HECLA MINING CO/DE/ [HL] Filings

10-Q 1 hl20220331_10q.htm FORM 10-Q hl20220331_10q.htm

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 March 31, 2022

☐	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 N. 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

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 ☐

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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 May 5, 2022

Common stock, par value

$0.25 per share

539,049,637

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Hecla Mining Company and Subsidiaries

Form 10-Q

For the Quarter Ended March 31, 2022

INDEX*

	Page
PART I - Financial Information

Item 1 – Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income - Three Months Ended March 31, 2022 and 2021	3

Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2022 and 2021	4

Condensed Consolidated Balance Sheets - March 31, 2022 and December 31, 2021	5

Condensed Consolidated Statements of Changes in Stockholders' Equity - Three Months Ended March 31, 2022 and 2021	6

Notes to Condensed Consolidated Financial Statements (Unaudited)	7

Forward-Looking Statements	20

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3. Quantitative and Qualitative Disclosures About Market Risk	47

Item 4. Controls and Procedures	49

PART II - Other Information

Item 1 – Legal Proceedings	49

Item 1A – Risk Factors	49

Item 4 – Mine Safety Disclosures	49

Item 6 – Exhibits	49

Signatures	51

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

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Part I - Financial Information

Item 1. Financial Statements

Hecla Mining Company and Subsidiaries

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

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

	Three Months Ended
	March 31, 2022			March 31, 2021
Sales of products	$	186,499		$	210,852
Cost of sales and other direct production costs		105,772			96,382
Depreciation, depletion and amortization		35,298			47,069
Total cost of sales		141,070			143,451
Gross profit		45,429			67,401
Other operating expenses:
General and administrative		8,294			8,007
Exploration and pre-development		12,808			6,690
Care and maintenance		6,205			4,318
Provision for closed operations and reclamation		901			3,709
Other operating expense		2,463			3,648
Total other operating expense		30,671			26,372
Income from operations		14,758			41,029
Other income (expense):
Interest expense		(10,406	)		(10,744	)
Fair value adjustments, net		5,965			(1,875	)
Net foreign exchange loss		(2,038	)		(2,064	)
Other non-operating income (expense)		1,505			(152	)
Total other expense		(4,974	)		(14,835	)
Income before income and mining taxes		9,784			26,194
Income and mining tax provision		(5,631	)		(4,743	)
Net income		4,153			21,451
Preferred stock dividends		(138	)		(138	)
Income applicable to common stockholders	$	4,015		$	21,313
Comprehensive income:
Net income	$	4,153		$	21,451
Change in fair value of derivative contracts designated as hedge transactions		(33,165	)		1,832
Comprehensive (loss) income	$	(29,012	)	$	23,283
Basic income per common share after preferred dividends	$	0.01		$	0.04
Diluted income per common share after preferred dividends	$	0.01		$	0.04
Weighted average number of common shares outstanding - basic		538,490			534,101
Weighted average number of common shares outstanding - diluted		544,061			540,527
Cash dividends per common share	$	0.00625		$	0.00875

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

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Hecla Mining Company and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Three Months Ended
	March 31, 2022			March 31, 2021
Operating activities:
Net income	$	4,153		$	21,451
Non-cash elements included in net income:
Depreciation, depletion and amortization		35,456			46,957
Provision for reclamation and closure costs		1,643			4,529
Stock-based compensation expense		1,271			500
Deferred taxes		2,234			141
Fair value adjustments, net		(2,245	)		(8,623	)
Foreign exchange loss		2,280			1,755
Other non-cash items, net		483			556
Change in assets and liabilities:
Accounts receivable		2,779			(2,664	)
Inventories		(5,081	)		2,120
Other current and non-current assets		1,696			1,528
Accounts payable and accrued liabilities		(13,907	)		(24,545	)
Accrued payroll and related benefits		6,909			(7,995	)
Accrued taxes		3,754			2,031
Accrued reclamation and closure costs and other non-current liabilities		(3,516	)		195
Cash provided by operating activities		37,909			37,936
Investing activities:
Additions to properties, plants, equipment and mineral interests		(21,478	)		(21,413	)
Proceeds from sale of investments		2,487			—
Proceeds from disposition of properties, plants and equipment		617			19
Purchases of investments		(10,868	)		—
Net cash used in investing activities		(29,242	)		(21,394	)
Financing activities:
Acquisition of treasury shares		(1,921	)		—
Dividends paid to common and preferred stockholders		(3,509	)		(4,826	)
Credit facility fees paid		(54	)		(82	)
Repayments of finance leases		(1,695	)		(1,881	)
Net cash used in financing activities		(7,179	)		(6,789	)
Effect of exchange rates on cash		519			167
Net increase in cash, cash equivalents and restricted cash and cash equivalents		2,007			9,920
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	$	213,070		$	140,803
Supplemental disclosure of cash flow information:
Cash paid for interest	$	18,603		$	18,406
Cash paid for income and mining taxes	$	679		$	1,980
Significant non-cash investing and financing activities:
Addition of finance lease obligations and right-of-use assets	$	2,864		$	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.

