10-Q 1 hl20220630_10q.htm FORM 10-Q hl20220630_10q.htm
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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 filerAccelerated 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.    Stockholders Equity

 

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      <