)
|
|
|
(1,690
|
)
|
Effect of exchange rate changes on cash
|
|
|
—
|
|
|
|
—
|
|
|
|
432
|
|
|
|
|
|
|
|
432
|
|
Changes in cash, cash equivalents and restricted cash and cash equivalents
|
|
|
(6,251
|
)
|
|
|
(6,554
|
)
|
|
|
(5,150
|
)
|
|
|
—
|
|
|
|
(17,955
|
)
|
Beginning cash, cash equivalents and restricted cash and cash equivalents
|
|
|
6,265
|
|
|
|
9,686
|
|
|
|
12,463
|
|
|
|
|
|
|
|
28,414
|
|
Ending cash, cash equivalents and restricted cash and cash equivalents
|
|
$
|
14
|
|
|
$
|
3,132
|
|
|
$
|
7,313
|
|
|
$
|
—
|
|
|
$
|
10,459
|
|
|
|
Six Months Ended June 30, 2018
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Cash flows from operating activities
|
|
$
|
27,981
|
|
|
$
|
60,805
|
|
|
$
|
2,166
|
|
|
$
|
(43,934
|
)
|
|
$
|
47,018
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to properties, plants, and equipment
|
|
|
—
|
|
|
|
(25,454
|
)
|
|
|
(17,850
|
)
|
|
|
—
|
|
|
|
(43,304
|
)
|
Other investing activities, net
|
|
|
6,294
|
|
|
|
44
|
|
|
|
420
|
|
|
|
21,359
|
|
|
|
28,117
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to stockholders
|
|
|
(2,276
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,276
|
)
|
Borrowings on debt
|
|
|
31,024
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,024
|
|
Payments on debt
|
|
|
—
|
|
|
|
(1,393
|
)
|
|
|
(2,369
|
)
|
|
|
—
|
|
|
|
(3,762
|
)
|
Other financing activity
|
|
|
(3,544
|
)
|
|
|
(40,658
|
)
|
|
|
18,930
|
|
|
|
22,575
|
|
|
|
(2,697
|
)
|
Effect of exchange rate changes on cash
|
|
|
—
|
|
|
|
—
|
|
|
|
(532
|
)
|
|
|
—
|
|
|
|
(532
|
)
|
Changes in cash, cash equivalents and restricted cash and cash equivalents
|
|
|
59,479
|
|
|
|
(6,656
|
)
|
|
|
765
|
|
|
|
—
|
|
|
|
53,588
|
|
Beginning cash, cash equivalents and restricted cash and cash equivalents
|
|
|
103,878
|
|
|
|
32,048
|
|
|
|
51,213
|
|
|
|
—
|
|
|
|
187,139
|
|
Ending cash, cash equivalents and restricted cash and cash equivalents
|
|
$
|
163,357
|
|
|
$
|
25,392
|
|
|
$
|
51,978
|
|
|
$
|
—
|
|
|
$
|
240,727
|
|