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Hecla Mining Company and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except shares)

	March 31, 2022			December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	212,029		$	210,010
Accounts receivable:
Trade		33,324			36,437
Other, net		8,586			8,149
Inventories:
Concentrates, doré, and stockpiled ore		29,852			25,906
Materials and supplies		43,238			41,859
Other current assets		16,927			19,266
Total current assets		343,956			341,627
Investments		29,204			10,844
Restricted cash and investments		1,041			1,053
Properties, plants, equipment and mineral interests, net		2,298,858			2,310,810
Operating lease right-of-use assets		12,342			12,435
Deferred taxes		45,562			45,562
Other non-current assets		7,936			6,477
Total assets	$	2,738,899		$	2,728,808
LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities	$	73,786		$	68,100
Accrued payroll and related benefits		34,864			28,714
Accrued taxes		16,128			12,306
Finance and operating leases		8,535			8,098
Accrued reclamation and closure costs		10,594			9,259
Accrued interest		5,232			14,454
Derivatives liabilities		38,992			19,353
Other current liabilities		109			99
Total current liabilities		188,240			160,383
Finance and operating leases		18,385			17,726
Accrued reclamation and closure costs		103,612			103,972
Long-term debt		508,852			508,095
Deferred tax liability		140,810			149,706
Derivatives liabilities		43,402			18,528
Other non-current liabilities		7,055			9,611
Total liabilities		1,010,356			968,021
Commitments and contingencies (Notes 4, 7, 8, and 10)
STOCKHOLDERS’ EQUITY
Preferred stock, 5,000,000 shares authorized:
Series B preferred stock, $0.25 par value, 157,816 shares issued and outstanding, liquidation preference — $7,891		39			39
Common stock, $0.25 par value, 750,000,000 authorized shares; issued March 31, 2022 — 546,635,233 shares and December 31, 2021 — 545,534,760 shares		136,657			136,391
Capital surplus		2,036,417			2,034,485
Accumulated deficit		(353,007	)		(353,651	)
Accumulated other comprehensive loss		(61,621	)		(28,456	)
Less treasury stock, at cost; March 31, 2022 — 7,728,800 shares and December 31, 2021 - 7,395,295 shares issued and held in treasury		(29,942	)		(28,021	)
Total stockholders’ equity		1,728,543			1,760,787
Total liabilities and stockholders’ equity	$	2,738,899		$	2,728,808

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

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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 March 31, 2022
	Series B Preferred Stock		Common Stock		Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive 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 income		—		—					4,153			—			—			4,153
Stock-based compensation expense		—		—		1,271			—			—			—			1,271
Incentive compensation units distributed (888,000 shares)		—		222		(222	)		—			—			(1,921	)		(1,921	)
Common stock ($0.00625 per share) and Series B Preferred Stock ($0.875 per share) dividends declared		—		—		—			(3,509	)		—			—			(3,509	)
Common stock issued for 401(k) match (180,000 shares)		—		44		883			—			—			—			927
Other comprehensive income		—		—		—			—			(33,165	)		—			(33,165	)
Balances, March 31, 2022	$	39	$	136,657	$	2,036,417		$	(353,007	)	$	(61,621	)	$	(29,942	)	$	1,728,543

	Three Months Ended March 31, 2021
	Series B Preferred Stock		Common Stock		Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive 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		—		—				21,451			—			—			21,451
Stock-based compensation expense		—		—		483		—			—			—			483
Common stock ($0.00875 per share) and Series B Preferred Stock ($0.875 per share) dividends declared		—		—		—		(4,826	)		—			—			(4,826	)
Common stock issued for 401(k) match (165,000 shares)		—		42		1,088		—			—			—			1,130
Shares issued to pension plans (3,500,000 shares)		—		875		15,925		—			—			—			16,800
Other comprehensive income		—		—		—		—			1,832			—			1,832
Balances, March 31, 2021	$	39	$	135,546	$	2,021,072	$	(351,449	)	$	(31,057	)	$	(23,496	)	$	1,750,655

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

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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’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-month period ended March 31, 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 $0.4 million and $1.6 million in COVID-19 mitigation costs during the three months ended March 31, 2022 and 2021, respectively. We continue to monitor the rapidly evolving situation and guidance from federal, state, local and foreign governments and public health authorities and may take additional actions based on their recommendations. The extent of the impact of COVID-19 on our business and financial results will also depend on future developments, including the duration and spread of the outbreak and the success of the current vaccination programs and the related impact on prices, demand, creditworthiness and other market conditions and governmental reactions, all of which are highly uncertain.

Certain amounts in the prior year have been reclassified to conform to the current year presentation.

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.

