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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

 

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

For the quarterly period ended June 30, 2022

 

or

 

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

For the transition period from to .

 

Commission file number 

 

1-8491

 

HECLA MINING COMPANY

(Exact name of registrant as specified in its Charter)

 

 

Delaware

 

77-0664171

 
 

State or Other Jurisdiction of

 

I.R.S. Employer

 
 

Incorporation or Organization

 

Identification No.

 
         
 

6500 Mineral Drive, Suite 200

     
 

Coeur d'Alene, Idaho

 

83815-9408

 
 

Address of Principal Executive Offices

 

Zip Code

 
         

208-769-4100

Registrant's Telephone Number, Including Area Code

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange

on which registered

Common Stock, par value $0.25 per share

HL

New York Stock Exchange

Series B Cumulative Convertible Preferred Stock, par value $0.25 per share

HL-PB

New York Stock Exchange

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
   
Emerging growth company ☐  

           

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐    No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Shares Outstanding August 1, 2022

Common stock, par value

$0.25 per share

  541,599,504

 

 
 

 

Hecla Mining Company and Subsidiaries

 

Form 10-Q

 

For the Quarter Ended June 30, 2022

 

INDEX*

 

   

Page

PART I - Financial Information 

 
     
 

Item 1 – Condensed Consolidated Financial Statements (Unaudited)

3
     
 

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income - Three Months Ended and Six Months Ended  June 30, 2022 and 2021

3

     
 

Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2022 and 2021

4

     
 

Condensed Consolidated Balance Sheets - June 30, 2022 and December 31, 2021

5

     
 

Condensed Consolidated Statements of Changes in Stockholders' Equity - Three Months Ended and Six Months Ended – June 30, 2022 and 2021

6

     
 

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

     
 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

23

     
 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

62

     
 

Item 4. Controls and Procedures

63

     

PART II - Other Information

 
     
 

Item 1 – Legal Proceedings

64

     
 

Item 1A – Risk Factors

64

     
 

Item 4 – Mine Safety Disclosures

66

     
 

Item 6 – Exhibits

67

     
 

Signatures

68

 

 

*Items 2, 3 and 5 of Part II are omitted as they are not applicable.

 

 

 

Part I - Financial Information

 

Item 1. Financial Statements

 

Hecla Mining Company and Subsidiaries

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)

(Dollars and shares in thousands, except for per-share amounts)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30, 2022

   

June 30, 2021

   

June 30, 2022

   

June 30, 2021

 

Sales

  $ 191,242     $ 217,983     $ 377,741     $ 428,835  

Cost of sales and other direct production costs

    115,907       110,320       221,679       207,029  

Depreciation, depletion and amortization

    38,072       45,732       73,370       92,474  

Total cost of sales

    153,979       156,052       295,049       299,503  

Gross profit

    37,263       61,931       82,692       129,332  

Other operating expenses:

                               

General and administrative

    9,692       11,104       17,986       19,111  

Exploration and pre-development

    11,200       11,241       24,008       17,931  

Care and maintenance costs

    5,242       5,786       11,447       10,104  

Provision for closed operations and environmental matters

    1,472       1,024       2,373       4,733  

Other operating expense

    1,945       3,634       4,408       7,282  

Total other operating expenses

    29,551       32,789       60,222       59,161  

Income from operations

    7,712       29,142       22,470       70,171  

Other income (expense):

                               

Interest expense

    (10,505 )     (10,271 )     (20,911 )     (21,015 )

Fair value adjustments, net

    (16,428 )     (18,063 )     (10,463 )     (19,938 )

Net foreign exchange gain (loss)

    4,482       (1,907 )     2,444       (3,971 )

Other income (expense)

    1,470       (287 )     2,975       (439 )

Total other expense

    (20,981 )     (30,528 )     (25,955 )     (45,363 )

(Loss) income before income and mining taxes

    (13,269 )     (1,386 )     (3,485 )     24,808  

Income and mining tax (provision) benefit

    (254 )     4,134       (5,885 )     (609 )

Net (loss) income

    (13,523 )     2,748       (9,370 )     24,199  

Preferred stock dividends

    (138 )     (138 )     (276 )     (276 )

(Loss) income applicable to common shareholders

  $ (13,661 )   $ 2,610     $ (9,646 )   $ 23,923  

Comprehensive income (loss):

                               

Net (loss) income

  $ (13,523 )   $ 2,748     $ (9,370 )   $ 24,199  

Change in fair value of derivative contracts designated as hedge transactions

    65,348       1,620       32,183       3,452  

Comprehensive income

  $ 51,825     $ 4,368     $ 22,813     $ 27,651  

Basic (loss) income per common share after preferred dividends

  $ (0.03 )   $ 0.01     $ (0.02 )   $ 0.04  

Diluted (loss) income per common share after preferred dividends

  $ (0.03 )   $ 0.01     $ (0.02 )   $ 0.04  

Weighted average number of common shares outstanding - basic

    539,401       535,531       538,943       534,819  

Weighted average number of common shares outstanding - diluted

    539,401       542,262       538,943       541,468  

Cash dividends declared per common share

  $ 0.00625     $ 0.01     $ 0.01225     $ 0.02  

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

 

 

 

Hecla Mining Company and Subsidiaries

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

   

Six Months Ended

 
   

June 30, 2022

   

June 30, 2021

 

Operating activities:

               

Net (loss) income

  $ (9,370 )   $ 24,199  

Non-cash elements included in net (loss) income:

               

Depreciation, depletion and amortization

    73,656       92,861  

Write-down of inventory

    754       6,431  

Fair value adjustments, net

    (14,185 )     5,214  

Provision for reclamation and closure costs

    3,271       6,183  

Stock compensation

    2,525       3,302  

Deferred income taxes

    (1,290 )     (7,745 )

Foreign exchange loss

    (3,442 )     4,455  

Other non-cash items, net

    982       1,071  

Change in assets and liabilities:

               

Accounts receivable

    19,199       (9,432 )

Inventories

    (8,352 )     5,719  

Other current and non-current assets

    (894 )     4,125  

Accounts payable and accrued liabilities

    17,119       (6,489 )

Accrued payroll and related benefits

    278       (5,351 )

Accrued taxes

    (5,683 )     (999 )

Accrued reclamation and closure costs and other non-current liabilities

    3,524       696  

Cash provided by operating activities

    78,092       124,240  

Investing activities:

               

Additions to properties, plants, equipment and mineral interests

    (55,807 )     (53,311 )

Proceeds from disposition of properties, plants and equipment

    730       131  

Purchases of investments

    (21,899 )      

Proceeds from sale of investments

    2,487        

Net cash used in investing activities

    (74,489 )     (53,180 )

Financing activities:

               

Acquisition of treasury shares

    (3,677 )     (4,525 )

Dividends paid to common and preferred stockholders

    (7,027 )     (10,991 )

Credit facility fees paid

    (74 )     (82 )

Repayments of finance leases

    (3,333 )     (3,770 )

Net cash used in financing activities

    (14,111 )     (19,368 )

Effect of exchange rates on cash

    (1,321 )     (28 )

Net (decrease) increase in cash, cash equivalents and restricted cash and cash equivalents

    (11,829 )     51,664  

Cash, cash equivalents and restricted cash and cash equivalents at beginning of period

    211,063       130,883  

Cash, cash equivalents and restricted cash and cash equivalents at end of period

  $ 199,234     $ 182,547  

Supplemental disclosure of cash flow information:

               

Cash paid for interest

  $ 18,749     $ 18,499  

Cash paid for income and mining taxes

  $ 11,888     $ 9,469  

Significant non-cash investing and financing activities:

               

Addition of finance lease obligations and right-of-use assets

  $ 5,051     $ 3,120  

Accounts receivable for proceeds on exchange of investments

  $     $ 1,832  

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

 

 

 

Hecla Mining Company and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except shares)

 

   

June 30, 2022

   

December 31, 2021

 

ASSETS

 

Current assets:

               

Cash and cash equivalents

  $ 198,193     $ 210,010  

Accounts receivable:

               

Trade

    17,828       36,437  

Other, net

    7,696       8,149  

Inventories:

               

Concentrates, doré, and stockpiled ore

    30,167       25,906  

Materials and supplies

    45,200       41,859  

Derivatives assets

    9,923       2,709  

Other current assets

    13,389       16,557  

Total current assets

    322,396       341,627  

Investments

    23,931       10,844  

Restricted cash

    1,041       1,053  

Properties, plants, equipment and mineral interests, net

    2,295,962       2,310,810  

Operating lease right-of-use assets

    11,649       12,435  

Deferred income taxes

    45,562       45,562  

Derivatives assets

    12,897       2,503  

Other non-current assets

    3,665       3,974  

Total assets

  $ 2,717,103     $ 2,728,808  

LIABILITIES

 

Current liabilities:

               

Accounts payable and accrued liabilities

  $ 84,997     $ 68,100  

Accrued payroll and related benefits

    26,945       28,714  

Accrued taxes

    8,341       12,306  

Finance and operating leases

    8,580       8,098  

Accrued interest

    14,435       14,454  

Derivatives liabilities

    4,228       19,353  

Other current liabilities

    109       99  

Accrued reclamation and closure costs

    10,594       9,259  

Total current liabilities

    158,229       160,383  

Finance and operating leases

    18,154       17,726  

Accrued reclamation and closure costs

    103,747       103,972  

Long-term debt

    507,841       508,095  

Deferred tax liability

    143,213       149,706  

Derivatives liabilities

    522       18,528  

Other non-current liabilities

    2,515       9,611  

Total liabilities

    934,221       968,021  

Commitments and contingencies (Notes 4, 7, 8, and 10)

