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 September 30, 2019 and December 31, 2018, the fair value of our non-current investments was $7.3 million and $6.6 million, respectively. Our non-current investments consist of marketable equity securities which are carried at fair value, and are primarily classified as “available-for-sale.” The cost basis of our non-current investments was approximately $9.6 million and $7.7 million at September 30, 2019 and December 31, 2018, respectively. In the first nine months of 2019 and 2018, we acquired marketable equity securities having a cost basis of $2.6 million and $0.8 million, respectively. In the first nine months of 2019, we sold marketable equity securities having a cost basis of $0.9 million for proceeds of $1.8 million, resulting in a gain of $0.9 million. During the first nine months of 2019 and 2018, we recognized $1.2 million and $2.5 million, respectively, in net unrealized losses in current earnings.
Note 3. Income Taxes
Major components of our income tax benefit (provision) for the three and nine months ended September 30, 2019 and 2018 are as follows (in thousands):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
(315
|
)
|
|
$
|
—
|
|
|
$
|
(317
|
)
|
|
$
|
(1
|
)
|
Foreign
|
|
|
(2,467
|
)
|
|
|
(80
|
)
|
|
|
(5,260
|
)
|
|
|
(4,250
|
)
|
Total current income tax benefit (provision)
|
|
|
(2,782
|
)
|
|
|
(80
|
)
|
|
|
(5,577
|
)
|
|
|
(4,251
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
2,652
|
|
|
|
3,778
|
|
|
|
10,585
|
|
|
|
3,778
|
|
Foreign
|
|
|
1,744
|
|
|
|
(1,019
|
)
|
|
|
15,001
|
|
|
|
1,957
|
|
Total deferred income tax benefit (provision)
|
|
|
4,396
|
|
|
|
2,759
|
|
|
|
25,586
|
|
|
|
5,735
|
|
Total income tax benefit (provision)
|
|
$
|
1,614
|
|
|
$
|
2,679
|
|
|
$
|
20,009
|
|
|
$
|
1,484
|
|
The current income tax benefits (provisions) for the three and nine months ended September 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 September 30, 2019, we have a net deferred tax liability in the U.S. of $43.1 million, a net deferred tax liability in Canada of $100.3 million and a net deferred tax asset in Mexico of $3.7 million, for a consolidated worldwide net deferred tax liability of $139.7 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 three and nine months ended September 30, 2019, we recorded tax benefits of $2.4 million and $10.3 million, respectively, 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 September 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 $5.9 million, on the basis that it is the most appropriate response action under CERCLA. In October 2019, the EPA published the EE/CA for a 30-day public notice comment period (which may be extended), and the agency is expected to make a final decision on the appropriate response action after the 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, and in October 2019 we increased that amount to $5.9 million, with the increase representing estimated costs to begin implementation of the remedy in 2020. It is possible that Hecla Limited’s liability will be more than $5.9 million, and any increase in liability could have a material adverse effect on Hecla Limited’s or our results of operations or financial position.
The Johnny M Mine is in an area known as the San Mateo Creek Basin (“SMCB”), which is an approximately 321 square mile area in New Mexico that contains numerous legacy uranium mines and mills. In addition to Johnny M, Hecla Limited's predecessor was involved at other mining sites within the SMCB. The EPA is considering listing the entire SMCB on CERCLA’s National Priorities List (Superfund) 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 $5.9 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, and several other PRPs, may be liable for cleanup of the site or for costs incurred by the EPA in cleaning up the site. The EPA stated in the letter that it has incurred approximately $4.5 million in response costs and estimated that total remediation costs may exceed $100 million. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning the site, including the relative contributions of contamination by various other PRPs.
In February 2017, the EPA made a formal request to Hecla Mining Company for information regarding the Barker-Hughesville Mining District Superfund site located in Judith Basin and Cascade Counties, Montana. Hecla Limited submitted a response in April 2017. The Barker-Hughesville site is located in a historic mining district, and between approximately June and December 1983, Hecla Limited was party to an agreement with another mining company under which limited exploration activities occurred at or near the site.
In August 2018, the EPA informed Hecla Limited that it and several other PRPs may be liable for cleanup of the site or for costs incurred by the EPA in cleaning up the site. The EPA did not include an amount of its alleged response costs to date. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning past or anticipated future costs at the site and the relative contributions of contamination by various other PRPs.
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. Between 2014 and 2019, a PRP 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. On October 30, 2019, the PRP filed a lawsuit in Mineral County, Colorado alleging, among other things, that CoCa and CRI are in breach of contract for failure to indemnify the PRP for its liability to the U.S. under CERCLA with respect to the site. In addition, the lawsuit names Hecla Limited as a defendant in its role as the shareholder of CoCa. The PRP seeks in excess of $5 million in damages, including attorneys’ fees and costs. The lawsuit will be vigorously defended and we believe strong defenses exist against all claims made therein and, as noted above, both CoCa and CRI have limited assets with which to satisfy any claim.
Montanore Project
We face several issues in attempting to advance the Montanore project. In October 2018, a court in Lincoln County, Montana found that the adit (which is an underground tunnel) which we intend 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. 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. 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. That order has been appealed to the Montana Supreme Court. As of September 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 material false and misleading statements and omitted certain material information regarding Hecla’s Nevada Operations unit. The complaint alleges that these misstatements and omissions artificially inflated the market price of Hecla common stock during the class period, thus purportedly harming investors. 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 a shareholder derivative lawsuit which names as defendants members of Hecla’s board of directors and certain officers. The case was filed on July 12, 2019 in the U.S. District Court for the District of Delaware. In general terms, the suit alleges (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 seeks 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 $40 million Canadian dollars ("CAD") (approximately $30.8 million U.S. dollars ("USD") 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 September 30, 2019 included approximately $1.3 million for various costs. In addition, our open purchase orders at September 30, 2019 included approximately $1.8 million, $1.4 million, $4.3 million and $0.5 million for various capital and non-capital items at the Lucky Friday, Casa Berardi, Greens Creek and Nevada Operations units, respectively. We also have total commitments of approximately $15.2 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 $17.4 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 September 30, 2019, we had surety bonds totaling $191.8 million and letters of credit totaling $38.5 million in place as financial support for future reclamation and closure costs, self-insurance, and employee benefit plans. The obligations associated with these instruments are generally related to performance requirements that we address through ongoing operations. As the requirements are met, the beneficiary of the associated instruments cancels or returns the instrument to the issuing entity. Certain of these instruments are associated with operating sites with long-lived assets and will remain outstanding until closure of the sites. We believe we are in compliance with all applicable bonding requirements and will be able to satisfy future bonding requirements as they arise.
Other Contingencies
We also have certain other contingencies resulting from litigation, claims, EPA investigations, and other commitments and are subject to a variety of environmental and safety laws and regulations incident to the ordinary course of business. We currently have no basis to conclude that any or all of such contingencies will materially affect our financial position, results of operations or cash flows. However, in the future, there may be changes to these contingencies, or additional contingencies may occur, any of which might result in an accrual or a change in current accruals recorded by us, and there can be no assurance that their ultimate disposition will not have a material adverse effect on our financial position, results of operations or cash flows.
Note 5. Loss Per Common Share
We are authorized to issue 750,000,000 shares of common stock, $0.25 par value per share. At September 30, 2019, there were 496,538,038 shares of our common stock issued and 6,287,271 shares issued and held in treasury, for a net of 490,250,767 shares outstanding. Basic and diluted loss per common share, after preferred dividends, was $(0.04) and $(0.19) for the three- and nine-month periods ended September 30, 2019, respectively. Basic and diluted loss per common share, after preferred dividends, was $(0.05) and $(0.01) for the three- and nine-month periods ended September 30, 2018, respectively.