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The following tables present information about our reportable segments for the three months ended March 31, 2022 and 2021 (in thousands):

	Three Months Ended March 31,
	2022			2021
Sales of products:
Greens Creek	$	86,090		$	98,409
Lucky Friday		38,040			29,122
Casa Berardi		62,101			72,911
Nevada Operations		268			10,237
Other		—			173
	$	186,499		$	210,852
Income (loss) from operations:
Greens Creek	$	34,586		$	44,600
Lucky Friday		8,771			6,323
Casa Berardi		(2,699	)		11,706
Nevada Operations		(12,231	)		(3,140	)
Other		(13,669	)		(18,460	)
	$	14,758		$	41,029

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

	March 31, 2022		December 31, 2021
Identifiable assets:
Greens Creek	$	578,565	$	589,944
Lucky Friday		526,971		516,545
Casa Berardi		710,374		701,868
Nevada Operations		467,092		468,985
Other		455,897		451,466
	$	2,738,899	$	2,728,808

Sales of products by metal for the three-month periods ended March 31, 2022 and 2021 were as follows (in thousands):

	Three Months Ended March 31,
	2022			2021

Silver	$	66,332		$	77,760
Gold		77,168			101,408
Lead		19,564			15,893
Zinc		35,638			29,191
Less: Smelter and refining charges		(12,203	)		(13,400	)
Sales of products	$	186,499		$	210,852

Sales of products for the first three months of 2022 and 2021 included a net loss of $4.8 million and net gain of $2.8 million, respectively, on financially-settled forward option contracts for silver, gold, lead and zinc contained in our sales. See Note 8 for more information.

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Note 3. Income and Mining Taxes

Major components of our income and mining tax (provision) benefit for the three months ended March 31, 2022 and 2021 are as follows (in thousands):

	Three Months Ended
	March 31,
	2022			2021
Current:
Domestic	$	(2,103	)	$	(2,277	)
Foreign		(1,741	)		(2,286	)
Total current income and mining tax provision		(3,844	)		(4,563	)

Deferred:
Domestic		(5,091	)		896
Foreign		3,304			(1,076	)
Total deferred income and mining tax provision		(1,787	)		(180	)
Total income and mining tax provision	$	(5,631	)	$	(4,743	)

The income and mining tax provision for the three-month periods ended March 31, 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 period ended March 31, 2022, we used the annual effective tax rate method to calculate the tax provision, a change from the discrete method used for the three-month period ended March 31, 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-month period ended March 31, 2022 as compared to March 31, 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-month periods ended March 31, 2022 and 2021 (in thousands):

	Three Months Ended March 31,
	2022			2021
Service cost	$	1,566		$	1,455
Interest cost		1,369			1,248
Expected return on plan assets		(3,363	)		(2,313	)
Amortization of prior service cost		128			99
Amortization of net loss		512			1,125
Net periodic pension cost	$	212		$	1,614

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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, and the net gain of $1.4 million and net expense of $0.2 million for the three-month periods ended March 31, 2022 and 2021, respectively, related to all other components of net periodic pension cost is included in other (expense) income on our condensed consolidated statements of operations and comprehensive (loss) income.

We do not expect to be required to contribute to our defined benefit pension plans in 2022, but may do so.

Note 5. Income Per Common Share

We calculate basic 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, performance-based share 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 income per common share – basic and diluted (in thousands, except income (loss) per share):

	Three Months Ended March 31,
	2022			2021
Numerator
Net income	$	4,153		$	21,451
Preferred stock dividends		(138	)		(138	)
Net income applicable to common shares	$	4,015		$	21,313

Denominator
Basic weighted average common shares		538,490			534,101
Dilutive incentive compensation units, warrants and deferred shares		5,571			6,426
Diluted weighted average common shares		544,061			540,527

Basic income per common share	$	0.01		$	0.04
Diluted income per common share	$	0.01		$	0.04

Diluted income per common share for the three-month periods ended March 31, 2022 and 2021 excludes the potential effects of outstanding shares of our convertible preferred stock, as their conversion would have no effect on the calculation of dilutive shares.

For the three months ended March 31, 2022, the calculation of diluted income per common share included (i) 1,954,773 incentive compensation units that were unvested during the period, (ii) 1,506,950 warrants to purchase one share of common stock and (iii) 2,109,056 deferred shares that were dilutive. For the three months ended March 31, 2021, the calculation of diluted income per common share included (i) 2,863,038 incentive compensation units that were unvested during the period, (ii) 1,536,615 warrants to purchase one share of common stock and (iii) 2,026,440 deferred shares that were dilutive.

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Note 6. Stockholders’ Equity

Stock-based Compensation Plans

Stock-based compensation expense for restricted stock unit and performance-based grants to employees and shares issued to non-employee directors totaled $1.3 million and $0.5 million for the first three months of 2022 and 2021, respectively.

Common Stock Dividends

On February 21, 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 March 2022. The realized silver price of $23.49 in the fourth quarter of 2021 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 March 31, 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 March 31, 2022 and December 31, 2021 (in thousands):

	March 31, 2022
	Senior Notes			IQ Notes		Total
Principal	$	475,000		$	38,605	$	513,605
Unamortized discount/premium and issuance costs		(5,324	)		571		(4,753	)
Long-term debt balance	$	469,676		$	39,176	$	508,852

	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 March 31, 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 March 31, 2022.