                 

STOCKHOLDERS' EQUITY

 

Preferred stock, 5,000,000 shares authorized:

               

Series B preferred stock, 25 cent par value, 157,816 shares issued and outstanding, liquidation preference — $7,891

    39       39  

Common stock, 25 cent par value, 750,000,000 authorized shares; issued June 30, 2022 — 548,037,253 shares and December 31, 2021 — 545,534,760 shares

    137,241       136,391  

Capital surplus

    2,043,621       2,034,485  

Accumulated deficit

    (370,048 )     (353,651 )

Accumulated other comprehensive income (loss)

    3,727       (28,456 )

Less treasury stock, at cost; June 30, 2022 — 8,132,553 shares and December 31, 2021 — 7,395,295 shares issued and held in treasury

    (31,698 )     (28,021 )

Total stockholders’ equity

    1,782,882       1,760,787  

Total liabilities and stockholders’ equity

  $ 2,717,103     $ 2,728,808  

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

 

 

 

Hecla Mining Company and Subsidiaries

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

(Dollars are in thousands, except for share and per share amounts)

 

   

Three Months Ended June 30, 2022

 
   

Series B

Preferred

Stock

   

Common

Stock

   

Capital Surplus

   

Accumulated

Deficit

   

Accumulated

Other

Comprehensive

Income

(Loss), net

   

Treasury

Stock

   

Total

 

Balances, April 1, 2022

  $ 39     $ 136,657     $ 2,036,417     $ (353,007 )   $ (61,621 )   $ (29,942 )   $ 1,728,543  

Net loss

                      (13,523 )                 (13,523 )

Restricted stock units granted

                837                         837  

Restricted stock units distributed (901,215 shares)

          225       (225 )                 (1,756 )     (1,756 )

Common stock dividends declared (0.0625 cents per common share)

                      (3,380 )                 (3,380 )

Series B Preferred Stock dividends declared (87.5 cents per share)

                      (138 )                 (138 )

Common stock issued for 401(k) match (143,200 shares)

          36       928                         964  

Common stock issued to directors (98,310 shares)

          25       392                         417  

Common stock issued to pension plans (1,190,000 shares)

          298       5,272                         5,570  

Other comprehensive income

                            65,348             65,348  

Balances, June 30, 2022

  $ 39     $ 137,241     $ 2,043,621     $ (370,048 )   $ 3,727     $ (31,698 )   $ 1,782,882  

 

   

Three Months Ended June 30, 2021

 
   

Series B

Preferred

Stock

   

Common

Stock

   

Capital Surplus

   

Accumulated

Deficit

   

Accumulated

Other

Comprehensive

Income

(Loss), net

   

Treasury

Stock

   

Total

 

Balances, April 1, 2021

  $ 39     $ 135,546     $ 2,021,072     $ (351,449 )   $ (31,057 )   $ (23,496 )   $ 1,750,655  

Net income

                      2,748                   2,748  

Restricted stock units granted

                959                         959  

Restricted stock units distributed (1,653,000 shares)

          413       (413 )                 (4,525 )     (4,525 )

Common stock dividends declared (1.125 cents per common share)

                      (6,027 )                 (6,027 )

Series B Preferred Stock dividends declared (87.5 cents per share)

                      (138 )                 (138 )

Common stock issued for 401(k) match (217,000 shares)

          54       1,235                         1,289  

Common stock issued to pension plans (3,500,000 shares)

                                         

Common stock issued to directors (207,000 shares)

          52       1,792                         1,844  

Other comprehensive income

                            1,620             1,620  

Balances, June 30, 2021

  $ 39     $ 136,065     $ 2,024,645     $ (354,866 )   $ (29,437 )   $ (28,021 )   $ 1,748,425  

 

 

   

Six Months Ended June 30, 2022

 
   

Series B

Preferred

Stock

   

Common

Stock

   

Capital
Surplus

   

Accumulated

Deficit

   

Accumulated

Other

Comprehensive

Income

(Loss), net

   

Treasury

Stock

   

Total

 

Balances, January 1, 2022

  $ 39     $ 136,391     $ 2,034,485     $ (353,651 )   $ (28,456 )   $ (28,021 )   $ 1,760,787  

Net loss

                      (9,370 )                 (9,370 )

Restricted stock units granted

                2,108                         2,108  

Restricted stock units and performance stock units distributed (1,789,042 shares)

          447       (447 )                 (3,677 )     (3,677 )

Common stock dividends declared (1.25 cents per common share)

                      (6,751 )                 (6,751 )

Series B Preferred Stock dividends declared ($1.75 per share)

                      (276 )                 (276 )

Common stock issued for 401(k) match (321,110 shares)

          80       1,811                         1,891  

Common stock issued to pension plans (1,190,000 shares)

          298       5,272                         5,570  

Common stock issued to directors (98,310 shares)

          25       392                         417  

Other comprehensive loss

                            32,183             32,183  

Balances, June 30, 2022

  $ 39     $ 137,241     $ 2,043,621     $ (370,048 )   $ 3,727     $ (31,698 )   $ 1,782,882  

 

   

Six Months Ended June 30, 2021

 
   

Series B

Preferred

Stock

   

Common

Stock

   

Capital
Surplus

   

Accumulated

Deficit

   

Accumulated

Other

Comprehensive

Income

(Loss), net

   

Treasury

Stock

   

Total

 

Balances, January 1, 2021

  $ 39     $ 134,629     $ 2,003,576     $ (368,074 )   $ (32,889 )   $ (23,496 )   $ 1,713,785  

Net income

                      24,199                   24,199  

Restricted stock units granted

                1,459                         1,459  

Restricted stock units distributed (1,653,000 shares)

          413       (413 )                 (4,525 )     (4,525 )

Common stock dividends declared (2 cents per common share)

                      (10,715 )                 (10,715 )

Series B Preferred Stock dividends declared ($1.75 per share)

                      (276 )                 (276 )

Common stock issued for 401(k) match (382,000 shares)

          96       2,306                         2,402  

Common stock issued to pension plans (3,500,000 shares)

          875       15,925                         16,800  

Common stock issued to directors (207,000 shares)

          52       1,792                         1,844  

Other comprehensive loss

                            3,452             3,452  

Balances, June 30, 2021

  $ 39     $ 136,065     $ 2,024,645     $ (354,866 )   $ (29,437 )   $ (28,021 )   $ 1,748,425  

 

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

 

 

 

Note 1.    Basis of Preparation of Financial Statements

 

The accompanying unaudited interim condensed consolidated financial statements of Hecla Mining Company and its subsidiaries (collectively, “Hecla,” “the Company,” “we,” “our,” or “us,” except where the context requires otherwise) have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required annually by generally accepted accounting principles in the United States (“GAAP”). Therefore, this information should be read in conjunction with Hecla Mining Company’s consolidated financial statements and notes contained in our annual report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”). The consolidated December 31, 2021 balance sheet data was derived from our audited consolidated financial statements. The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods reported. All such adjustments are, in the opinion of management, of a normal recurring nature. Operating results for the three- and six-month periods ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

 

The 2019 novel strain of coronavirus (“COVID-19”) was characterized as a global pandemic by the World Health Organization on March 11, 2020. We continue to take precautionary measures to mitigate the impact of COVID-19, including implementing operational plans and practices. As long as they are required, the operational practices implemented could continue to have an adverse impact on our operating results due to deferred production and revenues or additional costs. We incurred $0.1 million and $0.4 million in COVID-19 mitigation costs during the three and six months ended June 30, 2022 compared to $1.4 million and $3.0 million during the three and six months ended June 30, 2021, respectively. We continue to monitor the rapidly evolving situation and guidance from federal, state, local and foreign governments and public health authorities and may take additional actions based on their recommendations. The extent of the impact of COVID-19 on our business and financial results will also depend on future developments, including the duration and spread of the outbreak and the success of the current vaccination programs and the related impact on prices, demand, creditworthiness and other market conditions and governmental reactions, all of which are highly uncertain.

 

 

Note 2.    Business Segments and Sales of Products

 

We discover, acquire and develop mines and other mineral interests and produce and market (i) concentrates, containing silver, gold, lead and zinc, (ii) carbon material containing silver and gold, and (iii) doré containing silver and gold. We are currently organized and managed in four segments: Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations.

 

General corporate activities not associated with operating mines and their various exploration activities, as well as discontinued operations and idle properties, are presented as “other.”  Interest expense, interest income and income and mining taxes are considered general corporate items, and are not allocated to our segments.

