Table of Contents


UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 ____________________
  Form
10-K
 ____________________
  
 S
              Annual
      report pursuant to Section 13 or 15(d) of The Securities Exchange Act
      of 1934 For the fiscal year ended December 31,
  2009
  Commission
file No. 1-8491
  HECLA
MINING COMPANY
 (Exact
name of registrant as specified in its charter)
 
 Delaware
              77–0664171(State
      or other jurisdiction of
                incorporation
      or organization)
              (I.R.S.
      Employer
                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
              
              Name
      of each exchange
                on
      which registeredCommon
      Stock, par value $0.25 per share
              
              New
      York Stock ExchangeSeries
      B Cumulative Convertible Preferred
                Stock,
      par value $0.25 per share
              
              New
      York Stock Exchange6.5%
      Mandatory Convertible Preferred
                Stock,
      par value $0.25 per share
              
              New
      York Stock Exchange
 
 Securities
registered pursuant to Section 12(g) of the Act: None
  Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes x   No
o
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o  No x
  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, and (2) has been subject to such filing requirements
for the past 90 days. Yes x  No o
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted 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 and post such files). Yes
___    No___
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 Large Accelerated
Filer  x                                                             Accelerated
Filer  o
 Non-Accelerated Filer  o                                                                Smaller
reporting company  o
 (Do not
check if a smaller reporting company)
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o No x
  The
aggregate market value of the registrant’s voting Common Stock held by
nonaffiliates was $629,953,816 as of June 30, 2009. There were 235,662,125
shares of the registrant’s Common Stock outstanding as of June 30, 2009, and
242,028,528 shares as of February 16, 2010.
  Documents
incorporated by reference herein:
  To the
extent herein specifically referenced in Part III, the information contained in
the Proxy Statement for the 2010 Annual Meeting of Shareholders of the
registrant, which will be filed with the Commission pursuant to Regulation 14A
within 120 days of the end of the registrant’s 2009 fiscal year is incorporated
herein by reference. See Part III.
  
 TABLEOF CONTENTS
  Special Note on Forward-Looking
    Statements
                1PART I
                1Item 1. Business
                1Introduction
                1Products and Segments
                3Employees
                4Available Information
                4Item 1A. Risk Factors
                4Item 1B. Unresolved Staff Comments
                14Item 2. Property Descriptions
                15The Greens Creek Unit
                15The Lucky Friday Unit
                17Item 3. Legal Proceedings
                19Item 4. Submission of Matters to a Vote of Security
      Holders
                19PART II
                20Item 5. Market for Registrant’s Common Equity and Related
      Stockholder Matters and Issuer Purchases of Equity
      Securities
                20Item 6. Selected Financial Data
                23Item 7. Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
                24Overview
                24Results of Operations
                25The Greens Creek Segment
                27The Lucky Friday Segment
                30Discontinued Operations - The La Camorra
      Unit
                31Corporate Matters
                31Reconciliation of Total Cash Costs (non-GAAP) to
      Cost of Sales and Other Direct Production Costs and Depreciation,
      Depletion and Amortization (GAAP)
                32Financial Liquidity and Capital
      Resources
                33Contractual Obligations and Contingent Liabilities
      and Commitments
                35Off-Balance Sheet Arrangements
                36Critical Accounting Estimates
                36New Accounting Pronouncements
                37Forward-Looking Statements
                37Item 7A. Quantitative and Qualitative Disclosures About
      Market Risk
                38Short-term Investments
                38Commodity-Price Risk Management
                38Interest-Rate Risk Management
                38Provisional Sales
                38Item 8. Financial Statements and Supplementary
      Data
                39Item 9. Changes in and Disagreements with Accountants on
      Accounting and Financial Disclosures
                40Item 9A. Controls and Procedures
                40Disclosure Controls and
      Procedures
                40Management’s Annual Report on Internal Control over
      Financial Reporting
                40Attestation Report of Independent Registered Public
      Accounting Firm
                41Changes in Internal Control over Financial
      Reporting
                42Item 9B. Other Information
                42PART III
                42Item 10. Directors, Executive Officers and Corporate
      Governance
                42Item 11. Executive Compensation
                44Item 12. Security Ownership of Certain Beneficial Owners
      and Management and Related Stockholder Matters
                44Item 13. Certain Relationships and Related Transactions and
      Director Independence
                44Item 14. Principal Accounting Fees and
      Services
                45PART IV
                46Item 15. Exhibits, Financial Statement
      Schedules
                46Signatures
                47Index to Consolidated Financial
      Statements
                F-1Index to Exhibits
                F-47
  i
 Table
of Contents
 SpecialNote on Forward-Looking Statements
  Certain
statements contained in this report (including information incorporated by
reference) are “forward-looking statements” and 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, prospects and opportunities. We
have tried to identify these forward-looking statements by using words such as
“may,” “might,” “will,” “expect,” “anticipate,” “believe,” “could,” “intend,”
“plan,” “estimate” 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 Item 1A. —
Business — Risk
Factors. Given these risks and uncertainties, readers are cautioned not
to place undue reliance on our forward-looking statements. Projections included
in this Form 10-K have been prepared based on assumptions, which we believe to
be reasonable, but not in accordance with United States generally accepted
accounting principles (“GAAP”) or any guidelines of the Securities and Exchange
Commission (“SEC”). Actual results will vary, perhaps materially, and we
undertake no obligation to update the projections at any future date. You are
strongly cautioned not to place undue reliance on such projections. 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.
  PART I
 Item1. Business
  For
information regarding the organization of our business segments and our
significant customers, see Note 11 ofNotes to Consolidated Financial
Statements.
  Information
set forth in Items 1A, 1B and 2 are incorporated by reference into this Item
1.
  Introduction
  Hecla
Mining Company has provided precious and base metals to the U.S. economy and
worldwide since its incorporation in 1891 (in this report, “we” or “our” or “us”
refers to Hecla Mining Company and our affiliates and subsidiaries). We
discover, acquire, develop, produce, and market silver, gold, lead and
zinc.  In doing so, we intend to manage our business activities in a
safe, environmentally responsible and cost-effective manner.
  We
produce lead, zinc and bulk concentrates, which we sell to custom smelters, and
unrefined gold bullion bars (doré), which may be sold as doré or further refined
before sale to precious metals traders.  We are organized and managed
into two segments that encompass our operating units: the Greens Creek and Lucky
Friday units.
  Prior to
the first quarter of 2009, we reported an additional segment, the San Sebastian
unit, for our various properties and exploration activities in
Mexico.  However, as a result of a decrease in exploration activity
there in 2009, and our ownership of 100% of Greens Creek (discussed further
below), we have determined that the San Sebastian unit no longer meets the
criteria for disclosure as a reportable segment as of and for year ended
December 31, 2009.
  Prior to
the second quarter of 2008, we also reported a fourth segment, the La Camorra
unit, representing our operations and various exploration activities in
Venezuela.  On July 8, 2008, we completed the sale of our wholly owned
subsidiaries holding our business and operations in Venezuela. Our Venezuelan
activities are reported as discontinued operations on the Consolidated Statement of
Operations for all periods presented (see Note 12 of Notes to Consolidated Financial
Statementsfor more information).  As a result, we have
determined that it is no longer appropriate to present a separate segment
representing our operations in Venezuela.
  On April
16, 2008, we completed the acquisition of all of the ownership interest of the
two indirect Rio Tinto, PLC subsidiaries holding a 70.3% interest in the Greens
Creek mine.  Our wholly-owned subsidiary, Hecla Alaska LLC, previously
owned an undivided 29.7% joint venture interest in the assets of Greens Creek.
The acquisition gives our various subsidiaries ownership of 100% of the Greens
Creek mine.  More information on the acquisition can be found in Note 18 of Notes to Consolidated Financial
Statements.
  The map
below shows the locations of our operating units and our exploration projects,
as well as our corporate offices located in Coeur d’Alene, Idaho and Vancouver,
British Columbia.
 
 1
 Table
of Contents
 
  Our
current business strategy is to focus our financial and human resources in the
following areas:
  ·
              Operating
      our properties cost-effectively;
  ·
              Expanding
      our proven and probable reserves and production capacity at our operating
      properties;
  ·
              Maintaining
      and investing in exploration projects in the vicinities of four mining
      districts we believe to be under-explored and
      under-invested:  North Idaho’s Silver Valley in the historic
      Coeur d’Alene Mining District; at our Greens Creek unit on Alaska’s
      Admiralty Island, located offshore of Juneau; the silver producing
      district near Durango, Mexico; and the Creede district of Southwestern
      Colorado;
  ·
              Continuing
      to seek opportunities to acquire and invest in mining properties and
      companies; and
  ·
              Seeking
      opportunities for growth both internally and through acquisitions. See the
      Results of
      Operations and Financial Liquidity and
      Capital Resources sections
below.
  Below is
a summary of net income (loss) for each of the last five years (in
thousands):
  Year
      Ended December 31,2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              2005Net
      income (loss)
              
              $
              67,826
              
              
              $
              (66,563
              )
              
              $
              53,197
              
              
              $
              69,122
              
              
              $
              (25,360
              )
  Our
financial results over the last five years have been impacted
by:OUr  thousands)mber  net income or loss for each of the
last five yearsarious factors that impact by reference.enner & Smith
inc
  ·
              Fluctuations
      in prices of the metals we produce. The high and low daily closing market
      prices for silver, gold, lead and zinc for each of the last five years are
      illustrated by the table below:
  2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              2005Silver
      (per oz.):High
              
              $
              19.18
              
              
              $
              20.92
              
              
              $
              15.82
              
              
              $
              14.94
              
              
              $
              9.23Low
              
              $
              10.51
              
              
              $
              8.88
              
              
              $
              11.67
              
              
              $
              8.83
              
              
              $
              6.39Gold
      (per oz.):High
              
              $
              1,212.50
              
              
              $
              1,011.25
              
              
              $
              841.10
              
              
              $
              725.00
              
              
              $
              536.50Low
              
              $
              810.00
              
              
              $
              712.50
              
              
              $
              608.40
              
              
              $
              524.75
              
              
              $
              411.10Lead
      (per lb.):High
              
              $
              1.11
              
              
              $
              1.57
              
              
              $
              1.81
              
              
              $
              0.82
              
              
              $
              0.52Low
              
              $
              0.45
              
              
              $
              0.40
              
              
              $
              0.71
              
              
              $
              0.41
              
              
              $
              0.37Zinc
      (per lb.):High
              
              $
              1.17
              
              
              $
              1.28
              
              
              $
              1.93
              
              
              $
              2.10
              
              
              $
              0.87Low
              
              $
              0.48
              
              
              $
              0.47
              
              
              $
              1.00
              
              
              $
              0.87
              
              
              $
              0.53
  While
Hecla’s average realized prices for all four metals increased in 2009 compared
to 2008 and were higher than average market prices in 2009, due in part to the
timing of concentrate shipments and their final settlement in comparison to
fluctuating prices, we believe that market metal price trends are a significant
factor in our operating and financial performance.  Because we are
unable to predict fluctuations in prices for metals and have limited control
over the timing of our concentrate shipments, there can be no assurance that our
realized prices will exceed or even meet average market metals prices for any
future period. See Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Results of
Operations for a summary of average market and realized prices for each
of the three years ended December 31, 2009, 2008 and 2007. Our results of
operations are significantly impacted by fluctuations in the prices of silver,
gold, lead and zinc, which are affected by numerous factors beyond our
control.  See Item
1A. Risk Factors – Financial Risks – A substantial or extended decline in
metals prices would have a material adverse effect on usfor information
on the various factors that can impact prices of the metals we
produce;
  2
 Table
of Contents
 ·
              Exploration
      and pre-production development expenditures totaling $9.2 million, $22.5
      million, $17.0 million, $22.8 million and $17.9 million, respectively, for
      the years ended December 31, 2009, 2008, 2007, 2006 and 2005. These
      amounts include expenditures for the now-divested Hollister Development
      Block, as its development progressed until the sale of our interest in the
      project in April 2007, of $2.2 million, $14.4 million and $9.4 million,
      respectively, for the years ended December 31, 2007, 2006 and
      2005.  In addition, exploration for the year ended December 31,
      2005 included $2.2 million for expenditures at the Noche Buena gold
      exploration property in Mexico, which was sold in April
    2006;
  ·
              Provision
      for closed operations and environmental matters of $7.7 million, $4.3
      million, $49.2 million, $3.5 million and $1.3 million, respectively, for
      the years ended December 31, 2009, 2008, 2007, 2006 and
      2005.  The 2007 amount includes an increase of $44.7 million to
      our estimated liabilities for environmental remediation in Idaho’s Coeur
      d’Alene Basin and the Bunker Hill Superfund
  Site;
  ·
              Variability
      in prices for diesel fuel and amounts of fuel used, and variability in
      prices for other consumables, which have impacted production costs at our
      operations;
  ·
              Our
      acquisition of the remaining 70.3% of the Greens Creek mine for $758.5
      million in April 2008, a portion of which was funded by a $140 million
      term loan and $220 million bridge loan.  We recorded interest
      expense related to these credit facilities, including amortization of loan
      fees and interest rate swap adjustments, of $10.1 million and $19.1
      million, respectively in 2009 and 2008.  The amount of interest
      expense in 2009 is net of $1.9 million in capitalized
      interest.  We also recorded approximately $6.0 million in
      expense in 2009 for additional debt-related fees.  We completed
      repayment of the bridge loan balance in February 2009 and repayment of the
      term loan balance in October 2009;
  ·
              The
      2008-2009 global financial crisis and recession, which impacted metals
      prices, production costs, and our access to capital
    markets;
  ·
              An
      increase in the number of shares of our common stock
      outstanding;
  ·
              Losses
      from discontinued operations, net of tax, for the years ended December 31,
      2008, 2007 and 2005 of $17.4 million, $15.0 million and $7.4 million,
      respectively, and income from discontinued operations, net of tax, for the
      year ended December 31, 2006 of $4.3 million;
  and
  ·
              Decreased
      production, and the eventual suspension of mining operations at the San
      Sebastian unit in Mexico in the fourth quarter of
  2005.
  A
comprehensive discussion of our financial results for the years ended
December 31, 2009, 2008 and 2007, individual operating unit performance,
general corporate expenses and other significant items can be found in Item 7. — Management’s Discussion
and Analysis of Consolidated Financial Condition and Results of
Operations, as well as the Consolidated Financial
Statements and Notes thereto.
  Productsand Segments
  Our
segments are differentiated by geographic region and principal products
produced. We produce zinc, lead and bulk concentrates at our Greens Creek unit
and lead and zinc concentrates at our Lucky Friday unit, which we sell to custom
smelters on contract, and unrefined gold bullion bars (doré) at Greens Creek,
which are sold directly to customers or further refined before sale to precious
metals traders. The concentrates produced at our Greens Creek and Lucky Friday
units contain silver, zinc and lead, and the concentrates produced at Greens
Creek also contain gold. Our segments as of December 31, 2009
included:
  ·
              The
      Greens Creek unit, a joint venture arrangement which is 100%-owned by us
      through our subsidiaries Hecla Alaska LLC, Hecla Greens Creek Mining
      Company and Hecla Juneau Mining Company.  We acquired 70.3% of
      our ownership of Greens Creek in April 2008 from indirect subsidiaries of
      Rio Tinto, plc. Greens Creek is located on Admiralty Island, near Juneau,
      Alaska, and has been in production since 1989, with a temporary shutdown
      from April 1993 through July 1996. During 2009, Greens Creek contributed
      $229.3 million, or 73.4%, to our consolidated sales;
    and
  3
 Table
of Contents
 ·
              The
      Lucky Friday unit located in northern Idaho. Lucky Friday is, through our
      subsidiaries Hecla Limited and Silver Hunter Mining Company, 100%-owned
      and has been a producing mine for us since 1958. During 2009, Lucky Friday
      contributed $83.2 million, or 26.6%, to our consolidated
      sales.
  The table
below summarizes our production for the years ended December 31, 2009, 2008 and
2007, which reflects our previous 29.7% ownership of Greens Creek until April
16, 2008, and our 100% ownership thereafter.
  Year2009
              
              
              2008
              
              
              2007Silver
      (ounces)
              
              
              10,989,660
              
              
              
              8,709,517
              
              
              
              5,642,558Gold
      (ounces)
              
              
              67,278
              
              
              
              76,810
              
              
              
              107,708Lead
      (tons)
              
              
              44,263
              
              
              
              35,023
              
              
              
              24,549Zinc
      (tons)
              
              
              80,995
              
              
              
              61,441
              
              
              
              26,621
  The gold
production amounts above include 22,160 and 87,490 ounces, respectively, for
years ended December 31, 2008 and 2007 produced at our discontinued Venezuelan
operations sold in July 2008.
  Employees
  As of
December 31, 2009, we employed 656 people, and believe relations with our
employees are generally good.
  Many of
the employees at our Lucky Friday unit are represented by a union. The
collective bargaining agreement with workers at our Lucky Friday unit expires on
April 30, 2010.  We anticipate that we will reach a satisfactory
contract with the union, although there can be no assurance that this can be
done or that it can be done without disruptions to production. During the past
five years, labor strikes and work slow-downs adversely affected our production
in Mexico and at our now-divested Venezuelan operations. Similar labor problems
could affect our financial results or condition in the future.
  AvailableInformation
  Hecla
Mining Company is a Delaware corporation Our principal executive offices are
located at 6500 N. Mineral Drive, Suite 200, Coeur d’Alene, Idaho 83815-9408.
Our telephone number is (208) 769-4100. Our web site address is www.hecla-mining.com.
We file our annual, quarterly and current reports and amendments to these
reports with the SEC, copies of which are available on our website or from the
SEC free of charge (www.sec.gov or
800-SEC-0330 or the SEC’s Public Reference Room, 100 F Street, N.E., Washington,
D.C. 20549). Charters of our audit, compensation, corporate governance, and
directors’ nominating committees, as well as our Code of Ethics for the Chief
Executive Officer and Senior Financial Officers and our Code of Business Conduct
and Ethics for Directors, Officers and Employees, are also available on our
website. We will provide copies of these materials to shareholders upon request
using the above-listed contact information, directed to the attention of
Investor Relations.
  We have
included the Chief Executive Officer (CEO) and Chief Financial Officer (CFO)
certifications regarding our public disclosure required by Section 302 of
the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2 to this report.
Additionally, we filed with the New York Stock Exchange (“NYSE”) the CEO’s
certification regarding our compliance with the NYSE’s Corporate Governance
Listing Standards (“Listing Standards”) pursuant to Section 303A.12(a) of the
Listing Standards, which certification was dated June 8, 2009, and indicated
that the CEO was not aware of any violations of the Listing
Standards.
  Item1A. Risk Factors
  The
following risks and uncertainties, together with the other information set forth
in this Form 10-K, should be carefully considered by those who invest in our
securities. Any of the following risks could materially adversely affect our
business, financial condition or operating results and could decrease the value
of our common and/or preferred stock.
  4
 Table
of Contents
 FINANCIAL
RISKS
  The
global financial crisis may have an impact on our business and financial
condition in ways that we currently cannot predict.
  The continued credit crisis and related
turmoil in the global financial system has had and may continue to have an
impact on our business and financial position.  The financial crisis
may limit our ability to raise capital through credit and equity
markets.  As discussed further below, the prices of the metals that we
produce are affected by a number of factors, and it is unknown how these factors
may be impacted by a continuation of the financial crisis.
  We
have had losses that could reoccur in the future.
  Although
we reported net income for the years ended December 31, 2009 and 2007 of $67.8
million and $53.2 million, respectively, we reported a net loss for the year
ended December 31, 2008 of $66.6 million. A comparison of operating results over
the past three years can be found in Results of Operations inManagement’s Discussion and
Analysis of Financial Condition and Results of Operations.
  Many of
the factors affecting our operating results are beyond our control, including
the volatility of metals prices; smelter terms; diesel fuel prices; interest
rates; global or regional political or economic policies; inflation;
developments and crises; governmental regulations; continuity of orebodies; and
speculation and sales by central banks and other holders and producers of gold
and silver in response to these factors. We cannot foresee whether our
operations will continue to generate sufficient revenue in order for us to
generate net cash from operating activities. There can be no assurance that we
will not experience net losses in the future.
  Commodity
hedging activities could expose us to losses.
  We
periodically enter into hedging activities, such as forward sales contracts and
commodity put and call option contracts, to manage the prices received on the
metals we produce. Such hedging activities are utilized to attempt to insulate
our operating results from declines in prices for those metals. However, hedging
may prevent us from realizing possible revenues in the event that the market
price of a metal exceeds the price stated in a forward sale or call option
contract. In addition, we may experience losses if a counterparty fails to
purchase under a contract when the contract price exceeds the spot price of a
commodity.  At December 31, 2009, we had no commodity hedging
contracts.
  Our
profitability could be affected by the prices of other commodities.
  Our
business activities are highly dependent on the costs of commodities such as
fuel, steel and cement. The recent prices for such commodities have been
volatile and may increase our costs of production and development. A material
increase in costs at any of our operating properties could have a significant
effect on our profitability. For additional discussion, see Results of Operations in
Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
  Our
accounting and other estimates may be imprecise.
  Preparing
financial statements requires management to make estimates and assumptions that
affect the reported amounts and related disclosure of assets, liabilities,
revenue and expenses at the date of the consolidated financial statements and
reporting periods. The more significant areas requiring the use of management
assumptions and estimates relate to:
  ·
              mineral
      reserves that are the basis for future cash flow estimates and
      units-of-production depreciation, depletion and amortization
      calculations;
  ·
              future
      metals prices;
  ·
              environmental,
      reclamation and closure
obligations;
  ·
              asset
      impairments;
  ·
              reserves
      for contingencies and litigation;
and
  ·
              deferred
      tax asset valuation allowance.
  Actual
results may differ materially from these estimates using different assumptions
or conditions. For additional information, see Critical Accounting Estimates
in Management’s Discussion and
Analysis of Financial Condition and Results of Operations, Note 1 — Significant Accounting
Policies of Notes to
Consolidated Financial Statements and the risk factors:“Our development of new orebodies
and other capital costs may cost more and provide less return than we
estimated,” “Our ore reserve estimates may be imprecise” and“Our environmental remediation
obligations may exceed the provisions we have made.”
 
 5
 Table
of Contents
 A
substantial or extended decline in metals prices would have a material adverse
effect on us.
 
 Our
revenue is derived from the sale of silver, gold, lead and zinc and, as a
result, our earnings are directly related to the prices of these metals. Silver,
gold, lead and zinc prices fluctuate widely and are affected by numerous
factors, including:
  ·
              speculative
      activities;
  ·
              relative
      exchange rates of the U.S. dollar;
  ·
              global
      and regional demand and production;
  ·
                recession
      or reduced economic activity;
and
  ·
              other
      political and economic conditions.
 
 These
factors are largely beyond our control and are difficult to predict. If the
market prices for these metals fall below our production or development costs
for a sustained period of time, we will experience losses and may have to
discontinue exploration, development or operations, or incur asset write-downs
at one or more of our properties.
 
 The
following table sets forth the average daily closing prices of the following
metals for the year ended December 31, 1995, 2002 and each year thereafter
through 2009.
  2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003
              
              
              2002
              
              
              1995Silver
      (1)
      (per oz.)
              
              $
              14.65
              
              
              $
              15.02
              
              
              $
              13.39
              
              
              $
              11.57
              
              
              $
              7.31
              
              
              $
              6.66
              
              
              $
              4.88
              
              
              $
              4.60
              
              
              $
              5.20Gold
      (2)
      (per oz.)
              
              $
              972.98
              
              
              $
              871.71
              
              
              $
              696.66
              
              
              $
              604.34
              
              
              $
              444.45
              
              
              $
              409.21
              
              
              $
              363.51
              
              
              $
              309.97
              
              
              $
              384.16Lead
      (3)
      (per lb.)
              
              $
              0.78
              
              
              $
              0.95
              
              
              $
              1.17
              
              
              $
              0.58
              
              
              $
              0.44
              
              
              $
              0.40
              
              
              $
              0.23
              
              
              $
              0.21
              
              
              $
              0.29Zinc
      (4)
      (per lb.)
              
              $
              0.75
              
              
              $
              0.85
              
              
              $
              1.47
              
              
              $
              1.49
              
              
              $
              0.63
              
              
              $
              0.48
              
              
              $
              0.38
              
              
              $
              0.35
              
              
              $
              0.47
 ______________
 (1)
              London
      Fix
 (2)
              London
      Final
 (3)
              London
      Metals Exchange — Cash
 (4)
              London
      Metals Exchange — Special High Grade —
Cash
 
 On February 16, 2010, the closing
prices for silver, gold, lead and zinc were $15.82 per ounce, $1,115.25 per
ounce, $0.97 per pound and $0.99 per pound, respectively.
 
 An
extended decline in metals prices or our inability to convert exploration
potential to reserves may cause us to record write-downs, which could negatively
impact our results of operations.
 
 We review the recoverability of the
cost of our long-lived assets by estimating the future undiscounted cash flows
expected to result from the use and eventual disposition of the
asset.  Impairment, measured by comparing an asset’s carrying value to
its fair value, must be recognized when the carrying value of the asset exceeds
these cash flows, and recognizing impairment write-downs could negatively impact
our results of operations.  Metal price estimates are a key component
used in the analysis of the carrying values of our assets. We evaluated the
December 31, 2009 carrying values of long-lived assets at our Greens Creek and
Lucky Friday segments by comparing them to the average estimated undiscounted
cash flows resulting from operating plans using various metals price
scenarios.  Our estimates of undiscounted cash flows for each of our
properties also include an estimation of the market value of the exploration
potential beyond the current operating plans.  Because the average
estimated undiscounted cash flows exceeded the asset carrying values, we did not
record impairments as of December 31, 2009.  However, if the prices of
silver, gold, zinc and lead decline for an extended period of time or we fail to
control production costs or realize the mineable ore reserves or exploration
potential at our mining properties, we may be required to recognize asset
write-downs in the future.    In addition, the perceived
market value of the exploration potential of our properties is dependent upon
prevailing metals prices as well as our ability to discover economic ore. A
decline in metals prices for an extended period of time or our inability to
convert exploration potential to reserves could significantly reduce our
estimations of the value of the exploration potential at our properties and
result in asset write-downs.
 
 6
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of Contents
 Our
ability to recognize the benefits of deferred tax assets is dependent on future
cash flows and taxable income
 
 We recognize the expected future tax
benefit from deferred tax assets when the tax benefit is considered to be more
likely than not of being realized.  Otherwise, a valuation allowance
is applied against deferred tax assets.  Assessing the recoverability
of deferred tax assets requires management to make significant estimates related
to expectations of future taxable income.  Estimates of future taxable
income are based on forecasted cash flows from operations and the application of
existing tax laws in each jurisdiction.  Metal price estimates are a
key component used in the determination of our ability to realize the expected
future benefit of our deferred tax assets. To the extent that future taxable
income differs significantly from estimates as a result of a decline in metals
prices or other factors, our ability to realize the deferred tax assets could be
impacted.  Additionally, future issuances of common stock or common
stock equivalents could limit our ability to utilize our net operating loss
carryforwards pursuant to Section 382 of the Internal Revenue Code. Future
changes in tax law or changes in ownership structure could limit our ability to
obtain future tax benefits.  As of December 31, 2009, our current and
non-current deferred tax asset balances were $7.2 million and $38.5 million,
respectively.   See Note 5 of Notes to Consolidated Financial
Statements for further discussion of our deferred tax
assets.
  Returns for
Investments in Pension Plans and Pension Plan Funding Requirements Are
Uncertain
 
 We
maintain pension plans for employees, which provide for specified payments after
retirement for certain employees. The ability of the pension plans to provide
the specified benefits depends on our funding of the plans and returns on
investments made by the plans. Returns, if any, on investments are subject to
fluctuations based on investment choices and market conditions. A sustained
period of low returns or losses on investments could require us to fund the
pension plans to a greater extent than anticipated.
 
 OPERATION,
DEVELOPMENT, EXPLORATION AND ACQUISITION RISKS
 
 We
may be subject to a number of unanticipated risks related to inadequate
infrastructure.
 
 Mining,
processing, development and exploration activities depend on adequate
infrastructure. Reliable roads, bridges, power sources and water supply are
important determinants, which affect capital and operating costs. Unusual or
infrequent weather phenomena, sabotage, government or other interference in the
maintenance or provision of such infrastructure could adversely affect our
mining operations.
  Our
development of new orebodies and other capital costs may cost more and provide
less return than we estimated.
  Capitalized
development projects may cost more and provide less return than we estimate. If
we are unable to realize a return on these investments, we may incur a related
asset write-down that could adversely affect our financial results or
condition.
  Our
ability to sustain or increase our current level of production of metals partly
depends on our ability to develop new orebodies and/or expand existing mining
operations. Before we can begin a development project, we must first determine
whether it is economically feasible to do so. This determination is based on
estimates of several factors, including:
  ·
              ore
      reserves;
  ·
              expected
      recovery rates of metals from the
ore;
  ·
              future
      metals prices;
  ·
              facility
      and equipment costs;
  ·
              availability
      of affordable sources of power and adequacy of water
    supply;
  ·
              exploration
      and drilling success;
  ·
              capital
      and operating costs of a development
project;
  ·
              environmental
      considerations and permitting;
  ·
              adequate
      access to the site, including competing land uses (such as
      agriculture);
  ·
              applicable
      tax rates;
  7
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 ·
              assumptions
      used in determining the value of our pension plan assets and
      liabilities;
  ·
              foreign
      currency fluctuation and inflation rates;
and
  ·
              availability
      of financing.
  These
estimates are based on geological and other interpretive data, which may be
imprecise. As a result, actual operating and capital costs and returns from a
development project may differ substantially from our estimates as a result of
which it may not be economically feasible to continue with a development
project.
  Our
ore reserve estimates may be imprecise.
  Our ore
reserve figures and costs are primarily estimates and are not guarantees that we
will recover the indicated quantities of these metals. You are strongly
cautioned not to place undue reliance on estimates of reserves. Reserves are
estimates made by our professional technical personnel, and no assurance can be
given that the estimated amount of metal or the indicated level of recovery of
these metals will be realized. Reserve estimation is an interpretive process
based upon available data and various assumptions. Our reserve estimates may
change based on actual production experience. Further, reserves are valued based
on estimates of costs and metals prices, which may not be consistent among our
operating and non-operating properties. The economic value of ore reserves may
be adversely affected by:
  ·
              declines
      in the market price of the various metals we
  mine;
  ·
              increased
      production or capital costs;
  ·
              reduction
      in the grade or tonnage of the
deposit;
  ·
              increase
      in the dilution of the ore; and
  ·
              reduced
      recovery rates.
  Short-term
operating factors relating to our ore reserves, such as the need to sequentially
develop orebodies and the processing of new or different ore grades, may
adversely affect our cash flow. We may use forward sales contracts and other
hedging techniques to partially offset the effects of a drop in the market
prices of the metals we mine. However, if the prices of metals that we produce
decline substantially below the levels used to calculate reserves for an
extended period, we could experience:
  ·
              delays
      in new project development;
  ·
              net
      losses;
  ·
              reduced
      cash flow;
  ·
              reductions
      in reserves; and
  ·
              write-downs
      of asset values.
  Efforts
to expand the finite lives of our mines may not be successful or could result in
significant demands on our liquidity, which could hinder our growth and decrease
the value of our stock.
  One of
the risks we face is that our mines have a relatively small amount of proven and
probable reserves, primarily because we have low volume, underground operations.
Thus, we must continually replace depleted ore reserves. Our ability to expand
or replace ore reserves primarily depends on the success of our exploration
programs. Mineral exploration, particularly for silver and gold, is highly
speculative and expensive. It involves many risks and is often non-productive.
Even if we believe we have found a valuable mineral deposit, it may be several
years before production from that deposit is possible. During that time, it may
become no longer feasible to produce those minerals for economic, regulatory,
political or other reasons. As a result of high costs and other uncertainties,
we may not be able to expand or replace our existing ore reserves as they are
depleted, which would adversely affect our business and financial position in
the future.
  Over the
past years we have evaluated alternatives for deeper access at the Lucky Friday
mine in order to expand its operational life.  As a result, we have
initiated engineering, procurement of long lead time equipment, development, and
other early-stage activities relating to construction of an internal shaft at
Lucky Friday.  Upon completion, the internal shaft would allow us to
mine mineralized material below our current workings and provide deeper
platforms for exploration.  Construction of the internal shaft would
take approximately five years and involve significant capital
expenditures.  Should we decide to continue with construction of the
internal shaft, our ability to fund this project, along with our other capital
requirements, would depend to a large extent on our operating
performance.  A significant decrease in metals prices,  an
increase in operating costs or an increase in the capital cost could potentially
require us to suspend the project or access additional capital though debt
financing, the sale of securities, or other external sources.  This
additional financing could be costly or unavailable.
  8
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 Our
joint development and operating arrangements may not be successful.
  We have
entered into, and may in the future enter into joint venture arrangements in
order to share the risks and costs of developing and operating properties. In a
typical joint venture arrangement, the partners own a proportionate share of the
assets, are entitled to indemnification from each other and are only responsible
for any future liabilities in proportion to their interest in the joint venture.
If a party fails to perform its obligations under a joint venture agreement, we
could incur liabilities and losses in excess of our pro-rata share of the joint
venture.  We make investments in exploration and development projects
that may have to be written off in the event we do not proceed to a commercially
viable mining operation.
  On
February 21, 2008, we announced that our wholly-owned subsidiary, Rio Grande
Silver Inc., acquired the right to earn into a 70% joint venture interest in an
approximately 25-square-mile consolidated land package in the Creede Mining
District of Colorado.  For more information on the terms of the
agreement, see Note 18
of Notes to Consolidated
Financial Statements.
  Our
ability to market our metals production may be affected by disruptions or
closures of custom smelters and/or refining facilities.
  We sell
substantially all of our metallic concentrates to custom smelters, with our doré
bars sent to refiners for further processing before being sold to metal traders.
If our ability to sell concentrates to our contracted smelters becomes
unavailable to us, it is possible our operations could be adversely
affected.  See Note
11 of Notes to
Consolidated Financial Statements for more information on the
distribution of our sales and our significant customers.
  We
face inherent risks in acquisitions of other mining companies or properties that
may adversely impact our growth strategy.
  Mines
have limited lives, which is an inherent risk in acquiring mining properties. We
are actively seeking to expand our mineral reserves by acquiring other mining
companies or properties. Although we are pursuing opportunities that we feel are
in the best interest of our investors, these pursuits are costly and often
unproductive. Inherent risks in acquisitions we may undertake in the future
could adversely affect our current business and financial condition and our
growth.
  There is
a limited supply of desirable mineral lands available in the United States and
foreign countries where we would consider conducting exploration and/or
production activities, and any acquisition we may undertake is subject to
inherent risks. In addition to the risk associated with limited mine lives, we
may not realize the value of the companies or properties that are acquired due
to a possible decline in metals prices, failure to obtain permits, labor
problems, changes in regulatory environment, failure to achieve anticipated
synergies, an inability to obtain financing and other factors previously
described. Acquisitions of other mining companies or properties may also expose
us to new geographic, political, operating, and geological risks. In addition,
we face strong competition for companies and properties from other mining
companies, some of which have greater financial resources than we do, and we may
be unable to acquire attractive companies and mining properties on terms that we
consider acceptable.
  Our
business depends on good relations with our employees.
  We are
dependent upon the ability and experience of our executive officers, managers,
employees and other personnel, including those residing outside of the U.S., and
there can be no assurance that we will be able to retain all of such employees.
We compete with other companies both within and outside the mining industry in
connection with the recruiting and retention of qualified employees
knowledgeable of the mining business. The loss of these persons or our inability
to attract and retain additional highly skilled employees could have an adverse
effect on our business and future operations.  Our labor contract with
our employees at our Lucky Friday unit expires on April 30,
2010.  Although we intend to negotiate a new agreement on a timely
basis, there can be no assurance that we will do so or that the terms of any new
agreement will be favorable to us.
  Mining
accidents or other adverse events at an operation could decrease our anticipated
production.
  Production
may be reduced below our historical or estimated levels as a result of mining
accidents; unfavorable ground conditions; work stoppages or slow-downs; lower
than expected ore grades; the metallurgical characteristics of the ore that are
less economic than anticipated; or our equipment or facilities fail to operate
properly or as expected.
  9
 Table
of Contents
 Our
operations may be adversely affected by risks and hazards associated with the
mining industry that may not be fully covered by insurance.
  Our
business is subject to a number of risks and hazards including:
  ·
              environmental
      hazards;
  ·
              political
      and country risks;
  ·
              civil
      unrest or terrorism;
  ·
              industrial
      accidents;
  ·
              labor
      disputes or strikes;
  ·
              unusual
      or unexpected geologic formations;
  ·
              cave-ins;
  ·
              explosive
      rock failures; and
  ·
              unanticipated
      hydrologic conditions, including flooding and periodic interruptions due
      to inclement or hazardous weather
conditions.
  Such
risks could result in:
  ·
              personal
      injury or fatalities;
  ·
              damage
      to or destruction of mineral properties or producing
      facilities;
  ·
              environmental
      damage;
  ·
              delays
      in exploration, development or
mining;
  ·
              monetary
      losses; and
  ·
              legal
      liability.
  We
maintain insurance to protect against losses that may result from some of these
risks at levels consistent with our historical experience, industry practice and
circumstances surrounding each identified risk. Insurance against environmental
risks is generally either unavailable or, we believe, too expensive for us, and
we therefore do not maintain environmental insurance. Occurrence of events for
which we are not insured may have an adverse effect on our
business.
  Our
foreign activities are subject to additional inherent risks.
 
 We sold
our mining operations and assets in Venezuela in July 2008, but still currently
conduct exploration projects in Mexico and continue to own assets, real estate
and mineral interests there. We anticipate that we will continue to conduct
operations in Mexico and possibly other international locations in the future.
Because we conduct operations internationally, we are subject to political and
economic risks such as:
  ·
              the
      effects of local political, labor and economic developments and
      unrest;
  ·
              significant
      or abrupt changes in the applicable regulatory or legal
      climate;
  ·
              exchange
      controls and export restrictions;
  ·
              expropriation
      or nationalization of assets with inadequate
  compensation;
  ·
              currency
      fluctuations and repatriation
restrictions;
  ·
              invalidation
      of governmental orders, permits or
agreements;
  ·
              renegotiation
      or nullification of existing concessions, licenses, permits and
      contracts;
  ·
              corruption,
      demands for improper payments, expropriation, and uncertain legal
      enforcement and physical security;
  ·
              disadvantages
      of competing against companies from countries that are not subject to U.S.
      laws and regulations;
  ·
              fuel
      or other commodity shortages;
  ·
              illegal
      mining;
  10
 Table
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 ·
              laws
      or policies of foreign countries and the United States affecting trade,
      investment and taxation;
  ·
              civil
      disturbances, war and terrorist actions;
and
  ·
              seizures
      of assets.
  Consequently,
our exploration, development and production activities outside of the United
States may be substantially affected by factors beyond our control, any of which
could materially adversely affect our financial condition or results of
operations.
  LEGAL,
MARKET AND REGULATORY RISKS
  We
are currently involved in ongoing legal disputes that may materially adversely
affect us.
  There are
several ongoing legal disputes in which we are involved. If any of these
disputes results in a substantial monetary judgment against us, is settled on
unfavorable terms or otherwise impacts our operations, our financial results or
condition could be materially adversely affected. For example, we may ultimately
incur environmental remediation costs or the plaintiffs in environmental
proceedings may be awarded damages substantially in excess of the amounts we
have accrued. For a description of the lawsuits in which we are involved, see
Note 7 ofNotes to Consolidated Financial
Statements.
  We
are required to obtain governmental and lessor approvals and permits in order to
conduct mining operations.
  In the
ordinary course of business, mining companies are required to seek governmental
and lessor approvals and permits for expansion of existing operations or for the
commencement of new operations. Obtaining the necessary governmental permits is
a complex, time-consuming and costly process. The duration and success of our
efforts to obtain permits are contingent upon many variables not within our
control. Obtaining environmental permits, including the approval of reclamation
plans, may increase costs and cause delays depending on the nature of the
activity to be permitted and the interpretation of applicable requirements
implemented by the permitting authority. There can be no assurance that all
necessary approvals and permits will be obtained and, if obtained, that the
costs involved will not exceed those that we previously estimated. It is
possible that the costs and delays associated with the compliance with such
standards and regulations could become such that we would not proceed with the
development or operation.
  We
face substantial governmental regulation and environmental risk.
  Our
business is subject to extensive U.S. and foreign, federal, state and local laws
and regulations governing development, production, labor standards, occupational
health, waste disposal, use of toxic substances, environmental regulations, mine
safety and other matters. See risk titled “Our environmental remediation
obligations may exceed the provisions we have made.” We have been and are
currently involved in lawsuits or disputes in which we have been accused of
causing environmental damage, violating environmental laws, or violating
environmental permits, and we may be subject to similar lawsuits or disputes in
the future. New legislation and regulations may be adopted or permit limits
reduced at any time that result in additional operating expense, capital
expenditures or restrictions and delays in the mining, production or development
of our properties.
  Legislative
and regulatory measures to address climate change and green house gas emissions
are in various phases of consideration.  If adopted, such measures
could increase our cost of environmental compliance and also delay or otherwise
negatively affect efforts to obtain permits and other regulatory approvals with
regard to existing and new facilities.  Proposed measures could also
result in increased cost of fuel and other consumables used at our operations,
including the diesel generation of electricity at our Greens Creek operation if
we are unable to access utility power. Climate change legislation may also
affect our smelter customers who burn fossil fuels, resulting in increased costs
to us, and may affect the market for the metals we produce with effects on
prices that are not possible for us to predict.
  In late
2008 and during 2009, we experienced a number of water permit exceedances for
water discharges at our Lucky Friday unit.  In April 2009, we entered
into a Consent Agreement and Final Order (“CAFO”) and a Compliance Order with
the EPA, which included an extended compliance timeline.  In
connection with the CAFO, we agreed to pay an administrative penalty to the EPA
of $177,500 to settle any liability for such exceedances.  We are
undertaking efforts that we believe will be successful in bringing our water
discharges at the Lucky Friday unit into compliance with the permit, but cannot
provide assurances that we will be able to fully comply with the permit limits,
particularly in the near future.  Any future non-compliance with the
permit limits or other regulatory or environmental requirements could lead to
future penalties, regulatory or other legal action, damages, or otherwise
impact our operations and financial results.
  From time
to time, the U.S. Congress considers proposed amendments to the General Mining
Law of 1872, as amended, which governs mining claims and related activities on
federal lands. The extent of any future changes is not known and the potential
impact on us as a result of U.S. Congressional action is difficult to predict.
Changes to the General Mining Law, if adopted, could adversely affect our
ability to economically develop mineral reserves on federal lands.
  11
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 Our
environmental remediation obligations may exceed the provisions we have
made.
  We are
subject to significant environmental obligations, particularly in northern
Idaho. At December 31, 2009, we had accrued $131.2 million as a provision
for environmental remediation, $90.5 million of which relates to our various
liabilities in Idaho, and there is a significant risk that the costs of
remediation could materially exceed this provision. For an overview of our
potential environmental liabilities, see Note 7 of Notes to Consolidated Financial
Statements.
  The
titles to some of our properties may be defective or challenged.
  Unpatented
mining claims constitute a significant portion of our undeveloped property
holdings, the validity of which could be uncertain and may be contested.
Although we have conducted title reviews of our property holdings, title review
does not necessarily preclude third parties from challenging our title. In
accordance with mining industry practice, we do not generally obtain title
opinions until we decide to develop a property. Therefore, while we have
attempted to acquire satisfactory title to our undeveloped properties, some
titles may be defective.
  The
price of our stock has a history of volatility and could decline in the
future.
  Our
common and preferred stocks are listed on the New York Stock Exchange. The
market price for our stock has been volatile, often based on:
  ·
              changes
      in metals prices, particularly
silver;
  ·
              our
      results of operations and financial condition as reflected in our public
      news releases or periodic filings with the Securities and Exchange
      Commission;
  ·
              fluctuating
      proven and probable reserves;
  ·
              factors
      unrelated to our financial performance or future prospects, such as global
      economic developments and market perceptions of the attractiveness of
      particular industries;
  ·
              political
      and regulatory risk;
  ·
              the
      success of our exploration
programs;
  ·
              ability
      to meet production estimates;
  ·
              environmental
      and legal risk;
  ·
              the
      extent of analytical coverage concerning our business;
  and
  ·
              the
      trading volume and general market interest in our
    securities.
  The
market price of our stock at any given point in time may not accurately reflect
our long-term value, and may prevent shareholders from realizing a profit on
their investment.
  Our
Series B Preferred Stock has a liquidation preference of $50 per share or $7.9
million.
  If we
were liquidated, holders of our preferred stock would be entitled to receive
approximately $7.9 million (plus any accrued and unpaid dividends) from any
liquidation proceeds before holders of our Common Stock would be entitled to
receive any proceeds.  Our Series B Preferred Stock ranks on parity
with our Mandatory Convertible Preferred Stock.
  Our
Mandatory Convertible Preferred Stock has a liquidation preference of $100 per
share or $201.3 million.
  If we
were liquidated, holders of our preferred stock would be entitled to receive
approximately $201.3 million (plus any accrued and unpaid dividends) from any
liquidation proceeds before holders of our Common Stock would be entitled to
receive any proceeds.  Our Mandatory Convertible Preferred Stock ranks
on parity with our Series B Preferred Stock.
  We
may not be able to pay preferred stock dividends in the future.
  Since
July 2005, we paid regular quarterly dividends on our Series B Preferred Stock
through the third quarter of 2008. The annual dividend payable on the Series B
Preferred Stock is currently $0.6 million. Prior to the fourth quarter of
2004, we had not declared preferred dividends on Series B Preferred Stock since
the second quarter of 2000.  In December 2007, we issued 6.5%
Mandatory Convertible Preferred Stock with an annual dividend of $13.1 million,
each of which quarterly dividend payments have been made through the third
quarter of 2008.  Series B Preferred Stock and Mandatory Convertible
Preferred Stock dividends due on January 1, 2009, for the fourth quarter of 2008
and dividends due for the three quarters thereafter were deferred.  In
January 2010 we paid all dividends in arrears and dividends due for the fourth
quarter of 2009 for the Series B and Mandatory Convertible preferred
stock.  However, there can be no assurance that we will continue to
pay dividends in the future.
 12
 Table
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  Additional
issuances of equity securities by us would dilute the ownership of our existing
stockholders and could reduce our earnings per share.
 We may
issue equity in the future in connection with acquisitions, strategic
transactions or for other purposes. Any such acquisition could be material to us
and could significantly increase the size and scope of our business, including
our market capitalization. We may also be required to issue Common Stock upon
the conversion of our Mandatory Convertible Preferred Stock and may pay
dividends on our Mandatory Convertible Preferred Stock in shares of our Common
Stock.  To the extent we issue any additional equity securities, the
ownership of our existing stockholders would be diluted and our earnings per
share could be reduced.  As of December 31, 2009 there were warrants
outstanding for purchase of 38,694,316 shares of our common
stock.  The warrants give the holders the right to purchase our common
stock at the following prices:  $2.45 (7,682,927 shares), $2.56
(460,976 shares), $2.50 (18,376,500 shares), and $3.68
(12,173,913).  Warrants to purchase 12,173,193 shares at $3.68 per
share expire in June 2010, while the remaining warrants expire in June and
August 2014.  See Note 9 of Notes to Consolidated Financial
Statements.
  The
issuance of additional shares of our preferred stock or common stock in the
future could adversely affect holders of Common Stock.
  The
market price of our Common Stock is likely to be influenced by our preferred
stock.  For example, the market price of our Common Stock could become
more volatile and could be depressed by:
  ·
              investors’
      anticipation of the potential resale in the market of a substantial number
      of additional shares of our Common Stock received upon conversion of the
      Mandatory Convertible Preferred Stock or as dividends thereon;
      and
  ·
              our
      failure to pay dividends on our currently outstanding Series B Preferred
      Stock or Mandatory Convertible Preferred Stock, which would prevent us
      from paying dividends to holders of our Common
  Stock.
 In
addition, our board of directors is authorized to issue additional classes or
series of preferred stock without any action on the part of our
stockholders.  This includes the power to set the terms of any such
classes or series of preferred stock that may be issued, including voting
rights, dividend rights and preferences over Common Stock with respect to
dividends or upon the liquidation, dissolution or winding up of the business and
other terms.  If we issue preferred stock in the future that has
preference over our Common Stock with respect to the payment of dividends or
upon liquidation, dissolution or winding up, or if we issue preferred stock with
voting rights that dilute the voting power of our Common Stock, the rights of
holders of the Common Stock or the market price of the Common Stock could be
adversely affected.  As noted above, as of December 31, 2009, there
were warrants outstanding to purchase a total of 38,694,316 shares of our common
stock.
  We may
issue substantial additional shares of Common Stock or other securities in
connection with acquisition transactions or for other purposes, to the extent
permitted by our credit facility. Any such acquisition could be material to us
and could significantly increase the size and scope of our business. Issuances
or sales of substantial amounts of additional Common Stock or the perception
that such issuances or sales could occur may cause prevailing market prices for
our Common Stock to decline and could result in dilution to our stockholders.
See If a large number of
shares of our Common Stock is sold in the public market, the sales could reduce
the trading price of our Common Stock and impede our ability to raise future
capital.
 If
a large number of shares of our Common Stock are sold in the public market, the
sales could reduce the trading price of our Common Stock, impede our ability to
raise future capital.
  We cannot
predict what effect, if any, future issuances by us of our Common Stock or other
equity will have on the market price of our Common Stock. In addition, shares of
our Common Stock that we issue in connection with an acquisition may not be
subject to resale restrictions. We may issue substantial additional shares of
Common Stock or other securities in connection with material acquisition
transactions. The market price of our Common Stock could decline if certain
large holders of our Common Stock, or recipients of our Common Stock in
connection with an acquisition, sell all or a significant portion of their
shares of Common Stock or are perceived by the market as intending to sell these
shares other than in an orderly manner. In addition, these sales could also
impair our ability to raise capital through the sale of additional Common Stock
in the capital markets.
  13
 Table
of Contents
 The
provisions in our certificate of incorporation, our by-laws and Delaware law
could delay or deter tender offers or takeover attempts that may offer a premium
for our Common Stock.
  The
provisions in our certificate of incorporation, our by-laws and Delaware law
could make it more difficult for a third party to acquire control of us, even if
that transaction would be beneficial to stockholders. These impediments
include:
  ·
              the
      classification of our board of directors into three classes serving
      staggered three-year terms, which makes it more difficult to quickly
      replace board members;
  ·
              the
      ability of our board of directors to issue shares of preferred stock with
      rights as it deems appropriate without stockholder
    approval;
  ·
              a
      provision that special meetings of our board of directors may be called
      only by our chief executive officer or a majority of our board of
      directors;
  ·
              a
      provision that special meetings of stockholders may only be called
      pursuant to a resolution approved by a majority of our entire board of
      directors;
  ·
              a
      prohibition against action by written consent of our
      stockholders;
  ·
              a
      provision that our board members may only be removed for cause and by an
      affirmative vote of at least 80% of the outstanding voting
      stock;
  ·
              a
      provision that our stockholders comply with advance-notice provisions to
      bring director nominations or other matters before meetings of our
      stockholders;
  ·
              a
      prohibition against certain business combinations with an acquirer of 15%
      or more of our Common Stock for three years after such acquisition unless
      the stock acquisition or the business combination is approved by our board
      prior to the acquisition of the 15% interest, or after such acquisition
      our board and the holders of two-thirds of the other Common Stock approve
      the business combination; and
  ·
              a
      prohibition against our entering into certain business combinations with
      interested stockholders without the affirmative vote of the holders of at
      least 80% of the voting power of the then outstanding shares of voting
      stock.
  The
existence of these provisions may deprive stockholders of an opportunity to sell
our stock at a premium over prevailing prices. The potential inability of our
stockholders to obtain a control premium could adversely affect the market price
for our Common Stock.
  If
we cannot meet the New York Stock Exchange continued listing requirements, the
NYSE may delist our Common Stock.
  Our
Common Stock is currently listed on the NYSE. In the future, if we were not be
able to meet the continued listing requirements of the NYSE, which require,
among other things, that the average closing price of our common stock be above
$1.00 over 30 consecutive trading days. Our closing stock price on February 16,
2010 was $5.51.
  If we are
unable to satisfy the NYSE criteria for continued listing, our Common Stock
would be subject to delisting. A delisting of our Common Stock could negatively
impact us by, among other things, reducing the liquidity and market price of our
Common Stock; reducing the number of investors willing to hold or acquire our
Common Stock, which could negatively impact our ability to raise equity
financing; decreasing the amount of news and analyst coverage for the Company;
and limiting our ability to issue additional securities or obtain additional
financing in the future.  In addition, delisting from the NYSE might
negatively impact our reputation and, as a consequence, our
business.
  Item1B. Unresolved Staff Comments
  None.
  14
 Table
of Contents
 Item2. Property Descriptions
  OPERATING
PROPERTIES
  TheGreens Creek Unit
  Our
various subsidiaries own 100% of the Greens Creek Mine located in Southeast
Alaska.  The Greens Creek orebody contains silver, zinc, gold and
lead, and lies adjacent to the Admiralty Island National Monument, an
environmentally sensitive area. The Greens Creek property includes 17 patented
lode claims and one patented mill site claim, in addition to property leased
from the U.S. Forest Service. Greens Creek also has title to mineral rights on
7,500 acres of federal land adjacent to the properties. The entire project is
accessed by boat and served by 13 miles of road and consists of the mine, an ore
concentrating mill, a tailings impoundment area, a ship-loading facility, camp
facilities and a ferry dock.  The map below illustrates the location
and access to Greens Creek:
  
