HECLA MINING COMPANY
The following Management's Discussion and Analysis ("MD&A") provides information
that management believes is relevant to an assessment and understanding of the
consolidated financial condition and results of operations of Hecla Mining
Company and its subsidiaries (collectively the "Company," "our," or "we"). We
use certain non-GAAP financial performance measures in our MD&A. For a detailed
description of these measures, please see "Non-GAAP Financial Performance
Measures" at the end of this item. This item should be read in conjunction with
our Consolidated Financial Statements and the notes thereto included in this
annual report.
Overview
Established in 1891, we believe we are the oldest operating precious metals
mining company in the United States . We are the largest silver producer in the
United States , producing over 40% of the U.S. silver production at our Greens
Creek and Lucky Friday operations. We produce gold at our Casa Berardi operation
in Quebec, Canada , and Greens Creek , and produced gold at our Nevada Operations
segment prior to suspension of operations during 2021. We also produced silver
and gold at San Sebastian in Mexico , which was considered an operating segment
prior to 2021. Production ceased in the fourth quarter of 2020, and exploration
activities are currently ongoing. San Sebastian's activity for all periods
presented in this Annual Report on Form 10-K is included in "other". We are
developing the Keno Hill mine in the Yukon, Canada which we acquired on
September 7, 2022 , and which we expect will start producing silver in the third
quarter of 2023. Based upon our operational footprint, we believe we have low
political and economic risk compared to other mines located in other parts of
the world. Our exploration interests are located in the United States , Canada
and Mexico . Our operating and strategic framework is based on expanding our
production and locating and developing new resource potential in a safe and
responsible manner.
Acquisition of Alexco
OnSeptember 7, 2022 , we completed the acquisition of the remaining 90.1% ofAlexco Resource Corp. ("Alexco") that we did not already own for non-cash consideration of 17,992,875 shares of our common stock valued at$68.7 million . Total consideration for the acquisition, deemed to be an asset acquisition under GAAP, was$81.5 million of which$76.4 million was non cash, including the fair value of our common stock issued and the fair value of the 9.9% Alexco investment held by us prior to the completion of the acquisition and previously accounted for as marketable equity securities of$7.7 million . Acquisition costs also included transaction costs of$5.1 million . The total consideration was allocated to the acquired assets and assumed liabilities based on their estimated fair values on the acquisition date, which primarily consisted of mineral interests of$236.6 million , a related deferred tax liability of$12.9 million , net liabilities of$7.2 million and a silver stream liability of$135 million . Immediately following the closure of the acquisition, we settled the silver stream liability with the stream holder for 34,800,990 shares of our common stock. Prior toSeptember 7, 2022 , we advanced$25 million to Alexco to fund its operations on market terms. The advance was assumed upon acquisition and is eliminated upon consolidation. 2022 Highlights Operational: • Produced 14.2 million ounces of silver and 175,807 ounces of gold. See Consolidated Results of Operations below for information on cost of sales and other direct production costs and depreciation, depletion and amortization and cash costs and AISC, after by-product credits, per silver and gold ounce for 2022, 2021 and 2020.
•
Increased
•
Continued our trend of strong safety performance, as our All Injury Frequency Rate ("AIFR") for 2022 was 1.22.
Financial:
•
Reported sales of
•
Generated
•
Made capital expenditures (excluding lease additions and other non-cash items) of approximately$149.4 million , including$39.7 million at Casa Berardi,$36.9 million atGreens Creek ,$51.0 million at Lucky Friday, and$19.7 million at Keno Hill.
•
Returned
55
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Our average realized gold price increased while our realized price for silver,
lead and zinc prices decreased in 2022 compared to 2021. Our average realized
silver, gold, lead and zinc prices increased in 2021 compared to 2020. See the
Consolidated Results of Operations section below for information on our average
realized metals prices for 2022, 2021 and 2020. Lead and zinc represent
important by-products at our Greens Creek and Lucky Friday segments, and gold is
also a significant by-product at Greens Creek .
See the Consolidated Results of Operations section below for a discussion of the
factors impacting income applicable to common stockholders for the three years
ended December 31, 2022 , 2021 and 2020.
Key Issues Impacting our Business
Our current business strategy is to focus our financial and human resources in the following areas:
•
executing value enhancing transactions, such as with the recently consummated Alexco acquisition;
•
advancing the development of the Keno Hill mine with the anticipation of commencement of production before the end of 2023;
•
rapidly responding to the threats from the COVID-19 pandemic to protect our workforce, operations and communities while maintaining liquidity;
•
operating our properties safely, in an environmentally responsible and cost-effective manner;
•
maintaining and investing in exploration and pre-development projects in the vicinities of mining districts and projects we believe to be under-explored and under-invested:Greens Creek onAlaska's Admiralty Island located nearJuneau ;North Idaho's Silver Valley in the historic Coeur d'Alene Mining District; the silver-producing district nearDurango, Mexico ; in the vicinity of ourCasa Berardi mine and the Heva-Hosco project in the Abitibi region of northwesternQuebec, Canada ; our projects located in two districts inNevada ; our projects in the Keno Hill mining district in theYukon Territory, Canada ; northwesternMontana ; theCreede district of southwesternColorado ; the Kinskuch project inBritish Columbia, Canada ; and theRepublic Mining District inWashington state ;
•
improving operations at each of our mines, which includes incurring costs for new technologies and equipment;
•
expanding our proven and probable reserves, mineral resources and production capacity at our properties;
•
conducting our business with financial stewardship to preserve our financial position in varying metals price and operational environments;
•
advancing permitting of our
•
seeking opportunities to acquire and invest in mining and exploration properties and companies.
We strive to achieve excellent mine safety and health performance. We seek to implement this goal by: training employees in safe work practices; establishing, following and improving safety standards; investigating accidents, incidents and losses to avoid recurrence; involving employees in the establishment of safety standards; and participating in theNational Mining Association's CORESafety program. We seek to implement reasonable best practices with respect to mine safety and emergency preparedness. We respond to issues outlined in investigations and inspections by MSHA, theCommission of Labor Standards ,Pay Equity and Occupational Health and Safety inQuebec , the Workers' Safety and Compensation Board in theYukon and theMexico Ministry of Economy and Mining and continue to evaluate our safety practices. There can be no assurance that our practices will mitigate or eliminate all safety risks. Achieving and maintaining compliance with regulations will be challenging and may increase our operating costs. See Item 1A. Risk Factors - We face substantial governmental regulation, including the Mine Safety and Health Act, various environmental laws and regulations and the 1872 Mining Law. Since its outbreak in 2020, the COVID-19 pandemic impacted our operational practices and we continue to incur incremental costs and modify our operational plans to keep our workforce safe. In 2020, the pandemic adversely impacted our expected production of gold at Casa Berardi and exploration drilling atGreens Creek . We incurred$0.5 million ,$4.3 million and$5.8 million in COVID-19 mitigation costs during 2022, 2021 and 2020, respectively. To mitigate the impact of COVID-19, we have taken precautionary measures, including implementing operational plans and practices and increasing our cash reserves. As long as they are required, the operational practices implemented could continue to have an adverse impact on our operating results due to additional costs or deferred production and revenues. There is uncertainty related to the potential additional impacts COVID-19 and any variants could have on our operations and financial results for 2023 and beyond. See Item IA. Risk Factors - Natural disasters, public health crises (including COVID-19), political crises, and other catastrophic events or other events outside of our control may materially and adversely affect our business or financial results and The COVID-19 virus pandemic may heighten other risks. 56 -------------------------------------------------------------------------------- A number of key factors may impact the execution of our strategy, including regulatory issues, metals prices and inflationary pressures on input costs. Metals prices can be very volatile and are influenced by a number of factors beyond our control (except on a limited basis through the use of derivative contracts). See Item 7. Critical Accounting Estimates and Note 9 of Notes to Consolidated Financial Statements. While we believe longer-term global economic and industrial trends could result in continued demand for the metals we produce, prices have been volatile and there can be no assurance that current prices will continue. We also experienced significant cost increases compared to 2021 across our operations. Volatility in global financial markets and other factors can pose a significant challenge to our ability to access credit and equity markets, should we need to do so. We utilize forward contracts to manage exposure to declines in the prices of (i) silver, gold, zinc and lead contained in our concentrates that have been shipped but have not yet settled, and (ii) zinc and lead that we forecast for future concentrate shipments. In addition, we have in place a$150 million revolving credit agreement, with an option to be increased in an aggregate amount not to exceed$75 million . As ofDecember 31, 2022 ,$7.8 million was used for lines of credit, leaving approximately$142.2 million available for borrowing. Another challenge for us is the risk associated with environmental litigation and ongoing reclamation activities. As described in Item 1A. Risk Factors and in Note 14 of Notes to Consolidated Financial Statements, it is possible that our estimate of these liabilities (and our ability to estimate liabilities in general) may change in the future, affecting our strategic plans. We are involved in various environmental legal matters and the estimate of our environmental liabilities and liquidity needs, as well as our strategic plans, may be significantly impacted as a result of these matters or new matters that may arise. We strive to ensure that our activities are conducted in compliance with applicable laws and regulations and attempt to resolve environmental litigation on terms as favorable to us as possible. Reserve and resource estimation is a major risk inherent in mining. Our reserve and resource estimates, which underlie (i) our mining and investment plans, (ii) the valuation of a significant portion of our long-term assets and (iii) depreciation, depletion and amortization expense, may change based on economic factors and actual production experience. Until ore is mined and processed, the volumes and grades of our reserves and resources must be considered as estimates. Our reserves are depleted as we mine. Reserves and resources can also change as a result of changes in economic and operating assumptions. See Item 1A. Risk Factors - Our ore reserve and resource estimates may be imprecise.
Consolidated Results of Operations
Sales of products by metal for the years endedDecember 31, 2020 , 2021 and 2022, and the approximate variances attributed to differences in metals prices, sales volumes and smelter terms, were as follows: Less: smelter and refining Total sales (in thousands) Silver Gold Base metals charges of products 2020$ 260,227 $ 356,166 $ 143,841 $ (68,361 ) $ 691,873 Variances - 2021 versus 2020: Price 43,420 6,483 49,028 49 98,980 Volume (10,001 ) (612 ) 7,854 869 (1,890 ) Smelter terms - - - 18,510 18,510 2021 293,646 362,037 200,723 (48,933 ) 807,473 Variances - 2022 versus 2021: Price (45,590 ) 676 (3,710 ) (1,270 ) (49,894 ) Volume 17,089 (63,719 ) 9,428 (2,172 ) (39,374 ) Smelter terms (91 ) (84 ) - 402 227 2022$ 265,054 $ 298,910 $ 206,441 $ (51,973 ) $ 718,432 Average market and realized metals prices for 2022, 2021 and 2020 were as follows: Average price for the year ended December 31, 2022 2021 2020 Silver - London PM Fix ($/ounce) $ 21.75 $ 25.17$ 20.51 Realized price per ounce 21.53 25.24 21.15 Gold - London PM Fix ($/ounce) 1,801 1,800 1,770 Realized price per ounce 1,803 1,796 1,757 Lead - LME Final Cash Buyer ($/pound) 0.98 1.00 0.83 Realized price per pound 1.01 1.03 0.84 Zinc - LME Final Cash Buyer ($/pound) 1.58 1.36 1.03 Realized price per pound 1.41 1.44 1.03 57
-------------------------------------------------------------------------------- Average realized prices differ from average market prices primarily because concentrate sales are generally recorded as revenues at the time of shipment at forward prices for the estimated month of settlement, which differ from average market prices. Due to the time elapsed between shipment of concentrates and final settlement with customers, we must estimate the prices at which sales of our metals will be settled. Previously recorded sales are adjusted to estimated settlement metals prices each period through final settlement. We recorded net negative price adjustments to provisional settlements of$20.8 million in 2022. For 2021 and 2020 we recorded positive price adjustments to provisional settlements of$9.3 million and$8.0 million , respectively. The price adjustments related to silver, gold, zinc and lead contained in our concentrate sales were partially offset by gains and losses on forward contracts for those metals for each year (see Note 9 of Notes to Consolidated Financial Statements for more information). The gains and losses on these contracts are included in revenues and impact the realized prices for silver, gold, lead and zinc. Realized prices are calculated by dividing gross revenues for each metal (which include the price adjustments and gains and losses on the forward contracts discussed above) by the payable quantities of each metal included in products sold during the period. Total metals production and sales volumes for each period are shown in the following table: Year Ended December 31, 2022 2021 2020 Silver - Ounces produced 14,182,987 12,887,240 13,542,957
Payable ounces sold 12,311,595 11,633,802 12,305,917
Gold - Ounces produced 175,807 201,327 208,962
Payable ounces sold 165,818 201,610 202,694
Lead - Tons produced 48,713 43,010 34,127
Payable tons sold 41,423 36,707 29,108
Zinc - Tons produced 64,748 63,617 63,112
Payable tons sold 43,658 43,626 46,349
The difference between what we report as "ounces/tons produced" and "payable
ounces/tons sold" is attributable to the difference between the quantities of
metals contained in our products versus the portion of those metals actually
paid for by our customers according to the terms of our sales contracts.