 

8

 

The following tables present information about our reportable segments for the three and six months ended June 30, 2022 and 2021 (in thousands):

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Net sales to unaffiliated customers:

                               

Greens Creek

  $ 92,723     $ 113,763     $ 178,813     $ 212,172  

Lucky Friday

    35,880       39,645       73,920       68,767  

Casa Berardi

    62,639       56,122       124,740       129,033  

Nevada Operations

          8,450       268       18,687  

Other

          3             176  
    $ 191,242     $ 217,983     $ 377,741     $ 428,835  

Income (loss) from operations:

                               

Greens Creek

  $ 27,803     $ 56,433     $ 62,389     $ 101,033  

Lucky Friday

    5,528       11,737       14,299       18,060  

Casa Berardi

    (572 )     (529 )     (3,271 )     11,177  

Nevada Operations

    (9,728 )     (20,341 )     (21,963 )     (23,481 )

Other

    (15,319 )     (18,158 )     (28,984 )     (36,618 )
    $ 7,712     $ 29,142     $ 22,470     $ 70,171  

 

The following table presents identifiable assets by reportable segment as of June 30, 2022 and December 31, 2021 (in thousands):

 

   

June 30, 2022

   

December 31, 2021

 

Identifiable assets:

               

Greens Creek

  $ 580,692     $ 589,944  

Lucky Friday

    524,734       516,545  

Casa Berardi

    699,134       701,868  

Nevada Operations

    468,901       468,985  

Other

    443,642       451,466  
    $ 2,717,103     $ 2,728,808  

 

Sales by metal for the three- and six-month periods ended June 30, 2022 and 2021 were as follows (in thousands):

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2022

   

2021

   

2022

   

2021

 
                                 

Silver

  $ 70,050     $ 92,765     $ 136,382     $ 170,525  

Gold

    82,018       86,078       159,186       187,487  

Lead

    21,314       22,223       40,878       38,116  

Zinc

    31,176       30,037       66,814       59,228  

Less: Smelter and refining charges

    (13,316 )     (13,120 )     (25,519 )     (26,521 )
    $ 191,242     $ 217,983     $ 377,741     $ 428,835  

 

Sales included net gains of $11.3 million and $6.6 million for the second quarter and first half of 2022, respectively, on financially-settled forward contracts for silver, gold, lead and zinc contained in our sales. Sales included net losses of $3.3 million and $0.5 million for the second quarter and first half of 2021, respectively, on such contracts. See Note 8 for more information.

 

 

 

Note 3.   Income and Mining Taxes

 

Major components of our income and mining tax benefit (provision) for the three and six months ended June 30, 2022 and 2021 are as follows (in thousands):

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Current:

                               

Domestic

  $ (446 )   $ (3,036 )   $ (2,549 )   $ (5,313 )

Foreign

    (1,346 )     (826 )     (3,087 )     (3,112 )

Total current income and mining tax provision

    (1,792 )     (3,862 )     (5,636 )     (8,425 )
                                 

Deferred:

                               

Domestic

    (2,150 )     4,117       (7,241 )     4,436  

Foreign

    3,688       3,879       6,992       3,380  

Total deferred income and mining tax benefit

    1,538       7,996       (249 )     7,816  

Total income and mining tax benefit (provision)

  $ (254 )   $ 4,134     $ (5,885 )   $ (609 )

 

The income and mining tax benefit (provision) for the three and six months ended June 30, 2022 and 2021 varies from the amounts that would have resulted from applying the statutory tax rates to pre-tax income due primarily to the impact of taxation in foreign jurisdictions and non-recognition of net operating losses and foreign exchange gains and losses in certain jurisdictions.

 

For the three-month and six-month periods ended June 30, 2022, we used the annual effective tax rate method to calculate the tax provision, a change from the discrete method used for the three- and six-month periods ended June 30, 2021, due to reversal of valuation allowance in the fourth quarter of 2021. Valuation allowances on Nevada, Mexico and certain Canadian net operating losses were treated as discrete adjustments to the annual effective tax rate method calculation, partially causing the increase in the income tax rate for the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021.

 

 

Note 4.   Employee Benefit Plans

 

We sponsor defined benefit pension plans covering substantially all U.S. employees.  Net periodic pension cost for the plans consisted of the following for the three and six months ended June 30, 2022 and 2021 (in thousands):

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Service cost

  $ 1,566     $ 1,455     $ 3,131     $ 2,910  

Interest cost

    1,369       1,248       2,738       2,496  

Expected return on plan assets

    (3,363 )     (2,313 )     (6,726 )     (4,626 )

Amortization of prior service cost

    128       99       256       198  

Amortization of net loss

    512       1,125       1,024       2,250  

Net periodic pension cost

  $ 212     $ 1,614     $ 423     $ 3,228  

 

For the three- and six-month periods ended June 30, 2022 and 2021, the service cost component of net periodic pension cost is included in the same line items of our condensed consolidated financial statements as other employee compensation costs. The net expense related to all other components of net periodic pension cost of $1.4 million and $2.7 million, respectively, for the three- and six-month periods ended June 30, 2022, and $0.2 million and $0.3 million for the three- and six-month periods ended June 30, 2021, respectively, is included in other (expense) income on our condensed consolidated statements of operations and comprehensive income (loss).

 

10

 

During May 2022, we contributed $5.6 million in shares of our common stock to two of our defined benefit plans. In January 2021, we contributed $16.8 million in shares of our common stock to our supplemental executive retirement plan. We do not expect to be required to make additional contributions to our defined benefit pension plans in 2022, but may elect to do so.

 

 

Note 5.    (Loss) Income Per Common Share

 

We calculate basic (loss) income per common share on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted income per share is calculated using the weighted average number of shares of common stock outstanding during the period plus the effect of potential dilutive common shares during the period using the treasury stock and if-converted methods.

 

Potential dilutive shares of common stock include outstanding unvested restricted stock awards, stock units, warrants and convertible preferred stock for periods in which we have reported net income. For periods in which we report net losses, potential dilutive shares of common stock are excluded, as their conversion and exercise would be anti-dilutive.

 

The following table represents net (loss) income per common share – basic and diluted (in thousands, except income (loss) per share): 

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Numerator

                               

Net (loss) income

  $ (13,523 )   $ 2,748     $ (9,370 )   $ 24,199  

Preferred stock dividends

    (138 )     (138 )     (276 )     (276 )

Net (loss) income applicable to common shares

  $ (13,661 )   $ 2,610     $ (9,646 )   $ 23,923  
                                 

Denominator

                               

Basic weighted average common shares

    539,401       535,531       538,943       534,819  

Dilutive restricted stock units, warrants and deferred shares

          6,731             6,649  

Diluted weighted average common shares

    539,401       542,262       538,943       541,468  
                                 

Basic (loss) income per common share

  $ (0.03 )   $ 0.01     $ (0.02 )   $ 0.04  

Diluted (loss) income per common share

  $ (0.03 )   $ 0.01     $ (0.02 )   $ 0.04  

 

For the three and six months ended June 30, 2022, all outstanding restricted stock units, warrants and deferred shares were excluded from the computation of diluted loss per share, as our reported net losses for those periods would cause their conversion and exercise to have no effect on the calculation of loss per share. For the three months ended June 30, 2021, the calculation of diluted income per common share included (i) 2,960,950 restricted stock units, (ii) 1,635,675 warrants to purchase one share of common stock and (iii) 2,134,009 deferred shares of common stock that were dilutive. For the six months ended June 30, 2021, the calculation of diluted income per common share included (i) 2,923,515 restricted stock units, (ii) 1,591,935 warrants to purchase one share of common stock and (iii) 2,134,009 deferred shares that were dilutive.

 

 

 

Note 6.    StockholdersEquity

 

Stock-based Compensation Plans

 

The Company has stock incentive plans for executives, directors and eligible employees. Stock awards include performance shares, restricted stock and stock options. Stock-based compensation expense for restricted stock unit and performance-based grants (collectively "incentive compensation") to employees and shares issued to non-employee directors totaled $1.3 million and $2.5 million for the three and six months ended June 30, 2022, respectively, and $2.8 million and $3.3 million for the three and six months ended June 30, 2021, respectively. At June 30, 2022, there was $9.1 million of unrecognized stock-based compensation cost which is expected to be recognized over a weighted-average remaining vesting period of 2.4 years.

 

The following table summarizes the grants awarded during the six months ended June 30, 2022:

 

Grant date

Award type

 

Number granted

   

Grant date fair value

 

June 21, 2022

Restricted stock

    1,103,801       $4.43  

June 21, 2022

Performance based

    322,799       $3.78  

June 28, 2022

Directors retainer

    98,310       $4.24  

 

In connection with the vesting of incentive compensation, employees have in the past, at their election and when permitted by us, chosen to satisfy their minimum tax withholding obligations through net share settlement, pursuant to which the Company withholds the number of shares necessary to satisfy such withholding obligations and pays the obligations in cash.  As a result, in the first six months of 2022 we withheld 737,258 shares valued at approximately $3.7 million, or approximately $4.99 per share. In the first six months of 2021 we withheld 574,251 shares valued at approximately $4.5 million, or approximately $7.88 per share.

 

Common Stock Dividends

 

On May 5, 2022, our Board of Directors declared a quarterly cash dividend of $0.00625 per share of common stock, consisting of $0.00375 per share for the minimum dividend component of our common stock dividend policy and $0.0025 per share for the silver-linked dividend component of the policy, for a total dividend of $3.4 million paid in June 2022. The realized silver price of $24.68 in the first quarter of 2022 satisfied the criterion for the silver-linked dividend component of our common stock dividend policy.