Twelve-month period ending March 31,	Senior Notes		IQ Notes		Finance Leases		Operating Leases
2023	$	34,438	$	2,515	$	6,365	$	3,057
2024		34,438		2,515		4,881		2,528
2025		34,438		2,515		3,313		1,079
2026		34,438		39,295		943		1,059
2027		34,438		—		—		1,041
Thereafter		505,130		—		—		6,174
Total	$	677,320	$	46,840	$	15,502	$	14,938

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 March 31, 2022 and December 31, 2021, no borrowings were outstanding under the facility.

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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 $17.3 million in letters of credit outstanding as of March 31, 2022.

We believe we were in compliance with all covenants under the credit agreement as of March 31, 2022.

Note 8. Derivative Instruments

General

Our current risk management policy provides that up to 75% of:

•

our future foreign currency-related operating cost exposure for five years into the future may be hedged;

•

our planned lead and zinc metals price exposure for five years into the future, with certain other limitations, to be covered under derivatives programs that would establish a ceiling for prices to be realized on future metals sales; and

•

our planned silver and gold metals price exposure for five years into the future, with certain other limitations, may be covered under derivatives programs that would establish a floor, but not a ceiling, for prices to be realized on future metals sales. We currently do not utilize this program.

In addition, our risk management policy provides for (i) potential additional programs to manage other foreign currency exposures and (ii) that price exposure between the time of shipment and final settlement on silver, gold, lead and zinc contained in our concentrate shipments may be covered under derivatives programs that would establish prices to be realized on those sales.

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

Foreign Currency

Our wholly-owned subsidiaries owning the Casa Berardi and San Sebastian operations are USD-functional entities which routinely incur expenses denominated in CAD and Mexican pesos (“MXN”), respectively. Such expenses expose us to exchange rate fluctuations between the USD and CAD and MXN. We utilize a program to manage our exposure to fluctuations in the exchange rate between the USD and CAD and the impact on our future operating costs denominated in CAD. In November 2021, we initiated a similar program related to future development costs denominated in CAD, and have used a similar program, on a limited basis, related to interest payments on our IQ Notes (see Note 7). The programs utilize forward contracts to buy CAD. Each contract related to operating costs is designated as a cash flow hedge, while contracts related to development and interest costs have not been designated as hedges as of March 31, 2022. As of March 31, 2022, we have 146 forward contracts outstanding to buy a total of CAD$276.7 million having a notional amount of USD$213.3 million. The CAD contracts are related to forecasted cash operating and development costs at Casa Berardi to be incurred from 2022 through 2025 and have CAD-to-USD exchange rates ranging between 1.2702 and 1.3333.

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

	March 31,		December 31,
Balance sheet line item:	2022		2021
Other current assets	$	3.9	$	2.7
Other non-current assets		3.9		2.5

Net unrealized gains of approximately $7.8 million related to the effective portion of the hedges were included in accumulated other comprehensive loss as of March 31, 2022. Unrealized gains and losses will be transferred from accumulated other comprehensive loss to current earnings as the underlying operating expenses are recognized. We estimate approximately $3.7 million in net unrealized gains included in accumulated other comprehensive loss as of March 31, 2022 will be reclassified to current earnings in the next twelve months. Net realized gains of approximately $1.1 million on contracts related to underlying operating expenses which have been recognized were transferred from accumulated other comprehensive loss and included in cost of sales and other direct production costs for the three months ended March 31, 2022. Net gains of approximately $0.4 million related to contracts not designated as hedges and no net unrealized gains or losses related to ineffectiveness of the hedges were included in fair value adjustments, net on our consolidated statements of operations and comprehensive income for the three months ended March 31, 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.

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

March 31, 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		1,573		5		16,976		5,732	$	24.73	$	1,912	$	1.27	$	0.97
Contracts on forecasted sales
2022 settlements		—		—		37,644		46,517		N/A		N/A	$	1.31	$	0.98
2023 settlements		—		—		78,264		75,618		N/A		N/A	$	1.30	$	1.00
2024 settlements		—		—		64,650		23,149		N/A		N/A	$	1.32	$	1.01

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.

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

	March 31, 2022								December 31, 2021
Balance sheet line item:	Contracts in an asset position		Contracts in a liability position			Net asset (liability)			Contracts in an asset position		Contracts in a liability position			Net asset (liability)
Other current assets	$	0.3	$	(0.2	)	$	0.1		$	—	$	—		$	—
Current derivatives liability		0.5		(39.5	)		(39.0	)		0.7		(20.1	)		(19.4	)
Other non-current liabilities		0.1		(43.5	)		(43.4	)		0.4		(18.9	)		(18.5	)

Net unrealized losses of approximately $63.0 million related to the effective portion of the contracts designated as hedges were included in accumulated other comprehensive loss as of March 31, 2022, and are net of related deferred taxes. Unrealized gains and losses will be transferred from accumulated other comprehensive loss to current earnings as the underlying operating expenses are recognized. We estimate approximately $28.0 million in net unrealized losses included in accumulated other comprehensive loss as of March 31, 2022 would be reclassified to current earnings in the next twelve months. We recognized a net loss of $4.8 million, including a $0.3 million gain transferred from accumulated other comprehensive loss, and net gain of $2.8 million during the first quarters of 2022 and 2021, respectively, on the contracts utilized to manage exposure to prices of metals in our concentrate shipments, which is included in sales of products. The net losses and gains recognized on the contracts offset gains and losses related to price adjustments on our provisional concentrate sales due to changes to silver, gold, lead and zinc prices between the time of sale and final settlement.