Diluted loss per share for the three and nine months ended September 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 nine-month periods ended September 30, 2019 and 2018, 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.
Note 6. Business Segments and Sales of Products
We discover, acquire and develop mines and other mineral interests and produce and market concentrates, carbon material and doré 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 our reportable segments for the three and nine months ended September 30, 2019 and 2018 (in thousands):
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Net sales to unaffiliated customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greens Creek
|
|
$
|
59,015
|
|
|
$
|
65,187
|
|
|
$
|
194,542
|
|
|
$
|
205,642
|
|
Lucky Friday
|
|
|
4,017
|
|
|
|
(11
|
)
|
|
|
11,150
|
|
|
|
8,253
|
|
Casa Berardi
|
|
|
53,453
|
|
|
|
52,850
|
|
|
|
139,015
|
|
|
|
164,501
|
|
San Sebastian
|
|
|
15,435
|
|
|
|
14,129
|
|
|
|
39,028
|
|
|
|
40,727
|
|
Nevada Operations
|
|
|
29,612
|
|
|
|
11,494
|
|
|
|
64,586
|
|
|
|
11,494
|
|
|
|
$
|
161,532
|
|
|
$
|
143,649
|
|
|
$
|
448,321
|
|
|
$
|
430,617
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greens Creek
|
|
$
|
17,556
|
|
|
$
|
10,705
|
|
|
$
|
52,130
|
|
|
$
|
59,373
|
|
Lucky Friday
|
|
|
(3,727
|
)
|
|
|
(5,404
|
)
|
|
|
(8,779
|
)
|
|
|
(14,811
|
)
|
Casa Berardi
|
|
|
(380
|
)
|
|
|
(1,146
|
)
|
|
|
(26,262
|
)
|
|
|
3,118
|
|
San Sebastian
|
|
|
1,077
|
|
|
|
(2,381
|
)
|
|
|
(2,358
|
)
|
|
|
2,275
|
|
Nevada Operations
|
|
|
(8,346
|
)
|
|
|
(13,741
|
)
|
|
|
(43,812
|
)
|
|
|
(13,741
|
)
|
Other
|
|
|
(11,293
|
)
|
|
|
(18,409
|
)
|
|
|
(35,633
|
)
|
|
|
(50,885
|
)
|
|
|
$
|
(5,113
|
)
|
|
$
|
(30,376
|
)
|
|
$
|
(64,714
|
)
|
|
$
|
(14,671
|
)
|
The following table presents identifiable assets by reportable segment as of September 30, 2019 and December 31, 2018 (in thousands):
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
Greens Creek
|
|
$
|
648,420
|
|
|
$
|
637,386
|
|
Lucky Friday
|
|
|
438,946
|
|
|
|
437,499
|
|
Casa Berardi
|
|
|
717,631
|
|
|
|
754,248
|
|
San Sebastian
|
|
|
50,549
|
|
|
|
44,152
|
|
Nevada Operations
|
|
|
558,219
|
|
|
|
581,194
|
|
Other
|
|
|
259,413
|
|
|
|
249,465
|
|
|
|
$
|
2,673,178
|
|
|
$
|
2,703,944
|
|
Our products consist of metal concentrates and carbon material, which we sell to custom smelters, brokers and third-party processors, 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 carbon sales, the performance obligation is met, the transaction price is known, and revenue is recognized generally at the time of arrival at the customer's facility.
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 September 30, 2019, metals contained in concentrates and exposed to future price changes totaled 2.9 million ounces of silver, 8,831 ounces of gold, 10,737 tons of zinc, and 6,344 tons of lead. However, as discussed in Note 11, we seek to mitigate the risk of negative price adjustments by using financially-settled forward and put option 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, third-party processors and metals traders. The percentage of sales contributed by each segment is reflected in the following table:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greens Creek
|
|
|
37
|
%
|
|
|
45
|
%
|
|
|
44
|
%
|
|
|
48
|
%
|
Lucky Friday
|
|
|
2
|
%
|
|
|
—
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
Casa Berardi
|
|
|
33
|
%
|
|
|
37
|
%
|
|
|
31
|
%
|
|
|
39
|
%
|
San Sebastian
|
|
|
10
|
%
|
|
|
10
|
%
|
|
|
9
|
%
|
|
|
9
|
%
|
Nevada Operations
|
|
|
18
|
%
|
|
|
8
|
%
|
|
|
14
|
%
|
|
|
2
|
%
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Sales of products by metal for the three- and nine-month periods ended September 30, 2019 and 2018 were as follows (in thousands):
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver
|
|
$
|
40,588
|
|
|
$
|
38,009
|
|
|
$
|
122,392
|
|
|
$
|
111,656
|
|
Gold
|
|
|
103,889
|
|
|
|
82,628
|
|
|
|
261,734
|
|
|
|
233,308
|
|
Lead
|
|
|
7,114
|
|
|
|
7,552
|
|
|
|
22,809
|
|
|
|
27,469
|
|
Zinc
|
|
|
15,292
|
|
|
|
20,990
|
|
|
|
62,995
|
|
|
|
78,714
|
|
Less: Smelter and refining charges
|
|
|
(5,351
|
)
|
|
|
(5,530
|
)
|
|
|
(21,609
|
)
|
|
|
(20,530
|
)
|
Sales of products
|
|
$
|
161,532
|
|
|
$
|
143,649
|
|
|
$
|
448,321
|
|
|
$
|
430,617
|
|
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 nine-month periods ended September 30, 2019 and 2018 (in thousands):
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
88,610
|
|
|
$
|
83,723
|
|
|
$
|
258,708
|
|
|
$
|
266,915
|
|
Korea
|
|
|
33,683
|
|
|
|
35,796
|
|
|
|
109,184
|
|
|
|
110,036
|
|
Japan
|
|
|
17,339
|
|
|
|
3,301
|
|
|
|
34,924
|
|
|
|
20,971
|
|
Netherlands
|
|
|
445
|
|
|
|
—
|
|
|
|
16,500
|
|
|
|
—
|
|
China
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
66
|
|
United States
|
|
|
20,407
|
|
|
|
15,807
|
|
|
|
29,142
|
|
|
|
24,296
|
|
Total, excluding gains/losses on derivative contracts
|
|
$
|
160,484
|
|
|
$
|
138,627
|
|
|
$
|
448,458
|
|
|
$
|
422,284
|
|
Sales by significant product type for the three- and nine-month periods ended September 30, 2019 and 2018 were as follows (in thousands):
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doré and metals from doré
|
|
$
|
87,525
|
|
|
$
|
80,074
|
|
|
$
|
231,391
|
|
|
$
|
227,812
|
|
Carbon
|
|
|
17,745
|
|
|
|
2,994
|
|
|
|
27,376
|
|
|
|
4,273
|
|
Lead concentrate
|
|
|
37,685
|
|
|
|
36,728
|
|
|
|
122,727
|
|
|
|
113,211
|
|
Zinc concentrate
|
|
|
12,345
|
|
|
|
14,965
|
|
|
|
51,876
|
|
|
|
63,197
|
|
Bulk concentrate
|
|
|
5,184
|
|
|
|
3,866
|
|
|
|
15,088
|
|
|
|
13,791
|
|
Total, excluding gains/losses on derivative contracts
|
|
$
|
160,484
|
|
|
$
|
138,627
|
|
|
$
|
448,458
|
|
|
$
|
422,284
|
|
Sales of products for the three- and nine-month periods ended September 30, 2019 included a net gain of $1.1 million and a net loss of $0.1 million, respectively, on financially-settled forward and put option contracts for silver, gold, lead and zinc contained in our sales. Sales of products for the three- and nine-month periods ended September 30, 2018 included net gains of $5.0 million and $8.3 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 nine-month periods ended September 30, 2019 and 2018:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CIBC
|
|
|
36
|
%
|
|
|
26
|
%
|
|
|
24
|
%
|
|
|
34
|
%
|
Scotia
|
|
|
18
|
%
|
|
|
19
|
%
|
|
|
26
|
%
|
|
|
13
|
%
|
Korea Zinc
|
|
|
9
|
%
|
|
|
15
|
%
|
|
|
16
|
%
|
|
|
22
|
%
|
Teck Metals Ltd.