  Prior to
April 16, 2008, we owned a 29.7% interest in Greens Creek.  On April
16, 2008, we completed the acquisition of all of the equity of two Rio Tinto
subsidiaries holding a 70.3% interest in the Greens Creek mine for approximately
$750 million.    The acquisition gives our various
subsidiaries control of 100% of the Greens Creek mine, as our wholly-owned
subsidiary, Hecla Alaska LLC, owned an undivided 29.7% joint venture interest in
the assets of Greens Creek prior to our acquisition of the remaining 70.3%
interest.
  The
Greens Creek deposit is a polymetallic, stratiform, massive sulfide deposit. The
host rock consists of predominantly marine sedimentary, and mafic to ultramafic
volcanic and plutonic rocks, which have been subjected to multiple periods of
deformation. These deformational episodes have imposed intense tectonic fabrics
on the rocks. Mineralization occurs discontinuously along the contact between a
structural hanging wall of quartz mica carbonate phyllites and a structural
footwall of graphitic and calcareous argillite. Major sulfide minerals are
pyrite, sphalerite, galena, and tetrahedrite/tennanite.
  Pursuant
to a 1996 land exchange agreement, the joint venture transferred private
property equal to a value of $1.0 million to the U.S. Forest Service and
received exploration and mining rights to approximately 7,500 acres of land with
mining potential surrounding the existing mine. Production from new ore
discoveries on the exchanged lands will be subject to federal royalties included
in the land exchange agreement. The royalty is only due on production from
reserves that are not part of Greens Creek’s extralateral rights. Thus far,
there has been no production triggering payment of the royalty. The royalty is
3% if the average value of the ore during a year is greater than $120 per ton of
ore, and 0.75% if the value is $120 per ton or less. The benchmark of $120 per
ton is adjusted annually according to the Gross Domestic Product (GDP) Implicit
Price Deflator until the year 2016, and at December 31, 2009, was at
approximately $158 per ton when applying the latest GDP Implicit Price Deflator
observation.
  Greens
Creek is an underground mine which produces approximately 2,100 tons of ore per
day. The primary mining methods are cut and fill and longhole stoping. The ore
is processed on site at a mill, which produces lead, zinc and bulk concentrates,
as well as gold doré. In 2009, ore was processed at an average rate of
approximately 2,167 tons per day. During 2009, mill recovery totaled
approximately 72% silver, 79% zinc, 69% lead and 64% gold.  The doré
is sold to a precious metal refiner and on the open market and the three
concentrate products are sold to a number of major smelters worldwide.
Concentrates are shipped from a marine terminal located on Admiralty Island
about nine miles from the mine site.
  15
 Table
of Contents
 The
Greens Creek unit has historically been powered completely by diesel generators
located on site. However, an agreement was reached during 2005 to purchase
excess hydroelectric power from the local power company, Alaska Electric Light
and Power Company (“AEL&P”). Installation of the necessary infrastructure
was completed in 2006, and use of hydroelectric power commenced during the third
quarter of 2006.  This project has reduced production costs at Greens
Creek to the extent power has been available.  Low lake levels and
increased demand in the Juneau area combined to restrict the amount of power
available to Greens Creek during 2007 and 2008.  However, the mine
received an increased proportion of its power needs from AEL&P during
2009.  We expect to receive most, if not all, of the mine’s power from
AEL&P in 2010, and expect this to continue for the foreseeable future as a
result of new capacity installed by AEL&P in 2009.
  The
employees at Greens Creek are employees of our Hecla Greens Creek Mining
Company, our wholly-owned subsidiary, and are not represented by a bargaining
agent. There were 329 employees at the Greens Creek unit at December 31,
2009. All equipment, infrastructure and facilities, including camp and
concentrate storage facilities, are in good condition.
  As of
December 31, 2009, we have recorded a $35.3 million asset retirement
obligation for reclamation and closure costs. We maintain a $30 million
reclamation bond secured by the restricted cash balance of $7.6 million for
Greens Creek.   The net book value of the Greens Creek unit
property and its associated plant, equipment and mineral interests was
approximately $703 million as of December 31, 2009.
  Information
with respect to production, average costs per ounce of silver produced and
proven and probable ore reserves is set forth in the following table, and
represents our 100% ownership of Greens Creek after April 16, 2008, and our
previous 29.7% ownership prior to that date.
  Years
      Ended December 31,Production(6)
              
              2009
              
              
              2008
              
              
              2007Ore
      milled (tons)
              
              
              790,871
              
              
              
              598,931
              
              
              
              217,691Silver
      (ounces)
              
              
              7,459,170
              
              
              
              5,829,253
              
              
              
              2,570,701Gold
      (ounces)
              
              
              67,278
              
              
              
              54,650
              
              
              
              20,218Zinc
      (tons)
              
              
              70,379
              
              
              
              52,055
              
              
              
              18,612Lead
      (tons)
              
              
              22,253
              
              
              
              16,630
              
              
              
              6,252Average Cost per Ounce of Silver Produced(1)Total
      cash costs
              
              $
              0.35
              
              
              $
              3.29
              
              
              $
              (5.27
              )Total
      production costs
              
              $
              7.65
              
              
              $
              8.52
              
              
              $
              (1.93
              )Probable Ore Reserves(2,3,4,5,6,7)Total
      tons
              
              
              8,314,700
              
              
              
              8,064,700
              
              
              
              2,513,700Silver
      (ounces per ton)
              
              
              12.1
              
              
              
              13.7
              
              
              
              13.7Gold
      (ounces per ton)
              
              
              0.10
              
              
              
              0.11
              
              
              
              0.11Zinc
      (percent)
              
              
              10.3
              
              
              
              10.5
              
              
              
              10.2Lead
      (percent)
              
              
              3.6
              
              
              
              3.8
              
              
              
              3.8Contained
      silver (ounces)
              
              
              100,973,300
              
              
              
              110,583,200
              
              
              
              34,497,800Contained
      gold (ounces)
              
              
              847,400
              
              
              
              870,100
              
              
              
              270,000Contained
      zinc (tons)
              
              
              852,900
              
              
              
              850,700
              
              
              
              255,900Contained
      lead (tons)
              
              
              303,300
              
              
              
              308,700
              
              
              
              95,300
 ______________
  (1)
              Includes
      by-product credits from gold, lead and zinc production. Cash costs per
      ounce of silver represent measurements that are not in accordance with
      GAAP that management uses to monitor and evaluate the performance of our
      mining operations. We believe cash costs per ounce of silver provide an
      indicator of profitability and efficiency at each location and on a
      consolidated basis, as well as providing a meaningful basis to compare our
      results to those of other mining companies and other mining operating
      properties. A reconciliation of this non-GAAP measure to cost of sales and
      other direct production costs and depreciation, depletion and
      amortization, the most comparable GAAP measure, can be found in Item 7. — MD&A,
      underReconciliation of
      Total Cash Costs (non-GAAP) to Costs of Sales and Other Direct Production
      Costs and Depreciation, Depletion and Amortization
      (GAAP).
  (2)
              Estimates
      of proven and probable ore reserves for the Greens Creek unit as of
      December 2009, 2008 and 2007 are derived from successive generations of
      reserve and feasibility analyses for different areas of the mine, using a
      separate assessment of metals prices for each year. The weighted average
      prices used for reserve estimates in 2007, prior to our acquisition of the
      remaining 70.3% interest in Greens Creek, were determined by the geology
      and engineering staff of the Kennecott Greens Creek Mining Company, then
      an indirect subsidiary of Rio Tinto, plc, with our technical
      support.  The 2007 prices differ from the prices used by us, for
      example, in making such calculations for our Lucky Friday unit for that
      year.  We reviewed the geologic interpretation and reserve
      methodology, but the reserve compilation for 2007 for Greens Creek was not
      independently confirmed by us in its entirety.  The average
      prices used for the Greens Creek unit
were:
  16
 Table
of Contents
 December 31,2009
              
              
              2008
              
              
              2007Silver
      (per ounce)
              
              $
              13.75
              
              
              $
              12.25
              
              
              $
              8.00Gold
      (per ounce)
              
              $
              775
              
              
              $
              650
              
              
              $
              529Lead
      (per pound)
              
              $
              0.70
              
              
              $
              0.80
              
              
              $
              0.27Zinc
      (per pound)
              
              $
              0.70
              
              
              $
              0.80
              
              
              $
              0.58
  (3)
              Ore
      reserves represent in-place material, diluted and adjusted for expected
      mining recovery. Mill recoveries of ore reserve grades differ by ore zones
      and are expected to average 74% for silver, 68% for gold, 77% for zinc and
      73% for lead.
  (4)
              The
      changes in reserves in 2009 versus 2008 are due to lower anticipated ore
      grades and depletion due to production, partially offset by the addition
      of new drill data and increases in forecasted precious metals
      prices.  The changes in reserves in 2008 versus 2007 are due to
      our acquisition of the remaining 70.3% of Greens Creek in April 2008,
      along with the addition of new drill data and increases in forecasted
      precious metals prices, partially offset by depletion due to
      production.
  (5)
              We
      only report probable reserves at the Greens Creek unit, which are based on
      average drill spacing of 50 to 100 feet. Proven reserves typically require
      that mining samples are partly the basis of the ore grade estimates used,
      while probable reserve grade estimates can be based entirely on drilling
      results.  Cutoff grade assumptions vary by orebody and are
      developed based on reserve prices, anticipated mill recoveries and smelter
      payables and cash operating costs. Cutoff grades range from $97 per ton
      net smelter return to $107 per ton net smelter
  return.
  (6)
              Reflects
      our 29.7% ownership interest until April 16, 2008, and our 100% ownership
      thereafter.
  (7)
              An
      independent review by AMEC E&C, Inc. was completed in 2008 for the
      2007 reserve models for the 5250N and Northwest West
  zones.
  The
average silver grade has decreased in 2009 relative to 2008. This decrease is
primarily due to additional drilling which has reduced the impact of
higher-grade zones included in 2008. In addition, the increase in silver prices
has reduced cutoff grade along with greater reliance on higher-volume long-hole
stoping, which has the impact of reducing overall ore grades.
  TheLucky Friday Unit
  Since
1958, we have owned and operated the Lucky Friday unit, a deep underground
silver, lead and zinc mine located in the Coeur d’Alene Mining District in
northern Idaho. Lucky Friday is one-quarter mile east of Mullan, Idaho, and is
adjacent to U.S. Interstate 90.  Below is a map illustrating the
location and access to the Lucky Friday unit:
  
  There
have been two ore-bearing structures mined at the Lucky Friday
unit.  The first, mined through 2001, was the Lucky Friday vein, a
fissure vein typical of many in the Coeur d’Alene Mining District. The orebody
is located in the Revett Formation, which is known to provide excellent host
rocks for a number of orebodies in the Coeur d’Alene Mining District. The Lucky
Friday vein strikes northeasterly and dips steeply to the south with an average
width of six to seven feet. Its principal ore minerals are galena and
tetrahedrite with minor amounts of sphalerite and chalcopyrite. The ore occurs
as a single continuous orebody in and along the Lucky Friday vein. The major
part of the orebody has extended from the 1,200-foot level to and below the
6,020-foot level.
  17
 Table
of Contents
 The
second ore-bearing structure, known as the Lucky Friday Expansion Area, has been
mined since 1997 pursuant to an operating agreement with Independence Lead Mines
Company (“Independence’).  During 1991, we discovered several
mineralized structures containing some high-grade silver ores in an area known
as the Gold Hunter property, approximately 5,000 feet northwest of the then
existing Lucky Friday workings. This discovery led to the development of the
Gold Hunter property on the 4900 level. On November 6, 2008, we completed the
acquisition of substantially all of the assets of Independence, including all
future interest or royalty obligation to Independence and the mining claims
pertaining to their agreement with us (see Note 18 of Notes to Consolidated Financial
Statements for further discussion).
  The
principal mining method at the Lucky Friday unit is ramp access, cut and fill.
This method utilizes rubber-tired equipment to access the veins through ramps
developed outside of the orebody. Once a cut is taken along the strike of the
vein, it is backfilled with cemented tailings and the next cut is accessed,
either above or below, from the ramp system.
  The ore
produced from Lucky Friday is processed in a conventional flotation mill, which
produces both a lead concentrate and a zinc concentrate. In 2009, ore was
processed at an average rate of approximately 950 tons per day. During 2009,
mill recovery totaled approximately 94% silver, 93% lead and 89% zinc. All
silver-lead and zinc concentrate production during 2009 was shipped to Teck
Cominco Limited’s smelter in Trail, British Columbia, Canada.
  Information
with respect to the Lucky Friday unit’s production, average cost per ounce of
silver produced and proven and probable ore reserves for the past three years is
set forth in the table below.
  Years
      Ended December 31,Production
              
              2009
              
              
              2008
              
              
              2007Ore
      milled (tons)
              
              
              346,395
              
              
              
              317,777
              
              
              
              323,659Silver
      (ounces)
              
              
              3,530,490
              
              
              
              2,880,264
              
              
              
              3,071,857Lead
      (tons)
              
              
              22,010
              
              
              
              18,393
              
              
              
              18,297Zinc
      (tons)
              
              
              10,616
              
              
              
              9,386
              
              
              
              8,009Average Cost per Ounce of Silver
      Produced(1)Total
      cash costs
              
              $
              5.21
              
              
              $
              6.06
              
              
              $
              (0.75
              )Total
      production costs
              
              $
              8.02
              
              
              $
              7.87
              
              
              $
              0.52Proven Ore Reserves(2,3,4)Total
      tons
              
              
              1,358,200
              
              
              
              1,270,000
              
              
              
              760,700Silver
      (ounces per ton)
              
              
              12.3
              
              
              
              12.4
              
              
              
              12.3Lead
      (percent)
              
              
              8.0
              
              
              
              7.8
              
              
              
              7.2Zinc
      (percent)
              
              
              2.6
              
              
              
              2.5
              
              
              
              2.5Contained
      silver (ounces)
              
              
              16,640,300
              
              
              
              15,800,800
              
              
              
              9,324,800Contained
      lead (tons)
              
              
              109,100
              
              
              
              98,700
              
              
              
              54,500Contained
      zinc (tons)
              
              
              35,100
              
              
              
              31,600
              
              
              
              18,900Probable Ore Reserves(2,3,4)Total
      tons
              
              
              1,577,000
              
              
              
              523,400
              
              
              
              680,000Silver
      (ounces per ton)
              
              
              13.9
              
              
              
              11.6
              
              
              
              11.9Lead
      (percent)
              
              
              8.9
              
              
              
              6.5
              
              
              
              7.5Zinc
      (percent)
              
              
              2.9
              
              
              
              2.7
              
              
              
              2.5Contained
      silver (ounces)
              
              
              21,947,600
              
              
              
              6,046,800
              
              
              
              8,065,200Contained
      lead (tons)
              
              
              140,300
              
              
              
              33,900
              
              
              
              50,900Contained
      zinc (tons)
              
              
              46,100
              
              
              
              14,300
              
              
              
              16,700Total Proven and Probable Ore Reserves(2,3,4)Total
      tons
              
              
              2,935,200
              
              
              
              1,793,400
              
              
              
              1,440,700Silver
      (ounces per ton)
              
              
              13.1
              
              
              
              12.2
              
              
              
              12.1Lead
      (percent)
              
              
              8.5
              
              
              
              7.4
              
              
              
              7.3Zinc
      (percent)
              
              
              2.8
              
              
              
              2.6
              
              
              
              2.5Contained
      silver (ounces)
              
              
              38,587,900
              
              
              
              21,847,500
              
              
              
              17,390,000Contained
      lead (tons)
              
              
              249,400
              
              
              
              132,600
              
              
              
              105,400Contained
      zinc (tons)
              
              
              81,200
              
              
              
              45,900
              
              
              
              35,600
 
 18
 Table
of Contents
 ______________
  (1)
              Includes
      by-product credits from lead and zinc production. Cash costs per ounce of
      silver represent measurements that are not in accordance with GAAP that
      management uses to monitor and evaluate the performance of our mining
      operations. We believe cash costs per ounce of silver provide an indicator
      of profitability and efficiency at each location and on a consolidated
      basis, as well as providing a meaningful basis to compare our results to
      those of other mining companies and other mining operating properties. A
      reconciliation of this non-GAAP measure to cost of sales and other direct
      production costs and depreciation, depletion and amortization, the most
      comparable GAAP measure, can be found in Item 7. — Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations, under Reconciliation of Total Cash
      Costs (non-GAAP) to Costs of Sales and Other Direct Production Costs and
      Depreciation, Depletion and Amortization
  (GAAP).
  (2)
              Proven
      and probable ore reserves are calculated and reviewed in-house and are
      subject to periodic audit by others, although audits are not performed on
      an annual basis. Cutoff grade assumptions vary by ore body and are
      developed based on reserve prices, anticipated mill recoveries and smelter
      payables and cash operating costs.  Due to multiple ore metals,
      and complex combinations of ore types, metal ratios and metallurgical
      performances at the Lucky Friday, the cutoff grade is expressed in terms
      of net smelter return (“NSR”), rather than metal grade.  The
      cutoff grade at the Lucky Friday ranges from $72 per ton NSR to $84 per
      ton NSR.  Our estimates of proven and probable reserves are
      based on the following metals
prices:
  December 31,2009
              
              
              2008
              
              
              2007Silver
      (per ounce)
              
              $
              13.75
              
              
              $
              12.25
              
              
              $
              10.00Lead
      (per pound)
              
              $
              0.70
              
              
              $
              0.80
              
              
              $
              0.60Zinc
      (per pound)
              
              $
              0.70
              
              
              $
              0.80
              
              
              $
              1.00
  (3)
              Reserves
      are in-place materials that incorporate estimates of the amount of waste
      that must be mined along with the ore and expected mining recovery. Mill
      recoveries are expected to be 93% for silver, 93% for lead and 86% for
      zinc. Zinc recovery has improved from historical levels due to mill
      upgrades completed during 2007, 2006 and
2005.
  (4)
              The
      changes in reserves in 2009 versus 2008, and in 2008 versus 2007, are due
      to addition of data from new drill holes and development work, higher
      anticipated ore grades, and increases in forecasted metals prices, which
      has resulted in the addition of new reserves based on updated estimates,
      partially offset by depletion due to production.  The change in
      reserves in 2009 versus 2008 is also attributed to potential expansion of
      the mine plan resulting from deeper access beyond the current
      workings.
  (5)
              An
      independent audit by Scott Wilson Roscoe Postle Associates, Inc. was
      completed in January 2010 for the 2009 reserve model at the Lucky Friday
      mine.
  During
2008, we initiated engineering, procurement and development activities relating
to construction of an internal shaft at the Lucky Friday mine, which, upon
completion, will provide access from the 4900 level down to the 8000 level of
the mine. However, the project was temporarily placed on hold in the fourth
quarter of 2008 due to then prevailing metals
prices.    Detailed engineering, long lead time procurement,
and other early-stage activities for the internal shaft project resumed in
2009.  Current activities include engineering, purchase of long lead
time equipment including hoists and service trucks, and pre-development
construction from existing workings to the proposed shaft collar, hoist room and
other facilities on the 4900 level.
  Ultimate
reclamation activities are anticipated to include stabilization of tailings
ponds and waste rock areas. No final reclamation activities were performed in
2009, and at December 31, 2009, an asset retirement obligation of
approximately $1.1 million had been recorded for reclamation and closure costs.
The net book value of the Lucky Friday unit property and its associated plant,
equipment and mineral interests was approximately $102.0 million as of
December 31, 2009. The construction of the facilities at Lucky Friday
ranges from the 1950s to 2009, and all are in good physical condition. In 2005,
2006 and 2007, we made capital improvements to our processing plant to improve
concentrate grades and metal recoveries. Additions included a three-stage
crushing system, increased flotation capacity and two new flash cells, new
column cells and tailings thickeners, and an on-stream analyzer. The plant is
maintained by our employees with assistance from outside contractors as
required.
  At
December 31, 2009, there were 253 employees at the Lucky Friday unit. The
United Steelworkers of America is the bargaining agent for the Lucky Friday’s
198 hourly employees. The current labor agreement expires on April 30,
2010.
  Avista
Corporation supplies electrical power to the Lucky Friday unit.
  Item3. Legal Proceedings
  For a
discussion of our legal proceedings, see Note 7 ofNotes to Consolidated Financial
Statements.
  Item4. Submission of Matters to a Vote of Security
Holders
  No
matters were submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the quarter ended December 31,
2009.
  19
 Table
of Contents
 Executive
Officers of the Registrant
  Information
set forth in Part III, Item 10 is incorporated by reference into this Part I,
Item 4.
  PARTII
  Item5.
              Market
      for Registrant’s Common Equity and Related Stockholder Matters and Issuer
      Purchases of Equity Securities
  (a)
              (i)
              Shares
      of our common stock are traded on the New York Stock Exchange,
      Inc.
  (ii)
              Our
      common stock quarterly high and low sale prices for the past two years
      were as follows:
  First
                Quarter
              
              
              Second
                Quarter
              
              
              Third
                Quarter
              
              
              Fourth
                Quarter2009
              –
      High
              
              $
              2.95
              
              
              $
              3.89
              
              
              $
              5.04
              
              
              $
              7.47–
      Low
              
              $
              1.17
              
              
              $
              1.85
              
              
              $
              2.26
              
              
              $
              3.792008
              –
      High
              
              $
              12.79
              
              
              $
              13.14
              
              
              $
              10.00
              
              
              $
              4.93–
      Low
              
              $
              8.05
              
              
              $
              7.40
              
              
              $
              4.00
              
              
              $
              0.99
  (b)
              As
      of February 16, 2010, there were 7,607 shareholders of record of the
      common stock.
  (c)
              On
      January 4, 2010, we paid all cumulative, unpaid dividends on both our
      Series B and Mandatory Convertible Preferred Stock.  No
      dividends have been declared on our common stock in the last three years
      and we have no plans for payment of dividends on common stock. We cannot
      pay dividends on our common stock if we fail to pay dividends on our
      Series B or Mandatory Convertible Preferred Stock. Prior to January 2010,
      quarterly dividends were paid on our Series B Preferred Stock through the
      first three quarters of 2008, with $0.7 million for cumulative, unpaid
      dividends at December 31, 2009 for the fourth quarter 2008 and year ended
      December 31, 2009. Prior to January 2010, dividends have been paid on our
      Mandatory Convertible Preferred Stock through the first three quarters of
      2008, with cumulative, unpaid dividends of $16.5 million at December 31,
      2009 for the fourth quarter of 2008 and year ended December 31,
      2009.  The dividends paid in January 2010 on our Series B
      Preferred Stock were paid in cash, while the dividends on our Mandatory
      Convertible Preferred Stock were paid in shares of our common
      stock.
  (d)
              The
      following table provides information as of December 31, 2009,
      regarding our compensation plans under which equity securities are
      authorized for issuance:
  Number
      of
                Securities
      To
                Be
      Issued
                Upon
      Exercise of
                Outstanding
      Options,
                Warrants
      and Rights
              
              
              Weighted-Average
                Exercise
      Price of
                Outstanding
      Options
              
              
              Number
      of
                Securities
      Remaining
                Available
      For
                Future
      Issuance
                Under
      Equity
                Compensation
      PlansEquity
      Compensation Plans Approved by Security Holders:1995
      Stock Incentive Plan
              
              
              1,571,450
              
              
              
              6.46
              
              
              
              2,332,216Stock
      Plan for Nonemployee Directors
              
              
              -
              
              
              
              N/A
              
              
              
              712,886Key
      Employee Deferred Compensation Plan
              
              
              100,000
              
              
              
              3.65
              
              
              
              2,552,899Total
              
              
              1,671,450
              
              
              
              6.29
              
              
              
              5,598,001
  See Notes 8 and9 ofNotes to Consolidated Financial
Statements for information regarding the above plans.
  (e)
              We
      did not sell any unregistered securities in 2007. During 2008 and 2009, we
      issued unregistered securities as
follows:
  a.
              On
      January 17, 2008, we issued 550,000 unregistered common shares to fund our
      donation to the Hecla Charitable
Foundation.
  b.
              On
      January 24, 2008, we issued 118,333 unregistered common shares in a
      private placement pursuant to section 4(2) of the 1933 Act and Regulation
      D to an accredited investor to acquire properties in the Silver Valley of
      Northern Idaho.
  20
 Table
of Contents
 c.
              On
      February 21, 2008, we issued 927,716 unregistered common shares in a
      private placement pursuant to section 4(2) of the 1933 Act and Regulation
      D to an accredited investor to acquire a joint venture interest (see Note 18 of Notes to Consolidated
      Financial Statements).
  d.
              On
      April 16, 2008, we issued 4,365,000 unregistered common shares in a
      private placement pursuant to section 4(2) of the 1933 Act and Regulation
      D to an accredited investor to partially fund our acquisition of the
      remaining 70.3% interest in the Greens Creek Joint Venture (see Note 18 of Notes to Consolidated
      Financial Statements).
  e.
              On
      October 24, 2008, we issued 633,360 unregistered common shares in a
      private placement pursuant to section 4(2) of the 1933 Act and Regulation
      D to an accredited investor as the result of an amendment to a joint
      venture buy-in agreement (see Note 18 of Notes to Consolidated
      Financial Statements).
  f.
              On
      February 10, 2009, we issued 42,621 unregistered shares of our 12%
      Convertible Preferred Stock to our various lenders listed in the Fourth
      Amendment to our Credit Agreement filed as exhibit 10.5 to our Current
      Report on Form 8-K filed on February 4, 2009.  The shares were
      not registered under the Securities Act of 1933 in reliance on Section
      4(2) of such Act and Regulation D thereunder and issued as a fee to the
      lenders for the deferral of principal payments under the Fourth
      Amendment.
  g.
              On
      June 4, 2009, we issued unregistered equity securities in a private
      placement pursuant to Section 4(2) of the Securities Act of 1933 Act and
      Regulation D thereunder to accredited investors.  The securities
      consist of 17,391,302 shares of our common stock and Series 4 Warrants to
      purchase 12,173,913 shares of our common stock.  The Series 4
      Warrants have an exercise price of $3.68 per share, subject to certain
      adjustments.  They became exercisable on December 7, 2009 and
      remain exercisable during the 181 day period following that date. The
      proceeds from the issuance were used to repay a portion of the prior
      outstanding balance on our amended and restated credit
      facility.
  (f)
              Comparison
      of Five-Year Cumulative Total Shareholder Return—December 2004 through
      December 2009(1):
  Hecla
Mining Company, S&P 500, S&P 500 Gold Index, and Custom Peer Group(2)
 
  21
 Table
of Contents
 Date
              
              Hecla
      Mining
              
              
              S&P
      500
              
              
              S&P
      500
                Gold
      Index
              
              
              2008
      Old
                Peer
      Group 2
              
              
              2009
      New
                Peer
      Group 3December
      2004
              
              $
              100.00
              
              
              $
              100.00
              
              
              $
              100.00
              
              
              $
              100.00
              
              
              $
              100.00December
      2005
              
              $
              69.64
              
              
              $
              104.91
              
              
              $
              121.39
              
              
              $
              126.35
              
              
              $
              128.26December
      2006
              
              $
              131.39
              
              
              $
              121.48
              
              
              $
              103.45
              
              
              $
              188.43
              
              
              $
              182.50December
      2007
              
              $
              160.38
              
              
              $
              128.16
              
              
              $
              112.92
              
              
              $
              224.55
              
              
              $
              197.57December
      2008
              
              $
              48.03
              
              
              $
              80.74
              
              
              $
              95.05
              
              
              $
              175.56
              
              
              $
              139.95December
      2009
              
              $
              106.00
              
              
              $
              102.11
              
              
              $
              111.47
              
              
              $
              223.33
              
              
              $
              226.71
 
 (1)
              Total
      shareholder return assuming $100 invested on December 31, 2004 and
      reinvestment of dividends on quarterly
basis.
  (2)
              Agnico-Eagle
      Mines Ltd., Centerra Gold, Inc., Coeur d’Alene Mines Corp., Golden Star
      Resources Ltd., IAMGOLD Corporation, Kinross Gold Corporation, Northgate
      Minerals Corporation, Pan American Silver Corp., Stillwater Mining
      Company, Yamana Gold Inc.
  (3)
              Agnico-Eagle
      Mines Ltd., Centerra Gold, Inc., Coeur d’Alene Mines Corp., Eldorado Gold
      Corp., Gammon Gold Inc., Golden Star Resources Ltd., IAMGOLD Corporation,
      Northgate Minerals Corporation, Pan American Silver Corp., Stillwater
      Mining Company
  22
 Table
of Contents
 Item6. Selected Financial Data
  The
following table (in thousands, except per share amounts, common shares issued,
shareholders of record, and employees) sets forth selected historical
consolidated financial data as of and for each of the years ended
December 31, 2005 through 2009, and is derived from our audited financial
statements. The data set forth below should be read in conjunction with, and is
qualified in its entirety by, our Consolidated Financial Statements and the
Notes thereto.
 
 2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              2005Sales
      of products
              
              $
              312,548
              
              
              $
              204,665
              
              
              $
              157,640
              
              
              $
              126,108
              
              
              $
              74,488Net
      income (loss) from continuing operations
              
              $
              67,826
              
              
              $
              (37,173
              )
              
              $
              68,157
              
              
              $
              64,788
              
              
              $
              (17,951
              )Income
      (loss) from discontinued operations, net of tax
              
              $
              ---
              
              
              $
              (17,395
              )
              
              $
              (14,960
              )
              
              $
              4,334
              
              
              $
              (7,409
              )Loss
      on disposal of discontinued operations, net of tax
              
              $
              ---
              
              
              $
              (11,995
              )
              
              $
              ---
              
              
              $
              ---
              
              
              $
              ---Net
      income (loss)
              
              $
              67,826
              
              
              $
              (66,563
              )
              
              $
              53,197
              
              
              $
              69,122
              
              
              $
              (25,360
              )Preferred
      stock dividends (1,2)
              
              $
              (13,633
              )
              
              $
              (13,633
              )
              
              $
              (1,024
              )
              
              $
              (552
              )
              
              $
              (552
              )Income
      (loss) applicable to common shareholders
              
              $
              54,193
              
              
              $
              (80,196
              )
              
              $
              52,173
              
              
              $
              68,570
              
              
              $
              (25,912
              )Basic
      income (loss) per common share
              
              $
              0.24
              
              
              $
              (0.57
              )
              
              $
              0.43
              
              
              $
              0.57
              
              
              $
              (0.22
              )Diluted
      income (loss) per commonshare
              
              $
              0.23
              
              
              $
              (0.57
              )
              
              $
              0.43
              
              
              $
              0.57
              
              
              $
              (0.22
              )Total
      assets
              
              $
              1,046,784
              
              
              $
              988,791
              
              
              $
              650,737
              
              
              $
              346,269
              
              
              $
              272,166Accrued
      reclamation & closure costs
              
              $
              131,201
              
              
              $
              121,347
              
              
              $
              106,139
              
              
              $
              65,904
              
              
              $
              69,242Noncurrent
      portion of debt and capital leases
              
              $
              3,281
              
              
              $
              113,649
              
              
              $
              ---
              
              
              $
              ---
              
              
              $
              3,000Cash
      dividends paid per common share
              
              $
              ---
              
              
              $
              ---
              
              
              $
              ---
              
              
              $
              ---
              
              
              $
              ---Cash
      dividends paid per Series B preferred share (1)
              
              $
              ---
              
              
              $
              3.50
              
              
              $
              3.50
              
              
              $
              3.50
              
              
              $
              18.38Cash
      dividends paid per Mandatory Convertible Preferred share (2)
              
              $
              ---
              
              
              $
              3.48
              
              
              $
              ---
              
              
              $
              ---
              
              
              $
              ---Common
      shares issued
              
              
              238,415,742
              
              
              
              180,461,371
              
              
              
              121,456,837
              
              
              
              119,828,707
              
              
              
              118,602,135Mandatory
      Convertible Preferred shares issued
              
              
              2,012,500
              
              
              
              2,012,500
              
              
              
              2,012,500
              
              
              
              ---
              
              
              
              ---Series
      B Preferred shares issued
              
              
              157,816
              
              
              
              157,816
              
              
              
              157,816
              
              
              
              157,816
              
              
              
              157,816Shareholders
      of record
              
              
              7,647
              
              
              
              7,936
              
              
              
              6,598
              
              
              
              6,815
              
              
              
              7,568Employees
              
              
              656
              
              
              
              742
              
              
              
              871
              
              
              
              1,155
              
              
              