Differences can also arise from inventory changes incidental to shipping
schedules, or variances in ore grades which impact the amount of metals
contained in concentrates produced and sold.
Sales, total cost of sales, gross profit, Cash Cost, After By-product Credits,
per Ounce (non-GAAP) and All-In Sustaining Cost, After By-product Credits, per
Ounce ("AISC") (non-GAAP) at our operations for 2022, 2021 and 2020 were as
follows (in thousands, except for Cash Cost and AISC, each After By-Product
Credits, per Ounce):
Silver Gold
Nevada
Total Operations &
Greens Creek Lucky Friday Other (3) Silver (2) Casa Berardi Other (4) Total Gold
2022:
Sales $ 335,062 $ 147,814 - $ 482,876 $ 235,136 $ 893 $ 236,029
Total cost of sales (232,718 ) (116,598 ) - (349,316 ) (248,898 ) (4,535 ) (253,433 )
Gross profit (loss) $ 102,344 $ 31,216 - $ 133,560 $ (13,762 ) $ (3,642 ) $ (17,404 )
Cash Cost, After By-product
Credits, per Silver or Gold
Ounce (1) $ 0.70 $ 5.06 - $ 2.06 $ 1,478 $ - $ 1,478
AISC, After By-product
Credits, per Silver or Gold
Ounce (1) $ 5.77 $ 12.86 - $ 11.25 $ 1,825 $ - $ 1,825
2021:
Sales $ 384,843 $ 131,488 $ 176 $ 516,507 $ 245,152 $ 45,814 $ 290,966
Total cost of sales (213,113 ) (97,538 ) (247 ) (310,898 ) (229,829 ) (48,945 ) (278,774 )
Gross profit (loss) $ 171,730 $ 33,950 $ (71 ) $ 205,609 $ 15,323 $ (3,131 ) $ 12,192
Cash Cost, After By-product
Credits, per Silver or Gold
Ounce (1) $ (0.65 ) $ 6.60 $ 1.37 $ 1,125 $ 1,137 $ 1,127
AISC, After By-product
Credits, per Silver or Gold
Ounce (1) $ 3.19 $ 14.34 9.19 $ 1,399 $ 1,211 $ 1,374
2020:
Sales $ 327,820 $ 63,025 $
32,906
(210,748 ) (56,706 ) (24,104 ) (291,558 ) (194,414 ) (44,801 ) (239,215 ) Gross profit (loss)
$ 117,072 $ 6,319 $ 8,802 $ 132,193 $ 14,810 $ 14,097 $ 28,907 Cash Cost, After By-product Credits, per Silver or Gold Ounce (1) $ 4.88 $ 9.34$ 5.18 $ 1,131 $ 716$ 1,045 AISC, After By-product Credits, per Silver or Gold Ounce (1) $ 7.97$ 18.22 $ 11.37 $ 1,436 $ 787$ 1,302 58
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(1)
A reconciliation of these non-GAAP measures to total cost of sales, the most comparable GAAP measure, can be found below in Reconciliation of Total Cost of Sales (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP).
(2)
The calculation of AISC, After By-product Credits, per Ounce for our consolidated silver properties includes corporate costs for general and administrative expense and sustaining exploration and capital costs.
(3)
Includes results for
(4)
Other includes
While revenue from zinc, lead and gold by-products is significant, we believe that identification of silver as the primary product ofGreens Creek andLucky Friday is appropriate because:
•
silver has historically accounted for a higher proportion of revenue than any other metal and is expected to do so in the future;
•
we have historically presented each of these mines as a primary silver producer, based on the original analysis that justified putting the project into production, and believe that consistency in disclosure is important to our investors regardless of the relationships of metals prices and production from year to year;
•
metallurgical treatment maximizes silver recovery; and
•
theGreens Creek andLucky Friday deposits are massive sulfide deposits containing an unusually high proportion of silver; and in most of their working areas,Greens Creek andLucky Friday utilize selective mining methods in which silver is the metal targeted for highest recovery. Accordingly, we believe the identification of zinc, lead and gold as by-product credits atGreens Creek andLucky Friday is appropriate because of their lower economic value compared to silver and due to the fact that silver is the primary product we intend to produce. In addition, we have not consistently received sufficient revenue from any single by-product metal to warrant classification of such as a co-product. We periodically review our revenues to ensure that reporting of primary products and by-products is appropriate. Because forGreens Creek andLucky Friday we consider zinc, lead and gold to be by-products of our silver production, the values of these metals offset operating costs within our calculations of Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce. We believe the identification of silver as a by-product credit is appropriate at Casa Berardi and the Nevada Operations because of its lower economic value compared to gold and because gold is the primary product we intend to produce there. In addition, we do not receive sufficient revenue from silver at Casa Berardi or the Nevada Operations to warrant classification of such as a co-product. Because we consider silver to be a by-product of our gold production at Casa Berardi and Nevada Operations, the value of silver offsets operating costs within our calculations of Cash Cost, After By-product Credits, per Gold Ounce and AISC, After By-product Credits, per Gold Ounce. For the year endedDecember 31, 2022 , we reported loss applicable to common stockholders of$37.9 million compared to income of$34.5 million and a loss of$10.0 million in 2021 and 2020, respectively. The following factors contributed to those differences:
•
Variances in gross profit (loss) at our operations as illustrated in the table above. See theGreens Creek ,Lucky Friday ,Casa Berardi , and Nevada Operations sections below.
•
General and administrative costs were
•
Exploration and pre-development expense of$46.0 million ,$47.9 million and$18.3 million in 2022, 2021 and 2020, respectively. In 2022, exploration was primarily at Keno Hill,San Sebastian ,Casa Berardi ,Greens Creek ,Nevada Operations and Kinskuch, while pre-development expense included$3.0 million related to development of the decline to allow drilling of the Hatter Graben area inNevada . 59
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•
Provision for closed operations and environmental matters of$8.8 million in 2022 compared to$14.6 million in 2021 and$3.9 million in 2020. The decrease in 2022 of$5.8 million is primarily due to the settlement in 2021 of a lawsuit for$6.5 million related to a 1989 agreement entered into by our subsidiary,CoCa Mines, Inc. and its subsidiary,Creede Resources, Inc. The increase in 2021 of$10.7 million compared to 2020 is primarily due to the CoCa settlement, and increases of$2.1 million and$2.9 million for accrued estimated rehabilitation costs at theTroy Mine and Johnny M site inNew Mexico , respectively (see Note 14 of Notes to Consolidated Financial Statements for more information).
•
Ramp-up and suspension costs of$24.1 million ,$23.0 million and$24.9 million in 2022, 2021 and 2020, respectively. 2022 includes$2.1 million in Keno Hill ramp-up activities following completion of the Alexco acquisition inSeptember 2022 . 2022 and 2021 include full year care and maintenance forNevada andSan Sebastian . In 2020 Nevada andSan Sebastian were placed on care-and-maintenance, with 2020 also including costs related to ramp-up activities at Lucky Friday and government COVID-19 suspension orders impactingCasa Berardi andSan Sebastian .
•
Other operating expense of$6.3 million ,$14.3 million and$11.4 million in 2022, 2021 and 2020, respectively. The decrease in 2022 is primarily due to the receipt of$4.2 million in insurance proceeds related to a coverage lawsuit received during June andSeptember 2022 and the completion of projects to identify and implement potential operation improvements at our operating sites, which drove the increase in cost for 2021 compared to 2020.
•
Fair value adjustments, net resulted in losses of$4.7 million ,$35.8 million and$11.8 million in 2022, 2021 and 2020, respectively. The components for each period are summarized in the following table (in thousands): Year Ended December
31,
2022 2021 2020
Gain (loss) on derivative contracts$ 844 $ (32,655 ) $ (22,074 ) Unrealized (loss) gain on investments in equity securities (5,632 ) (4,295 )
10,268
Gain on disposition or exchange of investments 65 1,158 - Total fair value adjustments, net$ (4,723 ) $ (35,792 )
Prior toNovember 1, 2021 , we did not designate and account for any of our base metal derivative contracts as cash flow hedges for accounting purposes and accordingly any changes in fair value of our base metals derivative contracts were recognized in gain(loss) on derivative contracts. Subsequent toNovember 1, 2021 , any gains or losses on base metals derivative contracts designated as cash flow hedges are deferred in other comprehensive income until the transaction occurs.
•
Net foreign exchange gain of
•
Interest expense of$42.8 million ,$41.9 million and$49.6 million in 2022, 2021 and 2020, respectively. The interest in 2022, 2021 and 2020 was primarily related to our Senior Notes. The higher expense in 2020 was primarily due to (i) interest recognized on both the Senior Notes and our previously outstanding 6.875% Senior Notes that were due in 2021 (the "2021 Notes") for an overlapping period of almost one month, as the Senior Notes were issued onFebruary 19, 2020 and the 2021 Notes were redeemed onMarch 19, 2020 , (ii)$1.7 million in unamortized initial purchaser discount on the 2021 Notes recognized as expense upon their redemption and (iii) higher interest related to amounts drawn on our revolving credit facility.
•
Income and mining tax benefit of$7.6 million in 2022, compared to a benefit of$29.6 million in 2021 and a provision of$8.2 million in 2020,with the benefit in 2021 including$58.4 million for a reduction in the valuation allowance forU.S. deferred tax assets. See Corporate Matters and Note 6 of Notes to Consolidated Financial Statements for more information. 60 --------------------------------------------------------------------------------
Dollars are in thousands (except per ounce
and per ton amounts) Years Ended December 31,
2022 2021 2020
Sales $ 335,062 $ 384,843 $ 327,820
Cost of sales and other direct production
costs (183,807 ) (164,403 ) (161,056 )
Depreciation, depletion and amortization (48,911 ) (48,710 ) (49,692 )
Total cost of sales (232,718 ) (213,113 ) (210,748 )
Gross Profit $ 102,344 $ 171,730 $ 117,072
Tons of ore milled 881,445 841,967 818,408
Production:
Silver (ounces) 9,741,935 9,243,222 10,494,726
Gold (ounces) 48,216 46,088 48,491
Zinc (tons) 52,312 53,648 56,814
Lead (tons) 19,480 19,873 21,400
Payable metal quantities sold:
Silver (ounces) 8,234,010 8,284,551 9,385,404
Gold (ounces) 35,508 40,149 42,407
Zinc (tons) 34,856 36,581 41,832
Lead (tons) 14,762 15,489 17,415
Ore grades:
Silver ounces per ton 13.64 13.51 15.65
Gold ounces per ton 0.08 0.08 0.08
Zinc percent 6.69 7.11 7.58
Lead percent 2.68 2.87 3.13
Total production cost per ton $ 196.73 $ 177.30 $ 179.37
Cash Cost, After By-product Credits, per
Silver Ounce (1) $ 0.70 $ (0.65 ) $ 4.88
AISC, After By-Product Credits, per Silver
Ounce (1) $ 5.77 $ 3.19 $ 7.97
Capital additions $ 36,898 $ 23,883 $ 19,685
(1)
A reconciliation of these non-GAAP measures to total cost of sales, the most
comparable GAAP measure, can be found below in Reconciliation of Total Cost of
Sales (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After
By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product
Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP). At
Greens Creek , gold, zinc and lead are considered to be by-products of our silver
production, and the values of those metals therefore offset operating costs
within our calculations of Cash Cost and AISC, After By-product Credits, per
Silver Ounce.
Gross profit decreased by $69.4 million to $102.3 million in 2022 from $171.7
million in 2021, as lower realized prices for all metals sold other than gold,
and lower payable metal quantities sold compared to 2021, was further compounded
by higher production costs reflecting inflationary pressures and more tons
milled, and unfavorable changes in concentrate smelter terms. See Item 1A. Risk
Factors - Our profitability could be affected by inflation, including the prices
of other commodities" for a discussion of certain risks related to our
operations profitability.