|
|
|
3
|
%
|
|
|
11
|
%
|
|
|
7
|
%
|
|
|
11
|
%
|
Cliveden
|
|
|
12
|
%
|
|
|
—
|
%
|
|
|
4
|
%
|
|
|
—
|
%
|
Trafigura
|
|
|
—
|
%
|
|
|
10
|
%
|
|
|
4
|
%
|
|
|
3
|
%
|
Our trade accounts receivable balance related to contracts with customers was $6.2 million at September 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. Payment for carbon sales is received within a relatively short period of time after 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 or fulfill contracts which are not addressed by other accounting standards. Therefore, we have not recognized an asset for such costs as of September 30, 2019 or December 31, 2018.
In September 2019, we received $20.1 million in proceeds for two parcels of concentrate at our Greens Creek unit which were not shipped and recognized as revenue until October 2019. We sold the concentrate in September, but arrival of the ship at the loading facility at Greens Creek was delayed due to weather, which resulted in the loaded ship leaving Greens Creek shortly after September 30. As of September 30, 2019, a current deferred revenue liability was recognized for the $20.1 million in proceeds, and the related cost of sales and other direct production costs of $9.2 million and depreciation, depletion and amortization of $2.6 million were included in inventory.
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 the Company's 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 nine months of 2019 and 2018, suspension costs not related to production of $5.7 million and $13.5 million, respectively, along with $3.1 million and $3.7 million, respectively, in non-cash depreciation expense, are reported in a separate line item on our consolidated statements of operations. In September 2019, a tentative agreement was reached between the Company and the union negotiating committee. Before the collective bargaining agreement is finalized, it must be ratified by a majority of the union members. If the agreement is voted on and ratified, we would expect the mine to be staffed in stages, and that this would put Lucky Friday on a path back to full production. We believe it would take approximately one year to return to full production after re-staffing starts. We cannot predict whether or when the current tentative agreement will be ratified or if an agreement will otherwise be reached, or, if an agreement is not ratified, how long the strike will last or when there will be a return to full production. 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 September 30, 2019 was approximately $437.0 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 nine months ended September 30, 2019 and 2018 (in thousands):
|
|
Three Months Ended
September 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
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Service cost
|
|
$
|
3,300
|
|
|
$
|
3,756
|
|
Interest cost
|
|
|
4,860
|
|
|
|
4,131
|
|
Expected return on plan assets
|
|
|
(4,488
|
)
|
|
|
(4,902
|
)
|
Amortization of prior service cost
|
|
|
45
|
|
|
|
45
|
|
Amortization of net loss
|
|
|
3,291
|
|
|
|
2,793
|
|
Net periodic pension cost
|
|
$
|
7,008
|
|
|
$
|
5,823
|
|
For the three- and nine-month periods ended September 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 $3.7 million, respectively, for the three- and nine-month periods ended September 30, 2019, and $0.7 million and $2.1 million, respectively, for the three- and nine-month periods ended September 30, 2018, is included in other (expense) income on our condensed consolidated statements of operations and comprehensive loss.
In May 2019, we contributed $3.6 million in common stock to our defined benefit plans, and do not 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. Shareholders’ 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 twelve 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 twenty-four 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 thirty-six-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 three-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 thirty 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 nine months of 2019 totaled $4.8 million, compared to $4.7 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 nine months of 2019 we withheld 1,060,480 shares valued at approximately $2.2 million, or approximately $2.11 per share. In the first nine 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 $1.2 million paid 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 September 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 nine 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 September 30, 2019, 934,100 shares had 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 November 5, 2019, was $2.30 per share. No shares were purchased under the program during the first nine months of 2019.
Warrants
As discussed in Note 13, we issued 4,136,000 warrants to purchase one share of our common stock to holders of warrants to purchase Klondex common stock under the terms of the Klondex acquisition, and all of the warrants were outstanding as of September 30, 2019. Warrants to purchase 2,068,000 shares of common stock have an exercise price of $8.02 and expire in April 2032. Warrants to purchase 2,068,000 shares of common stock have an exercise price of $1.57 and expire in February 2029.
Note 9. Debt, Credit Facility 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 $2.1 million as of September 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 nine-month periods ended September 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 $27.2 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 nine months ended September 30, 2019 and 2018, interest expense related to the RQ Notes, including discount and origination fees, totaled $1.1 million for each period.
Credit Facility
In July 2018, we entered into a $250 million senior secured revolving credit facility which replaced our previous $100 million credit facility. The facility has a term ending on June 14, 2022, provided, however, that if we do not refinance our outstanding Senior Notes on or before November 1, 2020, the facility will terminate on November 1, 2020. In July 2019, we entered into an amendment to the credit facility to, among other things, change the leverage ratio covenant terms and temporarily reduce the amount available to be borrowed under the facility from $250 million 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. As of September 30, 2019, the maximum leverage ratio in effect under the credit facility was 6.50:1, and drops to 6.00:1 for the fourth quarter of 2019.
The credit facility is collateralized by the assets of or shares of common stock held in our material subsidiaries, including those owning the Casa Berardi mine and our Nevada operations, and by our joint venture interests holding 100% ownership of 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 September 30, 2019:
Interest rates:
|
|
|
|
|
|
Spread over the London Interbank Offer Rate
|
|
2.25
|
-
|
4.00%
|
|
Spread over alternative base rate
|
|
1.25
|
-
|
2.25%
|
|
Standby fee per annum on undrawn amounts
|
|
0.50
|
-
|
1.00%
|
|
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) (2)
|
|
not more than 6.50:1
|
|
Interest coverage ratio (EBITDA/interest expense)
|
|
not less than 3.00:1
|
|
(1) EBITDA is calculated as defined in the credit agreement.
(2) The leverage ratio will change to not more than: (i) 6.00:1 as of October 1, 2019; (ii) 5.50:1 as of January 1, 2020; (iii) 5.00:1 as of April 1, 2020; and (iv) 4.00:1 as of July 1, 2020.
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% of the amount of the letters of credit based on our total leverage ratio, as well as a fronting fee to each issuing bank of 0.20% annually on the average daily dollar amount of any outstanding letters of credit. There were $38.5 million in letters of credit outstanding as of September 30, 2019.
We believe we were in compliance with all covenants under the credit agreement, and had $50.0 million drawn under the agreement, in addition to the $38.5 million in letters of credit outstanding, as of September 30, 2019.