              1,191
 ______________
  (1)
              As
      of December 31, 2004, we had not declared or paid a total of $2.3
      million of Series B preferred stock dividends. The $2.3 million in
      cumulative, undeclared dividends were paid in July 2005. A $0.875 per
      share dividend was declared on the 157,816 outstanding Series B preferred
      shares in December 2004, and paid in January 2005, and additional
      dividends totaling $0.4 million were declared and paid during 2005. A
      total of $2.9 million in dividends paid during 2005 are included in the
      amount reported as cash dividends paid per Series B preferred share for
      2005, and $0.6 million in dividends declared during 2005 were included in
      the determination of loss applicable to common stockholders. During 2006
      and 2007, $0.6 million in Series B preferred dividends were declared and
      paid.  During 2008, $0.4 million in Series B preferred dividends
      were declared and paid, while $0.1 million in dividends for the fourth
      quarter of 2008 were deferred.  Series B preferred dividends for
      the first three quarters of 2009, which totaled $0.6 million, were also
      deferred.  In December 2009, we declared all dividends in
      arrears on our Series B preferred stock of $0.6 million and the scheduled
      $0.1 dividend for the fourth quarter of 2009.  These dividends
      were paid in cash in January 2010.  Therefore, dividends
      declared on our Series B preferred shares of $0.7 million were included in
      the determination of income applicable to common shareholders for 2009
      with no cash paid for Series B preferred dividends during
      2009.
  (2)
              Cumulative
      undeclared, unpaid Mandatory Convertible Preferred Stock dividends for the
      period from issuance to December 31, 2007 totaled $0.5 million, and are
      reported in determining income applicable to common shareholders for the
      year ended December 31, 2007.  The $0.5 million in cumulative
      undeclared dividends were paid in April 2008.  During 2008, $9.8
      million in Mandatory Convertible Preferred dividends were declared and
      paid.  $6.5 million of the dividends declared in 2008 were paid
      in cash, and are included in the amount reported as cash dividends paid
      per Mandatory Convertible Preferred Share, and $3.3 million of the
      dividends declared in 2008 were paid in our Common
      Stock.  Mandatory Convertible Preferred Stock dividends for the
      fourth quarter of 2008 totaling $3.3 million were
      deferred.  Dividends on our Mandatory Convertible Preferred
      Stock totaling $9.8 million for the first three quarters of 2009 were
      deferred.  In December 2009, we declared the $13.1 million in
      dividends in arrears on our Mandatory Convertible Preferred Stock and the
      scheduled $3.3 million dividend for the fourth quarter of
      2009.  These dividends were paid in shares of our common stock
      in January 2010.  Therefore, dividends declared on our Mandatory
      Convertible Preferred Stock of $13.1 million were included in the
      determination of income applicable to common shareholders for 2009 with no
      cash paid for Mandatory Convertible Preferred Stock dividends in
      2009.
  23
 Table
of Contents
 Item7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
  Overview
  Established
in 1891 in northern Idaho’s Silver Valley, Hecla Mining Company has long been
well known in the mining world and financial markets as a quality producer of
silver and gold. Headquartered in Coeur d’Alene, Idaho, this international,
NYSE-traded company is 119 years old. Our production profile
includes:
  ·
              Silver,
      gold, lead, and zinc contained in concentrates shipped to various
      smelters
  ·
              Gold
      doré
  Our
operating properties and exploration interests are located in jurisdictions with
relatively moderate political and economic risk in the United States and Mexico,
and are located in historically successful mining districts. We have two
business segments for financial reporting purposes: the Greens Creek operating
unit on Admiralty Island in Alaska and the Lucky Friday operating unit in
Idaho.
  Our
operating and strategic framework is based on expanding our production and
locating and developing new resource potential. In 2009, we
  ·
              Attained
      record revenue, gross profit, and cash flow from operating activities,
      milestones directly related to our acquisition of the remaining 70.3%
      interest of the Greens Creek Mine near Juneau, Alaska in
    2008.
  ·
              Produced
      record ore volume through our Lucky Friday mine near Mullan,
      Idaho.
  ·
              Significantly
      boosted our financial liquidity, fully repaying all outstanding debt and
      ending the year with a cash and cash equivalents balance of over $104
      million.
  ·
              Increased
      our exploration budget during the year compared to our expectations at the
      beginning of the year by 40%, drilling targets at each of our four land
      packages in Alaska, Idaho, Colorado, and
Mexico.
  Like many
companies, we were affected by the global financial crisis and recession. After
seeing the silver price fall from a high of $20.92 to a low of $8.88 in 2008, we
saw prices rebound to an average of $14.65 for the year and $17.58 for the
fourth quarter of 2009. Similar volatility was shown by our important base
metals by-products, lead and zinc, which fell by two-thirds during 2008, but
have since rebounded to levels double their low points in 2008. The increased
exposure to metals prices offered by our ownership of 100% of Greens Creek in
2009, combined with cost controls across the board, put us in a position to
benefit significantly from the price recovery and achieve the milestones
described above.
  Our
increased production, resulting both from operational efforts and full-year 100%
ownership of Greens Creek, rebounding metals prices, and proceeds from issuances
of equity securities allowed us to fully repay the $161.7 million in debt
outstanding at December 31, 2008, and to redeem preferred shares and hedging
instruments related to the debt. Our cost management efforts made significant
contributions to our results as well. Greens Creek mining and milling costs fell
by 18% per ton in 2009, attributable both to the efforts of our people and to
decreased fuel costs following completion of a dam giving us access to
additional hydroelectric power. Our mining and milling costs at Lucky Friday
declined by 5% in the same period due to a cost reduction program.
  We
increased our production of silver to a record 10.9 million ounces in 2009, up
from 8.7 million ounces in 2008. Production of lead and zinc, important
by-products at our Lucky Friday and Greens Creek mines, also increased to record
levels in 2009, with production of lead higher by 26% and zinc by 32% due to
higher ore volumes and grades at both operations and our acquisition of the
remaining interest in Greens Creek.
  Revenues
increased by 53% in 2009 over 2008, resulting from higher realized prices, the
full-year ownership of Greens Creek, and higher ore throughput and
grades.
  We
reported diluted income per share of $0.23 in 2009 compared to a loss of $0.57
in 2008. Gross profit from operations improved to $101.1 million in 2009 from
$17.9 million in 2008 as a result of higher realized prices for all four metals
we sell and lower operating costs per ton, although our results were dampened
somewhat, as anticipated, by higher depreciation of our newly-acquired 70.3%
interest in Greens Creek and increased depreciable assets at Lucky Friday.
Exploration costs were 59% lower in 2009 due to cost reduction efforts through
the first part of the year, but increased in the fourth quarter. General and
administrative costs increased by $4.7 million in 2009 primarily resulting from
severance costs related to a reduction in workforce, and to decreases to the
valuation of stock appreciation rights in 2008 that did not recur in 2009. We
recorded gains on sales of investments and fixed assets, net of losses on
impairments of investments, of $7.3 million in 2009 versus $7.9 in
2008.  In 2009 we recorded a $7.1 million tax benefit from a decreased
valuation allowance on deferred tax assets.  In 2008 we recorded an
overall tax provision, as we did not decrease the valuation allowance as a
result of declining metals prices at that time.
  24
 Table
of Contents
 The
factors driving metals prices are beyond our control and are difficult to
predict. As noted above, prices have been highly volatile in the last two years.
Average prices in 2009 compared to those in 2008 and 2007 are illustrated in the
Results of Operations
section below.
  KeyIssues
  We intend
to achieve our strategy of increasing production and expanding our proven and
probable reserves through development and exploration, as well as by future
acquisitions. Our strategic plan requires that we manage several pervasive
challenges and risks inherent in conducting mining, development, exploration and
metal sales at multiple locations.
  One such
risk involves metals prices. While the metals mining industry enjoyed continued
strength in metals prices from 2006 through mid-2008, we have no control over
prices. As noted above, silver, lead and zinc prices have been highly volatile,
falling sharply in the last quarter of 2008 and recovering through
2009.  Industrial demand of silver is closely linked to world GDP
growth and to industrial fabrication levels, as it is difficult to substitute
silver in industrial fabrication. We believe that global economic conditions are
beginning to improve and that industrial trends, including growth of the middle
class in countries like China and India, will result in continued consumer and
industrial demand for silver. Investment demand for silver and gold has been
relatively strong for the past three years and is influenced by various factors,
including:  the strength of the U.S. Dollar and other currencies,
expanding U.S. budget deficits, widening availability of exchange-traded
commodity funds, interest rate levels, the health of credit markets, and
inflationary expectations. Uncertainty towards a global economic recovery could
result in continued investment demand for precious metals. However, there can be
no assurance whether these trends will continue or to how they will impact
prices of the metals we produce.
  We must
make our strategic plans in the context of significant uncertainty about future
revenues, which may impact new opportunities that require many years and
substantial cost from discovery to production. We approach this challenge by
investing exploration and capital in districts with an established history of
success, and in managing our operations in a manner that seeks to mitigate the
effects of lower prices.  In the coming year we anticipate an increase
in exploration activity compared to 2009 at or near our operating mines at
Greens Creek and Lucky Friday, as well as at our exploration projects in
Colorado and Mexico.
  The
recent unprecedented volatility in global financial markets poses a significant
challenge to our ability to access credit and equity markets and to sell our
products at a profit. We have seen our share price rebound from its lowest
levels in 2008 and have eliminated our debt partly by increasing our shares
outstanding by 32% during 2009 and issuing warrants at exercises prices ranging
from $2.50 to $3.68 per share. We have also entered into a three-year, $60
million revolving credit agreement under which there are no outstanding
borrowings as of December 31, 2009, yet our ability to retain the facility
depends in part on financial thresholds driven by the prices of products we
sell.
  Another
challenge is the risk associated with environmental litigation and ongoing
reclamation activities. As described in Note 7 of Notes to Consolidated Financial
Statements, it is possible that our estimate of these liabilities may
change in the future, affecting our strategic plans.  In addition,
proposed measures to address climate change and green house gas emissions could
have an adverse impact on our operations and financial performance in the future
(see Item 1A. Risk Factors –
Legal, Market and Regulatory Risks - We face substantial governmental
regulation and environmental risk). In accordance with our environmental
policy, we attempt to conduct our operating activities in a manner that
minimizes risks to public health and safety. We attempt to design and manage our
projects to reasonably minimize risk and negative effects on the environment. We
intend to continue to strive to ensure that our activities are conducted in
compliance with applicable laws and regulations and to attempt to settle the
environmental litigation.
  Reserve
estimation is a major risk inherent in mining. Our reserve estimates, which
drive our mining and investment plans and many of our costs, may change based on
economic factors and actual production experience. Until ore is actually mined
and processed, the volumes and grades of our reserves must be considered as
estimates. Our reserves are depleted as we mine. Reserves can also change as a
result of changes in metals prices and costs, as well as economic and operating
assumptions.
  Resultsof Operations
  For the
year ended December 31, 2009, we reported income applicable to common
shareholders of $54.2 million compared to a loss applicable to common
shareholders of $80.2 million in 2008 and income applicable to common
shareholders of $52.2 million in 2007. The following factors led to the improved
results for the year ended December 31, 2009 compared to 2008 and
2007:
  25
 Table
of Contents
 ·
              Increased
      gross profit at our Greens Creek unit in 2009 compared to 2008 and
      2007.  Gross profit in 2009 at our Lucky Friday unit was higher
      compared to 2008, but was lower compared to gross profit for
      2007.  See the Greens Creek Segment
      and Lucky Friday
      Segment sections below for further discussion of operating
      results.
  ·
              Losses
      from discontinued operations at the now-divested La Camorra unit for the
      years ended December 31, 2008 and 2007 of $17.4 million and $15.0 million,
      respectively.  There was no such comparable loss reported in
      2009 as we completed the sale of our discontinued Venezuelan operations in
      July 2008 (see the Discontinued Operations – La
      Camorra Unit section below).  In addition, we recorded
      aloss on
      the sale of our interests in Venezuela, net of related income tax effect,
      of $12.0 million in 2008 (see Note 12 of Notes to Consolidated
      Financial Statements for more
  information).
  ·
              A
      decrease in exploration expense to $9.2 million in 2009 compared to $22.5
      million in 2008 and $15.9 million in 2007 as a result of an overall cash
      conservation effort. The termination of an employee benefit plan resulting
      in a non-cash gain of $9.0 million recognized in the first quarter of 2009
      (see Note 8 of
      Notes to Consolidated
      Financial Statementsfor more
  information).
  ·
              The sale of our
      Velardeña mill in Mexico in March 2009 generating a pre-tax gain of $6.2
      million (see Note
      14 of Notes to
      Consolidated Financial Statementsfor more
      information).
  ·
              The
      sale of our investment in Aquiline Resources Inc. stock for proceeds and a
      pre-tax gain of approximately $4.1 million in the fourth quarter of
      2009.
  ·
              Interest
      expense, net of interest capitalized, decreased to $11.3 million in 2009
      from $19.6 million for the year ended December 31, 2008 due to repayments
      of debt incurred for the acquisition of the remaining 70.3% ownership
      interest in Greens Creek.  See Note 6 of Notes to the Consolidated
      Financial Statements for more information on our debt
      facilities.
  ·
              Valuation
      allowance adjustments to our deferred tax asset balances resulted in a
      $7.1 million net income tax benefit recognized in 2009 compared to a $3.6
      million income tax provision in 2008 and a $10.5 million income tax
      benefit recognized in 2007 (see Note 5 of Notes to the Consolidated
      Financial Statements for further
  discussion).
  ·
              An
      adjustment of $44.7 million in 2007 to increase our estimated liabilities
      for environmental remediation in Idaho’s Coeur d’Alene Basin and the
      Bunker Hill Superfund Site.  During the second quarter of 2007,
      we finalized a proposed multi-year clean-up plan for the upper portion of
      the Coeur d’Alene Basin, together with an estimate of related costs to
      implement the plan.  Based on that work and a reassessment of
      our other potential liabilities in the Basin, we increased our accrual for
      remediation in the Basin by $42 million.  We also accrued an
      additional $2.7 million for the remaining Bunker Hill Superfund Site
      work.  However, we also recorded an increase of approximately
      $4.0 million in the fourth quarter of 2009 to our estimated liabilities
      for environmental remediation at our Grouse Creek unit ($3.2 million) and
      the Bunker Hill Superfund Site ($0.8 million) as a result of revisions to
      the reclamation work plans.  For additional discussion, see
      Bunker Hill Superfund Site and Coeur d’Alene River Basin Environmental
      Claims in Note 7
      of Notes to the
      Consolidated Financial
Statements.
  ·
              We
      committed to a donation of our common stock valued at $5.1 million in 2007
      for the creation of Hecla Charitable Foundation, an organization that will
      fund charitable contributions with particular emphasis in those
      communities in which Hecla has employees or
  operations.
  ·
              Higher
      average prices for gold produced at our operations in 2009 compared to
      2008 and 2007.  The following table summarizes average market
      prices and our realized prices for silver, gold, lead and zinc for the
      years ended December 31, 2009, 2008 and
2007:
  December 31,2009
              
              
              2008
              
              
              2007Silver
      —
              London
      PM Fix ($/ounce)
              
              $
              14.65
              
              
              $
              15.02
              
              
              $
              13.39Realized
      price per ounce
              
              $
              15.63
              
              
              $
              14.40
              
              
              $
              13.78Gold
      —
              London
      PM Fix ($/ounce)
              
              $
              973
              
              
              $
              872
              
              
              $
              697Realized
      price per ounce
              
              $
              1,017
              
              
              $
              865
              
              
              $
              731Lead
      —
              LME
      Final Cash Buyer ($/pound)
              
              $
              0.78
              
              
              $
              0.95
              
              
              $
              1.17Realized
      price per pound
              
              $
              0.88
              
              
              $
              0.83
              
              
              $
              1.23Zinc
      —
              LME
      Final Cash Buyer ($/pound)
              
              $
              0.75
              
              
              $
              0.85
              
              
              $
              1.47Realized
      price per pound
              
              $
              0.90
              
              
              $
              0.71
              
              
              $
              1.24
  26
 Table
of Contents
 Concentrate
sales are generally recorded as revenues at the time of shipment.  Due
to the time elapsed between shipment of concentrates and final settlement with
the smelters, we must estimate the prices at which sales of our metals will be
settled.  Previously recorded sales are adjusted to estimated
settlement metal prices each period through final settlement. The differences
between our realized metal prices and average market prices are due in part to
price adjustments included in our revenues resulting from the difference between
metal prices upon transfer of title of concentrates to the buyer and metal
prices at the time of final settlement.  For 2009, we reported
positive adjustments to provisional settlements of $25.6 million compared to
negative adjustments to provisional settlements of $25.7 million in 2008 and
$3.1 million in 2007.  Our realized prices for silver and gold were
higher in 2009 compared to 2008 and 2007.  Realized prices in 2009 for
lead and zinc were higher than their 2008 levels, but lower than our realized
prices for those metals in 2007.  While Hecla’s average realized
prices for all four metals exceeded average market prices in 2009, we believe
that market metal price trends are a significant factor in our operating and
financial performance.  Because we are unable to predict fluctuations
in prices for metals and have limited control over the timing of our concentrate
shipments, there can be no assurance that our realized prices will exceed or
even meet average market metals prices for any future period.
  Other
significant variances affecting the comparison of our income applicable to
common shareholders for 2009 to results for 2008 and 2007 were as
follows:
  ·
              Lower
      average market prices for zinc and lead in 2009 compared to 2007 as
      illustrated by the table above.
  ·
              The sale of our
      interest in the Hollister Development Block gold exploration project in
      April 2007, which resulted in a pre-tax gain of $63.1 million reported in
      the second quarter of 2007.
  ·
              Higher
      debt-related fees in 2009 due to $4.3 million in expense recognized in the
      first quarter of 2009 for preferred shares issued pursuant to our amended
      and restated credit agreement and $1.7 million in professional fees
      incurred in 2009 related to compliance with our amended and restated
      credit agreement.  See Note 6 and Note 9 of Notes to Consolidated
      Financial Statements for more
  information.
  ·
              Preferred
      stock dividends of $13.6 million for the years ended December 31, 2009 and
      2008 compared to $1.0 million for 2007.  The increase in 2009
      and 2008 is due to the issuance of 2,012,500 shares of Mandatory
      Convertible Preferred Stock in December 2007.  The net proceeds
      from the preferred stock issuance were utilized for the purchase of the
      remaining interest in the Greens Creek joint
  venture.
  ·
              In
      the second quarter of 2009 we recognized a $3.0 million loss on impairment
      of shares of Rusoro stock received in the 2008 sale of our discontinued
      Venezuelan operations (see Note 2 of Notes to the Consolidated
      Financial Statements for further
  discussion).
  GreensCreek Segment
  Below is a comparison of the operating
results and key production statistics of our Greens Creek segment, which
reflects our 29.7% ownership share through April 16, 2008 and our 100% ownership
thereafter.  See Note 18 of Notes to Consolidated Financial
Statementsfor further discussion of the acquisition of the 70.3%
interest in Greens Creek. Dollars are presented in thousands, except for per ton
and per ounce amounts.
  27
 Table
of Contents
 Years
      Ended December 31,2009
              
              
              2008
              
              
              2007Sales
              
              $
              229,318
              
              
              $
              141,103
              
              
              $
              75,213Cost
      of sales and other direct production costs
              
              $
              (103,670
              )
              
              $
              (110,540
              )
              
              $
              (30,240
              )Depreciation,
      depletion and amortization
              
              $
              (52,909
              )
              
              $
              (30,022
              )
              
              $
              (8,440
              )Gross
      Profit
              
              $
              72,739
              
              
              $
              541
              
              
              $
              36,533Tons
      of ore milled
              
              
              790,871
              
              
              
              598,931
              
              
              
              217,691Production:Silver
      (ounces)
              
              
              7,459,170
              
              
              
              5,829,253
              
              
              
              2,570,701Gold
      (ounces)
              
              
              67,278
              
              
              
              54,650
              
              
              
              20,218Zinc
      (tons)
              
              
              70,379
              
              
              
              52,055
              
              
              
              18,612Lead
      (tons)
              
              
              22,253
              
              
              
              16,630
              
              
              
              6,252Payable
      metal quantities sold:Silver
      (ounces)
              
              
              6,482,439
              
              
              
              5,143,758
              
              
              
              2,240,092Gold
      (ounces)
              
              
              54,801
              
              
              
              44,977
              
              
              
              15,543Zinc
      (tons)
              
              
              52,928
              
              
              
              39,433
              
              
              
              14,187Lead
      (tons)
              
              
              16,749
              
              
              
              13,877
              
              
              
              4,748Ore
      grades:Silver
      ounces per ton
              
              
              13.01
              
              
              
              13.69
              
              
              
              15.45Gold
      ounces per ton
              
              
              0.13
              
              
              
              0.14
              
              
              
              0.14Zinc
      percent
              
              
              10.13
              
              
              
              10.13
              
              
              
              9.67Lead
      percent
              
              
              3.64
              
              
              
              3.59
              
              
              
              3.66Total
      cash cost per silver ounce (1)
              
              $
              0.35
              
              
              $
              3.29
              
              
              $
              (5.27
              )
 ______________
  (1)
              A
      reconciliation of this non-GAAP measure to cost of sales and other direct
      production costs and depreciation, depletion and amortization, the most
      comparable GAAP measure, can be found in Reconciliation of Total Cash
      Costs to Costs (non-GAAP) of Sales and Other Direct Production Costs and
      Depreciation, Depletion and Amortization
  (GAAP).
  The
increase in gross profit during 2009 compared to 2008 and 2007 was primarily the
result of the following factors:
  ·
              Positive
      price adjustments to revenues of $22.2 million during 2009 compared to
      negative price adjustments of $22.9 million in 2008 and $2.5 million in
      2007.  Price adjustments to our revenues result from changes in
      the estimated settlement prices for our provisionally priced concentrate
      sales.
  ·
              An
      increase in our share of production due to our acquisition of the
      remaining 70.3% of Greens Creek in April
2008.
  ·
              Cost
      of sales in 2008 included the excess of fair value over cost of the
      finished and in-process product inventory acquired upon purchase of the
      70.3% ownership interest.  Upon the sale of the acquired
      inventory, the excess of fair market value over costs was expensed, which
      increased cost of sales and decreased gross profit margin in 2008 by $16.6
      million.
  ·
              Lower
      production costs, which decreased in 2009 by 19% and 16%, respectively,
      per ton of ore milled, compared to 2008 and 2007,
      respectively.  The lower costs are primarily due to increased
      availability of grid/hydroelectric power, lower diesel prices and improved
      ore production.
  ·
              Higher
      average prices for gold in 2009 compared to 2008 and
  2007.
  These
factors were partially offset by:
  ·
              A
      decline in average market prices for zinc and lead from their levels in
      2007.
  ·
              Higher
      depreciation, depletion and amortization expense in 2009 by $22.9 million
      compared to 2008 and $44.5 million compared to 2007 as a result of the
      fair market valuation of the acquired 70.3% share of property, plant,
      equipment and mineral interests at the acquisition date, additional
      depreciable assets placed into service, and an increase in
      units-of-production depreciation driven by higher production in
      2009.
  ·
              Silver
      ore grades in 2009 that were lower by 5% and 16%, respectively, compared
      to 2008 and 2007.
  28
 Table
of Contents
 ·
              Mine
      license taxes that increased in 2009 by $4.6 million compared to 2008 and
      $3.4 million compared to 2007.  The higher taxes are due to the
      increased profits resulting from the factors discussed
    above.
  The
Greens Creek operation is partially powered by diesel generators, and production
costs are significantly affected by fluctuations in fuel prices. Infrastructure
has been installed that allows hydroelectric power to be supplied to Greens
Creek by AEL&P via a submarine cable from North Douglas Island, near Juneau,
to Admiralty Island, where Greens Creek is located.   This
project has reduced production costs at Greens Creek to the extent power has
been available.  During 2009, the mine received an increased
proportion of its power needs from AEL&P.   We expect this to
continue in the foreseeable future.
  The $2.94
decrease in total cash cost per silver ounce in 2009 compared to 2008 is
primarily due to production costs and treatment and freight costs that decreased
by $2.21 and $0.59 per ounce, respectively, and by-product credits that
increased by $0.71 per ounce, partially offset by production taxes that
increased by $0.59 per ounce.  The $8.56 increase in total cash costs
per silver ounce in 2008 compared to 2007 is attributable to lower by-product
credits by $2.24 per ounce and production costs and treatment and freight that
increased by $2.77 and $2.34 per ounce, respectively. While value from zinc,
lead and gold by-products is significant, we believe that identification of
silver as the primary product 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 Greens Creek 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 deposit is a massive sulfide deposit containing an unusually
      high proportion of silver; and
  ·
              in
      most of its working areas, Greens Creek utilizes selective mining methods
      in which silver is the metal targeted for highest
  recovery.
  We
periodically review our proven and probable reserves to ensure that reporting of
primary products and by-products is appropriate.  Within our cost per
ounce calculations, because we consider zinc, lead and gold to be by-products of
our silver production, the values of these metals offset operating
costs.
  29
 Table
of Contents
 TheLucky Friday Segment
  The
following is a comparison of the operating results and key production statistics
of our Lucky Friday segment (dollars are in thousands, except per ounce
amounts):
 
 Years
      Ended December 31,2009
              
              
              2008
              
              
              2007Sales
              
              $
              83,230
              
              
              $
              63,562
              
              
              $
              82,427Cost
      of sales and other direct production costs
              
              $
              (44,972
              )
              
              $
              (41,059
              )
              
              $
              (37,291
              )Depreciation,
      depletion and amortization
              
              $
              (9,928
              )
              
              $
              (5,185
              )
              
              $
              (3,883
              )Gross
      profit
              
              $
              28,330
              
              
              $
              17,318
              
              
              $
              41,253Tons
      of ore milled
              
              
              346,395
              
              
              
              317,777
              
              
              
              323,659Production:Silver
      (ounces)
              
              
              3,530,490
              
              
              
              2,880,264
              
              
              
              3,071,857Lead
      (tons)
              
              
              22,010
              
              
              
              18,393
              
              
              
              18,297Zinc
      (tons)
              
              
              10,616
              
              
              
              9,386
              
              
              
              8,009Payable
      metal quantities sold:Silver
      (ounces)
              
              
              3,316,034
              
              
              
              2,697,089
              
              
              
              2,869,322Lead
      (tons)
              
              
              20,461
              
              
              
              16,915
              
              
              
              17,362Zinc
      (tons)
              
              
              7,794
              
              
              
              6,299
              
              
              
              5,076Ore
      grades:Silver
      ounces per ton
              
              
              10.86
              
              
              
              9.70
              
              
              
              10.27Lead
      percent
              
              
              6.82
              
              
              
              6.23
              
              
              
              6.12Zinc
      percent
              
              
              3.46
              
              
              
              3.52
              
              
              
              3.16Total
      cash cost per silver ounce (1)
              
              $
              5.21
              
              
              $
              6.06
              
              
              $
              (0.75
              )
 ______________
  (1)
              A
      reconciliation of this non-GAAP measure to cost of sales and other direct
      production costs and depreciation, depletion and amortization, the most
      comparable GAAP measure, can be found below in Reconciliation of Total Cash
      Costs (non-GAAP) to Costs of Sales and Other Direct Production Costs and
      Depreciation, Depletion and Amortization
  (GAAP).
  The $11.0
million increase in gross profit for 2009 compared to 2008 is primarily the
result of higher production, due to higher silver ore grades and increased mill
tonnage, and a 6% decrease in production costs.  In addition, positive
price adjustments to revenues of $3.4 million impacted results for 2009 due to
increases in metals prices between transfer of title of concentrates to buyers
and final settlement during the year.  Revenues for 2008 at Lucky
Friday included $2.8 million in negative price adjustments.  The $23.9
million decrease in gross profit in 2008 compared to 2007 resulted primarily
from lower average lead and zinc prices, a 22% increase in production costs, and
silver ore grades that decreased by 6%. In addition, the $2.8 million in
negative price adjustments for 2008 were higher than $0.6 million in negative
price adjustments for 2007.
  The
decrease in total cash costs per silver ounce in 2009 compared to 2008 is
primarily due to lower production costs and treatment and freight costs by $1.87
and $1.34 per ounce, respectively.  The lower costs were partially
offset by a decrease in by-product credits by $2.10 per ounce due to lower
average lead and zinc prices.  The $6.81 increase in total cash costs
in 2008 compared to 2007 is attributed to lower by-product credits by $2.21 per
ounce and higher production costs and treatment and freight costs by $2.37 and
$1.33 per ounce, respectively.  While value from lead and zinc is
significant at the Lucky Friday, we believe that identification of silver as the
primary product, with zinc and lead as by-products, 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;
  ·
              the
      Lucky Friday unit is situated in a mining district long associated with
      silver production; and
  ·
              the
      Lucky Friday unit generally utilizes selective mining methods to target
      silver production.
  We
periodically review our proven and probable reserves to ensure that reporting of
primary products and by-products is appropriate. Within our cost per ounce
calculations, because we consider zinc and lead to be by-products of our silver
production, the values of these metals offset operating costs.
  30
 Table
of Contents
 DiscontinuedOperations - The La Camorra Unit
  During
the third quarter of 2008, we sold our wholly owned subsidiaries holding our
business and operations of the La Camorra Unit to Rusoro Mining, Ltd. (“Rusoro”)
for $20 million in cash and 3,595,781 shares of Rusoro common stock. The results
of our Venezuelan operations have been reported in discontinued operations for
all periods presented.  See Note 12 of Notes to Consolidated Financial
Statements for more information.
  The
following is a comparison of operating results and key production statistics for
our discontinued Venezuelan operations, which included the La Camorra mine, a
custom milling business and Mina Isidora (dollars are in thousands, except per
ounce amounts):
  Years
      ended December 31,2008
              
              
              2007Sales
              
              $
              23,855
              
              
              $
              68,920Cost
      of sales and other direct production costs
              
              
              (21,656
              )
              
              
              (52,212
              )Depreciation,
      depletion and amortization
              
              
              (4,785
              )
              
              
              (14,557
              )Gross
      profit (loss)
              
              $
              (2,586
              )
              
              $
              2,151Tons
      of ore milled
              
              
              25,516
              
              
              
              142,927Gold
      ounces produced
              
              
              22,160
              
              
              
              87,490Gold
      ounce per ton
              
              
              0.894
              
              
              
              0.629
 
 CorporateMatters
  Other
significant variances affecting 2009 results compared to 2008 results were as
follows:
  ·
              General
      and administrative expense was higher by $4.7 million in 2009 due to
      negative mark-to-market adjustments for the valuation of stock
      appreciation rights in 2008 and costs incurred for workforce reductions,
      partially offset by decreased
staffing.
  ·
              Increase
      in other operating expense of $2.6 million in 2009 primarily due to an
      increase in pension benefit costs recognized resulting from a decrease in
      the expected returns calculated for plan assets due to lower plan asset
      values.
  ·
              $2.7
      million decrease in interest income in 2009 as a result of lower cash
      balances.
  ·
              Lower
      interest expense, net of amount capitalized, in 2009 by $8.2 million due
      to payoff of our bridge facility balance in February 2009 and payoff of
      our term facility balance in October 2009.  See Note 6 of Notes to Consolidated
      Financial Statementsfor more information on our credit
      facilities.
  ·
              Higher
      debt-related fees in 2009 due to $4.3 million in expense recognized in the
      first quarter of 2009 for preferred shares issued pursuant to our amended
      and restated credit agreement and $1.7 million in professional fees
      incurred in 2009 related to compliance with our amended and restated
      credit agreement.  See Note 6 and Note 9 of Notes to Consolidated
      Financial Statements for more
  information.
  ·
              An
      income tax benefit of $7.7 million in 2009 compared to an income tax
      provision of $3.8 million in 2008.  The 2009 income tax benefit
      is primarily related to a $7.1 million reduction in the valuation
      allowance for our deferred tax asset balances in the fourth quarter. See
      Note 5 to Notes to Consolidated
      Financial Statements for further
  discussion.
  Other
significant variances affecting our 2008 results compared to 2007 results were
as follows:
  ·
              Lower
      general and administrative expenses in 2008 by approximately $1.3 million,
      primarily due to a reduction in the value of stock appreciation rights,
      resulting from lower stock prices, and a decrease in incentive
      compensation, partially offset by increased
  staffing.
  ·
              Overall
      increase in exploration expense in 2008 of $6.5 million as a result of a
      surface drilling and generative exploration program in North Idaho’s
      Silver Valley, the initiation of a drilling program in the Creede Mining
      District in Colorado, the addition of exploration costs relating to our
      acquisition of the remaining 70.3% of Greens Creek, increased underground
      exploration at our Lucky Friday unit, and continued exploration activity
      at our San Sebastian unit in
Mexico.
  31
 Table
of Contents
 ·
              Lower
      pre development expense in 2008 due to our sale of the Hollister
      Development Block project in Nevada in April
  2007.
  ·
              An
      increase in other operating expense of $1.5 million as a result of our
      acquisition of the remaining 70.3% interest in Greens
    Creek;
  ·
              A
      decrease in the provision for closed operations and environmental matters
      in 2008 of $44.8 million due to increases to reclamation accruals recorded
      in 2007.
  ·
              A
      $3.3 million decrease in interest income in 2008 compared to 2007 due to
      lower cash balances and interest
rates.
  ·
              Interest
      expense of $19.6 million for the year ended December 31, 2008 in
      connection with debt incurred for the purchase of the remaining 70.3%
      interest in the Greens Creek joint venture.  See Note 6 of Notes to the Consolidated
      Financial Statements for more information on our debt
      facilities.
  ·
              An
      income tax provision of $3.8 million for 2008 compared to an income tax
      benefit of $8.5 million for 2007.  See Note 5 to Notes to Consolidated
      Financial Statements for further
  discussion.
  Reconciliationof Total Cash Costs (non-GAAP) to Cost of
Sales and Other Direct Production Costs and Depreciation, Depletion and
Amortization (GAAP)
  The
tables below present reconciliations between non-GAAP total cash costs to cost
of sales and other direct production costs and depreciation, depletion and
amortization (GAAP) for our operations at the Greens Creek and Lucky Friday
units for the years ended December 31, 2009, 2008 and 2007 (in thousands,
except costs per ounce).  Tables in previous periods have presented
gold cost per ounce, however as a result of our sale of all of the outstanding
capital stock of El Callao and Drake-Bering, our gold operations have been
reclassified as discontinued operations for all periods presented.
  Total
cash costs include all direct and indirect operating cash costs related directly
to the physical activities of producing metals, including mining, processing and
other plant costs, third-party refining expense, on-site general and
administrative costs, royalties and mining production taxes, net of by-product
revenues earned from all metals other than the primary metal produced at each
unit. Total cash costs provide management and investors an indication of net
cash flow, after consideration of the realized price received for production
sold. Management also uses this measurement for the comparative monitoring of
performance of our mining operations period-to-period from a cash flow
perspective. “Total cash cost per ounce” is a measure developed by precious
metals companies in an effort to provide a comparable standard; however, there
can be no assurance that our reporting of this non-GAAP measure is similar to
that reported by other mining companies.
  Cost of
sales and other direct production costs and depreciation, depletion and
amortization, is the most comparable financial measure calculated in accordance
with GAAP to total cash costs. The sum of the cost of sales and other direct
production costs and depreciation, depletion and amortization for our operating
units in the tables below is presented in our Consolidated Statement of
Operations and Comprehensive Income (Loss).
  Total,
      All PropertiesYear
      ended December 31,2009
              
              
              2008
              
              
              2007Total
      cash costs
              
              $
              20,958
              
              
              $
              36,621
              
              
              $
              (15,873
              )Divided
      by silver ounces produced
              
              
              10,989
              
              
              
              8,709
              
              
              
              5,643Total
      cash cost per ounce produced
              
              $
              1.91
              
              
              $
              4.20
              
              
              $
              (2.81
              )Reconciliation
      to GAAP:Total
      cash costs
              
              $
              20,958
              
              
              $
              36,621
              
              
              $
              (15,873
              )Depreciation,
      depletion and amortization
              
              
              62,837
              
              
              
              35,207
              
              
              
              12,323Treatment
      costs
              
              
              (80,830
              )
              
              
              (70,776
              )
              
              
              (27,617
              )By-product
      credits
              
              
              206,608
              
              
              
              164,963
              
              
              
              112,079Change
      in product inventory
              
              
              310
              
              
              
              20,254
              
              
              
              (1,261
              )Reclamation,
      severance and other costs
              
              
              1,596
              
              
              
              537
              
              
              
              203Cost
      of sales and other direct production costs and depreciation, depletion and
      amortization (GAAP)
              
              $
              211,479
              
              
              $
              186,806
              
              
              $
              79,854
 
 
 32
 Table
of Contents
 
 Greens
      Creek UnitYear
      ended December 31,2009
              
              
              2008
              
              
              2007Total
      cash costs
              
              $
              2,582
              
              
              $
              19,157
              
              
              $
              (13,560
              )Divided
      by silver ounces produced
              
              
              7,459
              
              
              
              5,829
              
              
              
              2,571Total
      cash cost per ounce produced
              
              $
              0.35
              
              
              $
              3.29
              
              
              $
              (5.27
              )Reconciliation
      to GAAP:Total
      cash costs
              
              $
              2,582
              
              
              $
              19,157
              
              
              $
              (13,560
              )Depreciation,
      depletion and amortization
              
              
              52,909
              
              
              
              30,022
              
              
              
              8,440Treatment
      costs
              
              
              (62,037
              )
              
              
              (51,495
              )
              
              
              (14,808
              )By-product
      credits
              
              
              161,537
              
              
              
              122,146
              
              
              
              59,622Change
      in product inventory
              
              
              14
              
              
              
              20,245
              
              
              
              (1,200
              )Reclamation,
      severance and other costs
              
              
              1,574
              
              
              
              487
              
              
              
              186Cost
      of sales and other direct production costs and depreciation, depletion and
      amortization (GAAP)
              
              $
              156,579
              
              
              $
              140,562
              
              
              $
              38,680
  Lucky
      Friday UnitYear
      ended December 31,2009
              
              
              2008
              
              
              2007Total
      cash costs
              
              $
              18,376
              
              
              $
              17,464
              
              
              $
              (2,313
              )Divided
      by silver ounces produced
              
              
              3,530
              
              
              
              2,880
              
              
              
              3,072Total
      cash cost per ounce produced
              
              $
              5.21
              
              
              $
              6.06
              
              
              $
              (0.75
              )Reconciliation
      to GAAP:Total
      cash costs
              
              $
              18,376
              
              
              $
              17,464
              
              
              $
              (2,313
              )Depreciation,
      depletion and amortization
              
              
              9,928
              
              
              
              5,185
              
              
              
              3,883Treatment
      costs
              
              
              (18,793
              )
              
              
              (19,281
              )
              
              
              (12,809
              )By-product
      credits
              
              
              45,071
              
              
              
              42,817
              
              
              
              52,457Change
      in product inventory
              
              
              296
              
              
              
              9
              
              
              
              (61
              )Reclamation,
      severance and other costs
              
              
              22
              
              
              
              50
              
              
              
              17Cost
      of sales and other direct production costs and depreciation, depletion and
      amortization (GAAP)
              
              $
              54,900
              
              
              $
              46,244
              
              
              $
              41,174
  FinancialLiquidity and Capital
Resources
  Our
liquid assets include (in millions):
  December
      31,
                2009
              
              
              December 31,
                2008
              
              
              December 31,
                2007Cash
      and cash equivalents held in U.S. dollars
              
              $
              104.6
              
              
              $
              36.2
              
              
              $
              343.1Cash
      and cash equivalents held in foreign currency
              
              
              0.1
              
              
              
              0.3
              
              
              
              30.0Adjustable
      rate securities
              
              
              ---
              
              
              
              ---
              
              
              
              4.0Marketable
      equity securities, current
              
              
              1.1
              
              
              
              ---
              
              
              
              21.8Marketable
      equity securities, non-current
              
              
              2.2
              
              
              
              3.1
              
              
              
              8.4Total
      cash, cash equivalents and investments
              
              $
              108.0
              
              
              $
              39.6
              
              
              $
              407.3
  Cash and
cash equivalents held in U.S. dollars increased by $68.4 million in 2009, as
discussed below. Cash held in foreign currencies in 2009 and 2008 represent
nominal balances in Canadian dollars and Mexican pesos, while in 2007 they
consisted primarily of Venezuelan Bolívares held by our Venezuelan subsidiaries,
which we sold in 2008.
  As
described in Note 6 of
Notes to Consolidated
Financial Statements, we entered into a $380 million credit facility in
April of 2008 for the acquisition of the companies owning 70.3% of the joint
venture operating the Greens Creek mine. We have fully repaid the facility with
a final payment of $38.3 million from available cash on October 14,
2009.  On October 14, 2009, we entered into an amended three year, $60
million senior-secured revolving credit facility. We plan to use the facility
for general corporate purposes and, based on our current cash position and
business plan, we do not currently anticipate drawing on the facility in the
near term. See Note 6
of Notes to Consolidated
Financial Statementsfor information on how the covenants in our credit
facility may impact our liquidity and capital resources in the future. We also
may pursue additional acquisition opportunities or capital expansion projects,
which could require additional equity issuances or financing. There can be no
assurances that such financing will be available to us.
  33
 Table
of Contents
 As a
result of our current cash balance, improved performance of our operations,
current metals prices, and full availability of our $60 million revolving credit
agreement, we believe our cash, cash equivalents, investments, cash from
operations, and availability of financing if needed will be adequate to meet our
obligations during the next twelve months. We estimate that approximately $50 to
$60 million will be committed to sustaining capital expenditures through the end
of this year.
  In
addition, we are evaluating alternatives for deeper access in our Lucky Friday
mine to increase its production and longevity. Deeper access will require
significant capital resources over several years’ duration. Our ability to
finance such a program will depend on our operational performance, metals
prices, our ability to estimate capital costs, and sources of liquidity
available to us. We believe that our available cash, revolving credit agreement,
cash from operations, and access to equity and financial markets will allow us
to proceed if project economics appear to be favorable, and we may also mitigate
market risk from time to time with selective base metal hedging programs.
However, a sustained downturn in metals prices or significant increases in
operational or capital costs could compel us to suspend the project in the
future.
 
 Year
      Ended December 312009
              
              
              2008
              
              
              2007Cash
      provided by operating activities (in millions)
              
              $
              115.0
              
              
              $
              14.8
              
              
              $
              65.0
  Cash
provided by operating activities increased $100.2 million in 2009 due to
improved results of operations. Net income from continuing operations, adjusted
for non-cash elements, increased by $117.2 million in 2009 due to improved
prices and production, lower interest expense, and lower exploration. Working
capital changes reduced cash flow, primarily as a result of a $36.7 million
increase in the change in accounts receivable.  The increase in
accounts receivable is due to an increase in the quantity of concentrate shipped
that is pending final settlement at year end 2009 versus 2008 and an increase in
metals prices in 2009, resulting in higher values per ton of concentrate. In
addition, a 2008 adjustment to product inventory related to the purchase price
allocation for Greens Creek did not have a counterpart in 2009. To the benefit
of 2009 cash flows, however, $12.5 million in net cash used by discontinued
operations in 2008 had no comparable event in 2009.
  The lower
cash provided by operating activities in 2008 compared to the 2007 period
resulted primarily from a $51.6 million reduction in income from continuing
operations adjusted for non-cash items resulting from lower metals prices and
higher costs, partly offset by a $15.9 million increase in cash resulting from
changes in accounts receivable, accounts payable, inventories, and other assets
and liabilities.  The decrease in 2008 was also impacted by increased
losses from discontinued operations, including foreign exchange losses totaling
$13.3 million incurred on exchange of Venezuelan Bolívares for U.S.
dollars.
  Year
      Ended December 312009
                
                
                
                2008
                
                
                
                2007Cash
      (used in) provided by investing activities (in millions)
                
                $
                (7.9
                )
                
                $
                (681.1
                )
                
                $
                29.3
  In 2009
we invested $23.5 million in capital expenditures, lower by $45.2 million than
the same period last year, due to our efforts to reduce costs following the
recent worldwide economic crisis. In addition, we received $8.0 million proceeds
from the sale of the Velardeña mill in Mexico (seeNote
20ofNotes
to Consolidated Financial Statementsfor more information on
the sale).
We reduced our restricted cash balances for environmental bonds by $3.5 million
in 2009 versus $23.3 million in 2008 by lowering our collateral requirements.
Sales of investments yielded $4.1 million in 2009 versus $27.0 million in 2008.
During 2008 we invested $688.5 million for the acquisition of the remaining
70.3% interest in the Greens Creek joint venture, and received $21.1 million
from Rusoro for its acquisition of our Venezuelan operations.
  Cash used
in investing activities was higher in 2008 than in 2007 primarily as a result of
the acquisition of the remaining interest in the Greens Creek Joint Venture from
Rio Tinto, plc for $688.5 million (net of cash acquired), along with Hecla stock
valued at approximately $53.4 million. Discontinued operations provided $21.9
million more cash in 2008, while other investing activities yielded $10.1
million less cash in 2008 than in 2007.
 
 34
 Table
of Contents
 
 Year
      Ended December 312009
              
              
              2008
              
              
              2007Cash
      (used in) provided by financing activities (in millions)
              
              $
              (38.9
              )
              
              $
              329.6
              
              
              $
              202.9
  Our
financing activities in 2009 included sales of common stock and warrants which
yielded $128.3 million cash, net of related issuance costs, which was applied to
repayments of our debt facility totaling $161.7 million, and made payments
totaling $3.0 million pursuant to our interest rate swap. In 2008, we borrowed
$380 million on our debt facility for the acquisition of the remaining 70.3% of
the Greens Creek joint venture, of which we repaid $218.3 million largely from
common stock sales totaling $183.4 million. We also incurred loan origination
fees last year of $8.1 million versus $1.5 million this year, and paid cash
dividends totaling $7.4 million in 2008. In 2009 we declared cash dividends of
$0.7 million through the fourth quarter of 2009 on Series B preferred shares,
and non-cash stock dividends on Mandatory Preferred shares through the fourth
quarter. These dividends were paid in January 2010.
  Cash
provided by financing activities in 2008 exceeded cash provided in 2007 as a
result of receipt of $380 million drawn under our amended credit agreement for
acquisition of the remaining interest in the Greens Creek Joint Venture, along
with $183.4 million from sales of 44.6 million shares of our common stock,
compared to receipt of $194.9 million in 2007 from the sale of Mandatory
Convertible Preferred Stock. In 2008, we repaid $218.3 million of our debt,
which had no comparable event in 2007. In 2008, we paid $7.4 million in
dividends on preferred shares compared to $0.6 million in 2007, and in 2007,
$8.8 million was received from the sale of shares
issued under our stock option plans.
  ContractualObligations and Contingent Liabilities and
Commitments
  The table
below presents our fixed, non-cancelable contractual obligations and commitments
primarily related to our outstanding purchase orders, certain capital
expenditures, our credit facility (as modified by amendments), and lease
arrangements as of December 31, 2009 (in thousands):
  Payments
      Due By PeriodLess
      than
                1
      year
              
              
              1-3
      years
              
              
              3-5
      years
              
              
              After
                5
      years
              
              
              TotalPurchase
      obligations (1)
              
              $
              2,221
              
              
              $
              --
              
              
              $
              --
              
              
              $
              --
              
              
              $
              2,221Commitment
      fees (2)
              
              
              1,440
              
              
              
              2,580
              
              
              
              - -
              
              
              
              - -
              
              
              
              4,020Contractual
      obligations (3)
              
              
              6,225
              
              
              
              - -
              
              
              
              - -
              
              
              
              - -
              
              
              
              6,225Capital
      lease commitments (4)
              
              
              2,058
              
              
              
              2,966
              
              
              
              - -
              
              
              
              - -
              
              
              
              5,024Operating
      lease commitments (5)
              
              
              2,761
              
              
              
              5,350
              
              
              
              2,325
              
              
              
              - -
              
              
              
              10,436Supplemental
      executive retirement plan (6)
              
              
              336
              
              
              
              976
              
              
              
              945
              
              
              
              942
              
              
              
