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Hecla Mining Company 2009 10-K Summary

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended December 31, 2009. Hecla Mining Company is a precious and base metals producer operating two primary segments: the Greens Creek unit in Alaska (100% owned since April 2008) and the Lucky Friday unit in Idaho. The company produces silver, gold, lead, and zinc. In 2009, the company achieved record revenue and production levels, driven by the full-year impact of the Greens Creek acquisition and a rebound in metal prices following the 2008 financial crisis.

Key Financial Metrics

Note: 2008 results included a $12.0 million loss on the sale of discontinued Venezuelan operations and significant losses from those operations prior to the sale.

Material Changes vs. Prior Period

• Revenue Growth: Sales increased 53% due to higher realized metal prices, full-year 100% ownership of Greens Creek, and increased ore throughput.
• Debt Elimination: The company fully repaid the $161.7 million debt facility incurred for the 2008 Greens Creek acquisition. Proceeds from equity issuances in 2009 funded these repayments.
• Production Records: Silver production reached a record 10.99 million ounces (up from 8.71 million in 2008). Lead and zinc production also hit record levels.
• Cost Reduction: Mining and milling costs at Greens Creek fell 18% per ton, aided by increased hydroelectric power usage and lower diesel costs. Lucky Friday costs declined 5%.
• Discontinued Operations: The company sold its Venezuelan operations (La Camorra unit) in July 2008. Consequently, 2009 results contain no losses from discontinued operations, unlike 2008 which included a $17.4 million operating loss and a $12.0 million loss on sale.

Guidance, Outlook, and Risks

Outlook and Strategy: Management plans to increase exploration activity in 2010 compared to 2009, focusing on Greens Creek, Lucky Friday, and projects in Colorado and Mexico. The company is evaluating a significant capital project to construct an internal shaft at Lucky Friday to extend the mine's life, though this project is subject to metal price performance and capital availability.

Liquidity: With over $104 million in cash and a new $60 million revolving credit facility (undrawn), the company believes it has adequate liquidity for the next 12 months.

Key Risks:

• Commodity Prices: Earnings are directly tied to volatile silver, gold, lead, and zinc prices. A sustained decline could trigger asset write-downs.
• Environmental Liabilities: The company has accrued $131.2 million for reclamation and closure costs, primarily in Idaho. Actual costs could materially exceed this provision.
• Reserve Estimates: Ore reserves are estimates subject to change based on metal prices and geological data.
• Legal Proceedings: Ongoing litigation regarding the Coeur d'Alene River Basin and Bunker Hill Superfund Site poses potential financial exposure.

Investor Verification Checklist

• Debt Status: Verify the complete repayment of the $380 million acquisition debt and the terms of the new $60 million revolving credit facility.
• Environmental Accruals: Review Note 4 and Note 7 for details on the $131.2 million reclamation liability and the potential range of additional costs ($47 million higher estimate mentioned).
• Greens Creek Acquisition Impact: Confirm the depreciation and depletion charges associated with the 2008 purchase price allocation, which increased significantly in 2009.
• Preferred Stock Dividends: Note that dividends on Series B and Mandatory Convertible Preferred Stock were deferred in late 2008/2009 but declared and paid in January 2010 (Series B in cash, Mandatory in stock).
• Provisional Sales: Monitor the reconciliation of provisional sales to final settlement, as price adjustments significantly impacted 2009 revenue ($25.6 million positive adjustment).