Debt Summary
As of September 30, 2019, the annual future obligations related to our debt, including interest, were (in thousands):
Twelve-month period ending September 30,
|
|
Senior Notes
|
|
|
RQ Notes
|
|
|
Revolving Credit Facility
|
|
|
Total
|
|
2020 (interest and fees only)
|
|
$
|
34,822
|
|
|
$
|
1,414
|
|
|
$
|
219
|
|
|
$
|
36,455
|
|
2021 (principal and interest)
|
|
|
526,813
|
|
|
|
31,028
|
|
|
|
—
|
|
|
|
557,841
|
|
2022 (principal)
|
|
|
—
|
|
|
|
|
|
|
|
50,000
|
|
|
|
50,000
|
|
Total
|
|
|
561,635
|
|
|
|
32,442
|
|
|
|
50,219
|
|
|
|
644,296
|
|
Less: interest and fees
|
|
|
(55,135
|
)
|
|
|
(2,238
|
)
|
|
|
(219
|
)
|
|
|
(57,592
|
)
|
Principal
|
|
|
506,500
|
|
|
|
30,204
|
|
|
|
50,000
|
|
|
|
586,704
|
|
Less: unamortized discount
|
|
|
(2,086
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,086
|
)
|
Long-term debt
|
|
$
|
504,414
|
|
|
$
|
30,204
|
|
|
$
|
50,000
|
|
|
$
|
584,618
|
|
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 September 30, 2019, the total liability balance associated with finance leases, including certain purchase option amounts, was $14.3 million, with $5.7 million of the liability classified as current and the remaining $8.6 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 $21.4 million as of September 30, 2019 and $20.0 million as of December 31, 2018, net of accumulated depreciation. Expense during the first nine months of 2019 related to finance leases included $5.1 million for amortization of the right-of-use assets and $0.6 million for interest expense. The total obligation for future minimum lease payments was $15.2 million at September 30, 2019, with $1.0 million attributed to interest. The weighted-average remaining lease term for our finance leases as of September 30, 2019 was approximately 1.9 years.
At September 30, 2019, the annual maturities of finance lease commitments, including interest, were (in thousands):
Twelve-month period ending September 30,
|
|
|
|
|
2020
|
|
$
|
6,283
|
|
2021
|
|
|
5,125
|
|
2022
|
|
|
2,818
|
|
2023
|
|
|
1,017
|
|
Total
|
|
|
15,243
|
|
Less: imputed interest
|
|
|
(968
|
)
|
Net finance lease obligation
|
|
$
|
14,275
|
|
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 September 30, 2019, we have assumed discount rates of between 5% and 6.5%. At September 30, 2019, the total liability balance associated with the operating leases was $17.3 million, with $5.9 million of the liability classified as current and the remaining $11.5 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 $17.3 million as of September 30, 2019. Lease expense on operating leases during the first nine months of 2019 totaled $5.7 million. The total obligation for future minimum operating lease payments, including assumed extensions beyond the current lease terms, was $17.4 million at September 30, 2019. The weighted-average remaining lease term for our operating leases as of September 30, 2019 was approximately 4.7 years.
At September 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 September 30,
|
|
|
|
|
2020
|
|
$
|
6,570
|
|
2021
|
|
|
3,629
|
|
2022
|
|
|
2,808
|
|
2023
|
|
|
2,250
|
|
2024
|
|
|
862
|
|
More than 5 years
|
|
|
1,274
|
|
Total
|
|
|
17,393
|
|
Effect of discounting
|
|
|
(63
|
)
|
Operating lease liability
|
|
$
|
17,330
|
|
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 USD-functional entities which routinely incur expenses denominated in 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 similar program with respect to MXN. The programs utilize forward contracts to buy CAD and MXN, and each contract is designated as a cash flow hedge. As of September 30, 2019, we had 135 forward contracts outstanding to buy a total of CAD$300.7 million having a notional amount of US$231.5 million, and 10 forward contracts outstanding to buy a total of MXN$37.3 million having a notional amount of USD$1.8 million. 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 20.4100 and 20.8550. Our risk management policy provides that up to 75% of our planned cost exposure for five 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 September 30, 2019, we recorded the following balances for the fair value of the contracts:
|
•
|
a current asset of $0.1 million, which is included in other current assets;
|
|
•
|
a current liability of $1.4 million, which is included in other current liabilities; and
|
|
•
|
a non-current liability of $2.9 million, which is included in other non-current liabilities.
|
Net unrealized losses of approximately $4.3 million related to the effective portion of the hedges were included in accumulated other comprehensive loss as of September 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 $1.3 million in net unrealized losses included in accumulated other comprehensive loss as of September 30, 2019 would be reclassified to current earnings in the next twelve months. Net realized losses of approximately $1.2 million on contracts related to underlying expenses which have been recognized were transferred from accumulated other comprehensive loss and included in cost of sales and other direct production costs for the nine months ended September 30, 2019. No net unrealized gains or losses related to ineffectiveness of the hedges were included in current earnings for the nine months ended September 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 five 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 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 committed under forward sales contracts at September 30, 2019 and December 31, 2018:
September 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
|
|
|
828
|
|
|
|
3
|
|
|
|
16,204
|
|
|
|
2,921
|
|
|
$
|
18.66
|
|
|
$
|
1,537
|
|
|
$
|
1.09
|
|
|
$
|
0.90
|
|
Contracts on forecasted sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 settlements
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,409
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0.95
|
|
2020 settlements
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,960
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
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 potential declines 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 September 30, 2019:
September 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
|
|
|
2,493
|
|
|
|
89
|
|
|
$
|
15.08
|
|
|
$
|
1,400
|
|
2020 settlements
|
|
|
2,634
|
|
|
|
51
|
|
|
$
|
15.00
|
|
|
$
|
1,400
|
|
In October 2019, we entered into additional put contracts which establish the minimum prices at which we can sell silver and gold relating to forecasted production for a portion of 2020 at $16.00 and $1,450, respectively, per ounce. These contracts have total premiums of approximately $3.2 million to be paid upon maturity.
These forward and put option contracts are not designated as hedges and are marked-to-market through earnings each period.
We recorded the following balances as of September 30, 2019 for the fair value of the forward and put option contracts held at that time:
|
•
|
a current asset of $1.1 million, which is included in other current assets and is net of $0.7 million for contracts in a fair value liability position; and
|
|
•
|
a current liability of $7.1 million, which is included in other current liabilities and is net of $0.4 million for contracts in a fair value current asset position.
|
We recognized a $0.1 million net loss during the first nine months of 2019 on the contracts utilized to manage exposure to prices of metals that have been sold, 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 $2.7 million net gain during the first nine months 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 sales, 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 nine months of 2019 is the result of decreasing zinc and lead prices, partially offset by increasing gold and silver prices. During the third quarters of 2019 and 2018, we settled, prior to their maturity date, forward contracts in a gain position for cash proceeds to us of approximately $6.7 million and $32.8 million, respectively. These programs, when utilized and the contracts are not settled prior to their maturity dates, are designed to mitigate the impact of potential future declines in silver, gold, lead and zinc prices from the price levels established in the contracts (see average price information above). When those prices increase compared to the contracts, 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 September 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 $12.4 million as of September 30, 2019, which includes accrued interest but excludes any adjustment for nonperformance risk. If we were in breach of any of these provisions at September 30, 2019, we could have been required to settle our obligations under the agreements at their termination value of $12.4 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
September 30, 2019
|
|
|
Balance at
December 31, 2018
|
|
Input
Hierarchy Level
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
Money market funds and other bank deposits
|
|
$
|
32,995
|
|
|
$
|
27,389
|
|
Level 1
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
Equity securities – mining industry
|
|
|
7,349
|
|
|
|
6,583
|
|
Level 1
|
Trade accounts receivable:
|
|
|
|
|
|
|
|
|
|
Receivables from provisional concentrate sales
|
|
|
6,222
|
|
|
|
4,184
|
|
Level 2
|
Restricted cash balances:
|
|
|
|
|
|
|
|
|
|
Certificates of deposit and other deposits
|
|
|
1,025
|
|
|
|
1,025
|
|
Level 1
|
Derivative contracts:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
143
|
|
|
|
23
|
|
Level 2
|
Metal forward and put option contracts
|
|
|
1,092
|
|
|
|
209
|
|
Level 2
|
Total assets
|
|
$
|
48,826
|
|
|
$
|
39,413
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Derivative contracts:
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
4,240
|
|
|
$
|
8,595
|
|
Level 2
|
Metal forward and put option contracts
|
|
|
7,081
|
|
|
|
373
|
|
Level 2
|
Total liabilities
|
|
$
|
11,321
|
|
|
$
|
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 silver, gold, 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, net of unamortized initial purchaser discount, of $504.4 million at September 30, 2019, had a fair value of $503.6 million at September 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 Mines Ltd.