              3,199Total
      contractual cash obligations
              
              $
              15,041
              
              
              $
              11,872
              
              
              $
              3,270
              
              
              $
              942
              
              
              $
              31,125
 
 (1)
              Consist
      of open purchase orders of approximately $0.7 million at the Greens Creek
      unit and $1.5 million at the Lucky Friday unit.  Included in
      these amounts are approximately $0.4 million and $1.2 million related to
      various capital projects at the Greens Creek and Lucky Friday units,
      respectively.
  (2)
              In
      October 2009 we entered into a $60 million revolving credit agreement
      involving a three-year term.  We are required to pay a standby
      fee of 2.4% per annum on undrawn amounts under the revolving credit
      agreement.There was no amount
      drawn under the revolving credit agreement as of December 31, 2009, and
      the amounts above assume no amounts will be drawn during the agreement’s
      three-year term.  For more information on our credit facility,
      see Note 6 of
      Notes to Consolidated
      Financial Statements.
  (3)
              As
      of December 31, 2009, we were committed to approximately $1.6 million
      for various capital projects at the Greens Creek and Lucky Friday units.
      Total contractual obligations at December 31, 2009 also include
      approximately $4.6 million for commitments relating to non-capital items
      at Greens Creek.
  (4)
              Represents
      scheduled capital lease payments of $4.2 million and $0.8 million
      (including interest), respectively, for equipment at our Greens Creek and
      Lucky Friday units.  These leases have fixed payment terms and
      contain bargain purchase options at the end of the lease
      periods.  See Note 6 of Notes to Consolidated
      Financial Statements for more
  information.
  (5)
              We
      enter into operating leases in the normal course of business.
      Substantially all lease agreements have fixed payment terms based on the
      passage of time. Some lease agreements provide us with the option to renew
      the lease or purchase the leased property. Our future operating lease
      obligations would change if we exercised these renewal options and if we
      entered into additional operating lease
  arrangements.
  (6)
              There
      are no funding requirements as of December 31, 2009 under our
      other defined benefit pension plans.  See Note 8 of Notes to Consolidated
      Financial Statements for more
  information.
  We record a liability for
costs associated with mine closure, reclamation of land and other environmental
matters. At December 31, 2009, our liability for these matters totaled
$131.2 million, for which no contractual or commitment obligations exist. Future
expenditures related to closure, reclamation and environmental expenditures are
difficult to estimate, although we anticipate we will make expenditures relating
to these obligations over the next 30 years. For additional information relating
to our environmental obligations, see Notes 4 and7 ofNotes to Consolidated Financial
Statements.
  35
 Table
of Contents
 Off-Balance Sheet Arrangements
  At
December 31, 2009, we had no existing off-balance sheet arrangements, as
defined under SEC regulations, that have or are reasonably likely to have a
current or future effect on our financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to investors.
  CriticalAccounting Estimates
  Our
significant accounting policies are described in Note 1 of Notes to Consolidated Financial
Statements. As described in Note 1, we are required to
make estimates and assumptions that affect the reported amounts and related
disclosures of assets, liabilities, revenue, and expenses. Our estimates are
based on our experience and our interpretation of economic, political,
regulatory, and other factors that affect our business prospects. Actual results
may differ significantly from our estimates.
  We
believe that our most critical accounting estimates are related to future metals
prices, obligations for environmental, reclamation, and closure matters, mineral
reserves, and accounting for business combinations, as they require us to make
assumptions that were highly uncertain at the time the accounting estimates were
made and changes in them are reasonably likely to occur from period to period.
Management has discussed the development and selection of these critical
accounting estimates with the Audit Committee of our board of directors, and the
Audit Committee has reviewed the disclosures presented below. In addition, there
are other items within our financial statements that require estimation, but are
not deemed to be critical. However, changes in estimates used in these and other
items could have a material impact on our financial statements.
  Future
Metals Prices
  Metals
prices are key components in estimates that determine the valuation of some of
our significant assets and liabilities, including properties, plants and
equipment, deferred tax assets, and certain accounts receivable. As shown under
Item 1A. — Risk
Factors, metals prices have been historically volatile. While average
prices for all four metals we produce performed favorably for the five
consecutive years prior to 2008, there was a reduction in the average prices for
zinc and lead in 2008 compared to 2007, and average prices for silver, zinc and
lead were lower in 2009 compared to 2008.  We have recorded
impairments to our asset carrying value because of low prices in the past, and
we can offer no assurance that prices will either remain at their current levels
or increase.
  Processes
supporting valuation of our assets and liabilities that are most significantly
affected by prices include analyses of asset carrying values, depreciation, and
deferred income taxes. On at least an annual basis – and more frequently if
circumstances warrant – we examine the carrying values of our assets, our
depreciation rates, and the valuation allowances on our deferred tax assets. In
our analyses of carrying values and deferred taxes, we apply several pricing
views to our forecasting model, including current prices, analyst price
estimates, forward-curve prices, and historical prices (see Mineral Reserves, below,
regarding prices used for reserve estimates). Using applicable accounting
guidance and our view of metals markets, we use the average of the various
methods to determine whether the values of our assets are fairly stated, and to
determine the level of valuation allowances on our deferred tax
assets.  In addition, estimates of future metals prices are used in
the valuation of certain assets in the determination of the purchase price
allocations for our acquisitions (see Business Combinations
below).
  Sales of
all metals products sold directly to smelters are recorded as revenues when
title and risk of loss transfer to the smelter (generally at the time of
shipment) at estimated forward metals prices for the estimated month of
settlement. Due to the time elapsed from shipment to the smelter and the final
settlement with the smelter, we must estimate the prices at which sales of our
metals will be settled. Previously recorded sales and trade accounts receivable
are adjusted to estimated settlement metals prices until final settlement by the
smelter. Changes in metals prices between shipment and final settlement will
result in changes to revenues and accounts receivable previously recorded upon
shipment.  As a result, our trade accounts receivable balances are
subject to changes in metals prices until final settlement
occurs.  For more information, see part O. Revenue Recognitionof Note 1 of
Notes to Consolidated
Financial Statements.
  Obligations
for Environmental, Reclamation and Closure Matters
  The most
significant liability on our balance sheet is for accrued reclamation and
closure costs. We have conducted considerable remediation work at sites in the
United States for which remediation requirements have not been fully determined,
nor have they been agreed between us and various regulatory agencies with
oversight over the properties. We have estimated our liabilities with counsel
and in accordance with appropriate accounting guidance. On at least an annual
basis – and more frequently if warranted – management reviews our liabilities
with our Audit Committee. However, the range of liability proposed by the
plaintiffs in environmental proceedings considerably exceeds the liabilities we
have recognized. If substantial damages were awarded or remediation costs
incurred in excess of our accruals, our financial results or condition could be
materially adversely affected.
  36
 Table
of Contents
 Mineral
Reserves
  Critical
estimates are inherent in the process of determining our reserves. Our reserves
are affected largely by our assessment of future metals prices, as well as by
engineering and geological estimates of ore grade, accessibility and production
cost. Metals prices are estimated at long-term averages, as described in Item 2. — Property
Descriptions. Our assessment of reserves occurs at least annually, and
periodically utilizes external audits.
  Reserves
are a key component in valuation of our properties, plants and equipment.
Reserve estimates are used in determining appropriate rates of
units-of-production depreciation, with net book value of many assets depreciated
over remaining estimated reserves. Reserves are also a key component in
forecasts, with which we compare future cash flows to current asset values to
ensure that carrying values are reported appropriately. Reserves also play a key
role in the valuation of certain assets in the determination of the purchase
price allocations for our acquisitions (see Business Combinationsbelow).  Reserves are a culmination of many estimates and are
not guarantees that we will recover the indicated quantities of
metals.
  Business
Combinations
  We are
required to allocate the purchase price of acquired companies to the tangible
and intangible assets acquired and liabilities assumed based on their estimated
fair values at acquisition date.  The valuation of assets acquired and
liabilities assumed requires management to make significant estimates and
assumptions, especially with respect to long-lived assets, including estimates
of future metals prices and mineral reserves, as discussed above.  In
some cases, we use third-party appraisers to determine the fair values and lives
of property and other identifiable assets.
  NewAccounting Pronouncements
  In
December 2008, FASB Financial Staff Position (“FSP”) No. FAS 132(R)-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets (ASC 715), was issued to provide
guidance on an employer’s disclosures about plan assets of a defined benefit
pension or other post-retirement plan.  This guidance became effective
for fiscal years ending after December 15, 2009.  Adoption of this
guidance did not have a material impact on our consolidated financial
statements.
  In
January 2010, the FASB issued ASU 2010-06, which amends Subtopic 820-10 to
require new disclosures on fair value measurements as follows:
  1.
              The
      amounts of and reasons for significant transfers in and out of Levels 1
      and 2.
  2.
              Separate
      information about purchases, sales, issuances, and settlements in Level 3
      fair value measurements.
  ASU
2010-06 also provides amendments to Subtopic 820-10 that clarifies existing fair
value measurement disclosures as follows:
  1.
              A
      reporting entity should provide fair value measurement disclosures for
      each class of assets and liabilities.  A class is often a subset
      of assets or liabilities within a line item in the statement of financial
      position.
  2.
              A
      reporting entity should provide disclosures about the valuation techniques
      and inputs used to measure fair value for both recurring and nonrecurring
      fair value measurements.  Those disclosures are required for
      fair value measurements that fall in either Level 2 or Level
      3.
  ASU
2010-06 also includes conforming amendments to the guidance on employers’
disclosures about postretirement benefit plan assets (Subtopic 715-20), changes
the terminology in Subtopic 715-20 from major categories of assets to
classes of assets, and
provides a cross reference to the guidance in Subtopic 820-10 on how to
determine appropriate classes to present fair value disclosures.
  The new
disclosures and clarifications of existing disclosures are effective for interim
and annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances and settlements in the roll
forward of activity in Level 3 fair value measurements.  Those
disclosures are effective for fiscal years beginning after December 15, 2010,
and for interim periods within those fiscal years.  Adoption of this
guidance is not expected to have a material impact on our consolidated financial
statements.
  Forward-Looking Statements
  The
foregoing discussion and analysis, as well as certain information contained
elsewhere in this Form 10-K, contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and are
intended to be covered by the safe harbor created thereby. See the discussion in
Special Note on
Forward-Looking Statements included prior to Part I, Item 1.
  37
 Table
of Contents
 Item7A. Quantitative and Qualitative Disclosures about Market
Risk
  The
following discussion about our risk-management activities includes
forward-looking statements that involve risk and uncertainties, as well as
summarizes the financial instruments held by us at December 31, 2009, which
are sensitive to changes in interest rates and commodity prices and are not held
for trading purposes. Actual results could differ materially from those
projected in the forward-looking statements. In the normal course of business,
we also face risks that are either nonfinancial or nonquantifiable (see Part I, Item 1A. – Risk
Factors).
  Short-term Investments
  From time
to time we hold various types of short-term investments that are subject to
changes in market interest rates and are sensitive to those changes. We did not
carry any such short-term investments as of December 31, 2009.
  Commodity-Price Risk Management
  At times,
we use commodity forward sales commitments, commodity swap contracts and
commodity put and call option contracts to manage our exposure to fluctuation in
the prices of certain metals which we produce. Contract positions are designed
to ensure that we will receive a defined minimum price for certain quantities of
our production. We use these instruments to reduce risk by offsetting market
exposures.  We had no commodity-related derivative positions at
December 31, 2009.
  Interest-Rate Risk Management
  On
May 5, 2008, we entered into an interest rate swap agreement that had the
economic effect of modifying the LIBOR-based variable interest obligations
associated with our term facility.  On February 3, 2009, we reached an
agreement to amend the terms of our credit facilities to defer all scheduled
term facility principal payments due in 2009, totaling $66.7 million, to 2010
and 2011.  On June 8, 2009, we repaid $57.1 million of the outstanding
term credit facility balance using proceeds from a private placement equity
offering (see Note 9 of
Notes to Consolidated
Financial Statementsfor more information), and on June 29, 2009, we
repaid an additional $18.2 million of the outstanding term facility balance as a
part of another amendment to our term credit facility (see Note 6of Notes to Consolidated Financial
Statements).  As a result of these credit facility amendments
and repayments, the hedging relationship was de-designated and a new hedging
relationship was re-designated in each case.  A final retrospective hedge
effectiveness assessment was performed on the prior hedging relationships at the
date of each de-designation, and only the May 5, 2008 hedging relationship was
determined to be ineffective for the first quarter ended March 31,
2009. Consequently, the change in fair value of the swap of $0.1 million
between December 31, 2008 and February 3, 2009 was recorded as a gain on the
income statement.
  As a
result of the swap, the interest payable related to the term facility was to be
fixed at a rate of 9.38% until the scheduled maturity on September 30, 2010
according to the amended and restated credit
agreement.    SeeNote 1 – Q. Risk Management
Contracts for more information.  Hedge accounting was applied
for this swap and the terms of the interest rate swap agreement including the
notional amounts, interest rate reset dates, and maturity dates matched the
terms of the hedged note to which the swap agreement pertains.  The
hedge was determined to be highly effective at offsetting changes in fair value
of the hedged note.  However, on October 14, 2009, we repaid the
remaining $38.3 million term facility balance (see Note 6 of Notes to Consolidated Financial
Statementsfor more information).  As a result, we determined
hedge accounting for the swap to be inappropriate as of September 30, 2009, and
wrote-off the remaining $0.8 million accumulated unrealized loss and recorded a
$38,000 mark-to-market adjustment for the fair value of the swap through
interest expense in the third quarter of 2009.   In October 2009,
we paid $0.7 million to settle the remaining fair value liability associated
with the swap.  For additional information regarding our credit
facilities, see Note 6ofNotes to
Consolidated Financial Statements.
  On
October 14, 2009, we entered into a $60 million revolving credit agreement for a
three-year term.  See Note 6 of Notes to Consolidated Financial
Statementsfor more information.  We have not drawn on the
revolving credit facility.  However, if used, amounts borrowed under
the facility would be subject to changes in market interest rates.
  ProvisionalSales
  Sales of
all metals products sold directly to smelters, including by-product metals, are
recorded as revenues when title and risk of loss transfer to the smelter
(generally at the time of shipment) at estimated forward prices for the
estimated month of settlement. Due to the time elapsed from shipment to the
smelter and the final settlement with the smelter, we must estimate the prices
at which sales of our metals will be settled. Previously recorded sales are
adjusted to estimated settlement metals prices until final settlement by the
smelter.  Changes in metals prices between shipment and final
settlement will result in changes to revenues previously recorded upon shipment.
Our concentrate sales are based on a provisional sales price containing an
embedded derivative that is required to be separated from the host contract for
accounting purposes. The host contract is the receivable from the sale of the
concentrates at the forward price at the time of the sale. The embedded
derivative, which does not qualify for hedge accounting, is adjusted to market
through earnings each period prior to final
settlement.    Metals prices can and often do fluctuate
widely and are affected by numerous factors beyond our control (see Item 1A – Risk Factors –
A substantial or extended
decline in metals prices would have a material adverse effect on us for
more information). At December 31, 2009, metals contained in concentrates sold
and exposed to future price changes totaled 1,308,781 ounces of silver, 6,449
ounces of gold, 13,919 tons of zinc, and 5,534 tons of lead.  If the
price of each metal were to change by one percent, the change in the total value
of the concentrates sold would be approximately $0.7 million.
  38
 Table
of Contents
 Item8. Financial Statements and Supplementary Data
  Our
Consolidated Financial Statements are included herein beginning on page F-1.
Financial statement schedules are omitted as they are not applicable or the
information required is included in the Consolidated Financial
Statements.
  The
following table sets forth supplementary financial data (in thousands, except
per share amounts) for each quarter of the years ended December 31, 2009
and 2008, derived from our unaudited financial statements. The data set forth
below should be read in conjunction with and is qualified in its entirety by
reference to our Consolidated Financial Statements.
 First
                  Quarter
                
                
                Second
                  Quarter
                
                
                Third
                  Quarter
                
                
                Fourth
                  Quarter
                
                
                Total2009Sales
      of products
                
                $
                54,721
                
                
                $
                74,610
                
                
                $
                95,181
                
                
                $
                88,036
                
                
                $
                312,548Gross
      profit
                
                $
                9,868
                
                
                $
                17,157
                
                
                $
                38,116
                
                
                $
                35,928
                
                
                $
                101,069Net
      income 1
                
                $
                7,313
                
                
                $
                2,499
                
                
                $
                25,946
                
                
                $
                32,068
                
                
                $
                67,826Preferred
      stock dividends
                
                $
                (3,408
                )
                
                $
                (3,409
                )))
                
                $
                (3,408
                )
                
                $
                (3,408
                )
                
                $
                (13,633
                )Income
      (loss) applicable to common shareholders
                
                $
                3,905
                
                
                $
                (910
                )
                
                $
                22,538
                
                
                $
                28,660
                
                
                $
                54,193Basic
      income per common share
                
                $
                0.02
                
                
                $
                0.00
                
                
                $
                0.10
                
                
                $
                0.12
                
                
                $
                0.24Diluted
      income per common share
                
                $
                0.02
                
                
                $
                0.00
                
                
                $
                0.09
                
                
                $
                0.11
                
                
                $
                0.232008Sales
      of products
                
                $
                37,469
                
                
                $
                67,493
                
                
                $
                68,485
                
                
                $
                31,218
                
                
                $
                204,665Gross
      profit (loss)
                
                $
                18,652
                
                
                $
                1,625
                
                
                $
                11,397
                
                
                $
                (13,815
                )
                
                $
                17,859Income
      (loss) from continuing operations
                
                $
                13,564
                
                
                $
                (10,309
                )
                
                $
                (3,766
                )
                
                $
                (36,662
                )
                
                $
                (37,173
                )Income
      (loss) from discontinued operations, net of tax 2
                
                $
                1,918
                
                
                $
                (19,298
                )
                
                $
                (15
                )
                
                $
                --
                
                
                $
                (17,395
                )Gain
      (loss) on sale of discontinued operations, net of tax 2
                
                $
                -
      -
                
                
                $
                (11,372
                )
                
                $
                25
                
                
                $
                (648
                )
                
                $
                (11,995
                )Net
      income (loss)
                
                $
                15,482
                
                
                $
                (40,979
                )
                
                $
                (3,756
                )
                
                $
                (37,310
                )
                
                $
                (66,563
                )Preferred
      stock dividends
                
                $
                (3,408
                )
                
                $
                (3,409
                )
                
                $
                (3,408
                )
                
                $
                (3,408
                )
                
                $
                (13,633
                )Income
      (loss) applicable to common shareholders
                
                $
                12,074
                
                
                $
                (44,388
                )
                
                $
                (7,164
                )
                
                $
                (40,718
                )
                
                $
                (80,196
                )Basic
      and diluted income (loss) per common share:Income
      (loss) from continuing operations
                
                $
                0.08
                
                
                $
                (0.11
                )
                
                $
                (0.05
                )
                
                $
                (0.24
                )
                
                $
                (0.36
                )Income
      (loss) from discontinued operations
                
                $
                0.02
                
                
                $
                (0.15
                )
                
                $
                --
                
                
                $
                --
                
                
                $
                (0.12
                )Gain
      (loss) on sale of discontinued operations, net of tax
                
                $
                --
                
                
                $
                (0.09
                )
                
                $
                --
                
                
                $
                --
                
                
                $
                (0.09
                )Income
      (loss) per common share
                
                $
                0.10
                
                
                $
                (0.35
                )
                
                $
                (0.05
                )
                
                $
                (0.24
                )
                
                $
                (0.57
                )
  1)
              In
      March 2009, we made the decision to terminate a post-employment benefit
      plan which had a liability on our balance sheet of $8.9 million as of
      December 31, 2008.  As a result, the liability associated with
      the plan was eliminated and we recognized a $9.0 million non-cash gain of
      termination of the plan during the first quarter of 2009.  See
      Note 8 of Notes to Consolidated
      Financial Statements for more
  information.
  2)
              In
      July 2008, we completed the sale of all of the outstanding capital stock
      of our wholly owned subsidiaries which owned our business and operations
      in Venezuela.  See Note 12 of Notes to Consolidated
      Financial Statements for more information.  The results
      of the Venezuelan operations have been reported as discontinued operations
      for all periods presented.
  39
 Table
of Contents
  Item9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
  None
  Item9A. Controls and Procedures
  DisclosureControls and Procedures
  An
evaluation was performed under the supervision and with the participation of our
management, including the Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”), of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on that evaluation, our CEO and CFO
concluded that our disclosure controls and procedures were effective as of
December 31, 2009, in ensuring them in a timely manner that material
information required to be disclosed in this report has been properly recorded,
processed, summarized and reported.
  Management’sAnnual Report on Internal Control over
Financial Reporting
  Management
is responsible for establishing and maintaining adequate internal control over
our financial reporting, which is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles in the United States of America.
  Because
of its inherent limitations, any system of internal control over financial
reporting, no matter how well designed, may not prevent or detect misstatements
due to the possibility that a control can be circumvented or overridden or that
misstatements due to error or fraud may occur that are not detected. Also,
because of changes in conditions, internal control effectiveness may vary over
time.
  Management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2009, using criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”) and concluded that we have maintained
effective internal control over financial reporting as of December 31, 2009,
based on these criteria.
  An
evaluation was performed under the supervision and with the participation of
management, including the Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”), of the effectiveness of the design and operation of our
disclosure controls and procedures as required by Exchange Act Rules 13a-15(e)
and 15(d)-15(e) as of the end of the reporting period covered by this
report.  Based on that evaluation, our CEO and CFO concluded that our
disclosure controls and procedures, including controls and procedures designed
to ensure that information required to be disclosed by us is accumulated and
communicated to our management (including our CEO and CFO), were effective as of
December 31, 2009, in ensuring then in a timely manner that material information
required to be disclosed in this report has been properly recorded, processed,
summarized and reported.
  Our
internal control over financial reporting as of December 31, 2009 has been
audited by BDO Seidman, LLP, an independent registered public accounting firm,
as stated in the attestation report which is included herein.
  40
 Table
of Contents
 Reportof Independent Registered Public Accounting
Firm
 
  Board of
Directors and Shareholders
 Hecla
Mining Company
 Coeur
d’Alene, Idaho
  We have
audited Hecla Mining Company’s internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Hecla Mining Company’s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Item 9A, Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the company’s internal control over financial reporting
based on our audit.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
  A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
  In our
opinion, Hecla Mining Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on the
COSO criteria.
  We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Hecla Mining
Company as of December 31, 2009 and 2008, and the related consolidated
statements of operations and comprehensive income (loss), shareholders’ equity,
and cash flows for each of the three years in the period ended December 31, 2009
and our report dated  February 17, 2010 expressed an unqualified
opinion thereon.
   /s/ BDO
Seidman, LLP
 
 Spokane,
Washington
 February
17, 2010
  41
 Table
of Contents
 Changesin Internal Control over Financial
Reporting
  There
have been no changes in our internal controls over financial reporting during
the quarter ended December 31, 2009, that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
  Item9B. Other Information
  None.
  PARTIII
  Item10. Directors, Executive Officers of the Registrant and
Corporate Governance
  In
accordance with the Corporation’s Certificate of Incorporation, its Board of
Directors is divided into three classes. The terms of office of the directors in
each class expire at different times. The directors are elected for three-year
terms. The Effective Dates listed below for each director is their current term
of office. All officers are elected for a term, which ordinarily expires on the
date of the meeting of the Board of Directors immediately following the Annual
Meeting of Shareholders. The positions and ages listed below are as of the date
of our next Annual Meeting of Shareholders in May 2010. There are no
arrangements or understandings between any of the directors or officers and any
other person(s) pursuant to which such officers were elected.
  Age
      at
                May 21, 2010
              
              Position
      and Committee
                Assignments
              
              Current
                Base
      TermPhillips
      S. Baker, Jr.
              50
              
              President
      and CEO,
                Director
      (1)
              
              
              5/09
      — 5/10
                5/08
      — 5/11Ronald
      W. Clayton
              51
              
              Senior
      Vice President – Operations
              
              
              5/09
      — 5/10James
      A. Sabala
              55
              
              Senior
      Vice President and Chief Financial Officer
              
              
              5/09
      — 5/10David
      C. Sienko
              41
              
              Vice
      President and General Counsel
              
              
              1/10
      — 5/10Dr. Dean
      W.A. McDonald
              53
              
              Vice
      President – Exploration
              
              
              5/09
      — 5/10Don
      Poirier
              51
              
              Vice
      President – Corporate Development
              
              
              5/09
      — 5/10John
      H. Bowles
              64
              
              Director
      (1,2,5)
              
              
              5/09
      — 5/12David
      J. Christensen
              48
              
              Director
      (1,2,3)
              
              
              5/08
      — 5/11Ted
      Crumley
              65
              
              Director
      and Chairman of the Board (1,4)
              
              
              5/07
      — 5/10George
      R. Nethercutt, Jr.
              65
              
              Director
      (3,4)
              
              
              5/09
      — 5/12Terry
      V. Rogers
              63
              
              Director
      (2,4,5)
              
              
              5/07
      — 5/10Charles
      B. Stanley
              51
              
              Director
      (2,5)
              
              
              5/07
      — 5/10Dr. Anthony
      P. Taylor
              68
              
              Director
      (3,4,5)
              
              
              5/08
      — 5/11
 
 (1)
              Member
      of Executive Committee
 (2)
              Member
      of Audit Committee
 (3)
              Member
      of Corporate Governance and Directors Nominating
  Committee
 (4)
              Member
      of Compensation Committee
 (5)
              Member
      of Technical Committee
  Phillips
S. Baker, Jr., has been our Chief Executive Officer since May 2003; President
since November 2001; and a director since November 2001. Prior to that,
Mr. Baker was our Chief Financial Officer from May 2001 to June 2003; Chief
Operating Officer from November 2001 to May 2003; and Vice President from May
2001 to November 2001. Prior to joining us, Mr. Baker served as Vice
President and Chief Financial Officer of Battle Mountain Gold Company (a gold
mining company) from March 1998 to January 2001.  Mr. Baker also
serves as a director for Questar Corporation (a U.S. natural gas-focused
exploration and production, interstate pipeline and local distribution
company).
  42
 Table
of Contents
 Ronald W.
Clayton was appointed Senior Vice President - Operations in November 2006. Prior
to that, Mr. Clayton was Vice President - North American Operations from
September 2002 to October 2006. Prior to joining us, Mr. Clayton was Vice
President – Operations for Stillwater Mining Company (a mining company) from
July 2000 to May 2002. Mr. Clayton was also our Vice President – Metals
Operations from May 2000 to July 2000.
  James A.
Sabala was appointed Chief Financial Officer in May 2008 and Senior Vice
President in March 2008.  Prior to his employment with Hecla, Mr.
Sabala was Executive Vice President – Chief Financial Officer of Coeur d’Alene
Mines Corporation (a mining company) from 2003 to February 2008.  Mr.
Sabala also served as Vice President – Chief Financial Officer of Stillwater
Mining Company (a mining company) from 1998 to 2002.
  David C.
Sienko was appointed Vice President and General Counsel in January 2010. Prior
to his appointment, Mr. Sienko was a partner of, and practiced law with K&L
Gates LLP (a law firm) from 2004 to January 2010, where he specialized in
counseling public and private entities on compliance with securities laws and
trading market rules, mergers and acquisitions, and corporate
governance.  Mr. Sienko was also an associate in the Corporate and
Securities Section of Locke Lord Bissell & Liddell LLP (a law firm) from
1998 to 2000, as well as an attorney with the Division of Enforcement at the
U.S. Securities Exchange Commission from 1995 to 1998.
  Dr. Dean
W.A. McDonald was appointed Vice President – Exploration in August
2006.  Dr. McDonald has also been our Vice President – Exploration of
our Canadian subsidiary, Hecla Mining Company of Canada Ltd., since August
2006.  Prior to joining Hecla, Dr. McDonald was Vice President
Exploration and Business Development for Committee Bay Resource Ltd. (a
Canadian-based exploration and development company) from 2003 to August 2006 and
Exploration Manager at Miramar Mining Company/Northern Orion Explorations from
1996 to 2003.
  Don
Poirier was appointed Vice President – Corporate Development in July 2007. Prior
to joining Hecla, Mr. Poirier was a mining analyst with Blackmont Capital
(capital market specialists) from September 2002 to June 2007.  Mr.
Poirier held other mining analyst positions from 1988 to 2002.
  David J.
Christensen previously served as a director from May 2002 to October 2002, when
he was elected to the Board of Directors by preferred shareholders in May 2002.
He was re-appointed to Hecla’s Board of Directors in August 2003. The payment of
the dividends in arrears in July 2005 resulted in the elimination of this
director position, at such time he was then appointed to the Board of Directors
when the number of director positions was increased from seven to nine.
Mr. Christensen has been Chief Executive Officer of ASA Limited (a
closed-end investment company) since February 2009, as well as being appointed
to the board of directors of ASA Limited in November 2008.  He served
as Vice President – Investments of ASA Limited from May 2007 to February 2009.
He served as Vice President of Corporate Development for Gabriel Resources Ltd.
(a Canadian-based resource company) from October 2006 to February
2008.
  John H.
Bowles was elected by the shareholders to Hecla’s Board of Directors in May
2006.  Mr. Bowles was a partner in the Audit and Assurance Group
of PricewaterhouseCoopers LLP (an accounting firm) from April 1976 to June 2006.
He concentrated his practice on public companies operating in the mining
industry. Mr. Bowles was a Director of HudBay Minerals Inc. (a zinc, copper,
gold and silver mining company) from May 2006 to March 2009. He has also served
as a Director of Boss Power Corp. (a mineral exploration company) since
September 2007.  He holds Fellowships in both the British Columbia
Institute of Chartered Accountants and the Canadian Institute of Mining and
Metallurgy. Mr. Bowles has been the Treasurer of Mining Suppliers
Association of British Columbia (an association of providers of equipment,
products and related services to the British Columbia mining industry) since May
1999. He has been Director Emeritus of Ducks Unlimited Canada since March
1996.
  Ted
Crumley has served as a director since 1995 and became Chairman of the Board in
May 2006. Mr. Crumley served as the Executive Vice President and Chief
Financial Officer of OfficeMax Incorporated (a distributor of office products)
from January 2005 to December 2005, and as Senior Vice President from November
2004 to January 2005. Prior to that, Mr. Crumley was Senior Vice President
and Chief Financial Officer of Boise Cascade Company (a wood and paper company),
from 1994 to 2004.
  George R.
Nethercutt, Jr., was appointed to Hecla’s Board of Directors in February 2005.
Mr. Nethercutt has served as a principal of Nethercutt Consulting LLC (a
strategic planning and consulting firm), since January 2007. Prior to that,
Mr. Nethercutt was a principal of Lundquist, Nethercutt & Griles, LLC
(a strategic planning and consulting firm) from February 2005 to January 2007.
Mr. Nethercutt has also been a board member for the Washington Policy
Center (a premiere public policy organization providing high quality analysis on
issues relating to the free market and government regulation) since January
2005. In August 2005, Mr. Nethercutt was appointed Of Counsel with the law
firm of Paine Hamblen, LLP, and in September 2009 was appointed Of Counsel with
the law firm of Lee & Hayes PLLC. Mr. Nethercutt serves as a board
member of ARCADIS Corporation (an international company providing consultancy,
engineering and management services), the Juvenile Diabetes Research Foundation
International (a charity and advocate of juvenile diabetes research worldwide),
and served as U.S. Chairman of the Permanent Joint Board on Defense –
U.S./Canada from April 2005 to December 2009. He is the founder and Chairman of
the George Nethercutt Foundation (a charitable non-profit educational
foundation) formed in February 2007.  From 1995 to 2005,
Mr. Nethercutt served in the U.S. House of Representatives, including House
Appropriations subcommittees on Interior, Agriculture and Defense and the
Science Committees subcommittee on Energy. He has been a member of the
Washington State Bar Association since 1972.
  43
 Table
of Contents
 Charles
B. Stanley was elected to Hecla’s Board of Directors in May
2007.  Mr. Stanley has been the Chief Operating Officer of
Questar Corporation (a U.S. natural gas-focused exploration and production,
interstate pipeline and local distribution company) since March
2008.  He has been Executive Vice President and Director of Questar
Corporation since 2002 and also President and Chief Executive Officer of Questar
Market Resources, Inc.; Wexpro Company (management and development,
cost-of-service properties); Questar Exploration and Production Company (oil and
gas exploration and production); Questar Gas Management Company (gas gathering
and processing); and Questar Energy Trading Company (wholesale marketing and
storage) since 2002.
  Terry V.
Rogers was elected to Hecla’s Board of Directors in May
2007.  Mr. Rogers was the Senior Vice President and Chief
Operating Officer of Cameco Corporation (the world’s largest uranium producer)
from February 2003 to June 2007.  Mr. Rogers also served as President
of Kumtor Operating Company (a gold producing company and a division of Cameco
Corporation) from 1999 to 2003.  Mr. Rogers also serves as a director
of Centerra Gold Inc. (a gold mining company).
  Dr. Anthony
P. Taylor has served as a director since May 2002 upon election by preferred
shareholders. The payment of the dividends in arrears in July 2005 resulted in
the elimination of this director position. At such time he was then appointed to
the Board of Directors when the number of director positions was increased from
seven to nine. Dr. Taylor has been the CEO and Director of Gold Summit
Corporation (a public Canadian minerals exploration company) since October 2003.
He also served as its President from October 2003 to October
2009.  Dr. Taylor has also served as President and Director of
Caughlin Preschool Corporation (a private Nevada corporation that operates a
preschool) since October 2001 and was a director of Greencastle Resources
Corporation (an exploration company) from December 2003 to June 2008. Prior to
that, Dr. Taylor was President, Chief Executive Officer and Director of
Millennium Mining Corporation (a private Nevada minerals exploration company)
from January 2000 to October 2003.
  Information
with respect to our directors is set forth under the caption “Proposal 1 -
Election of Directors” in our proxy statement to be filed pursuant to Regulation
14A for the annual meeting scheduled to be held on May 21, 2010 (the Proxy
Statement), which information is incorporated herein by reference.
  Reference
is made to the information set forth in the first paragraph under the caption
“Audit Committee Report – Membership and Role of the Audit Committee,” and under
the caption “Corporate Governance” in the Proxy Statement to be filed pursuant
to Regulation 14A, which information is incorporated herein by
reference.
  Reference
is made to the information set forth under the caption “Section 16(a) Beneficial
Ownership Reporting Compliance” in the Proxy Statement to be filed pursuant to
Regulation 14A, which information is incorporated herein by
reference.
  Reference
is made to the information set forth under the caption “Available Information”
in Item 1 for information about the Company’s Code of Business Conduct and
Ethics, which information is incorporated herein by reference.
  Item11. Executive Compensation
  Reference
is made to the information set forth under the caption “Compensation of
Non-Management Directors;” the caption “Compensation Discussion and Analysis;”
the caption “Compensation Committee Interlocks and Insider Participation;” the
caption “Compensation Committee Report,” the caption “Compensation Tables;” the
first paragraph under the caption “Certain Information About the Board of
Directors and Committees of the Board;” and under the caption “Other Benefits”
in the Proxy Statement to be filed pursuant to Regulation 14A, which information
is incorporated herein by reference.
  Item12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
  Reference
is made to the information set forth under the caption “Security Ownership of
Certain Beneficial Owners and Management” and the caption “Equity Compensation
Plan Information” in the Proxy Statement to be filed pursuant to Regulation 14A,
which information is incorporated herein by reference.
  Item13. Certain Relationships and Related
Transactions
  Reference
is made to the information set forth in the Proxy Statement to be filed pursuant
to Regulation 14A, which information is incorporated herein by
reference.
  44
 Table
of Contents
 Item14. Principal Accounting Fees and Services
  Reference
is made to the information set forth under the caption “Audit Fees – Audit and
Non-Audit Fees” in the Proxy Statement to be filed pursuant to Regulation 14A,
which information is incorporated herein by reference.  Reference is
made to the information set forth under the caption “Audit Fees – Policy on
Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent
Auditor” in the Proxy Statement to be filed pursuant to Regulation 14A, which
information is incorporated herein by reference.
  
 45
 Table
of Contents
  PARTIV
  Item15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
  (a)
                (1)
                Financial
      Statements
  See
      Index to Financial Statements on Page
F-1
 (a)
              (2)
              Financial
      Statement Schedules
  Not
      applicable
 (a)
              (3)
              Exhibits
  See
      Exhibit Index following the Financial
  Statements
  46
 Table
of Contents
 Signatures
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
  HECLA
      MINING COMPANYBy:
                /s/
      Phillips S. Baker, Jr.Phillips
      S. Baker, Jr., President,
                  Chief
      Executive Officer and DirectorDate:
                February
      17, 2010
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
 
 /s/
      Phillips S. Baker, Jr.
              
              2/17/10
              
              /s/
      Ted Crumley
              
              2/17/10Phillips
      S. Baker, Jr.
                President,
      Chief Executive Officer and Director
                (principal
      executive officer)
              
              Date
              
              Ted
      Crumley
                Director
              
              Date/s/
      James A. Sabala
              
              2/17/10
              
              /s/
      Charles B. Stanley
              
              2/17/10James
      A. Sabala
                Senior
      Vice President and Chief Financial Officer
                (principal
      financial and accounting officer)
              
              Date
              
              Charles
      B. Stanley
                Director
              
              Date/s/
      John H. Bowles
              
              2/17/10
              
              /s/
      George R. Nethercutt, Jr.
              
              2/17/10John
      H. Bowles
                Director
              
              Date
              
              George
      R. Nethercutt, Jr.
                Director
              
              Date/s/
      David J. Christensen
              
              2/17/10
              
              /s/
      Terry V. Rogers
              
              2/17/10David
      J. Christensen
                Director
              
              Date
              
              Terry
      V. Rogers
                Director
              
              Date/s/
      Anthony P. Taylor
              
              2/17/10Anthony
      P. Taylor
                Director
              
              Date
 
  47
 Table
of Contents
 Indexto Consolidated Financial Statements
  
 PageConsolidated
      Financial StatementsReport
      of Independent Registered Public Accounting Firm
              F-2Consolidated
      Balance Sheets at December 31, 2009 and 2008
              F-3Consolidated
      Statements of Operations and Comprehensive Income (Loss) for the Years
      Ended December 31, 2009, 2008 and 2007
              F-4Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2009, 2008
      and 2007
              F-5Consolidated
      Statements of Changes in Shareholders’ Equity for the Years Ended
      December 31, 2009, 2008 and 2007
              F-6Notes
      to Consolidated Financial Statements
              F-7
      to F-46
 
 
 F-1
 Table
of Contents
  Report
of Independent Registered Public Accounting Firm
  Board of
Directors and Shareholders
 Hecla
Mining Company
 Coeur
d’Alene, Idaho
  We have
audited the accompanying consolidated balance sheets of Hecla Mining Company as
of December 31, 2009 and 2008 and the related consolidated statements of
operations and comprehensive income (loss), shareholders’ equity, and cash flows
for each of the three years in the period ended December 31,
2009.  These financial statements are the responsibility of the
Company’s management.  Our responsibility is to express an opinion on
these financial statements based on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Hecla Mining Company at
December 31, 2009 and 2008, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2009, in conformity
with accounting principles generally accepted in the United States of
America.
  We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), Hecla Mining Company's internal
control over financial reporting as of December 31, 2009, based on criteria
established in Internal
Control – Integrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated February
17, 2010 expressed an unqualified opinion thereon.
  /s/ BDO
Seidman, LLP
 
 Spokane,
Washington
 February
17, 2010
  F-2
 Table
of Contents
 Hecla
Mining Company and Subsidiaries
 Consolidated
Balance Sheets
 (In
thousands, except share and per share data)
 
 December
      31,2009
              
              2008ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              104,678
              
              
              $
              36,470Investments
              
              
              1,138
              
              
              
              —Accounts
      receivable:Trade
              
              
              25,141
              
              
              
              8,314Other,
      net
              
              
              2,286
              
              
              
              1,100Inventories:Concentrates,
      doré, stockpiled ore, and metals in transit and in-process
              
              
              12,563
              
              
              
              12,874Materials
      and supplies
              
              
              8,903
              
              
              
              8,457Current
      deferred income taxes
              
              
              7,176
              
              
              
              2,481Other
      current assets
              
              
              4,578
              
              
              
              4,154Total
      current assets
              
              
              166,463
              
              
              
              73,850Non-current
      investments
              
              
              2,157
              
              
              
              3,118Non-current
      restricted cash and investments
              
              
              10,945
              
              
              
              13,133Properties,
      plants, equipment and mineral interests, net
              
              
              819,518
              
              
              
              852,113Non-current
      deferred income taxes
              
              
              38,476
              
              
              
              36,071Other
      non-current assets
              
              
              9,225
              
              
              
              10,506Total
      assets
              
              $
              1,046,784
              
              
              $
              988,791LIABILITIESCurrent
      liabilities:Accounts
      payable and accrued liabilities
              
              $
              13,998
              
              
              $
              21,850Accrued
      payroll and related benefits
              
              
              14,164
              
              
              
              8,475Accrued
      taxes
              
              
              6,240
              
              
              
              4,408Short-term
      debt
              
              
              —
              
              
              
              40,000Current
      portion of long-term debt and capital leases
              
              
              1,560
              
              
              
              8,018Current
      portion of accrued reclamation and closure costs
              
              
              5,773
              
              
              
              2,227Total
      current liabilities
              
              
              41,735
              
              
              
              84,978Long-term
      debt and capital leases
              
              
              3,281
              
              
              
              113,649Accrued
      reclamation and closure costs
              
              
              125,428
              
              
              
              119,120Other
      noncurrent liabilities
              
              
              10,855
              
              
              
              21,587Total
      liabilities
              
              
              181,299
              
              
              
              339,334Commitments
      and contingencies (Notes 2, 4, 6, 7, and18)SHAREHOLDERS’
      EQUITYPreferred
      stock, 5,000,000 shares authorized:Series
      B preferred stock, $0.25 par value, 157,816 shares issued and outstanding,
      liquidation preference 2009 — $8,581 and 2008 — $8,029
              
              
              39
              
              
              
              39Mandatory
      convertible preferred stock, $0.25 par value, 2,012,500 shares issued and
      outstanding, liquidation preference 2009 — $217,600 and 2008 —
      $204,520
              
              
              504
              
              
              
              504Common
      stock, $0.25 par value, 400,000,000 authorized; issued 2009 — 238,415,742
      shares and issued 2008 — 180,461,371 shares
              
              
              59,604
              
              
              
              45,115Capital
      surplus
              
              
              1,121,076
              
              
              
              981,161Accumulated
      deficit
              
              
              (300,915
              )
              
              
              (351,700
              )Accumulated
      other comprehensive loss
              
              
              (14,183
              )
              
              
              (25,022
              )Less
      treasury stock, at cost; 81,375 common shares
              
              
              (640
              )
              
              
              (640
              )Total
      shareholders’ equity
              
              
              865,485
              
              
              
              649,457Total
      liabilities and shareholders’ equity
              
              $
              1,046,784
              
              
              $
              988,791
  The
accompanying notes are an integral part of the consolidated financial
statements.
 F-3
 Table
of Contents
 Hecla
Mining Company and Subsidiaries
 Consolidated
Statements of Operations and Comprehensive Income (Loss)
 (Dollars
and shares in thousands, except per share amounts)
 
 Year
      Ended December 31,2009
              
              
              2008
              
              
              2007Sales
      of products
              
              $
              312,548
              
              
              $
              204,665
              
              
              $
              157,640Cost
      of sales and other direct production costs
              
              
              148,642
              
              
              
              151,599
              
              
              
              67,531Depreciation,
      depletion and amortization
              
              
              62,837
              
              
              
              35,207
              
              
              
              12,323211,479
              
              
              
              186,806
              
              
              
              79,854Gross
      profit
              
              
              101,069
              
              
              
              17,859
              
              
              
              77,786Other
      operating expenses:General
      and administrative
              
              
              18,624
              
              
              
              13,894
              
              
              
              15,166Exploration
              
              
              9,247
              
              
              
              22,471
              
              
              
              15,934Pre-development
      expense
              
              
              —
              
              
              
              —
              
              
              
              1,027Other
      operating expense
              
              
              5,389
              
              
              
              2,744
              
              
              
              1,528Gain
      on disposition of property, plants, equipment and mineral
      interests
              
              
              (6,234
              )
              
              
              (203
              )
              
              
              (63,205
              )Termination
      of employee benefit plan
              
              
              (8,950
              )
              
              
              —
              
              
              
              —Charitable
      foundation donation
              
              
              —
              
              
              
              —
              
              
              
              5,143Provision
      for closed operations and environmental matters
              
              
              7,721
              
              
              
              4,312
              
              
              
              49,15225,797
              
              
              
              43,218
              
              
              
              24,745Income
      (loss) from operations
              
              
              75,272
              
              
              
              (25,359
              )
              
              
              53,041Other
      income (expense):Net
      gain on sale of investments
              
              
              4,070
              
              
              
              8,097
              
              
              
              —Loss
      on impairment of investments
              
              
              (3,018
              )
              
              
              (373
              )
              
              
              —Interest
      and other income
              
              
              1,121
              
              
              
              3,842
              
              
              
              7,147Debt-related
      fees
              
              
              (5,973
              )
              
              
              —
              
              
              
              —Interest
      expense, net of amount capitalized
              
              
              (11,326
              )
              
              
              (19,573
              )
              
              
              (534
              )(15,126
              )
              
              
              (8,007
              )
              
              
              6,613Income
      (loss) from continuing operations before income taxes
              
              
              60,146
              
              
              
              (33,366
              )
              
              
              59,654Income
      tax benefit (provision)
              
              
              7,680
              
              
              
              (3,807
              )
              
              
              8,503Net
      income (loss) from continuing operations
              
              
              67,826
              
              
              
              (37,173
              )
              
              
              68,157Loss
      from discontinued operations, net of tax
              
              
              —
              
              
              
              (17,395
              )
              
              
              (14,960
              )Loss
      on sale of discontinued operations, net of tax
              
              
              —
              
              
              
              (11,995
              )
              
              
              —Net
      income (loss)
              
              
              67,826
              
              
              
              (66,563
              )
              
              
              53,197Preferred
      stock dividends
              
              
              (13,633
              )
              
              
              (13,633
              )
              
              
              (1,024
              )Income
      (loss) applicable to common shareholders
              
              $
              54,193
              
              
              $
              (80,196
              )
              
              $
              52,173Net
      income (loss)
              
              $
              67,826
              
              
              $
              (66,563
              )
              
              $
              53,197Unrealized
      gain (loss) on defined benefit plan
              
              
              5,848
              
              
              
              (29,113
              )
              
              
              321Amortization
      of net prior service benefit on defined benefit plan
              
              
              158
              
              
              
              624
              
              
              
              4,753Prior
      service cost from amendment to defined benefit plan
              
              
              —
              
              
              
              (1,472
              )
              
              
              —Change
      in fair value of derivative contracts
              
              
              1,967
              
              
              
              (1,967
              )
              
              
              —Unrealized
      holding gains (losses) on investments
              
              
              3,498
              
              
              
              (4,539
              )
              
              
              5,235Reclassification
      of net gain on sale or impairment of investments included in net income
      (loss)
              
              
              (632
              )
              
              
              (7,766
              )
              
              
              —Comprehensive
      income (loss)
              
              $
              78,665
              
              
              $
              (110,796
              )
              
              $
              63,506Basic
      income (loss) applicable to common shareholders per common share after
      preferred stock dividends:Income
      (loss) from continuing operations
              
              $
              0.24
              
              
              $
              (0.36
              )
              
              $
              0.56Loss
      from discontinued operations
              
              
              —
              
              
              
              (0.12
              )
              
              
              (0.13
              )Loss
      on sale of discontinued operations
              
              
              —
              
              
              
              (0.09
              )
              
              
              —Income
      (loss) per common share
              
              $
              0.24
              
              
              $
              (0.57
              )
              
              $
              0.43Diluted
      income (loss) applicable to common shareholders per common share after
      preferred stock dividends:Income
      (loss) from continuing operations
              
              $
              0.23
              
              
              $
              (0.36
              )
              
              $
              0.56Loss
      from discontinued operations
              
              
              —
              
              
              
              (0.12
              )
              
              
              (0.13
              )Loss
      on sale of discontinued operations
              
              
              —
              
              
              
              (0.09
              )
              
              
              —Income
      (loss) per common share
              
              $
              0.23
              
              
              $
              (0.57
              )
              
              $
              0.43Weighted
      average number of common shares outstanding – basic
              
              
              224,933
              
              
              
              141,272
              
              
              
              120,420Weighted
      average number of common shares outstanding – diluted
              
              
              233,618
              
              
              
              141,272
              
              
              
              121,071
  The
accompanying notes are an integral part of the consolidated financial
statements.
 F-4
 Table
of Contents
 Hecla
Mining Company and Subsidiaries
 Consolidated
Statements of Cash Flows
 (In
thousands)
  Year
      Ended December 31,2009
                
                
                2008
                
                
                2007Operating
      activities:Net
      income (loss)
                
                $
                67,826
                
                
                $
                (66,563
                )
                
                $
                53,197Loss
      on discontinued operations, net of tax
                
                
                —
                
                
                
                29,390
                
                
                
                14,960Income
      (loss) from continuing operations
                
                
                67,826
                
                
                
                (37,173
                )
                
                
                68,157Non-cash
      elements included in net income (loss):Depreciation,
      depletion and amortization
                
                
                63,061
                
                
                
                35,846
                
                
                
                12,611Net
      gain on sale of investments
                
                
                (4,070
                )
                
                
                (8,097
                )
                
                
                —Loss
      on impairment of investments
                
                
                3,018
                
                
                
                373
                
                
                
                —Gain
      on disposition of properties, plants, equipment and mineral
      interests
                
                
                (6,234
                )
                
                
                (203
                )
                
                
                (63,205
                )Provision
      for reclamation and closure costs
                
                
                5,172
                
                
                
                651
                
                
                
                46,153Deferred
      income taxes
                
                
                (7,100
                )
                
                
                6,756
                
                
                
                (10,486
                )Stock
      compensation
                
                
                2,746
                
                
                
                4,122
                
                
                
                3,381Preferred
      shares issued for debt-related fees
                
                
                4,262
                
                
                
                —
                
                
                
                —Amortization
      of loan origination fees
                
                
                3,993
                
                
                
                6,646
                
                
                
                —Amortization
      of intangible asset
                
                
                1,388
                
                
                
                710
                
                
                
                —Gain
      on termination of employee benefit plan
                
                
                (8,950
                )
                
                
                —
                
                
                
                —Loss
      on derivative contract
                
                
                2,139
                
                
                
                514
                
                
                
                —Charitable
      foundation donation paid with common stock
                
                
                —
                
                
                
                —
                
                
                
                5,143Other
      non-cash charges
                
                
                (55
                )
                
                
                —
                
                
                
                —Change
      in assets and liabilities:Accounts
      receivable
                
                
                (18,117
                )
                
                
                18,591
                
                
                
                5,204Inventories
                
                
                (135
                )
                
                
                1,812
                
                
                
                (1,656
                )Reversal
      of purchase price allocation to product inventory
                
                
                —
                
                
                
                16,637
                
                
                
                —Other
      current and noncurrent assets
                
                
                (1,526
                )
                
                
                (2,012
                )
                
                
                (2,184
                )Accounts
      payable and accrued liabilities
                
                
                (7,853
                )
                
                
                (9,263
                )
                
                
                3,632Accrued
      payroll and related benefits
                
                
                6,015
                
                
                
                (1,943
                )
                
                
                3,423Accrued
      taxes
                
                
                4,866
                
                
                
                1,068
                
                
                
                461Accrued
      reclamation and closure costs
                
                
                1,540
                
                
                
                (6,621
                )
                
                
                (6,520
                )Other
      non-current liabilities
                
                
                2,989
                
                
                
                (1,141
                )
                
                
                (1,166
                )Net
      cash provided by (used by) discontinued operations
                
                
                —
                
                
                
                (12,488
                )
                
                
                2,047Net
      cash provided by operating activities
                
                
                114,975
                
                
                
                14,785
                
                
                
                64,995Investing
      activities:Additions
      to properties, plants, equipment and mineral interests
                
                
                (23,514
                )
                
                
                (68,674
                )
                
                
                (34,875
                )Purchase
      of 70.3% of Greens Creek, net of cash acquired
                