Gross profit of $171.7 million in 2021, was $54.7 million higher than in 2020,
reflecting higher realized prices and a favorable changes in concentrate smelter
terms which contributed $23.3 million to gross profit. The impacts of the
factors above were partially offset by lower metal sales volume primarily due to
lower ore grades.
61
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Capital additions increased by $13 million in 2022 to $36.9 million compared to
2021. Significant components of the 2022 capital additions were development of
$18.7 million , $5.8 million in mobile equipment, $4.9 million in additional new
camp housing and $5.8 million in mine infrastructure.
The chart below illustrates the factors contributing to the variances in Cash
Cost, After By-product Credits, Per Silver Ounce for 2022 compared to 2021 and
2020:
[[Image Removed: img154904806_5.jpg]]
The following table summarizes the components of Cash Cost, After By-product
Credits, per Silver Ounce:
Years Ended December 31,
2022 2021 2020
Cash Cost, Before By-product Credits, per
Silver Ounce $ 23.20 $ 21.33 $ 22.24
By-product credits per silver ounce (22.50 ) (21.98 ) (17.36 )
Cash Cost, After By-product Credits, per
Silver Ounce $ 0.70 $ (0.65 ) $ 4.88
The following table summarizes the components of AISC, After By-product Credits,
per Silver Ounce:
Years Ended December 31,
2022 2021 2020
AISC, Before By-product Credits, per Silver Ounce
$ 25.33 By-product credits per silver ounce (22.50 ) (21.98 ) (17.36 ) AISC, After By-product Credits, per Silver Ounce$ 5.77 $ 3.19
The increase in Cash Cost and AISC, each After By-product Credits, per Silver
Ounce in 2022 compared to 2021 was primarily due to higher production costs and
sustaining capital expenditures, partially offset by higher by-product credits
and production. The decrease in Cash Cost and AISC, each After By-product
Credits, per Silver Ounce in 2021 compared to 2020 was primarily due to higher
by-product credits.
62-------------------------------------------------------------------------------- Restrictions imposed by theState of Alaska beginning in lateMarch 2020 in response to the COVID-19 virus pandemic, including the requirement for employees returning toAlaska to self-quarantine for 14 days (changed inJune 2020 to 7 days and subsequently discontinued), caused us to revise the normal operating procedures and incur additional costs for staffing operations atGreens Creek , including for quarantining employees from lateMarch 2020 through the second quarter of 2021.Lucky Friday Dollars are in thousands (except per ounce and per ton amounts) Years Ended December 31, 2022 2021 2020 Sales$ 147,814 $ 131,488 $ 63,025 Cost of sales and other direct production costs (82,894 ) (70,692 ) (45,233 ) Depreciation, depletion and amortization (33,704 ) (26,846 ) (11,473 ) Total cost of sales (116,598 ) (97,538 ) (56,706 ) Gross profit$ 31,216 $ 33,950 $ 6,319 Tons of ore milled 356,907 321,837 179,208 Production: Silver (ounces) 4,412,764 3,564,128 2,031,874 Lead (tons) 29,233 23,137 12,727 Zinc (tons) 12,436 9,969 6,298 Payable metal quantities sold: Silver (ounces) 4,039,435 3,288,261 1,866,883 Lead (tons) 26,660 21,218 11,692 Zinc (tons) 8,802 7,046 4,517 Ore grades: Silver ounces per ton 13.00 11.64 11.85 Lead percent 8.70 7.60 7.49 Zinc percent 3.90 3.44 3.88 Total production cost per ton$ 223.55 $ 191.50 $ 251.49 Cash Cost, After By-product Credits, per Silver Ounce (1)$ 5.06 $ 6.60 $ 9.34 AISC, After By-product Credits, per Silver Ounce (1)$ 12.86 $ 14.34 $ 18.22 Capital additions$ 50,992 $ 29,885 $ 25,776 (1) A reconciliation of these non-GAAP measures to total cost of sales, the most comparable GAAP measure, can be found below in Reconciliation of Total Cost of Sales (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP). At Lucky Friday, lead and zinc are considered to be by-products of our silver production, and the values of those metals therefore offset operating costs within our calculations of Cash Cost and AISC, each After By-product Credits, per Silver Ounce. Gross profit in 2022 of$31.2 million , was$2.7 million lower than 2021, due to lower realized prices and higher production costs in 2022 reflecting inflationary cost pressures and more tons milled. The increase in gross profit in 2021 of$27.6 million to$34.0 million compared to 2020 reflected high ore tonnage and metal production as a result of returning to full production during after the strike during the fourth quarter of 2020 (discussed further below). See Item 1A. Risk Factors - Our profitability could be affected by inflation, including the prices of other commodities" for a discussion of certain risks related to our operations profitability. Total capital additions increased by$21.1 million in 2022 to$51 million compared to 2021 as investments were made to support sustained higher throughput. Significant components related to development$18.5 million , the service hoist$6.6 million , coarse ore bunker$4.0 million , shaft and related infrastructure$4.4 million , pond 4$6.2 million and underground mobile equipment$6.2 million . 63 -------------------------------------------------------------------------------- The chart below illustrates the factors contributing to the variances in Cash Cost, After By-product Credits, Per Silver Ounce for 2022, 2021 and the fourth quarter of 2020. Total production cost per ton, Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits per Silver Ounce are not presented for the first three quarters of 2020, as production was limited due to the strike and results are not comparable. [[Image Removed: img154904806_6.jpg]] The following table summarizes the components of Cash Cost, After By-product Credits, per Silver Ounce: Three Months Year Ended Year Ended Ended December December 31, December 31, 31, 2022 2021 2020 Cash Cost, Before By-product Credits, per Silver Ounce$ 23.23 $ 24.12 24.63 By-product credits per silver ounce (18.17 ) (17.52 ) (15.29 ) Cash Cost, After By-product Credits, per Silver Ounce$ 5.06 $ 6.60 $ 9.34 The following table summarizes the components of AISC, After By-product Credits, per Silver Ounce: Three Months Year Ended Year Ended Ended December December 31, December 31, 31, 2022 2021 2020
AISC, Before By-product Credits, per Silver Ounce
31.86 $ 33.51
By-product credits per silver ounce (18.17 ) (17.52 ) (15.29 )
AISC, After By-product Credits, per Silver Ounce
14.34 $ 18.22
The decreases in Cash Cost and AISC, each After By-product Credits, per Silver Ounce in 2022 compared to 2021 and 2021 compared to the fourth quarter of 2020 are due to increased silver production and higher by-product credits, partially offset by higher production costs and sustaining capital expenditures. Following settlement of the unionized employees' strike in early 2020, we commenced restaffing and ramp-up procedures and the mine returned to full production in the fourth quarter of 2020. During the strike, which lasted fromMarch 13, 2017 untilJanuary 7, 2020 , when the union ratified a new collective bargaining agreement, salaried personnel performed limited production and capital improvements. Costs related to ramp-up activities totaled$8.0 million in 2020 and included non-cash depreciation expense of$6.3 64 -------------------------------------------------------------------------------- million, and are reported in a separate line item on our consolidated statements of operations. These ramp-up and suspension costs are excluded from the calculation of gross profit, total production cost per ton, Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce, when presented.
Dollars are in thousands (except per ounce
and per ton amounts) Years Ended December 31,
2022 2021 2020
Sales $ 235,136 $ 245,152 $ 209,224
Cost of sales and other direct production
costs (187,936 ) (149,085 ) (133,862 )
Depreciation, depletion and amortization (60,962 ) (80,744 ) (60,552 )
Total cost of sales (248,898 ) (229,829 ) (194,414 )
Gross (loss) profit $ (13,762 ) $ 15,323 $ 14,810
Tons of ore milled 1,588,739 1,528,246 1,283,701
Production:
Gold (ounces) 127,590 134,511 121,492
Silver (ounces) 28,289 33,571 24,142
Payable metal quantities sold:
Gold (ounces) 130,245 135,987 117,671
Silver (ounces) 31,788 30,022 25,659
Ore grades:
Gold ounces per ton 0.09 0.10 0.12
Silver ounces per ton 0.02 0.03 0.02
Total production cost per ton $ 117.89 $ 98.60 $ 105.71
Cash Cost, After By-product Credits, per Gold
Ounce (1) $ 1,478 $ 1,125 $ 1,131
AISC, After By-product Credits, per Gold
Ounce (1) $ 1,825 $ 1,399 $ 1,436
Capital additions $ 39,667 $ 49,617 $ 40,840
(1)
A reconciliation of these non-GAAP measures to cost of sales and other direct
production costs and depreciation, depletion and amortization, the most
comparable GAAP measure, can be found below in Reconciliation of Total Cost of
Sales (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After
By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product
Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP). At Casa
Berardi, silver is considered to be a by-product of our gold production, and the
value of silver therefore offsets operating costs within our calculations of
Cash Cost and AISC, each After By-product Credits, per Gold Ounce.
Gross profit decreased by $29.1 million to a gross loss of $13.8 million in 2022
compared to 2021 as higher average realized gold prices did not offset the
impact of lower gold production and higher cost of sales. The higher cost of
sales in 2022 resulted from increased production costs due to: (i) increase in
ore tonnage by 4% compared to 2021 as more lower grade surface material was
processed (ii) higher operating costs reflecting inflationary pressures
particularly for labor and consumables (iii) higher mill contractor costs
related to maintenance and optimization activities, and (iv) higher underground
maintenance costs resulting from repairs and replacements of major components
for the production fleet. Depreciation, depletion and amortization expense was
lower in 2022 compared to 2021 due to the impact of higher reserves in 2021 on
units-of-production depreciation and lower asset additions and sales quantities.
See Item 1A. Risk Factors - Our profitability could be affected by inflation,
including the prices of other commodities" for a discussion of certain risks
related to our operations profitability.
Gross profit increased in 2021 compared to 2020 due to higher average realized
gold prices and increase gold production, partially offset by higher cost of
sales. The higher cost of sales in 2021 resulted from increased production costs
due to: (i) increase in ore tonnage by 19% compared to 2020 (ii) mill contractor
costs related to maintenance and optimization activities, and (iii) higher
underground maintenance costs resulting from repairs and replacements of major
components for the production fleet. Depreciation, depletion and amortization
expense was also higher in 2021 compared to 2020 due to the impact of lower
reserves in 2021 on units-of-production depreciation and asset additions could
with higher sales quantities. The lower production in 2020 was partially due to
a government COVID-19-related order. We suspended operations at Casa Berardi
from March 24, 2020 until April 15, 2020 , in response to the Government of
Quebec's COVID-19 order for the mining industry. The suspension-related costs
totaling $1.6 million for 2020 are reported in a separate line item on our
consolidated statements of operations and excluded from the calculations of cost
of sales and other direct production costs and depreciation, depletion and
amortization, total production cost per ton, and Cash Cost and AISC, After
By-product Credits, per Gold Ounce.
Total capital additions decreased by
65
--------------------------------------------------------------------------------
2022 capital expenditures were development of $20.6 million , tailings dam
construction costs of $7.6 million and $6.1 million on machinery and equipment.
Capital additions increased by $8.8 million in 2021 compared to 2020, primarily
due to new 160 zone open pit mine development.
The chart below illustrates the factors contributing to Cash Cost, After By-product Credits, Per Gold Ounce for 2022, 2021 and 2020:
[[Image Removed: img154904806_7.jpg]]
The following table summarizes the components of Cash Cost, After By-product
Credits, per Gold Ounce:
Years Ended December 31,
2022 2021 2020
Cash Cost, Before By-product Credits, per Gold Ounce
(5 )
(6 ) (4 )
Cash Cost, After By-product Credits, per Gold Ounce
The following table summarizes the components of AISC, After By-product Credits,
per Gold Ounce:
Years Ended December 31,
2022 2021 2020
AISC, Before By-product Credits, per Gold Ounce
(5 ) (6 )
(4 )
AISC, After By-product Credits, per Gold Ounce
The increase in Cash Cost and AISC, each After By-product Credits, per Gold
Ounce for 2022 compared to 2021 was due to lower gold production, and higher
production costs, as discussed above, with AISC, After By-product Credits, per
Gold Ounce also impacted by lower sustaining capital, offset by higher
exploration.
The decrease in Cash Cost and AISC, each After By-product Credits, per Gold
Ounce for 2021 compared to 2020 was due to higher gold production, partially
offset by higher production costs, as discussed above, with AISC, After
By-product Credits, per Gold Ounce also impacted by lower sustaining capital,
offset by higher exploration.