We recognized $0.6 million in net losses and $0.5 million in net gains during the first quarters of 2022 and 2021, respectively, on the contracts utilized to manage exposure to prices for forecasted future sales. The net losses and gains 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. Increases in zinc and lead prices resulted in the net loss for the first quarter of 2022.

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 March 31, 2022, we have not posted any separate collateral related to these contracts. The fair value of derivatives in a net liability position related to these agreements was $83.2 million as of March 31, 2022, which includes accrued interest but excludes any adjustment for nonperformance risk. If we were in breach of any of the cross default provisions at March 31, 2022, we could have been required to settle our obligations under the agreements at their termination value of $83.2 million.

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Note 9. Fair Value Measurement

Fair value adjustments, net is comprised of the following:

	Three Months Ended March 31,
	2022			2021
(Loss) gain on derivative contracts	$	(201	)	$	473
Unrealized gain (loss) on investments in equity securities		6,100			(3,506	)
Gain on disposition or exchange of investments		66			1,158
Total fair value adjustments, net	$	5,965		$	(1,875	)

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

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

Level 2: significant other observable inputs; and

Level 3: significant unobservable inputs.

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

Description	Balance at March 31, 2022		Balance at December 31, 2021		Input Hierarchy Level
Assets:
Cash and cash equivalents:
Money market funds and other bank deposits	$	212,029	$	210,010	Level 1
Current and non-current investments:
Equity securities – mining industry		29,204		14,470	Level 1
Trade accounts receivable:
Receivables from provisional concentrate sales		33,324		36,437	Level 2
Restricted cash balances:
Certificates of deposit and other bank deposits		1,041		1,053	Level 1
Derivative contracts - other current assets and other non-current assets:
Metal forward contracts		74		—	Level 2
Foreign exchange contracts		7,829		5,207	Level 2
Total assets	$	283,501	$	267,177

Liabilities:
Derivative contracts - current and non-current derivatives liabilities:
Metal forward contracts	$	82,394	$	37,873	Level 2
Foreign exchange contracts		—		8	Level 2
Total Liabilities	$	82,394	$	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.

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Non-current investments consist of marketable equity securities of mining companies which are valued using quoted market prices for each security. During the first quarter of 2022, we acquired equity securities of various mining companies for a total cost of $10.9 million, and disposed of mining company equity securities acquired for $2.4 million for proceeds of $2.5 million. No such activity occurred during the first quarter of 2021.

Trade accounts receivable from provisional concentrate sales are subject to final pricing and valued using quoted prices based on forward curves for the particular metal.

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 and capital costs incurred at Casa Berardi (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 (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 March 31, 2022, our Senior Notes and IQ Notes were recorded at their carrying value of $469.7 million and $39.2 million, respectively, net of unamortized initial purchaser discount/premium and issuance costs. The estimated fair values of our Senior Notes and IQ Notes were $498.5 million and $40.5 million, respectively, at March 31, 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 6%, 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.

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

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

Carpenter Snow Creek and Barker-Hughesville Sites in Montana

In July 2010, the EPA made a formal request to Hecla for information regarding the Carpenter Snow Creek Superfund site located in Cascade County, Montana. The Carpenter Snow Creek site is located in a 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.

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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 March 31, 2022.

Other Commitments

Our contractual obligations as of March 31, 2022 included open purchase orders and commitments of approximately $7.7 million, $10.1 million, $0.2 million and $4.6 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 $15.5 million relating to scheduled payments on finance leases, including interest, primarily for equipment at our Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations, and total commitments of approximately $14.9 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 March 31, 2022, we had surety bonds totaling $183.5 million and letters of credit totaling $17.3 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.

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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

During April 2022, we invested approximately $10 million in mining company securities.

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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 annual report filed on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”). 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.

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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 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.

First Quarter 2022 Highlights

Operational:

•

Produced 3.3 million ounces of silver and 41,642 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 March 31, 2022 and 2021.

•

Continued our trend of strong safety performance, as our All Injury Frequency Rate (“AIFR”) for the first quarter of 2022 was 1.48, 30% below the U.S. national average for MSHA's “metal and nonmetal” category and within 3% 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 products of $186.5 million.