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. In the third quarter of 2019, we continued to pursue third-party ore processing arrangements with the potential to reduce transportation and milling costs. Additionally, we have commenced studies of the assets in order to determine how to mine them with lower costs. There were no significant events or changes in circumstances during the third quarter of 2019 representing a triggering event requiring a carrying value assessment in Nevada. However, if events or changes occur in the future 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 gold 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. 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 September 30, 2019 was $524.8 million, consisting of the following (in millions):
Value beyond proven and probable reserves
|
|
$
|
382.2
|
|
Mineral properties and development
|
|
|
57.7
|
|
Mills and tailings facilities
|
|
|
46.4
|
|
Buildings and equipment
|
|
|
33.0
|
|
Land
|
|
|
2.9
|
|
Asset retirement obligation asset
|
|
|
2.6
|
|
Total
|
|
$
|
524.8
|
|
See Part II, Item 1A - Risk Factors in our quarterly report on Form 10-Q for the period ended June 30, 2019 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). The Guarantors consist of the following of Hecla's 100%-owned subsidiaries: Hecla Limited; Silver Hunter Mining Company; Rio Grande Silver, Inc.; Hecla MC Subsidiary, LLC; Hecla Silver Valley, Inc.; Burke Trading, Inc.; Hecla Montana, Inc.; Revett Silver Company; RC Resources, Inc.; Troy Mine Inc.; Revett Exploration, Inc.; Revett Holdings, Inc.; Mines Management, Inc.; Newhi, Inc.; Montanore Minerals Corp.; Hecla Alaska LLC; Hecla Greens Creek Mining Company; Hecla Admiralty Company; Hecla Juneau Mining Company; Klondex Holdings Inc.; Klondex Gold & Silver Mining Co.; Klondex Midas Holdings Limited; Klondex Aurora Mine Inc.; Klondex Hollister Mine Inc.; and Hecla Quebec, Inc. We completed the 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 condensed consolidated financial statements set forth elsewhere in this report. Investments in the subsidiaries are accounted for under the equity method. Accordingly, the entries necessary to consolidate Hecla, the Guarantors, and our non-guarantor subsidiaries are reflected in the intercompany eliminations column. In the course of preparing consolidated financial statements, we eliminate the effects of various transactions conducted between Hecla and its subsidiaries and among the subsidiaries. While valid at an individual subsidiary level, such activities are eliminated in consolidation because, when taken as a whole, they do not represent business activity with third-party customers, vendors, and other parties. Examples of such eliminations include the following:
|
•
|
Investments in subsidiaries. The acquisition of a company results in an investment in debt or equity capital on the records of the parent company and a contribution to debt or equity capital on the records of the subsidiary. Such investments and capital contributions are eliminated in consolidation.
|
|
•
|
Capital contributions. Certain of Hecla's subsidiaries do not generate cash flow, either at all or that is sufficient to meet their capital needs, and their cash requirements are routinely met with inter-company advances from their parent companies. Generally on an annual basis, when not otherwise intended as debt, the boards of directors of such parent companies declare contributions of capital to their subsidiary companies, which increase the parents' investment and the subsidiaries' additional paid-in capital. In consolidation, investments in subsidiaries and related additional paid-in capital are eliminated.
|
|
•
|
Debt. At times, inter-company debt agreements have been established between certain of Hecla's subsidiaries and their parents. The related debt liability and receivable balances, accrued interest expense (if any) and income activity (if any), and payments of principal and accrued interest amounts (if any) by the subsidiary companies to their parents are eliminated in consolidation.
|
|
•
|
Dividends. Certain of Hecla's subsidiaries which generate cash flow routinely provide cash to their parent companies through inter-company transfers. On at least an annual basis, the boards of directors of such subsidiary companies declare dividends to their parent companies, which reduces the subsidiaries' retained earnings and increases the parents' dividend income. In consolidation, such activity is eliminated.
|
|
•
|
Deferred taxes. Our ability to realize deferred tax assets and liabilities is considered for two consolidated tax groups of subsidiaries within the United States: the Nevada U.S. Group and Hecla U.S. group. Within each tax group, all subsidiaries' estimated future taxable income contributes to the ability of their tax group to realize all such assets and liabilities. However, when Hecla's subsidiaries are viewed independently, we use the separate return method to assess the realizability of each subsidiary's deferred tax assets and whether a valuation allowance is required against such deferred tax assets. In some instances, a parent company or subsidiary may possess deferred tax assets whose realization depends on the future taxable incomes of other subsidiaries on a consolidated-return basis, but would not be considered realizable if such parent or subsidiary filed on a separate stand-alone basis. In such a situation, a valuation allowance is assessed on that subsidiary's deferred tax assets, with the resulting adjustment reported in the eliminations column of the guarantor and parent's financial statements, as is the case in the unaudited interim financial statements set forth below. The separate return method can result in significant eliminations of deferred tax assets and liabilities and related income tax provisions and benefits. Non-current deferred tax asset balances are included in other non-current assets on the consolidating balance sheets and make up a large portion of that item, particularly for the guarantor balances.
|
Separate financial statements of the Guarantors are not presented because the guarantees by the Guarantors are joint and several and full and unconditional, except for certain customary release provisions, including: (1) the sale or disposal of all or substantially all of the assets of the Guarantor; (2) the sale or other disposition of the capital stock of the Guarantor; (3) the Guarantor is designated as an unrestricted entity in accordance with the applicable provisions of the indenture; (4) Hecla ceases to be a borrower as defined in the indenture; and (5) upon legal or covenant defeasance or satisfaction and discharge of the indenture.