66--------------------------------------------------------------------------------
Nevada Operations
Dollars are in thousands (except per ounce
and per ton amounts) Year Ended December 31,
2022 2021 2020
Sales $ 419 $ 45,814 $ 58,898
Cost of sales and other direct production
costs (3,709 ) (33,604 ) (21,956 )
Depreciation, depletion and amortization (361 ) (15,341 ) (22,845 )
Total cost of sales (4,070 ) (48,945 ) (44,801 )
Gross (loss) profit $ (3,651 ) $ (3,131 ) $ 14,097
During 2019, a decision was made to suspend the Nevada Operations activities.
Production was suspended at the Hollister mine in the third quarter of 2019 and
at the Midas mine and Aurora mill in late 2019. Development ceased at Fire Creek
in the second quarter of 2019 when the decision was made to limit near-term
production to areas of the mine where development was already completed. Mining
of non-refractory ore at Fire Creek in areas where development had already been
performed was completed in the fourth quarter of 2020. During 2021, production
and revenue was generated from processing of the stockpiled non-refractory ore
at the Midas mill and third-party processing of refractory ore in a roaster and
autoclave facility, respectively. Fire Creek was placed on care-and-maintenance
in the second quarter of 2021 after processing of the remaining non-refractory
ore stockpile. During 2022, mining of remnant refractory ore was undertaken
during the third and fourth quarters, with the refractory ore sold to a third
party. The gross loss in 2022 resulted primarily from inventory write-downs. The
gross loss in 2021 compared to gross profit in 2020 was due to reduced
production and higher costs, including inventory write-downs. See Item 1A. Risk
Factors - Our profitability could be affected by inflation, including the prices
of other commodities" for a discussion of certain risks related to our
operations profitability.
We spent $15.5 million on exploration activities and pre-development activities
during 2022. Suspension-related costs are reported in a separate line item on
our consolidated statements of operations and excluded from the calculations of
cost of sales and other direct production costs and depreciation, depletion and
amortization, total production costs per ton and Cash Cost and AISC, After
By-product Credits, per Gold Ounce.
See Item 1A. Risk Factors - Operation, Development, Exploration and Acquisition
Risks for a discussion of certain risks relating to our recent and ongoing
analysis of the carrying value of the
We acquiredKeno Hill as part of the Alexco acquisition onSeptember 7, 2022 , see Note 1 of Notes to Consolidated Financial Statements for more information. Following announcement of the acquisition onJuly 5, 2022 , we advanced$25 million as a loan to Alexco to fund the development of Keno Hill. SinceSeptember 7, 2022 , we have spent$19.7 million on capital expenditures on Keno Hill development with 1,752 feet developed throughDecember 31, 2022 . We expectKeno Hill to be in production during the third quarter of 2023.Keno Hill has not generated any revenue since we acquired it, due to being in development.$2.3 million of site specific costs were included in the line item "Ramp-up and suspension costs" on our consolidated statement of operations and comprehensive income for 2022. Exploration costs of$2.0 million were also incurred at Keno Hill since we acquired it. Corporate Matters Employee Benefit Plans Our defined benefit pension plans, while providing a significant benefit to our employees, have historically represented a significant liability to us. During 2022, the funded status of our plans increased to an asset of$27.0 million atDecember 31, 2022 compared to a liability of$6.0 million atDecember 31, 2021 . The decreased liability was primarily attributable to a higher discount rate assumption of 5.54% (2021:2.86%), partially offset by a lower return on plan assets, reflecting current market conditions. During 2022, we contributed a total of approximately$9.7 million in shares of our common stock to the plans (see Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities for more information). We do not expect to be required to contribute to our defined benefit plans in 2023, but we may choose to do so. See Note 5 of Notes to Consolidated Financial Statements for more information. We periodically examine the defined benefit pension plans and supplemental excess retirement plan for affordability and competitiveness.
Income and Mining Taxes
Each reporting period we assess our deferred tax balance based on a review of long-range forecasts and quarterly activity. As part of theKlondex Mines Ltd. ("Klondex") acquisition inJuly 2018 , we acquired aU.S. consolidated tax group (the "NevadaU.S. 67
--------------------------------------------------------------------------------
Group") that is not consolidated with the existing consolidated
Our netU.S. deferred tax asset in theHecla U.S. Group is$21.0 million atDecember 31, 2022 compared to$31.5 million atDecember 31, 2021 . The decrease of$10.5 million is primarily related to utilization of tax loss carryforward and reduction of deferred tax liabilities. In 2021 a release of valuation allowance of$58.4 million was recorded, based on a change in circumstances and weight of applicable evidence reviewed to support a more likely than not conclusion for utilization of the deferred tax assets. We are relying on all available evidence including reversal of deferred taxable temporary differences and a forecast of future taxable income along with a history of positive earnings to support the release. Our netU.S. deferred tax liability in theNevada U.S. Group is$30.7 million atDecember 31, 2022 compared to$31.5 million atDecember 31, 2021 . The decrease of$0.8 million is primarily related to deferral of interest expense deduction. Our net Canadian deferred tax liability atDecember 31, 2022 was$95.2 million , a decrease of$9 million from the$104.2 million net deferred tax liability atDecember 31, 2021 . The decrease was due to current period activity partially offset with the acquisition of Alexco which added$12.0 million deferred tax liability. The deferred tax liability is primarily related to the excess of the carrying value of the mineral resource assets over the tax bases of those assets for Canadian tax reporting. Our Mexican net deferred tax asset atDecember 31, 2022 remains at zero with no change fromDecember 31, 2021 . The valuation allowance increased$2.4 million due to inability to recognize the benefit of tax losses incurred related to exploration activities at our operations inMexico . As a result of the Tax Cuts and Jobs Act ("TCJA") enacted inDecember 2017 under Internal Revenue Code Section 174, a requirement to capitalize and amortize research and experimental expenditures for tax years beginning afterDecember 31, 2021 is now effective. This modification has not materially impacted us. As discussed in Note 6 of Notes to Consolidated Financial Statements, our effective tax rate for 2022 was 17%, reflecting a tax benefit of$7.6 million on pre-tax loss of$44.9 million , compared to (535)% for 2021, reflecting a tax benefit of$29.6 million on a pre-tax income of$5.5 million . We are subject to income taxes inthe United States and other foreign jurisdictions. The overall effective tax rate will continue to be dependent upon the geographic distribution of our earnings in different jurisdictions, theU.S. deduction for percentage depletion, fluctuation in foreign currency exchange rates and deferred tax asset valuation allowance changes. As a result, the 2022 effective tax rate could vary significantly from that of 2021. The other relevant provisions of the TCJA that became effective in 2018 consist of global intangible low-taxed income tax and base erosion and anti-abuse tax; however, these provisions have not materially impacted us. Reconciliation of Total Cost of Sales (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP) The tables below present reconciliations between the most comparable GAAP measure of total cost of sales to the non-GAAP measures of (i) Cash Cost, Before By-product Credits, (ii) Cash Cost, After By-product Credits, (iii) AISC, Before By-product Credits and (iv) AISC, After By-product Credits for our operations and for the Company for the years endedDecember 31, 2022 , 2021 and 2020. Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce are measures developed by precious metals companies (including theSilver Institute and theWorld Gold Council ) in an effort to provide a uniform standard for comparison purposes. There can be no assurance, however, that these non-GAAP measures as we report them are the same as those reported by other mining companies. Cash Cost, After By-product Credits, per Ounce is an important operating statistic that we utilize to measure each mine's operating performance. We use AISC, After By-product Credits, per Ounce as a measure of our mines' net cash flow after costs for exploration, pre-development, reclamation, and sustaining capital. This is similar to the Cash Cost, After By-product Credits, per Ounce non-GAAP measure we report, but also includes on-site exploration, reclamation, and sustaining capital costs. Current GAAP measures used in the mining industry, such as cost of goods sold, do not capture all the expenditures incurred to discover, develop and sustain silver and gold production. Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce also allow us to benchmark the performance of each of our mines versus those of our competitors. As a silver and gold mining company, we also use these statistics on an aggregate basis, aggregating theGreens Creek andLucky Friday mines to compare our performance with that of other silver mining companies, and aggregatingCasa Berardi and Nevada Operations for comparison with other gold mining companies. Similarly, these statistics are useful in identifying acquisition and investment opportunities as they provide a common tool for measuring the financial performance of other mines with varying geologic, metallurgical and operating characteristics. 68 -------------------------------------------------------------------------------- Cash Cost, Before By-product Credits and AISC, Before By-product Credits include all direct and indirect operating cash costs related directly to the physical activities of producing metals, including mining, processing and other plant costs, third-party refining expense, on-site general and administrative costs and royalties. AISC, Before By-product Credits for each mine also includes on-site exploration, reclamation, and sustaining capital costs. AISC, Before By-product Credits for our consolidated silver properties also includes corporate costs for general and administrative expense and sustaining exploration and capital costs. By-product credits include revenues earned from all metals other than the primary metal produced at each operation. As depicted in the tables below, by-product credits comprise an essential element of our silver unit cost structure, distinguishing our silver operations due to the polymetallic nature of their orebodies. In addition to the uses described above, Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce provide management and investors an indication of operating cash flow and net cash flow, respectively, after consideration of the average price received from production. We also use these measurements for the comparative monitoring of performance of our mining operations period-to-period from a cash flow perspective. However, comparability of Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce for 2022 to 2021 and 2020 is impacted by, among other factors, (i) the return to full production at Lucky Friday in the fourth quarter of 2020 and (ii) suspension of production atSan Sebastian in the fourth quarter of 2020 and discontinuation ofSan Sebastian being reported as an operating segment in 2021. The Casa Berardi, Nevada Operations and combined gold properties information below reports Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce for the production of gold, their primary product, and by-product revenues earned from silver, which is a by-product at Casa Berardi and the Nevada Operations. Only costs and ounces produced relating to operations with the same primary product are combined to represent Cash Cost, After By-product Credits, per Ounce and AISC, After By-product Credits, per Ounce. Thus, the gold produced at Casa Berardi and Nevada Operations is not included as a by-product credit when calculating Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce for the total ofGreens Creek ,Lucky Friday andSan Sebastian , our combined silver properties. Similarly, the silver produced at our other two operations is not included as a by-product credit when calculating the gold metrics forCasa Berardi and the Nevada Operations. As depicted in the tables below, by-product credits from the silver production at our primary gold properties comprise an element of our gold unit cost structure. In thousands (except per ounce amounts) Year Ended December 31, 2022 Lucky Corporate and Greens Creek Friday(2) Other(3) Total Silver Total cost of sales$ 232,718 $ 116,598 $ -$ 349,316