•

Generated $37.9 million in net cash provided by operating activities after bi-annual interest payments totaling $18.5 million on the Senior Notes and IQ Notes. 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 $21.5 million, including $3.1 million at Greens Creek, $9.7 million at Lucky Friday, $7.8 million at Casa Berardi and $0.9 million at the Nevada Operations.

•

Generated $16.4 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 21% of free cash flows, to our shareholders through payment of dividends.

•

Spent $12.8 million on exploration and pre-development activities.

•

Achieved the above while increasing our cash balance to $212.0 million, which was $2.0 million higher than at December 31, 2021, with no borrowings on our revolving credit facility, as of March 31, 2022.

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

•

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.

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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 $0.4 million and $1.6 million in COVID-19 mitigation costs during the three months ended March 31, 2022 and 2021, respectively. To mitigate the impact of COVID-19, we have taken precautionary measures, including implementing operational plans and practices and increasing our cash reserves. As long as they are required, the operational practices implemented could continue to have an adverse impact on our operating results due to additional costs or deferred production and revenues. There is uncertainty related to the potential additional impacts COVID-19 and any subsequent variants could have on our operations and financial results for the rest of 2022. In our 2021 Form 10-K, see Item IA. Risk Factors - Natural disasters, public health crises (including COVID-19), political crises, and other catastrophic events or other events outside of our control may materially and adversely affect our business or financial 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, lead and zinc were higher, with the average realized price for silver lower, in the first 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 $17.3 million was used as of March 31, 2022 for letters of credit, leaving approximately $232.7 million available for borrowing.

Another challenge for us is the risk associated with environmental litigation and ongoing reclamation activities. As described 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 of products by metal for the three-month periods ended March 31, 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 March 31, 2021	$	77,760		$	101,408		$	45,084		$	(13,400	)	$	210,852
Variances - 2022 versus 2021:
Price		(2,613	)		4,298			12,316			(76	)		13,925
Volume		(8,726	)		(28,453	)		(2,198	)		1,369			(38,008	)
Smelter terms		(89	)		(85	)		—			(96	)		(270	)
Three months ended March 31, 2022	$	66,332		$	77,168		$	55,202		$	(12,203	)	$	186,499

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Average market and realized metals prices for the three-month periods ended March 31, 2022 and 2021 were as follows:

		Three months ended March 31,
		2022		2021
Silver –	London PM Fix ($/ounce)	$	23.95	$	26.29
	Realized price per ounce	$	24.68	$	25.66
Gold –	London PM Fix ($/ounce)	$	1,874	$	1,798
	Realized price per ounce	$	1,880	$	1,770
Lead –	LME Final Cash Buyer ($/pound)	$	1.06	$	0.92
	Realized price per pound	$	1.08	$	0.92
Zinc –	LME Final Cash Buyer ($/pound)	$	1.70	$	1.25
	Realized price per pound	$	1.79	$	1.32

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 first quarters of 2022 and 2021, we recorded net positive price adjustments to provisional settlements of $1.0 million and $0.6 million, respectively. The price adjustments related to silver, gold, lead and zinc contained in our concentrate shipments were largely 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 and doré shipped during the period.

Total metals production and sales volumes for each period are shown in the following table:

		Three Months Ended March 31,
		2022		2021
Silver -	Ounces produced		3,324,708		3,459,446
	Payable ounces sold		2,687,261		3,030,026
Gold -	Ounces produced		41,642		52,004
	Payable ounces sold		41,053		57,286
Lead -	Tons produced		10,863		10,704
	Payable tons sold		9,054		8,668
Zinc -	Tons produced		14,946		16,107
	Payable tons sold		9,947		11,027

The difference between what we report as “ounces/tons produced” and “payable ounces/tons sold” is attributable to the difference between the quantities of metals contained in our products versus the portion of those metals actually paid for by our customers pursuant to 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.

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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 operations for the three-month periods ended March 31, 2022 and 2021 were as follows (in thousands, except for Cash Cost and AISC):

	Silver												Gold
	Greens Creek			Lucky Friday			Other ⁽²⁾			Total Silver ⁽³⁾			Casa Berardi			Nevada Operations			Total Gold
Three Months Ended March 31, 2022:
Sales	$	86,090		$	38,040		$	—		$	124,130		$	62,101		$	268		$	62,369
Total cost of sales		(49,638	)		(29,264	)		—			(78,902	)		(62,168	)		—			(62,168	)
Gross profit (loss)	$	36,452		$	8,776		$	—		$	45,228		$	(67	)	$	268		$	201
Cash Cost After By-product Credits, per Silver or Gold Ounce ⁽¹⁾	$	(0.90	)	$	6.57		$	—		$	1.09		$	1,516		$	—		$	1,516
AISC, After By-product Credits, per Silver or Gold ounce ⁽¹⁾	$	1.90		$	13.15		$	—		$	7.64		$	1,810		$	—		$	1,810
Three Months Ended March 31, 2021:
Sales	$	98,409		$	29,122		$	173		$	127,704		$	72,911		$	10,237		$	83,148
Total cost of sales		(53,181	)		(22,794	)		(94	)		(76,069	)		(59,927	)		(7,455	)		(67,382	)
Gross profit	$	45,228		$	6,328		$	79		$	51,635		$	12,984		$	2,782		$	15,766
Cash Cost After By-product Credits, per Silver or Gold Ounce ⁽¹⁾	$	(0.67	)	$	7.62		$	—		$	1.40		$	1,027		$	1,416		$	1,052
AISC, After By-product Credits, per Silver or Gold ounce ⁽¹⁾	$	1.59		$	14.24		$	—		$	7.21		$	1,272		$	1,461		$	1,284