Unaudited Interim Condensed Consolidating Balance Sheets
|
|
As of September 30, 2019
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,983
|
|
|
$
|
9,608
|
|
|
$
|
4,404
|
|
|
$
|
—
|
|
|
$
|
32,995
|
|
Other current assets
|
|
|
7,031
|
|
|
|
113,542
|
|
|
|
25,430
|
|
|
|
(72
|
)
|
|
|
145,931
|
|
Properties, plants, equipment and mineral interests - net
|
|
|
1,913
|
|
|
|
2,438,137
|
|
|
|
15,461
|
|
|
|
—
|
|
|
|
2,455,511
|
|
Intercompany receivable (payable)
|
|
|
143,248
|
|
|
|
(709,012
|
)
|
|
|
149,616
|
|
|
|
416,148
|
|
|
|
—
|
|
Investments in subsidiaries
|
|
|
1,499,318
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,499,318
|
)
|
|
|
—
|
|
Other non-current assets
|
|
|
284,380
|
|
|
|
25,380
|
|
|
|
(120,645
|
)
|
|
|
(150,374
|
)
|
|
|
38,741
|
|
Total assets
|
|
$
|
1,954,873
|
|
|
$
|
1,877,655
|
|
|
$
|
74,266
|
|
|
$
|
(1,233,616
|
)
|
|
$
|
2,673,178
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
(298,754
|
)
|
|
$
|
165,564
|
|
|
$
|
10,704
|
|
|
$
|
268,329
|
|
|
$
|
145,843
|
|
Long-term debt
|
|
|
584,618
|
|
|
|
19,159
|
|
|
|
876
|
|
|
|
—
|
|
|
|
604,653
|
|
Non-current portion of accrued reclamation
|
|
|
—
|
|
|
|
95,674
|
|
|
|
8,147
|
|
|
|
—
|
|
|
|
103,821
|
|
Non-current deferred tax liability
|
|
|
—
|
|
|
|
146,069
|
|
|
|
—
|
|
|
|
(2,627
|
)
|
|
|
143,442
|
|
Other non-current liabilities
|
|
|
52,365
|
|
|
|
5,393
|
|
|
|
1,017
|
|
|
|
—
|
|
|
|
58,775
|
|
Shareholders' equity
|
|
|
1,616,644
|
|
|
|
1,445,796
|
|
|
|
53,522
|
|
|
|
(1,499,318
|
)
|
|
|
1,616,644
|
|
Total liabilities and stockholders' equity
|
|
$
|
1,954,873
|
|
|
$
|
1,877,655
|
|
|
$
|
74,266
|
|
|
$
|
(1,233,616
|
)
|
|
$
|
2,673,178
|
|
|
|
As of December 31, 2018
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
Revised
|
|
|
Revised
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,266
|
|
|
$
|
17,233
|
|
|
$
|
3,890
|
|
|
$
|
—
|
|
|
$
|
27,389
|
|
Other current assets
|
|
|
6,388
|
|
|
|
105,900
|
|
|
|
24,542
|
|
|
|
(69
|
)
|
|
|
136,761
|
|
Properties, plants, equipment and mineral interests, net
|
|
|
1,913
|
|
|
|
2,503,467
|
|
|
|
14,624
|
|
|
|
—
|
|
|
|
2,520,004
|
|
Intercompany receivable (payable)
|
|
|
171,908
|
|
|
|
(546,374
|
)
|
|
|
152,031
|
|
|
|
222,435
|
|
|
|
—
|
|
Investments in subsidiaries
|
|
|
1,577,869
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,577,869
|
)
|
|
|
—
|
|
Other non-current assets
|
|
|
276,641
|
|
|
|
10,906
|
|
|
|
(124,845
|
)
|
|
|
(142,912
|
)
|
|
|
19,790
|
|
Total assets
|
|
$
|
2,040,985
|
|
|
$
|
2,091,132
|
|
|
$
|
70,242
|
|
|
$
|
(1,498,415
|
)
|
|
$
|
2,703,944
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
(233,824
|
)
|
|
$
|
157,640
|
|
|
$
|
7,145
|
|
|
$
|
205,233
|
|
|
$
|
136,194
|
|
Long-term debt
|
|
|
532,799
|
|
|
|
143,858
|
|
|
|
1
|
|
|
|
(135,988
|
)
|
|
|
540,670
|
|
Non-current portion of accrued reclamation
|
|
|
—
|
|
|
|
100,445
|
|
|
|
4,534
|
|
|
|
—
|
|
|
|
104,979
|
|
Non-current deferred tax liability
|
|
|
—
|
|
|
|
163,328
|
|
|
|
—
|
|
|
|
10,209
|
|
|
|
173,537
|
|
Other non-current liabilities
|
|
|
51,047
|
|
|
|
5,641
|
|
|
|
913
|
|
|
|
—
|
|
|
|
57,601
|
|
Stockholders' equity
|
|
|
1,690,963
|
|
|
|
1,520,220
|
|
|
|
57,649
|
|
|
|
(1,577,869
|
)
|
|
|
1,690,963
|
|
Total liabilities and stockholders' equity
|
|
$
|
2,040,985
|
|
|
$
|
2,091,132
|
|
|
$
|
70,242
|
|
|
$
|
(1,498,415
|
)
|
|
$
|
2,703,944
|
|
Unaudited Interim Condensed Consolidating Statements of Operations
|
|
Three Months Ended September 30, 2019
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Revenues
|
|
$
|
1,049
|
|
|
$
|
144,999
|
|
|
$
|
15,484
|
|
|
$
|
—
|
|
|
$
|
161,532
|
|
Cost of sales
|
|
|
(472
|
)
|
|
|
(85,829
|
)
|
|
|
(9,577
|
)
|
|
|
—
|
|
|
|
(95,878
|
)
|
Depreciation, depletion, amortization
|
|
|
—
|
|
|
|
(47,448
|
)
|
|
|
(3,326
|
)
|
|
|
—
|
|
|
|
(50,774
|
)
|
General and administrative
|
|
|
(2,951
|
)
|
|
|
(4,722
|
)
|
|
|
(305
|
)
|
|
|
—
|
|
|
|
(7,978
|
)
|
Exploration and pre-development
|
|
|
(3
|
)
|
|
|
(4,315
|
)
|
|
|
(1,371
|
)
|
|
|
—
|
|
|
|
(5,689
|
)
|
Research and development
|
|
|
—
|
|
|
|
37
|
|
|
|
(90
|
)
|
|
|
—
|
|
|
|
(53
|
)
|
Loss on derivative contracts
|
|
|
(4,718
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,718
|
)
|
Foreign exchange gain (loss)
|
|
|
(3,201
|
)
|
|
|
5,129
|
|
|
|
(1,155
|
)
|
|
|
—
|
|
|
|
773
|
|
Lucky Friday suspension-related costs
|
|
|
—
|
|
|
|
(3,722
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,722
|
)
|
Acquisition costs
|
|
|
(100
|
)
|
|
|
(83
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(183
|
)
|
Equity in earnings of subsidiaries
|
|
|
(6,761
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
6,761
|
|
|
|
—
|
|
Other (expense) income
|
|
|
(2,359
|
)
|
|
|
(9,930
|
)
|
|
|
1,606
|
|
|
|
(3,757
|
)
|
|
|
(14,440
|
)
|
Income (loss) before income taxes
|
|
|
(19,516
|
)
|
|
|
(5,884
|
)
|
|
|
1,266
|
|
|
|
3,004
|
|
|
|
(21,130
|
)
|
(Provision) benefit from income taxes
|
|
|
—
|
|
|
|
(625
|
)
|
|
|
(1,518
|
)
|
|
|
3,757
|
|
|
|
1,614
|
|
Net income (loss)
|
|
|
(19,516
|
)
|
|
|
(6,509
|
)
|
|
|
(252
|
)
|
|
|
6,761
|
|
|
|
(19,516
|
)
|
Preferred stock dividends
|
|
|
(138
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(138
|
)
|
Income (loss) applicable to common shareholders
|
|
|
(19,654
|
)
|
|
|
(6,509
|
)
|
|
|
(252
|
)
|
|
|