Depreciation, depletion and amortization (48,911 ) (33,704 )
- (82,615 )
Treatment costs 37,836 18,605 - 56,441
Change in product inventory 5,885 2,049 - 7,934
Reclamation and other costs (1,489 ) (1,034 ) - (2,523 )
Cash Cost, Before By-product Credits (1) 226,039 102,514
- 328,553
Reclamation and other costs 2,821 1,128 - 3,949
Exploration 5,920 - 2,567 8,487
Sustaining capital 40,705 33,306 334 74,345
General and administrative - - 43,384 43,384
AISC, Before By-product Credits (1) 275,485 136,948 46,285 458,718
By-product credits:
Zinc (113,835 ) (27,607 ) (141,442 )
Gold (75,596 ) - (75,596 )
Lead (29,800 ) (52,568 ) (82,368 )
Total By-product credits (219,231 ) (80,175 ) (299,406 )
Cash Cost, After By-product Credits
$ -$ 29,147 AISC, After By-product Credits$ 56,254 $ 56,773 $ 46,285 $ 159,312 Divided by silver ounces produced 9,742 4,413 14,155 Cash Cost, Before By-product Credits, per Silver Ounce$ 23.20 $ 23.23 $ 23.21 By-product credits per ounce (22.50 ) (18.17 ) (21.15 ) Cash Cost, After By-product Credits, per Silver Ounce $ 0.70$ 5.06 $ 2.06 AISC, Before By-product Credits, per Silver Ounce$ 28.27 $ 31.03 $ 32.40 By-product credits per ounce (22.50 ) (18.17 ) (21.15 ) AISC, After By-product Credits, per Silver Ounce $ 5.77$ 12.86 $ 11.25 69
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In thousands (except per ounce amounts) Year Ended December 31, 2022
Nevada
Operations and
Casa Berardi Other(4) Total Gold
Total cost of sales $ 248,898 $ 4,535 $ 253,433
Depreciation, depletion and amortization (60,962 ) (361 ) $ (61,323 )
Treatment costs 1,866 - $ 1,866
Change in product inventory 186 - $ 186
Reclamation and other costs (819 ) - $ (819 )
Exclusion of Nevada Operations and Other costs - (4,174 ) (4,174 )
Cash Cost, Before By-product Credits (1) 189,169 - 189,169
Reclamation and other costs 819 - 819
Exploration 6,627 - 6,627
Sustaining capital 36,883 - 36,883
AISC, Before By-product Credits (1) 233,498 - 233,498
By-product credits:
Silver (610 ) - (610 )
Total By-product credits (610 ) - (610 )
Cash Cost, After By-product Credits $ 188,559 $ - $ 188,559
AISC, After By-product Credits $ 232,888 $ - $ 232,888
Divided by gold ounces produced 128 - 128
Cash Cost, Before By-product Credits, per Gold
Ounce $ 1,483 $ - $ 1,483
By-product credits per ounce (5 ) - (5 )
Cash Cost, After By-product Credits, per Gold
Ounce $ 1,478 $ - $ 1,478
AISC, Before By-product Credits, per Gold
Ounce $ 1,830 $ - $ 1,830
By-product credits per ounce (5 ) - (5 )
AISC, After By-product Credits, per Gold Ounce
-
In thousands (except per ounce amounts) Year Ended December 31, 2022
Total Silver Total Gold Total
Total cost of sales $ 349,316 $ 253,433 $ 602,749
Depreciation, depletion and amortization (82,615 ) (61,323 ) (143,938 )
Treatment costs 56,441 1,866 58,307
Change in product inventory 7,934 186 8,120
Exclusion of Nevada Operations and Other - (4,174 ) (4,174 )
Reclamation and other costs (2,523 ) (819 ) (3,342 )
Cash Cost, Before By-product Credits (1) 328,553 189,169 517,722
Reclamation and other costs 3,949 819 4,768
Exploration 8,487 6,627 15,114
Sustaining capital 74,345 36,883 111,228
General and administrative 43,384 - 43,384
AISC, Before By-product Credits (1) 458,718 233,498 692,216
By-product credits:
Zinc (141,442 ) - (141,442 )
Gold (75,596 ) - (75,596 )
Lead (82,368 ) - (82,368 )
Silver (610 ) (610 )
Total By-product credits (299,406 ) (610 ) (300,016 )
Cash Cost, After By-product Credits $ 29,147 $ 188,559 $ 217,706
AISC, After By-product Credits $ 159,312 $ 232,888 $ 392,200
Divided by ounces produced 14,155 128
Cash Cost, Before By-product Credits, per Ounce
(21.15 ) (5 )
Cash Cost, After By-product Credits, per Ounce $ 2.06 $ 1,478
AISC, Before By-product Credits, per Ounce $ 32.40 $ 1,830
By-product credits per ounce (21.15 )
(5 )
AISC, After By-product Credits, per Ounce
70
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In thousands (except per ounce amounts) Year Ended December 31, 2021
Lucky Corporate and
Greens Creek Friday(2) other (3) Total Silver
Total cost of sales $ 213,113 $ 97,538 $ 247 $ 310,898
Depreciation, depletion and amortization (48,710 ) (26,846 ) (152 ) (75,708 )
Treatment costs 36,099 16,723 - 52,822
Change in product inventory 80 (406 ) - (326 )
Reclamation and other costs (5) (3,466 ) (1,039 ) (95 ) (4,600 )
Cash Cost, Before By-product Credits (1) 197,116 85,970
- 283,086
Reclamation and other costs 3,390 1,056 4,446
Exploration 4,591 - 2,226 6,817
Sustaining capital 27,582 26,517 210 54,309
General and administrative (5) - - 34,570 34,570
AISC, Before By-product Credits (1) 232,679 113,543 37,006 383,228
By-product credits:
Zinc (100,214 ) (19,479 ) - (119,693 )
Gold (72,011 ) - - (72,011 )
Lead (30,922 ) (42,966 ) - (73,888 )
Total By-product credits (203,147 ) (62,445 ) - (265,592 )
Cash Cost, After By-product Credits
$ -$ 17,494 AISC, After By-product Credits$ 29,532 $ 51,098 $ 37,006 $ 117,636 Divided by silver ounces produced 9,243 3,564 12,807 Cash Cost, Before By-product Credits, per Silver Ounce$ 21.33 $ 24.12 $ 22.11 By-product credits per ounce (21.98 ) (17.52 ) (20.74 ) Cash Cost, After By-product Credits, per Silver Ounce$ (0.65 ) $ 6.60 $ 1.37 AISC, Before By-product Credits, per Silver Ounce$ 25.17 $ 31.86 $ 29.93 By-product credits per ounce (21.98 ) (17.52 ) (20.74 ) AISC, After By-product Credits, per Silver Ounce $ 3.19$ 14.34 $ 9.19 In thousands (except per ounce amounts) Year Ended December 31, 2021 Nevada Casa Berardi(6) Operations(4) Total Gold Total cost of sales $ 229,829 $ 48,945$ 278,774 Depreciation, depletion and amortization (80,744 ) (15,341 ) (96,085 ) Treatment costs 1,513 1,731 3,244 Change in product inventory 2,439 (10,907 ) (8,468 ) Reclamation and other costs (5) (841 ) 300 (541 ) Cash Cost, Before By-product Credits (1) 152,196 24,728 176,924 Reclamation and other costs 841 1,008 1,849 Exploration 5,326 - 5,326 Sustaining capital 30,643 511 31,154 AISC, Before By-product Credits (1) 189,006 26,247 215,253 By-product credits: Silver (839 ) (1,152 ) (1,991 ) Total By-product credits (839 ) (1,152 ) (1,991 ) Cash Cost, After By-product Credits $ 151,357 $ 23,576$ 174,933 AISC, After By-product Credits $ 188,167 $ 25,095$ 213,262 Divided by gold ounces produced 135 21 156 Cash Cost, Before By-product Credits, per Gold Ounce $ 1,131 $ 1,193$ 1,140 By-product credits per ounce (6 ) (56 ) (13 ) Cash Cost, After By-product Credits, per Gold Ounce $ 1,125 $ 1,137$ 1,127 AISC, Before By-product Credits, per Gold Ounce $ 1,405 $ 1,267$ 1,387 By-product credits per ounce (6 ) (56 ) (13 ) AISC, After By-product Credits, per Gold Ounce $ 1,399 $ 1,211$ 1,374 71
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In thousands (except per ounce amounts) Year Ended December 31, 2021
Total Silver Total Gold Total
Total cost of sales $ 310,898 $ 278,774 $ 589,672
Depreciation, depletion and amortization (75,708 ) (96,085 ) (171,793 )
Treatment costs 52,822 3,244 56,066
Change in product inventory (326 ) (8,468 ) (8,794 )
Reclamation and other costs (4,600 ) (541 ) (5,141 )
Cash Cost, Before By-product Credits (1) 283,086 176,924 460,010
Reclamation and other costs 4,446 1,849 6,295
Exploration 6,817 5,326 12,143
Sustaining capital 54,309 31,154 85,463
General and administrative 34,570 - 34,570
AISC, Before By-product Credits (1) 383,228 215,253 598,481
By-product credits:
Zinc (119,693 ) - (119,693 )
Gold (72,011 ) - (72,011 )
Lead (73,888 ) - (73,888 )
Silver - (1,991 ) (1,991 )
Total By-product credits (265,592 ) (1,991 ) (267,583 )
Cash Cost, After By-product Credits $ 17,494 $ 174,933 $ 192,427
AISC, After By-product Credits $ 117,636 $ 213,262 $ 330,898
Divided by ounces produced 12,807 156
Cash Cost, Before By-product Credits, per Ounce
(20.74 ) (13 )
Cash Cost, After By-product Credits, per Ounce $ 1.37 $ 1,127
AISC, Before By-product Credits, per Ounce $ 29.93 $ 1,387
By-product credits per ounce (20.74 )
(13 )
AISC, After By-product Credits, per Ounce $ 9.19
In thousands (except per ounce amounts) Year Ended December 31, 2020
Corporate
Lucky and other
Greens Creek Friday(2) (3) Total Silver
Total cost of sales $ 210,748 $ 56,706 $ 24,104 $ 291,558
Depreciation, depletion and amortization (49,692 ) (11,473 ) (3,548 ) (64,713 )
Treatment costs 77,122 4,590 287 81,999
Change in product inventory (3,144 ) 2,340 (2,357 ) (3,161 )
Reclamation and other costs (1,608 ) (274 ) (1,198 ) (3,080 )
Lucky Friday cash costs excluded - (31,442 ) - (31,442 )
Cash Cost, Before By-product Credits (1) 233,426 20,447
17,288 271,161
Reclamation and other costs 3,154 222 418 3,794
Exploration 354 - 1,788 2,142
Sustaining capital 28,797 7,154 337 36,288
General and administrative (5) - - 33,759 33,759
AISC, Before By-product Credits (1) 265,731 27,823 53,590 347,144
By-product credits:
Zinc (79,413 ) (4,273 ) - (83,686 )
Gold (74,615 ) - (12,586 ) (87,201 )
Lead (28,193 ) (8,421 ) - (36,614 )
Silver - - -
Total By-product credits (182,221 ) (12,694 ) (12,586 ) (207,501 )
Cash Cost, After By-product Credits $ 51,205 $ 7,753 $ 4,702 $ 63,660
AISC, After By-product Credits $ 83,510 $ 15,129 $ 41,004 $ 139,643
Divided by silver ounces produced 10,495 830 955 12,280
Cash Cost, Before By-product Credits,
per Silver Ounce $ 22.24 $ 24.63 $ 22.08
By-product credits per ounce (17.36 ) $ (15.29 ) (16.90 )
Cash Cost, After By-product Credits, per
Silver Ounce $ 4.88 $ 9.34 $ 5.18
AISC, Before By-product Credits, per
Silver Ounce $ 25.33 $ 33.51 $ 28.27
By-product credits per ounce (17.36 ) $ (15.29 ) (16.90 )
AISC, After By-product Credits, per
Silver Ounce $ 7.97 $ 18.22 $ 11.37
72
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In thousands (except per ounce amounts) Year Ended December 31, 2020
Nevada
Casa Berardi Operations(4) Total
Total cost of sales $ 194,414 $ 44,801 $ 239,215
Depreciation, depletion and amortization (60,552 ) (22,845 ) (83,397 )
Treatment costs 2,591 45 2,636
Change in product inventory 2,226 15,869 18,095
Reclamation and other costs (773 ) (978 ) (1,751 )
Exclusion of Nevada Operations Costs - (13,511 ) (13,511 )
Cash Cost, Before By-product Credits (1) 137,906 23,381 161,287
Reclamation and other costs 386 654 1,040
Exploration 2,231 - 2,231
Sustaining capital 34,431 1,600 36,031
AISC, Before By-product Credits (1) 174,954 25,635 200,589
By-product credits:
Silver (499 ) (635 ) (1,134 )
Total By-product credits (499 ) (635 ) (1,134 )
Cash Cost, After By-product Credits $ 137,407 $ 22,746 $ 160,153
AISC, After By-product Credits $ 174,455 $ 25,000 $ 199,455
Divided by gold ounces produced 121 32 153
Cash Cost, Before By-product Credits, per
Gold Ounce $ 1,135 $ 736 $ 1,052
By-product credits per ounce (4 ) (20 ) (7 )
Cash Cost, After By-product Credits, per Gold
Ounce $ 1,131 $ 716 $ 1,045
AISC, Before By-product Credits, per Gold
Ounce $ 1,440 $ 807 $ 1,309
By-product credits per ounce (4 ) (20 ) (7 )
AISC, After By-product Credits, per Gold
Ounce $ 1,436 $ 787 $ 1,302
In thousands (except per ounce amounts) Year Ended December 31, 2020
Total Silver Total Gold Total
Total cost of sales $ 291,558 $ 239,215 $ 530,773
Depreciation, depletion and amortization (64,713 ) (83,397 ) (148,110 )
Treatment costs 81,999 2,636 84,635
Change in product inventory (3,161 ) 18,095 14,934
Reclamation and other costs (3,080 ) (1,751 ) (4,831 )
Lucky Friday cash costs excluded (31,442 ) (13,511 ) (44,953 )
Cash Cost, Before By-product Credits (1) 271,161 161,287 432,448
Reclamation and other costs 3,794 1,040 4,834
Exploration 2,142 2,231 4,373
Sustaining capital 36,288 36,031 72,319
General and administrative 33,759 - 33,759
AISC, Before By-product Credits (1) 347,144 200,589 547,733
By-product credits:
Zinc (83,686 ) - (83,686 )
Gold (87,201 ) - (87,201 )
Lead (36,614 ) - (36,614 )
Silver - (1,134 ) (1,134 )
Total By-product credits (207,501 ) (1,134 ) (208,635 )
Cash Cost, After By-product Credits $ 63,660 $ 160,153 $ 223,813
AISC, After By-product Credits $ 139,643 $ 199,455 $ 339,098
Divided by ounces produced 12,280 153
Cash Cost, Before By-product Credits, per Ounce
(16.90 ) (7 )
Cash Cost, After By-product Credits, per Ounce $ 5.18 $ 1,045
AISC, Before By-product Credits, per Ounce $ 28.27 $ 1,309
By-product credits per ounce (16.90 )
(7 )
AISC, After By-product Credits, per Ounce
(1)
Includes all direct and indirect operating costs related to the physical
activities of producing metals, including mining, processing and other plant
costs, third-party refining and marketing expense, non-discretionary on-site
general and administrative costs, royalties and mining production
73
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taxes, before by-product revenues earned from all metals other than the primary
metal produced at each operation. AISC, Before By-product Credits also includes
on-site exploration, reclamation, and sustaining capital costs.