(1)

A reconciliation of these non-GAAP measures to total cost of sales, the most comparable GAAP measure, can be found below in Reconciliation of Total Cost of Sales (GAAP) to Cash Cost, Before By-product Credits and Cash Cost, After By-product Credits (non-GAAP) and All-In Sustaining Cost, Before By-product Credits and All-In Sustaining Cost, After By-product Credits (non-GAAP).

(2)

Includes results for San Sebastian, which was an operating segment prior to 2021.

(3)

The calculation of AISC, After By-product Credits, per Ounce for our consolidated silver properties includes corporate costs for general and administrative expense and sustaining exploration and capital costs.

While revenue from zinc, lead and gold by-products is significant, we believe that identification of silver as the primary product of Greens Creek and Lucky Friday is appropriate because:

•

silver has historically accounted for a higher proportion of revenue than any other metal and is expected to do so in the future;

•

we have historically presented each of these operations as a producer primarily of silver, based on the original analysis that justified putting the project into production, and believe that consistency in disclosure is important to our investors regardless of the relationships of metals prices and production from year to year;

•

metallurgical treatment maximizes silver recovery;

•

the Greens Creek and Lucky Friday deposits are massive sulfide deposits containing an unusually high proportion of silver; and

•

in most of their working areas, Greens Creek and Lucky Friday utilize selective mining methods in which silver is the metal targeted for highest recovery.

Likewise, we believe the identification of gold, lead and zinc as by-product credits at Greens Creek and Lucky Friday is appropriate because of their lower economic value compared to silver and due to the fact that silver is the primary product we intend to produce. In addition, we have not consistently received sufficient revenue from any single by-product metal to warrant classification of such as a co-product.

We periodically review our revenues to ensure that reporting of primary products and by-products is appropriate. Because for Greens Creek and Lucky Friday we consider zinc, lead and gold to be by-products of our silver production, the values of these metals offset operating costs within our calculations of Cash Cost, After By-product Credits, per Silver Ounce and AISC, After By-product Credits, per Silver Ounce.

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We believe the identification of silver as a by-product credit is appropriate at Casa Berardi and Nevada Operations because of its lower economic value compared to gold and due to the fact that gold is the primary product we intend to produce there. In addition, we do not receive sufficient revenue from silver at Casa Berardi and Nevada Operations to warrant classification of such as a co-product. Because we consider silver to be a by-product of our gold production at Casa Berardi and Nevada Operations, the value of silver offsets operating costs within our calculations of Cash Cost, After By-product Credits, per Gold Ounce and AISC, After By-product Credits, per Gold Ounce.

For the first quarter of 2022, we recorded income applicable to common stockholders of $4.0 million ($0.01 per basic common share), compared to income of $21.3 million ($0.04 per basic common share) during the first quarter of 2021. The following factors contributed to the results for the first three months of 2022 compared to the first quarter of 2021:

•

Variances in gross profit (loss) at our operations as illustrated in the table above. See the Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations sections below.

•

Exploration and pre-development expense increased by $6.1 million in the first quarter of 2022 compared to the first quarter of 2021. In the first quarter of 2022, exploration was primarily at San Sebastian, Casa Berardi, Nevada Operations and Greens Creek. Pre-development expense for the first quarter of 2022 totaled $3.1 million compared to $0.7 million in the first quarter of 2021, with the increase for development of a decline to the Hatter Graben area at the Hollister mine in Nevada.

•

Care and maintenance costs increased by $1.9 million in the first quarter of 2022 compared to the first quarter of 2021 due to suspension of production at Nevada Operations. See the Nevada Operations section below.

The impact of these factors was partially offset by the following:

•

Fair value adjustments, net resulted in a gain of $6.0 million in the first quarter of 2022 compared to a loss of $1.9 million the first quarter of 2021 (see Note 9 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information).

•

Provision for closed operations and environmental matters decreased by $2.8 million in the first quarter of 2022 compared to the first quarter of 2021 primarily due to a $2.9 million increase in the accrual for estimated costs at the Johnny M site in New Mexico in the first quarter of 2021 (see Note 10 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information).

•

Lower other operating expense by $1.2 million in the first quarter of 2022 compared to the first quarter of 2021 primarily due to project costs incurred to identify and implement potential operational improvements at Casa Berardi in the first quarter 2021, partially offset by similar project costs incurred at Greens Creek in the first quarter of 2022.