 

 

Note 7.    Debt, Credit Facility and Leases

 

Our debt as of June 30, 2022 and December 31, 2021 consisted of our 7.25% Senior Notes due February 15, 2028 (“Senior Notes”) and our Series 2020-A Senior Notes due July 9, 2025 (the “IQ Notes”). The following tables summarize our long-term debt balances, excluding interest, as of June 30, 2022 and December 31, 2021 (in thousands):

 

   

June 30, 2022

 
   

Senior Notes

   

IQ Notes

   

Total

 

Principal

  $ 475,000     $ 37,433     $ 512,433  

Unamortized discount/premium and issuance costs

    (5,096 )     504       (4,592 )

Long-term debt balance

  $ 469,904     $ 37,937     $ 507,841  

 

12

 
   

December 31, 2021

 
   

Senior Notes

   

IQ Notes

   

Total

 

Principal

  $ 475,000     $ 38,051     $ 513,051  

Unamortized discount/premium and issuance costs

    (5,552 )     596       (4,956 )

Long-term debt balance

  $ 469,448     $ 38,647     $ 508,095  

 

The following table summarizes the scheduled annual future payments, including interest, for our Senior Notes, IQ Notes, and finance and operating leases as of June 30, 2022 (in thousands). The amounts for the IQ Notes are stated in U.S. dollars (“USD”) based on the USD/Canadian dollar (“CAD”) exchange rate as of June 30, 2022.

 

Twelve-month
period ending
June 30,

 

Senior Notes

   

IQ Notes

   

Finance Leases

   

Operating Leases

 

2023

  $ 34,438     $ 2,441     $ 6,424     $ 3,011  

2024

    34,438       2,441       5,220       2,041  

2025

    34,438       2,441       3,070       1,072  

2026

    34,438       37,528       1,213       1,059  

2027

    34,438                   1,010  

Thereafter

    496,521                   6,043  

Total

  $ 668,711     $ 44,851     $ 15,927     $ 14,236  

 

Credit Facility

 

In July 2018, we entered into a $250 million senior secured revolving credit facility which has a term ending on February 7, 2023. As of June 30, 2022 and December 31, 2021, no amounts were outstanding under the facility.

 

We are also able to obtain letters of credit under the facility, and for any such letters we are required to pay a participation fee of between 2.25% and 4.00% of the amount of the letters of credit based on our total leverage ratio, as well as a fronting fee to each issuing bank of 0.20% annually on the average daily dollar amount of any outstanding letters of credit. There were $14.9 million in letters of credit outstanding as of June 30, 2022. Letters of credit that are outstanding reduce availability under the revolving credit facility. See Note 12 regarding the termination of this Credit Facility and entry into a new facility.

 

We believe we were in compliance with all covenants under the credit agreement as of June 30, 2022. 

 

 

Note 8.    Derivative Instruments

 

General

 

Our current risk management policy provides that up to 75% of five years foreign currency, lead and zinc metals price and silver and gold price exposure may be covered under a derivatives program with certain other limitations. The silver and gold price program can only establish a floor (puts). We are currently do not have a silver and gold program. Our program also utilizes derivatives to manage price risk exposure created from when revenue is recognized from a shipment of concentrate until final settlement.

 

These instruments expose us to (i) credit risk in the form of non-performance by counterparties for contracts in which the contract price exceeds the spot price of the hedged commodity or foreign currency and (ii) price risk to the extent that the spot price exceeds the contract price for quantities of our production and/or forecasted costs covered under contract positions.

 

13

 

Foreign Currency

 

Our wholly-owned subsidiary owning the Casa Berardi operation is a USD-functional entity which routinely incurs expenses denominated in CAD.  Such expenses expose us to exchange rate fluctuations between the USD and CAD.  We have a program to manage our exposure to fluctuations in the exchange rate between the USD and CAD for this subsidiary's future operating costs denominated in CAD.  The program utilizes forward contracts to buy CAD, and each contract is designated as a cash flow hedge.  As of June 30, 2022, we have 161 forward contracts outstanding to buy a total of CAD$321.8 million having a notional amount of USD$247.9 million.  The CAD contracts are related to forecasted cash operating costs at Casa Berardi to be incurred from 2021 through 2024 and have CAD-to-USD exchange rates ranging between 1.2702 and 1.3333.  

 

As of June 30, 2022 and December 31, 2021, we recorded the following balances for the fair value of the contracts (in millions):

 

   

June 30,

   

December 31,

 

 

 

2022

   

2021

 
Balance sheet line item:            

Current derivatives assets

  $ 1.1     $ 2.7  

Non-current derivatives assets

    1.3       2.5  

Current derivative liabilities

    0.3        

Non-current derivative liabilities

    0.2        

 

Net unrealized gains of approximately $2.0 million related to the effective portion of the hedges were included in accumulated other comprehensive income (loss) as of June 30, 2022.  Unrealized gains and losses will be transferred from accumulated other comprehensive income (loss) to current earnings as the underlying operating expenses are recognized.  We estimate approximately 0.8 million in net unrealized gains included in accumulated other comprehensive income (loss) as of June 30, 2022, will be reclassified to current earnings in the next twelve months.  Net realized gains of approximately $0.8 million and $1.8 million on contracts related to underlying expenses which have been recognized were transferred from accumulated other comprehensive income (loss) and included in cost of sales and other direct production costs for the three and six months ended June 30, 2022, respectively.  No net unrealized gains or losses related to ineffectiveness of the hedges were included in current earnings for the six months ended June 30, 2022. Net gains of approximately $0.3 million and $0.7 million for the three and six months ended June 30, 2022, related to contracts not designated as hedges were included in fair value adjustments, net on our consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2022.

 

Metals Prices

 

We are currently using financially-settled forward contracts to manage the exposure to:

 

changes in prices of silver, gold, zinc and lead contained in our concentrate shipments between the time of shipment and final settlement; and

 

changes in prices of zinc and lead (but not silver and gold) contained in our forecasted future concentrate shipments.

 

14

 

The following tables summarize the quantities of metals committed under forward sales contracts at June 30, 2022 and December 31, 2021:

 

June 30, 2022

 

Ounces/pounds under contract (in 000's)

   

Average price per ounce/pound

 
   

Silver

   

Gold

   

Zinc

   

Lead

   

Silver

   

Gold

   

Zinc

   

Lead

 
   

(ounces)

   

(ounces)

   

(pounds)

   

(pounds)

   

(ounces)

   

(ounces)

   

(pounds)

   

(pounds)

 

Contracts on provisional sales

                                                               

2022 settlements

    1,729       3       6,504       3,638     $ 22.19     $ 1,836     $ 1.58     $ 0.90  

Contracts on forecasted sales

                                                               

2022 settlements

                38,030       34,778       N/A       N/A     $ 1.31     $ 0.98  

2023 settlements

                78,264       75,618       N/A       N/A     $ 1.30     $ 1.00  

2024 settlements

                78,760       31,526       N/A       N/A     $ 1.34     $ 1.01  

2025 settlements

                1,157             N/A       N/A     $ 1.37       N/A  

 

December 31, 2021

 

Ounces/pounds under contract (in 000's)

   

Average price per ounce/pound

 
   

Silver

   

Gold

   

Zinc

   

Lead

   

Silver

   

Gold

   

Zinc

   

Lead

 
   

(ounces)

   

(ounces)

   

(pounds)

   

(pounds)

   

(ounces)

   

(ounces)

   

(pounds)

   

(pounds)

 

Contracts on provisional sales

                                                               

2022 settlements

    1,814       6       13,371       4,575     $ 23.02     $ 1,812     $ 1.39     $ 0.96  

Contracts on forecasted sales

                                                               

2022 settlements

                57,706       59,194       N/A       N/A     $ 1.28     $ 0.98  

2023 settlements

                76,280       71,650       N/A       N/A     $ 1.29     $ 1.00  

 

Effective November 1, 2021, we designated the contracts for lead and zinc contained in our forecasted future shipments as hedges for accounting purposes, with gains and losses deferred to accumulated other comprehensive loss until the hedged product ships. Prior to November 1, 2021, these contracts had not been designated as hedges for hedge accounting and were therefore marked-to-market through earnings each period. The forward contracts for silver and gold contained in our concentrate shipments have not been designated as hedges and are marked-to-market through earnings each period. 

 

We recorded the following balances for the fair value of the forward contracts as of June 30, 2022 and forward and put option contracts as of December 31, 2021 (in millions):

 

   

June 30, 2022

   

December 31, 2021

 

 

 

Contracts in an
asset position

   

Contracts in
a liability
position

   

Net asset
(liability)

   

Contracts in
an asset
position

   

Contracts in a
liability
position

   

Net asset
(liability)

 
Balance sheet line item:                                    

Current derivatives assets

  $ 8.8     $     $ 8.8     $     $     $  

Non-current derivative assets

  $ 11.6     $       11.6     $     $     $  

Current derivatives liabilities

          (3.9 )     (3.9 )     0.7       (20.1 )     (19.4 )

Non-current derivatives liabilities

          (0.4 )     (0.4 )     0.4       (18.9 )     (18.5 )

 

Net unrealized gains of approximately $15.6 million related to the effective portion of the contracts designated as hedges were included in accumulated other comprehensive income (loss) as of June 30, 2022. Unrealized gains and losses will be transferred from accumulated other comprehensive income (loss) to current earnings as the underlying sales are recognized. We estimate approximately $6.0 million in net unrealized gains included in accumulated other comprehensive income (loss) as of June 30, 2022 would be reclassified to current earnings in the next twelve months. We recognized a net gain of $11.3 million, including a $4.2 million loss transferred from accumulated other comprehensive income (loss), during the three months ended June 30, 2022. For the six months ended June 30, 2022, we recognized a net gain of $6.6 million, including a $3.8 million loss transferred from accumulated other comprehensive income (loss). These losses were recognized on the contracts utilized to manage exposure to prices of metals in our concentrate shipments, which is included in sales.  The net losses and gains recognized on the contracts offset gains and losses related to price adjustments on our provisional concentrate sales due to changes to silver, gold, lead and zinc prices between the time of sale and final settlement.