(2)
The unionized employees at Lucky Friday were on strike fromMarch 2017 untilJanuary 2020 , and production at Lucky Friday had been limited from the start of the strike until the ramp-up was substantially completed in the fourth quarter of 2020. Costs related to ramp-up activities totaling approximately$8.0 million in 2020 and includes$6.3 million in non-cash depreciation expense for that period, have been excluded from the calculations of total cost of sales, Cash Cost, Before By-product Credits, Cash Cost, After By-product Credits, AISC, Before By-product Credits, and AISC, After By-product Credits.
(3)
Includes results forSan Sebastian , which was an operating segment prior to 2021, and corporate costs. AISC, Before By-product Credits for our consolidated silver properties includes non-discretionary corporate costs for general and administrative expense, exploration and sustaining capital.
(4)
Production was suspended at theHollister mine in the third quarter of 2019 and at the Midas mine and Aurora mill in late 2019, and at the Midas mill andFire Creek mine in mid-2021. Suspension-related costs at Nevada Operations totaling$19.7 million for 2022,$20.4 million for 2021 and$13.5 million for 2020 are reported in a separate line item on our consolidated statements of operations and excluded from the calculations of total cost of sales and Cash Cost and AISC, each After By-product Credits, per Gold Ounce for 2021 and 2020. During the second half of 2020, all ore mined at Nevada Operations was stockpiled, with no ore milled and no production reported during the period. As a result, costs incurred at Nevada Operations during the second half of 2020 were excluded from the calculations of Cash Cost and AISC, each, After By-product Credits, per Gold Ounce. As part of the Alexco acquisition in 2022, we acquired an environmental services business and their cost of sales of$0.5 million are included as Other.
(5)
Excludes the discretionary portion of 2020 general and administrative costs forGreens Creek ,Casa Berardi ,Lucky Friday and corporate of$0.6 million ,$0.4 million ,$0.1 million and$1.8 million , respectively.
(6)
In lateMarch 2020 , the Government ofQuebec ordered the mining industry to reduce to minimum operations as part of the fight against COVID-19, causing us to suspend ourCasa Berardi operations fromMarch 24 untilApril 15 , when mining operations resumed, resulting in reduced mill throughput. Suspension-related costs totaling$1.6 million for 2020 are reported in a separate line item on our consolidated statements of operations and excluded from the calculations of total cost of sales and Cash Cost and AISC, each After By-product Credits, per Gold Ounce.
Financial Liquidity and Capital Resources
Liquidity overview
We have a disciplined cash management strategy of maintaining financial flexibility to execute our capital priorities and provide long-term value to our stockholders. Consistent with that strategy, we aim to maintain an acceptable level of net debt and sufficient liquidity to fund debt service costs, operations, capital expenditures, exploration and pre-development projects, while returning cash to stockholders through dividends and potential share repurchases. AtDecember 31, 2022 , we had$104.7 million in cash and cash equivalents, of which$17.9 million was held in foreign subsidiaries' local currency denominated accounts readily convertible toU.S. dollars that we anticipate utilizing for near-term operating, exploration or capital costs by those foreign operations. We also have USD cash and cash equivalent balances held by our foreign subsidiaries that, if repatriated tothe United States , may be subject to withholding taxes. We expect that there would be no additional tax burden upon repatriation after considering the cash cost associated with the withholding taxes. We believe that our liquidity and capital resources from ourU.S. operations are adequate to fund ourU.S. operations and corporate activities. Pursuant to our common stock dividend policy described in Note 11 of Notes to Consolidated Financial Statements, our Board of Directors declared and paid dividends on common stock totaling$12.4 million in 2022,$20.1 million in 2021 and$8.6 million in 2020. Our dividend policy has a silver-linked component which ties the amount of declared common stock dividends to our realized silver price for the preceding quarter. Another component of our common stock dividend policy anticipates paying an annual minimum dividend. In each of May andSeptember 2021 , our Board of Directors approved an increase in our silver-linked dividend policy by$0.01 per year, and inSeptember 2021 also approved a reduction in the minimum realized silver price threshold to$20 from$25 per ounce. We realized silver prices of$24.68 ,$20.68 ,$18.30 and$22.03 in the first, second, third and fourth quarters of 2022, respectively, thus satisfying the criterion for the silver-linked dividend component of our common stock dividend policy, with the exception of the third quarter. As a result, onMay 5, 2022 ,August 4, 2022 , andFebruary 10, 2023 , our Board of Directors declared quarterly cash dividends of$0.00625 per share of common stock, consisting of$0.00375 per share for the minimum dividend component and$0.0025 per share for the silver-linked dividend component of our dividend policy. OnNovember 7, 2022 , our Board of Directors declared a 74
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quarterly dividend of
Annualized
Dividends per
Quarterly Annualized Share:
Silver-Linked Silver-Linked Annualized Silver-Linked
Quarterly Average Realized Dividend ($ per Dividend ($ per Minimum Dividend and Minimum ($
Silver Price ($ per ounce) share) share) ($ per share) per share)
<$20 $ - $ - $ 0.015 $ 0.015
$20 $ 0.0025 $ 0.01 $ 0.015 $ 0.025
$25 $ 0.0100 $ 0.04 $ 0.015 $ 0.055
$30 $ 0.0150 $ 0.06 $ 0.015 $ 0.075
$35 $ 0.0250 $ 0.10 $ 0.015 $ 0.115
$40 $ 0.0350 $ 0.14 $ 0.015 $ 0.155
$45 $ 0.0450 $ 0.18 $ 0.015 $ 0.195
$50 $ 0.0550 $ 0.22 $ 0.015 $ 0.235
The declaration and payment of dividends on common stock is at the sole discretion of our board of directors, and there can be no assurance that we will continue to declare and pay common stock dividends in the future.
Pursuant to our stock repurchase program described in Note 11 of Notes to Consolidated Financial Statements, 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. As ofDecember 31, 2022 , 934,100 shares had been purchased in prior periods at an average price of$3.99 per share, leaving 19.1 million shares that may yet be purchased under the program. We have not repurchased any shares sinceJune 2014 . The closing price of our common stock atFebruary 10, 2023 , was$5.72 . As discussed in Note 11 of Notes to Consolidated Financial Statements, pursuant to an equity distribution agreement datedFebruary 18, 2021 , we may offer and sell up to 60 million shares of our common stock from time to time to or through sales agents in "at-the-market" (ATM) offerings. Sales of the shares, if any, will be made by means of ordinary brokers transactions or as otherwise agreed between the Company and the agents as principals. Whether or not we engage in sales from time to time may depend on a variety of factors, including share price, our cash resources, customary black-out restrictions, and whether we have any material inside information. The agreement can be terminated by us at any time. Any sales of shares under the equity distribution agreement are registered under the Securities Act of 1933, as amended, pursuant to a shelf registration statement on Form S-3. As ofDecember 31, 2022 , we had sold 3,860,199 shares under the agreement for proceeds of$17.3 million , net of commissions and fees of approximately$0.3 million . The sales occurred during September throughDecember 2022 . As a result of our current cash balances, the performance of our current and expected operations, current metals prices, proceeds from potential at-the-market sales of common stock, and availability under our New Credit Agreement (as defined in Note 8 of Notes to Consolidated Financial Statements), we believe we will be able to meet our obligations and other potential cash requirements during the next 12 months from the date of this report. Our obligations and other uses of cash may include, but are not limited to: debt service obligations related to the Senior Notes and our Series 2020-A Senior Notes dueJuly 9, 2025 (the "IQ Notes") issued to Investissement Québec, a financing arm of theQuébec government, which have total principal ofCAD$48.2 million and bear interest at a rate of 6.515%; principal and interest payments under our New Credit Agreement; deferral of revenues, care-and-maintenance and other costs related to addressing the impacts of COVID-19 on our operations; capital expenditures at our operations; potential acquisitions of other mining companies or properties; regulatory matters; litigation; potential repurchases of our common stock under the program described above; and payment of dividends on common stock, if declared by our board of directors. We currently estimate a range of approximately$190 to$200 million will be spent in 2023 on capital expenditures, primarily for equipment, infrastructure, and development at our mines, before any lease financing. We also estimate exploration and pre-development expenditures will total approximately$33 million in 2023. Our expenditures for these items and our related plans for 2023 may change based upon our financial position, metals prices, and other considerations. Our ability to fund the activities described above will depend on our operating performance, metals prices, our ability to estimate revenues and costs, sources of liquidity available to us, including the revolving credit facility, and other factors. A sustained downturn in metals prices, significant increase in operational or capital costs or other uses of cash, our inability to access the credit facility or the sources of liquidity discussed above, or other factors beyond our control could impact our plans. See Item 1A. Risk Factors - An extended decline in metals prices, an increase in operating or capital costs, or treatment charges, mine accidents or closures, increasing regulatory obligations, or our inability to convert resources or exploration targets to reserves may cause us to record write-downs, which could negatively impact our results of operations and We have a substantial amount of debt that could impair our financial health and prevent us from fulfilling our obligations under our existing and future indebtedness. 75 -------------------------------------------------------------------------------- We may defer some capital expenditures and/or exploration and pre-development activities, engage in asset sales or secure additional capital if necessary to maintain liquidity. We also may pursue additional acquisition opportunities, which could require additional equity issuances or other forms of financing. We cannot assure you that such financing will be available to us.
Our liquid assets excluding restricted cash include (in millions):
December 31 , December
31,
2022 2021 2020
Cash and cash equivalents held in U.S.
dollars $ 86.8 $ 196.2 $ 116.4
Cash and cash equivalents held in foreign
currency 17.9 13.8 13.4
Total cash and cash equivalents 104.7 210.0 129.8
Marketable equity securities, current and
non-current 24.0 14.4 19.3
Total cash, cash equivalents and investments
Cash and cash equivalents decreased by$105.3 million in 2022, for the reasons discussed below. Cash and cash equivalents held in foreign currencies represents balances in CAD and Mexican Pesos ("MXN"), and increased by$4.1 million in 2022 due to an increase in CAD held. The value of current and non-current marketable equity securities increased by$9.6 million . Year Ended
2022 2021 2020
Cash provided by operating activities (in millions)
Cash provided by operating activities decreased by$130.4 million in 2022 compared to 2021. The decrease was due to lower income, adjusted for non-cash items, further compounded by the negative impact of working capital and other operating asset and liability changes. Income, adjusted for non-cash items, was lower by$82.3 million primarily due to lower income from operations, which was mainly a result of lower realized silver, lead and zinc prices, higher treatment charges and an insignificant contribution from the Nevada Operations in 2022. Working capital and other operating asset and liability changes resulted in a net cash decrease of$29.3 million in 2022 compared to an increase in cash of$18.9 million in 2021. Significant variances in working capital changes between 2022 and 2021 resulted from lower cash flows from changes in inventories and accounts payable and accrued liabilities. Cash provided by operating activities increased by$39.5 million in 2021 compared to 2020. The increase was due to higher income, adjusted for non-cash items, partially offset by the impact of working capital and other operating asset and liability changes. Income, adjusted for non-cash items, was higher by$42.9 million primarily due to higher income from operations, which was mainly a result of higher realized silver, gold, lead and zinc prices and lower treatment charges. Working capital and other operating asset and liability changes resulted in a net cash increase of$18.9 million in 2021 compared to an increase in cash of$22.4 million in 2020. Significant variances in working capital changes between 2021 and 2020 resulted from lower cash flows from changes in accounts payable, accruals for incentive compensation and accounts receivable, partially offset by a reduction in inventory. Year Ended December
31,
2022 2021 2020
Cash used in investing activities (in millions)
Capital expenditures were$149.4 million in 2022, which was$40.3 million higher than 2021 excluding$11.9 million in non-cash finance lease additions. The increase included$19.7 million forKeno Hill following the Alexco acquisition and higher expenditures atGreens Creek andLucky Friday , partially offset by lower expenditures at Casa Berardi. As a result of the Alexco acquisition, we assumed a cash balance of$9.0 million , net of transaction costs of$5.1 million having advanced$25.0 million to Alexco pre-acquisition, to enable them to fund development of the Keno Hill mining district prior to acquisition closing. During 2022, we acquired investments in other mining companies and short term investments for a total of$32.0 million , and disposed of the short-term investments and a mining company investment, generating total proceeds of$9.4 million . Capital expenditures were$109.0 million in 2021, including$9.1 million for acquisition of royalty interests and land at our operations and excluding non-cash finance lease additions of$4.9 million , which was$18.0 million higher than 2020. The increase was due to increased spending at Lucky Friday andCasa Berardi . We recognized$1.8 million in proceeds from the exchange of investments in 2021 and purchased investments having a cost basis of$2.2 million during 2020. Year Ended December 31, 2022 2021 2020
Cash used in financing activities (in millions)
76
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During 2022, we drew down and repaid $25.0 million on our New Credit Agreement.