                
                —
                
                
                
                (688,452
                )
                
                
                —Proceeds
      from sale of investments
                
                
                4,091
                
                
                
                27,001
                
                
                
                —Proceeds
      from disposition of properties, plants and equipment
                
                
                8,023
                
                
                
                596
                
                
                
                45,048Redemptions
      of restricted cash and investment balances
                
                
                3,487
                
                
                
                31,839
                
                
                
                —Increases
      in restricted cash and investment balances
                
                
                —
                
                
                
                (8,562
                )
                
                
                (1,328
                )Purchase
      of securities held for sale
                
                
                —
                
                
                
                —
                
                
                
                (181
                )Purchases
      of short-term investments
                
                
                —
                
                
                
                —
                
                
                
                (89,959
                )Maturities
      of short-term investments
                
                
                —
                
                
                
                4,036
                
                
                
                111,414Net
      cash provided by (used by) discontinued operations
                
                
                —
                
                
                
                21,159
                
                
                
                (785
                )Net
      cash provided by (used by) investing activities
                
                
                (7,913
                )
                
                
                (681,057
                )
                
                
                29,334Financing
      activities:Proceeds
      from exercise of stock options
                
                
                —
                
                
                
                147
                
                
                
                8,760Proceeds
      from issuance of common stock and warrants, net of related
      expense
                
                
                128,334
                
                
                
                183,357
                
                
                
                —Proceeds
      from issuance of preferred stock, net of related expense
                
                
                —
                
                
                
                —
                
                
                
                194,917Dividend
      paid to preferred shareholders
                
                
                —
                
                
                
                (7,427
                )
                
                
                (552
                )Loan
      origination fees paid
                
                
                (1,467
                )
                
                
                (8,125
                )
                
                
                —Payments
      on interest rate swap
                
                
                (3,013
                )
                
                
                —
                
                
                
                —Treasury
      share purchase
                
                
                —
                
                
                
                —
                
                
                
                (209
                )Borrowings
      on debt
                
                
                —
                
                
                
                380,000
                
                
                
                —Repayments
      of debt and capital leases
                
                
                (162,708
                )
                
                
                (218,333
                )
                
                
                —Net
      cash provided by (used in) financing activities
                
                
                (38,854
                )
                
                
                329,619
                
                
                
                202,916Net
      increase (decrease) in cash and cash equivalents
                
                
                68,208
                
                
                
                (336,653
                )
                
                
                297,245Cash
      and cash equivalents at beginning of year
                
                
                36,470
                
                
                
                373,123
                
                
                
                75,878Cash
      and cash equivalents at end of year
                
                $
                104,678
                
                
                $
                36,470
                
                
                $
                373,123Supplemental
      disclosure of cash flow information:Cash
      paid during year for:Interest,
      net of amount capitalized
                
                $
                6,683
                
                
                $
                13,331
                
                
                $
                232Income
      tax payments
                
                $
                1,025
                
                
                $
                546
                
                
                $
                4,903Significant
      non-cash investing and financing activities:Stock
      issued for acquisition of assets
                
                $
                —
                
                
                $
                26,693
                
                
                $
                —Capital
      leases acquired
                
                $
                5,682
                
                
                
                —
                
                
                $
                —Stock
      issued for acquisition of 70.3% of Greens Creek
                
                $
                —
                
                
                $
                53,384
                
                
                $
                —Equity
      securities received from dispositions of assets
                
                $
                299
                
                
                $
                —
                
                
                $
                18,557
  See
      Notes 2, 8 and 9 for additional non-cash investing and financing
      activities.
  The
accompanying notes are an integral part of the consolidated financial
statements.
 F-5
 Table
of Contents
 Hecla
Mining Company and Subsidiaries
 Consolidated
Statements of Changes in Shareholders’ Equity
 For
the Years Ended December 31, 2009, 2008 and 2007
 (Dollars
in thousands)
 
 Series
      B
                Preferred
                Stock
              
              
              Series
      C
                Mandatory
      Convertible
                Preferred
                Stock
              
              
              Common
                Stock
              
              
              Additional
                Paid-In
                Capital
              
              
              Accumulated
                Deficit
              
              
              Accumulated
      Other
                Comprehensive
      Income
                (Loss)
              
              
              Treasury
                Stock
              
              
              TotalBalances,
      January 1, 2007
              
              $
              39
              
              
              $
              —
              
              
              $
              29,957
              
              
              $
              513,785
              
              
              $
              (327,522
              )
              
              $
              8,900
              
              
              $
              (431
              )
              
              $
              224,728Change
      in functional currency in Venezuela
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (7,146
              )
              
              
              
              
              
              
              (7,146
              )Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              53,197
              
              
              
              
              
              
              
              
              
              
              
              53,197Options
      granted
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,842
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,842Options
      exercised (1,444,000 shares)
              
              
              
              
              
              
              
              
              
              
              362
              
              
              
              8,384
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              8,746Stock
      issued to directors (30,000 shares)
              
              
              
              
              
              
              
              
              
              
              8
              
              
              
              257
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              265Series
      B Preferred dividends declared
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (552
              )
              
              
              
              
              
              
              
              
              
              
              (552
              )Restricted
      stock units granted
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,289
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,289Restricted
      stock unit distributions (154,000 shares)
              
              
              
              
              
              
              
              
              
              
              37
              
              
              
              (37
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —Treasury
      stock purchased
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (209
              )
              
              
              (209
              )Donation
      to charitable foundation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,143
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,143Sale
      of Mandatory Convertible Preferred Stock (2,012,500
shares)
              
              
              
              
              
              
              504
              
              
              
              
              
              
              
              194,413
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              194,917SFAS
      No. 158 adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,074
              
              
              
              
              
              
              
              5,074Other
      comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,235
              
              
              
              
              
              
              
              5,235Balances,
      December 31, 2007
              
              
              39
              
              
              
              504
              
              
              
              30,364
              
              
              
              725,076
              
              
              
              (274,877
              )
              
              
              12,063
              
              
              
              (640
              )
              
              
              492,529Net
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (66,563
              )
              
              
              
              
              
              
              
              
              
              
              (66,563
              )Options
      granted
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,021
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,021Options
      exercised (16,000 shares)
              
              
              
              
              
              
              
              
              
              
              4
              
              
              
              133
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              137Stock
      issued to directors (20,000 shares)
              
              
              
              
              
              
              
              
              
              
              5
              
              
              
              171
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              176Series
      B deferred dividends declared
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (414
              )
              
              
              
              
              
              
              
              
              
              
              (414
              )Mandatory
      Convertible Preferred Stock dividends declared
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (10,282
              )
              
              
              
              
              
              
              
              
              
              
              (10,282
              )Restricted
      stock units granted
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,928
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,928Restricted
      stock unit distributions (220,000 shares)
              
              
              
              
              
              
              
              
              
              
              55
              
              
              
              (55
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —Common
      stock issued for Mandatory Convertible Preferred Stock dividends (622,000
      shares)
              
              
              
              
              
              
              
              
              
              
              156
              
              
              
              3,115
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,271Common
      stock issued for business and asset acquisitions (12,982,000
      shares)
              
              
              
              
              
              
              
              
              
              
              3,245
              
              
              
              76,690
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              79,935Common
      stock public offering (34,350,000 shares)
              
              
              
              
              
              
              
              
              
              
              8,587
              
              
              
              154,829
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              163,416Common
      stock and warrant private placement issuance (10,244,000
      shares)
              
              
              
              
              
              
              
              
              
              
              2,561
              
              
              
              17,253
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              19,814Common
      stock issued for donation to charitable foundation (550,000
      shares)
              
              
              
              
              
              
              
              
              
              
              138
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              138SFAS
      No. 158 adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              436
              
              
              
              (29,961
              )
              
              
              
              
              
              
              (29,525
              )Reclassification
      of translation adjustment to loss on sale of discontinued
      operations
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              7,146
              
              
              
              
              
              
              
              7,146Other
      comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (14,270
              )
              
              
              
              
              
              
              (14,270
              )Balances,
      December 31, 2008
              
              
              39
              
              
              
              504
              
              
              
              45,115
              
              
              
              981,161
              
              
              
              (351,700
              )
              
              
              (25,022
              )
              
              
              (640
              )
              
              
              649,457Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              67,826
              
              
              
              
              
              
              
              
              
              
              
              67,826Options
      granted
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              1,068
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,068Options
      exercised (10,000 shares)
              
              
              
              
              
              
              
              
              
              
              3
              
              
              
              33
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              36Stock
      issued to directors (23,000 shares)
              
              
              
              
              
              
              
              
              
              
              6
              
              
              
              78
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              84Series
      B deferred dividends declared
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (690
              )
              
              
              
              
              
              
              
              
              
              
              (690
              )Mandatory
      Convertible Preferred Stock dividends declared
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              16,351
              
              
              
              (16,351
              )
              
              
              
              
              
              
              
              
              
              
              —Restricted
      stock units granted
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,573
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,573Restricted
      stock unit distributions (152,000 shares)
              
              
              
              
              
              
              
              
              
              
              39
              
              
              
              (39
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              —Bonuses
      paid through stock issuances (925,000 shares)
              
              
              
              
              
              
              
              
              
              
              230
              
              
              
              1,932
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,162Common
      stock and warrant private placement issuance (17,391,000
      shares)
              
              
              
              
              
              
              
              
              
              
              4,348
              
              
              
              53,213
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              57,561Common
      stock and warrant public offering (36,800,000 shares)
              
              
              
              
              
              
              
              
              
              
              9,200
              
              
              
              61,751
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              70,951Warrants
      exercised (24,000 shares)
              
              
              
              
              
              
              
              
              
              
              6
              
              
              
              53
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              59Conversion
      of 12% Convertible Preferred Stock to common stock (2,629,000
      shares)
              
              
              
              
              
              
              
              
              
              
              657
              
              
              
              3,902
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,559Other
      comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10,839
              
              
              
              
              
              
              
              10,839Balances,
      December 31, 2009
              
              $
              39
              
              
              $
              504
              
              
              $
              59,604
              
              
              $
              1,121,076
              
              
              $
              (300,915
              )
              
              $
              (14,183
              )
              
              $
              (640
              )
              
              $
              865,485
  The
accompanying notes are an integral part of the consolidated financial
statements.
 F-6
 Table
of Contents
 Hecla
Mining Company and Subsidiaries
 Notes to
Consolidated Financial Statements
  Note
1: Summary of Significant Accounting Policies
  A. Principles of
Consolidation —Our Consolidated Financial Statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America, and include our accounts, our wholly-owned
subsidiaries’ accounts and a proportionate share of the accounts of the joint
ventures in which we participate. All significant intercompany balances and
transactions have been eliminated in consolidation.
 
 Certain
consolidated financial statement amounts have been reclassified to conform to
the 2009 presentation.  These reclassifications had no effect on the
net income, comprehensive income, accumulated deficit, or cash flows as
previously recorded.
 
 On April
16, 2008, we completed the acquisition of the companies owning 70.3% of the
joint venture operating the Greens Creek mine, resulting in 100% ownership of
Greens Creek by our various wholly owned subsidiaries.  The operating
results of the 70.3% portion of Greens Creek are included in our operating
results from the date of acquisition and, therefore, operating results on a
period-by-period basis may not be comparable.  See Note 18 for further
discussion.
 
 On July
8, 2008, we completed the sale of all of the outstanding capital stock of El
Callao Gold Mining Company and Drake-Bering Holdings B.V., our wholly owned
subsidiaries which together owned our business and operations in Venezuela.
Accordingly, our historical financial statements have been revised to report our
Venezuelan operations as discontinued operations for all periods presented, and
we have revised our segment reporting to discontinue the divested Venezuelan
operations.  See Note 12 for further
discussion of the sale and resulting revision of our previously issued financial
statements.
 
 B.  Assumptions and Use of
Estimates —Preparing financial statements requires management
to make estimates and assumptions that affect the reported amounts and related
disclosure of assets, liabilities, revenue and expenses at the date of the
consolidated financial statements and reporting periods. We consider our most
critical accounting estimates to be future metals prices, obligations for
environmental, reclamation and closure matters, mineral reserves, and valuation
of business combinations. Other significant areas requiring the use of
management assumptions and estimates relate to asset impairments, including
long-lived assets and investments; inventory net realizable value;
post-employment, post-retirement and other employee benefit assets and
liabilities; valuation of deferred tax assets; and reserves for contingencies
and litigation. We have based our estimates on historical experience and on
various other assumptions that we believe to be reasonable. Accordingly, actual
results may differ materially from these estimates under different assumptions
or conditions.
 
 C.  Cash and Cash
Equivalents —Cash and cash equivalents consist of all cash
balances and highly liquid investments with a remaining maturity of three months
or less when purchased and are carried at fair value. Historically, cash and
cash equivalents have been invested in money market funds, certificates of
deposit, U.S. government and federal agency securities, municipal securities and
corporate bonds.
 
 D.  Investments and Securities
Held for Sale —We determine the appropriate classification of
our investments at the time of purchase and re-evaluate such determinations at
each reporting date. Short-term investments include certificates of deposit and
held-to-maturity securities, based on our intent and ability to hold the
securities to maturity. Marketable equity securities and variable rate demand
notes are categorized as available for sale and carried at fair market
value.
 
 Realized
gains and losses on the sale of securities are recognized on a specific
identification basis. Unrealized gains and losses are included as a component of
accumulated other comprehensive income (loss), unless an other than temporary
impairment in value has occurred, which would then be charged to current period
net income (loss).  Unrealized gains and losses originally included in
accumulated other comprehensive income are reclassified to current period net
income (loss) when the sale or determination of an other than temporary
impairment of securities occurs.
 
 E.  Inventories —Inventories
are stated at the lower of average costs incurred or estimated net realizable
value. Major types of inventories include materials and supplies and metals
product inventory, which is determined by the stage at which the ore is in the
production process (stockpiled ore, work in process and finished
goods).
 
 F-7
 Table
of Contents
 Stockpiled ore inventory
represents ore that has been mined, hauled to the surface, and is available for
further processing. Stockpiles are measured by estimating the number of tons
added and removed from the stockpile, the number of contained metal ounces or
pounds (based on assay data) and the estimated metallurgical recovery rates
(based on the expected processing method). Costs are allocated to a stockpile
based on relative values of material stockpiled and processed using current
mining costs incurred up to the point of stockpiling the ore, including
applicable overhead, depreciation, depletion and amortization relating to mining
operations, and removed at each stockpile’s average cost per recoverable
unit.
 
 Finished goods inventory
includes doré and concentrates at our operations, doré in transit to refiners
and bullion in our accounts at refineries. Inventories are valued at the lower
of full cost of production or net realizable value based on current metals
prices.
 
 F. Restricted
Cash —Restricted cash and investments primarily represent
investments in money market funds and bonds of U.S. government agencies and are
restricted primarily for reclamation funding or surety bonds.
 
 G. Properties, Plants and Equipment– Costs are capitalized when it has been determined an ore body can be
economically developed as a result of establishing proven and probable
reserves.  The development stage begins at new projects when our
management and/or Board of Directors makes the decision to bring a mine into
commercial production, and ends when the production stage, or exploitation of
reserves, begins.  Expenditures incurred during the development and
production stages for new facilities, new assets or expenditures that extend the
useful lives of existing facilities and major mine development expenditures are
capitalized, including primary development costs such as costs of building
access ways, shaft sinking, lateral development, drift development, ramps and
infrastructure developments.
 
 Costs for
exploration, secondary development at operating mines, and maintenance and
repairs on capitalized property, plant and equipment are charged to operations
as incurred.  Exploration costs include those relating to activities
carried out (a) in search of previously unidentified mineral deposits, (b) at
undeveloped concessions, or (c) at operating mines already containing proven and
probable reserves, where a determination remains pending as to whether new
target deposits outside of the existing reserve areas can be economically
developed.  Secondary development costs are incurred for preparation
of an ore body for production in a specific ore block, stope or work area,
providing a relatively short-lived benefit only to the mine area they relate to,
and not to the ore body as a whole.
 
 Drilling
and related costs are either classified as exploration or secondary development,
as defined above, and charged to operations as incurred, or capitalized, based
on the following criteria:
 ·
              Whether
      the costs are incurred to further define mineralization at and adjacent to
      existing reserve areas or intended to assist with mine planning within a
      reserve area;
 ·
              Whether
      the drilling costs relate to an ore body that has been determined to be
      commercially mineable, and a decision has been made to put the ore body
      into commercial production; and
 ·
              Whether,
      at the time that the cost is incurred, the expenditure: (a) embodies a
      probable future benefit that involves a capacity, singly or in
      combination, with other assets to contribute directly or indirectly to
      future net cash inflows, (b) we can obtain the benefit and control others’
      access to it, and (c) the transaction or event giving rise to our right to
      or control of the benefit has already
occurred.
 
 If all of
these criteria are met, drilling and related costs are
capitalized.  Drilling costs not meeting all of these criteria are
expensed as incurred.  The following factors are considered in
determining whether or not the criteria listed above have been met, and
capitalization of drilling costs is appropriate:
 ·
              Completion
      of a favorable economic study and mine plan for the ore body
      targeted;
 ·
              Authorization
      of development of the ore body by management and/or the Board of
      Directors; and
 ·
              All
      permitting and/or contractual requirements necessary for us to have the
      right to or control of the future benefit from the targeted ore body have
      been met.
  Drilling
and related costs of approximately $1.6 million, $3.1 million and $1.9 million,
respectively, for the years ended December 31, 2009, 2008 and 2007 met our
criteria for capitalization listed above, at our properties that are in the
production stage.
 
 When
assets are retired or sold, the costs and related allowances for depreciation
and amortization are eliminated from the accounts and any resulting gain or loss
is reflected in current period net income (loss).  Idle facilities
placed on standby basis are carried at the lower of net carrying value or
estimated net realizable value.  The net carrying values of idle
facilities are written-down to salvage value upon reaching the end of the
economic mine life and being placed on standby basis.  Therefore, with
the exception of depreciation recorded on mobile equipment used in ongoing
exploration and reclamation efforts at such properties, we do not record
depreciation on idle facilities when they are not in operation.
  F-8
 Table
of Contents
 Included
in property, plant and equipment on our consolidated financial statements are
mineral interests, which are tangible assets that include acquired undeveloped
mineral interests and royalty interests.  Undeveloped mineral
interests include: (i) other mineralized material which is measured, indicated
or inferred with insufficient drill spacing or quality to qualify as proven and
probable reserves; and (ii) inferred material not immediately adjacent to
existing proven and probable reserves but accessible within the immediate mine
infrastructure.  Residual values for undeveloped mineral interests
represents the expected fair value of the interests at the time we plan to
convert, develop, further explore or dispose of the interests and are evaluated
at least annually.
  H. Depreciation, Depletion and
Amortization —Capitalized costs are depreciated or depleted
using the straight-line method or unit-of-production method at rates sufficient
to depreciate such costs over the shorter of estimated productive lives of such
facilities or the useful life of the individual assets. Productive lives range
from 1 to 9 years, but do not exceed the useful life of the individual asset.
Determination of expected useful lives for amortization calculations are made on
a property-by-property or asset-by-asset basis at least annually. Our estimates
for mineral reserves are a key component in determining our units of production
depreciation rates. Our estimates of proven and probable ore reserves may
change, possibly in the near term, resulting in changes to depreciation,
depletion and amortization rates in future reporting periods.
  Undeveloped
mineral interests are not amortized until such time as they are converted to
proven and probable reserves.  At that time, the basis of the mineral
interest is amortized on a units-of-production basis.  Pursuant to our
policy on impairment of long-lived assets (discussed further below), if it is
determined that an undeveloped mineral interest cannot be economically converted
to proven and probable reserves, the basis of the mineral interest is reduced to
its net realizable value and an impairment loss is recorded to expense in the
period in which it is determined to be impaired.
  I.  Impairment of Long-lived
Assets —Management reviews and evaluates the net carrying
value of all facilities, including idle facilities, for impairment at least
annually, or upon the occurrence of other events or changes in circumstances
that indicate that the related carrying amounts may not be recoverable. We
estimate the net realizable value of each property based on the estimated
undiscounted future cash flows that will be generated from operations at each
property, the estimated salvage value of the surface plant and equipment, and
the value associated with property interests.
  Although
management has made a reasonable estimate of factors based on current conditions
and information, assumptions underlying future cash flows are subject to
significant risks and uncertainties. Estimates of undiscounted future cash flows
are dependent upon estimates of metals to be recovered from proven and probable
ore reserves, and to some extent, identified resources beyond proven and
probable reserves, future production and capital costs and estimated metals
prices (considering current and historical prices, forward pricing curves and
related factors) over the estimated remaining mine life. It is reasonably
possible that changes could occur in the near term that could adversely affect
our estimate of future cash flows to be generated from our operating properties.
If undiscounted cash flows including an asset’s fair value are less than the
carrying value of a property, an impairment loss is recognized.
  J. Proven and Probable Ore
Reserves —At least annually, management reviews the reserves
used to estimate the quantities and grades of ore at our mines which we believe
can be recovered and sold economically. Management’s calculations of proven and
probable ore reserves are based on engineering and geological estimates,
including future metals prices and operating costs. From time to time,
management obtains external audits of reserves. A third-party audit of our 2009
reserve model at the Lucky Friday unit was completed in January 2010, and a
partial audit of reserves at Greens Creek was concluded during the second
quarter of 2008.
  Reserve
estimates will change as existing reserves are depleted through production and
as production costs and/or metals prices change. A significant drop in metals
prices may reduce reserves by making some portion of such ore uneconomic to
develop and produce. Changes in reserves may also reflect that actual grades of
ore processed may be different from stated reserve grades because of variation
in grades in areas mined, mining dilution and other factors. Our reserve
estimates may change based on actual production experience. It is reasonably
possible that certain of our estimates of proven and probable ore reserves will
change in the near term, which could result in a change to estimated future cash
flows, associated carrying values of the asset and amortization rates in future
reporting periods, among other things.
  Declines
in the market prices of metals, increased production or capital costs, reduction
in the grade or tonnage of the deposit or an increase in the dilution of the ore
or reduced recovery rates may render ore reserves uneconomic to exploit. If our
realized price for the metals we produce were to decline substantially below the
levels set for calculation of reserves for an extended period, there could be
material delays in the development of new projects, net losses, reduced cash
flow, restatements or reductions in reserves and asset write-downs in the
applicable accounting periods. Reserves should not be interpreted as assurances
of mine life or of the profitability of current or future operations. No
assurance can be given that the estimate of the amount of metal or the indicated
level of recovery of these metals will be realized. See further discussion in
Critical Accounting Estimates
— Mineral Reserves in MD&A.
  K. Pension Plans and Other
Post-retirement Benefits —We maintain pension plans covering
substantially all U.S. employees and provide certain post-retirement benefits
for qualifying retired employees. Pension benefits generally depend on length
and level of service and age upon retirement. Substantially all benefits are
paid through pension trusts. We did not contribute to our pension plans during
2009 and 2008, and do not expect to do so in 2010.
  F-9
 Table
of Contents
 Regulations
regarding employers’ accounting for defined benefit pension and other
postretirement plans among other things, requires us to:
  ·
              Recognize
      the funded status of our defined benefit plans in our consolidated
      financial statements; and
  ·
              Recognize
      as a component of other comprehensive income (loss) the actuarial gains
      and losses and prior service costs and credits that arise during the
      period but are not immediately recognized as components of net periodic
      benefit cost.
  L. Income
Taxes —We provide for federal, state and foreign income taxes
currently payable, as well as those deferred due to timing differences between
reporting income and expenses for financial statement purposes versus tax
purposes. Federal, state and foreign tax benefits are recorded as a reduction of
income taxes, when applicable. We record deferred tax liabilities and assets for
expected future tax consequences of temporary differences between the financial
statement carrying amounts and the tax bases of those assets and liabilities, as
well as operating loss and tax credit carryforwards, using enacted tax rates in
effect in the years in which the differences are expected to
reverse.
  We
evaluate uncertain tax positions in a two-step process, whereby (1) it is
determined whether it is more likely than not that the tax positions will be
sustained based on the technical merits of the position and (2) for those tax
positions that meet the more-likely-than-not recognition threshold, the largest
amount of tax benefit that is greater than fifty percent likely of being
realized upon ultimate settlement with the related tax authority would be
recognized.
  For
additional information, see Note 5 — Income
Taxes.
  M. Reclamation and Remediation
Costs (Asset Retirement Obligations)  —At our operating
properties, we record a liability for the present value of our estimated
environmental remediation costs, and the related asset created with it, in the
period in which the liability is incurred. The liability will be accreted and
the asset will be depreciated over the life of the related assets. Adjustments
for changes resulting from the passage of time and changes to either the timing
or amount of the original present value estimate underlying the obligation will
be made.
  At our
non-operating properties, we accrue costs associated with environmental
remediation obligations when it is probable that such costs will be incurred and
they are reasonably estimable. Accruals for estimated losses from environmental
remediation obligations have historically been recognized no later than
completion of the remedial feasibility study for such facility and are charged
to provision for closed operations and environmental matters. Costs of future
expenditures for environmental remediation are not discounted to their present
value unless subject to a contractually obligated fixed payment schedule. Such
costs are based on management’s current estimate of amounts to be incurred when
the remediation work is performed, within current laws and
regulations.
  Future
closure, reclamation and environmental-related expenditures are difficult to
estimate, in many circumstances, due to the early stage nature of
investigations, and uncertainties associated with defining the nature and extent
of environmental contamination and the application of laws and regulations by
regulatory authorities and changes in reclamation or remediation technology. We
periodically review accrued liabilities for such reclamation and remediation
costs as evidence becomes available indicating that our liabilities have
potentially changed. Changes in estimates at our non-operating properties are
reflected in current period net income (loss).
  Accruals
for closure costs, reclamation and environmental matters for operating and
nonoperating properties totaled $131.2 million at December 31, 2009, and we
anticipate that the majority of these expenditures relating to these accruals
will be made over the next 30 years. It is reasonably possible the ultimate cost
of reclamation and remediation could change in the future, and that changes to
these estimates could have a material effect on future operating results as new
information becomes known. For environmental remediation sites known as of
December 31, 2009, we have recorded liabilities based on the low end of the
estimated potential range of liabilities.  If the highest estimate
from the range (based upon information presently available) were recorded for
each site, the total estimated liability would be increased by approximately $47
million. For additional information, see Note 4 and Note 7.
  N. Revenue
Recognition —Sales of all metals products sold directly to
smelters, including by-product metals, are recorded as revenues when title and
risk of loss transfer to the smelter (generally at the time of shipment) at
estimated forward prices for the anticipated month of settlement. Due to the
time elapsed from shipment to the smelter and the final settlement with the
smelter, we must estimate the prices at which sales of our metals will be
settled. Previously recorded sales are adjusted to estimated settlement metals
prices until final settlement by the smelter.
  Sales to
smelters are recorded net of charges by the smelters for treatment, refining,
smelting losses, and other charges negotiated by us with the smelters. Charges
are estimated by us upon shipment of concentrates based on contractual terms,
and actual charges do not vary materially from our estimates. Costs charged by
smelters include fixed treatment and refining costs per ton of concentrate, and
also include price escalators which allow the smelters to participate in the
increase of lead and zinc prices above a negotiated baseline.
  F-10
 Table
of Contents
 Changes
in metals prices between shipment and final settlement will result in
adjustments to revenues related to sales of concentrate previously recorded upon
shipment. Our concentrate sales are based on a provisional sales price
containing an embedded derivative that is required to be separated from the host
contract for accounting purposes. The host contract is the receivable from the
sale of the concentrates at the forward price at the time of the sale. The
embedded derivative, which does not qualify for hedge accounting, is adjusted to
market through earnings each period prior to final settlement.
  At
December 31, 2009, metals contained in concentrates and exposed to future price
changes totaled 1,308,781 ounces of silver, 6,449 ounces of gold, 13,919 tons of
zinc, and 5,534 tons of lead.
  Sales
from our Greens Creek and Lucky Friday units include significant value from
by-product metals mined along with net values of each unit’s primary
metal.
  Sales of
metals in products tolled by refiners and sold directly by us, rather than sold
to smelters, are recorded at contractual amounts when title and risk of loss
transfer to the buyer. We sell finished metals after refining, as well as doré
produced at our locations. Third-party smelting and refinery costs are recorded
as a reduction of revenue.
  Changes
in the market price of metals significantly affect our revenues, profitability,
and cash flow. Metals prices can and often do fluctuate widely and are affected
by numerous factors beyond our control, such as political and economic
conditions, demand, forward selling by producers, expectations for inflation,
central bank sales, custom smelter activities, the relative exchange rate of the
U.S. dollar, purchases and lending, investor sentiment, and global mine
production levels. The aggregate effect of these factors is impossible to
predict. Because our revenue is derived from the sale of silver, gold, lead, and
zinc, our earnings are directly related to the prices of these
metals.
  O. Foreign
Currency —The functional currency for our operations located
in the U.S., Mexico and Canada, as of December 31, 2009, was the U.S. dollar.
Accordingly, for the San Sebastian unit in Mexico and our Canadian office, we
have translated our monetary assets and liabilities at the period-end exchange
rate, and non-monetary assets and liabilities at historical rates, with income
and expenses translated at the average exchange rate for the current period. All
translation gains and losses have been included in the current period net income
(loss).
  For the
year ended December 31, 2009, we recognized a total net foreign exchange
gain of $0.1 million.  For the years ended December 31, 2008 and 2007,
we recognized total net foreign exchange losses of $13.2 million and $12.1
million, respectively.Of these, $13.3 million
and $12.0 million, respectively, of the net foreign exchange losses for the
years ended December 31, 2008 and 2007 are related to our discontinued
Venezuelan operations, and are included in Gain (loss) from discontinued
operations, net of tax with the remaining balance included in Net foreign exchange gain
(loss), on our Consolidated Statements of
Operations and Comprehensive Income (Loss).
  Exchange
control regulations enacted in Venezuela in 2005 limited our ability to
repatriate cash and receive dividends or other distributions without substantial
cost. Exchanging our cash held in local currency into U.S. dollars could be done
through specific governmental programs, or through the use of negotiable
instruments at conversion rates that were higher than the official rate
(parallel rate) on which we incurred foreign currency losses. During 2008 and
2007, we exchanged the U.S. dollar equivalent of approximately $38.7 and $37.0
million, respectively, valued at the official exchange rate of 2,150 Bolivares
to $1.00, for $25.4 and $19.8 million at open market exchange rates, in
compliance with applicable regulations, incurring a foreign exchange loss for
the difference. Changes to the Venezuelan Criminal Exchange Law enacted in
December 2007 prohibit the publication of Bolívar exchange rates other than the
official rate.
  On July
8, 2008, we completed the sale of our discontinued Venezuelan operations to
Rusoro Mining Company (“Rusoro”) (see Note 12 for further
discussion).  During the second quarter of 2008, we repatriated
substantially all of our remaining Bolivares-denominated
cash.  Pursuant to the sale agreement, Rusoro paid us $0.9 million for
the U.S. dollar equivalent of the residual Bolivares-denominated cash balances
held in Venezuela at the close of the sale, converted at official
rates.
  P. Risk Management
Contracts —We use derivative financial instruments as part of
an overall risk-management strategy that is used as a means of hedging exposure
to base metals prices and interest rates. We do not hold or issue derivative
financial instruments for speculative trading purposes.  We had no
derivative positions at December 31, 2009.
  Derivative
contracts qualifying as normal purchases and sales are accounted as such. Gains
and losses arising from a change in the fair value of a contract before the
contract’s delivery date are not recorded, and the contract price is recognized
in sales of products following settlement of the contract by physical delivery
of production to the counterparty at contract maturity.
  F-11
 Table
of Contents
 We
measure derivative contracts as assets or liabilities based on their fair value.
Gains or losses resulting from changes in the fair value of derivatives in each
period are recorded either in current earnings or other comprehensive income
(“OCI”), depending on the use of the derivative, whether it qualifies for hedge
accounting and whether that hedge is effective. Amounts deferred in OCI are
reclassified to sales of products (for metals price-related contracts) or
interest expense (for interest rate-related contracts) when the hedged
transaction has occurred. Ineffective portions of any change in fair value of a
derivative are recorded in current period other operating income
(expense).
  On May 5,
2008, we entered into an interest rate swap agreement that had the economic
effect of modifying the LIBOR-based variable interest obligations associated
with our term facility.  On October 14, 2009, we repaid the remaining
outstanding balance on our term facility.  As a result, we determined
hedge accounting for the swap to be inappropriate as of September 30, 2009, and
wrote-off the remaining $0.8 million accumulated unrealized loss and recorded a
$38,000 mark-to-market adjustment for the fair value of the swap through
interest expense in the third quarter of 2009.   In October 2009,
we paid $0.7 million to settle the remaining fair value liability associated
with the swap.  For additional information regarding our credit
facilities and interest rate swap, see Notes 6and10.
  Q. Stock Based
Compensation —The fair value of the equity instruments granted
to employees are estimated on the date of grant using the Black-Scholes pricing
model, utilizing the same methodologies and assumptions as we have historically
used.   We recognized stock-based compensation expense of
approximately $2.7 million, $4.1 million and $3.4 million, respectively, during
2009, 2008 and 2007, which was recorded to general and administrative expenses,
exploration and cost of sales and other direct production
costs.   As of December 31, 2009, the majority of the instruments
outstanding were fully vested.
  For
additional information on our employee stock option and unit compensation, see
Notes 8 and 9.
  R. Pre-Development
Expense —Costs incurred in the exploration stage that may
ultimately benefit production, such as underground ramp development, are
expensed due to the lack of proven and probable reserves, which would indicate
future recovery of these expenses.
  S.  Legal Costs –Legal costs incurred in connection with a potential loss contingency are
recorded to expense as incurred.
  T. Basic and Diluted Income
(Loss) Per Common Share —We calculate basic earnings per share
on the basis of the weighted average number of common shares outstanding during
the period. Diluted earnings per share is calculated using weighted average
number of common shares 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 common shares include outstanding stock options, restricted stock
awards, stock units, warrants and convertible preferred stock for periods in
which we have reported net income. For periods in which we reported net losses,
potential dilutive common shares are excluded, as their conversion and exercise
would be anti-dilutive. See Note 14 for additional
information.
  U. Comprehensive Income
(Loss) —In addition to net income (loss), comprehensive income
(loss) includes certain changes in equity during a period, such as adjustments
to minimum pension liabilities, adjustments to recognize the overfunded or
underfunded status of our defined benefit pension plans, the effective portion
of changes in fair value of derivative instruments, foreign currency translation
adjustments and cumulative unrecognized changes in the fair value of available
for sale investments, net of tax, if applicable.
  V.  Fair Value
Measurements—Effective
January 1, 2008, for our financial assets and liabilities, and January 1, 2009,
for our non-financial assets and liabilities, disclosure requirements have been
expanded to include the following information for each major category of assets
and liabilities that are measured at fair value:
 a.
              the
      fair value measurement;
 b.
              the
      level within the fair value hierarchy in which the fair value measurements
      in their entirety fall, segregating fair value measurements using quoted
      prices in active markets for identical assets or liabilities (Level 1),
      significant other observable inputs (Level 2), and significant
      unobservable inputs (Level 3);
 c.
              for
      fair value measurements using significant unobservable inputs (Level 3), a
      reconciliation of the beginning and ending balances, separately presenting
      changes during the period attributable to the
  following:
 1)
              total
      gains or losses for the period (realized and unrealized), segregating
      those gains or losses included in earnings (or changes in net assets), and
      a description of where those gains or losses included in earnings (or
      changes in net assets) are reported in the statement of
      operations;
 2)
              the
      amount of these gains or losses attributable to the change in unrealized
      gains or losses relating to those assets liabilities still held at the
      reporting period date and a description of where those unrealized gains or
      losses are reported;
 3)
              purchases,
      sales, issuances, and settlements (net);
and
 4)
              transfers
      into and/or out of Level 3.
 d.
              The
      amount of the total gains or losses for the period in (c)(1) included in
      earnings (or changes in net assets) that are attributable to the change in
      unrealized gains or losses relating to those assets and liabilities still
      held at the reporting date and a description of where those unrealized
      gains or losses are reported in the statement of operations;
      and
 e.
              In
      annual periods only, the valuation technique(s) used to measure fair value
      and a discussion of changes in valuation techniques, if any, during the
      period.
  F-12
 Table
of Contents
 W. New Accounting
Pronouncements — In December 2008, FASB Financial Staff Position
(“FSP”) No. FAS 132(R)-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets (ASC 715), was issued to provide
guidance on an employer’s disclosures about plan assets of a defined benefit
pension or other post-retirement plan.  This guidance is effective for
fiscal years ending after December 15, 2009.  Adoption of this
guidance did not have a material impact on our consolidated financial
statements.
  In
January 2010, the FASB issued ASU 2010-06, which amends Subtopic 820-10 to
require new disclosures on fair value measurements as follows:
  1.
              The
      amounts of and reasons for significant transfers in and out of Levels 1
      and 2.
  2.
              Separate
      information about purchases, sales, issuances, and settlements in Level 3
      fair value measurements.
  ASU
2010-06 also provides amendments to Subtopic 820-10 that clarifies existing fair
value measurement disclosures as follows:
  1.
              A
      reporting entity should provide fair value measurement disclosures for
      each class of assets and liabilities.  A class is often a subset
      of assets or liabilities within a line item in the statement of financial
      position.
  2.
              A
      reporting entity should provide disclosures about the valuation techniques
      and inputs used to measure fair value for both recurring and nonrecurring
      fair value measurements.  Those disclosures are required for
      fair value measurements that fall in either Level 2 or Level
      3.
  ASU
2010-06 also includes conforming amendments to the guidance on employers’
disclosures about postretirement benefit plan assets (Subtopic 715-20), changes
the terminology in Subtopic 715-20 from major categories of assets to
classes of assets, and
provides a cross reference to the guidance in Subtopic 820-10 on how to
determine appropriate classes to present fair value disclosures.
  The new
disclosures and clarifications of existing disclosures are effective for interim
and annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances and settlements in the roll
forward of activity in Level 3 fair value measurements.  Those
disclosures are effective for fiscal years beginning after December 15, 2010,
and for interim periods within those fiscal years.  Adoption of this
guidance is not expected to have a material impact on our consolidated financial
statements.
  Note
2. Cash, Investments, and Restricted Cash
  Cash
  Our cash
is maintained in various financial institutions, and the balances are insured up
to the Federal Deposit Insurance Corporation limits of $250,000 per
institution.  Some of our cash balances at December 31, 2009 exceeded
the federally insured limits.  We have not experienced losses on cash
balances exceeding the federally insured limits, but there can be no assurance
that we will not experience such losses in the future.
  Exchange
control regulations in Venezuela limited our ability to repatriate cash and
receive dividends or other distributions without substantial cost.  On
June 19, 2008, we entered into an agreement to sell our wholly owned
subsidiaries holding our business and operations in Venezuela to Rusoro, with
the transaction closing on July 8, 2008 (see Note 12 for further
discussion of the transaction).  Prior to the sale of our Venezuelan
operations, exchanging our cash held in local currency into U.S. dollars was
done through specific governmental programs, or through the use of negotiable
instruments at conversion rates that were less favorable than the official rate
(parallel rate) on which we incurred foreign currency losses.  During
2008, prior to the sale of our Venezuelan operations, we exchanged the U.S.
dollar equivalent of approximately $38.7 million at the official exchange rate
of 2,150 Bolívares to $1.00 for approximately $25.4 million at open market
exchange rates and in compliance with applicable regulations, incurring foreign
exchange losses for the difference.  All of these losses were incurred
on repatriations of cash from Venezuela.  During 2007, we exchanged
the U.S. dollar equivalent of approximately $37.0 million, valued at the
official exchange rate of 2,150 Bolívares to $1.00, for approximately $19.8
million at open market exchange rates, in compliance with applicable
regulations, incurring foreign exchange losses for the
difference.  Approximately $13.8 million of the conversion losses for
2007 were incurred on the repatriation of cash from Venezuela, while additional
losses of approximately $3.4 million in 2007 were related to conversions of
Bolívares for the payment of expatriate payroll and other U.S.
dollar-denominated goods and services.
  F-13
 Table
of Contents
 Investments
  At
December 31, 2009, the fair value of our current investments was $1.1 million,
with no current investments held at December 31, 2008.  At
December 31, 2009 and 2008, the fair value of our non-current investments
was $2.2 million and $3.1 million, respectively. Marketable equity securities
are carried at fair market value, as they are classified as
“available-for-sale.”  The basis of our current investments held at
December 31, 2009, representing equity securities, was approximately $0.6
million.  The basis of our non-current investments, representing
equity securities, was approximately $2.0 million and $5.2 million,
respectively, at December 31, 2009 and 2008.  $1.5 million of the $2.0
million non-current investments basis at December 31, 2009 represents
approximately 3.6 million shares of Rusoro stock transferred to us upon the sale
of El Callao and Drake Bering (see Note 12 for information on
the sale of our discontinued Venezuelan operations).  During the
second quarter of 2009, we recognized a $3.0 million loss on impairment of the
Rusoro shares, as we determined the impairment to be
other-than-temporary.
  In
November 2009 we sold our 670,500 shares of Aquiline Resources Inc. stock having
a cost basis of approximately $22,000 for proceeds of $4.1 million, resulting in
a pre-tax gain of approximately $4.1 million.
  In
January 2010 we sold our 158,566 shares of International Royalty Corp. stock
having a cost basis of approximately $0.6 million for proceeds of $1.1 million,
resulting in a pre-tax gain of approximately $0.5 million.
  At
December 31, 2009, total unrealized gains of $0.6 million for current
investments held having a net gain position, total unrealized gains of $0.3
million for non-current investments held having a net gain position, and total
unrealized losses of $0.1 million for non-current investments held having a net
loss position were included in accumulated other comprehensive income
(loss).
  Restricted
Cash and Investments
  Various
laws and permits require that financial assurances be in place for certain
environmental and reclamation obligations and other potential liabilities.
Restricted investments primarily represent investments in money market funds and
certificates of deposit. These investments (which included current and
non-current balances) are restricted primarily for reclamation funding or surety
bonds and were $11.8 million at December 31, 2009, and $15.2 million at
December 31, 2008.
  Note
3: Properties, Plants, Equipment and Mineral Interests, Royalty Obligations and
Lease Commitments
  Properties,
Plants,  Equipment and Mineral Interests
  Our major
components of properties, plants, equipment, and mineral interests are (in
thousands):
 
 December
      31,2009
              
              
              2008Mining
      properties, including asset retirement obligations
              
              $
              268,259
              
              
              $
              262,104Development
      costs
              
              
              106,700
              
              
              
              88,026Plants
      and equipment
              
              
              317,736
              
              
              
              308,482Land
              
              
              9,270
              
              
              
              9,270Mineral
      interests
              
              
              356,038
              
              
              
              369,125Construction
      in progress
              
              
              45,098
              
              
              
              43,9411,103,101
              
              
              
              1,080,948Less
      accumulated depreciation, depletion and amortization
              
              
              283,583
              
              
              
              228,835Net
      carrying value
              
              $
              819,518
              
              
              $
              852,113
  During
2009, we incurred total capital expenditures of approximately $23.5 million,
which included $14.7 million at the Lucky Friday unit and $8.8 million at the
Greens Creek unit.
  On April
16, 2008, we completed the acquisition of the remaining 70.3% interest in the
Greens Creek Joint Venture for $758.5 million.  A total of $689.7
million of the purchase price was allocated to the net carrying value of
property, plants, equipment and mineral interests at the Greens Creek unit,
including $5.0 million for the asset retirement obligation, $266.7 million for
development costs, $67.2 million for plants and equipment, $7.2 million for
land, and $343.6 million for mineral interests.  We also acquired
substantially all of the assets of Independence Lead Mines (“Independence”) on
November 6, 2008 for 6.9 million shares of our common stock.  The
Independence purchase price of approximately $14.6 million was allocated to
mineral interests at the Lucky Friday unit.    In addition,
we issued approximately 1.6 million shares of our Common Stock in 2008 to
acquire the right to earn into a 70% interest in the San Juan Silver Joint
Venture with Emerald Mining & Leasing, LLC and Golden 8 Mining, LLC, which
holds an approximately 25-square-mile consolidated land package in the Creede
Mining District of Colorado, resulting in an $11.4 million increase to mineral
interests. See Note 18
for further discussion of the acquisitions of 70.3% of Greens Creek,
Independence, and San Juan Silver earn-in rights.
  F-14
 Table
of Contents
 On July
8, 2008, we completed the sale of the companies holding 100% of the ownership
interest of our discontinued Venezuelan operations, resulting in the disposal of
properties, plants, equipment and mineral interests having net carrying value of
approximately $32.3 million at the time of sale.  See Note 12 for more information
on the sale.
 