•

An income and mining tax provision of $5.6 million in the first quarter of 2022 compared to a provision of $4.7 million in the first quarter of 2021 (see Note 3 of Notes to Condensed Consolidated Financial Statements (Unaudited) for more information).

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Greens Creek

Dollars are in thousands (except per ounce and per ton amounts)	Three months ended March 31,
	2022			2021
Sales	$	86,090		$	98,409
Cost of sales and other direct production costs		(38,218	)		(38,360	)
Depreciation, depletion and amortization		(11,420	)		(14,821	)
Total cost of sales		(49,638	)		(53,181	)
Gross profit	$	36,452		$	45,228
Tons of ore milled		211,687			194,080
Production:
Silver (ounces)		2,429,782			2,584,870
Gold (ounces)		11,402			13,266
Zinc (tons)		12,494			13,354
Lead (tons)		4,883			4,924
Payable metal quantities sold:
Silver (ounces)		1,772,391			2,247,274
Gold (ounces)		7,922			10,547
Zinc (tons)		8,092			9,097
Lead (tons)		3,063			3,645
Ore grades:
Silver ounces per ton		13.84			16.01
Gold ounces per ton		0.07			0.09
Zinc percent		6.56			7.62
Lead percent		2.76			3.06
Total production cost per ton	$	192.16		$	182.61
Cash Cost, After By-product Credits, per Silver Ounce ⁽¹⁾	$	(0.90	)	$	(0.67	)
AISC, After By-product Credits, per Silver Ounce ⁽¹⁾	$	1.90		$	1.59
Capital additions	$	3,092		$	1,772

(1)

The $8.8 million decrease in gross profit during the first quarter of 2022 compared to the same 2021 period was the result of lower sales volumes, as a result of lower ore grades and the timing of concentrate shipments, and lower average silver prices, partially offset by higher average gold, zinc and lead prices.

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The chart below illustrates the factors contributing to the variances in Cash Cost, After By-product Credits, per Silver Ounce for the first quarter of 2022 compared to the first quarter of 2021:

The following table summarizes the components of Cash Cost, After By-product Credits, per Silver Ounce:

	Three Months Ended March 31,
	2022			2021
Cash Cost, Before By-product Credits, per Silver Ounce	$	21.82		$	18.98
By-product credits		(22.72	)		(19.65	)
Cash Cost, After By-product Credits, per Silver Ounce	$	(0.90	)	$	(0.67	)

The following table summarizes the components of AISC, After By-product Credits, per Silver Ounce:

	Three Months Ended March 31,
	2022			2021
AISC, Before By-product Credits, per Silver Ounce	$	24.62		$	21.24
By-product credits		(22.72	)		(19.65	)
AISC, After By-product Credits, per Silver Ounce	$	1.90		$	1.59

The decrease in Cash Costs, After By-Product Credits, per Silver Ounce for the first quarter of 2022 compared to 2021 was primarily due to the higher by-product credits, partially offset by higher mining and milling costs. The net impact of these factors was outweighed by higher sustaining capital spending, resulting in the increase in AISC, After By-Product Credits, per Silver Ounce for the first quarter of 2022 compared to 2021.

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Lucky Friday

Dollars are in thousands (except per ounce and per ton amounts)	Three Months Ended March 31,
	2022			2021
Sales	$	38,040		$	29,122
Cost of sales and other direct production costs		(21,232	)		(16,458	)
Depreciation, depletion and amortization		(8,032	)		(6,336	)
Total cost of sales		(29,264	)		(22,794	)
Gross profit (loss)	$	8,776		$	6,328
Tons of ore milled		77,725			81,071
Production:
Silver (ounces)		887,858			863,901
Lead (tons)		5,980			5,780
Zinc (tons)		2,452			2,753
Payable metal quantities sold:
Silver (ounces)		899,454			763,823
Lead (tons)		5,991			5,023
Zinc (tons)		1,855			1,930
Ore grades:
Silver ounces per ton		12.04			11.18
Lead percent		8.16			7.51
Zinc percent		3.61			3.70
Total production cost per ton	$	247.17		$	190.54
Cash Cost, After By-product Credits, per Silver Ounce ⁽¹⁾	$	6.57		$	7.62
AISC, After By-product Credits, per Silver Ounce ⁽¹⁾	$	13.15			14.24
Capital additions	$	9,652		$	5,912

(1)

The increase in gross profit in the first quarter of 2022 compared to the first quarter of 2021 was the result of higher sales volume and lead and zinc prices, partially offset by lower average silver prices.

Total production cost per ton increased by approximately 30% in the first quarter of 2022 compared to the first quarter of 2021 primarily due to higher costs for labor, equipment maintenance, contractors and consumables and lower mill throughput.

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The chart below illustrates the factors contributing to Cash Cost, After By-product Credits, per Silver Ounce for the first quarters of 2022 and 2021.

The following table summarizes the components of Cash Cost, After By-product Credits, per Silver Ounce:

HECLA MINING CO/DE/ [HL] Filings

HECLA MINING CO/DE/ [HL-PB] Filings