6,761
|
|
|
|
(19,654
|
)
|
Net income (loss)
|
|
|
(19,516
|
)
|
|
|
(6,509
|
)
|
|
|
(252
|
)
|
|
|
6,761
|
|
|
|
(19,516
|
)
|
Changes in comprehensive income (loss)
|
|
|
(3,288
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,288
|
)
|
Comprehensive income (loss)
|
|
$
|
(22,804
|
)
|
|
$
|
(6,509
|
)
|
|
$
|
(252
|
)
|
|
$
|
6,761
|
|
|
$
|
(22,804
|
)
|
|
|
Nine Months Ended September 30, 2019
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Revenues
|
|
$
|
(136
|
)
|
|
$
|
409,339
|
|
|
$
|
39,118
|
|
|
$
|
—
|
|
|
$
|
448,321
|
|
Cost of sales
|
|
|
(1,190
|
)
|
|
|
(280,397
|
)
|
|
|
(29,615
|
)
|
|
|
—
|
|
|
|
(311,202
|
)
|
Depreciation, depletion, amortization
|
|
|
—
|
|
|
|
(132,104
|
)
|
|
|
(6,934
|
)
|
|
|
—
|
|
|
|
(139,038
|
)
|
General and administrative
|
|
|
(12,110
|
)
|
|
|
(13,571
|
)
|
|
|
(1,174
|
)
|
|
|
—
|
|
|
|
(26,855
|
)
|
Exploration and pre-development
|
|
|
(22
|
)
|
|
|
(10,645
|
)
|
|
|
(5,424
|
)
|
|
|
—
|
|
|
|
(16,091
|
)
|
Research and development
|
|
|
—
|
|
|
|
(521
|
)
|
|
|
(93
|
)
|
|
|
—
|
|
|
|
(614
|
)
|
Loss on derivative contracts
|
|
|
(2,719
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,719
|
)
|
Foreign exchange gain (loss)
|
|
|
7,820
|
|
|
|
(14,636
|
)
|
|
|
75
|
|
|
|
—
|
|
|
|
(6,741
|
)
|
Lucky Friday suspension-related costs
|
|
|
—
|
|
|
|
(8,766
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(8,766
|
)
|
Acquisition costs
|
|
|
(221
|
)
|
|
|
(219
|
)
|
|
|
(153
|
)
|
|
|
—
|
|
|
|
(593
|
)
|
Equity in earnings of subsidiaries
|
|
|
(77,563
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
77,563
|
|
|
|
—
|
|
Other (expense) income
|
|
|
(5,438
|
)
|
|
|
(31,573
|
)
|
|
|
2,308
|
|
|
|
(12,589
|
)
|
|
|
(47,292
|
)
|
Income (loss) before income taxes
|
|
|
(91,579
|
)
|
|
|
(83,093
|
)
|
|
|
(1,892
|
)
|
|
|
64,974
|
|
|
|
(111,590
|
)
|
(Provision) benefit from income taxes
|
|
|
(2
|
)
|
|
|
6,864
|
|
|
|
558
|
|
|
|
12,589
|
|
|
|
20,009
|
|
Net income (loss)
|
|
|
(91,581
|
)
|
|
|
(76,229
|
)
|
|
|
(1,334
|
)
|
|
|
77,563
|
|
|
|
(91,581
|
)
|
Preferred stock dividends
|
|
|
(414
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(414
|
)
|
Income (loss) applicable to common shareholders
|
|
|
(91,995
|
)
|
|
|
(76,229
|
)
|
|
|
(1,334
|
)
|
|
|
77,563
|
|
|
|
(91,995
|
)
|
Net income (loss)
|
|
|
(91,581
|
)
|
|
|
(76,229
|
)
|
|
|
(1,334
|
)
|
|
|
77,563
|
|
|
|
(91,581
|
)
|
Changes in comprehensive income (loss)
|
|
|
4,511
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,511
|
|
Comprehensive income (loss)
|
|
$
|
(87,070
|
)
|
|
$
|
(76,229
|
)
|
|
$
|
(1,334
|
)
|
|
$
|
77,563
|
|
|
$
|
(87,070
|
)
|
|
|
Three Months Ended September 30, 2018
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
|
Revised
|
|
|
Revised
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Revenues
|
|
$
|
5,020
|
|
|
$
|
124,497
|
|
|
$
|
14,132
|
|
|
$
|
—
|
|
|
$
|
143,649
|
|
Cost of sales
|
|
|
(157
|
)
|
|
|
(80,876
|
)
|
|
|
(12,576
|
)
|
|
|
—
|
|
|
|
(93,609
|
)
|
Depreciation, depletion, amortization
|
|
|
—
|
|
|
|
(41,669
|
)
|
|
|
(1,795
|
)
|
|
|
—
|
|
|
|
(43,464
|
)
|
General and administrative
|
|
|
(4,802
|
)
|
|
|
(5,082
|
)
|
|
|
(443
|
)
|
|
|
—
|
|
|
|
(10,327
|
)
|
Exploration and pre-development
|
|
|
(1
|
)
|
|
|
(11,227
|
)
|
|
|
(2,378
|
)
|
|
|
—
|
|
|
|
(13,606
|
)
|
Research and development
|
|
|
—
|
|
|
|
(732
|
)
|
|
|
(537
|
)
|
|
|
—
|
|
|
|
(1,269
|
)
|
Gain on derivative contracts
|
|
|
19,460
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19,460
|
|
Foreign exchange gain (loss)
|
|
|
4,640
|
|
|
|
(7,629
|
)
|
|
|
777
|
|
|
|
—
|
|
|
|
(2,212
|
)
|
Lucky Friday suspension costs
|
|
|
—
|
|
|
|
(6,519
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,519
|
)
|
Acquisition costs
|
|
|
(5,741
|
)
|
|
|
(386
|
)
|
|
|
(12
|
)
|
|
|
—
|
|
|
|
(6,139
|
)
|
Equity in earnings of subsidiaries
|
|
|
(54,618
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
54,618
|
|
|
|
—
|
|
Other expense
|
|
|
13,016
|
|
|
|
(4,756
|
)
|
|
|
(262
|
)
|
|
|
(19,825
|
)
|
|
|
(11,827
|
)
|
Income (loss) before income taxes
|
|
|
(23,183
|
)
|
|
|
(34,379
|
)
|
|
|
(3,094
|
)
|
|
|
34,793
|
|
|
|
(25,863
|
)
|
(Provision) benefit from income taxes
|
|
|
(1
|
)
|
|
|
(17,530
|
)
|
|
|
385
|
|
|
|
19,825
|
|
|
|
2,679
|
|
Net income (loss)
|
|
|
(23,184
|
)
|
|
|
(51,909
|
)
|
|
|
(2,709
|
)
|
|
|
54,618
|
|
|
|
(23,184
|
)
|
Preferred stock dividends
|
|
|
(138
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(138
|
)
|
Income (loss) applicable to common shareholders
|
|
|
(23,322
|
)
|
|
|
(51,909
|
)
|
|
|
(2,709
|
)
|
|
|
54,618
|
|
|
|
(23,322
|
)
|
Net income (loss)
|
|
|
(23,184
|
)
|
|
|
(51,909
|
)
|
|
|
(2,709
|
)
|
|
|
54,618
|
|
|
|
(23,184
|
)
|
Changes in comprehensive income (loss)
|
|
|
3,746
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,746
|
|
Comprehensive income (loss)
|
|
$
|
(19,438
|
)
|
|
$
|
(51,909
|
)
|
|
$
|
(2,709
|
)
|
|
$
|
54,618
|
|
|
$
|
(19,438
|
)
|
|
|
Nine Months Ended September 30, 2018
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
|
Revised
|
|
|
Revised
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Revenues
|
|
$
|
8,332
|
|
|
$
|
381,556
|
|
|
$
|
40,729
|
|
|
$
|
—
|
|
|
$
|
430,617
|
|
Cost of sales
|
|
|
245
|
|
|
|
(219,497
|
)
|
|
|
(27,666
|
)
|
|
|
—
|
|
|
|
(246,918
|
)
|
Depreciation, depletion, amortization