We had no borrowings or repayments of debt during 2021. In 2020, we had an
aggregate draw of $210.0 million on our revolving credit facility, with
repayments of the same amount in that year. In addition, in 2020 we received
$469.5 million and $36.8 million in net proceeds from the issuance of our Senior
Notes and IQ Notes, respectively, and had debt repayments of $506.5 million for
redemption of our 2021 Notes. In 2022, 2021 and 2020, we paid total cash
dividends on our common and preferred stock of $12.9 million , $20.7 million and
$9.2 million , respectively. We made payments on our finance leases of $7.6
million , $7.3 million , and $6.0 million in 2022, 2021, and 2020, respectively.
We issued stock under our ATM program described above for net proceeds of $17.3
million in 2022. We also purchased shares of our common stock for $3.7 million ,
$4.5 million , and $2.7 million in 2022, 2021, and 2020, respectively, as a
result of our employees' election to utilize net share settlement to satisfy
their tax withholding obligations related to incentive compensation paid in
stock and vesting of restricted stock units. See Note 11 of Notes to
Consolidated Financial Statements for more information.
Exchange rate fluctuations between the U.S. dollar and the Canadian dollar and
Mexican peso resulted in decreases in our cash balance of $0.3 million , $0.5
million and $1.1 million , during 2022, 2021 and 2020, respectively.
Contractual Obligations and Contingent Liabilities and Commitments
The table below presents our fixed, non-cancelable contractual obligations and commitments primarily related to our Senior Notes, IQ Notes, revolving credit facility, outstanding purchase orders and certain service contract commitments, and lease arrangements as ofDecember 31, 2022 (in thousands): Payments Due By Period Less than After 1 year 2-3 years 4-5 years 5 years Total Purchase and contractual obligations (1)$ 40,831 $ - $ - $ -$ 40,831 Commitment fees (2) 1,717 179 179 -$ 2,075 Finance lease commitments (3) 9,352 10,993 1,875 -$ 22,220 Operating lease commitments (4) 3,167 2,559 2,445 6,408$ 14,579 Senior Notes (5) 34,438 68,876 68,876 479,302$ 651,492 IQ Notes (6) 2,320 39,132 - -$ 41,452
Total contractual cash obligations
73,375$ 485,710 $ 772,649 (1) Consists of open purchase orders and commitments of approximately$9.8 million atGreens Creek ,$1.7 million at Casa Berardi,$22.8 million at Lucky Friday,$1.9 million at the Nevada Operations and$4.5 million at Keno Hill.
(2)
The New Credit Agreement provides for a$150 million revolving credit facility, under which$25 million was drawn as ofSeptember 30, 2022 and repaidOctober 4, 2022 . We had$7.8 million in letters of credit outstanding as ofDecember 31, 2022 . The amounts in the table above assume no additional amounts will be drawn in future periods, and include only the standby fee on the current undrawn balance under the New Credit Agreement. For more information on our credit facility, see Note 8 of Notes to Consolidated Financial Statements.
(3)
Includes scheduled finance lease payments of$13.4 million ,$4.9 million ,$1.2 million and$2.7 million (including interest) for equipment atGreens Creek ,Lucky Friday ,Casa Berardi andKeno Hill , respectively. These leases have fixed payment terms and contain bargain purchase options at the end of the lease periods. See Note 8 of Notes to Consolidated Financial Statements for more information.
(4)
We enter into operating leases in the normal course of business. Substantially all lease agreements have fixed payment terms based on the passage of time. Some lease agreements provide us with the option to renew the lease or purchase the leased property. Our future operating lease obligations would change if we exercised these renewal options and if we entered into additional operating lease arrangements. See Note 8 of Notes to Consolidated Financial Statements for more information.
(5)
OnFebruary 19, 2020 , we completed an offering of$475 million in aggregate principal amount of our Senior Notes. The Senior Notes bear interest at a rate of 7.25% per year with interest payable onFebruary 15 andAugust 15 of each year, commencingAugust 15, 2020 . See Note 8 of Notes to Consolidated Financial Statements for more information.
(6)
OnJuly 9, 2020 , we entered into a note purchase agreement pursuant to which we issued our IQ Notes forCAD$50 million (approximatelyUSD$36.8 million at the time of the transaction) in aggregate principal amount. The IQ Notes bear interest on amounts outstanding at a rate of 6.515% per year, payable onJanuary 9 andJuly 9 of each year, commencingJanuary 9, 2021 . See Note 8 of Notes to Consolidated Financial Statements for more information. 77 -------------------------------------------------------------------------------- We record liabilities for estimated costs associated with mine closure, reclamation of land and other environmental matters. AtDecember 31, 2022 , our liabilities for these matters totaled$117.0 million . Future expenditures related to closure, reclamation and environmental expenditures at our other sites are difficult to estimate, although we anticipate we will incur expenditures relating to these obligations over the next 30 years. For additional information relating to our environmental obligations, see Note 4 of Notes to Consolidated Financial Statements and Item 1A. Risk Factors - Our environmental obligations may exceed the provisions we have made. As discussed in Note 14 of Notes to Consolidated Financial Statements, we are involved in various other legal proceedings which may result in obligations in excess of provisions we have made. Critical Accounting Estimates Our significant accounting policies are described in Note 2 of Notes to Consolidated Financial Statements. As described in such Note 2, we are required to make estimates and assumptions that affect the reported amounts and related disclosures of assets, liabilities, revenue, and expenses. Our estimates are based on our experience and our interpretation of economic, political, regulatory, and other factors that affect our business prospects. Actual results may differ significantly from our estimates. We believe that our most critical accounting estimates are related to future metals prices; obligations for environmental, reclamation, and closure matters; mineral reserves and resources; accounting for business combinations; valuation of deferred tax assets and assumptions used in accounting for our pension plans, as they require us to make assumptions that are highly uncertain at the time the accounting estimates are made and changes in them are reasonably likely to occur from period to period. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our board of directors, and the Audit Committee has reviewed the disclosures presented below. In addition, there are other items within our financial statements that require estimation, but are not deemed to be critical. However, changes in estimates used in these and other items could have a material impact on our financial statements.
Future Metals Prices
Metals prices are key components in estimates that determine the valuation of some of our significant assets and liabilities, including properties, plants, equipment and mineral interests, deferred tax assets, and certain accounts receivable. Metals prices are also an important component in the estimation of reserves and resources. As shown above in Item 1. - Business, metals prices have historically been volatile. Silver demand arises from investment demand, particularly in exchange-traded funds, industrial demand, and consumer demand. Gold demand arises primarily from investment and consumer demand. Investment demand for silver and gold can be influenced by several factors, including: the value of theU.S. dollar and other currencies, changingU.S. budget deficits, widening availability of exchange-traded funds, interest rate levels, the health of credit markets, and inflationary expectations. Uncertainty related to (i) the political environment in theU.S. , (ii)U.S. and global trading policies (including tariffs), (iii) a global economic recovery, (iv) recent uncertainty inChina and (v) from the current downturn and continued uncertainty resulting from the COVID-19 outbreak and any subsequent variants, could result in continued investment demand for precious metals. Industrial demand for silver is closely linked to world Gross Domestic Product growth and industrial fabrication levels, as it is difficult to substitute for silver in industrial fabrication. Consumer demand is driven significantly by demand for jewelry and other retail products. We believe that long-term industrial and economic trends, including demand for metals to decarbonize the economy and urbanization and growth of the middle class in countries such asChina andIndia , will result in continued consumer demand for silver and gold and industrial demand for silver. However, the global economy has been significantly impacted by the COVID-19 outbreak, with the ultimate severity and duration of the downturn unknown. There can be no assurance whether these trends will continue or how they will impact prices of the metals we produce. In the past, we have recorded impairments to our asset carrying values because of low prices, and we can offer no assurance that prices will either remain at their current levels or increase. Processes supporting valuation of our assets and liabilities that are most significantly affected by metals prices include analysis of asset carrying values, depreciation, reserves and resources, and deferred income taxes. On at least an annual basis - and more frequently if circumstances warrant - we examine our depreciation rates, reserve estimates, and the valuation allowances on our deferred tax assets. We examine the carrying values of our assets as changes in facts and circumstances warrant. In our evaluation of carrying values and deferred taxes, we apply several pricing views to our forecasting model, including current prices, analyst price estimates, forward-curve prices, and historical prices (see Mineral Reserves and Resources, below, regarding prices used for reserve and resource estimates). Using applicable accounting guidance and our view of metals markets, we use the probability-weighted average of the various methods to determine whether the values of our assets are fairly stated, and to determine the level of valuation allowances, if any, on our deferred tax assets. In addition, estimates of future metals prices are used in the valuation of certain assets in the determination of the purchase price allocations for our acquisitions (see Business Combinations below). Sales of concentrates sold directly to customers are recorded as revenues upon completion of the performance obligations and transfer of control of the product to the customer (generally at the time of shipment) using estimated forward metals prices for the estimated month of settlement. Due to the time elapsed between shipment of concentrates to the customer and final settlement with the 78 -------------------------------------------------------------------------------- customer, we must estimate the prices at which sales of our metals will be settled. Previously recorded sales and trade accounts receivable are adjusted to estimated settlement prices until final settlement by the customer. Changes in metals prices between shipment and final settlement result in changes to revenues and accounts receivable previously recorded upon shipment. As a result, our trade accounts receivable balances related to concentrate sales are subject to changes in metals prices until final settlement occurs. For more information, see Note 3 of Notes to Consolidated Financial Statements. We utilize financially-settled forward contracts to manage our exposure to changes in prices for silver, gold, zinc and lead. See Item 7A. - Quantitative and Qualitative Disclosures About Market Risk - Commodity-Price Risk Management below for more information on our contract programs. EffectiveNovember 1, 2021 , we designated the contracts for lead and zinc as hedges for accounting purposes, with gains and losses deferred to accumulated other comprehensive income until the hedged product ships. Prior toNovember 1, 2021 , these contracts were not designated as hedges for accounting purposes and were therefore marked-to-market through earnings each period. Changes in silver, gold, zinc and lead prices between the dates that the contracts are entered into and their settlements will result in changes to the fair value asset or liability associated with the contracts, with a corresponding gain or loss for silver and gold contracts recognized in earnings and gain or loss for lead and zinc contracts deferred to accumulated other comprehensive income (loss).
Obligations for Environmental, Reclamation and Closure Matters
Accrued reclamation and closure costs can represent a significant and variable liability on our balance sheet. We have estimated our liabilities under appropriate accounting guidance; however, the ranges of liability could exceed the liabilities recognized. If substantial damages were awarded, claims were settled, or remediation costs incurred in excess of our accruals, our financial results or condition could be materially adversely affected.