 

15

 

We recognized net losses of  $17.3 million and $16.8 million during the second quarter and first half of  2021, respectively, on the contracts utilized to manage exposure to prices for forecasted future sales, which were not designated as hedges. The net losses on these contracts are included as a separate line item under other income (expense), as they relate to forecasted future sales, as opposed to sales that have already taken place but are subject to final pricing as discussed in the preceding paragraph. 

 

Credit-risk-related Contingent Features

 

Certain of our derivative contracts contain cross default provisions which provide that a default under our revolving credit agreement would cause a default under the derivative contract. As of June 30, 2022, we have not posted any collateral related to these contracts. The fair value of derivatives in a net liability position related to these agreements was $12.2 million as of June 30, 2022, which includes accrued interest but excludes any adjustment for nonperformance risk. If we were in breach of any of these provisions at June 30, 2022, we could have been required to settle our obligations under the agreements at their termination value of $12.2 million.

 

 

Note 9.    Fair Value Measurement

 

Fair value adjustments, net is comprised of the following:

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2022

   

2021

   

2022

   

2021

 

(Loss) gain on derivative contracts

  $ (689 )   $ (17,313 )   $ (893 )   $ (16,840 )

Unrealized gain (loss) on investments in equity securities

    (15,739 )     (750 )     (9,639 )     (4,256 )

Gain on disposition or exchange of investments

                69       1,158  

Total fair value adjustments, net

  $ (16,428 )   $ (18,063 )   $ (10,463 )   $ (19,938 )

 

Accounting guidance has established a hierarchy for inputs used to measure assets and liabilities at fair value on a recurring basis. The three levels included in the hierarchy are:

 

Level 1: quoted prices in active markets for identical assets or liabilities;

 

Level 2: significant other observable inputs; and

 

Level 3: significant unobservable inputs.

 

16

 

The table below sets forth our assets and liabilities that were accounted for at fair value on a recurring basis and the fair value calculation input hierarchy level that we have determined applies to each asset and liability category (in thousands).  

 

Description

 

Balance at

June 30, 2022

   

Balance at

December 31, 2021

 

Input

Hierarchy Level

Assets:

                 

Cash and cash equivalents:

                 

Money market funds and other bank deposits

  $ 198,193     $ 210,010  

Level 1

Current and non-current investments

                 

Equity securities

    23,931       14,470  

Level 1

Trade accounts receivable:

                 

Receivables from provisional concentrate sales

    17,828       36,437  

Level 2

Restricted cash balances:

                 

Certificates of deposit and other deposits

    1,041       1,053  

Level 1

Derivative contracts - current and non-current derivatives assets:

                 

Foreign exchange contracts

    2,414       5,207  

Level 2

Metal forward and put option contracts

    20,406        

Level 2

Total assets

  $ 263,813     $ 267,177    
                   

Liabilities:

                 

Derivative contracts - current derivatives liabilities and other non-current liabilities:

                 

Foreign exchange contracts

  $ 529     $ 8  

Level 2

Metal forward and put option contracts

    4,221       37,873  

Level 2

Total liabilities

  $ 4,750     $ 37,881    

 

Cash and cash equivalents consist primarily of money market funds and are valued at cost, which approximates fair value, and a small portion consists of municipal bonds having maturities of less than 90 days, which are recorded at fair value.

 

Current and non-current restricted cash balances consist primarily of certificates of deposit, U.S. Treasury securities, and other deposits and are valued at cost, which approximates fair value.

 

Our non-current available for sale securities consist of marketable equity securities of companies in the mining industry which are valued using quoted market prices for each security.

 

Trade accounts receivable from provisional concentrate sales are subject to final pricing and valued using quoted prices based on forward curves for the particular metals.  The embedded derivative contained in our concentrate sales is adjusted to fair market value through earnings each period prior to final settlement.

 

We use financially-settled forward contracts to manage exposure to changes in the exchange rate between USD and CAD, and the impact on CAD-denominated operating costs incurred at our Casa Berardi unit (see Note 8 for more information). The fair value of each contract represents the present value of the difference between the forward exchange rate for the contract settlement period as of the measurement date and the contract settlement exchange rate.

 

We use financially-settled forward contracts to manage the exposure to changes in prices of silver, gold, zinc and lead contained in our concentrate shipments that have not reached final settlement.  We also use financially-settled forward contracts to manage the exposure to changes in prices of silver, gold, zinc and lead contained in our forecasted future sales (see Note 8 for more information).  The fair value of each forward contract represents the present value of the difference between the forward metal price for the contract settlement period as of the measurement date and the contract settlement metal price.

 

At June 30, 2022, our Senior Notes and IQ Notes were recorded at their carrying value of $469.9 million and $37.9 million, respectively, net of unamortized initial purchaser discount/premium and issuance costs. The estimated fair values of our Senior Notes and IQ Notes were $453.3 million and $35.8 million, respectively, at June 30, 2022. Quoted market prices, which we consider to be Level 1 inputs, are utilized to estimate fair values of the Senior Notes. Unobservable inputs which we consider to be Level 3, including an assumed current annual yield of 8.2%, are utilized to estimate the fair value of the IQ Notes. See Note 7 for more information.

 

 

 

Note 10.    Commitments, Contingencies and Obligations

 

General

 

We follow GAAP guidance in determining our accruals and disclosures with respect to loss contingencies, and evaluate such accruals and contingencies for each reporting period. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable that a liability could be incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred.

 

Johnny M Mine Area near San Mateo, McKinley County and San Mateo Creek Basin, New Mexico

 

In August 2012, Hecla Limited and the EPA entered into a Settlement Agreement and Administrative Order on Consent for Removal Action (“Consent Order”) regarding the Johnny M Mine Area near San Mateo, McKinley County, New Mexico. Mining at the Johnny M Mine was conducted for a limited period of time by a predecessor of Hecla Limited, and the EPA had previously asserted that Hecla Limited may be responsible under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) for environmental remediation and past costs incurred by the EPA at the site. Under the Consent Order, Hecla Limited agreed to pay (i) $1.1 million to the EPA for its past response costs at the site and (ii) any future response costs at the site under the Consent Order, in exchange for a covenant not to sue by the EPA. In December 2014, Hecla Limited submitted to the EPA the Engineering Evaluation and Cost Analysis (“EE/CA”) for the site which recommended on-site disposal of mine-related material. In January 2021, the parties began negotiating a new consent order to design and implement the on-site disposal response action recommended in the EE/CA. Based on the foregoing, we believe it is probable that Hecla Limited will incur a liability for the CERCLA removal action and we increased our accrual by $2.9 million to $9.0 million in the first quarter of 2021, primarily representing estimated costs to begin design and implementation of the remedy. It is possible that Hecla Limited’s liability will be more than $9.0 million, and any increase in liability could have a material adverse effect on Hecla Limited’s or our results of operations or financial position.

 

The Johnny M Mine is in an area known as the San Mateo Creek Basin (“SMCB”), which is an approximately 321 square mile area in New Mexico that contains numerous legacy uranium mines and mills. In addition to Johnny M, Hecla Limited’s predecessor was involved at other mining sites within the SMCB. The EPA appears to have deferred consideration of listing the SMCB site on CERCLA’s National Priorities List (“Superfund”) by removing the site from its emphasis list, and is working with various potentially responsible parties (“PRPs”) at the site in order to study and potentially address perceived groundwater issues within the SMCB. The EE/CA discussed above relates primarily to contaminated rock and soil at the Johnny M site, not groundwater and not elsewhere within the SMCB site. It is possible that Hecla Limited’s liability at the Johnny M Site, and for any other mine site within the SMCB at which Hecla Limited’s predecessor may have operated, will be greater than our current accrual of $9.0 million due to the increased scope of required remediation.

 

In July 2018, the EPA informed Hecla Limited that it and several other PRPs may be liable for cleanup of the SMCB site or for costs incurred by the EPA in cleaning up the site. The EPA stated it has incurred approximately $9.6 million in response costs to date. On May 2, 2022, Hecla Limited received a letter from an attorney representing a PRP notifying Hecla Limited that three PRPs will seek cost recovery and contribution from Hecla Limited under CERCLA for certain investigatory work performed by the PRPs at the SMCB site. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning the site, including the relative contributions of contamination by the various PRPs.

 

18

 

Carpenter Snow Creek and Barker-Hughesville Sites in Montana

 

In July 2010, the EPA made a formal request to Hecla for information regarding the Carpenter Snow Creek Superfund site located in Cascade County, Montana. The Carpenter Snow Creek site is located in a historic mining district, and in the early 1980s Hecla Limited leased 6 mining claims and performed limited exploration activities at the site. Hecla Limited terminated the mining lease in 1988.

 

In June 2011, the EPA informed Hecla Limited that it believes Hecla Limited, and several other PRPs, may be liable for cleanup of the site or for costs incurred by the EPA in cleaning up the site. The EPA stated in the letter that it has incurred approximately $4.5 million in response costs and estimated that total remediation costs may exceed $100 million. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning the site, including the relative contributions of contamination by various other PRPs.