|
|
|
—
|
|
|
|
(99,749
|
)
|
|
|
(3,586
|
)
|
|
|
—
|
|
|
|
(103,335
|
)
|
General and administrative
|
|
|
(13,250
|
)
|
|
|
(13,247
|
)
|
|
|
(1,352
|
)
|
|
|
—
|
|
|
|
(27,849
|
)
|
Exploration and pre-development
|
|
|
(128
|
)
|
|
|
(22,571
|
)
|
|
|
(8,525
|
)
|
|
|
—
|
|
|
|
(31,224
|
)
|
Research and development
|
|
|
—
|
|
|
|
(3,702
|
)
|
|
|
(1,340
|
)
|
|
|
—
|
|
|
|
(5,042
|
)
|
Gain/(loss) on derivative contracts
|
|
|
40,271
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
40,271
|
|
Foreign exchange gain (loss)
|
|
|
(9,795
|
)
|
|
|
12,230
|
|
|
|
421
|
|
|
|
—
|
|
|
|
2,856
|
|
Lucky Friday suspension costs
|
|
|
—
|
|
|
|
(18,337
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(18,337
|
)
|
Acquisition costs
|
|
|
(9,041
|
)
|
|
|
(454
|
)
|
|
|
(161
|
)
|
|
|
—
|
|
|
|
(9,656
|
)
|
Equity in earnings of subsidiaries
|
|
|
(31,105
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
31,105
|
|
|
|
—
|
|
Other (expense) income
|
|
|
11,602
|
|
|
|
(19,034
|
)
|
|
|
722
|
|
|
|
(29,027
|
)
|
|
|
(35,737
|
)
|
Income (loss) before income taxes
|
|
|
(2,869
|
)
|
|
|
(2,805
|
)
|
|
|
(758
|
)
|
|
|
2,078
|
|
|
|
(4,354
|
)
|
(Provision) benefit from income taxes
|
|
|
(1
|
)
|
|
|
(26,348
|
)
|
|
|
(1,194
|
)
|
|
|
29,027
|
|
|
|
1,484
|
|
Net income (loss)
|
|
|
(2,870
|
)
|
|
|
(29,153
|
)
|
|
|
(1,952
|
)
|
|
|
31,105
|
|
|
|
(2,870
|
)
|
Preferred stock dividends
|
|
|
(414
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(414
|
)
|
Income (loss) applicable to common shareholders
|
|
|
(3,284
|
)
|
|
|
(29,153
|
)
|
|
|
(1,952
|
)
|
|
|
31,105
|
|
|
|
(3,284
|
)
|
Net income (loss)
|
|
|
(2,870
|
)
|
|
|
(29,153
|
)
|
|
|
(1,952
|
)
|
|
|
31,105
|
|
|
|
(2,870
|
)
|
Changes in comprehensive income (loss)
|
|
|
(3,520
|
)
|
|
|
38
|
|
|
|
—
|
|
|
|
(38
|
)
|
|
|
(3,520
|
)
|
Comprehensive income (loss)
|
|
$
|
(6,390
|
)
|
|
$
|
(29,115
|
)
|
|
$
|
(1,952
|
)
|
|
$
|
31,067
|
|
|
$
|
(6,390
|
)
|
Unaudited Interim Condensed Consolidating Statements of Cash Flows
|
|
Nine Months Ended September 30, 2019
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(in thousands)
|
|
Cash flows from operating activities
|
|
$
|
(140,110
|
)
|
|
$
|
92,042
|
|
|
$
|
(15,242
|
)
|
|
$
|
126,919
|
|
|
$
|
63,609
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to properties, plants, equipment and mineral interests
|
|
|
—
|
|
|
|
(56,329
|
)
|
|
|
(41,009
|
)
|
|
|
—
|
|
|
|
(97,338
|
)
|
Other investing activities, net
|
|
|
72,128
|
|
|
|
42
|
|
|
|
1,415
|
|
|
|
(72,128
|
)
|
|
|
1,457
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to shareholders
|
|
|
(4,070
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,070
|
)
|
Borrowings on debt
|
|
|
245,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
245,000
|
|
Payments on debt
|
|
|
(195,000
|
)
|
|
|
(4,965
|
)
|
|
|
(519
|
)
|
|
|
—
|
|
|
|
(200,484
|
)
|
Other financing activity, net
|
|
|
34,769
|
|
|
|
(38,672
|
)
|
|
|
55,869
|
|
|
|
(54,791
|
)
|
|
|
(2,825
|
)
|
Effect of exchange rates on cash
|
|
|
—
|
|
|
|
257
|
|
|
|
—
|
|
|
|
—
|
|
|
|
257
|
|
Changes in cash, cash equivalents and restricted cash and cash equivalents
|
|
|
12,717
|
|
|
|
(7,625
|
)
|
|
|
514
|
|
|
|
—
|
|
|
|
5,606
|
|
Beginning cash, cash equivalents and restricted cash and cash equivalents
|
|
|
6,266
|
|
|
|
18,258
|
|
|
|
3,890
|
|
|
|
—
|
|
|
|
28,414
|
|
Ending cash, cash equivalents and restricted cash and cash equivalents
|
|
$
|
18,983
|
|
|
$
|
10,633
|
|
|
$
|
4,404
|
|
|
$
|
—
|
|
|
$
|
34,020
|
|
|
|
Nine Months Ended September 30, 2018
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Non-Guarantors
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
|
|
|
|
Revised
|
|
|
Revised
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Cash flows from operating activities
|
|
$
|
(29,868
|
)
|
|
$
|
88,853
|
|
|
$
|
(40,161
|
)
|
|
$
|
56,386
|
|
|
$
|
75,210
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to properties, plants, equipment and mineral interests
|
|
|
20,710
|
|
|
|
(101,147
|
)
|
|
|
(2,848
|
)
|
|
|
—
|
|
|
|
(83,285
|
)
|
Acquisitions of other companies, net of cash acquired
|
|
|
(139,326
|
)
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(139,326
|
)
|
Other investing activities, net
|
|
|
(398,101
|
)
|
|
|
4,309
|
|
|
|
—
|
|
|
|
431,815
|
|
|
|
38,023
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to shareholders
|
|
|
(3,607
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,607
|
)
|
Borrowings on debt
|
|
|
78,024
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
78,024
|
|
Payments on debt
|
|
|
(47,000
|
)
|
|
|
(41,028
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(88,028
|
)
|
Other financing activity, net
|
|
|
443,372
|
|
|
|
26,051
|
|
|
|
16,709
|
|
|
|
(488,201
|
)
|
|
|
(2,069
|
)
|
Effect of exchange rates on cash
|
|
|
—
|
|
|
|
(215
|
)
|
|
|
|
|
|
|
—
|
|
|
|
(215
|
)
|
Changes in cash, cash equivalents and restricted cash and cash equivalents
|
|
|
(75,796
|
)
|
|
|
(23,177
|
)
|
|
|
(26,300
|
)
|
|
|
—
|
|
|
|
(125,273
|
)
|
Beginning cash, cash equivalents and restricted cash and cash equivalents
|
|
|
103,877
|
|
|
|
46,619
|
|
|
|
36,643
|
|
|
|
—
|
|
|
|
187,139
|
|
Ending cash, cash equivalents and restricted cash and cash equivalents
|
|
$
|
28,081
|
|
|
$
|
23,442
|
|
|
$
|
10,343
|
|
|
$
|
—
|
|
|
$
|
61,866
|
|