 Capital
Leases
  During
2009 we entered into lease agreements for equipment at our Greens Creek and
Lucky Friday units which we have determined to be capital leases.  As
of December 31, 2009, we have recorded $5.7 million for the gross amount of
assets acquired under the capital leases and $1.0 million in accumulated
depreciation, in Properties,
plants, equipment and mineral interests.  See Note 6 for information on
future obligations related to our capital leases.
  Operating
Leases
  We enter
into operating leases during the normal course of business. During the years
ended December 31, 2009, 2008 and 2007, we incurred expenses of $2.4
million, $2.0 million and $1.8 million, respectively, for these leases. At
December 31, 2009, future obligations under our non-cancelable operating leases
were as follows (in thousands):
 
 Year ending December 31,2010
              
              $
              2,7612011
              
              
              2,7702012
              
              
              2,5802013
              
              
              2,0182014
              
              
              307Total
              
              $
              10,436
  Note
4: Environmental and Reclamation Activities
  The
liabilities accrued for our reclamation and closure costs at December 31,
2009 and 2008, were as follows (in thousands):
 
 2009
              
              
              2008Operating
      properties:Greens
      Creek
              
              $
              35,258
              
              
              $
              29,964Lucky
      Friday
              
              
              1,106
              
              
              
              879Nonoperating
      properties:San
      Sebastian
              
              
              218
              
              
              
              1,161Grouse
      Creek
              
              
              15,942
              
              
              
              14,326Coeur
      d’Alene Basin
              
              
              65,600
              
              
              
              65,600Bunker
      Hill
              
              
              6,716
              
              
              
              3,155Republic
              
              
              3,800
              
              
              
              3,800All
      other sites
              
              
              2,561
              
              
              
              2,462Total
              
              
              131,201
              
              
              
              121,347Reclamation
      and closure costs, current
              
              
              (5,773
              )
              
              
              (2,227
              )Reclamation
      and closure costs, long-term
              
              $
              125,428
              
              
              $
              119,120
  The
activity in our accrued reclamation and closure cost liability for the years
ended December 31, 2009, 2008 and 2007, was as follows (in
thousands):
 
 F-15
 Table
of Contents
 Balance
      at January 1, 2007
              
              $
              65,904Accruals
      for estimated costs
              
              
              45,623Revision
      of estimated cash flows due to changes in reclamation
plans
              
              
              1,293Payment
      of reclamation obligations
              
              
              (6,681
              )Balance
      at December 31, 2007
              
              
              106,139Accruals
      for estimated costs
              
              
              811Liability
      addition due to the purchase price allocation for the acquisition of 70.3%
      of Greens Creek
              
              
              12,145Revision
      of estimated cash flows due to changes in reclamation
plans
              
              
              13,114Liability
      reduction due to the sale of discontinued operations
              
              
              (4,474
              )Payment
      of reclamation obligations
              
              
              (6,388
              )Balance
      at December 31, 2008
              
              
              121,347Accruals
      for estimated costs
              
              
              5,980Revision
      of estimated cash flows due to changes in reclamation
plans
              
              
              3,347Receipt
      of settlement payment for shared reclamation costs
incurred
              
              
              3,150Payment
      of reclamation obligations
              
              
              (2,623
              )Balance
      at December 31, 2009
              
              $
              131,201
  In
December 2009 we received $3.3 million plus interest for settlement of a claim
by us against ASARCO through their bankruptcy proceeding.  The claim
was for costs incurred by us for ASARCO’s share of such costs under cost sharing
agreements. See Note
7:  Commitments and Contingencies, Bunker Hill Superfund Site
for further discussion of the ASARCO claim.  Prior to receipt of the
claim settlement, our accrued reclamation and closure cost liability was
recorded net of approximately $3.2 million of the ASARCO claim
amount.    Therefore, receipt of the claim settlement
resulted in a $3.2 million increase to our accrued reclamation and closure
liability balance, with the remaining $0.1 million recorded as a decrease to
accounts receivable.
  Below is
a reconciliation as of December 31, 2009 and 2008 (in thousands), of our
asset retirement obligations, which are included in our total accrued
reclamation and closure costs of $131.2 million and $121.3 million,
respectively, reflected above. The estimated reclamation and abandonment costs
were discounted using credit adjusted, risk-free interest rates ranging from 6%
to 7% from the time we incurred the obligation to the time we expect to pay the
retirement obligation.
 
 2009
              
              
              2008Balance
      January 1
              
              $
              32,004
              
              
              $
              11,579Changes
      in obligations due to acquisition of 70.3% of Greens Creek
              
              
              —
              
              
              
              12,145Changes
      in obligations due to changes in reclamation plans
              
              
              3,347
              
              
              
              13,114Accretion
      expense
              
              
              1,608
              
              
              
              475Changes
      in obligations due to sale of discontinued operations
              
              
              —
              
              
              
              (4,474
              )Payment
      of reclamation obligations
              
              
              (377
              )
              
              
              (835
              )Balance
      at December 31
              
              $
              36,582
              
              
              $
              32,004
  For
additional information as it pertains to the acquisition of the remaining 70.3%
interest in Greens Creek, see Note 18.  See Note 12 for further
discussion of the sale of our discontinued Venezuelan operations.
  Note
5: Income Taxes
  Major
components of our income tax provision (benefit) for the years ended
December 31, 2009, 2008 and 2007, are as follows (in
thousands):
 
 2009
              
              
              2008
              
              
              2007Continuing operations:Current:Federal
              
              $
              (1,277
              )
              
              $
              3
              
              
              $
              811State
              
              
              33
              
              
              
              (170
              )
              
              
              88Foreign
              
              
              664
              
              
              
              370
              
              
              
              504Total
      current income tax provision
              
              
              580
              
              
              
              203
              
              
              
              1,403Federal
      deferred income tax (benefit) provision
              
              
              (7,100
              )
              
              
              3,604
              
              
              
              (9,906
              )Total
      income tax (benefit) provision from continuing operations
              
              
              (7,680
              )
              
              
              3,807
              
              
              
              (8,503
              )Discontinued operations:Tax
      provision for loss on sale of discontinued operations
              
              
              —
              
              
              
              2,944
              
              
              
              —Tax
      benefit for loss from discontinued operations
              
              
              —
              
              
              
              —
              
              
              
              (627
              )Total
      income tax (benefit) provision
              
              $
              (7,680
              )
              
              $
              6,751
              
              
              $
              (9,130
              )
  F-16
 Table
of Contents
 Domestic
and foreign components of income (loss) from operations before income taxes for
the years ended December 31, 2009, 2008 and 2007, are as follows (in
thousands):
 
 2009
              
              
              2008
              
              
              2007Domestic
              
              $
              59,779
              
              
              $
              (23,823
              )
              
              $
              72,104Foreign
              
              
              367
              
              
              
              (9,543
              )
              
              
              (12,450
              )Discontinued
      operations
              
              
              —
              
              
              
              (26,446
              )
              
              
              (15,587
              )Total
              
              $
              60,146
              
              
              $
              (59,812
              )
              
              $
              44,067
  The
annual tax provision (benefit) is different from the amount that would be
provided by applying the statutory federal income tax rate to our pretax income
(loss). The reasons for the difference are (in thousands):
 
 2009
              
              
              2008
              
              
              2007Computed
      “statutory” (benefit) provision
              
              $
              21,051
              
              
              
              35
              %
              
              $
              (20,934
              )
              
              
              (35
              )%
              
              $
              15,423
              
              
              
              35
              %Percentage
      depletion
              
              
              (7,953
              )
              
              
              (16
              )
              
              
              (2,594
              )
              
              
              (4
              )
              
              
              (10,416
              )
              
              
              (24
              )Net
      increase (utilization) of U.S. and foreign tax loss
      carryforwards
              
              
              (13,098
              )
              
              
              (19
              )
              
              
              23,528
              
              
              
              39
              
              
              
              (3,534
              )
              
              
              (8
              )Change
      in valuation allowance other than utilization
              
              
              (7,100
              )
              
              
              (12
              )
              
              
              3,604
              
              
              
              6
              
              
              
              (10,481
              )
              
              
              (24
              )Discontinued
      operations
              
              
              —
              
              
              
              —
              
              
              
              2,944
              
              
              
              5
              
              
              
              —
              
              
              
              —Tax
      loss carryback from change in tax law
              
              
              (1,989
              )
              
              
              (3
              )
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —Effect
      of U.S. AMT, state, foreign taxes and other
              
              
              1,409
              
              
              
              2
              
              
              
              203
              
              
              
              —
              
              
              
              (122
              )
              
              
              —$
              (7,680
              )
              
              
              (13
              )%
              
              $
              6,751
              
              
              
              11
              %
              
              $
              (9,130
              )
              
              
              (21
              )%
  We
evaluated the positive and negative evidence available to determine whether a
valuation allowance is required on our net deferred tax assets.  At
December 31, 2009 and 2008, the balance of our valuation allowance was $110
million and $139 million, respectively.
  For the
year ended December 31, 2009, we examined all available evidence and determined
that a reduction to the valuation allowance of $7.1 million was
necessary.  Increased revenue from higher metal prices and reduced
interest expense from the extinguishment of company debt improved our financial
position during 2009.  We analyzed long-range plans to project future
U.S. taxable income to support a net deferred tax asset of $45.6
million.
  For the
year ended December 31, 2008, three significant factors had an impact on our net
deferred tax position.  We acquired control of the Greens Creek Joint
Venture in April 2008 and added a net deferred tax asset of $23 million related
to the purchase price allocation and purchase accounting.  In July
2008, we sold our Venezuelan business. The deferred tax assets related to the
Venezuelan business were eliminated, resulting in a net deferred tax reduction
of $3.2 million.  Lastly, the economic conditions in 2008 and the
evidence available at year-end reduced the amount of deferred tax assets that we
expected to use in the future to $38.6 million, which required a net increase to
the valuation allowance of $3.6 million for 2008.
  For the
year ended December 31, 2007 we benefited from favorable metal prices, resulting
in higher taxable income, and we utilized significant tax net operating loss
carryforwards.  We increased our net deferred tax assets by $10.5
million, to a total of $22.3 million at December 31, 2007, to reflect the total
net deferred tax asset that we expect to utilize over a 2-year period based on
income from operations.  Due to our return to profitability in 2007
and 2006, we felt that 24 months was an appropriate period to measure based on
all available evidence at that time.
  The
deferred tax asset will be amortized against taxable income in the U.S. in
future periods. We will review available evidence in future periods to determine
whether more or less of our deferred tax asset should be realized. Adjustment to
the valuation allowance will be made in the period for which the determination
is made.
  F-17
 Table
of Contents
 The
components of the net deferred tax asset were as follows (in
thousands):
 
 December
      31,2009
              
              
              2008Deferred
      tax assets:Accrued
      reclamation costs
              
              $
              44,933
              
              
              $
              44,281Deferred
      exploration
              
              
              9,639
              
              
              
              8,523Investment
      valuation differences
              
              
              1,364
              
              
              
              —Postretirement
      benefits other than pensions
              
              
              2,373
              
              
              
              1,761Deferred
      compensation
              
              
              3,260
              
              
              
              2,253Foreign
      net operating losses
              
              
              12,809
              
              
              
              8,058Federal
      net operating losses
              
              
              68,653
              
              
              
              85,200State
      net operating losses
              
              
              8,237
              
              
              
              10,578Capital
      loss carryforward
              
              
              767
              
              
              
              767Tax
      credit carryforwards
              
              
              5,431
              
              
              
              2,809Stock
      compensation
              
              
              2,887
              
              
              
              1,926Other
      comprehensive income
              
              
              5,761
              
              
              
              10,009Miscellaneous
              
              
              3,841
              
              
              
              2,162Total
      deferred tax assets
              
              
              169,955
              
              
              
              178,327Valuation
      allowance
              
              
              (110,269
              )
              
              
              (138,848
              )Total
      deferred tax assets
              
              
              59,686
              
              
              
              39,479Deferred
      tax liabilities:Inventory
              
              
              (301
              )
              
              
              —Pension
      costs
              
              
              (1,065
              )
              
              
              —Properties,
      plants and equipment
              
              
              (12,668
              )
              
              
              (927
              )Total
      deferred tax liabilities
              
              
              (14,034
              )
              
              
              (927
              )Net
      deferred tax asset
              
              $
              45,652
              
              
              $
              38,552
  We plan
to permanently reinvest earnings from foreign subsidiaries. For the years 2009,
2008 and 2007 we had no unremitted foreign earnings. Foreign net operating
losses carried forward are shown above as a deferred tax asset.
  We
recorded a valuation allowance to reflect the estimated amount of deferred tax
assets, which may not be realized principally due to the expiration of net
operating losses and tax credit carryforwards. The changes in the valuation
allowance for the years ended December 31, 2009, 2008 and 2007, are as
follows (in thousands):
 
 2009
              
              
              2008
              
              
              2007Balance
      at beginning of year
              
              $
              (138,848
              )
              
              $
              (115,413
              )
              
              $
              (133,363
              )Increase
      related to non-utilization of net operating loss carryforwards and
      non-recognition of deferred tax assets due to uncertainty of
      recovery
              
              
              (1,658
              )
              
              
              (39,679
              )
              
              
              (38,325
              )Decrease
      related to net recognition of deferred tax assets
              
              
              7,100
              
              
              
              16,244
              
              
              
              10,486Decrease
      related to recognition of deferred tax liability on unrealized
      gain
              
              
              —
              
              
              
              —
              
              
              
              5,192Decrease
      related to utilization and expiration of deferred tax
    assets
              
              
              23,137
              
              
              
              —
              
              
              
              25,967Decrease
      due to utilization on gain on sale of subsidiary
              
              
              —
              
              
              
              —
              
              
              
              14,630Balance
      at end of year
              
              $
              (110,269
              )
              
              $
              (138,848
              )
              
              $
              (115,413
              )
  As of
December 31, 2009, for U.S. income tax purposes, we have net operating loss
carryforwards of $196.2 million and $71.5 million, respectively, for regular and
alternative minimum tax purposes. These operating loss carryforwards expire over
the next 15 to 20 years, the majority of which expire between 2012 and 2020. In
addition, we have foreign tax operating loss carryforwards of approximately $42
million, which expire between 2010 and 2017. Our U.S. tax loss carryforwards may
also be limited upon a change in control. We have approximately $1.7 million in
alternative minimum tax credit carryforwards which do not expire and are
eligible to reduce future regular U.S. tax liabilities.
  Uncertain
Tax Positions
  Hecla
Mining Company and/or its subsidiaries file income tax returns in the U.S.
federal jurisdiction, various state and foreign jurisdictions.  We are
no longer subject to income tax examinations by U.S. federal and state tax
authorities for years prior to 2006, or examinations by foreign tax authorities
for years prior to 2003.  We currently have no tax years under
examination.
  We
concluded that consistent with 2007 and 2008, the guidance regarding accounting
for uncertainty in income taxes had no significant impact on our results of
operations or financial position as of December 31, 2009.  Therefore,
we do not have an accrual for uncertain tax positions as of December 31,
2009.  As a result, tabular reconciliation of beginning and ending
balances would not be meaningful.  If interest and penalties were to
be assessed, we would charge interest to interest expense, and penalties to
other operating expense.  It is not anticipated that unrecognized tax
benefits would significantly increase or decrease within 12 months of the
reporting date.
  F-18
 Table
of Contents
  Note
6: Debt and Capital Leases
  Debt and
capital lease obligations consist of the following:
  December
      31,
                2009
              
              
              December
      31,
                2008Long-term
      debt
              
              $
              --
              
              
              $
              121,667Short-term
      debt
              
              
              --
              
              
              
              40,000Capital
      lease obligations
              
              
              4,841
              
              
              
              --Total
      debt and capital lease obligations
              
              
              4,841
              
              
              
              161,667Less:  Current
      maturities
              
              
              (1,560
              )
              
              
              (48,018
              )Non-current
      portion of debt and capital lease obligations
              
              $
              3,281
              
              
              $
              113,649
  Credit
Facilities
  On April
16, 2008, our existing revolving credit agreement was amended and restated in
connection with our acquisition of the companies owning 70.3% of the joint
venture operating the Greens Creek mine.  The amended and restated
agreement involved a $380 million facility, consisting of a $140 million
three-year term facility originally maturing on March 31, 2011, which was fully
drawn upon closing of the Greens Creek transaction, and a $240 million bridge
facility, which originally was scheduled to mature in October
2008.  We utilized $220 million from the bridge facility at the time
of closing the Greens Creek transaction, and used the remaining $20 million
balance for general corporate purposes in September 2008.
  The first
term facility principal payment of $18.3 million was paid on September 30,
2008.  We applied $162.9 million in proceeds from the public offering
of 34.4 million shares of our common stock against the bridge loan principal
balance during the third quarter of 2008. On October 16, 2008, we repaid an
additional $37.1 million of the bridge facility balance and reached an agreement
with our bank syndicate to extend the remaining $40 million outstanding bridge
facility balance until February 16, 2009. In December 2008, we reached an
agreement with the bank syndicate to move the $18.3 million term facility
principal payment originally scheduled for December 31, 2008 to February 13,
2009, and repayment of the $40 million bridge facility balance was due on
February 13, 2009 as a result of the amendment.  On February 3, 2009,
we again amended the terms of the credit agreement to defer all scheduled term
facility principal payments due in 2009, totaling $66.7 million, to 2010 and
2011.
  On
February 4, 2009, we entered into an agreement to sell 32 million units
comprised of one share of common stock and one-half Series 3 Warrant to purchase
one share of common stock in an underwritten public offering for proceeds of
approximately $65.6 million. On February 6, 2009, the underwriters exercised
their over-allotment option in connection with the original offering, resulting
in the issuance and sale of 4.8 million additional units for additional proceeds
of approximately $9.8 million.  We applied $40 million of the total
proceeds to the retirement of our outstanding bridge facility balance on
February 10, 2009.  In accordance with the credit facilities, we also
reduced our term loan by approximately $8 million in February
2009.
  On June
4, 2009, we completed the sale in a private placement of 17.4 million shares of
our common stock and Series 4 Warrants to purchase 12.2 million shares of our
common stock for gross proceeds of $60 million (see Note 9 for more
information).  $57.2 million of the proceeds were applied against the
outstanding term facility balance in June 2009.
  On June
29, 2009, we made an $18.2 million prepayment of our term facility principal
balance under an additional amendment.  We repaid the remaining $38.3
million term facility balance on October 14, 2009.
  The
December 2008 amendment to the credit agreement to defer the $18.3 million
principal payment discussed above also resulted in a change to the interest rate
on the term facility from an applicable margin of 2.25% and 3.00% over the
London InterBank Offered Rate (LIBOR) to an applicable margin of 6% over LIBOR,
or an alternative base rate plus an applicable margin of 5.00%. However, we
entered into an interest rate swap agreement to manage the effects of interest
rate volatility on the term facility (see Note 10).  Prior to
its repayment in October 2009, the outstanding term facility balance was subject
to the interest rate swap and had an interest rate of 9.38%.  The
interest rate applicable margins did not change as a result of the February 3
and June 29, 2009 amendments to the agreement. During 2009 we incurred interest
expense totaling $11.3 million, including amortization of loan origination fees
and net expense incurred for the interest rate swap, for the term facility prior
to our repayment of the outstanding balance in October 2009.  The
bridge facility had an interest rate of either LIBOR plus 6.00% or an
alternative base rate plus 5.00%.  During the first quarter of 2009,
we incurred interest expense totaling $2.3 million, including amortization of
loan origination fees, for the bridge facility prior to our repayment of the
outstanding balance in February 2009.  Total interest expense incurred
for our credit facilities for 2009 and 2008 included $4.0 million and $5.2
million, respectively, for the amortization of loan origination fees and net
expense of $2.7 million and $1.8 million, respectively, related to interest rate
swap adjustments.
  F-19
 Table
of Contents
 The
February 3, 2009 amendment to the credit agreement also required us to pay an
additional fee to our lenders upon effectiveness of the amendment, and on each
subsequent July 1st and
January 1st, by
issuing to the lenders an aggregate amount of a new Series of 12% Convertible
Preferred Stock (discussed further in Note 9) equal to 3.75% of the
aggregate principal amount of the term facility outstanding on February 10, 2009
and on each July 1st and
January 1st
thereafter until the term facility is paid off in full.  Pursuant to
this requirement, 42,621 shares of 12% Convertible Preferred Stock valued at
$4.3 million were issued to the lenders in February 2009.  However,
the June 2009 amendment to our credit agreement waived, through September 15,
2009, the 3.75% semiannual fee paid in 12% Convertible Preferred
Stock.  The fee waiver was extended for an additional month in
September 2009, until October 15, 2009, and we repaid the remaining outstanding
balance on the term facility on October 14, 2009.  In July 2009,
13,700 of the 12% Convertible Preferred Shares were converted to common stock,
with the remaining 28,921 shares converted in October 2009.
  On
October 14, 2009, we entered into a $60 million senior secured revolving credit
agreement for a three-year term.  The facility is secured by our
Greens Creek assets, including the common shares owned by us in the wholly-owned
subsidiaries that hold the equity interest in the joint venture that owns the
Greens Creek mine.  Amounts borrowed under the credit agreement are
available for general corporate purposes.  The interest rate on
outstanding loans under the agreement is 6.0% above the one-year LIBOR or an
alternative base rate plus an applicable margin of 5.0%.  We are
required to pay a standby fee of 2.4% per annum on undrawn amounts under the
revolving credit agreement.  We incurred $0.3 million in interest
expense in 2009 for the amortization of loan fees relating to the revolving
credit agreement.  $1.9 million in interest expense incurred was
capitalized and $11.3 million was recorded to expense during 2009. The credit
agreement includes various covenants and other limitations related to our
various financial ratios and indebtedness and investments, as well as other
information and reporting requirements, including the following
limitations:
 
 ·
              Leverage
      ratio (calculated as total debt divided by EBITDA) of not more than
      3.0:1.
 ·
              Interest
      coverage ratio (calculated as EBITDA divided by interest expense) of not
      less than 3.0:1.
 ·
              Current
      ratio (calculated as current assets divided by current liabilities) of not
      less than 1.10:1.
 ·
              Tangible
      net worth of greater than $500
million.
  We have
not drawn funds on the current revolving credit facility as of the filing date
of this Form 10-K.
  Capital
Leases
  We
entered into two 36-month lease agreements in January 2009 for equipment at our
Greens Creek and Lucky Friday units, which we have determined to be capital
leases.  As of December 31, 2009, we recorded $5.7 million for the
gross amount of assets acquired under the capital leases and $1.0 million in
accumulated depreciation, in Properties, plants, equipment and
mineral interests. We recorded a total liability balance of $4.8 million
at December 31, 2009 relating to the lease obligations, with $1.6 million of the
liability classified as current and included in Current portion of long-term debt
and capital leases and the remaining $3.2 million included in Long-term debt and capital
leases.  The total obligation for future minimum future lease
payments was $5.0 million at December 31, 2009, with $0.2 million attributed to
interest.  The annual maturities of capital lease commitments,
including interest, are:
  Year
      ending December 31,2010
              
              $
              2,0582011
              
              1,8972012
              
              1,068Total
              
              
              5,023Less:  imputed
      interest
              
              
              (182
              )Net
      capital lease obligation
              
              $
              4,841
  F-20
 Table
of Contents
 Note
7: Commitments and Contingencies
  Bunker
Hill Superfund Site
  In 1994,
our wholly owned subsidiary, Hecla Limited, as a potentially responsible party
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980 (“CERCLA”), entered into a Consent Decree with the U.S. Environmental
Protection Agency (“EPA”) and the State of Idaho concerning environmental
remediation obligations at the Bunker Hill Superfund site, a 21-square-mile site
located near Kellogg, Idaho (the “Bunker Hill site”). The 1994 Consent Decree
(the “Bunker Hill Decree” or “Decree”) settled Hecla Limited’s response-cost
responsibility under CERCLA at the Bunker Hill site. Parties to the Decree
included Hecla Limited, Sunshine Mining and Refining Company (“Sunshine”) and
ASARCO Incorporated (“ASARCO”). Sunshine subsequently filed bankruptcy and
settled all of its obligations under the Bunker Hill Decree.
  In 1994,
Hecla Limited entered into a cost-sharing agreement with other potentially
responsible parties, including ASARCO, relating to required expenditures under
the Bunker Hill Decree. ASARCO was in default of its obligations under the
cost-sharing agreement and consequently in August 2005, Hecla Limited filed a
lawsuit against ASARCO in Idaho State Court seeking amounts due Hecla Limited
for work completed under the Decree. Additionally, Hecla Limited claimed certain
amounts due Hecla Limited under a separate agreement related to expert costs
incurred to defend both parties with respect to the Coeur d’Alene River Basin
litigation in Federal District Court, discussed further below. After Hecla
Limited filed suit, ASARCO filed for Chapter 11 bankruptcy protection in United
States Bankruptcy Court in Texas in August 2005. As a result of this filing, an
automatic stay was in effect for Hecla Limited’s claims against ASARCO. Hecla
Limited was unable to proceed with the Idaho State Court litigation against
ASARCO because of the stay, and asserted Hecla Limited’s claims in the context
of the bankruptcy proceeding.
  In late
September 2008, Hecla Limited reached an agreement with ASARCO to allow Hecla
Limited’s claim against ASARCO in ASARCO’s bankruptcy proceedings in the amount
of approximately $3.3 million.  Hecla Limited’s claim included
approximately $3.0 million in clean up costs incurred by Hecla Limited for
ASARCO’s share of such costs under the cost sharing agreement with ASARCO
related to the Bunker Hill Decree.  The remaining $330,000 is
litigation-related costs incurred by Hecla Limited for ASARCO’s share of expert
fees in the Basin litigation.  The agreement also provides that Hecla
Limited and ASARCO release each other from any and all liability under the cost
sharing agreement, the Bunker Hill Decree and the Basin CERCLA
site.  That agreement was approved by
the United States Bankruptcy Court for the Southern District of Texas (the
“Bankruptcy Court”) on October 27, 2008.
  On July 9, 2008, the United States and the State of
Idaho reached a settlement agreement with ASARCOunder the Bunker Hill Decree. That agreement, among other things, provided for the
payment by ASARCO of $16.8 for various costs and settled ASARCO’s liability
under the Decree.  The Bankruptcy Court approved that settlement on
August 1, 2008.
  In late
2009, both the Bankruptcy Court and the U.S. Federal District Court in Texas
approved ASARCO’s Plan of Reorganization.  As a result of the approved
Plan of Reorganization, in December 2009 Hecla Limited received all of its $3.3
million allowed claim plus interest from ASARCO in the bankruptcy
proceeding.  In addition, pursuant to the approved Plan of
Reorganization in the ASARCO bankruptcy proceeding, the United States and the
State of Idaho received approximately $16.8 million, plus interest, from ASARCO
for their allowed combined claims under the Bunker Hill Decree.
  In
December 2005, Hecla Limited received notice that the EPA allegedly incurred
$14.6 million in costs relating to the Bunker Hill site from January 2002 to
March 2005. The notice was provided so that Hecla Limited and ASARCO might have
an opportunity to review and comment on the EPA’s alleged costs prior to the
EPA’s submission of a formal demand for reimbursement, which has not occurred as
of the date of this filing. Hecla Limited reviewed the costs submitted by the
EPA to determine whether Hecla Limited has any obligation to pay any portion of
the EPA’s alleged costs relating to the Bunker Hill site. Hecla Limited was
unable to determine what costs it will be obligated to pay under the Bunker Hill
Decree based on the information submitted by the EPA. Hecla Limited requested
that the EPA provide additional documentation relating to these costs. In
September 2006, Hecla Limited received from the EPA a certified narrative cost
summary, and certain documentation said to support that summary, which revised
the EPA’s earlier determination to state that it had incurred $15.2 million in
response costs. The September notice stated that it was not a formal demand and
invited Hecla Limited to discuss or comment on the matter. In the second quarter
of 2007, Hecla Limited was able to identify certain costs submitted by the EPA
that Hecla Limited believes it is probable that it may have liability for within
the context of the Decree, and accordingly, in June of 2007, Hecla Limited
estimated the range of its potential liability to be between $2.7 million and
$6.8 million, and accrued the minimum of the range as Hecla Limited believed no
amount in the range was more likely than any other. If Hecla Limited is unable
to reach a satisfactory resolution, it may exercise its right under the Bunker
Hill Decree to challenge reimbursement of the alleged costs. However, an
unsuccessful challenge would likely require Hecla Limited to further increase
its expenditures and/or accrual relating to the Bunker Hill site.
  F-21
 Table
of Contents
 The
accrued liability balance at December 31, 2009 relating to the Bunker Hill site
was $6.7 million. The liability balance represents Hecla Limited’s portion of
the remaining remediation activities associated with the site, its estimated
portion of a long-term institutional controls program required by the Bunker
Hill Decree, and potential reimbursement to the EPA of costs allegedly incurred
by the agency as described in a notice to Hecla Limited by the agency. ASARCO’s
remaining share of its future obligations under the Bunker Hill Decree have been
settled in the context of the bankruptcy proceeding and will be paid through
proceeds from an ASARCO trust created in 2003 for the purpose of funding certain
of ASARCO’s environmental obligations, as well as distributions to the State of
Idaho and U.S. for their claims which have been approved and made in December
2009 under the approved Plan of Reorganization in ASARCO’s bankruptcy
proceeding. Although Hecla Limited believes the amounts paid to the United
States and the State of Idaho by ASARCO will reduce the total remaining
obligations under the Decree, because of disputes and uncertainties with regard
to the in remaining obligations under the Decree, there can be no assurance as
to the ultimate disposition of  Hecla Limited’s environmental
liability associated with the Bunker Hill site.
  Coeur
d’Alene River Basin Environmental Claims
  Coeur
d’Alene Indian Tribe Claims
  In July
1991, the Coeur d’Alene Indian Tribe (“Tribe”) brought a lawsuit, under CERCLA,
in Federal District Court in Idaho against Hecla Limited, ASARCO and a number of
other mining companies asserting claims for damages to natural resources
downstream from the Bunker Hill site over which the Tribe alleges some ownership
or control. The Tribe’s natural resource damage litigation has been consolidated
with the United States’ litigation described below. Because of various
bankruptcies and settlements of other defendants, Hecla Limited is the only
remaining defendant in the Tribe’s natural resource damages case.
  U.S.
Government Claims
  In March
1996, the United States filed a lawsuit in Federal District Court in Idaho
against certain mining companies, including Hecla Limited, that conducted
historic mining operations in the Silver Valley of northern Idaho. The lawsuit
asserts claims under CERCLA and the Clean Water Act, and seeks recovery for
alleged damages to, or loss of, natural resources located in the Coeur d’Alene
River Basin (“Basin”) in northern Idaho for which the United States asserts it
is the trustee under CERCLA. The lawsuit claims that the defendants’ historic
mining activity resulted in releases of hazardous substances and damaged natural
resources within the Basin. The suit also seeks declaratory relief that Hecla
Limited and other defendants are jointly and severally liable for response costs
under CERCLA for historic mining impacts in the Basin outside the Bunker Hill
site. Hecla Limited has asserted a number of defenses to the United States’
claims.
  In May
1998, the EPA announced that it had commenced a Remedial Investigation/
Feasibility Study under CERCLA for the entire Basin, including Lake Coeur
d’Alene, as well as the Bunker Hill site, in support of its response cost claims
asserted in its March 1996 lawsuit. In October 2001, the EPA issued its proposed
clean-up plan for the Basin. The EPA issued the Record of Decision (“ROD”) on
the Basin in September 2002, proposing a $359.0 million Basin-wide clean-up plan
to be implemented over 30 years and establishing a review process at the end of
the 30-year period to determine if further remediation would be
appropriate.  In 2009, the EPA commenced a process expected by late
2010 to result in an amendment to the ROD for the Basin adopting certain changes
to the ecological cleanup plan for the upper portion of the Basin.  In
February 2010, the EPA issued a draft focused feasibility study report which
presents and evaluates alternatives for cleanup of the upper portions of the
Basin.  Although the final remedy has not been selected, each proposed
cleanup alternative is estimated to cost between approximately $1 and $2
billion, including work in the Bunker Hill site where Hecla Limited resolved its
liability under the Bunker Hill Decree.
  During
2000 and 2001, Hecla Limited was involved in settlement negotiations with
representatives of the United States, the State of Idaho and the Tribe. These
settlement efforts were unsuccessful. However, Hecla Limited has resumed efforts
to explore possible settlement of these and other matters, but it is not
possible to predict the outcome of these efforts.
  Phase I
of the trial on the consolidated Tribe’s and the United States’ claims commenced
in January 2001, and was concluded in July 2001. Phase I addressed the extent of
liability, if any, of the defendants and the allocation of liability among the
defendants and others, including the United States. In September 2003, the Court
issued its Phase I ruling, holding that Hecla Limited has some liability for
Basin environmental conditions. The Court refused to hold the defendants jointly
and severally liable for historic tailings releases and instead allocated a 31%
share of liability to Hecla Limited for impacts resulting from these releases.
The portion of damages, past costs and clean-up costs to which this 31% applies,
other cost allocations applicable to us and the Court’s determination of an
appropriate clean-up plan is to be addressed in Phase II of the litigation. The
Court also left issues on the deference, if any, to be afforded the United
States’ clean-up plan, for Phase II.
  F-22
 Table
of Contents
 The Court
found that while certain Basin natural resources had been injured, “there has
been an exaggerated overstatement” by the plaintiffs of Basin environmental
conditions and the mining impact. The Court significantly limited the scope of
the trustee plaintiffs’ resource trusteeship and will require proof in Phase II
of the litigation of the trustees’ percentage of trusteeship in co-managed
resources. The United States and the Tribe are re-evaluating their claims for
natural resource damages for Phase II; such claims may be in the range of $2.0
billion to $3.4 billion. Hecla Limited believes it has limited liability for
natural resource damages because of the actions of the Court described above.
Because of a number of factors relating to the quality and uncertainty of the
United States’ and Tribe’s natural resources damage claims, Hecla Limited is
currently unable to estimate what, if any, liability or range of liability Hecla
Limited may have for these claims.
  Two of
the defendant mining companies, Coeur d’Alene Mines Corporation and Sunshine
Mining and Refining Company, settled their liabilities under the litigation
during 2001. On March 13, 2009 the United States reached agreement with ASARCO
concerning ASARCO’s liability in the Coeur d’Alene Basin in the
litigation.  The agreement, among other things, required the payment
by ASARCO of approximately $482 million, to the United States or certain trusts.
That agreement was approved by the Bankruptcy Court on June 5, 2009. The
approval was appealed by ASARCO’s corporate parent.  In late 2009,
both the Bankruptcy Court and the U S Federal Court in Texas approved ASARCO’s
Plan of Reorganization which, among other things, resolved the parent’s appeal
of  the June 5, 2009 Order.  As a result of ASARCO’s
receiving approval of its Plan of Reorganization in the bankruptcy proceeding,
and the distribution of the approximate sum of $482 million, plus interest in
December 2009, Hecla Limited anticipates ASARCO will be dismissed as a defendant
in the Idaho Federal Court litigation and Hecla Limited will be the only
defendant remaining in the litigation. Because of the nature of this settlement
and of the Bankruptcy proceeding, Hecla Limited does not believe the Coeur
d’Alene Basin environmental claims asserted against ASARCO in the bankruptcy
proceeding or settlement distribution amounts are indicative of Hecla Limited’s
potential liability in the Coeur d’Alene Basin.  Phase II of the trial
was scheduled to commence in January 2006. As a result of ASARCO’s bankruptcy
filing, the Idaho Federal Court vacated the January 2006 trial date. Due to
ASARCO’s resolution for its liability in the Basin in the context of its
bankruptcy proceeding, Hecla Limited anticipates the Court will schedule a
status conference to address rescheduling the Phase II trial date sometime in
mid-2010.
  In 2003,
Hecla Limited estimated the range of potential liability for remediation in the
Basin to be between $18 million and $58 million and accrued the minimum of the
range, as it believed no amount in the range was more likely than any other
amount at that time.  In the second quarter of 2007, Hecla Limited
determined that the cash payment approach to estimating its potential liability
used in 2003 was not reasonably likely to be successful, and changed to an
approach of estimating its liability through the implementation of actual
remediation in portions of the Basin.  Accordingly, Hecla Limited
finalized an upper Basin cleanup plan, including a cost estimate, and reassessed
its potential liability for remediation of other portions of the Basin, which
caused Hecla Limited to increase its estimate of potential liability for Basin
cleanup to the range of $60.0 million to $80.0 million.  Accordingly,
in June 2007, Hecla Limited recorded a provision of $42.0 million, which
increased Hecla Limited’s total liability for remediation in the Basin from
$18.0 million to $60.0 million, the low end of the estimated range of liability,
with no amount in the range being more likely than any other
amount.  The liability is not discounted, as the timing of the
expenditures is uncertain, but is expected to occur over the next 20 to 30
years.
  In expert
reports exchanged with the defendants in August and September 2004, the United
States claimed to have incurred approximately $87.0 million for past
environmental study, remediation and legal costs associated with the Basin for
which it is alleging it is entitled to reimbursement in Phase II. In its claims
filed in the ASARCO bankruptcy case, the U.S. increased this claim to $180
million. A portion of these costs is also included in the work to be done under
the ROD. With respect to the United States’ past cost claims, as of December 31,
2009, Hecla Limited has determined a potential range of liability for this past
response cost to be $5.6 million to $13.6 million, with no amount in the range
being more likely than any other amount.
  Although
the United States has previously issued its ROD proposing a clean-up plan
totaling approximately $359.0 million and its past cost claim is $87.0 million,
based upon the Court’s prior orders, including its September 2003 order and
other factors and issues to be addressed by the Court in Phase II of the trial,
Hecla Limited currently estimates the range of Hecla Limited’s potential
liability for both past costs and remediation (but not natural resource damages
as discussed above) in the Basin to be $65.6 million to $93.6 million (including
the potential range of liabilities of $60.0 million to $80.0 million for Basin
cleanup, and  $5.6 million to $13.6 million for the United States’
past cost claims as discussed above), with no amount in the range being more
likely than any other number at this time. Hecla Limited has accrued the minimum
liability within this range, which at December 31, 2009, was $65.6 million. It
is possible that Hecla Limited’s ability to estimate what, if any, additional
liability it may have relating to the Basin may change in the future depending
on a number of factors, including but not limited to any amendments to the ROD,
information obtained or developed by Hecla Limited prior to Phase II of the
trial and its outcome, and, any interim court determinations. There can be no
assurance as to the outcome of the Coeur d’Alene River Basin environmental
claims and Hecla Limited believes it is possible that a combination of various
events, as discussed above, or other events could be materially adverse to its
financial results or financial condition.
  F-23
 Table
of Contents
 Insurance
Coverage Litigation
  In 1991,
Hecla Limited initiated litigation in the Idaho District Court, County of
Kootenai, against a number of insurance companies that provided comprehensive
general liability insurance coverage to Hecla Limited and its predecessors.
Hecla Limited believes the insurance companies have a duty to defend and
indemnify Hecla Limited under their policies of insurance for all liabilities
and claims asserted against it by the EPA and the Tribe under CERCLA related to
the Bunker Hill site and the Basin. In 1992, the Idaho State District Court
ruled that the primary insurance companies had a duty to defend Hecla Limited in
the Tribe’s lawsuit. During 1995 and 1996, Hecla Limited entered into settlement
agreements with a number of the insurance carriers named in the litigation.
Prior to 2009, Hecla Limited has received a total of approximately $7.2 million
under the terms of the settlement agreements. Thirty percent of these
settlements were paid to the EPA to reimburse the U.S. Government for past costs
under the Bunker Hill Decree. Litigation is still pending against one insurer
with trial suspended until the underlying environmental claims against Hecla
Limited are resolved or settled. The remaining insurer in the litigation, along
with a second insurer not named in the litigation, is providing Hecla Limited
with a partial defense in all Basin environmental litigation. As of December 31,
2009, Hecla Limited has not recorded a receivable or reduced its accrual for
reclamation and closure costs to reflect the receipt of any potential insurance
proceeds.
  Mexico
Litigation
  In
Mexico, our wholly owned subsidiary, Minera Hecla, S.A de C.V., has been
involved in two cases in the State of Durango, Mexico, concerning title to the
Velardeña mill. The Velardeña mill, which processed ore from Minera
Hecla’s  now closed San Sebastian mine, was placed on care and
maintenance upon closure of the mine.  In January 2009, Minera Hecla
began negotiations to sell the mill to the claimant in the Mexico
litigation.  Minera Hecla reached an agreement to sell the mill and
resolve the claims in the litigation and the transaction closed in March 2009
(see Note 20 for more
information).  As part of the Asset Purchase Agreement, the parties
agreed to work cooperatively under the applicable procedures of Mexican law to
dismiss the litigation between the parties.  As of December 31, 2009,
the trial court rulings have been dismissed, and the litigation is
concluded.
  BNSF
Railway Company Claim
  In early
November 2008, legal counsel for the BNSF Railway Company (“BNSF”) submitted a
contribution claim under CERCLA against us for approximately $52,000 in past
costs BNSF incurred in investigation of environmental conditions at the Wallace
Yard near Wallace, Idaho. BNSF asserts that a portion of the Wallace Yard site
includes the historic Hercules Mill owned and operated by Hercules Mining
Company and that Hecla Limited is a successor to Hercules Mining Company. BNSF
proposes that we reimburse them for the $52,000 in past costs and agree to pay
all future clean up for the Hercules mill portion of the site, estimated to be
$291,000, and 12.5% of any other site costs that cannot be apportioned. We
requested and received additional information from BNSF and are investigating
the claim, but do not believe that the outcome of this claim will have a
material adverse effect on our results from operations or financial
position.  We have not recorded a liability relating to the claim as
of December 31, 2009.
  Rio
Grande Silver Guaranty
  On
February 21, 2008, our wholly-owned subsidiary, Rio Grande Silver Inc. (“Rio”),
entered into an agreement with Emerald Mining & Leasing, LLC (“EML”) and
Golden 8 Mining, LLC (“G8”) to acquire the right to earn-in to a 70% interest in
the San Juan Silver Joint Venture, which holds a land package in the Creede
Mining District of Colorado.  On October 24, 2008, Rio entered into an
amendment to the agreement which delays the incurrence of qualifying expenses to
be paid by Rio pursuant to the original agreement.  In connection with
the amended agreement, we are required to guarantee certain environmental
remediation-related obligations of EML and G8 to Homestake Mining Company of
California (“Homestake”) up to a maximum liability to us of $2.5
million.  As of December 31, 2009, we have not been required to make
any payments pursuant to the guaranty.  We may be required to make
payments in the future, limited to the $2.5 million maximum liability, should
EML and G8 fail to meet their obligations to Homestake (which has since been
acquired by Barrick Gold Corp.). However, to the extent that any payments are
made by us under the guaranty, EML and G8, in addition to other parties named in
the amended agreement, have jointly and severally agreed to reimburse and
indemnify us for any such payments.  We have not recorded a liability
relating to the guaranty as of December 31, 2009.
  Lucky
Friday Water Permit Exceedances
  In late
2008 and during 2009, Hecla Limited experienced a number of water permit
exceedances for water discharges at its Lucky Friday unit.  In April
2009, Hecla Limited entered into a Consent Agreement and Final Order (“CAFO”)
and a Compliance Order with the EPA, which included an extended compliance
timeline.  In connection with the CAFO, Hecla Limited agreed to pay an
administrative penalty to the EPA of $177,500 to settle any liability for such
exceedances.  Hecla Limited is undertaking efforts that it believes
will be successful in bringing its water discharges at the Lucky Friday unit
into compliance with the permit, but cannot provide assurances that it will be
able to fully comply with the permit limits, particularly in the near
future.
  F-24
 Table
of Contents
 States
of South Dakota and Colorado Superfund Sites Related to CoCa Mines,
Inc.
  During
1991, Hecla Limited acquired all of the outstanding common stock of CoCa Mines,
Inc. (“CoCa”).
  During
2008, the U.S. Environmental Protection Agency (“EPA”), made a formal request
for information regarding the Gilt Edge Mine Site located in Lawrence County,
South Dakota, and asserted CoCa may be liable.  The Gilt Edge Mine
Site was explored and/or operated as far back as the 1890s.  CoCa was
involved in a joint venture that conducted limited exploration work at the site
during the 1980s.    The EPA believes that a cleanup action
is required at the location.  We did not acquire CoCa until 1991, well
after CoCa discontinued its involvement with the Gilt Edge
property.  Therefore, we believe that we are not liable for any
cleanup, and if CoCa might be liable, it has no substantial assets with which to
satisfy any such liability.
  During
2009, the EPA made a formal request for information regarding the Nelson
Tunnel/Commodore Waste Rock Pile Superfund Site (the “Site”) in Creede,
Colorado.  CoCa was involved in exploration and mining activities in
Creede during the 1970s and the 1980s.  We did not acquire CoCa until
1991 well after Coca discontinued its historical activities in the vicinity of
the Site.  Therefore, we believe that we are not liable for any
cleanup, and if CoCa might be liable, it has no substantial assets with which to
satisfy any such liability.  Although CoCa has received a general
notice of Superfund liability from EPA at the Gilt Edge mine, no formal claim
for cleanup-related costs has been made for either site.  However,
there can be no assurance that additional claims against CoCa or its parent
corporations will not be asserted in the future.
  Other
Commitments
  Our
contractual obligations as of December 31, 2009 included approximately $1.6
million for various capital projects at the Greens Creek and Lucky Friday units,
and approximately $4.6 million for commitments relating to non-capital items at
Greens Creek. In addition, our commitments relating to open purchase orders at
December 31, 2009 included approximately $0.3 million and $1.2 million,
respectively, for various capital items at the Greens Creek and Lucky Friday
units, and approximately $0.4 million and $0.4 million, respectively, for
various non-capital costs.  We also have total commitments of
approximately $5.0 million relating to scheduled payments on capital leases,
including interest, for equipment at our Greens Creek and Lucky Friday units
(see Note 6 for more
information).
  We had
letters of credit for approximately $10.2 million outstanding as of December 31,
2009 for reclamation and workers’ compensation insurance bonding.
  Other
Contingencies
 
 We are
subject to other legal proceedings and claims not disclosed above which have
arisen in the ordinary course of our business and have not been finally
adjudicated. These can include, but are not limited to, legal proceedings and/or
claims pertaining to environmental or safety matters.  Although there
can be no assurance as to the ultimate disposition of these other matters, we
believe the outcome of these other proceedings will not have a material adverse
effect on our results from operations or financial position.
  Note
8: Employee Benefit Plans
  Pensions
and Post-retirement Plans
  We
sponsor defined benefit pension plans covering substantially all U.S. employees
and provide certain post-retirement benefits for qualifying retired employees.
The following tables provide a reconciliation of the changes in the plans’
benefit obligations and fair value of assets over the two-year period ended
December 31, 2009, and a statement of the funded status as of
December 31, 2009 and 2008 (in thousands):
 
 Pension
      Benefits
              
              
              Other
      Benefits2009
              
              
              2008
              
              
              2009
              
              
              2008Change
      in benefit obligation:Benefit
      obligation at beginning of year
              
              $
              65,733
              
              
              $
              59,057
              
              
              $
              9,953
              
              
              $
              915Service
      cost
              
              
              2,269
              
              
              
              1,687
              
              
              
              15
              
              
              
              8Interest
      cost
              
              
              3,661
              
              
              
              3,640
              
              
              
              55
              
              
              
              52Amendments
              
              
              —
              
              
              
              1,472
              
              
              
              442
              
              
              
              8,950Plan
      terminations
              
              
              —
              
              
              
              —
              
              
              
              (8,950
              )
              
              
              —Actuarial
      gain (loss)
              
              
              (1,304
              )
              
              
              3,403
              
              
              
              (197
              )
              
              
              50Benefits
      paid
              
              
              (3,546
              )
              
              
              (3,526
              )
              
              
              (23
              )
              
              
              (22
              )Benefit
      obligation at end of year
              
              
              66,813
              
              
              
              65,733
              
              
              
              1,295
              
              
              
              9,953Change
      in fair value of plan assets:Fair
      value of plan assets at beginning of year
              
              
              60,280
              
              
              
              84,287
              
              
              
              —
              
              
              
              —Actual
      return (loss) on plan assets
              
              
              7,832
              
              
              
              (20,818
              )
              
              
              —
              
              
              
              —Employer
      and employee contributions
              
              
              323
              
              
              
              337
              
              
              
              23
              
              
              
              22Benefits
      paid
              
              
              (3,546
              )
              
              
              (3,526
              )
              
              
              (23
              )
              
              
              (22
              )Fair
      value of plan assets at end of year
              
              
              64,889
              
              
              
