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Hecla Mining Company - Q1 2010 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2010. Hecla Mining Company is a large accelerated filer engaged in the discovery, acquisition, development, production, and marketing of silver, gold, lead, and zinc. The company operates two primary segments: the Greens Creek unit in Alaska and the Lucky Friday unit in Idaho. The company reported 245,736,342 shares of common stock outstanding as of April 26, 2010.

Key Financial Metrics

Note: The company has a $60 million revolving credit facility which was undrawn as of March 31, 2010.

Material Changes vs. Prior Period

• Revenue Growth: Sales increased 46% to $79.9 million, driven by significantly higher realized prices for silver, gold, zinc, and lead compared to Q1 2009.
• Profitability Surge: Net income increased 199% to $21.8 million. This was primarily due to higher gross profits at both operating units and a $6.2 million income tax benefit resulting from a reduction in the valuation allowance on deferred tax assets.
• Cost Structure: Interest expense dropped significantly to $0.7 million from $4.7 million in the prior year due to the repayment of debt in late 2009. However, exploration expenses increased by $2.4 million due to expanded activity.
• Environmental Accruals: The provision for closed operations and environmental matters increased by $2.5 million, largely due to a $2.4 million adjustment to the liability for the Bunker Hill Superfund Site following an EPA invoice.
• One-Time Items: Q1 2009 results were boosted by a $9.0 million non-cash gain from the termination of an employee benefit plan and a $6.2 million gain from the sale of the Velardeña mill, neither of which occurred in Q1 2010.

Outlook, Risks, and Contingencies

• Production Guidance: Management estimates 2010 silver production to be between 10 and 11 million ounces.
• Capital Projects: The company is evaluating the construction of an internal shaft at the Lucky Friday mine to extend its operational life. This project could require an additional $30 million in capital expenditures for the remainder of 2010 and significant funding over several years.
• Legal and Environmental Risks:
  • Bunker Hill Site: Hecla accrued $5.3 million for potential EPA response costs. The company is reviewing the invoice for potential challenges.
  • Coeur d'Alene Basin: Hecla is the sole remaining defendant in natural resource damage litigation. The company estimates a potential liability range of $65.6 million to $93.6 million for past costs and remediation (excluding natural resource damages) and has accrued the minimum of this range.
• Commodity Hedging: The company had no outstanding commodity hedges at March 31, 2010, but initiated a program in April 2010 to manage exposure to base metals price fluctuations.
• Warrant Expirations: Series 4 warrants to purchase 9.3 million shares expire in June 2010. If fully exercised, they could generate approximately $44.8 million in proceeds.

Investor Verification Checklist

• Verify the sustainability of the $6.2 million tax benefit and whether future periods will see a return to standard tax provisions.
• Monitor the status of the Lucky Friday internal shaft project and the company's ability to fund the estimated $30 million+ capital requirement without dilutive equity issuance.
• Track the resolution of the Bunker Hill EPA invoice and the outcome of the Coeur d'Alene Basin litigation, as these represent significant contingent liabilities.
• Assess the impact of Series 4 warrant exercises expiring in June 2010 on share count and cash position.
• Review the union contract negotiations at the Lucky Friday unit, which expire April 30, 2010, for potential production disruptions.