 

In February 2017, the EPA made a formal request to Hecla for information regarding the Barker-Hughesville Mining District Superfund site located in Judith Basin and Cascade Counties, Montana. Hecla Limited submitted a response in April 2017. The Barker-Hughesville site is located in a historic mining district, and between approximately June and December 1983, Hecla Limited was party to an agreement with another mining company under which limited exploration activities occurred at or near the site.

 

In August 2018, the EPA informed Hecla Limited that it and several other PRPs may be liable for cleanup of the site or for costs incurred by the EPA in cleaning up the site. The EPA did not include an amount of its alleged response costs to date. Hecla Limited cannot with reasonable certainty estimate the amount or range of liability, if any, relating to this matter because of, among other reasons, the lack of information concerning past or anticipated future costs at the site and the relative contributions of contamination by various other PRPs.

 

Greens Creek and Lucky Friday Environmental Issues

 

On June 30, 2022, our Greens Creek mine received a Notice of Violation ( “NOV”) from the EPA alleging that the mine treated, stored, and disposed of certain hazardous waste without a permit in violation of the Resource Conservation and Recovery Act (“RCRA”), relating to the alleged presence of lead outside the concentrate storage building and the alleged improper reuse/recycling of certain materials produced from the on-site laboratories. The NOV contained two other less significant alleged violations. We disagree with several of EPA’s allegations on a factual and legal basis.

 

Currently, the EPA has not initiated any formal enforcement proceeding against our Greens Creek subsidiary. In civil judicial cases, EPA can seek statutory penalties up to $81,540 per day per violation and, in administrative settlements, EPA can seek administrative penalties up to $47,423 per day per violation plus the economic benefit of noncompliance. EPA typically pursues administrative penalties and assesses lower penalties on a per day basis. At this time, we cannot reasonably assess the amount of penalties EPA may seek, or predict the terms of any potential settlement with the EPA.

 

On July 12, 2022, our Lucky Friday mine received a NOV from the EPA alleging violations of the Clean Water Act (“CWA”) between 2018 and 2021 relating primarily to concentration levels of zinc and lead in the mine’s permitted water discharges.  Currently, the EPA has not initiated any formal enforcement proceeding against our Lucky Friday subsidiary.  In civil judicial cases, EPA can seek statutory penalties up to $59,973 per day per violation and, in administrative actions, EPA can seek administrative penalties up to $23,989 per day per violation with a maximum administrative penalty of $299,989 for all alleged violations.  EPA typically pursues administrative penalties.  At this time, we cannot reasonably assess the amount of penalties EPA may seek, or predict the terms of any potential settlement with the EPA.

 

19

 

Litigation Related to Klondex Acquisition

 

On May 24, 2019, a purported Hecla stockholder filed a putative class action lawsuit in the U.S. District Court for the Southern District of New York against Hecla and certain of our executive officers, one of whom is also a director. The complaint, purportedly brought on behalf of all purchasers of Hecla common stock from March 19, 2018 through and including May 8, 2019, asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and seeks, among other things, damages and costs and expenses. Specifically, the complaint alleges that Hecla, under the authority and control of the individual defendants, made certain material false and misleading statements and omitted certain material information regarding Hecla’s Nevada Operations. The complaint alleges that these misstatements and omissions artificially inflated the market price of Hecla common stock during the class period, thus purportedly harming investors. Filings with the court regarding our motion to dismiss the lawsuit were completed in the first quarter of 2021. We cannot predict the outcome of this lawsuit or estimate damages if plaintiffs were to prevail. We believe that these claims are without merit and intend to defend them vigorously.

 

Related to this class action lawsuit, Hecla has been named as a nominal defendant in a shareholder derivative lawsuit which also names as defendants certain current and past (i) members of Hecla’s board of directors and (ii) officers of Hecla. The case was filed on May 4, 2022 in the Delaware Chancery Court. In general terms, the suit alleges breaches of fiduciary duties by the individual defendants, waste of corporate assets and unjust enrichment, and seeks damages, purportedly on behalf of Hecla.

 

Debt

 

See Note 7 for information on the commitments related to our debt arrangements as of June 30, 2022.

 

Other Commitments

 

Our contractual obligations as of June 30, 2022 included open purchase orders and commitments of approximately $8.1 million, $19.1 million, $1.3 million and $3.4 million for various capital and non-capital items at Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations, respectively. We also have total commitments of approximately $15.9 million relating to scheduled payments on finance leases, including interest, primarily for equipment at our Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations units, and total commitments of approximately $14.2 million relating to payments on operating leases (see Note 7 for more information). As part of our ongoing business and operations, we are required to provide surety bonds, bank letters of credit, and restricted deposits for various purposes, including financial support for environmental reclamation obligations and workers compensation programs. As of June 30, 2022, we had surety bonds totaling $181.8 million and letters of credit totaling $14.9 million in place as financial support for future reclamation and closure costs, self-insurance, and employee benefit plans. The obligations associated with these instruments are generally related to performance requirements that we address through ongoing operations. As the requirements are met, the beneficiary of the associated instruments cancels or returns the instrument to the issuing entity. Certain of these instruments are associated with operating sites with long-lived assets and will remain outstanding until closure of the sites. We believe we are in compliance with all applicable bonding requirements and will be able to satisfy future bonding requirements as they arise.

 

Other Contingencies

 

We also have certain other contingencies resulting from litigation, claims, EPA investigations, and other commitments and are subject to a variety of environmental and safety laws and regulations incident to the ordinary course of business. We currently have no basis to conclude that any or all of such contingencies will materially affect our financial position, results of operations or cash flows. However, in the future, there may be changes to these contingencies, or additional contingencies may occur, any of which might result in an accrual or a change in current accruals recorded by us, and there can be no assurance that their ultimate disposition will not have a material adverse effect on our financial position, results of operations or cash flows.

 

 

 

Note 11.    Developments in Accounting Pronouncements

 

Accounting Standards Updates Adopted

 

In August 2020, the Financial Accounting Standards Board (“FASB") issued ASU No. 2020-06 Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The update is to address issues identified as a result of the complexity associated with applying generally accepted accounting principles to certain financial instruments with characteristics of liabilities and equity. The update is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years and with early adoption permitted. We adopted the update as of January 1, 2022, which did not have a material impact on our consolidated financial statements or disclosures.

 

In October 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 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 after December 15, 2022, with early adoption permitted. We adopted the new standard effective January 1, 2022, which did not have a material impact on our consolidated financial statements or disclosures.

 

Accounting Standards Updates to Become Effective in Future Periods

 

In 2017, the United Kingdom’s Financial Conduct Authority ("FCA") announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate ("LIBOR"), which have been widely used as reference rates for various securities and financial contracts, including loans, debt and derivatives. This announcement indicated that the continuation of LIBOR on the current basis would not be guaranteed after 2021. Subsequently in March 2021, the FCA announced some USD LIBOR tenors (overnight, 1 month, 3 month, 6 month and 12 month) will continue to be published until June 30, 2023. Regulators in the U.S. and other jurisdictions have been working to replace these rates with alternative reference interest rates that are supported by transactions in liquid and observable markets, such as the Secured Overnight Financing Rate ("SOFR"). Currently, our credit facility and certain of our derivative instruments reference LIBOR-based rates. Our credit facility contains provisions specifying alternative interest rate calculations to be employed when LIBOR ceases to be available as a benchmark and we have adhered to the ISDA 2020 IBOR Fallbacks Protocol, which will govern our derivatives upon the final cessation of USD LIBOR. ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended, helps limit the accounting impact from contract modifications, including hedging relationships, due to the transition from LIBOR to alternative reference rates that are completed by December 31, 2022. 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.

 

 

Note 12.    Subsequent Events

 

On July 5, 2022, we and Alexco Resource Corp. ("Alexco") a Canadian publicly traded company, announced a definitive agreement for one of our subsidiaries to acquire all of the outstanding common shares of Alexco that Hecla does not already own. Each outstanding common share of Alexco will be exchanged for 0.116 of a share of our common stock implying consideration of US$0.47 per Alexco common share. In addition, we will (i) provide interim financing to provide working capital and support the continued advancement of the development and exploration at Alexco's, Keno Hill mine, of which $20 million was advanced on July 19, 2022 and (ii) subscribe for additional common shares bringing Hecla's ownership stake to 9.9%, which also closed on July 19, 2022.

 

The Company has also entered into an agreement with Wheaton Precious Metals Corporation to terminate its silver streaming interest at Alexco’s Keno Hill property in exchange for US$135 million of Company common stock, conditional upon the completion of the Alexco acquisition.