              60,280
              
              
              
              --
              
              
              
              --Funded
      status at end of year
              
              $
              (1,924
              )
              
              $
              (5,453
              )
              
              $
              (1,295
              )
              
              $
              (9,953
              )
  F-25
 Table
of Contents
 The
following table provides the amounts recognized in the consolidated balance
sheets as of December 31, 2009 and 2008 (in thousands):
 
 Pension
      Benefits
              
              
              Other
      Benefits2009
              
              
              2008
              
              
              2009
              
              
              2008Other
      non-current assets:Prepaid
      benefit costs
              
              $
              3,105
              
              
              $
              1,516
              
              
              $
              —
              
              
              $
              —Current
      liabilities:Accrued
      benefit liability
              
              
              (336
              )
              
              
              (333
              )
              
              
              (56
              )
              
              
              (88
              )Other
      non- current liabilities:Accrued
      benefit liability
              
              
              (4,693
              )
              
              
              (6,636
              )
              
              
              (1,239
              )
              
              
              (9,865
              )Accumulated
      other comprehensive (income) loss
              
              
              15,356
              
              
              
              21,653
              
              
              
              (428
              )
              
              
              (718
              )Net
      amount recognized
              
              $
              13,432
              
              
              $
              16,200
              
              
              $
              (1,723
              )
              
              $
              (10,671
              )
  The
benefit obligation and prepaid benefit costs were calculated by applying the
following weighted average assumptions:
 
 Pension
      Benefits
              
              
              Other
      Benefits2009
              
              
              2008
              
              
              2009
              
              
              2008Discount
      rate
              
              
              5.75
              %
              
              
              6.00
              %
              
              
              5.75
              %
              
              
              6.00
              %Expected
      rate of return on plan assets
              
              
              8.00
              %
              
              
              8.00
              %
              
              
              —
              
              
              
              —Rate
      of compensation increase
              
              
              4.00
              %
              
              
              4.00
              %
              
              
              —
              
              
              
              —
  The above
assumptions were calculated based on information as of December 31, 2009 and
2008, the measurement dates for the plans. The discount rate is generally based
on the rates of return available as of the measurement date from high-quality
fixed income investments, which in past years we have used Moody’s AA bond index
as a guide to setting the discount rate. The expected rate of return on plan
assets is based upon consideration of the plan’s current asset mix, historical
long-term return rates and the plan’s historical performance. Our current
expected rate on plan assets of 8.0% represents approximately 148% of our past
five-year’s average annual return rate of 3.23%.
  Net
periodic pension cost (income) for the plans consisted of the following in 2009,
2008 and 2007 (in thousands):
 
 Pension
      Benefits
              
              
              Other
      Benefits2009
              
              
              2008
              
              
              2007
              
              
              2009
              
              
              2008
              
              
              2007Service
      cost
              
              $
              2,269
              
              
              $
              1,687
              
              
              $
              910
              
              
              $
              15
              
              
              $
              8
              
              
              $
              7Interest
      cost
              
              
              3,661
              
              
              
              3,640
              
              
              
              3,396
              
              
              
              55
              
              
              
              52
              
              
              
              60Expected
      return on plan assets
              
              
              (4,673
              )
              
              
              (6,409
              )
              
              
              (6,020
              )
              
              
              —
              
              
              
              —
              
              
              
              —Amortization
      of prior service cost
              
              
              602
              
              
              
              561
              
              
              
              461
              
              
              
              (3
              )
              
              
              (3
              )
              
              
              (3
              )Amortization
      of net gain (loss) from earlier periods
              
              
              1,232
              
              
              
              (22
              )
              
              
              (26
              )
              
              
              (43
              )
              
              
              (50
              )
              
              
              (59
              )Net
      periodic pension cost (income)
              
              $
              3,091
              
              
              $
              (543
              )
              
              $
              (1,279
              )
              
              $
              24
              
              
              $
              7
              
              
              $
              5
  The
allocations of investments at December 31, 2009 and 2008, the measurement dates
of the plan, by asset category in the Hecla Mining Company Retirement Plan and
the Lucky Friday Pension Plan are as follows:
 
 Hecla
              
              
              Lucky
      Friday2009
              
              
              2008
              
              
              2009
              
              
              2008Interest-bearing
      cash
              
              
              1
              %
              
              
              1
              %
              
              
              1
              %
              
              
              1
              %Equity
      securities
              
              
              28
              %
              
              
              26
              %
              
              
              29
              %
              
              
              26
              %Debt
      securities
              
              
              44
              %
              
              
              46
              %
              
              
              43
              %
              
              
              45
              %Real
      estate
              
              
              10
              %
              
              
              15
              %
              
              
              10
              %
              
              
              15
              %Absolute
      return
              
              
              12
              %
              
              
              10
              %
              
              
              12
              %
              
              
              11
              %Precious
      metals and other
              
              
              5
              %
              
              
              2
              %
              
              
              5
              %
              
              
              2
              %Total
              
              
              100
              %
              
              
              100
              %
              
              
              100
              %
              
              
              100
              %
  F-26
 Table
of Contents
 Our
statement of investment policy and objectives lays out the responsibilities of
the board, the management investment committee, the investment manager(s), and
investment advisor/consultant, and provides guidelines on investment and
investment management. Investment objectives are established for each of the
asset categories included in the pension plan with comparisons of performance
against appropriate benchmarks. Our policy calls for each portion of the
investments to be supervised by a qualified investment manager. The investment
managers are monitored on an ongoing basis by our outside consultant, with
formal reporting to us and the consultant performed each quarter. The policy
sets forth the following allocation of assets:
 
 Target
              
              
              Minimum
              
              
              MaximumLarge
      cap U.S. equities
              
              
              10
              %
              
              
              7
              %
              
              
              13
              %Small
      cap U.S. equities
              
              
              5
              %
              
              
              4
              %
              
              
              6
              %Non-U.S.
      equities
              
              
              10
              %
              
              
              8
              %
              
              
              12
              %Fixed
      income
              
              
              35
              %
              
              
              29
              %
              
              
              43
              %Real
      estate
              
              
              15
              %
              
              
              12
              %
              
              
              18
              %Absolute
      return
              
              
              15
              %
              
              
              12
              %
              
              
              18
              %Real
      return
              
              
              10
              %
              
              
              8
              %
              
              
              12
              %
  Our
statement of investment policy and objectives specifies over the long term to
achieve the assumed long term rate of return on plan assets established by the
plan’s actuary plus one percent.
  Accounting
guidance has established a hierarchy of assets that are measured 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
  Level 3: significant unobservable
inputs
  The fair
values by asset category in each plan, along with their hierarchy levels, are as
follows as of December 31, 2009 (in thousands):
 
 Hecla
              
              
              Lucky
      FridayLevel
      1
              
              
              Level
      2
              
              
              Level
      3
              
              
              Total
              
              
              Level
      1
              
              
              Level
      2
              
              
              Level
      3
              
              
              TotalInterest-bearing
      cash
              
              $
              633
              
              
              $
              —
              
              
              $
              —
              
              
              $
              633
              
              
              $
              202
              
              
              $
              —
              
              
              $
              —
              
              
              $
              202Common
      stock
              
              
              2,448
              
              
              
              —
              
              
              
              —
              
              
              
              2,448
              
              
              
              623
              
              
              
              —
              
              
              
              —
              
              
              
              623Closely
      held instruments
              
              
              —
              
              
              
              3,568
              
              
              
              11,027
              
              
              
              14,595
              
              
              
              —
              
              
              
              978
              
              
              
              2,947
              
              
              
              3,925Partnership/joint
      venture interests
              
              
              —
              
              
              
              2,445
              
              
              
              —
              
              
              
              2,445
              
              
              
              —
              
              
              
              626
              
              
              
              —
              
              
              
              626Common
      collective funds
              
              
              —
              
              
              
              4,561
              
              
              
              —
              
              
              
              4,561
              
              
              
              —
              
              
              
              1,179
              
              
              
              —
              
              
              
              1,179Mutual
      funds
              
              
              26,728
              
              
              
              —
              
              
              
              —
              
              
              
              26,728
              
              
              
              6,924
              
              
              
              —
              
              
              
              —
              
              
              
              6,924Total
      fair value
              
              $
              29,809
              
              
              $
              10,574
              
              
              $
              11,027
              
              
              $
              51,410
              
              
              $
              7,749
              
              
              $
              2,783
              
              
              $
              2,947
              
              
              $
              13,479
  The
following is a reconciliation of assets in level 3 of the fair value hierarchy
(in thousands):
  Hecla
              
              
              Lucky
      FridayBeginning
      balance at December 31, 2008
              
              $
              11,923
              
              
              $
              3,164Net
      unrealized losses on assets held at the reporting date
              
              
              (1,156
              )
              
              
              (296
              )Purchases
              
              
              260
              
              
              
              79Ending
      balance at December 31, 2009
              
              $
              11,027
              
              
              $
              2,947
  F-27
 Table
of Contents
  Precious
metals and other include our common stock in the amounts of $3.1 million and
$1.4 million at December 31, 2009 and 2008, the measurement dates of the plan,
respectively. These investments represent approximately 5.0% and 2.3% of the
total combined assets of these plans at December 31, 2009 and 2008,
respectively.
  Generally,
investments are valued based on information provided by fund managers to our
trustee as reviewed by management and its investment advisors. Mutual funds and
equities are valued based on available exchange data. Commingled equity funds
consist of publicly-traded investments. Fair value for real estate and private
equity partnerships is primarily based on valuation methodologies that include
third-party appraisals, comparable transactions, and discounted cash flow
valuation models.
  The
future benefit payments, which reflect expected future service as appropriate,
are estimates of what will be paid in the following years (in
thousands):
 
 Year Ending December 31,
              
              Pension
                Plans
              
              
              Other
      Post-
                Employment
                Benefit
      Plans2010
              
              $
              3,972
              
              
              $
              562011
              
              
              4,076
              
              
              
              542012
              
              
              4,137
              
              
              
              622013
              
              
              4,235
              
              
              
              632014
              
              
              4,455
              
              
              
              76Years
      2015-2019
              
              
              25,567
              
              
              
              371
  We expect
to contribute approximately $0.3 million to our unfunded supplemental executive
retirement plan next year.  We do not expect to contribute to our other
pension plans during the next year.
  The
projected benefit obligation, accumulated benefit obligation and fair value of
plan assets for pension plans with accumulated benefit obligations in excess of
plan assets were $18.6 million, $18.3 million and $13.5 million, respectively,
as of December 31, 2009, and $28.5 million, $29.4 million and $12.5
million, respectively, as of December 31, 2008.
  For plans
with fair values of assets in excess of accumulated benefit obligations, the
projected benefit obligation, accumulated benefit obligation and fair value of
plan assets were $48.3 million, $43.2 million and $51.4 million, respectively,
as of December 31, 2009, and $46.3 million, $41.9 million and $47.8
million, respectively, as of December 31, 2008.
  For the
pension plans and other benefit plans, the following amounts are included in
accumulated other comprehensive income on our balance sheet as of December 31,
2009, that have not yet been recognized as components of net periodic benefit
cost (in thousands):
 
 Pension
                Benefits
              
              
              Other
                BenefitsNet
      actuarial (gain) loss
              
              $
              12,451
              
              
              $
              (744
              )Prior-service
      cost
              
              
              2,905
              
              
              
              316
  For the
pension plans and other benefit plans, we expect to recognize as components of
net periodic benefit cost during 2010 (in thousands):
 
 Pension
                Benefits
              
              
              Other
                BenefitsNet
      actuarial (gain) loss
              
              $
              868
              
              
              $
              (55
              )Prior-service
      cost
              
              
              602
              
              
              
              9
  During
2010, we do not expect to have any of the plans’ assets returned.
  We
adjusted the pension plan assets in the first quarter of 2008 to reflect a
measurement date of December 31, 2007.  The effect of changing the
measurement date from September 30, 2007 to December 31, 2007 resulted in an
increase to our pension asset of $0.5 million, a reduction of retained earnings
of $0.4 million and a reduction of other comprehensive income of $0.1
million.
  F-28
 Table
of Contents
 As a part
of our acquisition of the remaining 70.3% of the Greens Creek Joint Venture (see
Note 18), we amended our pension plan to include certain employees of the Joint
Venture.  As a result, the pension plan was re-measured as of March
31, 2008.  Due to changes in the market value of securities held by
the plan, its assets were reduced by approximately $3.0 million.  At
the same time, the projected benefit obligation increased by approximately $2.1
million as a result of adding the Greens Creek employees.  Of the $5.1
million reduction in the funded status of the plan, $3.0 million was charged to
other comprehensive income and $2.1 was charged to the purchase price allocation
of the remaining interest in the Joint Venture.  In addition, as part
of our acquisition of the remaining 70.3% of the Greens Creek Joint Venture, we
established another post-employment benefit plan.  This plan had a
liability balance on our balance sheet of $8.9 million as of December 31,
2008.  However, at the end of March 2009 we made the decision to
terminate this plan.  Notification of the termination was sent to the
plan participants on March 31, 2009.  As a result, the liability
associated with the plan was eliminated and we recognized a $9 million non-cash
gain on termination of the plan during the first quarter of 2009.
  Deferred
Compensation Plans
  We
maintain a deferred compensation plan that was approved by our shareholders,
which allows eligible officers and key employees to defer a portion or all of
their compensation. A total of 6.0 million shares of common stock are authorized
under this plan. Deferred amounts may be allocated to either an investment
account or a stock account. The investment account is similar to a cash account
and bears interest at the prime rate. In the stock account, quarterly deferred
amounts and a 10% matching amount are converted into stock units equal to the
average closing price of our common stock over a quarterly period. At the end of
each quarterly period, participants are eligible to elect to convert a portion
of their investment account into the stock account with no matching
contribution.
  During
2009, 2008 and 2007, participants accumulated 689, 1,463 and 1,988 common stock
units, respectively, into their stock accounts. In 2009, 2008 and 2007, 1,621,
1,545 and 3,163 common stock units were distributed to participants in the form
of common shares. As of December 31, 2009 and 2008, the deferred
compensation plan, together with matching amounts and accumulated interest,
amounted to approximately $0.2 million and $1.0 million,
respectively.
  During
2009, the Board of Directors approved the grant of 1,593,974 restricted common
stock units. A total of 1,045,321 of the stock units vested in January 2010.
463,178 of the stock units will vest in May 2010, and will be distributable
based upon predetermined dates as elected by the participants. The remaining
stock units will vest in 2010 and 2011.
  During
2008, the Board of Directors approved the grant of 197,810 restricted common
stock units, 15,221 of which reverted back to the plan due to employee
termination. A total of 181,310 of the stock units vested in May 2009, and were
distributable based upon predetermined dates as elected by the
participants.
  During
2007, the Board of Directors approved the grant of 125,400 restricted common
stock units, 2,000 of which reverted back to the plan due to employee
termination. A total of 117,850 of the stock units vested in May 2008, and were
distributable based upon predetermined dates as elected by the
participants.
  Capital
Accumulation Plans
  Our
employees’ Capital Accumulation Plan is available to all U.S. salaried and
certain hourly employees immediately upon employment. Employees may contribute
from 2% to 50% of their annual compensation to the plan. We make a matching
contribution of 100% of an employee’s contribution up to, but not exceeding, 6%
of the employee’s earnings. Our matching contribution was approximately $2.0
million in 2009 and $1.5 million in 2008.
  During
2007 our Capital Accumulation Plan was available to all U.S. salaried and
certain hourly employees after completion of two months of
service.  Employees were able to contribute from 2% to 15% of their
annual compensation to the plan.  We made a matching contribution of
25% of an employee’s contribution up to, but not exceeding, 6% of the employee’s
earnings.  Our matching contribution was approximately $0.1 million in
2007. In February 2008, our Board of Directors authorized additional
profit-sharing contributions of $0.4 million to the participants of the
plan.  In April 2008, our plan was amended to the terms described
above.
  F-29
 Table
of Contents
 We also
maintain an employees’ 401(k)
plan, which is available to all hourly employees at the Lucky Friday unit after
completion of six months of service. Employees may contribute from 2% to 50% of
their compensation to the plan. We make a matching contribution of 35% of an
employee’s contribution up to, but not exceeding, 5% of the employee’s earnings.
Our contribution was approximately $147,000 in 2009, $154,000 in 2008 and
$139,000 in 2007.
  Note
9: Shareholders’ Equity
  Common
Stock
  We are
authorized to issue 400,000,000 shares of common stock, $0.25 par value per
share, of which 238,334,367 shares of common stock were outstanding as of
December 31, 2009. All of our currently outstanding shares of common stock
are listed on the New York Stock Exchange under the symbol “HL”.
  Subject
to the rights of the holders of any outstanding shares of preferred stock, each
share of common stock is entitled to: (i) one vote on all matters presented to
the stockholders, with no cumulative voting rights; (ii) receive such dividends
as may be declared by the Board of Directors out of funds legally available
therefore; and (iii) in the event of our liquidation or dissolution, share
ratably in any distribution of our assets.
  Registration
Statements
  In
September of 2007, we filed a shelf registration statement on Form S-3 with the
U.S. Securities and Exchange Commission. This registration statement allowed the
Company to offer and sell from time to time, in one or more offerings, shares of
common stock, preferred stock, warrants and debt securities. Hecla used the net
proceeds of all securities sold for general corporate purposes and debt
service.  In December 2007, our 6.5% Mandatory Convertible Preferred
Stock was sold pursuant to this registration statement.
  Pursuant
to this registration statement, on September 12, 2008, we completed an
underwritten public sale of 31 million shares of our common stock for $5 per
share, resulting in net proceeds of approximately $147 million after deducting
related fees, expenses and underwriting discounts and commissions.  On
September 23, 2008, the underwriters exercised their over-allotment option in
connection with the original offering, resulting in the issuance and sale of an
additional 3.4 million shares for $5 per share, for additional net proceeds of
approximately $16 million. The combined net proceeds of $163.4 million were
applied to our bridge debt facility, resulting in a $162.9 million reduction to
the bridge facility principal balance, with $0.9 million being paid in interest
(see Note 6 for further
discussion of our debt facility).
  Also
pursuant to our Form S-3 registration statement and base prospectus, on December
11, 2008, we entered into a definitive agreement to sell securities to selected
institutional investors for aggregate proceeds of $21 million.  The
offering closed in December 2008.  The securities in the sale
included:
  ·
              Approximately
      10.24 million shares of our common
stock.
  ·
              Series
      1 warrants to purchase up to approximately 7.68 million shares of our
      common stock at an exercise price of $2.45 per share, expiring in five
      years.  The Series 1 warrants became exercisable on June 9,
      2009.
  ·
              Series
      2 warrants to purchase up to 7.68 million shares of our common stock at an
      exercise price of $2.35 per share. These warrants expired on February 28,
      2009.
  The sale
units, including common stock and warrants, were priced at $2.05 per share,
resulting in gross proceeds of $21 million. Net proceeds were approximately
$19.8 million after related placement costs. In arriving at the relative values
of the common stock and warrants, we used the Black-Scholes option pricing model
with a risk-free interest rate of 1.55% for Series 1 and 0.11% for Series 2,
current stock price at closing on the date before issuance of $1.64, volatility
of 162% for Series 1 and 44% for Series 2, dividend yield of 0%, and terms equal
to the terms of the warrants. The relative values of our stock and warrants, in
thousands, were:
 
 Shares
              
              
              ValueCommon
      Stock
              
              
              10,243,902
              
              
              $
              13,859Series
      1 warrants to purchase Common Stock
              
              
              7,682,927
              
              
              
              5,335Series
      2 warrants to purchase Common Stock
              
              
              7,682,927
              
              
              
              620Total
              
              
              
              
              
              $
              19,814
  F-30
 Table
of Contents
 In
addition, we granted the agent approximately 460,000 of the Series 1 warrants
described above, but at an exercise price of $2.56 per share. Using the
Black-Scholes option pricing model, we valued the warrants at $0.4 million,
which is included in placement costs.
  Also
pursuant to our Form S-3 registration statement, on February 4, 2009, we entered
into a definitive agreement for an underwritten public offering of securities
for aggregate proceeds of $71.3 million, including the underwriters’ exercise of
their over-allotment option.  The offering closed on February 5,
2009.  The securities in the sale included:
  ·
              Approximately
      36.8 million shares of our common
stock.
  ·
              Series
      3 warrants to purchase up to approximately 18.4 million shares of our
      common stock at an exercise price of $2.50 per share, expiring in five
      years.  The Series 3 warrants are exercisable from August 10,
      2009 through August 10, 2014.
  The
units, including common stock and warrants, were priced at $2.05 per unit,
resulting in gross proceeds of $75.4 million. Net proceeds to us were
approximately $71 million after related expenses (including underwriting fees).
In arriving at the relative values of the common stock and warrants, we used the
Black-Scholes option pricing model with a risk-free interest rate of 1.99%,
stock price at closing on the date before issuance of $1.74, volatility of 73%,
dividend yield of 0%, and terms equal to the terms of the warrants. The relative
values of our stock and warrants, in thousands, were:
 
 Shares
              
              
              ValueCommon
      Stock
              
              
              36,800,000
              
              
              $
              56,135Series
      3 warrants to purchase Common Stock
              
              
              18,400,000
              
              
              
              14,816Total
              
              
              
              
              
              $
              70,951
  In
December 2005, we filed a registration statement with the SEC to issue up to
$175.0 million of common stock and warrants in connection with business
combinations and/or acquisition activities. This registration statement was also
declared effective by the SEC.  We issued 6.9 million shares of our
common stock in November 2008 pursuant to this registration statement in our
acquisition of substantially all of the assets of Independence Lead Mines (see
Note 18 for more
information on the acquisition).
  Private
Placement Offering
  On June
2, 2009, we entered into a definitive agreement to sell securities in a private
placement for gross proceeds of approximately $60 million, which closed on June
4, 2009.  The securities in the sale included:
 
 ·
              Approximately
      17.4 million shares of our common
stock.
  ·
              Series
      4 warrants to purchase up to approximately 12.2 million shares of our
      common stock at an exercise of $3.68 per share, subject to certain
      adjustments.  The Series 4 warrants became exercisable on
      December 7, 2009 and are exercisable during the 181 day period following
      that date.
  The
units, including common stock and warrants, were priced at $3.45 per unit,
resulting in gross proceeds of approximately $60 million.  Net
proceeds to us were approximately $57.6 million after related expenses
(including placement fees).  In arriving at the relative values of the
common stock and warrants, we used the Black-Scholes option pricing model with a
risk-free interest rate of 1.99%, stock price at closing on the date before
issuance of $3.33, volatility of 131%, dividend yield of 0%, and terms equal to
the terms of the warrants. The relative values of our stock and warrants, in
thousands, were:
  F-31
 Table
of Contents
  Shares
              
              
              ValueCommon
      Stock
              
              
              17,391,302
              
              
              $
              43,393Series
      4 warrants to purchase Common Stock
              
              
              12,173,913
              
              
              
              14,168Total
              
              
              
              
              
              $
              57,561
  Status
of Warrants
  The
following table summarizes certain information about our stock purchase warrants
at December 31, 2009:
 
 Warrants
              
              
              Exercise
                Price
              
              
              Value
      at
                Issuance
      Date
                (in
      thousands)
              
              Expiration/
                Exercise
      DateWarrants
      Issued:Series
      1 warrants to purchase Common Stock
              
              
              7,682,927
              
              
              $
              2.45
              
              
              $
              5,335
              
              June
      2014Series
      1 warrants to purchase Common Stock
              
              
              460,976
              
              
              
              2.56
              
              
              
              400
              
              June
      2014Series
      2 warrants to purchase Common Stock
              
              
              7,682,927
              
              
              
              2.35
              
              
              
              620
              
              February
      2009Series
      3 warrants to purchase Common Stock
              
              
              18,400,000
              
              
              
              2.50
              
              
              
              14,816
              
              August
      2014Series
      4 warrants to purchase Common Stock
              
              
              12,173,913
              
              
              
              3.68
              
              
              
              14,168
              
              June
      2010Total
      Warrants Issued
              
              
              46,400,743
              
              
              
              
              
              
              
              35,339Warrants
      Exercised:Series
      3 warrants to purchase Common Stock
              
              
              (15,000
              )
              
              
              2.50
              
              
              
              (12
              )
              September
      2009Series
      3 warrants to purchase Common Stock
              
              
              (8,500
              )
              
              
              2.50
              
              
              
              (7
              )
              November
      2009Warrants
      Expired:Series
      2 warrants to purchase Common Stock
              
              
              (7,682,927
              )
              
              
              2.35
              
              
              
              (620
              )
              February
      2009Total
      Warrants Outstanding and Exercisable
              
              
              38,694,316
              
              
              
              
              
              
              $
              34,700
  Preferred
Stock
  Our
Charter authorizes us to issue 5,000,000 shares of preferred stock, par value
$0.25 per share. The preferred stock is issuable in series with such voting
rights, if any, designations, powers, preferences and other rights and such
qualifications, limitations and restrictions as may be determined by our Board
of Directors. The Board may fix the number of shares constituting each series
and increase or decrease the number of shares of any series. As of December 31,
2009, 2,170,316 shares were outstanding, including 157,816 shares of Series B
Preferred Stock. All of the shares of our Series B Preferred Stock are listed on
the New York Stock Exchange under the symbol “HL PB.” In December of 2007, we
sold 2,012,500 shares of 6.5% Mandatory Convertible Preferred Stock for proceeds
of $194.9 million, net of $6.4 million in related costs. Shares of our Mandatory
Convertible Preferred Stock are listed on the New York Stock Exchange under the
symbol “HL PrC.”
  In
connection with the Fourth Amendment of our credit agreement in February 2009,
we established a new series of 12% Convertible Preferred
Stock.  Pursuant to the amended and restated credit agreement, 42,621
shares of the 12% Convertible Preferred Stock were issued to the lenders in
February 2009 and valued at $4.3 million at the time of issuance.  In
addition, we agreed to issue to the lenders an aggregate amount of 12%
Convertible Preferred Stock equal to 3.75% of the aggregate principal amount of
the term facility outstanding on each subsequent July 1st and
January 1st that
the term loan is outstanding until the term facility is paid in
full.  However, we entered into a Fifth Amendment of our credit
agreement in June 2009 which waived, through September 15, 2009, the 3.75%
semiannual fee to be paid in the 12% Convertible Preferred Stock.  The
fee waiver was extended in September 2009 for an additional month, until October
15, 2009, and we repaid the remaining outstanding principal balance on the
credit facility on October 14, 2009.  See Note 6 for more information
on our credit facilities.
  F-32
 Table
of Contents
 In July
of 2009, certain holders of 12% Convertible Preferred Stock converted 13,700
shares of their preferred stock into 828,326 shares of Common Stock pursuant to
the Certificate of Designations of the remaining 12% Convertible Preferred
Stock.  In October of 2009, the holders of the 12% Convertible
Preferred Stock converted their remaining 28,921 preferred shares into 1,801,171
shares of Common Stock pursuant to the Certificate of Designations, and there
are no longer any shares of 12% Convertible Preferred Stock
outstanding.
  Ranking
  The
Series B and Mandatory Convertible preferred stock series rank on parity with
respect to each other, and rank senior to our common stock and any shares of
Series A preferred shares with respect to payment of dividends, and amounts upon
liquidation, dissolution or winding up.
  While any
shares of Series B and Mandatory Convertible  preferred stock are
outstanding, we may not authorize the creation or issue of any class or series
of stock that ranks senior to the Series B and Mandatory Convertible preferred
stock as to dividends or upon liquidation, dissolution or winding up without the
consent of the holders of 66 2/3% of the outstanding shares of Series B and
Mandatory Convertible preferred stock and any other series of preferred stock
ranking on a parity with respect to the Series B or Mandatory Convertible
preferred stock as to dividends and upon liquidation, dissolution or winding up,
voting as a single class without regard to series.
  Dividends
  Series B
preferred stockholders are entitled to receive, when, as and if declared by the
Board of Directors out of our assets legally available therefore, cumulative
cash dividends at the rate per annum of $3.50 per share of Series B Preferred
Stock. Dividends on the Series B Preferred Stock are payable quarterly in
arrears on October 1, January 1, April 1 and July 1 of each year (and,
in the case of any undeclared and unpaid dividends, at such additional times and
for such interim periods, if any, as determined by the Board of Directors), at
such annual rate. Dividends are cumulative from the date of the original
issuance of the Series B Preferred Stock, whether or not in any dividend period
or periods we have assets legally available for the payment of such dividends.
Accumulations of dividends on shares of Series B Preferred Stock do not bear
interest. We declared and paid our regular quarterly dividend of $0.875 per
share on the outstanding Preferred B shares through the third quarter of
2008.
  Dividends
on our Mandatory Convertible Preferred Stock are payable on a cumulative basis
when, as, and if declared by our board of directors, at an annual rate of 6.5%
per share on the liquidation preference of $100 per share in cash, common stock,
or a combination thereof, on January 1, April 1, July 1, and October 1 of each
year to, and including, January 1, 2011.  We declared and paid our
quarterly dividends on the Mandatory Convertible Preferred Stock through the
third quarter of 2008. On August 29, 2008 the Board of Directors declared that
the regular quarterly dividend on the outstanding 6.5% Mandatory Convertible
Preferred Stock in the amount of $1.625 per share would be paid in Common Stock
of Hecla, for a total amount of approximately $3.27 million in Hecla Common
Stock (with cash for fractional shares). The value of the shares of Common Stock
issued as dividends was calculated at 97% of the average of the closing prices
of Hecla’s Common Stock over the five consecutive trading day period ending on
the second trading day immediately preceding the dividend payment
date.
  On
December 5, 2008 the board of directors announced that in the interest of cash
conservation, quarterly payment of dividends to the holders of both the Hecla
Series B Preferred Stock and the Mandatory Convertible Preferred Stock would be
deferred.  On December 1, 2009, we announced that our board of
directors elected to declare and pay all dividends in arrears and the dividend
scheduled for the fourth quarter of 2009 for each of our outstanding series of
preferred stock.  As of December 31, 2009, we had accumulated declared
and unpaid dividends of approximately $0.7 million, or $4.38 per share, on our
Series B Preferred shares and approximately $16.4 million, or $8.13 per share,
on our Mandatory Convertible Preferred shares.  In January 2010, the
$0.7 million in dividends declared and unpaid on our Series B preferred stock
was paid in cash, and the dividends declared and unpaid on our Mandatory
Convertible preferred stock were paid in Common Stock, for a total amount of
approximately $16.4 million in our Common Stock (with cash for fractional
shares).  The value of the shares of Common Stock issued as dividends
was calculated at 97% of the average of the closing prices of our Common Stock
over the five consecutive trading day period ending on the second day
immediately preceding the dividend payment date.
  Redemption
  The
Series B Preferred Stock is redeemable at our option, in whole or in part, at
$50 per share, plus, in each case, all dividends undeclared and unpaid on the
Series B Preferred Stock up to the date fixed for redemption, upon giving notice
as provided below.  The Mandatory Convertible Preferred Stock is not
redeemable.
  F-33
 Table
of Contents
 Liquidation
Preference
  The
Series B preferred stockholders are entitled to receive, in the event that we
are liquidated, dissolved or wound up, whether voluntary or involuntary, $50 per
share of Series B preferred stock plus an amount per share equal to all
dividends undeclared and unpaid thereon to the date of final distribution to
such holders (the “Liquidation Preference”), and no more. Until the Series B
preferred stockholders have been paid the Liquidation Preference in full, no
payment will be made to any holder of Junior Stock upon our liquidation,
dissolution or winding up. The term “Junior Stock” means our common stock and
any other class of our capital stock issued and outstanding that ranks junior as
to the payment of dividends or amounts payable upon liquidation, dissolution and
winding up to the Series B preferred stock. As of December 31, 2009 and
2008, our Series B preferred stock had a liquidation preference of $8.6 million
and $8.0 million, respectively.
 
 In the
event of our voluntary or involuntary liquidation, winding-up or dissolution,
each holder of the Mandatory Convertible Preferred Stock will be entitled to
receive a liquidation preference in the amount of $100 per share of the
mandatory convertible preferred stock, plus an amount equal to accumulated and
unpaid dividends on the shares to the date fixed for liquidation, winding-up or
dissolution.  The amounts payable with respect to the liquidation
preference are to be paid out of our assets available for distribution to our
shareholders, after satisfaction of liabilities to our creditors and
distributions to holders of senior stock, and before any payment or distribution
is made to holders of Junior Stock (including our common stock). If, upon our
voluntary or involuntary liquidation, winding-up or dissolution, the amounts
payable with respect to the liquidation preference, plus an amount equal to
accumulated and unpaid dividends of the Mandatory Convertible Preferred Stock
and all parity stock, are not paid in full, the holders of the Mandatory
Convertible Preferred Stock and the parity stock will share equally and ratably
in any distribution of our assets.  The distribution of our assets
will be shared in proportion to the liquidation preference and an amount equal
to accumulated and unpaid dividends to which they are entitled. After payment of
the full amount of the liquidation preference and an amount equal to accumulated
and unpaid dividends to which they are entitled, the holders of the Mandatory
Convertible Preferred Stock will have no right or claim to any of our remaining
assets.  As of December 31, 2009 and 2008, our Mandatory Convertible
Preferred Stock had a liquidation preference of $217.6 million and $204.5
million, respectively.
  Voting
Rights
  Except in
certain circumstances and as otherwise from time to time required by applicable
law, the Series B and Mandatory Convertible preferred stockholders have no
voting rights and their consent is not required for taking any corporate action.
When and if the Series B preferred stockholders are entitled to vote, each
holder will be entitled to one vote per share.  When and if the
Mandatory Convertible preferred shareholders are entitled to vote, the number of
votes that each share of the Mandatory Convertible Preferred Stock shall have
shall be in proportion to the liquidation preference of such share.
  Conversion
  Each
share of Series B preferred stock is convertible, in whole or in part at the
option of the holders thereof, into shares of common stock at a conversion price
of $15.55 per share of common stock (equivalent to a conversion rate of 3.2154
shares of common stock for each share of Series B preferred stock). The right to
convert shares of Series B preferred stock called for redemption will terminate
at the close of business on the day preceding a redemption date (unless we
default in payment of the redemption price).
 
 Each share of our Mandatory Convertible
Preferred Stock will automatically convert on January 1, 2011, into between
8.4502 and 10.3093 shares of our common stock, representing a minimum of
17,006,028 common shares and a maximum of 20,747,467 common shares that can be
issued, subject to anti-dilution adjustments. At any time prior to January 1,
2011, holders may elect to convert each share of our Mandatory Convertible
Preferred Stock into shares of common stock at the minimum conversion rate of
8.4502, subject to anti-dilution adjustments. In the event of a cash acquisition
of us, under certain circumstances the conversion rate will be adjusted during
the cash acquisition conversion period.  The effective provisional
conversion rate as of December 31, 2009 was 10.3093 shares of common stock per
one share of Mandatory Convertible Preferred Stock.
  Stock
Award Plans
  We use
stock-based compensation plans to aid us in attracting, retaining and motivating
our officers and key employees, as well as to provide us with the ability to
provide incentives more directly linked to increases in stockholder value. These
plans provide for the grant of options to purchase shares of our common stock
and the issuance of restricted share units of our common stock.
  Stock-based
compensation expense amounts recognized for the years ended December 31, 2009,
2008 and 2007 were approximately $2.6 million, or $0.01 per basic and diluted
share, $4.1 million, or $0.03 per basic and diluted share, and $3.4 million, or
$0.03 per basic and diluted share, respectively.  Over the next twelve
months, we expect to recognize approximately $0.4 million in additional
compensation expense as the remaining options and units vest.
  F-34
 Table
of Contents
 1995
Stock Incentive Plan
  Our 1995
Stock Incentive Plan, as amended in 2004, authorizes the issuance of up to 11.0
million shares of our common stock pursuant to the grant or exercise of awards
under the plan. The Board of Directors committee that administers the 1995 plan
has broad authority to fix the terms and conditions of individual agreements
with participants, including the duration of the award and any vesting
requirements. The 1995 plan will terminate in 2010.
  During
2009, 2008 and 2007, respectively, 514,238, 22,082 and 29,500 options to acquire
shares expired under the 1995 plan, and such options became available for
re-grant under the 1995 plan. At December 31, 2009, 2008 and 2007,
respectively, there were 2,332,216, 3,449,697 and 3,922,253 shares available for
future grant under the 1995 plan.
  Deferred
Compensation Plan
  We
maintain a deferred compensation plan that allows eligible officers and key
employees to defer a portion or all of their compensation into cash or stock
units accounts. For further information see Note 8 of Notes to Consolidated Financial
Statements.
  Directors’
Stock Plan
  In 1995,
we adopted the Hecla Mining Company Stock Plan for Nonemployee Directors (the
“Directors’ Stock Plan”), which may be terminated by our Board of Directors at
any time. Each nonemployee director is to be credited on May 30 of each year
with that number of shares determined by dividing $24,000 by the average closing
price for our common stock on the New York Stock Exchange for the prior calendar
year. All credited shares are held in trust for the benefit of each director
until delivered to the director. Delivery of the shares from the trust occurs
upon the earliest of: (1) death or disability; (2) retirement; (3) a cessation
of the director’s service for any other reason; or (4) a change in control. The
shares of our common stock credited to non-employee directors pursuant to the
Directors’ Stock Plan may not be sold until at least six months following the
date they are delivered. A maximum of one million shares of common stock may be
granted pursuant to the Directors’ Stock Plan. During 2009, 2008 and 2007,
respectively, 22,568, 19,488 and 29,561 shares were credited to the nonemployee
directors. During 2009, 2008 and 2007, $84,000, $176,000 and $250,000,
respectively, were charged to operations associated with the Directors’ Stock
Plan. At December 31, 2009, there were 712,886 shares available for grant
in the future under the plan.
  Status
of Stock Options
  The fair
value of the options granted during the years ended December 31, 2009, 2008, and
2007 were estimated on the date of grant using the Black-Scholes option-pricing
model with the weighted average assumptions given below:
 
 2009
              
              
              2008
              
              
              2007Weighted
      average fair value of options granted
              
              $
              3.42
              
              
              $
              3.72
              
              
              $
              3.11Expected
      stock price volatility
              
              
              90.00
              %
              
              
              51.00
              %
              
              
              45.00
              %Risk-free
      interest rate
              
              
              1.99
              %
              
              
              2.58
              %
              
              
              4.61
              %Expected
      life of options
              
              2.7
      years
              
              
              3.1
      years
              
              
              3.1
      years
  We
estimate forfeiture and volatility using historical information. The risk-free
interest rate is based on the implied yield available on U.S. Treasury
zero-coupon issues over the equivalent lives of the options. The expected life
of the options represents the estimated period of time until exercise and is
based on historical experience of similar awards, giving consideration to the
contractual terms and vesting schedules. We have not paid dividends on common
shares in several years and do not anticipate paying them in the foreseeable
future, therefore, no assumption of dividend payment is made in the model. The
Black-Scholes option-pricing model requires the input of highly subjective
assumptions, particularly for the expected term.
  During
2009, 2008 and 2007, respectively, options to acquire 559,685, 542,560 and
584,500 shares were granted to our officers and key employees. Of the options
granted in 2009, 2008 and 2007, 559,685, 509,560 and 559,500, respectively, were
granted without vesting requirements.  The aggregate intrinsic value
of options outstanding and exercisable as of December 31, 2009 before applicable
income taxes was $2.0 million, based on our closing stock price of $6.18 per
common share at December 31, 2009. The majority of options outstanding were
fully vested at December 31, 2009.
  F-35
 Table
of Contents
  Transactions
concerning stock options pursuant to our stock option plans are summarized as
follows:
 
 Shares
      Subject to Options
              
              
              Weighted
      Average
                Exercise
      PriceOutstanding,
      December 31, 2008
              
              
              1,636,474
              
              
              $
              7.64Granted
              
              
              559,685
              
              
              $
              3.42Exercised
              
              
              (10,471
              )
              
              $
              3.42Expired
              
              
              (514,238
              )
              
              $
              7.52Outstanding,
      December 31, 2009
              
              
              1,671,450
              
              
              $
              6.29
  Of the
outstanding shares above, all were exercisable at December 31, 2009. The
weighted average remaining contractual term of options outstanding and
exercisable at December 31, 2009 was three years.
  The
aggregate intrinsic values of options exercised during the years ended December
31, 2009, 2008, and 2007 were approximately $22,000, $0.1 million and $6.1
million, respectively. We received cash proceeds of $36,000 for options
exercised in 2009, $0.1 million for options exercised in 2008, and $8.8 million
for options exercised in 2007.
  Restricted
Stock Units
  Unvested
restricted stock units, for which the board of directors has approved grants to
employees, are summarized as follows:
 
 Shares
              
              
              Weighted
      Average
                Grant
      Date Fair
                Value
      per ShareUnvested,
      January 1, 2009
              
              
              153,693
              
              
              $
              9.92Granted
              
              
              578,653
              
              
              $
              3.21Canceled
              
              
              (1,421
              )
              
              $
              9.86Distributed
              
              
              (152,272
              )
              
              $
              9.92Unvested,
      December 31, 2009
              
              
              578,653
              
              
              $
              3.21
  Of the
561,853 units unvested at December 31, 2009, 463,178 will vest in May
2010.  Remaining units will be distributable based on predetermined
dates as elected by the participants, unless participants forfeit their units
through termination in advance of vesting. We have recognized approximately $1.2
million in compensation expense since grant date, and will record an additional
$0.7 million in compensation expense over the remaining vesting period related
to these units.
  Approximately
152,272stock
units vested in May 2009 and were distributed or deferred as elected by the
recipients under the provisions of the deferred compensation plan. We recognized
approximately $0.4 million in compensation expense related to these units in
2009.
  Note
10: Derivative Instruments
  At times,
we use commodity forward sales commitments, commodity swap contracts and
commodity put and call option contracts to manage our exposure to fluctuation in
the prices of certain metals which we produce. Contract positions are designed
to ensure that we will receive a defined minimum price for certain quantities of
our production, thereby partially offsetting our exposure to fluctuations in the
market. These instruments do, however, expose us to other risks, including the
amount by which the contract price exceeds the spot price of a commodity, and
nonperformance by the counterparties to these agreements. At December 31,
2009, we had no outstanding forward sales contracts, commodity put and call
options contracts or other commodity hedging positions.
  We
periodically use derivative financial instruments to manage interest rate risk.
In May 2008, we entered into an interest rate swap agreement that had the
economic effect of modifying the LIBOR-based variable interest obligations
associated with our term facility.  As a result, the interest payable
related to the term facility balance was to be fixed at a rate of 9.38% until
the scheduled maturity on September 30, 2010 per the amended and restated credit
facility.  See Note
1 – Q. Risk Management Contracts for more information.  Hedge
accounting was applied for this swap and the terms of the interest rate swap
agreement including the notional amounts, interest rate reset dates, and
maturity dates matched the terms of the hedged note to which the swap agreement
pertained.  At inception and on an ongoing basis, we performed an
effectiveness test using the hypothetical derivative method, and the swap was
determined to be highly effective at offsetting changes in the fair value of the
hedged note.  The interest rate swap was designated as a cash flow
hedge, and the fair value of the swap was calculated using the discounted cash
flow method based on market observable inputs.  On October 14, 2009,
we repaid the remaining $38.3 million term facility balance (see Note 6 for more
information).  As a result, we determined hedge accounting for the
swap to be inappropriate as of September 30, 2009, and wrote-off the remaining
$0.8 million accumulated unrealized loss and recorded a $38,000 mark-to-market
adjustment for the fair value of the swap through interest expense in the third
quarter of 2009.   We paid $0.7 million in October 2009 to settle
the remaining fair value liability associated with the swap. See Note 6 of Notes to Consolidated Financial
Statements for more information on our credit facilities.
  F-36
 Table
of Contents
 On
February 3, 2009, we reached an agreement to amend the terms of our credit
facilities to defer all scheduled term facility principal payments due in 2009,
totaling $66.7 million, to 2010 and 2011.  On June 8, 2009, we repaid
$57.1 million of the outstanding term credit facility balance using proceeds
from a private placement equity offering (see Note 9 for more information),
and on June 29, 2009, we repaid an additional $18.2 million of the outstanding
term facility balance as a part of another amendment to our term credit facility
(see Note
6).  As a result of these credit facility amendments and
repayments, the hedging relationship was de-designated and a new hedging
relationship was re-designated in each case.  A final retrospective hedge
effectiveness assessment was performed on the prior hedging relationships at the
date of each de-designation, and only the May 5, 2008 hedging relationship was
determined to be ineffective for the first quarter ended March 31, 2009.
 Consequently, the change in fair value of the swap of $0.2 million between
December 31, 2008 and February 3, 2009 was recorded as a gain on the income
statement.  The amount of unrealized loss included in accumulated other
comprehensive income relating to the prior hedge was recognized in the income
statement in the third quarter of 2009, as the remaining term facility balance
was repaid in October 2009.
  The
following table summarizes the effect of our interest rate swap on our balance
sheet and statement of operations as of and for the years ended December 31,
2009 and 2008 (in thousands):
  2009
              
              
              2008Fair
      value liability in other non-current liabilities at December
      31,
              
              $
              —
              
              
              $
              2,481Accumulated
      unrealized loss in other comprehensive loss at December
31,
              
              
              —
              
              
              
              (1,967
              )Loss
      recognized in other comprehensive loss
              
              
              —
              
              
              
              (1,967
              )Loss
      reclassified from accumulated other comprehensive loss to interest
      expense
              
              
              1,967
              
              
              
              —Loss
      recognized in interest expense related to the ineffective
      portion
              
              
              213
              
              
              
              514
  We
recognized net losses related to the interest rate swap, including losses
reclassified from accumulated other comprehensive loss and losses related to the
ineffective portion of the swap, of $2.7 million and $1.8 million, respectively,
for the years ended December 31, 2009 and 2008, which were included in interest
expense.
  Our
concentrate sales are based on a provisional sales price containing an embedded
derivative that is required to be separated from the host contract for
accounting purposes. The host contract is the receivable from the sale of the
concentrates at the forward price at the time of the sale. The embedded
derivative, which does not qualify for hedge accounting, is adjusted to market
through earnings each period prior to final settlement.Total expense st by
summarizedpense on the ineffective portion o interest expensee sheet and
stateent earnings, with the remaini
  Note
11: Business Segments
  We
discover, acquire, develop, produce, and market silver, gold, lead and
zinc.  Our products consist of both metal concentrates, which we sell
to custom smelters, and unrefined bullion bars (doré), which may be sold as doré
or further refined before sale to precious metals traders.  We are
currently organized and managed by two segments, which represent our operating
units: the Greens Creek unit and the Lucky Friday unit.
  Prior to
the first quarter of 2009, we reported an additional segment, the San Sebastian
unit, for our various properties and exploration activities in
Mexico.  However, as a result of a recent work force reduction and a
decrease in exploration activity there resulting from a company-wide cash
conservation effort, and our ownership of 100% of Greens Creek (discussed
further below), we have determined that the San Sebastian unit no longer meets
the criteria for disclosure as a reportable segment.
  Prior to
the second quarter of 2008, we also reported a fourth segment, the La Camorra
unit, representing our operations and various exploration activities in
Venezuela.  On June 19, 2008, we entered into an agreement to sell our
wholly owned subsidiaries holding our business and operations in Venezuela, with
the transaction closing on July 8, 2008. Our Venezuelan activities are reported
as discontinued operations on the Consolidated Statement of Operations and Cash
Flows for all periods presented (see Note 12. Discontinued
Operations).  As a result, we have determined that it is no
longer appropriate to present a separate segment representing our operations in
Venezuela.
  On April
16, 2008, we completed the acquisition of the companies owning 70.3% of the
joint venture operating the Greens Creek mine for $700 million in cash and
4,365,000 million shares of our common stock, resulting in 100% ownership of
Greens Creek by our various wholly owned subsidiaries.  Accordingly,
the information on our segments presented below reflects our 100% ownership of
Greens Creek as of the April 16, 2008 acquisition date, and our previous 29.7%
ownership interest prior to that date.  See Note 18 for more information
on the acquisition.
  F-37
 Table
of Contents
 General
corporate activities not associated with operating units and their various
exploration activities, as well as discontinued operations and idle properties,
are presented as “other.”  Interest expense, interest income and
income taxes are considered general corporate items, and are not allocated to
our segments.
  Sales of
metal concentrates and metal products are made principally to custom smelters
and metals traders. The percentage of sales from continuing operations
contributed by each segment is reflected in the following table:
 
 Year
      Ended December 31,2009
              
              
              2008
              
              
              2007Greens
      Creek
              
              
              73.4
              %
              
              
              68.9
              %
              
              
              47.7
              %Lucky
      Friday
              
              
              26.6
              %
              
              
              31.1
              %
              
              
              52.3
              %100
              %
              
              
              100
              %
              
              
              100
              %
  The
tables below present information about reportable segments as of and for the
years ended December 31 (in thousands).
 