Mineral Reserves and Resources
Critical estimates are inherent in the process of determining our reserves and resources. Our reserves and resources are affected largely by our assessment of future metals prices, as well as by engineering and geological estimates of ore grade, accessibility and production cost. See Item 2. - Properties above for the metals price assumptions used in our estimates of reserves and resources as ofDecember 31, 2022 , 2021 and 2020. Our assessment of reserves and resources occurs at least annually, and periodically utilizes external audits. Reserves and resources are a key component in the valuation of our properties, plants and equipment. Reserve estimates are used in determining appropriate rates of units-of-production depreciation, with net book value of many assets depreciated over remaining estimated reserves. Reserves and resources are also a key component in forecasts, with which we compare future cash flows to current asset values in an effort to ensure that carrying values are reported appropriately. Our forecasts are also used in determining the level of valuation allowances on our deferred tax assets. Reserves and resources also play a key role in the valuation of certain assets in the determination of the purchase price allocations for acquisitions. Annual reserve and resource estimates are also used to determine conversions of resources and exploration targets beyond the known reserve resulting from business combinations to depreciable reserves, in periods subsequent to the business combinations (see Business Combinations below). Reserves and resources are a culmination of many estimates and are not guarantees that we will recover the indicated quantities of metals or that we will do so at a profitable level.
Business Combinations
When acquiring a company, we evaluate whether the transaction should be accounted for as an asset acquisition or a business combination. If substantially all, generally interpreted as greater than 90% of the fair value is attributable to a single asset, the transaction is accounted for as an asset acquisition, and the transaction costs are capitalized. In a business combination, transaction costs are expensed. Regardless of whether we account for an acquisition as an asset acquisition or business combination, we are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The valuation of assets acquired and liabilities assumed requires management to make significant estimates and assumptions, especially with respect to long-lived assets (including resources and exploration targets beyond the known reserve). These estimates include future metals prices and mineral reserves and resources, as discussed above. Management may also be required to make estimates related to the valuation of deferred tax assets or liabilities as part of the purchase price allocation for business combinations. In some cases, we use third-party appraisers to determine the fair values of property and other identifiable assets.
Valuation of Deferred Tax Assets
Our deferred income tax assets include certain future tax benefits. We record a
valuation allowance against any portion of those deferred income tax assets when
we believe, based on the weight of available evidence, it is more likely than
not that some portion or all of the deferred income tax asset will not be
realized. We review the likelihood that we will realize the benefit of our
deferred tax
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assets and therefore the need for valuation allowances on a quarterly basis, or
more frequently if events indicate that a review is required. In determining the
requirement for a valuation allowance, the historical and projected financial
results of the legal entity or consolidated group recording the net deferred tax
asset is considered, along with all other available positive and negative
evidence.
Certain categories of evidence carry more weight in the analysis than others
based upon the extent to which the evidence may be objectively verified. We look
to the nature and severity of cumulative pretax losses (if any) in the current
three-year period ending on the evaluation date or the expectation of future
pretax losses and the existence and frequency of prior cumulative pretax losses.
We utilize a rolling twelve quarters of pre-tax income or loss as a measure of
our cumulative results in recent years. Concluding that a valuation allowance is
not required is difficult when there is significant negative evidence which is
objective and verifiable, such as cumulative losses in recent years. However, a
cumulative three year loss is not solely determinative of the need for a
valuation allowance. We also consider all other available positive and negative
evidence in our analysis.
Other factors considered in the determination of the probability of the realization of the deferred tax assets include, but are not limited to:
•
Earnings history;
•
Projected future financial and taxable income based upon existing reserves and long-term estimates of commodity prices;
•
The duration of statutory carry forward periods;
•
Prudent and feasible tax planning strategies readily available that may alter the timing of reversal of the temporary difference;
•
Nature of temporary differences and predictability of reversal patterns of existing temporary differences; and
•
The sensitivity of future forecasted results to commodity prices and other factors.
The Company assesses available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. A significant piece of objective negative evidence is recent pretax losses and/or expectations of future pretax losses. Such objective evidence limits the ability to consider other subjective evidence including projections for future growth. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.
See Note 6 of Notes to Consolidated Financial Statements for additional detail on the valuation allowance.
Pension Plan Accounting Assumptions
We are required to make a number of assumptions in estimating the future benefit obligations for, and fair value of assets included in, our pension plans, which impact the amount of liability and net periodic pension cost recognized related to our plans. These include assumptions for applicable discount rates, the expected rate of return on plan assets and the rate of future employee compensation increases. See Note 5 of Notes to Consolidated Financial Statements for more information on the accounting for our pension plans and the related assumptions. New Accounting Pronouncements
Accounting Standards Updates Adopted
InAugust 2020 , theFinancial Accounting Standards Board ("FASB") issued ASU No. 2020-06 Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. The update is to address issues identified as a result of the complexity associated with applying GAAP to certain financial instruments with characteristics of liabilities and equity. The update is effective for fiscal years beginning afterDecember 15, 2021 , including interim periods within those fiscal years and with early adoption permitted. We adopted the update as ofJanuary 1, 2022 , which did not have a material impact on our consolidated financial statements or disclosures. InOctober 2021 , the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to recognize and measure contract assets and contract 80 -------------------------------------------------------------------------------- liabilities acquired in a business combination in accordance with ASC 2014-09, Revenue from Contracts with Customers (Topic 606). The update will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. The update is effective on a prospective basis for fiscal years beginning afterDecember 15, 2022 , with early adoption permitted. We adopted the new standard effectiveJanuary 1, 2022 , which did not have a material impact on our consolidated financial statements or disclosures.
Accounting Standards Updates to Become Effective in Future Periods
InJanuary 2021 , the FASB issued ASU 2021-01, Reference Rate Reform, in response to the 2017United Kingdom Financial Conduct Authority ("FCA") announcement that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate ("LIBOR"), which have been widely used as reference rates for various securities and financial contracts, including loans, debt and derivatives. This announcement indicated that the continuation of LIBOR on the current basis would not be guaranteed after 2021. Subsequently inMarch 2021 , theFCA announced some USD LIBOR tenors (overnight, 1 month, 3 month, 6 month and 12 month) will continue to be published untilJune 30, 2023 . Regulators in theU.S. and other jurisdictions have been working to replace these rates with alternative reference interest rates that are supported by transactions in liquid and observable markets, such as SOFR. Our New Credit Agreement references SOFR-based rates, compared to our prior credit facility which referenced LIBOR based- rates. Certain of our derivative instruments reference LIBOR-based rates and were amended to eliminate the LIBOR-based rate references prior toJanuary 1, 2023 . We do not expect a significant impact to our financial results, financial position or cash flows from the transition from LIBOR to alternative reference interest rates, but we will continue to monitor the impact of this transition until it is completed.
Guarantor Subsidiaries
Presented below are Hecla's condensed consolidating financial statements as required by Rule 3-10 of Regulation S-X of the Securities Exchange Act of 1934, as amended, resulting from the guarantees by certain of Hecla's subsidiaries of the Senior Notes and IQ Notes (see Note 8 of Notes to Consolidated Financial Statements for more information). As ofDecember 31, 2022 , the Guarantors consist of the following Hecla 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. ; andHecla Quebec, Inc. We completed the offering of the Senior Notes onFebruary 19, 2020 under our shelf registration statement previously filed with theSEC . We issued the IQ Notes in four equal tranches between July andOctober 2020 . The condensed consolidating financial statements below have been prepared from our financial information on the same basis of accounting as the 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 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
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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 withinthe United States :The Nevada U.S. Group and theHecla 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 income of other subsidiaries on a consolidated-return basis, but would not be considered realizable if such parent or subsidiary filed on a separate stand-alone basis. In such a situation, a valuation allowance is assessed on that subsidiary's deferred tax assets, with the resulting adjustment reported in the eliminations column of the guarantor and parent's financial statements, as is the case in the financial statements set forth below. The separate return method can result in significant eliminations of deferred tax assets and liabilities and related income tax provisions and benefits. Non-current deferred tax asset balances are included in other non-current assets on the consolidating balance sheets and make up a large portion of that item, particularly for the guarantor balances. Separate financial statements of the Guarantors are not presented because the guarantees by the Guarantors are joint and several and full and unconditional, except for certain customary release provisions, including: (1) the sale or disposal of all or substantially all of the assets of the Guarantor; (2) the sale or other disposition of the capital stock of the Guarantor; (3) the Guarantor is designated as an unrestricted entity in accordance with the applicable provisions of the indenture; (4) Hecla ceases to be a borrower as defined in the indenture; and (5) upon legal or covenant defeasance or satisfaction and discharge of the indenture.
Condensed Consolidating Balance Sheets
As
of
Parent Guarantors Non-Guarantors Eliminations Consolidated
(in thousands)
Assets
Cash and cash equivalents $ 69,889 $ 20,152 $ 14,702 $ - $ 104,743
Other current assets 4,959 147,103 10,922 - 162,984
Properties, plants, equipment and
mineral interests - net 1,913 2,288,199 279,678 - 2,569,790
Intercompany receivable (payable) (159,442 ) (598,248 )
303,433 454,257 -
Investments in subsidiaries 2,128,366 - - (2,128,366 ) -
Other non-current assets 355,631 20,870 43,241 (330,087 ) 89,655
Total assets $ 2,401,316 $ 1,878,076 $ 651,976 $ (2,004,196 ) $ 2,927,172
Liabilities and Stockholders' Equity
Current liabilities $ (93,660 ) $ 134,016 $ 13,939 $ 124,171 $ 178,466
Long-term debt 506,364 11,378 0 - 517,742
Non-current portion of accrued
reclamation - 101,900 6,508 - 108,408
Non-current deferred tax liability - 113,876 11,970 - 125,846
Other non-current liabilities 9,645 6,720 1,378 - 17,743
Stockholders' equity 1,978,967 1,510,186 618,181 (2,128,367 ) 1,978,967
Total liabilities and stockholders'
equity $ 2,401,316 $ 1,878,076 $ 651,976 $ (2,004,196 ) $ 2,927,172 Condensed Consolidating Statements of Operations and Comprehensive (Loss) Income
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Year
Ended
Parent Guarantors Non-Guarantors Eliminations Consolidated
(in thousands)
Revenues $ (5,823 ) $ 724,255 $ 473 $ - $ 718,905
Cost of sales 824 (459,169 ) (466 ) - (458,811 )
Depreciation, depletion, and
amortization - (143,938 ) - - (143,938 )
General and administrative (18,645 ) (22,807 ) (1,932 ) - (43,384 )
Exploration and pre-development (684 ) (37,341 ) (8,016 ) - (46,041 )
Equity in earnings of subsidiaries 2,219 - - (2,219 ) -
Other income (expense) (39,901 ) (39,904 ) (5,424 ) 13,584 (71,645 )
(Loss) income before income taxes (62,010 ) 21,096
(15,365 ) 11,365 (44,914 )
Benefit (provision) from income and
mining taxes 24,662 (3,624 ) 115 (13,587 ) 7,566
Net (loss) income (37,348 ) 17,472 (15,250 ) (2,222 ) (37,348 )
Preferred stock dividends (552 ) - - - (552 )
(Loss) income applicable to common
stockholders (37,900 ) 17,472 (15,250 ) (2,222 ) (37,900 )
Net income (loss) (37,348 ) 17,472 (15,250 ) (2,222 ) (37,348 )
Changes in comprehensive income
(loss) 30,904 - - - 30,904
Comprehensive (loss) income $ (6,444 ) $ 17,472 $
(15,250 )
Condensed Consolidating Statements of Cash Flows
Year
Ended
Parent Guarantors Non-Guarantors Eliminations Consolidated
(in thousands)
Cash flows from operating activities $ 381,771 $ (196,017 ) $ (206,375 ) $ 110,511 $ 89,890
Cash flows from investing
activities:
Additions to properties, plants,
equipment and mineral interests - (130,104 ) (19,274 ) - (149,378 )
Other investing activities, net (587,685 ) 4,097
(19,967 ) 565,660 (37,895 )
Cash flows from financing
activities: -
Dividends paid to stockholders (12,932 ) - - - (12,932 )
Borrowings of debt 25,000 - - - 25,000
Repayments of debt (25,000 ) (6,918 ) (715 ) - (32,633 )
Other financing activity 113,628 334,809 240,799 (676,171 ) 13,065
Effect of exchange rate changes on
cash - 200 (473 ) - (273 )
Changes in cash, cash equivalents
and restricted cash and cash
equivalents (105,218 ) 6,067 (6,005 ) - (105,156 )
Beginning cash, cash equivalents and
restricted cash and cash equivalents 175,108 15,135 20,820 - 211,063
Ending cash, cash equivalents and
restricted cash and cash equivalents $ 69,890 $ 21,202 $ 14,815 $ - $ 105,907
Forward-Looking Statements
The foregoing discussion and analysis, as well as certain information contained
elsewhere in this report, contain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Exchange Act, and are intended to be covered by the safe harbor created thereby.
See the discussion in Special Note on Forward-Looking Statements included prior
to Item 1.
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