 

21

 

On July 21, 2022, we entered into a Credit Agreement (“New Credit Agreement”) with the various financial institutions (the “Lenders”), Bank of Montreal and Bank of America, N.A. as letters of credit issuers, and Bank of America, N.A., as administrative agent for the Lenders and as swingline lender, to replace our Prior Credit Agreement, see Note 7 for additional information on this credit agreement. The New Credit Agreement is a $150 million senior secured revolving facility, with an option to be increased in an aggregate amount not to exceed $75 million. The revolving loans under the New Credit Agreement will have a maturity date of July 21, 2026. Proceeds of the revolving loans under the New Credit Agreement may be used to refinance the Prior Credit Agreement and for general corporate purposes. The interest rate on outstanding loans under the New Credit Agreement is, at the option of the Borrowers, one month, three months or six months Term SOFR plus (x) 0.10% for an interest period of one-month’s duration, (y) 0.15% for an interest period of three-month’s duration and (z) 0.25% for an interest period of six-month’s duration plus the Applicable Margin or Base Rate (which is the highest of (i) the Bank of America prime rate, (ii) the Federal Funds rate plus .50% and (iii) Term SOFR plus 1.00%, subject to the interest rate floors) plus the Applicable Margin. The “Applicable Margin” means (a) for the first fiscal quarter ending after the closing date, in the case of Term SOFR loans, 2.25% per annum, and, in the case of Base Rate loans, 1.25% per annum, and (b) thereafter, between 2.00% and 3.50% for Term SOFR loans or between 1.00% and 2.50% for Base Rate loans depending on our total leverage ratio. We are also required to pay quarterly in arrears a commitment fee of between 0.45000% to 0.78750%, depending on our total leverage ratio, of the actual daily amount by which the Aggregate Revolving Commitments exceed the sum of the Outstanding Amount of Revolving Loan and the Outstanding Amount of L/C Obligations. We are also required to pay a participation fee for letters of credit issued under the New Credit Agreement in an amount between 2.00% and 3.50% based on our total leverage ratio, as well as a fronting fee to each issuing bank at an agreed upon rate per annum on the average daily dollar amount of our letter of credit exposure.

 

Hecla Mining Company and certain of its subsidiaries are the borrowers under the New Credit Agreement, while certain of its other subsidiaries are guarantors of the borrowers’ obligations under the New Credit Agreement. As further security, the credit facility is collateralized by a mortgage on the Greens Creek mine, the equity interests of subsidiaries that own the Greens Creek mine or are part of the Greens Creek Joint Venture and our subsidiary Hecla Admiralty Company (the “Greens Creek Group”), and by all of the Green Creek Group’s rights and interests in the Greens Creek Joint Venture Agreement, and in all assets of the joint venture and of any member of the Greens Creek Group.

 

In connection with entry into the New Credit Agreement, the Company’s Prior credit agreement was terminated on July 21, 2022.

 

 

 

 

Forward-Looking Statements

 

Certain statements contained in this Form 10-Q, including in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk, are intended to be covered by the safe harbor provided for under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Our forward-looking statements include our current expectations and projections about future results, performance, results of litigation, prospects and opportunities, including reserves and other mineralization. We have tried to identify these forward-looking statements by using words such as “may,” “will,” “expect,” “anticipate,” “believe,” “intend,” “feel,” “plan,” “estimate,” “project,” “forecast” and similar expressions.  These forward-looking statements are based on information currently available to us and are expressed in good faith and believed to have a reasonable basis.  However, our forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements.

 

These risks, uncertainties and other factors include, but are not limited to, those set forth under Part I, Item 1A.Risk Factors in our 2021 Form 10-K and in Part II, Item 1.A. - Risk Factors in this Form 10-Q. Given these risks and uncertainties, readers are cautioned not to place undue reliance on our forward-looking statements.  All subsequent written and oral forward-looking statements attributable to Hecla Mining Company or to persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.  Except as required by federal securities laws, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

 

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

 

In this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), “Hecla,” “the Company,” “we,” “us” and “our” refer to Hecla Mining Company and its consolidated subsidiaries, except where the context requires otherwise. You should read this discussion in conjunction with our consolidated financial statements, the related MD&A and the discussion of our Business and Properties in our 2021 Form 10-K filed with the United States Securities and Exchange Commission (the “SEC”). The results of operations reported and summarized below are not necessarily indicative of future operating results (refer to “Forward-Looking Statements” above for further discussion). References to “Notes” are Notes included in our Notes to Condensed Consolidated Financial Statements (Unaudited). Throughout MD&A, all references to losses or income per share are on a diluted basis.

 

Overview

 

Established in 1891, we believe we are the oldest operating precious metals mining company in the United States. We are the largest silver producer in the United States, producing over 40% of the United States 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. 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.

 

Second Quarter 2022 Highlights

 

Operational:

 

 

Produced 3.6 million ounces of silver and 45,719 ounces of gold. See Consolidated Results of Operations below for information on total cost of sales and cash costs and AISC, after by-product credits, per silver and gold ounce for the three-month periods ended June 30, 2022 and 2021.

 

Continued mitigation of the impacts of COVID-19 through refinement of our operational plans and procedures to protect our workforce, operations and communities while maintaining liquidity.

 

Financial:

 

 

Reported sales of $191.2 million.

 

Generated $40.2 million in net cash provided by operating activities. See the Financial Liquidity and Capital Resources section below for further discussion.

 

Made capital expenditures (excluding lease additions and other non-cash items) of approximately $34.7 million, including $14.7 million at Greens Creek, $11.5 million at Lucky Friday, $8.1 million at Casa Berardi and $0.3 million at the Nevada Operations.

 

 

 

Generated $5.9 million in free cash flow. A reconciliation of the non-GAAP measure free cash flow to net cash provided by operating activities, the nearest GAAP measure, is included in the Reconciliation of Cash Flows From Operating Activities (GAAP) to Free Cash Flow (Non-GAAP) section below.

 

Returned $3.5 million, or 60% of free cash flows, to our shareholders through payment of dividends.

 

Spent $11.2 million on exploration and pre-development activities.

 

During April made an $11.0 million strategic investment in Alexco. Subsequent to June 30, 2022, we increased our investment in Alexco. See Note 12, of Notes to Condensed Consolidated Financial Statements (unaudited) regarding our proposed acquisition of Alexco.

 

Year to date 2022 Highlights

 

Operational:

 

 

Produced 7.0 million ounces of silver and 87,361 ounces of gold. See Consolidated Results of Operations below for information on total cost of sales and cash costs and AISC, after by-product credits, per silver and gold ounce for the six-month periods ended June 30, 2022 and 2021.

 

Continued our trend of strong safety performance, as our All Injury Frequency Rate (“AIFR”) for the year to date was 1.59, 24% below the U.S. national average for MSHA's “metal and nonmetal” category and within 10% of our AIFR of 1.45 for the full year of 2021.

 

Continued mitigation of the impacts of COVID-19 through refinement of our operational plans and procedures to protect our workforce, operations and communities while maintaining liquidity.

 

Financial:

 

 

Reported sales of $377.7 million.

 

Generated $78.1 million in net cash provided by operating activities. See the Financial Liquidity and Capital Resources section below for further discussion.

 

Made capital expenditures (excluding lease additions and other non-cash items) of approximately $55.8 million, including $17.8 million at Greens Creek, $21.2 million at Lucky Friday, $15.9 million at Casa Berardi and $1.2 million at the Nevada Operations.

 

Generated $22.3 million in free cash flow. A reconciliation of the non-GAAP measure free cash flow to net cash provided by operating activities, the nearest GAAP measure, is included in the Reconciliation of Cash Flows From Operating Activities (GAAP) to Free Cash Flow (Non-GAAP) section below.

 

Returned $7.0 million, or 31% of free cash flows, to our shareholders through payment of dividends.

 

Spent $24.0 million on exploration and pre-development activities.

 

Invested $21.9 million in junior mining companies, including an $11.0 investment in Alexco. See Note 12, of Notes to Condensed Consolidated Financial Statements (unaudited) regarding our proposed acquisition of Alexco.

 

Our current business strategy is to focus our financial and human resources in the following areas:

 

 

executing value enhancing transactions, such as with the proposed Alexco acquisition;

 

rapidly responding to the threats from the COVID-19 pandemic to protect our workforce, operations and communities while maintaining liquidity;

 

operating our properties safely, in an environmentally responsible and cost-effective manner;

 

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

 

 

 

improving operations at each of our mines, which includes incurring costs for new technologies and equipment;

 

expanding our proven and probable reserves, mineral resources and production capacity at our properties;

 

conducting our business with financial stewardship to preserve our financial position in varying metals price and operational environments;

 

advancing permitting of one or both of our Montana projects; and

 

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

 

We strive to achieve excellent mine safety and health performance. We seek to implement this goal by: training employees in safe work practices; establishing, following and improving safety standards; investigating accidents, incidents and losses to avoid recurrence; involving employees in the establishment of safety standards; and participating in the National Mining Association’s CORESafety program. We seek to implement reasonable best practices with respect to mine safety and emergency preparedness. We respond to issues outlined in investigations and inspections by MSHA, the Commission of Labor Standards, Pay Equity and Occupational Health and Safety in Quebec, and the Mexico Ministry of Economy and Mining and continue to evaluate our safety practices. There can be no assurance that our practices will mitigate or eliminate all safety risks. Achieving and maintaining compliance with regulations will be challenging and may increase our operating costs. See 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 in our 2021 Form 10-K.

 

Since its outbreak in 2020, the COVID-19 pandemic continues to impact our operational practices and we continue to incur incremental costs and modify our operational plans to keep our workforce safe. In 2020, the pandemic adversely impacted our expected production of gold at Casa Berardi and exploration drilling at Greens Creek. We incurred $0.1 million and $0.4 million in COVID-19 mitigation costs during the three and six months ended June 30, 2022 compared to $1.4 million and $3.0 million during the three and six months ended June 30, 2021, respectively. To mitigate the impact of COVID-19, we have taken precautionary measures, including implementing operational plans and practices and increasing our cash reserves. As long as they are required, the operational practices implemented could continue to have an adverse impact on our operating results due to additional costs or deferred production and revenues. There is uncertainty related to the potential additional impacts COVID-19 and any subsequent variants could have on our operations and financial results for the rest of 2022. In our 2021 Form 10-K, see Item IA. Risk Factors - Natural disasters, public health crises (including COVID-19), political crises, and other catastrophic events or other events outside of our control may materially and adversely affect our business or financial results and COVID-19 virus pandemic may heighten other risks for information on how restrictions related to COVID-19 have recently affected some of our operations.