 2009
              
              
              2008
              
              
              2007Net
      sales from continuing operations to unaffiliated
customers:Greens
      Creek
              
              $
              229,318
              
              
              $
              141,103
              
              
              $
              75,213Lucky
      Friday
              
              
              83,230
              
              
              
              63,562
              
              
              
              82,427$
              312,548
              
              
              $
              204,665
              
              
              $
              157,640Income
      (loss) from operations:Greens
      Creek
              
              $
              79,329
              
              
              $
              (2,489
              )
              
              $
              35,212Lucky
      Friday
              
              
              27,146
              
              
              
              14,636
              
              
              
              39,451Other
              
              
              (31,203
              )
              
              
              (37,506
              )
              
              
              (21,622
              )$
              75,272
              
              
              $
              (25,359
              )
              
              $
              53,041Capital
      additions (including non-cash additions):Greens
      Creek
              
              $
              17,520
              
              
              $
              721,387
              
              
              $
              9,147Lucky
      Friday
              
              
              15,990
              
              
              
              58,698
              
              
              
              24,778Discontinued
      operations
              
              
              —
              
              
              
              —
              
              
              
              7,236Other
              
              
              30
              
              
              
              12,860
              
              
              
              991$
              33,540
              
              
              $
              792,945
              
              
              $
              42,152Depreciation,
      depletion and amortization from continuing operations:Greens
      Creek
              
              $
              52,909
              
              
              $
              30,022
              
              
              $
              8,440Lucky
      Friday
              
              
              9,928
              
              
              
              5,185
              
              
              
              3,883$
              62,837
              
              
              $
              35,207
              
              
              $
              12,323Other
      significant non-cash items from continuing operations:Greens
      Creek
              
              $
              2,974
              
              
              $
              1,194
              
              
              $
              170Lucky
      Friday
              
              
              22
              
              
              
              18
              
              
              
              18Other
              
              
              (6,687
              )
              
              
              10,260
              
              
              
              (19,202
              )$
              (3,691
              )
              
              $
              11,472
              
              
              $
              (19,014
              )Identifiable
      assets:Greens
      Creek
              
              $
              771,433
              
              
              $
              800,030
              
              
              $
              70,671Lucky
      Friday
              
              
              116,797
              
              
              
              103,748
              
              
              
              58,350Discontinued
      operations
              
              
              —
              
              
              
              —
              
              
              
              83,131Other
              
              
              158,554
              
              
              
              85,013
              
              
              
              438,585$
              1,046,784
              
              
              $
              988,791
              
              
              $
              650,737
  The
following is sales information by geographic area, based on the location of
concentrate shipments and location of parent company for sales from continuing
operations to metal traders, for the years ended December 31 (in
thousands):
 2009
                
                
                2008
                
                
                2007United
      States
                
                $
                19,127
                
                
                $
                14,169
                
                
                $
                3,903Canada
                
                
                136,248
                
                
                
                102,508
                
                
                
                103,294Mexico
                
                
                20,413
                
                
                
                16,304
                
                
                
                125Japan
                
                
                43,356
                
                
                
                26,127
                
                
                
                21,589Korea
                
                
                77,492
                
                
                
                34,653
                
                
                
                18,835China
                
                
                15,912
                
                
                
                10,904
                
                
                
                9,894$
                312,548
                
                
                $
                204,665
                
                
                $
                157,640
  F-38
 Table
of Contents
 The
following are our long-lived assets by geographic area as of December 31
(in thousands):
 2009
                
                
                2008
                
                
                2007United
      States
                
                $
                819,404
                
                
                $
                848,930
                
                
                $
                92,028Venezuela
                
                
                —
                
                
                
                —
                
                
                
                37,063Mexico
                
                
                114
                
                
                
                3,183
                
                
                
                3,217$
                819,518
                
                
                $
                852,113
                
                
                $
                132,308
  Sales
from continuing operations to significant metals customers as a percentage of
total sales were as follows for the years ended December 31, 2009, 2008 and
2007:
 
 Year
      Ended December 31,2009
              
              
              2008
              
              
              2007Teck
      Cominco Ltd.
              
              
              43.6
              %
              
              
              50.1
              %
              
              
              65.9
              %Korea
      Zinc
              
              
              23.4
              %
              
              
              16.9
              %
              
              
              11.7
              %Dowa/Sumitomo
              
              
              7.8
              %
              
              
              6.4
              %
              
              
              5.8
              %MS
      Zinc
              
              
              6.1
              %
              
              
              6.4
              %
              
              
              7.5
              %
  Note
12:  Discontinued Operations
  During
the second quarter of 2008, we committed to a plan to sell all of the
outstanding capital stock of El Callao Gold Mining Company (“El Callao”) and
Drake-Bering Holdings B.V. (“Drake-Bering”), our wholly owned subsidiaries which
together owned our business and operations in Venezuela, the “La Camorra unit.”
On June 19, 2008, we announced that we had entered into an agreement to sell
100% of the shares of El Callao and Drake-Bering to Rusoro for $20 million in
cash and 3,595,781 shares of Rusoro common stock. The transaction closed on July
8, 2008. The results of operations have been reported in discontinued operations
for all periods presented.
  The
following table details selected financial information included in the loss from
discontinued operations in the consolidated statements of operations for the
years ended December 31, 2008 and 2007 (in thousands):
  Year
      ended December 31,2008
              
              
              2007Sales
      of products
              
              $
              23,855
              
              
              $
              68,920Cost
      of sales and other direct production costs
              
              
              (21,656
              )
              
              
              (52,212
              )Depreciation,
      depletion and amortization
              
              
              (4,785
              )
              
              
              (14,557
              )Exploration
      expense
              
              
              (1,167
              )
              
              
              (3,885
              )Other
      operating expense
              
              
              (44
              )
              
              
              (1,175
              )Provision
      for closed operations
              
              
              (502
              )
              
              
              (1,347
              )Interest
      income
              
              
              212
              
              
              
              672Foreign
      exchange loss
              
              
              (13,308
              )
              
              
              (12,003
              )Income
      tax benefit
              
              
              -
      -
              
              
              
              627Loss
      from discontinued operations
              
              $
              (17,395
              )
              
              $
              (14,960
              )
  Note
13: Fair Value Measurement
  The table
below sets forth our assets and liabilities (in thousands) 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.
 
 F-39
 Table
of Contents
 Balance
      at
                December
      31,
                2009
              
              
              Balance
      at
                December
      31,
                2008
              
              Input
                Hierarchy
                LevelAssets:Cash
      and cash equivalents
              
              $
              104,678
              
              
              $
              36,470
              
              Level
      1Investments
              
              
              1,138
              
              
              
              --
              
              Level
      1Trade
      accounts receivable
              
              
              25,141
              
              
              
              8,314
              
              Level
      2Other
      current assets - current restricted cash
              
              
              829
              
              
              
              2,107
              
              Level
      1Non-current
      investments
              
              
              2,157
              
              
              
              3,118
              
              Level
      1Non-current
      restricted cash and investments
              
              
              10,945
              
              
              
              13,133
              
              Level
      1Liabilities:Other
      non-current liabilities - interest rate swap
              
              
              --
              
              
              
              2,481
              
              Level
      2
 
 Cash and
cash equivalents consist primarily of money market funds and are valued at cost,
which approximates fair value.
 
 Current
and non-current restricted cash balances consist primarily of certificates of
deposit and U.S. Treasury securities and are valued at cost, which approximates
fair value.
 
 Our
current and non-current investments consist of marketable equity securities
which are valued using quoted market prices for each security multiplied by the
number shares held by us.
 
 Trade
accounts receivable consist of amounts due to us for shipments of concentrates
and doré sold to smelters and refiners.  Revenues and the
corresponding accounts receivable for sales of metals products are recorded when
title and risk of loss transfer to the customer (generally at the time of
shipment).  Sales of concentrates are recorded using estimated forward
prices for the anticipated month of settlement applied to our estimate of
payable metal quantities contained in each shipment.  Sales are
recorded net of estimated treatment and refining charges, which are also
impacted by changes in metals prices and quantities of contained
metals.  We must estimate the prices at which sales of our
concentrates will be settled due to the time elapsed between shipment and final
settlement with the smelter.  Receivables for previously recorded
concentrate sales are adjusted to reflect estimated settlement metals prices at
the end of each period until final settlement by the smelter.  We
obtain the forward metals prices used each period from a pricing
service.  Changes in metal prices between shipment and final
settlement will result in changes to revenues previously recorded upon
shipment.  The embedded derivative contained in our concentrate sales
is adjusted to fair market value through earnings each period prior to final
settlement.
 
 Prior to
repayment of our term credit facility balance in October 2009 (see Note 6 for more information),
we utilized an interest rate swap to fix the floating interest rate associated
with the facility.  The fair value of the interest rate swap was
calculated using a discounted cash flow method involving various market
observable inputs.
  Note
14: Income (Loss) per Common Share
  We
calculate basic earnings per share on the basis of the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
calculated on the basis of the weighted average number of common shares
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 common shares include outstanding stock options, restricted stock
awards, stock units, warrants and convertible preferred stock for periods in
which we have reported net income. For periods in which we reported net losses,
potential dilutive common shares are excluded, as their conversion and exercise
would be anti-dilutive.
  A total
of 2,170,316 shares of preferred stock were outstanding at December 31, 2009, of
which 2,012,500 shares are convertible to common stock at the minimum rate of
8.4502 until January 1, 2011.
  F-40
 Table
of Contents
  The
following table represents net income (loss) per common share – basic and
diluted (in thousands, except earnings per share):
  Year
      ended December 31,2009
              
              
              2008
              
              
              2007NumeratorIncome
      (loss) from continuing operations
              
              $
              67,826
              
              
              $
              (37,173
              )
              
              $
              68,157Preferred
      stock dividends
              
              
              (13,633
              )
              
              
              (13,633
              )
              
              
              (1,024
              )Income
      (loss) from continuing operations applicable to common
    shares
              
              
              54,193
              
              
              
              (50,806
              )
              
              
              67,133Loss
      on discontinued operations, net of tax
              
              
              -
      -
              
              
              
              (17,395
              )
              
              
              (14,960
              )Loss
      on sale of discontinued operations, net of tax
              
              
              -
      -
              
              
              
              (11,995
              )
              
              
              -
      -Net
      income (loss) applicable to common shares for basic and diluted earnings
      per share
              
              $
              54,193
              
              
              $
              (80,196
              )
              
              $
              52,173DenominatorBasic
      weighted average common shares
              
              
              224,933
              
              
              
              141,272
              
              
              
              120,420Dilutive
      stock options and restricted stock
              
              
              8,685
              
              
              
              -
      -
              
              
              
              651Diluted
      weighted average common shares
              
              
              233,618
              
              
              
              141,272
              
              
              
              121,071Basic
      earnings per common shareIncome
      (loss) from continuing operations
              
              $
              0.24
              
              
              $
              (0.36
              )
              
              $
              0.56Loss
      from discontinued operations
              
              
              -
      -
              
              
              
              (0.12
              )
              
              
              (0.13
              )Loss
      on sale of discontinued operations
              
              
              -
      -
              
              
              
              (0.09
              )
              
              
              -
      -Net income (loss)
      applicable to common shares
              
              $
              0.24
              
              
              $
              (0.57
              )
              
              $
              0.43Diluted
      earnings per common shareIncome
      (loss) from continuing operations
              
              $
              0.23
              
              
              $
              (0.36
              )
              
              $
              0.56Loss
      from discontinued operations
              
              
              -
      -
              
              
              
              (0.12
              )
              
              
              (0.13
              )Loss
      on sale of discontinued operations
              
              
              -
      -
              
              
              
              (0.09
              )
              
              
              -
      -Net
      income (loss) applicable to common shares
              
              $
              0.23
              
              
              $
              (0.57
              )
              
              $
              0.43
  Diluted
income per share for the years ended December 31, 2009 and 2008 exclude the
potential effects of outstanding shares of our convertible preferred stock, as
their conversion and exercise would have no effect on the calculation of
dilutive shares.
  Options
to purchase 1,022,240 shares of our common stock and warrants to purchase
12,173,913 shares of our common stock were not included in the computation of
diluted earnings per share in the year ended December 31, 2009, as the exercise
price of the options and warrants exceeded the average price of our stock during
the period and therefore would not affect the calculation of earnings per share.
All outstanding options, restricted share units, and warrants were exluded from
the computation of diluted earnings per share in the year ended December 31,
2008, as our reported net losses for those periods would cause their conversion
and exercise to have no effect on the calculation of earnings per share. For the
year ended December 31, 2007, 138,700 shares for which the exercise price
exceeded the average price of our stock for the period have been excluded from
our calculation of earnings per share, as their conversion and exercise would
have no effect on the calculation of dilutive shares.
  Note
15: Other Comprehensive Income (Loss)
  Due to
the availability of U.S. net operating losses and related deferred tax valuation
allowances, there is no tax effect associated with any component of other
comprehensive income (loss). The following table lists the beginning balance,
yearly activity and ending balance of each component of accumulated other
comprehensive income (loss) (in thousands):
  F-41
 Table
of Contents
  Unrealized
                Gains
                (Losses)
                On
      Securities
              
              
              Adjustments
                For
      Pension Plans
              
              
              Change
      in
                Derivative
                Contracts
              
              
              Cumulative
                Translation
                Adjustment
              
              
              Total
                Accumulated
                Other
                Comprehensive
                Income
      (Loss)Balance
      January 1, 2007
              
              $
              4,948
              
              
              $
              3,952
              
              
              $
              —
              
              
              $
              —
              
              
              $
              8,9002007
      change
              
              
              5,235
              
              
              
              5,074
              
              
              
              —
              
              
              
              (7,146
              )
              
              
              3,163Balance
      December 31, 2007
              
              
              10,183
              
              
              
              9,026
              
              
              
              —
              
              
              
              (7,146
              )
              
              
              12,0632008
      change
              
              
              (12,305
              )
              
              
              (29,959
              )
              
              
              (1,967
              )
              
              
              7,146
              
              
              
              (37,085
              )Balance
      December 31, 2008
              
              
              (2,122
              )
              
              
              (20,933
              )
              
              
              (1,967
              )
              
              
              —
              
              
              
              (25,022
              )2009
      change
              
              
              2,866
              
              
              
              6,006
              
              
              
              1,967
              
              
              
              —
              
              
              
              10,839Balance
      December 31, 2009
              
              $
              744
              
              
              $
              (14,927
              )
              
              $
              —
              
              
              $
              —
              
              
              $
              (14,183
              )
  The $7.1
million change in cumulative translation adjustment in 2008 resulted from the
July 2008 sale of our discontinued Venezuelan operations.  The 2007
translation adjustment originated from a change in the functional currency for
our now-divested Venezuelan operations from the U.S. Dollar to the Bolívar, the
currency in Venezuela, implemented on January 1, 2007.  The
translation adjustment was reclassified from accumulated other comprehensive
income to be included in the loss on sale of discontinued operations upon the
sale.  See Note
12 for more information on our discontinued Venezuelan
operations.
  The $2.0
million balance at December 31, 2008 for the accumulated unrealized loss on
derivatives contracts is related to an interest rate swap utilized to modify the
variable interest obligations associated with our term credit facility, the
balance of which was repaid in October 2009.  The $2.0 million change
in the accumulated unrealized loss on derivatives contracts in 2009 includes
$2.7 million in adjustments to the fair value of the interest rate swap,
partially offset by $0.7 million associated with reclassifications of net
accumulated unrealized gains to earnings.  See Note 6 and Note 10for more information
on our credit facilities and derivative contracts.
  See Note 2 for more information
on our marketable securities and Note 8 for more information
on our employee benefit plans.
  Note
16: Investment in Greens Creek Joint Venture
  The
Greens Creek unit is operated through a joint venture arrangement, of which we
own an undivided 100% interest in its assets through our various subsidiaries.
On April 16, 2008, we completed the acquisition the equity of the Rio Tinto
subsidiaries owning a 70.3% in the Greens Creek Joint Venture.  Prior
to the acquisition, we owned 29.7% of the Greens Creek Joint Venture. See Note 18 of Notes to Consolidated Financial
Statements for further discussion of the acquisition. The following
summarized statement of operations for the year ended December 31, 2007 is
derived from the audited financial statements of the Greens Creek joint venture
and is presented on a 100% basis (in thousands).
 
 Summary of Operations
              
              2007Net
      revenue
              
              $
              252,960Operating
      income
              
              $
              128,217Net
      income
              
              $
              130,214
  Our
portion of the assets and liabilities of the Greens Creek unit were recorded
pursuant to the proportionate consolidation method, whereby 29.7% of the assets
and liabilities of the Greens Creek unit were included in our consolidated
financial statements prior to our April 16, 2008 acquisition of the remaining
70.3% joint venture interest, subject to adjustments to conform with our
accounting policies.
  Our
balance sheets as of December 31, 2009 and 2008 and our operating results for
the year ended December 31, 2009 reflect our 100% ownership of the Greens Creek
Joint Venture, while our 2008 operating results reflect our 100% ownership of
the joint venture since our April 16, 2008 acquisition for the remaining 70.3%
interest, and our previous 29.7% ownership portion prior to the acquisition
date.  We have adjusted various asset and liability balances as of the
acquisition date to reflect the purchase price allocation for the acquisition of
the 70.3% joint venture interest.  See Note 18 for more information
on the purchase price allocation.  In addition, our 2009 and 2008
operating results reflect depreciation, depletion and amortization on the
allocation of purchase price to the acquired 70.3% portion of property, plant,
equipment and mineral interests.
  F-42
 Table
of Contents
 Note
17: Related Party Transactions
  Prior to
the acquisition of the remaining 70.3% interest in the Greens Creek Joint
Venture (“The Venture”) by our various subsidiaries on April 16, 2008 (discussed
further below), payments were made on behalf of the Venture by Kennecott and its
affiliates, which were related parties to the Venture, for payroll expenses,
employee benefits, insurance premiums and other miscellaneous charges. These
charges were reimbursed by the Venture monthly. We were a 29.7% partner in the
Venture prior to our acquisition of the remaining 70.3%.
  Prior to
the acquisition, under the terms of the Joint Venture Agreement, Kennecott
Greens Creek Mining Company (“KGCMC”), as manager of the Venture, received a
management fee equal to 4.25% of the first $1 million of total monthly cash
operating expenditures (including capital investments) plus 1% of monthly
expenditures in excess of $1 million. KGCMC also paid certain direct expenses
associated with services provided to the Venture by Kennecott Minerals,
Kennecott Utah Copper, Rio Tinto Services and Rio Tinto Procurement, which were
related parties. Prior to our acquisition of the remaining 70.3% in the Venture,
KGCMC charged the following amounts to the Venture in the years ended December
31, 2008 and 2007 (on a 100% basis, in thousands):
  Years
      ended December 31,2008
              
              2007Management
      fees
              
              $
              619
              
              
              $
              1,631Direct
      expenses
              
              
              1,942
              
              
              
              2,433Total
              
              $
              2,561
              
              
              $
              4,064
  In
addition to the charges paid to KGCMC, the Venture contracted with Rio Tinto
Marine, a related party, to act as its agent in booking shipping vessels with
third parties. Rio Tinto Marine earned a 1.5% commission on shipping charges.
Commissions paid totaled approximately $0.2 million for the year ended December
31, 2008 and $0.1 million for the year ended December 31, 2007, on a 100%
basis.
  Beginning
in 2004, the Venture contracted with Rio Tinto Procurement, a related party, to
act as its agent in procurement issues. A fixed monthly fee was charged for
procurement services, and charges were quoted for other related contracting and
cataloging services. Charges paid, on 100% basis, totaled $0.1 million for the
year ended December 31, 2008 and $0.2 million for the year ended December 31,
2007.
  On April
16, 2008, we completed the acquisition of the equity of the Rio Tinto
subsidiaries owning the remaining 70.3% interest in the Greens Creek
mine.  As a result, the related party relationships described above
between the Venture and Kennecott and its affiliates were terminated upon
closure of the transaction, with the exception of certain transitional services
provided by Kennecott and its affiliates on a temporary basis, in accordance
with the acquisition agreement.  See Note 18 for further
discussion of the transaction.
  In the
fourth quarter of 2007, we committed to the establishment of the Hecla
Charitable Foundation to operate exclusively for charitable and educational
purposes, with a particular emphasis in those communities in which we have
employees or operations. In December 2007, our Board of Directors made an
unconditional commitment to donate 550,000 shares of our common stock, valued at
$5.1 million as of the commitment date.  Accordingly, the contribution
was recorded as other expense, with a credit to stockholders’ equity as of and
for the year ended December 31, 2007.  The contributed shares of our
common stock were issued to the Foundation in January 2008.  The Hecla
Charitable Foundation was established by Hecla as a not-for-profit organization
which has obtained 501(c)(3) status from the Internal Revenue Service. Its
financial statements are not consolidated by Hecla.
  Note
18:  Acquisitions
  Acquisition
of 70.3% of Greens Creek
 
 On April
16, 2008, we completed the acquisition of all of the equity of the Rio Tinto,
plc subsidiaries holding a 70.3% interest in the Greens Creek mine,
consolidating our ownership.  We announced the agreement for this
transaction on February 12, 2008.  Our wholly-owned subsidiary, Hecla
Alaska LLC, previously owned an undivided 29.7% joint venture interest in the
assets of Greens Creek. The acquisition gives our various subsidiaries control
of 100% of the Greens Creek mine.
  The
purchase price was composed of $700 million in cash and 4,365,000 shares of our
common stock valued at $53.4 million, and estimated acquisition related costs of
$5.1 million for a total acquisition price of $758.5 million. The number of
common shares issued, 4,365,000, was determined by dividing $50 million by the
volume-weighted average trading price for the 20 trading days immediately prior
to the second trading day immediately preceding the closing date. For purchase
accounting, the valuation of the shares was based upon the average closing price
of Hecla shares a few days before and after April 14, 2008 (two days prior
to the closing date of the acquisition on April 16, 2008).
 
 F-43
 Table
of Contents
 The cash
portion of the purchase price was partially funded by a $380 million debt
facility, which included a $140 million three-year term facility and a $240
million bridge facility, the latter of which was subsequently reduced to a $40
million bridge facility.  The remaining bridge facility balance was
repaid in February 2009 and the remaining term facility balance was repaid in
October 2009.  See Note 6for more information
on our credit facilities.
 
 The
following summarizes the allocation of purchase price to the fair value of the
assets acquired and liabilities assumed at the date of acquisition (in
thousands):
 
 Consideration:Cash
      payments
              
              $
              700,000Hecla
      stock issued (4,365,000 shares at $12.23 per share)
              
              
              53,384Acquisition
      related costs
              
              
              5,074Total
      purchase price
              
              $
              758,458Fair
      value of net assets acquired:Cash
              
              $
              16,938Product
      inventory
              
              
              28,510Other
      current assets
              
              
              15,597Property,
      plants, equipment and mineral interests, net
              
              
              689,687Identified
      intangible
              
              
              5,995Deferred
      tax asset
              
              
              23,000Other
      assets
              
              
              21,278Total
      assets
              
              
              801,005Less:  Liabilities
      assumed
              
              
              42,547Net
      assets acquired
              
              $
              758,458
  Included
in the acquired assets are accounts receivable valued at approximately $9.8
million due under provisional sales contracts based on the fair values of the
underlying metals at acquisition date. Final pricing settlements on all
receivables acquired on April 16, 2008 occurred at various times during the
second quarter of 2008, at which time negative price adjustments were recorded
as reductions of revenue.
 
 The
$689.7 million fair value for “Property, plants, equipment and mineral
interests, net” acquired is comprised of $5.0 million for the asset retirement
obligation, $266.7 million for development costs, $67.2 million for plants and
equipment, $7.2 million for land, and $343.6 million for value beyond proven and
probable reserves.The $343.6
million attributed to value beyond proven and probable reserves consists
primarily of exploration potential generally representing the anticipated
expansion of the existing mineralized material delineated at the mine.
Exploration interests have been defined as specific exploration targets which
capture anticipated at or near mine site extensions to known ore bodies. While
we have a fair degree of confidence that mineralization exists, as of yet, there
is insufficient geological sampling data to classify such material as a reserve
or other mineralized material. We perform a reserve study each year and
determine the quantity of metals added to proven and probable reserves based on,
among other factors, the cutoff  value per ton net smelter return. As ore
is added to proven and probable reserves, value per ton based on the initial
purchase price allocation will be reclassified to development costs each year.
After reclassification to development, costs will be depreciated on a
units-of-production basis over the life of the proven and probable
reserves.
 
 As noted
in the table above, we attributed approximately $6.0 million of the purchase
price to an intangible asset. Amortization of the intangible asset is expected
to total approximately $1.2 million annually through the year 2012.
 
 The
results of operations of this acquisition have been included in the Consolidated Financial
Statements from the date of acquisition.    The value
of the acquired 70.3% portion of Greens Creek product inventory was based upon
its fair market value as of the acquisition date, resulting in increased cost of
sales by approximately $16.6 million during the second quarter of
2008.  The acquired product inventory was all sold in the second
quarter of 2008.
 
 The
unaudited pro forma financial information below represents the combined results
of our operations as if the Greens Creek acquisition had occurred at the
beginning of 2007.  The unaudited pro forma financial information is
presented for informational purposes only and is not indicative of the results
of operations that would have occurred if the acquisition had taken place at the
beginning of 2007, nor is it indicative of future operating
results.
 
 F-44
 Table
of Contents
 
 Year
      ended December 31,2008
              
              
              2007Sales
      of products
              
              $
              231,578
              
              
              $
              324,453Net
      income (loss) from continuing operations
              
              
              (26,520
              )
              
              
              99,511Income
      (loss) applicable to common shareholders
              
              
              (69,543
              )
              
              
              70,446Basic
      and diluted income (loss) per common share
              
              
              (0.50
              )
              
              
              0.56
 
 The pro
forma financial information includes adjustments to reflect the depreciation and
amortization of assets acquired, an estimate of the interest expense that would
have been incurred, and the dividends on the mandatory convertible preferred
stock that would have been incurred.   Also included in the pro forma
amounts for the year ended December 31, 2007 is a nonrecurring adjustment of
$16.6 million for the purchase accounting valuation for product
inventory.
  Independence
Acquisition
 
 On
November 6, 2008, we completed the acquisition of substantially all of the
assets of Independence Lead Mines Company (“Independence”), located in northern
Idaho’s Silver Valley, for 6,936,884 shares of our common stock, which had an
estimated value of $14.2 million based on the closing price of our stock on the
acquisition date.  Included in the assets acquired is a land position
near our Lucky Friday unit in the Silver Valley, in close proximity to where we
have initiated a significant generative exploration program. The assets acquired
also include mining claims previously held by Independence pertaining to an
agreement with us, which includes all future interest or royalty obligation by
us to Independence.
  Acquisition
of San Juan Silver Mining Joint Venture earn-in rights
 
 On
February 21, 2008, we announced that our wholly-owned subsidiary, Rio Grande
Silver Inc. (“Rio”), acquired the right to earn into a 70% interest in the San
Juan Silver Joint Venture, which holds an approximately 25-square-mile
consolidated land package in the Creede Mining District of Colorado, for a total
of 927,716 shares of our common stock, valued at $9.4 million at the time of the
transaction.  The agreement originally consisted of a three-year
buy-in with a total value of $23.2 million, consisting of exploration work and
cash.  Under the original agreement, Rio could earn up to a 70% joint
interest by paying Emerald Mining & Leasing, LLC (“EML”), and Golden 8
Mining, LLC (“G8”), a total of $11.2 million in common stock, by spending $6
million in exploration on the property during the first year, and by committing
to an additional total of $6 million in exploration work over the subsequent two
years.
  On
October 24, 2008, Rio entered into an amendment to the agreement which delays
the incurrence of the qualifying expenses to be paid by Rio.  Pursuant
to the amendment, Rio must now incur $9 million in qualifying expenses on or
before the fourth anniversary of the agreement date, and incur $12 million in
qualifying expenses on or before the fifth anniversary of the agreement date,
extending the payment dates under the original agreement for such qualifying
expenses from the second anniversary and the third anniversary of the agreement
date, respectively.  As a result of the amendment, Rio no longer is
required to incur the initial $6 million in qualifying expenses on or before the
first anniversary of the agreement date.  In addition, the amendment
required us to issue to EML and G8 $2 million ($1 million each) in unregistered
shares of Hecla common stock in November 2008.  The agreement
originally required such issuance on or before the first anniversary of the
agreement date.  The amendment also requires us to guarantee certain
indemnification obligations of EML and G8 up to a maximum liability of $2.5
million.
  Note
19:   Hollister Sale
  In April
2007, we completed the sale of our interest in the Hollister Development Block
gold exploration project in Nevada to our former partner, Great Basin Gold,
Inc., for $45 million in cash and $15 million in Great Basin Gold common stock,
based on the average closing share price for the 20 trading days prior to the
announcement of the transaction.  The number of shares of Great Basin
Gold stock transferred to Hecla was 7,930,214, which had a value of $18.6
million as of the close of market on April 18, 2007, the last price prior to the
closing of the transaction.  We spent approximately $31.6 million to
develop an underground ramp and conduct underground exploration at Hollister
toward meeting the requirements of an earn-in agreement with Rodeo Creek Gold,
Inc., a wholly owned subsidiary of Great Basin Gold, and most of these costs
were treated as exploration and pre-development expense as
incurred.  As a result of the sale, we recognized a pre-tax gain of
$63.1 million in the second quarter of 2007.
  Note
20:   Sale of the Velardeña Mill
  On March
9, 2009, we completed the sale of our processing facility located in Velardeña,
Mexico to ECU Silver Mining Inc. (“ECU”) for $8 million in cash and 750,000
shares of ECU common stock, valued at $0.3 million at the time of the
transaction.  Ore produced from the San Sebastian and Don Sergio mines
at our San Sebastian unit was processed at the Velardeña
mill.  Processing of economic ore was completed during the fourth
quarter of 2005, and the mill was placed on care and maintenance at that
time.  The mill had a book value of approximately $3 million at the
time of the sale.  We recognized a pre-tax gain of approximately $6.2
million during the first quarter of 2009 as a result of the sale.  The
gain includes $1.0 million related to the elimination of the asset retirement
obligation associated with the mill.
  F-45
 Table
of Contents
 Note
21:  Subsequent Events
  We have
evaluated all events subsequent to the balance sheet date of December 31, 2009
through the date of filing this Form 10-K with the SEC on February 17,
2010.  We have determined that there are no subsequent events that
require recognition or disclosure in these financial statements.
  
 F-46
 Table
of Contents
  HeclaMining Company and Wholly Owned
Subsidiaries
 Form 10-K
– December 31, 2009
 Index to
Exhibits
 
 2.1
              Exploration,
      Development and Mining Operating Agreement, dated February 21, 2008, by
      and among Emerald Mining & Leasing, LLC, Golden 8 Mining, LLC, and Rio
      Grande Silver, Inc.  Filed as exhibit 2.1 to Registrant’s
      Current Report on Form 8-K filed on February 26, 2008 (File No.
      1-8491), and incorporated herein by
reference.
  2.2
              First
      Amendment to that certain Exploration, Development and Mine Operating
      Agreement dated February 21, 2008, between Emerald Mining & Leasing,
      LLC, Golden 8 Mining, LLC, and Rio Grande Silver, Inc. by and among
      Emerald Mining & Leasing, LLC, EML, Emerald Ranch Limited Liability
      Company, Brian F. Egolf, Golden 8 Mining, LLC, and Rio Grande Silver,
      Inc.  Filed as exhibit 2.2 to Registrant’s Current Report on
      Form 8-K filed on October 30, 2008 (Filed No. 1-8491), and incorporated
      herein by reference.
  2.3
              Asset
      Purchase Agreement, dated as of February 13, 2008, by and among Hecla
      Mining Company, Hecla Merger Company and Independence Lead Mines
      Company.  Filed as exhibit 2.2 to Registrant’s Quarterly Report
      on Form 10-Q for the quarter ended March 31, 2008 (File No. 1-8491), and
      incorporated herein by reference.
  2.4
              Agreement
      to Amend the Asset Purchase Agreement by and among Independence Lead Mines
      Company, Hecla Mining Company and Hecla Merger Company, dated August 12,
      2008.  Filed as exhibit 2.1 to Registrant’s Current Report on
      Form 8-K filed on August 13, 2008 (File No. 1-8491), and incorporated
      herein by reference.
  3.1
              Certificate
      of Incorporation of the Registrant as amended to
  date.*
  3.2
              Bylaws
      of the Registrant as amended to date.  Filed as exhibit 3.1 to
      Registrant’s Current Report on Form 8-K filed on December 6, 2007 (File
      No. 1-8491), and incorporated herein by
  reference.
  4.1(a)
              Certificate
      of Designations, Preferences and Rights of Series A Junior Participating
      Preferred Stock of the Registrant.  Filed as part of exhibit 3.1
      hereto and incorporated herein by
reference.
  4.1(b)
              Certificate
      of Designations, Preferences and Rights of Series B Cumulative Convertible
      Preferred Stock of the Registrant.  Filed as part of exhibit 3.1
      hereto and incorporated herein by
reference.
  4.1(c)
              Certificate
      of Designations of 6.5% Mandatory Convertible Preferred Stock of the
      Registrant.  Filed as part of exhibit 3.1 hereto and
      incorporated herein by reference.
  4.1(d)
              Certificate
      of Designations, Preferences and Rights of 12% Convertible Preferred Stock
      of the Registrant.  Filed as part of exhibit 3.1 hereto and
      incorporated herein by reference.
  4.2(a)
              Form
      of Series 1 Common Stock Purchase Warrant.  Filed as exhibit 4.1
      to Registrant’s Current Report on Form 8-K filed on December 11, 2008
      (File No. 1-8491), and incorporated herein by
  reference.
  F-47
 Table
of Contents
 4.2(b)
              Form
      of Series 2 Common Stock Purchase Warrant.  Filed as exhibit 4.2
      to Registrant’s Current Report on Form 8-K filed on December 11, 2008
      (File No. 1-8491), and incorporated herein by
  reference.
  4.2(c)
              Form
      of Series 3 Common Stock Purchase Warrant.  Filed as exhibit 4.1
      to Registrant’s Current Report on Form 8-K filed on February 9, 2009 (File
      No. 1-8491), and incorporated herein by
  reference.
  4.2(d)
              Form
      of Series 4 Common Stock Purchase Warrant.  Filed as exhibit 4.1
      to Registrant’s Current Report on Form 8-K filed on June 8, 2009 (File No.
      1-8491), and incorporated herein by
reference.
  10.1
              Underwriting
      Agreement, dated September 8, 2008, between Hecla Mining Company and
      Merrill Lynch, Pierce, Fenner & Smith incorporated and Scotia Capital
      (USA) Inc., as representatives of the underwriters identified
      therein.  Filed as exhibit 1.1 to the Registrant’s Current
      Report on Form 8-K filed on September 9, 2008 (File No. 1-8491), and
      incorporated herein by reference.
  10.2
              Placement
      Agency Agreement, dated December 10, 2008, by and between Hecla Mining
      Company and Rodman & Renshaw, LLC.  Filed as exhibit 1.1 to
      Registrant’s Current Report on Form 8-K filed on December 11, 2008 (File
      No. 1-8491), and incorporated herein by
  reference.
  10.3
              Securities
      Purchase Agreement, dated as of December 10, 2008 between Hecla Mining
      Company and the purchasers identified on the signature pages
      thereto.  Filed as exhibit 10.1 to Registrant’s Current Report
      on Form 8-K filed on December 11, 2008 (File No. 1-4891), and incorporated
      herein by reference.
  10.4
              Second
      Amended and Restated Credit Agreement, effective October 14, 2009, by and
      among Hecla Mining Company, as Parent, Hecla Alaska LLC, Hecla Greens
      Creek Mining Company and Hecla Juneau Mining Company, as Borrowers, The
      Bank of Nova Scotia, as the Administrative Agent for the Lenders, and
      various Lenders.  Filed as exhibit 10.1 to Registrant’s Current
      Report on Form 8-K on October 15, 2009 (File No. 1-8491), and incorporated
      herein by reference.
  10.5
              Asset
      Purchase Agreement with Minera William S.A. de C.V., Minera Hecla S.A. de
      C.V. and BLM Minera Mexicana, S.A. de C.V., dated March 6,
      2009.  Filed as exhibit 10.1 to Registrant’s Current Report on
      Form 8-K filed on March 11, 2009 (File No. 1-8491), and incorporated
      herein by reference.
  10.6(a)
              Securities
      Purchase Agreement, dated as of June 2, 2009, by and between Hecla Mining
      Company and each investor signatory thereto.  Filed as exhibit
      10.1 to Registrant’s Current Report on Form 8-K filed on June 8, 2009
      (File No. 1-8491), and incorporated herein by
  reference.
  10.6(b)
              Registration
      Rights Agreement, dated as of June 2, 2009, by and between Hecla Mining
      Company and each investor signatory thereto.  Filed as exhibit
      10.2 to Registrant’s Current Report on Form 8-K filed on June 8, 2009
      (File No. 1-8491), and incorporated herein by
  reference.
  10.6(c)
              Placement
      Agency Agreement, dated June 2, 2009, by and between Hecla Mining Company
      and Rodman & Renshaw, LLC.  Filed as exhibit 10.2 to
      Registrant’s Current Report on Form 8-K fled on June 8, 2009 (File No.
      1-8491), and incorporated herein by
reference.
  10.7(b)
              Agreement
      to Amend the Asset Purchase Agreement, dated August 12, 2008, by and among
      Independence Lead Mines Company, Hecla Mining Company and Hecla Merger
      Company.  Filed as exhibit 2.1 to Registrant’s Current Report on
      Form 8-K filed on August 13, 2008 (File No. 1-8491), and incorporated
      herein by reference.
  10.8
              Underwriting
      Agreement, dated February 4, 2009 between Hecla Mining Company and
      Cannacord Adams Inc. and Canaccord Capital.  Filed as exhibit
      1.1 to Registrant’s Current Report on Form 8-K filed on February 9,
      2009 (File No. 1-8491), and incorporated herein by
    reference.
  F-48
 Table
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 10.9
              Stock
      Purchase Agreement, dated as of June 19, 2008, by and among Rusoro Mining
      Ltd., Rusoro MH Acquisition Ltd., and Hecla Limited.  Filed as
      exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on June 25,
      2008 (File No. 1-8491), and incorporated herein by
    reference.
  10.9(a)
              Exploration,
      Development and Mining Operating Agreement, dated February 21, 2008, by
      and among Emerald Mining & Leasing, LLC, Golden 8 Mining, LLC, and Rio
      Grande Silver, Inc.  Filed as exhibit 2.1 to Registrant’s
      Current Report on Form 8-K filed on February 26, 2008 (File No.
      1-8491), and incorporated herein by
reference.
  10.9(b)
              First
      Amendment to that certain Exploration, Development and Mine Operating
      Agreement dated February 21, 2008, between Emerald Mining & Leasing,
      LLC, Golden 8 Mining, LLC, and Rio Grande Silver, Inc. by and among
      Emerald Mining & Leasing, LLC, EML, Emerald Ranch Limited Liability
      Company, Brian F. Egolf, Golden 8 Mining, LLC, and Rio Grande Silver,
      Inc.  Filed as exhibit 2.2 to Registrant’s Current Report on
      Form 8-K filed on October 30, 2008 (Filed No. 1-8491), and incorporated
      herein by reference.
  10.10
              Employment
      Agreement dated June 1, 2007, between Registrant and Phillips S. Baker,
      Jr. (Registrant has substantially identical agreements with each of
      Messrs. Ronald W. Clayton, James A. Sabala, Dean W. McDonald and Don
      Poirier).  Identical Employment Agreements were entered into
      between the Registrant and Don Poirier on July 9, 2007, James A. Sabala on
      March 26, 2008, as well as David C. Sienko on January 29,
      2010.  Filed as exhibit 10.1 to Registrant’s Quarterly Report on
      Form 10-Q for the quarter ended June 30, 2007 (File No. 1-8491), and
      incorporated herein by reference.
(1)
  10.11
              Form
      of Indemnification Agreement dated November 8, 2006, between Registrant
      and Phillips S. Baker, Jr., Ronald W. Clayton, Dean McDonald, Ted Crumley,
      John H. Bowles, David J. Christensen, George R. Nethercutt, Jr., and
      Anthony P. Taylor.  Identical Indemnification Agreements were
      entered into between the Registrant and Charles B. Stanley and Terry V.
      Rogers on May 4, 2007, Don Poirier on July 9, 2007, James A. Sabala on
      March 26, 2008, and David C. Sienko on January 29, 2010.  Filed
      as exhibit 10.7 to Registrant’s Quarterly Report on Form 10-Q for the
      quarter ended September 30, 2006 (File No. 1-8491), and incorporated
      herein by reference. (1)
  10.12
              Hecla
      Mining Company Executive and Senior Management Long-Term Performance
      Payment Plan.  Filed as exhibit 10.16(a) to Registrant’s Form
      10-K for the period ended December 31, 2008 (File No. 1-8491), and
      incorporated herein by reference.
(1)
  10.13
              Hecla
      Mining Company Performance Pay Compensation Plan.  Filed as
      Exhibit 10.5(a) to Registrant’s Form 10-K for the period ended December
      31, 2004 (File No. 1-8491), and incorporated herein by reference.
      (1)
  10.14
              Hecla
      Mining Company 1995 Stock Incentive Plan, as amended.  Filed as
      exhibit 10.2(b) to Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 2004 (File No. 1-8491), and incorporated herein by
      reference. (1)
  10.15
              Hecla
      Mining Company Stock Plan for Nonemployee Directors, as amended. Filed as
      exhibit 10.4(c) to Registrant’s Annual Report on Form 10-K for the year
      ended December 31, 2007 (File No. 1-8491), and incorporated herein by
      reference. (1)
  10.16
              Hecla
      Mining Company Key Employee Deferred Compensation Plan, as
      amended.  Filed as exhibit 10.16(e) to Registrant’s Form 10-K
      for the year ended December 31, 2008 (File No. 1-8491), and incorporated
      herein by reference. (1)
  10.17
              Hecla
      Mining Company form of Non-Qualified Stock Option Agreement (Under the Key
      Employee Deferred Compensation Plan) entered into between Hecla Mining
      Company and participants under the Key Employee Deferred Compensation
      Plan, as amended.  Filed as exhibit 10.1 to Registrant’s
      Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (File
      No. 1-8491), and incorporated herein by reference.
  (1)
  F-49
 Table
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 10.18
              Hecla
      Mining Company Retirement Plan for Employees and Supplemental Retirement
      and Death Benefit Plan.  Filed as exhibit 10.17(a) to
      Registrant’s Form 10-K for the year ended December 31, 2008 (File No.
      1-8491), and incorporated herein by reference.
  (1)
  10.19
              Supplemental
      Excess Retirement Master Plan Documents.  Filed as exhibit
      10.5(b) to Registrant’s Annual Report on Form 10-K/A-1 for the year ended
      December 31, 1994 (File No. 1-8491), and incorporated herein by reference.
      (1)
  10.20
              Hecla
      Mining Company Nonqualified Plans Master Trust Agreement.  Filed
      as exhibit 10.5(c) to Registrant’s Annual Report on Form 10-K/A-1 for the
      year ended December 31, 1994 (File No. 1-8491), and incorporated herein by
      reference. (1)
  10.21
              Engagement
      letter between Hecla Mining Company and Alvarez & Marsal North
      America, LLC, dated December 29, 2008.  Filed as exhibit 10.19
      to Registrant’s Form 10-K for the year ended December 31, 2008 (File No.
      1-8491), and incorporated herein by
reference.
  10.22
              Letter
      agreement by and among Hecla Limited, Rusoro MH Acquisition, Ltd., and
      Rusoro Mining Ltd. Dated June 27, 2008.  File as exhibit 2.1 to
      Registrant’s Current Report on Form 8-K filed on July 3, 2008 (File No.
      1-8491), and incorporated herein by
reference.
  21.
              List
      of subsidiaries of Registrant.*
  23.1
              Consent
      of BDO Seidman, LLP.*
  23.2
              Consent
      of AMEC E&C Services, Inc.*
  23.3
              Consent
      of Scott Wilson Roscoe Postle Associates,
Inc.*
  31.1
              Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  2002.*
  31.2
              Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  2002.*
  32.1
              Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.*
  32.2
              Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.*
  ___________________
 
  (1)
              Indicates
      a management contract or compensatory plan or
  arrangement.
 *    Filed
herewith
  F-50