 

A number of key factors may impact the execution of our strategy, including regulatory issues and metals prices. 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 in our 2021 Form 10-K and above in Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited). The average realized prices of gold and zinc were higher, with the average realized price for silver and lead lower, in the second three months of 2022 than in the comparable period last year, as illustrated by the table in Results of Operations below. While we believe longer-term global economic and industrial trends could result in continued demand for the metals we produce, prices have been volatile and there can be no assurance that current prices will continue.

 

Volatility in global financial markets and other factors can pose a significant challenge to our ability to access credit and equity markets, should we need to do so, and to predict sales prices for our products. To help mitigate this challenge, we utilize forward contracts to manage exposure to declines in the prices of (i) silver, gold, zinc and lead contained in our concentrates that have been shipped but have not yet settled, and (ii) zinc and lead that we forecast for future concentrate shipments. In addition, we have in place a $250 million revolving credit agreement, of which $14.9 million was used as of June 30, 2022 for letters of credit, leaving approximately $235.1 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 in our 2021 Form 10-K and above in Note 10 of Notes to Condensed Consolidated Financial Statements (Unaudited), 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.

 

 

Consolidated Results of Operations

 

Sales by metal for the three- and six-month periods ended June 30, 2022 and 2021 were as follows:

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 

(in thousands)

 

2022

   

2021

   

2022

   

2021

 

Silver

  $ 70,050     $ 92,765     $ 136,382     $ 170,525  

Gold

    82,018       86,078       159,186       187,487  

Lead

    21,314       22,223       40,878       38,116  

Zinc

    31,176       30,037       66,814       59,228  

Less: smelter charges

    (13,316 )     (13,120 )     (25,519 )     (26,521 )

Sales of products

  $ 191,242     $ 217,983     $ 377,741     $ 428,835  

 

Sales by metal for the three- and six-month periods ended June 30, 2022 and 2021, and the approximate variances attributed to differences in metals prices, sales volumes and smelter terms, were as follows:

 

(in thousands)

 

Silver

   

Gold

   

Base metals

   

Less: smelter
and refining
charges

   

Total sales
of products

 

Three months ended June 30, 2021

  $ 92,765     $ 86,078     $ 52,260     $ (13,120 )   $ 217,983  

Variances - 2022 versus 2021:

                                       

Price

    (21,990 )     1,107       (1,052 )     1,360       (20,575 )

Volume

    (688 )     (5,167 )     1,282       100       (4,473 )

Smelter terms

    (37 )                 (1,656 )     (1,693 )

Three months ended June 30, 2022

  $ 70,050     $ 82,018     $ 52,490     $ (13,316 )   $ 191,242  

 

(in thousands)

 

Silver

   

Gold

   

Base metals

   

Less: smelter
and refining
charges

   

Total sales
of products

 

Six months ended June 30, 2021

  $ 170,525     $ 187,487     $ 97,344     $ (26,521 )   $ 428,835  

Variances - 2022 versus 2021:

                                       

Price

    (24,348 )     5,708       11,404       (16 )     (7,252 )

Volume

    (9,703 )     (33,924 )     (1,056 )     1,428       (43,255 )

Smelter terms

    (92 )     (85 )           (410 )     (587 )

Six months ended June 30, 2022

  $ 136,382     $ 159,186     $ 107,692     $ (25,519 )   $ 377,741  

 

The fluctuations in sales for the second quarter and first six months of 2022 compared to the same periods of 2021 were primarily due to the following two reasons:

 

 

Lower average realized prices for silver in the second quarter and first half of 2022, lower realized lead prices in the three months ended June 30, 2022, partially offset by higher realized gold and zinc prices in the second quarter and first half of 2022 and higher realized lead prices for the first half of 2022, all compared to the same periods of 2021. These price variances are illustrated in the following table:

 

 

     

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
     

2022

   

2021

   

2022

   

2021

 

Silver –

London PM Fix ($/ounce)

  $ 22.64     $ 26.69     $ 23.30     $ 26.49  
 

Realized price per ounce

  $ 20.68     $ 27.14     $ 22.45     $ 26.45  

Gold –

London PM Fix ($/ounce)

  $ 1,872     $ 1,816     $ 1,873     $ 1,807  
 

Realized price per ounce

  $ 1,855     $ 1,825     $ 1,867     $ 1,795  

Lead –

LME Final Cash Buyer ($/pound)

  $ 1.00     $ 0.96     $ 1.03     $ 0.94  
 

Realized price per pound

  $ 0.97     $ 1.04     $ 1.02     $ 0.99  

Zinc –

LME Final Cash Buyer ($/pound)

  $ 1.78     $ 1.32     $ 1.74     $ 1.29  
 

Realized price per pound

  $ 1.44     $ 1.35     $ 1.61     $ 1.34  

 

Average realized prices typically differ from average market prices primarily because concentrate sales are generally recorded as revenues at the time of shipment at forward prices for the estimated month of settlement, which differ from average market prices.  Due to the time elapsed between shipment of concentrates and final settlement with the customers, we must estimate the prices at which sales of our metals will be settled.  Previously recorded sales are adjusted to estimated settlement metals prices each period through final settlement.  For the second quarter and first six months of 2022, we recorded net negative price adjustments to provisional settlements of $15.7 million and $14.8 million, respectively, compared to net positive price adjustments to provisional settlements of $3.1 million and 3.6 million, respectively, in the second quarter and first six months of 2021. The price adjustments related to silver, gold, zinc and lead contained in our concentrate shipments were partially offset by gains and losses on forward contracts for those metals. See Note 8 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information.  The gains and losses on these contracts are included in revenues and impact the realized prices for silver, gold, lead and zinc.  Realized prices are calculated by dividing gross revenues for each metal (which include the price adjustments and gains and losses on the forward contracts discussed above) by the payable quantities of each metal included in concentrate, doré and carbon material shipped during the period.

 

 

Higher quantities of lead sold as a result of higher production at Lucky Friday was offset by lower silver, gold and zinc sales volumes, in the second quarter and first half of 2022 compared to 2021. See The Greens Creek Segment, The Lucky Friday Segment, The Casa Berardi Segment and The Nevada Operations Segment sections below for more information on metal production and sales volumes at each of our operating segments. Total metals production and sales volumes for each period are shown in the following table:

 

     

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
     

2022

   

2021

   

2022

   

2021

 

Silver -

Ounces produced

    3,645,454       3,524,783       6,970,162       6,984,229  
 

Payable ounces sold

    3,387,909       3,415,464       6,075,170       6,445,490  

Gold -

Ounces produced

    45,719       59,139       87,361       111,143  
 

Payable ounces sold

    44,225       47,168       85,278       104,454  

Lead -

Tons produced

    13,331       11,540       24,194       22,244  
 

Payable tons sold

    11,685       10,663       20,739       19,331  

Zinc -

Tons produced

    16,766       17,211       31,712       33,318  
 

Payable tons sold

    10,858       11,143       20,805       22,170  

 

The difference between what we report as “ounces/tons produced” and “payable ounces/tons sold” is attributable to the difference between the quantities of metals contained in the concentrates we produce versus the portion of those metals actually paid for by our customers according to the terms of our sales contracts. Differences can also arise from inventory changes incidental to shipping schedules, or variances in ore grades which impact the amount of metals contained in concentrates produced and sold.

 

 

Sales, total cost of sales, gross profit, Cash Cost, After By-product Credits, per Ounce (“Cash Cost”) (non-GAAP) and All-In Sustaining Cost, After By-product Credits, per Ounce (“AISC”) (non-GAAP) at our operating units for the three- and six-months ended June 30, 2022 and 2021 were as follows (in thousands, except for Cash Cost and AISC):

 

   

Silver

   

Gold

 
   

Greens

Creek

   

Lucky

Friday

   

Other

   

Total

Silver (2)

   

Casa

Berardi

   

Nevada Operations

   

Total

Gold

 

Three Months Ended June 30, 2022:

                                                       

Sales

  $ 92,723     $ 35,880     $     $ 128,603     $ 62,639     $     $ 62,639  

Total cost of sales

    (60,506 )     (30,348 )           (90,854 )     (61,870 )     (1,255 )     (63,125 )

Gross profit (loss)

  $ 32,217     $ 5,532             $ 37,749     $ 769     $ (1,255 )   $ (486 )

Cash Cost per silver or gold ounce (1)

  $ (3.29 )   $ 3.07     $     $ (1.14 )   $ 1,371           $ 1,371  

AISC per silver or gold ounce (1)

  $ 3.48     $ 9.91     $     $ 8.55     $ 1,641     $     $ 1,641  

Three Months Ended June 30, 2021:

                                                       

Sales

  $ 113,763     $ 39,645     $ 3     $ 153,411     $ 56,122     $ 8,450     $ 64,572  

Total cost of sales

    (55,488 )     (27,901 )     (1 )     (83,390 )     (54,669 )     (17,993 )     (72,662 )

Gross profit (loss)

  $ 58,275     $ 11,744     $ 2     $ 70,021     $ 1,453     $